Option Investor

Daily Newsletter, Monday, 04/17/2000

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The Option Investor Newsletter                Monday  04-17-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

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MARKET WRAP  (view in courier font for table alignment)
       4-17-2000           High     Low     Volume Advance Decline
DOW    10582.50 + 276.70 10583.80 10232.50 1,204,710k 1,280  1,729
Nasdaq 3,539.16 + 217.87  3539.77  3227.04 2,428,074k 1,752  2,614
S&P-100  762.49 -  45.35   762.59   724.53    Totals  3,032  4,343
S&P-500 1401.44 -  83.20  1401.53  1346.50            41.1%  58.9%
$RUT     459.26 +   5.54   459.26   441.56
$TRAN   2678.58 -  48.46  2731.23  2678.58
VIX       32.19 -   7.14    39.42    32.19
Put/Call Ratio       .78

Bulls Get Hard-Earned Satisfaction

Following last Friday's meltdown, it looked like this morning's 
gap down on the NASDAQ might reflect a continuation of the 
negative sentiment.  Thanks to a late day rally in the 
semiconductor stocks in front of TXN's earnings today and INTC's 
earnings tomorrow, other tech stocks followed the semiconductors' 
lead to give the NASDAQ its biggest one-day gain ever -- 217 
points!  It was also the second largest percentage gain ever at 
6.6%.  The Dow turned in a respectable +276 points too, though 
far from a record.  Last Monday, we were pining for a Tom Galvin 
comment to support the market and we got it today.  He's the lead 
DLJ analyst that announced today DLJ had shifted from 80% 
equities to 90% equities and 10% cash.  Way to go Tom!  Thanks!

Don't break out the party hats and horns just yet.  Yes, the huge 
volume helped confirm the move up.  1.2 bln shares on the NYSE 
and nearly 2.5 bln shares on the NASDAQ falls on the heavy side.  
It's a signal that buyers are voting with their $$$ and coming 
back into the market.  When the market is up big on big volume, 
buyers are in control.  (See Women's World article from last 
Thursday by Renee White titled "Using Volume to Understand 
Direction, When You Are Begging for a Reversal" and from Sunday, 
"Memories of the October, 1987 Crash and Using Volume to Decide 
Upside Breakouts Part II") However, the big gains were limited 
mostly to the big-cap, high quality, earnings driven stocks that 
were already doing OK.  Not every stock joined the party.  In 
fact, just IBM, HWP and INTC accounted for 156 points of the 
Dow's +276 point move.  Need confirmation that the party was for 
a select few?  Look no further than the advance/decline lines on 
both exchanges.  While both started out in extremely ugly 
territory and made up for lost time, the NASDAQ finished with 26 
decliners swamping every 17 advancers, while on the NYSE, 17 
decliners outpaced every 13 advancers.  That does not constitute 
a widespread rally, and despite the volume, leaves the weaker 
issues susceptible to more damage.  

In particular, smaller B2C Internets without a shot at 
profitability (even some bigger ones) are the new dinosaurs 
bordering on extinction in this market.  KTEL, CDNW, BAMM, FOGD, 
CGLD, etc. are in intensive care and will likely never recover, 
despite the rising tide lifting other boats.

Did you miss Goldman Sachs' Abbey Joseph Cohen conference call 
today?  Good thing.  While not devastating, she merely reiterated 
that there would be no change in her position regarding the 
expected S&P 500 results by year end -- 1575 by December, 31, 
2000 and 1625 by the end of Q1, 2001.  She noted too that 
inflation would "drift up, not gallop" thanks to energy prices 
and that Greenspan's interest rate increases were already priced 
into the market thanks to the FOMC's "deliberate and incremental" 
increases so far this year.  No surprise here.  If it was on 
CNBC, we never heard it.

Anyway, the selling that marred the opening bell and caused the 
NASDAQ to gap down 91 points at the open didn't last long as 
buyers immediately stepped in to spark a 180 point rebound off 
the low within the next 35 minutes.  We were surprised by the 
market's immediate strength and had expected more maintenance 
margin selling and foreign market reaction to our market last 
Friday to spill over into today.  If we didn't see it this 
morning, a new wave of broker selling in the late afternoon to 
cover those earlier maintenance calls might have ensued. . .glad 
to be wrong on that one.  If buyers were in fact on strike over 
the last few days, it appeared that they went back to work today.  
We hope they are soon joined by others that think the current 
"un-negotiated settlement" is OK.  Otherwise, we're bound to see 
range trading as the "buy the dip crowd does battle with the 
"sell the rally" crowd.

The good news is that individuals appeared to be hanging on for 
the long run.  Last Friday's action, as it turned out, was mostly 
institutional selling.  With volume like we saw today, we'd have 
to conclude that institutions reversed course and began buying 
again on selected issues.  CSCO was the volume leader at 117 mln 
shares traded, followed in descending volume order by MSFT, ORCL, 
INTC, SUNW, JDSU, WCOM, DELL, and QCOM.  With the exception of 
MSFT gaining just $1.75, and WCOM and DELL gaining $2 or less, 
the other issues experienced double-digit or nearly double-digit 
gains.  If the institutions think it's safe to get in the water, 
it's probably safe for us too if we stick to the big cap issues 
moving in unison with the indices.  Just remember, these things 
are not recovering in a straight line and are subject to ups an 
downs just like before, only bigger.  The advantage of being one 
of the "little guys" is that we have the ability to get out 
quickly if things go south on us.  By now, we've all seen the 
value of stop loss orders and we encourage you to use them in 
this time of high volatility.  

So, you want to know exactly how the indices traded?  The NASDAQ 
as noted above finished up 217 points at 3539 on 2.48 bln shares. 
1.37 bln shares traded up, while 1.0 bln shares traded down.  But 
618 new lows (compared to just 8 new highs) should tell us we're 
still at the bottom of the barrel.  If we haven't hit the bottom 
yet, we are near it.  Silver lining?  Though the NASDAQ opened 
substantially below its 200-dma (3506) at 3227, it rallied above 
the 200-dma into the close, giving strong support to the 
formation of a bottom.  3500 also happens to be a support level 
from December and January.  Next resistance is 3650, then 3750.  
If we can hold this level and see an improvement on the 
advance/decline line, we would feel more comfortable in the 
strength of today's rally.

For the Dow, it finished up 276 at 10,567 marked by heavy volume 
of 1.2 bln shares on the NYSE.  702 mln shares traded up while 
475 mln traded down.  Still, new highs got creamed by new lows, 
15 to 152.  (Have we mentioned that the gains were narrow?!)  
What a squeeker technically though!  It recovered to just 3 
points over its 50-dma of 10,579.  It's gotta hold here to keep 
moving up.  Otherwise, we could be staring at 10,300 again.  Look 
for resistance at 10,725.

Tonight after the close, TXN reported earnings of $0.55, $0.02 
above analysts' expectations of $0.53.  Even though it tacked on 
$10 to close at $149 in today's trading, it still traded up after 
hours.  Now if we could get INTC to do that trick tomorrow after 
it reports earnings, that could be the catalyst to lead the tech 
sector gradually higher.

Don't get completely fired up about today's rosy picture yet.  
There are still some landmines, which are by definition 
invisible.  First is that corporate insiders have been selling 
shares and options like crazy in record amounts.  Second is that, 
despite the carnage last week, margin debt has not subsided much 
from its record levels -- those bits of information from Charles 
Biderman of Trimtabs fame.  He notes that this looks bad going 
forward and he has been historically correct.  He did temper 
those comments by noting that despite all the noise about $6 bln 
in outflows last week, there had been an inflow of $18.5 bln 
previously.  This week in the tax season though is the time that 
those inflows slow substantially. . .not may contributing to the 
IRA after today.

So what about tomorrow and the rest of the week?  Yes, today 
looks good, but temper that enthusiasm by remembering the bigger 
picture.  That is that a recovery is never clearly visible and 
that nothing recovers in a straight line.  Tomorrow could give us 
another downdraft as wheat gets further separated from the chaff.  
You may want to focus your efforts on the larger issues until the 
secondary issues show signs of support, not just 1-day relief 
rallies.  Remember too to watch the major indices for support and 
resistance.  Your stock going up as the indices going down does 
not a good entry make.  Housing starts are announced tomorrow, 
followed by Trade Balance on Wednesday and Initial Job Claims on 
Thursday.  There are also earnings releases aplenty this week, 
starting with EMC, IMNX, TYC FON, and PCS tomorrow morning, then 
the biggie, INTC tomorrow after the bell.  While 70% of those 
reporting so far have beat the number and only 10% have 
disappointed, it will pay to watch the leaders for industry clues 
and be prepared to exit an "unsympathetic" play if the stink rubs 
off.  Conservative types may want to see another week of 
stability before getting back in, but the hardcore trader can 
have a field day with the current volatility.  Just remember to 
plan your exit carefully before you enter, and if all else fails, 
get trigger-happy and sell too soon.

Buzz Lynn
Research Analyst


Knight/Trimark To Acquire Easdaq Market Maker
By Matt Paolucci

A unit of Knight/Trimark Group Inc. (NITE) on Monday bought the
professional options execution business and floor brokerage
operations of privately held Mesirow Financial Inc. and Mesirow
Europe Ltd. Knight Financial Products LLC said the purchase is
part of its expansion into the options markets. NITE said it
expects to receive Options Clearing Corp. membership approval
within the next six weeks.

Last November, Knight entered the stock options market when it
bought options market maker Arbitrade Holdings for about $460
million in stock. The Mesirow purchase, pending regulatory
approval, will shift 68 Mesirow employees to Knight Financial
Products, effective by the end of June, the companies said.

"Mesirow Financial's Professional Execution business will provide
us with global capabilities in the options industry and will
enable us to process orders in all listed options in the U.S.,"
said Kenneth Pasternak, president and CEO of Knight/Trimark

Chicago-based Mesirow, a diversified financial services firm, has
more than 700 employees in nine U.S. offices and manages more
than $3 billion in assets.

Financial terms of the deal were not disclosed.

Knight/Trimark Group is a market maker in Nasdaq securities and
in the Third Market, which is the over-the-counter (OTC) market
in exchange-listed equity securities, primarily those listed on
the New York Stock Exchange (NYSE) and the American Stock
exchange (AMEX). Knight currently employs more than 900 people

With the increasing number of investors carrying out their own
investment decisions online, the number of transactions being
processed overall is at record levels. This has translated into
big money for online brokers and companies like NITE who
facilitate stock transactions. Just last week, both E*Trade (EGRP)
and Ameritrade Inc. (AMTD) posted better-than-expected earnings

Knight/Trimark holds the true dominant position in the stock
transaction-processing sector. NITE has held the #1 market share
ranking in trading of NYSE-and AMEX-listed securities in the
Third Market for over three years.

Speaking of earnings, NITE is due to report its first quarter
financial status this Thursday. Analysts' estimates are for an
87 cents per-share profit, although whisper numbers go as high as 97

Ranked 9 out of the 24 companies in the Finance and Investment
Services sector by Zack's investment Research, NITE has 12
analysts rating the stock either a Strong Buy or Moderate Buy.


VSTR - VoiceStream Wireless $94.88 +4.88 (+4.88)

Based in Bellevue, Wash., VoiceStream Wireless is a leading
provider of wireless communications services in the United
States.  VoiceStream Wireless with Cook Inlet Region Inc., has
licenses to provide service to over 193 million people with
operating systems from New York to Hawaii.  With licenses in 19
of the top 25 markets VoiceStream is one of the major providers
of telecommunications services in the country.  VoiceStream is
the largest provider of personal communications service using
the globally dominant GSM technology in the United States.

Most Recent Write-up

Shareholders of VSTR refused to participate in the Friday's
debacle.  Why would investors buy shares of a company that just
a week earlier reported earnings that were not only in the red,
but produced results that were below analysts estimates?  Good
question, but here's our take on the situation.  March 23rd
VSTR was approaching its 52 week high and closed at $155.
Wednesday's low at $81.75, marked a decline of about 48% in 3
weeks.  At that time investors put on the brakes and jumped in
with both feet, with over 7.0 million shares changing hands.
It's certainly not written in stone that VSTR will continue to
hold onto the gains made the past two sessions.  However in
light of Friday's action, the session was encouraging.  The
current trend in the telecom industry is towards consolidation.
Our new play is an attractive takeover candidate.  Rumors have
been circulating for some time, on a potential suitor, although
there's no confirmation that any discussions are actually taking
place.  For better or worse these rumors seem to keep VSTR
in the limelight.  With the company experiencing strong revenue
and subscriber growth, analysts have are focusing on the top
line rather than the red ink, currently flowing out of the
company.  Thursday, analysts at Raymond James Financial raised
their rating from a Buy to a Strong Buy.  Wednesday, Perry Walter
at Robinson-Humphrey reiterated a Buy rating on VSTR, with a
12-month price target of $180.  For the past three days, VSTR
has been forming a nice base between $84 and $88.  Going into
the final half-hour of trading on Friday, our new play was
gaining momentum.  Unless the wheels totally fall off next week,
we would look for chance to buy calls on further upward moves.
A bounce off the $83-$84 are could also provide an attractive
entry point.

The FCC recently approved the VoiceStream's purchase of Aerial
Communications.  At that time analysts initiated support for
the company as well.  The merger with Aerial, suggests VSTR has
taken more than its fair share of market growth.  As we said
above, rather than concentrate on earnings, investors and
analysts alike are more concerned with growth and revenues.


No, VSTR wasn't the big point gainer of the day, but still had a 
respectable technical showing by closing back over its 200-dma of 
$91.57.  It had traded below that level for the last three days.  
While volume wasn't stellar, it was still 14% above the ADV.  
Besides that, we got a 5% gain just for today confirming that 
the 200-dma support is for real.  We could have chosen something 
with a bigger point gain, but think it could vanish in a mouseclick 
if the market heads south tomorrow.  We'd rather be safe than 
sorry in this turbulent time.

BUY CALL MAY- 90*UVT-ER OI=146 at $15.13 SL=11.00
BUY CALL MAY- 95 UVT-ES OI= 61 at $13.25 SL=10.00
BUY CALL MAY-100 UVT-ET OI=360 at $10.88 SL= 8.00
BUY CALL AUG-100 UVT-HT OI= 44 at $19.88 SL=14.50

SELL PUT MAY- 80 UVT-QP OI=400 at $ 5.00 SL= 7.00
(See risks of selling puts in play legend)

Picked on Apr 16th at    $90.00    P/E = N/A
Change since picked       +4.88    52-week high=$159.38
Analysts Ratings     14-4-4-0-0    52-week low =$ 16.38
Last earnings 03/00   est=-1.21    actual=-1.58
Next earnings 05-08   est=-1.15    versus=-0.81
Average daily volume = 2.15 mln

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