Option Investor
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Daily Newsletter, Thursday, 04/13/2000

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The Option Investor Newsletter         Thursday 4-13-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       4-13-2000           High     Low     Volume Advance Decline
DOW    10923.50 - 201.60 11144.10 10920.80 1,036,314k 1,254  1,711
Nasdaq 3,676.78 -  92.85  3914.68  3676.67 1,906,015k 1,423  2,794
S&P-100  777.29 -  15.61   797.57   775.97    Totals  2,677  4,505
S&P-500 1440.51 -  26.66  1477.52  1439.34            37.3%  62.7%
$RUT     489.22 -   4.22   502.51   488.94
$TRAN   2903.56 -  49.07  2961.00  2900.20
VIX       33.95 +   2.07    33.95    31.39
Put/Call Ratio       .71
*************************************************************

Did anybody get the license number of that truck?

That was really painful, again. After appearing to be setting up
for a bottom on Tuesday we were greeted by a stealth downgrade of
the entire tech sector before the open on Wednesday which started
another new round of selling.

The Goldman Sachs analyst only officially downgraded estimates
for Microsoft revenues, not earnings. Looks simple on the surface
but the language of the downgrade was a stealth downgrade of the
entire PC sector, software sector and networking sector. How did
he do this? When he said Microsoft revenues would be weak from
slowing sales the magic words were "slowing PC sales." If PC
sales were slowing then all PC vendors, Dell, HWP, GTW, CPQ all
would have earnings problems by implication. The lack of new
computers would mean fewer software sales for the software
vendors. Fewer PC sales means fewer network cards, routers, hubs,
Internet connections, etc. Funny how a simple revenue reduction
estimate for Microsoft only could ripple through the entire
Nasdaq by default. The -160 Dow drop at the close on Wednesday 
was due solely to the four major Dow tech stocks, MSFT, INTC, 
HWP, IBM, which accounted for exactly -160 Dow points. 

That was the story for yesterday and today was a pure role 
Reversal for the major indexes. As I had written on Tuesday the 
chances for the Dow to continue upward without some serious profit 
taking, as the major Dow components announced earnings, were slim. 
As the majors like GE announce and traders move on to other plays 
the post announce depression arrives. For example GE announced this
morning with a +20% increase in profits but the stock lost -6.25
today. After the Dow tech wreck yesterday started the Dow slide,
today was momentum driven with the post earnings sparks. After
climbing out of the recent trading range between 10900-11200
today's drop slammed us right smack against the bottom of the 
range again. Right on recent support as well. 


 


 


The earnings announcements are picking up speed. Just some of
the notables today included:

Stock Actual Estimate

PAIR -.03	-.03
PMCS +.17	+.16
DS   +.35	+.32
ODP  +.32	+.29
GM  +2.80  +2.68
GDT  +.38	+.38
JNPR +.06	+.04
FDRY +.14	+.09
AMTD +.02	-.04
EGRP +.00	-.16
GTW  +.41	+.41
SUNW +.26	+.23
GE   +.78	+.77

The most notable in our opinion is the SunMicro announcement
after the bell. This announcement has the potential to put a
floor under the tech market. They announced on their conference
call that order growth was the strongest in the last ten years
and revenues should grow by +25%. Revenues this quarter broke
all previous records and was the first time over $4 billion.
This very positive report could counteract the MSFT downgrade
and refocus the outlook on gains. Gateway also posted revenue
gains and increasing unit sales. These positives on top of the
AMD blowout and bullish forecast could put a floor under the
Nasdaq.

The Greenspan speech this morning had little or no impact on
the markets as he carefully avoided any bearish statements.
The PPI report this morning was benign as well. Posting a
+1% increase on the surface but only +0.1% for the core rate
the feared inflation monster is still invisible.

The most serious thing impacting us is still the tax selling
by late tax filers. However, there is light at the end of the 
tunnel. After significant fund outflows last week, there was
actually positive cash flow this week. AMG Data reported that
in the week ended 4/12 there was +$8bln in positive cash flow
into equity funds. $1.8 Bln went into aggressive growth funds
and $4 bln into large cap growth funds. Much of this money is
late cycle retirement contributions and although positive
this week they may shrink after the April-17th filing date.
What this does show is that the retail investor is still 
putting their money to work in the markets and have not been 
scared off by the bearish activity.

This is not the week to IPO your company and several were 
pulled from the market. With many recent IPOs trading for 
less than their IPO price the underwriters do not want to
launch new offerings when there are no buyers. It is not good
for their reputation or their future business prospects.

Where to from here? Ask 100 people and you will get 100 answers.
One or two might be right. On Tuesday I thought we were due
for a bounce and the Goldman Sachs downgrade torpedoed the
support that had been building. The rally today just could
not get out from under the Dow shadow and the lingering "we
have to retest 3650" comments. Well great, they may get their
wish. With the Nasdaq only 28 points away from 3650 we may
get to retest a lot more than that. Part of the thought process
on Tuesday was that any bounce would only be a trading rally
for two to three days before the yearly post April earnings 
dip. Two of those days are now gone and we are very close to
the post earnings depression cycle. Now for the catch. Since
we are already -27% from the March highs, will there be a
post April earnings depression or have we been beaten down
far enough already?

If you look at the big cap Nasdaq stocks today there was some
really big drops at the close. Some would say there was fear
and capitulation. Look at the end of day spikes on INKT, AMAT,
EBAY, YHOO, AMZN. There were some big drops but some of them
only pulled back to zero. There is a term called "shooting
the generals" and no pullback is complete without a shooting.
Tomorrow we will see if 3650 holds and if not then 3500 could
be the next stop. The best of all scenarios would be another
capitulation dip at the open and a quick rebound. Because
everyone expects this retest and rebound we could be setting
ourselves up for a sucker punch. Dip, rebound (because it
is expected) and then a real dip as the final selling climax
takes place. We all hope it does not come to that but who
would have expected the carnage up to this point?

I bought the dip on Wednesday and got stopped out, twice!
I nibbled again this morning but only slightly and then
bought some QQQ calls for $1 at the close. Simply a lottery
play. When we get to the point where everyone stops guessing
where to buy the next dip and decides to move to the sidelines
then the selling will be over. Until the last diehards, like
me, decide to sit on cash regardless of how tempting the dip
looks, the market will continue to drop. Well, listen up! I
am on the sidelines and I plan to stay there until the volume
proves the rebound. It would be nice to buy the bottom but
I have plenty of false bottoms in my account already so I
am going to wait until up volume exceeds down volume by at
least 2:1 and advances are beating decliners by at least 2:1.
3:1 would be better but 2:1 should work. I have resigned
myself that if it takes weeks I am going to wait. Waiting
is cheap compared to getting stopped out over and over and
I strongly suggest you consider this as an option. The market
is showing NO STRENGTH. The Nasdaq and the Dow closed at the
absolute low of the day on heavy volume. None of this wimpy
60% of normal volume stuff.

On the bullish side the VIX is at 33 and screaming a buy signal
and the put/call ratio is .71 which is also a buy signal. Still
there has been no capitulation. So I promise to do my part.
I will buy 100 expensive put contracts on the OEX and QQQ at
the open in the morning and that will be the capitulation signal
that the last bull died and the rally will be instantaneous. 
(just kidding but you know what I mean) 

When in doubt, sit out, and doubt about market direction is
the only sure thing tonight. Trying to trade this extremely
volatile and choppy market will only waste your money. Take
Friday off and play golf, fish OR go shopping with your wife.
Trust me, it is cheaper than being stopped out again!

Trade smart and don't buy too soon.

Jim Brown
Editor

Current long position: 

Lottery play on $1.00 QQQ calls only.


**********
STOCK NEWS
**********

General Motors Top Estimates, Sort Of...
By Matt Paolucci

General Motors Corp.'s (GM) first quarter profit fell 2
percent, as higher rebates depressed earnings, in lieu of
higher sales revenue. The world's largest automaker earned
$1.78 billion, or $2.80 a share. In the prior year period, it
earned $1.82 billion, or $2.68 a share in the same quarter.
But take these results with a grain of salt.

Earnings per share increased because fewer shares of GM are on
the market now than a year ago, due to Company's share buyback
program. The number of shares outstanding declined to roughly
637 million in the first quarter from about 667 million in the
same period last year. It was part of the reason why results
beat Wall Street expectations of $2.66 per share.

Revenues totaled $46.9 billion, a 10 percent increase over
$42.4 billion in the same quarter in 1999. Sales rose as GM
continued pushing its higher-margin vehicles such as pick-up
trucks and sport utility vehicles (SUVs).

The auto giant's first quarter U.S. market share fell to 28.6
percent from 28.8 percent.

GM said its automotive operations earned $1.5 billion,
matching the results in the first quarter of 1999. GM's North
American unit saw its earnings decline 8 percent to $1.3
billion from $1.4 billion a year ago despite a 9 percent
increase in U.S. vehicle sales. Revenue increased 7 percent to
$30.1 billion from $28 billion.

Shares of GM were unchanged in afternoon trading, at $87.50.

"Profits were buoyed versus a year ago by a mix that was
greater on the passenger truck side of the business," said
Richard Hilgert, an analyst with Fahnestock & Co. in Detroit.
"And North America was bolstered by operations overseas."

GM built 50,000 more trucks and 32,000 fewer cars in North
America than it did in the first quarter of 1999. Profits on
trucks are higher than cars, sometimes as much as $10,000 or
more on the more popular models of sport utility vehicles.

"It's a fantastic volume (sales) environment industry-wide,
and that tide is lifting all boats, including GM," Merrill
Lynch analyst John Casesa said.

GM's vehicle sales in the profitable U.S. market rose 9.2
percent in the first quarter from a year earlier, paced by
strong demand for high-margin gas-guzzlers such as the Chevy
Silverado pickup, the Chevy Blazer SUV and the Cadillac
Escalade SUV, as well as the Cadillac DeVille luxury sedan.

Another bright point, GM reported profits of $1 million and $7
million in Latin America and Asia, respectively, compared with
losses a year ago. The results were stronger than analysts had
expected.

But GM Chairman Jack Smith said higher sales in North America
and Europe came with "unrelenting competitive pressures."
Rebates and cut-rate financing deals have been on the rise
this year. GM, Ford and DaimlerChrysler AG have all carried a
wide variety of incentives on their U.S. products; GM even
brought back a $500 coupon for millions of GM vehicle owners.

GM's profit margin in North America declined from 5 percent
last year to 4.3 percent this year. Last year's financial
performance was a record for the quarter, as the company was
still building up inventories after the 1998 strike.

Also, its Hughes electronics unit reported a $77 million loss
for the quarter, compared with a $78 million profit for the
same time in 1999. GM said that was due to investments in new
technology.

All in all, with the volatility and uncertainty swooning in
this market, holding a strong, blue chip company like GM may
be just what the doctor just what the doctor ordered. One
thing to keep in mind, higher gasoline prices could have a
negative impact on future sales of GM's higher-margin luxury
and SUV lines. But GM, unlike some of these dot.coms, will
most likely be around in a couple of years.


**************
Market Posture
**************

As of Market Close - Thursday, April 13, 2000 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************

DOW Industrials   10,850  11,250  10,923    Neutral   4.13  **
SPX S&P 500        1,410   1,475   1,441    Neutral   4.13  **
OEX S&P 100          780     800     777    BEARISH   4.13  **
RUT Russell 2000     470     580     489    Neutral   4.04
NDX NASD 100       3,800   4,700   3,554    BEARISH   4.13  **
MSH High Tech        900   1,150     898    BEARISH   4.13  **

XCI Hardware       1,480   1,510   1,440    BEARISH   4.13  **
CWX Software       1,450   1,670   1,202    BEARISH   4.04
SOX Semiconductor  1,050   1,360   1,010    BEARISH   4.13  **
NWX Networking     1,070   1,190     918    BEARISH   4.04
INX Internet         800     940     582    BEARISH   4.04

BIX Banking          520     615     578    Neutral   3.16
XBD Brokerage        450     580     483    Neutral   4.04
IUX Insurance        520     620     602    Neutral   3.16

RLX Retail           900   1,000     976    Neutral   4.13 **
DRG Drug             330     380     374    Neutral   3.30
HCX Healthcare       680     760     747    Neutral   3.30
XAL Airline          130     160     152    Neutral   3.10
OIX Oil & Gas        265     300     291    Neutral   3.16
 
Posture Alert    
The pain continues for the Bulls, as the broad market suffered 
another staggering loss. The Dow lost -1.81% on volume of just 
over 1 billion shares, while the NASDAQ lost another -2.46% on 
volume of 1.96 billion shares. Sectors leading the loser board 
include Internet (-6.46%), Retail (-4.28%), and Semiconductors 
(-2.70%).  With this most recent action, we have downgraded 
Retail, the Dow, and S&P 500 to Neutral; and have downgraded 
the NASDAQ 100, S&P 100, Morgan Stanley High Tech, Hardware, 
and Semiconductors to a Bearish stance.



****************
Market Sentiment 
****************

Thursday, April 13, 2000

If You Say it Enough, it Becomes the Truth!
 
After three days of major losses for technology stocks, Thursday's 
trading looked as if bargain hunters were finally moving in for an 
apparent bounce, however; by the end of the day, the NASDAQ closed down 
another -92 points while the Dow got hit for -202. Speaking of poor 
performance, the Internet sector (INX) led the losers today with a     
-6.46% drop, and is not down -39% from the highs just attained on March 
24! Statistics like these are looking more common these days, and will 
probably get worse before getting better.

One unfortunate factor that is starting to face this market is 
complacency. Recently, we have had numerous analysts calling for NASDAQ 
to be at 3200 or some other magic number, or we have heard that you 
should be in 50% cash, or in all blue chips, etc. Well, if the media 
continues to state bearish phrases such as these in such a repetitive 
manner, it is only a matter of time before it becomes the truth. 
Psychologists have documented how people who lie about a subject, will 
then tell the lie so many times, until they believe it is the truth. 
This scenario has now occurred with technology stocks.  This bearish 
sentiment is knocking the bull's confidence to a complacent demeanor, 
which only has a compounding effect. To make matters worse, when you 
see the best companies in the world taking it on the chin (Microsoft, 
Oracle, Sun Microsystems, Yahoo, Intel), you shouldn't be surprised 
when your whatever.com is now down -50%. 

If you were to look at the Market Posture section, the board is not a 
pretty one to view, with not a single sector in the Bullish category. 
This can change very quickly; however, it is our belief that this 
market will continue to be trading range bound, with an emphasis on the 
bearish side. Too many sectors (and bellwether stocks) have suffered 
too much damage, and this will take time to restore. Too many investors 
continue to have the "wait until I'm break-even" syndrome. This will 
only put more pressure on equities into the rallies.  

Now to end on a positive note, corporate earnings still look positive, 
and we'll see if Sun Microsystems blowout earnings can cause a short 
squeeze for technology stocks Friday. Put/call ratios have not been at 
this level since October 1999, which was the last time that the market 
looked potentially poor. Also, the Volatility Index (VIX, 33.95) is 
currently indicating an oversold condition for the S&P 100, and has 
held the 35 level for the last year. Finally, the Put/Call Ratio for 
the NASDAQ 100 was a whopping 4.25 today, indicating extreme pessimism 
for that index. All of these reasons suggest that we may have another 
good Friday, as long as complacency doesn't set in!      


BULLISH Signs: 

Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of 
analyst expectations. General Electric is the latest bellwether to give 
positive comments regarding earnings.

Short Interest NYSE:
Short interest continues to climb as quickly as the market. The short 
interest on the NYSE increased +5.7% to 4,110,510,698 shares on March 
15. This bearish level would suggest further upside potential.

Short Interest NASDAQ:
Short interest jumped +3.49% to 2,710,141,156 shares on March 15. This 
bearish barometer would indicate further upside potential.

Interest Rates (5.803):
The current yield is in bullish territory.

Volatility Index (33.95)
The VIX continues to prove that the low 30's are an excellent 
buying opportunity, and the low 20's continue to be a great selling 
opportunity.


Mixed Signs: None


BEARISH Signs:

IPO Dilution:
With so many IPO's hitting the market, there seems to be dilution 
occurring where shares of finally freed up to sell by insiders. $58.6 
billion of stock was freed up for trading in March, $67.3 billion this 
month, and $118.3 billion in May. This is too much stock for the system 
to handle. 
 
Energy Prices:
With the rapid rise in crude oil, everything from manufacturing to 
transportation will be affected by higher costs. These higher costs 
will be felt 1-2 quarters out, and could put pressure on profit 
margins. 

Investor Expectations:
More and more investors are now expecting high double-digit growth if 
not triple-digit expansion in their portfolios. This extreme positive 
sentiment could help fuel a future selloff in technology shares.


The Power of Sentiment Analysis
It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.


Pinnacle Index OEX               Friday      Tues        Thurs
Benchmark                        (3/31)      (4/04)      (4/06)

Overhead Resistance (800-825)     1.25         1.43       0.86

OEX Close                       821.52       816.76     777.29

Underlying Support  (770-795)     2.17         2.47       2.46   
Underlying Support  (740-765)     n/a           n/a       3.62

What the Pinnacle Index is telling us:
Based on Thursday's sentiment, underlying support is moderate, while 
overhead is light.  



Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (4/7)     (4/11)      (4/13)

CBOE Total P/C Ratio             .37       .51          .71
CBOE Equity P/C Ratio            .32       .42          .57
OEX P/C Ratio                    .71      1.86         1.25


Peak Open Interest (OEX)
                     Friday           Tues            Thurs
Strike/Contracts     (4/7)           (4/11)          (4/13)

Puts                800 /  9,650   800 / 10,754     700 /  8,672    
Calls               830 / 11,175   845 / 19,040     845 / 18,321
Put/Call Ratio         0.86           0.56             0.47


Volatility Index    Major
Date                Turning Point       VIX

October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15   
May 14, 1999        Top                 25.01 
July 16, 1999       Top                 18.13 
August  5, 1999     Bottom              32.12 
October 15, 1999    Bottom              32.06
January 28, 2000    Bottom              29.09

April 13, 2000                          33.95   



Please view this in COURIER 10 font for alignment
*************************************************
CHANGES THIS WEEK

Daily Results

Index      Last     Mon     Tue     Wed     Thu    Week
Dow    10923.55   75.08  100.52 -161.95 -201.58 -187.93
Nasdaq  3676.78 -258.25 -132.30 -286.27  -92.85 -769.67
$OEX     777.29   -4.87   -0.38  -23.86  -15.61  -44.72
$SPX    1440.51    3.72  -11.89   -3.87  -33.42  -45.46
$RUT     489.22  -24.32   -8.53  -16.69   -4.22  -53.76
$TRAN   2903.56   15.41   78.68   30.82  -49.07   75.84
$VIX      33.95    1.07    0.94    2.93    2.07    7.01

Calls               Mon     Tue     Wed     Thu    Week

ENE       73.81    0.31   -1.94    2.82    2.69    3.88  New
WLA      107.00    3.31    0.19    0.63   -1.13    3.00  Be patient
UAL       63.00    1.06    1.19   -1.50   -0.63    0.13  In uptrend
CL        59.00    0.94    2.38   -0.63   -3.00   -0.31  Earn.4/19
LTD       46.88    0.06    2.63   -3.63   -0.94   -1.88  Safety
MER       98.56    3.44    0.38   -3.13   -2.94   -2.25  Dropped
AMAT      89.00   11.50    1.25   -7.06   -8.56   -2.88  Semi sweet
KSS      101.06    2.56   -2.75    1.06   -6.00   -5.13  Dropped
HYSL      25.50   -1.69   -2.50   -3.56   -0.25   -8.00  Dropped
ADBE     113.56   -7.81    2.31   -7.44    1.50  -11.44  Split??
IBM      110.63   -1.00   -3.13   -6.69   -3.13  -12.50  Dropped
LXK      105.00   -4.31   -9.94   -0.06   -0.19  -14.50  Earn.4/24
INTC     121.13   -5.69   -0.38   -8.88   -0.75  -15.69  $120 entry
DISH      52.94   -9.00   -3.06   -9.88    2.00  -19.94  Up today
SEBL     105.94  -16.43    2.62  -10.06    3.00  -20.88  $100 Supp.
ABGX      81.06  -15.00  -14.06   -1.25    8.38  -21.94  New
HWP      131.94   -8.75   -1.44  -10.81   -3.06  -22.56  Bouncing
NXTL     113.56  -10.69   -3.50  -17.56    2.88  -28.88  Poised
SILK      65.50  -13.88   -4.69  -14.31   -4.31  -37.19  Dropped

Puts

FIBR      36.13  -19.00   -4.50   -6.75   -3.88  -34.13  How low?
ICGE      41.81   -8.69   -6.44  -10.44   -5.31  -30.88  Heavenly
CNXT      54.44   -6.19   -0.25   -9.25   -7.56  -23.25  New
MCLD      58.44  -11.00   -3.75   -2.31   -4.50  -21.56  New
IIJI      48.56   -4.38   -2.69  -11.19    0.31  -17.94  Toward $40
LVLT      75.63   -3.75   -4.50  -12.56    6.31  -14.50  Sinking
LU        53.50   -1.19   -1.63   -1.94   -2.06   -6.81  Down 11%
KO        47.25   -1.19    2.75    1.31   -1.25    1.06  Rst.@ $50


************
WOMANS WORLD
************

Using Volume to Understand Direction When Your Begging For a 
Reversal
By Renee White

When you were a kid, did you ever get into trouble and wish they 
would just go ahead and punish you so you didn't have to listen 
to the sermon which never seemed to end?  I feel like I am being 
nagged to death.  This bear just keeps chewing us up....chewing 
and chewing.  The maceration is felt by all.  Would someone just 
punch him in the stomach for me and make him swallow, please!! 

It seems like a year now that we have been hearing that we 
should "retest the lows of last Tuesday" before a confirmation 
appears.  I don't know about you, but I could swear I have been 
hearing that comment for what seems to be eternity.  Boy, profits 
sure can vaporize fast, can't they?  If we are lucky, Friday may 
prove to be "D" day.  De Day we hit bottom and De Day we rally 
back.  Problem is, I don't know which word is more pertinent, 
the "if" or "lucky".  Either way, those are shaky words to 
trade against.  For a while this afternoon, I thought we were 
going to rally back.  However, when I heard Hugh Hefner's daughter 
talking more than he, as he just smiled and nodded in agreement, I 
knew something was up.  In any event, I am sitting on some calls 
bought today, thinking the end is near.  Thank You SUNW, for the 
good numbers tonight.

Today, I picked up a book that had some information worth 
sharing.  Day traders know little tricks of the trade which can 
help option traders.  One of these is how volume on the 
underlying equity can help you decide when to buy, hold or sell 
a position.  I am assuming all new option traders know that they 
must watch the movement of their underlying equity in order to 
make decisions about a trade.  Sometimes I am questioned about 
that, which always sends a chill down my spine.  You MUST watch 
the equity and the option price.  Just as volume affects the 
liquidity of an equity, it also affects the option.  But, the 
option is different because liquidity is a matter of the open 
interest on that particular strike price for that option.  
Basically, if you decide to be an option trader, you should be 
good at complicated puzzles and enjoy assimilating abstract 
details.  There's three times the amount of information to 
interpret per every equity you decide to trade, in order to stack 
the deck in your favor.  When the market is on your side, it is 
easier.  When the market is against you, it feels like you are 
running through a field of land mines at high speed.  Even though 
you know that every step must be carefully determined, you still 
end up stepping on something.  We have all been caught by the 
bear's claw from time to time.  He needs to eat too and thus, only 
the strong survive.

Comparing volume with the price movement of the underlying equity 
can help with a portion of your decision making process.  
In Clifford Pistolese's book, "Using Technical Analysis Revised 
Edition," he presents an easy-to-read-and-understand overview of 
technical analysis.  He describes technical tools, then gives 
you charts to self-test your new knowledge. I think it is a 
good introductory book on technical analysis for the layman.  
I've decided to review his basic points concerning daily volume 
and the stock price.  The 1994 book I have does not address 
the effects day-traders have on volume and prices, much less 
the speed of change from their activity.  So, I've added my own 
thoughts to his basic points.

In order to use volume effectively, one must know what the 
average daily volume is for a particular equity.  We mention 
volume a lot in our daily market wraps, but those numbers are 
concerning the broader market only.  Once the broader market is 
on your side, then the underlying equity's volume is important. 
These indicators give us confirmation of a potential trend before 
us, either intra-day or daily.  Volume can be found in several 
places; possibly your brokers web site, Yahoo Finance, or even 
your charting service. 

At this point, a lot of damage has been done to many issues.  
Since we are in a nasty sell-off, I will start with his volume 
characteristics of downtrends.  It is possible that some 
previously high PE stocks may stay depressed for some time.  
Even with an extended rally, their previous lofty valuations 
may be stunted for several months.  Pistolese's comments 
regarding downtrends are more directed towards stocks that have 
been going down for a while.  So this information may be valuable 
for those that do not recover immediately.  Keep in mind that 
the speed we are now witnessing with sell-offs and recoveries, 
has never been seen before in the trading community. 

Typically, when a stock goes into and maintains a downtrend, 
the average daily trading volume usually declines.  People lose 
interest with the stock and turn their attention elsewhere. 
(Remember internet day-traders 1st quarter last year and AOL after 
its April sell-off last year?)  This decreased volume does not 
take into account a rapid sell-off from bad news or the rapid 
sell-offs of a major market correction like we have now, but 
the general trading patterns of a stock under "normal" 
conditions.

Actually, downtrends can occur while the average daily trading 
volume decreases, increases or remains the same.  A downtrend can 
occur as a rounding top pattern forms on the daily chart, even 
though no significant change is seen in the daily volume.  
Pistolese believes that if you are holding a stock that starts 
to roll over into a downtrend, you should sell once the downtrend 
is established, since the bottom is not known.  (For you stock 
traders out there, how many wished they'd sold their stocks three 
weeks ago at the first sign of a downtrend instead of continuing 
to hold for a 25-30% hair cut?)

Also, if a downside price breakout occurs breaking down through 
a trading pattern, he feels the sell signals are so strong that 
he ignores volume.  Downside breakout patterns to watch for 
which give clues to further declines are seen with 
head-and-shoulder formations, double-tops, triple-tops, 
triangles and rectangles.  Although there are times that a 
decline will have a short-term duration, he feels the underlying 
is frequently set for either an intermediate or extended decline 
in price.  I see that volume typically increases at this time, 
on the breakdown.  (Those of you who attended the OI Denver 
seminar, understand this from my Chalk Talk).  For anyone new 
to technical analysis, understanding how to identify these basic 
patterns on a chart will improve your trading decisions immensely. 
This book will help you easily identify those patterns.

It is hard to discuss price patterns without understanding 
trendlines.  Seeing a stock break a trendline can give you a 
quick "heads up" to potential problems or alert you to a 
potential opportunity.  It is these trendlines that we trade 
against on an intra-day basis which alert us to reversals.  
Remember "The trend is your friend", usually because it makes 
you money if you learn to perfect it.
 
Hopefully, after suffering through a sell-off, there comes a 
time when the volume becomes stagnate.  Typically, this signals 
that the majority of the sellers are gone and no one else wants 
out of the stock.  Sometimes this occurs after a rapid 
capitulation to the downside with volume.  It can feel like a 
flutter of death or a flutter of life.  In the old days (a few 
years back), it happened over several days and a consolidation 
pattern would then be seen after which, a further breakdown or 
an uptrend began.  These days, it may occur intra-day and the 
challenge is determining whether the new uptrend is for real or a 
bear trap rally head fake.  For confirmation, the uptrend must 
continue and take out the previous days high, on strong volume.

This weekend, I'll share more on his thoughts (and mine) about 
volume characteristics of an uptrend.  If we do get confirmation 
of the bottom followed by a rally tomorrow, be very cautious.  
Many traders will take any profits made before they leave for 
the weekend. 

Contact Support


*******


Leaps and Time Value Decay
By Mary Redmond

I thought the drop in the NASDAQ this week and last week was
a good opportunity for me to buy leaps on some of my favorite
tech stocks.  I have traded both short term options and leaps
but I have had more success with leaps.  To trade both leaps
and short term options successfully you need to understand the
concept of time decay.

A leap is a long term option to buy 100 shares of stock in 
the underlying security at a specified price.  For example,
if ABC is $100 and the Jan 01 100 leap is $20 then you pay $2000
for the right to buy 100 ABC at $100 before Jan 01.  If ABC
goes to $200 the leap will be worth $10,000 at expiration for
a profit of 500%.  The maximum loss is $2000 if ABC is worth
less than $100 at expiration. 

The rate of decay of an option is not linear.  The rate of 
decay is much faster in the last few weeks of an option's life
than it is in the first few months.  The rate of decay (loss of 
time value) of a three month option is approximately twice the 
rate of decay of a nine month option.  The rate of decay is 
actually related to the square root of time remaining, but few 
traders actually use this mathematical formula in their daily 
trades.  

I think it's usually best for beginners to trade leaps, as
many beginning option traders buy near term options because
they are cheap.  They don't realize that a near term (expiring) 
option will lose value as it reaches expiration even if the stock 
price goes up.  You are fighting the clock and the odds are 
against you.

A leap is a long term option that expires in the month of January.  
Nowadays there are two and even three year leaps, which I love 
because with a two year leap, the rate of time decay is very slow.
If the stock goes up you can make as much money or more with a leap 
as you could with a short term option.  

With one year to expiration, a leap will lose very little time 
value during the first three months.  For example, if the leap 
costs $20 (or $2000 for one) and the stock stays flat for the first 
three months, you will still have a leap that is probably above 
$19 1/2. 

After the first three months (when the leap has about nine
months to expiration), it will start to lose some value slowly 
depending on the movement of the stock.  If the stock stays flat 
you could lose about one percent the first month and two or three 
percent in the second or third month.  The actual loss depends on 
many factors, so it will be different with each stock. 

When the leap is six months or less to expiration you will
see a significant erosion of time value.  In other words, even if 
the stock stays the same the option will be worth less than it 
was at a year.  From this point onward, the rate of time decay 
starts to accelerate.  Every month the rate of decay gets faster 
until the final week before expiration at which the option will
trade close to its intrinsic value.

One of the primary problems with technology stocks over the period 
when the NASDAQ dropped was decreased money flows to this sector.  
A combination of tax payments, decreased mutual fund flows and 
decreased buying by technology funds have contributed.  Some of 
these factors are related to each other.  For example, when the 
NASDAQ dropped 575 points last week many people had margin calls.  
If you get a margin call and have to pay taxes at the same time, 
youmight have to sell your mutual funds.  This has a spiraling
effect.  At the same time, if there are alot of pending IPOs, it 
can drain money from the tech stocks which are already public.  
Why?  Many of the largest buyers of IPOs are large mutual funds 
and private institutions.

A very encouraging and optimistic statistic was reported Thursday 
evening by AMG Data Services.  For the week which ended April 12, 
equity mutual funds received inflows of approximately $8.4 bln. 
Over half of the money went into large cap growth funds, the 
largest inflow in over 4 years.  Other sources report that 
$1.8 bln went into aggressive growth funds, and $922 mln went 
into technology funds.
  
I don't believe that the funds are going to stop buying.  They 
have to show quarterly returns and can't sit on cash very long.  
I don't know for sure, because nobody knows for sure, but I think 
they will start buying technology stocks again and this could be 
one of the catalysts for a rise in the techs.  If you were a fund 
manager and wanted to show a 20% quarterly return, what stocks 
would you buy now?  Probably the stocks in a sector which has just
taken a hit.   

Contact Support


**************
TRADERS CORNER
**************

Is this Reasonable and Necessary?
By: Molly Evans

We'll just call this market The Great Character Builder. Do you 
have so much character now that you can't stand it? You 
undoubtedly know the story of the frog and how he relates to 
us as investors or traders. If you throw a live frog into a 
pot of boiling water, he's going to jump out very quickly! 
However, if you have the same frog swimming around in temperate 
water and then slowly turn up the heat, he'll stay there until 
he's cooked. You feeling any heat? Our friends at CNBC and 
other writers say there's not enough fear in the market. Mmmm 
Hmm! Checked your water temp lately? If you're still fully in 
and playing both of these indexes like a drum...well then, 
kudos to you! It's one tough place to consistently bring home 
a buck right now but then I'm not telling you anything you 
didn't already know.

Actually, I used to be quite the reliable contrarian indicator. 
Perhaps I still am. Time will tell. Back in January and February 
I'd come home from work, look at how much money the market put 
in my account and frowned about where I could have done better 
had I been home to actively trade it. I started to whine to my 
family and friends that I could make so much more and have so 
much more fun doing it by staying home to trade. I am a nurse 
anesthetist (CRNA); I put people to sleep and administer spinals 
and epidurals for surgery and obstetrical cases. Yes, I wake 
them up too. I knew that one was coming! It is often said that 
the practice of anesthesia is 99% boredom and 1% sheer terror. 
I don't want to scare you, but there's a lot of truth in that. 
I take my career and position very seriously of course but I find 
my mind wandering to "wonder what the market is doing now?" There's 
no internet connection or TV in operating rooms. Drives me nuts! 
The thing is, in the good ole days of last fall and winter, I 
didn't have to worry too much because what I really meant in my 
question was, "I wonder how much the market is up today???" When 
I got really serious about hanging up a lucrative career that I 
spent years of education and training in, a little voice inside 
said, "Wake up you fool! This is a sure sign of a market top!" 
Sure enough, it was. Where's all this leading? I can't wait to 
get back to my cold, windowless operating room next week! Pencil 
in a rally folks!!!

Seriously though, you hear all kinds of talk and speculation 
about what is the bottom number, how much volume do you need 
to call it a true capitulation, yadda, yadda, yadda! Enough 
already. To do this with any reasonable guess factor you simply 
need to look at a chart. And it just so happens that I've 
provided one here for you:


 

This is a weekly chart of the Nasdaq from mid 1998 to today's 
close. I've drawn the trendline from the infamous October low 
to the straight line the Nasdaq "should" have taken. Then I 
drew another ray illustrating what the Nasdaq "did" take when 
it took off for the moon last fall. If you move the crosshairs 
to where the next candle will fall on in conjunction with that 
line...you get a thereabouts number as to the low valuation of 
the Nasdaq for the next week. I'm not even going to suggest 
that's what it'll get down to. I'm not going to say it can't 
go lower either. Remember, I'm that leaf in the stream. The 
only thing I can say is that unless, you were just incredibly 
intuitive and had your radar on to know to get out or start 
going short circa mid March, you've been sealioned like many of 
your fellow traders and investors. Arp! Arp! We're not in the 
market of October to March anymore. The dynamics have changed. 
Of course we "know" that really nothing fundamentally has 
changed. Someone finally just blinked and started rolling that 
big ole snowball down the mountain. We can't say we never saw 
this coming. I hate it just as much as anyone. I've put out 
fires in my own accounts all week and I'm still blistered! 

Hey! Did someone say "ribbet"? There's no need to get nasty! 
Better days ahead all!

Contact Support


PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

HYSL $25.50 -0.25 (-8.00) The tech tumble gripped HYSL by the 
throat earlier in the week.  We warned in the last update to pay 
close attention to the broad market for further hints as to its 
direction.  Unfortunately, as a result of HYSL's performance in 
the last two sessions, it became obvious the overall commanding 
sentiment has squeezed out any chance of it regaining last 
week's upward trend.  It's possible that the stock could still 
have an upswing before its earnings on April 25th (confirmed for 
after the close).  But at this point we're not waiting around.  
HYSL is a drop this evening. 

IBM $110.63 -3.13 (-12.50) The massive breadth of the technology 
sell-off eventually infiltrated the blue-chip laden Dow Jones.  
And yes, even Big Blue was effectively pummeled this week, 
especially in the past two sessions.  A steady 10.2% correction 
is not what we want for a call play.  Plus technically, IBM was 
thrust below major DMA indicators.  This is a very unfortunate 
ending to a profitable momentum run.  While we enjoyed playing 
the uptrend amid a multitude of entry and exits (sometimes with 
spreads topping 16 points!) it's time to retire IBM.  Recall 
too, the company is reporting earnings this Tuesday on April 
18th, after the close.  For those dedicated readers who've been 
following the news on IBM, here's a few tidbits.  IBM Japan won 
another computer outsourcing contract this week.  This time they 
signed a 10-year $660 mln deal with Japanese steelmaker Sumitomo 
Metal Industries Ltd.  IBM also won a five-year $50 mln contract 
to provide Scoot.com Plc, the UK's e-business directory, with 
advanced business technology.

KSS $101.00 -6.06 (-5.19) Your probably wondering, if retail 
sales were so good in March and if consumer spending appears
to be staying strong, why did investors dump shares of KSS and
the retail sector today?  That's a good question.  We've said
several times that what's good for main street, isn't always
necessarily good for Wall Street.  There has been no news out
on Kohl's to change the fundamentals of the company, and they 
did report stronger retail sales than most of their peers last
week.  Call the decline today a change in market sentiment, call
it profit taking that got out of hand, call it what ever you want.
We are going to call this play a done deal.  For those wanting 
to hang in there a while longer, KSS will split 2-for-1 on
April 25th.  It is possible this retailer could pick itself
up, and dust itself off to make one more run into its split.
With Kohl's breaking the $104 level of support late today,
it could be a little tough to turn this one around in the next
few days.  For now we will concentrate our efforts elsewhere.

MER $98.56 -2.94 (-2.25) Good thing we noted to confirm the 
earnings date in the initial write-up on Tuesday night.  In fact 
MER reports earnings on Monday, April 17, BEFORE the bell, not 
on the 18th as tentatively scheduled.  That leaves just tomorrow 
to close the play since on principle we never recommend holding 
through earnings.  That said, for those quick on the trigger, 
a decent entry could have been had at the 5-dma ($102.63) 
yesterday, but you'd have needed an equally quick trigger to get 
out at the top of $107 just two hours later before MER slid back 
to close at $101.50.  Today, it bobbed and weaved around $100, a 
level of support we thought was buyable if MER bounced from that 
level on volume.  Alas, no entry today as MER slid under $100 to 
just over $98 by the close.  Recall that's $100 is the level at 
which we thought it might be smart to find another play.  
Hopefully you did just that since as noted above, earnings are 
Monday, and thus, we are dropping the play tonight.

SILK $65.50 -4.31 (-37.19) The high-flying favorites of yesterday
are fading fast.  SILK has quickly fallen out of favor as traders
continue to evacuate the new economy and head for the blue chips.
Blame it on margin selling, call it a valuation correction, or
call it just plain ugly.  We mentioned last Tuesday that SILK and
KANA had both stabilized, and found support.  Well the support
didn't last long as SILK plummeted through $85 Wednesday, and
traders didn't stop there.  The selling continued Thursday as
SILK slipped through its last major support level of $70.
Another item pressuring shares of KANA and subsequently SILK, is
the upcoming lockup expiration of 30 mln shares of KANA.  The
shares will be released after the merger is completed, we don't
want to hang around as a flood of supply comes to a market with
very little demand right now.


PUTS:
*****

No dropped put plays this evening.


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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.


The Option Investor Newsletter         Thursday 4-13-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


********************
PLAY UPDATES - CALLS
********************

INTC $121.13 -0.75 (-15.69) The late session selling in the 
NASDAQ got the best of INTC today.  As it traded as high as 
$129.25 and held at the $125 level for most of the day, INTC was
looking decent.  But the NASDAQ bleeding continued and brought
the stock with it in the final hour.  The NASDAQ has been the 
primary catalyst for INTC during the last few weeks.  Even as 
ABN Ambro raised its rating from Hold to Outperform, INTC followed
the broader trend.  It is important to take note of this.  The 
NASDAQ has closed at its low the past two days and doesn't appear
to have truly retested last Tuesday's low of 3650.  Although we 
are below our pick price, INTC certainly has given us plenty of
opportunity.  The Semiconductor sector still is a hot spot in the
market as Rambus(RMBS), Altera(ALTR), and Advanced Micro Devices
(AMD) all beat the Street's earnings' estimates.  INTC is due 
to report on April 18th.  So when trading INTC, watch for the 
NASDAQ's movement and direction.  If it retests the 3650 level, 
watch for a capitulation in the sell-off with strong volume both 
down and back up.  It very well may go below 3650.  Remember that 
INTC bounced off $119 last Tuesday, which was just above its 
50-dma last week.  Its current 50-dma is $120.88.  Target-
shooting early tomorrow may be the best bet.  

DISH $52.94 +2.00 (-19.94) Along with many of the stronger
stocks on the NASDAQ, DISH is bouncing at its 100-dma ($51) as
investors try to decide whether they want to load up their plate
again.  Uncertainty in the broad markets is fueling their
indecision.  Yesterday saw another large decline, as DISH gave
up nearly $10 on volume of almost 9 million shares vs. the ADV
of just over 2 million.  Today was a bit more encouraging, as
DISH actually gained $2 on double the ADV.  Showing good
strength relative to the bulk of the tech sector, the stock may
be putting in a bottom here.  It was encouraging to see DISH
hang onto its gains as the NASDAQ rally failed, but now intraday
resistance is forming near $55.  A retest of today's low at $47
or a bounce at the 100-dma may provide an attractive entry
point, but don't try to catch the falling knife.  Wait for signs
of a bounce on increasing volume before moving in to nibble on
this play.  More conservative players will want to wait for
buying volume to push prices through the $55 level before
jumping on board.  There is still over a month until DISH is
scheduled to report earnings (May 15th), so that event is
unlikely to provide any support in the near term.

HWP $131.94 -3.06 (-22.56) Haven't we been here before?  If that
is your thought, you are absolutely correct.  Over the past
month, HWP has been stuck in a $25 range, finding support at
$130 and resistance at $155.  Yesterday saw HWP abused by
investors as the computer maker gave up over $10, and the broad
market weakness today dragged the stock even lower.  We are now
very close to support, which would normally bode well for a new
entry point.  However there are a few cautionary points to be
aware of.  Closing under the 50-dma ($135.44) and just above the
low of the day at $131.94 is bad enough, but combined with above
average volume the past two days and today's formation of a
bearish Shooting Star candle pattern is making us a little timid
going forward.  Earnings, currently set for May 17th are far
enough away that the event is unlikely to affect our play in the
near term.  We need to see the $130 support level hold and any
bounce higher from here needs to be confirmed by strong volume.
Look for entries to present themselves as the stock bounces, but
be vigilant for a possible failed rally.  As we have seen this
week, even strong stocks like HWP cannot withstand the negative
pressure created by a broad market downtrend.  In their
conference call today, Sun Microsystems claimed to be taking
market share from HWP, which could be yet another negative
factor going forward.

LXK $105.00 -0.19 (-14.50) Still waiting for a definitive move
from LXK, we are once again sitting at the $105 support level.
There was a mid-afternoon buying spree yesterday that quickly
added $4.  Unfortunately there was no follow-though and the
gains bled away as the afternoon progressed.  Today's low was
a couple dollars above the low from last Tuesday, and we again
bounced at the 100-dma ($100.63).  Even with the broad markets
selling off towards the end of the day, LXK held its ground and
the $105 level looks like a good launch point once the markets
recover their footing.  Volume has been bouncing around the
daily average, but is not giving us a clear signal going
forward.  This is a good time to use caution - we still have
earnings coming up on April 24th, but the health of the markets
is indeterminate.  Consider target shooting intraday dips near
the 100-dma, but keep an eye on the broader markets; if their
health doesn't improve, LXK will have a hard time moving
higher.

SEBL $105.94 +3.00 (-20.88) Managing to avoid moving lower with
the broader markets, SEBL is holding support at the $100 level
and is sitting just above the 100-dma ($104.13).  The losses 
on the NASDAQ have prevented the stock from moving through
resistance at $113.  Although volume is sitting near the daily
average, there just isn't enough buying interest to sustain any
moves higher.  This play has a short fuse, as earnings are set
for next Tuesday after the close.  We are seeing good support,
but need to see the stock move higher in order for this to
become a good play.  Given the good relative strength, SEBL
should be able to move higher if the broad markets can find
their legs.  Aggressive traders can consider target shooting
intraday dips near the 100-dma, but play with caution.  If the
broad market weakness continues, the downdraft could spill over
into stronger stocks like SEBL.  A more conservative strategy
would be to wait for buyers to push the price through resistance
on strong volume.

CL $59.00 -3.00 (-0.31) Trading volume is still perky and 
outpacing the ADV of 2.25 mln, but we've got a little bit of the 
Nasdaq trepidation permeating our "old economy" play.  Plus CL 
may be experiencing some natural consolidation after making a 
charge the 52-week record high yesterday.  The stock just missed 
its mark by $1.50, topping out at $65.25!  The 200+ dip on the 
DOW today also had its effect, however CL held up quite well 
overall.  The stock is currently perched just a smidgen below 
the 5-dma ($60.64) and 10-dma ($59.82).  This is a relatively 
safe support level considering the circumstances, but look for a 
definitive upward move, preferably through $61, before beginning 
any new plays.  Keep in mind too that Colgate-Palmolive is 
scheduled to report earnings next Wednesday on April 19th, 
before the bell, so be prepared to have your positions closed 
prior to the announcement.

NXTL $113.56 +2.88 (-28.88) The research report from analysts at
W.R. Hambrecht last week reiterated their Buy rating on NXTL.
Analysts there projected a price target of $200, and said they
believe the communications services company is poised for a 
strong first quarter.  We'll find out about that later this
month.  They went on to say, they would use any weakness as a
buying opportunity.  Well folks we've had the weakness, and may
have found another buying opportunity.  No change in fundamentals
just one of the many tech stocks that has followed the Nasdaq 
lower for most of the week.  With NXTL losing another $14.69
in the past two days, why is it still on our play list?  Maybe
we're just stubborn, but the drop today to $104.63 marks a 26.5%
loss for the week, and a 35% loss since its high in late March.
$110 is an old support level and the fact NXTL was able to 
come up with a gain, albeit a small gain for the session, 
suggests that our play may have hit a near term bottom.  NXTL
did find buyers enter this morning and was trading +13.00 
for the day going into the last two hours of the session.
We aren't suggesting you run to jump in, but would view 
today's action as a chance to target shoot an entry depending
on your risk profile.  A bounce off $110 or a move back through
$120 may be points to consider.

WLA $107.00 -1.13 (+3.06) There's a pattern developing here.
The past two days investors have sold shares of our drug company
at the open.  Nervous traders have come back in both days,
attempting to bid shares of WLA back up.  On Wednesday WLA did
manage to finish the session in plus territory, but today there
just weren't enough buy orders to do the trick.   On the plus
side of things, $106 did seem to provide support today, while
$105 was the magic level yesterday.  Again another pattern
developing, higher-lows.  The fly in the ointment facing our
play is investors are just plain nervous.  Whether they are
retail traders, or professionals, traders seem to be confused.
Let's face it, after you buy so many dips and get stopped out,
it can be tough to buy the next dip.  That's where discipline
and patience comes in handy.  WLA has held up fairly well this
week and we would view any momentum to the upside as a chance
to join in.  The CPI data to be released in the morning will
likely set the tone for the day.  If investor psychology turns
more negative, then stand aside and wait for an entry point.
WLA did penetrate the 10-dma at $104.47, but was able to regain
its footing, which is a plus for our play.  Our advice, be
patient and let the market dictate your next move.

LTD $46.88 -0.94 (-1.88) Well, we thought we had a breakout 
happening when we picked the Limited on Tuesday.  Unfortunately, 
the rest of the market would have nothing to do with it and 
took down almost everything in its path, including LTD.  While 
intraday support near the 5-dma of $48.74 failed to hold (there 
aren't many 5-dma's anywhere that survived the last two days), 
the 10-dma of $45.90 never got tested - even today.  Even if 
that can't hold tomorrow, prior resistance before the breakout 
was at $45, and should now act as support since retail stocks 
are maintaining their disposition much better than other sectors 
during this selloff.  If there is good news, it's that the low 
volume is indicating more of a lack of buyers than an abundance 
of sellers.  If volume comes into the issue as the rest of the 
market makes a recovery, it's probably safe to slip back into 
LTD.  Good entries come on the average only once per week, but 
the rest of the market must cooperate too.  That said, you may 
want to target shoot at $45, but in this market we think it makes 
more sense to see a bounce first.

UAL $63.00 -0.63 (+0.13) PaineWebber airlines analyst Sam
Buttrick cut his rating of UAL on Wednesday.  Buttrick cut UAL to
Attractive from Buy, noting the recent rise of 25% in the last
month.  He said as oil prices have fallen, revenue trends have
improved.  However, the recent run-up in shares of UAL now makes
the stock "just merely good".  The expiration of UAL's employee
stock plan is looming as well.  United's pilots and executives
are headed to Washington to engage in negotiations with federal
mediators.  A United spokesman said mediation is part of the
process and emphasized that there will be no disruption in
service for passengers.  The downgrade and nervousness
surrounding the mediation gave traders a reason to take profits
yesterday, but the stock managed to climb back above support to
close at $63.63.  Although UAL closed slightly lower Thursday,
we'll take "just merely good" as UAL's recent trendline is firmly
intact and the outlook for airline industry remains rosy.  The
volume has been weak in the last two days of profit taking, watch
for the action to pick-up as UAL continues its ascent skyward.
Use a bounce off the 5-dma, or confirm direction with volume as
an entry point.

ADBE $113.56 +1.50 (-11.44) ADBE took a bath along with the rest
of the software sector Wednesday, on the heels of the MSFT
downgrade.  Goldman Sachs analyst Rick Sherlund revised his
revenue estimates for MSFT's most recent quarter, citing a slow
down in the PC sector due to the Y2K non-event.  ADBE followed
the market down yesterday, finding support at its 10-dma at $110.
The stock managed to buck the trend Thursday and close in
positive territory, continuing to show strong relative strength.
ADBE was a presenter at the Apple publishing show Print 2000, 
on Thursday.  The daylong conference for desktop publishing
professionals gave ADBE the opportunity to debut its new InDesign
and InProdcution software.  The introduction of InDesign is
expected to accelerate ADBE's sales growth as the company enters
the publishing market.  The chart for ADBE continues to look
good as the stock finds strong support at its 10-dma.  Watch
for volume to continue to be strong and look for a bounce off the
10-day as an entry point.  A conservative trader may wait for
ADBE to breakout above resistance at $120 on heavy volume before
entering into the play.  We'll watch for ADBE to show continued
strength as traders await the upcoming Annual Shareholder Meeting
on April 26th.  ADBE is expected to announce a stock split at the
meeting which could further fuel the stock.

AMAT $89.00 -8.56 (-25.88) Wall Street continues to pound the
table on the Semi's.  Salomon Smith Barney initiated coverage on
AMAT Wednesday with a buy rating.  Morgan Stanley raised their
price target to $120 from $105.  Finally, Robertson Stephens
maintained AMAT at a Strong Buy, noting that AMAT is well
positioned to benefit from Intel's announcement of an upward
revision in capital spending to $6 bln in 2000.  AMAT competitor,
KLAC reported earnings of 0.38 cents per share Thursday, besting
estimates by a nickel.  And we should mention the blowout report
from AMD Wednesday.  The company reported $1.15 per share versus
estimates of 0.58 cents.  In spite of the stellar reports from
the semi's, the Philadelphia Semiconductor Index ($SOX) fell 2.7%
in a late day sell-off Thursday.  At one point Thursday AMAT was
better by $5, but later fell to sector weakness.  Many money
managers feel that the recent dip in market leaders like AMAT is
a buying opportunity, considering the strong earnings reports
thus far.  While market technicians warn that the big tech names
are currently trading at key support levels.  Turning to the
chart, we see AMAT is positioned at a key technical level.  So
far, AMAT has formed a pattern of higher lows and higher highs.
Closing at $89 Thursday puts AMAT at a higher low in its recent
trading range.  From here, watch for the AMAT to rebound and
momentum to return to the Semi's.  Should the broad market
rebound, AMAT could lead the rally.  However, set your stops
accordingly in case of a breakdown in support.  AMAT will have 
to clear resistance at $100 before moving higher, a move above 
that level may provide a good entry point with less risk.



*******************
PLAY UPDATES - PUTS
*******************

IIJI $48.56 +0.31 (-17.94) For the fourth day in a row, IIJI 
pursued its aggressive track into deeper territory.  In a last 
minute ditch on Wednesday, this foreign Internet even reached 
down below bottom support at $50 to tag $48.  While the Nasdaq 
bounced off its lows early on today, IIJI followed suit and 
managed to climb to $57.88 during amateur hour.  However the 
stock couldn't hold the positive move and quickly retraced from 
the vicinity of the descending 5-dma (now at $56.98).  IIJI 
eventually corrected back below the $50 mark resulting from its 
own technical pressure and the broad negative tech sentiment. 
Assuming the sell-off in the Nasdaq resume, IIJI's intraday 
volatility should continue to provide an excellent environment 
for quick in-and-out plays.  The next goal?  It is for IIJI to 
slip under $48 and move towards $40, a support level not seen 
since the initial months following the IPO in August 1999.

LVLT $75.63 +6.31 (-14.50 ) The sector sunk again on Wednesday 
making it the third day in a row the Internets lost ground.  
LVLT obediently peeled off another layer, this time shedding 
$12.56, or 15.3% in a single session.  Again this dissenting 
move came alongside a Strong Buy reiteration by Banc of America 
Securities, the third positive recommendation since last week.  
Despite a boost in the share price today, LVLT couldn't manage 
to put a dent in the $80 mark.  This is a good sign that LVLT 
can keep making moves under its historical bottom at the 
technical 200-dma indicator (currently at $79.02).  Take a look 
at a six-month chart for visual confirmation.   In the news 
yesterday, LVLT announced it would sell a 25% stake of its $150 
mln undersea cable system to Viatel (VYTL), a long-distance 
communications service company.  The Trans-Atlantic fiber-optic 
system is currently still under construction.  Global Crossing 
Ltd (GBLX) is also participating in the project, which is 
expected to be operational by September 2000.

LU $53.44 -1.88 (-6.31) LU may move at a snails pace, but the
fact is the communications company has lost about 11% for the
week.  If you're a follower of volume, you'll note the average 
daily volume for Lucent, comes in near 20 million shares per
day.  This week the ADV is running closer to 13 million shares.
The point we are trying to make is, is that no volume equals
no buyers.  The lack of interest in Lucent seems to be allowing
it to drift lower.  Lucent is approaching its low of $49.88 set
back earlier this year.  Another test of that level may bring 
buyers out of the woodwork and may not.  The company is due to
report earnings next Wednesday before the open, and at this time,
there seems to be no earnings run in sight.  An announcement
that they had signed a $400 million pact with Fidelity Holdings
didn't help the equipment maker today.  Although time is
beginning to run short, our play may not be over yet, as selling
picked up in the last fifteen minutes today when LU fell about
$1 with over 1.2 million shares traded.  Bounces back to $54 or
$56, followed by weakness may provide a last minute opportunity
to buy puts. 

ICGE $41.81 -5.31 (-30.88) This is a put play made in heaven.  
Every level of support that we though had an inkling of holding 
has been snapped like a twig in a hurricane.  First $60, then 
$56, then $50.  Today, $50 acted as resistance, try as ICGE might 
to break back above it.  In its failure, it rolled over to $40, 
nicely below its next level of support at $42.  There is 
apparently no love lost in the B2B sector.  While we would be 
remiss if we didn't point out that this issue is incredibly 
oversold and technically due for the mother of all bounces, we're 
also not going to fight the tape.  Tread carefully.  The next 
support level is down at $33.  Perhaps the best entry would be to 
wait for a tick up to $42, then a decisive bounce south as the 
rest of the market confirms the downward movement.  You might 
also wait for a simple breakdown under $40.  Either way, be ready 
to cover quickly or with a stop loss should the market begin a 
solid recovery sometime tomorrow.

KO $47.25 -1.25 (+1.06) The broad market rally that pushed KO
higher last Tuesday carried the stock through Wednesday.  But 
the momentum broke down late Wednesday afternoon as KO ran into 
major resistance at $50.  That level has proved to be staunch
resistance for KO in the past month.  After hitting $50
yesterday, KO rapidly lost ground in the last hour of trading,
culminating in a gap down Thursday morning by $1.  The sell-off
today put KO below its 10-dma which had provided support in its
brief rally.  The stock now trades just above support at $47.
Look for KO to find resistance at its 10-day, which may provide a
good entry point.  Traders looking for less risk might wait for
KO to break support at $47 before entering into the play.  In
the on-going racial discrimination lawsuit against Coke, a judge
ruled Wednesday that an attorney chosen by the plaintiffs cannot
represent them in settlement talks.  The plaintiffs chose a new
lawyer, claiming a "breakdown" in their relationship with
attorneys.     

FIBR $36.13 -3.88 (-34.13) What can you say about FIBR.  No news,
just sellers, and the question now becomes how low can it go 
before buyers begin to appear.  The one thing we would point out
is Osicom is not a big cap stock that gets a lot of press and 
attention.  Those that do trade this company seem to be familiar
with it and the day to day goings on.  So what has caused this 
company's price to drop over 50% this week alone.  Unfortunately
we don't really have a good rumor or news on the company that
would change the outlook going forward.  And that just may be the
problem.  There is apparently little going on that will change
the losses currently being experienced by FIBR.  Investors will
only hang in there so long, before they say enough is enough and 
move on.  Plenty of traders have moved on in the past two days
as FIBR made another new low for the month today at $35.50.
Closing near the low, doesn't paint a pretty picture, although
intraday charts today, would "appear" to suggest Osicom is trying
to find a bottom.  A bounce back to the $39 to $40 area, followed
by a move south may be another chance to enter this play.  Keep
in mind FIBR has lost about 68% of its market value so far this
month.  $35.50 did provide support for FIBR back in the middle
of January.  A move through there and the next level of support
is seen near $30.


**************
NEW CALL PLAYS 
**************

ABGX - Abgenix Inc. $81.06 +8.38 (-21.94 this week)

Operating in the biopharmaceutical field, Abgenix develops and
intends to commercialize antibody therapeutic products for the
treatment of a variety of disease conditions including
transplant related diseases, inflammatory and autoimmune
disorders, and cancer.  Harnessing the power of the mouse,
ABGX has developed XenoMouse technology, a proprietary
technology which the company believes enables quick generation
of fully human antibody product candidates using mice.  Current
internal product development programs have yielded four
antibody product candidates, with ABX-CBL being the current
front runner.

It sounds like science fiction, producing human anti-bodies in
mice, but ABGX claims to be doing it.  Chasing the holy grail of
the Biotech industry, cures for the most feared diseases, cancer
and autoimmune system afflictions, ABGX will be a very hot
property, if they can pull it off.  Posting a new all-time high
over $200 in early March, ABGX has been abused along with the
rest of the Biotech sector since then.  The only respite to the
decline was a brief move up in advance of the company's 2-for-1
split which took place last Friday.  Since then, the stock has
declined back below the 100-dma ($87.75), and seems to be
building support near $71.  The tech sector (Biotechs included)
have now declined significantly off of their highs of only 5
weeks ago, and ABGX itself has endured a 75% decline in that
time.  In the midst of the broader markets continuing to
decline, ABGX is making a convincing show of holding support in
the low $70's and actually moving strongly higher today, on
nearly double the average daily volume.  If the recovery can
continue, look for ABGX to run into resistance at $87 (near the
100-dma) and then $94.  Bounces off support are buyable as long
as volume confirms the move, although conservative players may
want to wait for ABGX to take out that first resistance level
first.  Earnings are just around the corner, confirmed with the
company for April 25th, and if the markets cooperate, ABGX could
have a nice run.

In the news today, ABGX has hired Dr. Steven Chamow as VP of
Process Sciences.  Dr. Chamow, a biochemist with extensive
industry experience in biopharmaceutical development, will
be responsible for building and leading process science groups
at ABGX.

BUY CALL MAY-80 AZG-EP OI= 0 at $9.63 SL=6.75 New Strike
BUY CALL MAY-85*AZG-EQ OI= 0 at $8.13 SL=5.75 New Strike
BUY CALL MAY-90 AZG-ER OI=55 at $6.50 SL=4.50
BUY CALL MAY-95 AZG-ES OI= 2 at $8.75 SL=6.25 low OI

Picked on Apr 13th at  $81.06     P/E = N/A
Change since picked     +0.00     52-week high=$206.50
Analysts Ratings    2-0-0-0-0     52-week low =$  6.41
Last earnings 01/00 est=-0.06     actual=-0.05
Next earnings 04-25 est=-0.11     versus=-0.22
Average Daily Volume = 661 K
/charts/charts.asp?symbol=ABGX


ENE - Enron Corp. $73.81 +2.69 (+3.88 this week)

For four years running, Fortune magazine has named Enron the 
"Most Innovative Company in America" and last year named them 
one of the "100 Best Companies to Work for in America."  This 
worldwide energy giant isn't into just power generation.  They 
also are the number 1 buyer and seller of wholesale gas, the top 
wholesale power marketer in the U.S., and operate 32,000 miles 
of gas pipelines.  Not only that, they run far flung operations 
including paper, coal, chemicals, engineering and construction, 
and the emerging jewel, a fiber-optic bandwidth development and 
marketing business.

Welcome to Enron's world where beating the street's earnings 
estimates by 8% can actually get your stock price to go up while 
plain old technology stocks crumble around you.  All kidding 
aside, the energy sector has been a big beneficiary in the flight 
to quality.  Those issues within the sector that offer investors 
more than just a dividend and can offer a growth story run by the 
best management teams too are seeing a real payoff in the stock 
price.  ENE reported earnings yesterday that exceeded analysts 
$0.37 estimate by $0.03.  That's particularly impressive when 
they have over 700 mln shares in float and over $1 bln (with a 
"b") in annual profits.  So why open a play on a company that 
reported?  What about post split depression?  It didn't happen.  
In fact, the price gapped up at yesterday's opening and moved up, 
while the rest of the market did its best submarine imitation and 
went underwater.  Volume has picked up noticeably too since the 
earnings announcement.  That tells us that investors want more 
and are in no hurry to sell.  Technically, $71 formed a nice 
intraday bottom over the last two days and might make a nice 
target at which to shoot.  The one-day hammer formation on the 
candlestick looks pretty good too.  The most interesting part 
however, is that ENE bumped its head on $74.  As the lows get 
higher, you've seen the ascending wedge pattern before.  If ENE 
can get through $74, the next stop would be $78, then on to blue 
sky.  So if you want to play a bit more conservatively, wait for 
the breakout over $74 backed by volume.  Otherwise you might also 
shoot at the 5-dma ($70.85), the 10-dma ($70.26), or the 50-dma 
($68.82), which are all bullishly nestled together after a recent 
consolidation.

In the news, Salomon Smith Barney issued a Buy rating and a price 
target of $100, while First Union upgraded from Buy to Strong Buy 
and issued a price of target of $90.  Dain Rauscher last week did 
the same with a price target of $97.  That's plenty of support 
right there.

BUY CALL MAY-70*ENE-EN OI= 310 at $8.00 SL=5.75
BUY CALL MAY-75 ENE-EO OI=1429 at $5.38 SL=3.25
BUY CALL MAY-80 ENE-EP OI=4156 at $3.13 SL=1.50 High Risk!
BUY CALL JUL-75 ENE-GO OI=1077 at $9.38 SL=6.25
BUY CALL JUL-80 ENE-GP OI=1689 at $7.00 SL=5.00

SELL PUT MAY-65 ENE-QM OI= 249 at $1.75 SL=3.50
(See risks of selling puts in play legend)

Picked on Apr 13th at    $73.81     P/E = 55
Change since picked       +0.00     52-week high=$78.06
Analysts Ratings      7-6-4-0-1     52-week low =$30.50
Last earnings 04/00   est= 0.37     actual= 0.40  surprise=+8%
Next earnings 07-12   est= 0.31     versus= 0.27
Average Daily Volume = 3.1 mln
/charts/charts.asp?symbol=ENE



*************
NEW PUT PLAYS 
*************

CNXT - Conexant Systems Inc $54.44 -7.56 (-23.25 for the week)

Conexant is the world's largest provider of modem chips and 
other integrated circuits (ICs) for communications electronics. 
With more than 30 years of experience in developing 
communications technology, the company draws upon its expertise 
in mixed-signal processing to deliver integrated systems and 
semiconductor products for a broad range of communications 
applications.  The company aligns its business into five product 
platforms: Network Access, Wireless Communications, Digital 
Infotainment, Personal Imaging, and Personal Computing.  About 
half of Conexant's $1.5 bln in revenue come from sales in the 
Asia/Pacific region.

Investors pounded their fists on news of Conexant's fourth 
acquisition this year.  Yesterday the company announced it 
agreed to buy Canada's Philsar Semiconductor for as much as 
$213.8 mln in stock in an effort to boost its line of wireless 
products.  All in all, it will put out between 2.685 and 3 mln 
shares of common stock for the closely held Philsar.  CNXT dived 
almost instantaneously below the established support of $70 
losing $9.25, or 12.5% by the finish.  Of course the nasty and 
unruly environment encompassing the Internet sector is adding 
salt to the wound; however Conexant seems to be doing a good job 
all by itself.  I'm referring to the announcement today that for 
an undisclosed amount Conexant is adding Applied Telecom, a 
leading supplier of telecommunications software and hardware 
products to its corporate family.  While analyst Charles Boucher 
at Bear, Stearns, & Co cheered CNXT on with a Buy reiteration, 
the wrath of unhappy investors propelled the stock into the 
abyss.  Its current position is now below an older support level 
($60) and under the 200-dma ($58.97).  On April 4th and 5th, 
CNXT did see this gutter level and in fact, rebounded.  So with 
that in mind, wait for further downward confirmation.  Look for 
intraday entries on descending bounces off $60.  The company is 
reporting earnings next Wednesday on April 19th, after the bell, 
but we don't anticipate this event to trigger much excitement.

BUY PUT MAY-60 QXN-QL OI=718 at $13.13 SL=9.75
BUY PUT MAY-55*QXN-QK OI=467 at $ 9.75 SL=6.75
BUY PUT MAY-50 QXN-QJ OI= 50 at $ 7.00 SL=5.00

Average Daily Volume = 6.8 mln
/charts/charts.asp?symbol=CNXT


MCLD - McLeodUSA Incorporated $58.44 -4.50 (-21.56 this week)

McLeodUsa is a facilities-based CLEC (competitive local-exchange
carrier).  The company provides telecommunications services,
including local and long-distance phone service and Internet
access.  It operates more than 616,000 local access lines,
serving about 261,000 business and residential customers in 12
US states in the Midwest and Rocky Mountains.  MCLD plans to add
PCS wireless service to its offerings; it owns 27 PCS licenses.
Founder and CEO Clark McLeod and his Wife, Mary, own 13% of the
company.

If you build it, they won't necessarily come.  The landmark 1996
Telecommunications Act opened the way for so-called CLECs to
challenge the Baby Bells, the local phone giants that held
monopolies over their territories.  Many of the new carriers
figured they could build a small network and slice into the
market of the incumbent Baby Bells.  Although the telecom
services sector holds great potential, many investors are
are questioning the viability of some of the smaller firms.  That 
pessimism has been expressed by traders recently in shares of
MCLD.  There are several reasons investors have evacuated MCLD
recently.  Most notably is the addition of $1 bln of debt to
MCLD's balance sheet.  Last January, MCLD announced plans to buy
data communications provider Splitrock (SPLT) for $1.75 bln in
stock.  MCLD said Wednesday it received a $1 bln credit
commitment that will help fund its plan to buy SPLT.  The recent
market weakness combined with the negative investor sentiment has
pushed shares of MCLD sharply lower.  Institutions appear to be
liquidating large blocks of MCLD noting the heavy volume during
the recent sell-off.  MCLD formed a head-and-shoulders top in the
last month and has recently fallen through the second shoulder.
After Thursday's sell-off, MCLD fell through critical support at
$60, and continues to look weak.  From here, MCLD has resistance
at $60, watch for the stock to bump against that level as a
possible entry point.  MCLD has support at $50, a conservative
trader may wait for the stock to break that level before entering
the play.  With the breakdown today, MCLD fell below the $60
strike price.  Wait for open interest to increase in the newly
issued strikes before entering the play.

One more interesting event for MCLD is the company's upcoming
stock split.  MCLD plans to split 3-for-1 on April 25th.  Many
investors are calling on management to cancel the split, citing
the stock has already been split in half from its high reached
just a month ago.

BUY PUT MAY-65*QMD-QM OI= 22 at $10.38 SL=7.25 
BUY PUT MAY-60 QMD-QL OI=  0 at $ 8.50 SL=6.00 Wait for OI!

Average Daily Volume = 1.67 mln
/charts/charts.asp?symbol=MCLD


**********************
PLAY OF THE DAY - CALL
**********************

NXTL - Nextel Communications $113.56 +2.88 (-28.88)

Nextel communications provides digital and analog wireless
communications services throughout the United States.  Nextel's
4-in-1 business solution integrates guaranteed all-digital
cellular service, text/numeric paging capabilities, digital two-
way radio and wireless Internet services.  Customers can now use
the same phone number no matter where they are, whether it's
across town, in another country, or around the world.  With
headquarters in Reston, Virginia, Nextel serves 96 of the top
100 markets in the United States.  

Most Recent Write-Up

The research report from analysts at W.R. Hambrecht last week 
reiterated their Buy rating on NXTL.  Analysts there projected 
a price target of $200, and said they believe the communications 
services company is poised for a strong first quarter.  We'll 
find out about that later this month.  They went on to say, they 
would use any weakness as a buying opportunity.  Well folks 
we've had the weakness, and may have found another buying 
opportunity.  No change in fundamentals just one of the many 
tech stocks that has followed the Nasdaq lower for most of the 
week.  With NXTL losing another $14.69 in the past two days, 
why is it still on our play list?  Maybe we're just stubborn, 
but the drop today to $104.63 marks a 26.5% loss for the week, 
and a 35% loss since its high in late March.  $110 is an old 
support level and the fact NXTL was able to come up with a gain, 
albeit a small gain for the session, suggests that our play may 
have hit a near term bottom.  NXTL did find buyers enter this 
morning and was trading +13.00 for the day going into the last 
two hours of the session.  A bounce off $110 or a move back 
through $120 may be points to consider.

Comments

NXTL was up for the day even as the NASDAQ gave up at the end of
the session.  It was encouraging to see it trade as high as $124.  
This late session slide for NXTL is indicative of the NASDAQ's
influence over individual stocks.  Looking to tomorrow's trading, 
watch for the NASDAQ to lead.  There is a good chance that it will
truly retest last Tuesday's low of 3650, and even below.  Good
entry points will be when the NASDAQ capitulates with strong
volume on the way down and on the bounce back.  More aggressive
traders may choose to buy on the dips.  As usual, enter positions
based on personal risk profiles.  
  
***April contracts expire in one week***

BUY CALL APR-110 FQC-DB OI= 19 at $ 7.38 SL=5.50
BUY CALL APR-115*FZC-DC OI= 60 at $ 5.13 SL=3.25
BUY CALL APR-120 FZC-DD OI=341 at $ 3.25 SL=1.50
BUY CALL MAY-115 FZC-EC	OI=111 at $11.50 SL=9.25
BUY CALL MAY-120 FZC-ED OI=585 at $ 9.50 SL=7.25
BUY CALL MAY-125 FZC-EE OI=249 at $ 7.75 SL=6.00

Picked on Apr 6th at    $126.56    PE = N/A
Change since picked      -13.00    52 week high=$165.88
Analysts Ratings     12-7-3-1-0    52 week low =$ 33.00
Last earnings 02/00   est=-0.99    actual=-0.85 
Next earnings 04-26   est=-0.81    versus=-1.37
Average daily volume = 4.39 mln
/charts/charts.asp?symbol=NXTL



************************
COMBOS/SPREADS/STRADDLES
************************

There is no Combos section tonight, be sure to look for the 
extended version of the article in Sunday's newsletter.


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************
See Disclaimer in section one
************


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