Option Investor
Newsletter

Daily Newsletter, Monday, 04/24/2000

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Monday  4-24-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

Also provided as a service to The Online Investor Advantage
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       4-24-2000           High     Low     Volume Advance Decline
DOW    10906.10 +  62.10 10910.80 10695.40   873,799k 1,267  1,671
Nasdaq 3,482.48 - 161.40  3496.82  3345.25 1,540,259k 1,247  2,969
S&P-100  772.55 +   5.50   777.12   758.31    Totals  2,514  4,640
S&P-500 1429.86 +   7.07  1434.54  1407.13            35.1%  64.9%
$RUT     468.54 -  13.30   481.84   460.90
$TRAN   2805.13 -  28.12  2834.75  2783.29
VIX       30.18 +   1.87    32.31    29.59
Put/Call Ratio       .51
******************************************************************

Microsoft Double-Whammy Sparks a Tech Sell-off

Is a bigger rebound near?  As Jim noted in the Sunday Wrap, 
though reporting Street-beating earnings, MSFT came up short on 
revenue and forward looking growth prospects.  Revenues fell 
short of estimates by $290 mln while the once 2000-lb. gorilla 
(now only 1200 lbs. since its value has shrunk 40%) guided 
analysts' estimated growth rate to the single digits.  On top of 
that, the Wall Street Journal came out with an article noting the 
Justice Department is leaning toward breaking up Microsoft into 
three separate divisions, or "Baby Bills".  Hmmm. . .that 
headline has been out for a while and there is nothing new in the 
story.  Nonetheless, it didn't stop media-types from running the 
story as "new news", passing much of the blame for MSFT's beating 
to the DOJ's tough talk.  Much as we too would like to pass the 
blame to the Justice Department, the real culprit here is MSFT's 
revenue and their near-term flagging outlook.  Add to that a few 
pokes in the eye from downgrades by Goldman Sachs and SG Cowan, 
and you can see why MSFT cratered $12.31 to close at $66.69 in 
today's trading.  Lehman Bros. even reduced its price target from 
$130 to $85.  As goes the king, so goes the kingdom, and the 
whole tech sector sold off today led by MSFT.

The $64,000 question then becomes, "have we hit a bottom yet?"  
As usual, there are two sides to the story.

First, volume was exceptionally low on the Dow and the NASDAQ as 
stock prices have slid backward (874 mln and 1.54 bln, 
respectively).  Remember that the previous sell-offs over the 
past three weeks have been marked by NASDAQ volume from 1.8 to 
2.9 bln shares and Dow volume over 1 bln shares.  That's when 
sellers were of the mind to jump form high buildings just to get 
out of a losing position.  It's different this time.  Most that 
have wanted to sell have sold, but buyers refuse to jump in until 
the retest of 3227.  Buyers have been on strike in a self-
fulfilling prophecy, and not willing to put their cash back to 
work until they see a bottom form.  This is actually good for 
those with patient money.  

It appears that investors were still waiting to see the last of 
the weak sellers get shaken out today.  The operative word here 
is "WERE".  Into the final hour of trading, the NASDAQ, including 
most of its major components made a strong rebound off the lows 
of the day.  That bottom just happened to be at 3345, not far 
from the 3322 closing bottom tested last week.  Volumes in the 
large cap tech stocks swelled into the close indicating that at 
least some investors are comfortable getting back in.  We looked 
at the charts of some of the largest market cap issues and 
discovered that many had dramatic rebounds.  In more than half 
the cases, the closing price exceeded the opening price - a 
bullish technical indicator.  CSCO, INTC, SUNW, DELL, and ORCL 
all fit that mold.  The point is that though the overall volume 
is still low, the volume swell into the close may be our clue of 
a successful retest.  Another hour would have been telling.  
We'll have to wait until tomorrow to know for sure, but the wall 
of worry that had been building since last week may have been 
scaled by more than a few brave souls this afternoon.  

However, don't put your pith helmets on in hopes of crashing 
through that wall.  Weighing in on the opposing side of the 
$64,000 question, tomorrow may make for a great trading day, but 
we're not out of the woods yet.  We still have the prospect of 
two 25 basis point rate hikes, or one 50 BP hike in the next 
three weeks leading up to the May 16th Fed meeting.  Key to 
investors sentiment on the issue will be Alphonso the Great's 
(Alan Greenspan) speech on Thursday.  Investors will be listening 
carefully (with Greenspeak interpreters) for any clues on his 
inflation and interest rate stance.  That stance will only become 
clearer by eliminating the uncertainty surrounding the release of 
the Employment Cost Index, the GDP deflator and Initial Claims 
earlier that same day (Thursday).  Any hiccup in those numbers 
could spark the Fed Chairman into hawkish comments.  Currently, 
the bond market is pricing in just one 25 BP rate increase.  
However, if Greenspan has 50 BP up his sleeve, we'll get the 
warning on Thursday.  In a nutshell, it isn't safe to abandon 
caution while thinking we hit a bottom today.

Need more evidence?  Let's take a look at the actual end-of-day 
numbers from the NASDAQ.  Yes, the final 30 minutes were strong.  
Nonetheless, the NASDAQ finished down 161 points on the day at 
3483 on 1.54 mln shares traded.  Decliners creamed advancers 2971 
to 1249 - better than 2:1.  OUCH!  And down volume of 1.26 bln 
shares swamped just 260 mln shares of up volume.  MSFT alone 
traded 157 mln shares.  New lows?  153.  New highs?  Only 23.  
That qualifies as technically ugly, and thus the reason we need 
to see some follow through tomorrow of the late rebound today.

Support in the 3350 area was successfully tested, but a steep 
rebound won't last without some small giveback.  With previous 
support from January in the 3450-3500 range, that could act as 
mild resistance and help foster the giveback.  More importantly, 
3500 happens to be the top bar of the descending trading channel 
and also (gulp!) the 200-dma.  Thus, it becomes an even more 
critical level.  If the index can't get back through and hold the 
3500 level, view today's last half-hour rally as a head-fake and 
start looking again to retest the low.  We've noted before that 
we don't expect it to get there, but we didn't expect it 
previously either.  And in this market, anything is possible.  
The fact is that the descending channel pattern since late March 
is still intact, and earnings season will be coming to an end 
shortly, giving investors no reason to bid up prices anytime 
soon.  The scary part is that 3000 is realistic if the trend 
continues.  3000 is also the point on a three-year trendline that 
would put the index back in synch with history.  On the other 
hand for us optimists, assuming 3500 is cleared, that could 
represent a successful breakout of the channel, with the next 
mild stop at 3600, then 3750.  We're not predicting the direction 
- we just have to play the hand the market deals us, and to be 
prepared with a list of ready plays for whichever direction the 
market moves.

For the Dow, better have put on a pot a coffee this morning if 
you wanted to stay awake today.  It was pretty much a snoozer 
with only 874 mln shares traded.  However, void of tech stocks 
like HWP (-7.19, 132.31) and MSFT (-12.31, 66.63), we'd have 
witnessed another 100 points on top of today's 62 point gain that 
had the index closing at 10,906.  The fact is that until the tech 
rebound at day's end, INTC (+0.75, 116.19) and IBM (+2.50, 
106.19) too were weighing heavy on the Dow.  The internal market 
damage wasn't as bad on the NYSE compared to the NASDAQ.  Four 
decliners cruised by every three advancers, while up volume was 
about even with down volume.  The NYSE still saw 66 new lows 
compared to just 21 new highs.  Aside from this morning's opening 
dip to 10,697 (remember MSFT and INTC begin early trading and the 
rest take a few minutes to open), the Dow traded in roughly a 100 
point range between 10,800 and 10,900.  10,800 has provided 
support in the past and held up well today.  The next level to 
conquer is 11,000, but without continued interest in "old 
economy" stocks and the looming of uncertain Fed interest rate 
hikes, that could keep a damper on the financial stocks that make 
up the Dow (AXP, JPM, C, GE) and also serve to keep overall 
volume low.  Sigh.

Depressed yet?  Don't be, there are still bright spots as shown 
by today's late technology rally.  Without it, tomorrow would 
look really ugly.  We just need to wait and see if the follow-
through is for real.  You'll know it by seeing advancers are 
beating decliners after amateur hour.  However, the single 
greatest factor will be an increase in volume in the technology 
issues and in the overall market (as long as prices are rising).  
That will be a signal that buyers have returned to the trough for 
a feeding that could get the NASDAQ into breakout mode and 
scaling that wall of worry.  If it comes to pass, we'd be even 
more convinced if the gains weren't just a money swap out of 
traditional issues.  In other words, it's suspect if the Dow is 
bouncing south of 11,000 at the same time.

This is still a sideways and choppy market with air pockets of 
strength and will likely remain so going into Thursday when 
Greenspan takes the microphone.  If you have to play, be prepared 
to trade either direction and to get out quickly if the trade 
goes against you.  We reiterate that choppy markets can eat at 
your account a little at a time.  Until a clear direction is 
established, you may want to sit on the sidelines - maybe even 
until Thursday.  We know it's tough and we sometimes violate this 
rule ourselves only to get our knuckles smacked on a bad trade.  
But the primary goal of successful traders above all else is to 
preserve capital.  Without it we're dead in the water.  As Jim 
noted Sunday in a suggestion for the wise....have money and don't 
buy too soon!

Buzz Lynn
Research Analyst


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

American Express Top 1Q Estimates
By Matt Paolucci

Financial services giant American Express Co. (AXP) said its
first-quarter profits rose 14 percent to a record high,
topping forecasts, as the long-running U.S. economic boom
encouraged credit card use.

The 150-year old company provides travel-related services,
financial advisory services and international banking services
throughout the world. Its American Express Travel Related
Services unit provides global network services, the American
Express Card, the Optima Card and other consumer and corporate
lending products. AXP also provides corporate and consumer
travel products and services, tax preparation and business
planning services, magazine publishing and merchant
transaction processing.

American Express earned $656 million, or $1.44 per diluted
share, in the quarter, up from $575 million, or $1.26 a share,
in the year-earlier period.

Wall Street had expected the Dow component to earn $1.42 a
share, according to First Call/Thomson Financial. Revenues
rose to $5.3 billion from $4.5 billion, a 17.7 percent
increase.

Also, the Company said its shareholders approved a previously
announced 3 for 1 stock split. No payable date was mentioned.

Ameriacn Express is a veritable money machine, with net profit
margins of almost 12 percent. Earnings estimates for fiscal
2000 and 2001 are $6.14 and $7.02, respectively. The Company's
return on equity was 25.4 percent.

American Express shares were up $6.50 at $149.50 in afternoon
trading.

With the current economic boom, more than nine years old and
still running, Americans feel richer than ever before,
prompting them to spend more and charge more than ever.
Widespread public involvement in investing has also brought
prosperity to AMEX's financial advisor business.

People charged an average of $1,980 on American Express cards
in the first quarter, while the number of cards in circulation
rose 12 percent to 47.9 million. Cardholders racked up a total
of $68.3 billion in charges in the quarter, as the number of
cards and spending both increased, the company said.

"It looks like a good number," said Moshe Orenbuch, an analyst
at Donaldson, Lufkin & Jenrette. "There was somewhat more
growth in new accounts and charge volume than I would have
thought. They had 20 percent growth in charge volume."

American Express' travel-related services division, which
includes its charge card business, earned a record $416
million in the first quarter, up from $363 million a year ago,
as card spending rose and the number of retailers accepting
American Express cards increased.

Outstanding credit card balances also jumped in the quarter,
further fueling growth.

The Company's investment advisory unit reported record income
of $245 million for the first quarter, up from $214 million
last year. Rising mutual fund, annuity and insurance sales, as
well as higher stock prices, lifted results.


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

AMD - Advanced Micro Devices $80.00 +1.88 (+1.62)

Advanced Micro Devices is a leading semiconductor manufacture.
They ranked #2 in the microprocessor market, standing only
behind Intel (INTC).  Their integrated circuits are primarily
used for computers, telecommunications equipment, and data and
networking devices.  The company has operations in the US,
Germany, and throughout Asia.

Most Recent Write-up

We begin our coverage of AMD in expectation of a split
announcement at the shareholders' meeting scheduled for this
Thursday April 27th.  The company is asking shareholders to
increase the number of authorized shares to 7.25 mln.  With only
152 mln shares outstanding, that'll give the BoD plenty of room
for a 2:1 stock split.  And it's about time!  The last stock
dividend was eons ago in 1983!  This month we took note of the
bullish signs indicating AMD could power higher in the near-
term.  First AMD broke through its imaginary ceiling at $60
trading on moderate to strong volume.  Then the company rocked
the Street with blowout earnings on April 12th.  Expectations
were as high as $0.57 cents, but AMD reported a whopping $1.15
p/s!  The reaction the following day was spectacular.  Investors
bid up the share price 10.9% to $71.50 and volume was at an
impressive 15.1 mln, nearly triple the ADV.  However the
definitive confirmation came in this Wednesday's session.  AMD
cracked the recent high of $79.18, edging the opposition a
fraction higher at $79.25.  Importantly it held these higher
levels through the week.  Near-term support is now clearly
established at $75 and $77.  Look for respectable volume of at
least six to seven mln shares being exchanged or better at 10+
mln shares, which historically substantiated a solid breakout.
Assuming all the ducks are in line, $75 should serve as a solid
entry point.  Take a look at a 10-day chart and it's easy to see
the positive bounces off this mark in the last two trading
sessions. As a whole this week the chip sector was sizzling with
leaders like TXN, LSCC, VTSS, CY, and INTC all reporting better-
than-expected earnings.  This obviously created an excellent
environment for AMD to stretch higher.  However we expect the
upcoming shareholders' meeting to sustain the momentum and drive
AMD into new territory.

Recently Deutche Banc Alex Brown upped its rating for AMD to
a Buy from a Market Perform and issued a price target price
of $125.  Prudential and Wit Soundview also came forward
with upgrades lifting the stock to a Strong Buy and Buy,
respectively.  And as a gentle reminder - please remember it's
essential you confirm overall market direction before opening
new positions, especially considering the topsy-turvy broad
markets.

Comments

AMD, a tech stock, defied the odds today by gaining $1.88 in a 
technology headwind that kept other issues in descent mode.  
That's not so big a gain that it guarantees a fall tomorrow.  In 
fact, despite topping out at $79 on a couple of occasions since 
early April, today's breakout and retest of $79 is milestone on a 
day like this.  To boot, volume was 25% over the ADV of 5.2 mln 
shares.  With any follow-through of today's finish by the tech 
sector in tomorrow's trading, AMD has a technical head start.

BUY CALL MAY-75 AMD-EO OI=2346 at $ 9.75 SL=6.75
BUY CALL MAY-80*AMD-EP OI=2942 at $ 7.25 SL=5.00
BUY CALL MAY-85 AMD-EQ OI=1491 at $ 5.25 SL=3.25
BUY CALL MAY-90 AMD-ER OI=2252 at $ 3.75 SL=2.25
BUY CALL JUN-85 AMD-FQ OI=   0 at $ 8.63 SL=6.00, new

Picked on April 21st at  $78.38    P/E = 55
Change since picked       +1.63    52-week high=$81.63
Analysts Ratings     7-10-6-0-0    52-week low =$15.63
Last earnings 03/00   est= 0.46    actual= 1.15
Next earnings 07-14   est= 1.09    versus=-1.10
Average Daily Volume = 5.23 mln
/charts/charts.asp?symbol=AMD


************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an email to

 "Contact Support" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333



***********
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                Monday  4-24-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

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

BETTER TO BE LUCKY THAN GOOD
Blind Pigs, Acorns & Option Traders 
Austin Passamonte

    I wasn't thrilled to hold long positions over the extended 
weekend. These days, who would be? The OEX put play I had open 
missed stopping out by  point on Friday's close. Truth is I might 
have been happier for a time if it were but I bought them fairly 
low, they were in the black and my stop was sitting right at cost. 
All I dreaded at the open are those big gaps against one. Forget 
one, I mean against me! Do I place a stop loss before the open 
Monday and risk a big hit only to have the market rally and fill 
the gap? Do I play with fire and lay off the stop? Will it be a 
fast market where my broker cancels stops and none of it really 
matters? Three days wondering how the MSFT meltdown and Monday's 
open was going to shape up took their sweet time passing by. 

    The other put play I had were some OTM QQQs that I felt no 
urgency to dispose of. They don't move nearly as fast & furious 
as the OEX can at times. Being slightly in the profit already 
didn't hurt either, although the NASDAQ has been gapping open 
widely as much or more often than starting out flat for what 
seems like an eternity.

    Up at 7:00am today, awake long before that. Let the dog out, 
fetched the paper (both of us) and turned on Bloomberg to check 
futures. NASDAQ was limit down with DOW and S&P 500 falling 
steadily looking good so far and got better as the bell approached.

    The OEX bungeed from 777 to 760+/- at the open and my position 
was instantly double it's purchase value. For a moment greed 
overwhelmed me and I hesitated to enter the sell-limit order for 
100% gain but my written plan stated to do so. I have seen a number 
of smash-down opens where the market spins on a dime and heads back 
from whence it came with equal speed. I "clicked it in there" and 
was filled as soon as the status pending screen cleared. 

    Pangs of remorse made a feeble attempt to build but were 
squelched flat as I was watched the index about face and come 
steaming back. The NASDAQ was in trouble but the DOW was determined 
to continue Thursday's party. I then entered a buy order for some 
OEX calls from my list compiled last night in case this scenario 
arose. I checked the bid/ask and split the 2 1/8 point spread on 
a limit buy and filled minutes later in a market hesitation. This 
wasn't easy to do while watching the NASDAQ tank and DOW struggle 
to move up but I used 50% of my open balance and committed to long 
strangle (straddle) the 760 OEX benchmark if required via Skybox 
instruction. This was all prior to 10:00am, and more adrenaline was 
flowing freely than I bargained for!

    I watched the market drift up and down a couple of times until 
it pushed through 771 and pulled back around 1:00pm. The DOW was 
showing plenty of spirit and my hopes were high, but I closed the 
position for a modest gain as the first bit of red began showing 
on the next candle forming. Gosh, my nerves need a break.

    The QQQ puts hit the 50% profit from purchase sell-limit order 
I placed when the NASDAQ broke  -240 in the morning. Again, greed 
and regret reared their twin mugs until this index also reversed 
and wandered a bit higher mid-day.

    Now it's 2:00pm, my account is flush with cash and I have no 
open positions. With my bankroll up slightly over 100% of Friday's 
balance the sensible thing to do is sit tight and see how the market 
closes. Problem is I'm an options trader who just went 3 for 3... can 
you honestly expect me to be sensible? I took 50% of the balance and 
bought OEX puts as the indexes stair-stepped lower. I spent the next 
hour lifting weights and gloating to myself over the 2 point per 
option appreciation by 3:15 pm. 

    "Ahh, this trading is too easy when I'm in tune with the market" 
I said to myself as the NASDAQ bumped -290 and the Dow -40. "The 
buyers have hung it up for the day and this market is falling out 
of bed. Might as well shower, shave and get ready to sell near the 
close when the screen is bleeding red." 

    Smooth move, Buzzy Schwartz wannabe! I was toweling what's 
left of my hair (gently) and jiggling the computer mouse to wake 
up my sleeping screen. "WHAT, the Dow is +50 and the NASDAQ -150! 
Are you kidding me! Are the clocks correct on my Qcharts? (Guess 
where that 2-point per option profit I walked away from is now? 
That's right, we're breathing it.) The buyers came rushing in 
even as I pondered my fantasy 300% profit day. Serves me right!!!

   Tomorrow's game plan? Well, these OEX puts were purchased 
with pure profit from today, so some might see that as a "free 
play". Not me, I expect to be stopped out on the first rally and 
sit back a little more cautiously waiting for the next proper 
entry. I wouldn't mind another gap-down day, but how many acorns 
can be out there for a certain blind pi, er, I mean option trader 
to glean?    

Trade the right direction, 
Austin Passamonte
  


************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an email to

 "Contact Support" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333



***********
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.

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives