Option Investor

Daily Newsletter, Wednesday, 06/14/2000

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The Option Investor Newsletter                Wednesday  6-14-2000
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)
       6-14-2000           High     Low     Volume Advance Decline
DOW    10688.00 +  66.20 10737.70 10624.70   928,995k 1,676  1,257
Nasdaq  3797.41 -  53.65  3883.34  3797.00 1,397,988k 1,796  2,233
S&P-100  790.35 +   0.92   798.01   788.49    Totals  3,472  3,490
S&P-500 1470.54 +   1.10  1483.62  1467.71            48.0%  52.0%
$RUT     509.67 -   4.08   517.58   509.49
$TRAN   2748.29 -   6.58  2767.73  2743.20
VIX       24.51 +   0.14    25.17    23.69
Put/Call Ratio       .57

Benign Data Met With Muted Reaction

The market's reaction to the CPI number was a non-event.  So what
happened today on The Street?  Well, it was a case of we got what
was expected.  Nowadays, without something extraordinary, there's
really nothing to get excited about.  Traders yawned at the benign
CPI and after an initial euphoric pop in the morning, the DJIA flat-
lined around 10700 and the NASDAQ slowly bled to close at the
lows of the day.  So now we sit back and scratch our heads,
pondering what appeared to good news for inflation.  Here's what

The CPI came in at +0.1% versus analysts' forecasts of +0.2%.
That's good, right?  Yes.  The Core CPI, excluding food and energy
prices, was +0.2%, right in line with expectations.  A closer
look at the CPI shows that food prices gained 0.5% while gas prices
fell 3.5%.  Sounds great, right?  Well, maybe not.  Some of the
cautiousness on the Street comes from the fact that these May
numbers were compiled prior to the most recent surge in oil prices.
Therefore, there is an increased likeliness that the June CPI
will have a hefty gain in energy prices.  Luckily, that will be
after the June 27-28 Fed meeting.

Overall, these numbers proved to be benign and certainly indicate
that the economy is slowing.  Yet, there are a variety of
inflationary concerns that haven't yet been disspelled, and it
showed in today's trading session.  It was a good news, bad news
scenario.  The Fed's Beige Book revealed signs that economic
growth is slowing, yet remains "solid."  It also indicated that
while labor markets remain tight, they haven't intensified.  A
caveat to this is that wage pressures are NOT accelerating.
That is great news for the economy if we maintain low unemployment
and low wage inflation.  Forget the Philips Curve, this is the
Internet Era.  Continuing to play both sides, the Fed stated that
inflationary pressures are "worsening" but not "widespread."  One
thing we do know is that consumer spending is slowing and that's
one of the first indications of a slowdown.

Yet, investors hesitated to commit money as they try to discern
just how much the economy will slow and how much the Fed wants it
to slow.  Right now, the Fed has everybody guessing.  They do this
by talking down the market while easing off their tightening
monetary policy.  No matter what you hear, the Fed watches the
market.  Hence, their rhetoric when investors rejoice to benign
numbers.  Echoing the Beige Book today, San Francisco Fed
President Robert Parry said that inflationary pressures due to
demand are still growing faster than productivity.  Just a
little something to take the air out of the CPI.  Remember, the
last thing the Fed will ever do is declare victory over inflation
as an exuberant market reaction would only disappoint them.
Further inflated stock prices are not what they want to see.

So how did stocks react to all this Fed and inflation talk?  After
the initial pop at the open, the DJIA managed to hold on to some
of its early gains as money rotated out of techs and into
cyclicals.  The DJIA closed at 10687, up 66.11.  It was a pretty
dull day on the trading floors and the DJIA's narrow range
exemplifies that.  Looking at the chart, the DJIA needs to break
through the 10800 level convincingly in order to end its current
downtrend.  For this to happen, it is absolutely essential that
financials lead the way.  Given the perception that rate hikes may
be over before the Presidential Election, financials mounted a nice
rally today.  Better-than-expected earnings from Bear Stearns,
BSC(+1.38), fueled financials.  The AMEX Broker/Dealer Index gained
3.5%.  Some standouts in the sector included: GS(+4.81), LEH(+4.69),
MER(+3.81), AXP(+2.25), MWD(+2.13), and C(+2.00).

DJIA techs took a beating with INTC(-5.06) leading the way.  Close
behind was HWP(-5.00) and IBM(-3.31).  Bucking the trend was MSFT,
which closed at $70.50, up $2.63 on news that the District of
Columbia Court of Appeals will hear Microsoft's case.  The drug
sector also held up well.

Equally dull was the NASDAQ.  While slight consolidation isn't a
bad thing, it sure is boring.  Yet, given the recent run-up in
the techs since Memorial Day, a breather for the NASDAQ isn't
surprising.  After a morning pop, the techs flat-lined and then
slowly deteriorated into the close.  The NASDAQ closed just
below the key 3800 level at 3797, down 53.63.  Once again, the
first thing that comes to mind is a lack of conviction.  No real
excitement for the real prospect that the Fed may pass on an
interest rate hike in June.  No real excitement on the up or
downside.  Volume was light at 1.4 bln shares.  Notice the
narrow range to which the NASDAQ is confined.  As boring as it
may be, there have been a handful of stocks that have performed
nicely, namely the fiber-optics.

So with today's CPI being the last major economic data before the
Fed meeting, what's going to drive the markets?  Earnings.
Therefore, it is going to be a stock picker's market.  Most of the
tech favorites felt the profit taking today, such as RMBS(-18.75),
GLW(-12.00), SDLI(-11.88), and CHKP(-11.25).  All of these stocks
have had healthy gains during the past month.

One of the bigger losers on the NASDAQ that hasn't had healthy
gains as of late is QCOM.  It was on the NASDAQ most active list
today as it lost 13%, or $10.88, to close at $70.50.  Recently,
news has not been kind to QCOM.  Citing slower sales in South
Korea, Bear Stearns lowered its earnings forecasts for fiscal
2001 to $1.30 per share from $1.40.  This is concerning to
investors as South Korea is Qualcomm's biggest market.

Bigger than QCOM's woes are those of anyone involved in what was
reported as "the largest securities fraud takedown in history."
Today, Federal Prosecutors indicted more than 100 people on stock
fraud charges.  Officials said the one year investigation resulted
in over $50 mln dollars in losses, mostly by elderly investors.
The SEC sued 63 individuals and entities in five related
enforcement actions.  It was a classic pump-and-dump scheme where
the defendants would purchase shares of micro-cap stocks and
start propping the stocks to the public to increase the share
price.  Brokers were bribed or scheduled to receive kickbacks to
promote the stocks.  Once they get enough buyers to inflate the
price, they begin selling their shares.  This is commonly known
as front-running.  "The securities fraud involved in today's
actions is among the most egregious witnessed in recent years,"
said SEC Enforcement Director Richard Walker. "These manipulations
of numerous stocks were designed for the sole purpose of stealing
investors' hard-earned dollars."  The government wants to clean
up this type of activity so that micro-cap stocks can be seen
as reputable investments.

Looking forward into the market crystal ball, it appears that we
will have much of the same type of trading activity until the Fed
meeting on June 27-28.  The analysts will continue to argue about
the probability of rate hikes.  As of today, the June Fed Funds
futures contract has a 25 basis point hike priced into it.  Yet,
that will probably change.  What is important to remember is that
the Fed has never raised rates immediately after a 50 basis point
rate hike.  Since the last hike in May, we have seen convincing
economic data that clearly shows a slowing economy.  With the
earnings season right around the corner, a rally could follow.
Meanwhile, trade the current range and take your profits quickly
as the market can turn on dime these days.  Look for the financials
to remain strong if we are to have this June rally.  Good luck and
when in doubt, stay out.

Matt Russ
Research Analyst

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A few more pieces to the puzzle.
By Eric Utley

The tame CPI report Wednesday morning confirmed inflation is
under control and the economy is slowing.  We got a benign
wholesale inflation report last week, a modest retail sales
report and a good retail inflation number this week.  So what
more do the bulls need?  It seems every time we hurdle an
impediment of the market's advance, a new issue arises.  The
latest worries on Wall Street are the affects of rising energy
prices on inflation and the question of just how much the economy
is going to slow.  The question remains if companies are able to
increase earnings in a slowing economy with a rising cost of
money.  I was intrigued when I read Mary Redmond's column in
Tuesday's newsletter on the similarities between the current
market environment and that between 1995 and 1996, despite rising
interest rates, leading companies kept making money.  In the past
two weeks, we have seen evidence that if their in the right
businesses, companies can still increase earnings.  Clearly,
business is booming in the fiber optic arena, with companies such
as SDLI and GLW leading the way.  At the same time, we are
hearing more earnings warnings.  Until we see clear signs of a
rally, I think the current market requires careful stock picking.
I know that's not profound, but, if you place your bets carefully
you can make money in this market.

With the addition of Buzz Lynn's new Sector Trader column to the
Sunday newsletter, we have decided to publish this column on
Wednesday's only.  The good news is that I will ramble less and
include more of our readers' requests in the column.  Continue
sending your requests to Contact Support.
Please put the symbol in he subject line of the e-mail.


MicroStrategy - MSTR

Would you please evaluate MSTR?  It has gone from low of 17 5/16
on May 25th to high of 62 3/4 on June 9th.  Is it on its way to
its old triple digit price?  Thanks. - Shahab

MSTR has entered the spotlight again, but this time around the
story is a little more positive.  Rumors began circulating
early last week that MSTR was in the process of receiving a $100
mln cash infusion from a private placement.  As you might recall,
MSTR blew up last March when the company said it would be forced
to revise its prior revenues after changing the way it accounted
for sales.  For a more detailed discussion on MSTR's revising of
revenues, I urge you to read the excellent article written by
S.P. Brown in Monday's newsletter.  Although the stock nearly
tripled last week fueled by speculation and rumors, I don't think
MSTR is on its way to triple digit prices.  The company has a
long way to go to regain the respect of Wall Street.  The
accounting disaster has left permanent scars on the stock.  If
the rumors are true, and MSTR receives an investment of $100 mln,
it may help the stock.  But, until the accounting and legal
issues are resolved, business at MSTR will probably suffer,
along with the stock.

The catalyst behind MSTR's massive rally last week was pure
speculation.  And more times than not, speculation ends badly.
The stock had a series of four gaps, in conjunction with an
explosive rise in volume.  If you're quick enough and don't mind
the risk, events such as these provide good day trading
opportunities.  But if you get caught holding the stock at the
wrong time, (this Monday when it dropped $17) you could end up
losing a lot of money.


American Express - AXP

If you could be so kind and review AXP for me.  Thanks. - Luis
and Millie

In an environment of rising interest rates, it is believed that
leading financial stocks turn higher about 6 months ahead of the
final raise of rates.  Judging by the action in AXP, among other
financial stocks, the Fed be should done rising interest rates
sometime in August.  AXP turned north in early March when the
broader market took a turn for the worse.  The stock subsequently
fell into a trading for two months, from which it recently
emerged.  AXP traced a new 52-week high during Wednesday's
trading after the benign CPI report earlier in the morning.
Technically, AXP looks strong, and if the Fed is nearing the end
of its tightening practices, the stock could continue to trace
new highs.

Fresh from its victory over Microsoft, the Justice Department
filed a lawsuit against Visa and MasterCard, alleging they had
violated antitrust laws.  The antitrust trial could have a major
impact on shares of AXP.  Visa and MasterCard together control
about 75% of the U.S. credit card market.  Visa and MasterCard
are owned by the major banks that issue their cards, and the
Justice Department will argue a rule known as exclusivity, which
bans banks from issuing American Express.  The court may rule
that the major banks will have to issue both American Express and
Visa, which would be a major leap for AXP.  Interestingly, the
case itself is the result of lobbying by AXP.


Cree Inc - CREE

Your analysis of Cree Inc. please.  Thanks. - Bill

CREE developed and commercialized a unique semiconductor medium
knows as silicon carbide.  The company has two primary product
lines.  CREE makes Blue LEDs, (light emitting diode) used in
stereos, cell phones and other electronic devices.  CREE also
manufactures wafers used by semiconductor companies to experiment
with product designs.  What's exciting about CREE are the future
possibilities of its technology.  Silicon carbide is the third
hardest compound on earth, and is considered a substitute for
industrial diamonds.  The same compound is applied to microwave
devices to cut costs and improve efficiency.  CREE is also using
silicon carbide to develop blue lasers to increase storage
capacity in optical uses such as CD-ROMs and DVDs, the company is
also developing power semiconductors which could ultimately
reduce global energy consumption.  CREE is expected to grow
earnings by about 32% annually over the next five years, and with
a PEG of 1.7, the stock is reasonably priced.  If just one of its
products under development go mainstream, earnings could
substantially increase and the stock should too.

The stock has been consolidating its prior gains for the past
three months.  From a long-term perspective, I think the recent
basing price action bodes well for CREE.  The stock has been
churning between about $100 - 160.  CREE attempted to break out
above $160 Wednesday, but failed to close above that level.  A
bold move above $160 in conjunction with an increase in volume
might provide a good entry point for a new long position.


Intertrust Technologies - ITRU

Two of my friends and I purchased shares of ITRU a couple of
months ago.  We bought ITRU when its cost was still in the 80's.
It plummeted to below 15 last week and is now only in the low
20's.  What happened?  We can't figure it out.  Any information
you can provide to us will be greatly appreciated.  - Peter

For investors, the Internet was filled with concepts and ideas
and promises akin to the Wild West for 19th century pioneers.
And like the tumultuous trek of western trailblazers, the Web has
become a place of peril for many.  Anything with an Internet
story attracted money earlier this year, back when ITRU was
trading north of $80.  The Net landscape has since changed and
is littered with hundreds of small cap Web stocks that have
fallen 70 and 80% from their peaks.  Many of the Web pioneers are
now faced with dwindling cash reserves, declining margins, or
worse yet, death.  To answer your question Peter, ITRU has fallen
along with most of the Web concept stocks due to the macro
cataclysm in the Net sector.  As for specific issues affecting
ITRU, the company has a healthy cash position around $100 mln,
but earnings are still a long ways off.  And if there is one
thing that will move ITRU higher it's earnings, or maybe a

Now Peter, I'm not trying to make an example of you nor telling
you what you should have done, but I see two warning signs on the
chart.  The first cautionary flag was waived when ITRU broke its
long-standing support level at $80.  As you already know, $80 was
a major support level for nearly two months.  The longer the
support the level, the more crucial it is to hold.  The second
warning sign came in mid-March when volume began accelerating as
the stock continued sliding.  What's more, on April 20th, a flood
of supply came to market when the IPO lockup period expired and
insiders sold their shares, consequently driving the stock lower.
It's easy to look back and be correct, the hard right edge of the
chart is where the challenge lies.  From the looks of it, ITRU is
making a comeback.  The stock is moving higher with increasing
volume, but I don't think you'll see the $80 level again this
year barring any substantial positive developments.


Osicom Technologies - FIBR

I have been following FIBR for nearly 3 and a half years now.
This company has been developing Metro DWM's before any of the
larger companies (NT, LU, JDSU etc.) and it is now looking to
spin off its fiber optic division named Sorrento this year.  It
has recently gone from an intra-day low of 26 to 67 with
increasing volume.  My TA indicates a rise to the 90's if the
current level holds.  However, I may be skewing the data to meet
my wishes so I'd love to get an opinion from you on what you
think of the current technicals.  Thanks in advance. - Bardia

FIBR is carving a niche in the lucrative fiber optic business.
The company offers products which employ dense wavelength
division multiplexing (DWDM).  When connected to an optical
fiber, a DWDM product increases that fiber's capacity to transmit
information.  With the growth of the Internet, the world's
already-laid fiber optic networks are crowded.  To meet the
increased needs of users, telephone companies are using DWDM as
an alternative to laying new cable.  FIBR has designed its DWDM
products to meet the special needs of intra-city networks.  The
company is betting that the need for DWDM in metro markets will
be significant.  If FIBR is correct in betting that the metro
markets will make the company money, investors could be well
rewarded.  But turning revenues into profits is something FIBR
has not yet been able to do.  The company announced the results
of their fiscal first quarter after the bell Wednesday.  FIBR
reported widened losses from operations.  The earnings
announcement Wednesday will probably have an impact on the stock,
whether it's good or not depends upon how FIBR's conference call
goes.  The stock was down about $4 in after hours trading at the
time of writing this column.

To answer your question Bardia, FIBR's current technicals look
good.  The stock formed a lengthy double bottom over the past two
and a half months, and just recently moved above $60.  Like you
mentioned Bardia, FIBR has made quite a run since late May.  The
recent consolidation was expected, and may provide a solid base
for the next leg up.  Before hitting your $90 price target, I
think FIBR will face major resistance at $80.  The coming days
should be interesting after the report of larger losses
Wednesday.  If support at $55 holds, FIBR should be alright, but
the market has been punishing stocks with widening losses lately.


This column 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 Ask the Analyst 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 its accuracy.


A Little Bit Can Go a Long Way
By David Popper

Is it a bear market, or is it the start of a bull market?  Will
the Fed raise rates?  If the Fed raises rates, will it be the
last time this year?  How does the election affect the market
this year?  Are stocks setting up for a run or is this another
bear trap?  Will the earnings season prove to be profitable or
will there be earnings disappointments?  How much money is on
the sidelines?  What about the Barron's article predicting a
huge bear market?  Which "play of the day" will I play?  Jim
says the Nasdaq is forming a bullish wedge.  How do I play it?

Indeed, there are huge cross currents in the market right now.
One currently guarantees smooth sailing, while the other currently
promises disaster.  The problem for those of us who do not trade
for a living and cannot watch the computer all day is that it
is difficult to predict at this point which will prevail in the
short run.  Many tech stocks appear to be setting up for a bull
run, but the Fed still looms.  So how do you play a market that
has the potential to explode either way?  Very carefully.

One way to play the sideways market is to trade only market
leaders with good chart patterns and to trade less amounts
of the stock than you would normally would trade.

For example, this week I have chosen to trade CHKP.  It
successfully broke above resistence at $200 eight sessions
ago and has bounced off $200 two times during these past
eight sessions.  The stock has encountered resistence at
approximately $236 and thus, has been range bound in a
$36 range for the past two weeks.  Range bound stocks
present great trading opportunities.  Trading 100 shares of
CHKP may yield $500 to $1,000 a day.  Purchasing CHKP
toward the bottom of its trading range and holding until it
returns to the upper end of the trading range could yield
$2,000 to $3,000 per week - and with less risk.  This would
be poor performance for someone trading for a living, but
for the person using the market to supplement his income,
it is good income.

Yeah, you might miss a breakout, but there is always tomorrow.
The market offers opportunities every day.  If you miss one
wave, you can always catch the next.  The point is you must
treat the market as a business and only take reasonable business
risks.  You must trade in light of your risk parameters and
time limitations.  You must trade in light of reasonable goals
and not in light of a fantasy mega return.  You do not have to
heavily invest until the conditions are right.  It is better
to make a decent second income without major risks and wait
for a trend to be established before a major investment is
made.  Again, if your account does not allow you to buy 100
shares of CHKP, check out EMC, JDSU, TQNT, CMTN or a host of

In short, range trading during sideways markets provides
the trader with the opportunity to make a consistent
income, while waiting for the major trends to be established.
I am confident that there are many people that have the time
and experience to invest heavily in this market.  They may
be rewarded handsomely, or maybe not.  I, for one, simply
do not have the time to monitor a large position when
conditions are uncertain and therefore, it is better to trade
within these limitations.  For me, it is better to make a decent
second income without major risks until a definitive market
direction is established.  After all, I am looking for a
predictable second income over the long haul.

Contact Support


Confessions Of A Trader
By Austin Passamonte

I've come to realize that the worst thing about sharing
strategies is I should adhere to them myself. Join me for
a bit of trading history the past couple of weeks and see
where I went wrong.

Most of May treated me pretty good. Seems like everything I
bought made money or got stopped at my entry on trailing
stops. Calls & puts on the OEX, QQQ, Disney, PDLI, GE all
padded the account nicely. Being flush with cash and on a
roll is not always a good thing, however.

On Wednesday May 23rd markets failed to follow through the
prior day's strong rally on heavy volume. Instead we had a
quiet session on very light volume as all the media sure
expounded. I figured it was just a little relief rally after
a heavy sell off the week before and decided to enter some
downside plays to capture a pullback. I placed a buy order
for June 740/730 put debit spread @ 2.5 when the ask was
3.75 and filled in the afternoon.

I also sold some June SPX 1375/1400 call credit spreads for a
premium of 20 on a maximum risk of 25. That means each spread
expiring against me would be limited in loss to $500 maximum.
I liked the chances for time decay in my favor, and actually
planned on buying them back for any decent profit when the
markets retreated.

In case you haven't noticed the equities thumbed their
noses at me, rallied and didn't look back until this week.
Those bearish spreads went so far underwater the Titanic rests
above them. The beauty of a spread however, is it's staying

The OEX debit spreads dropped to a value of 3/8th each and I
bought back the short 730 puts for .125 apiece to leg out of
the spread. That means I still own the June 740 puts at a cost
of about 3 each when you add the 2.5 initial spread, .125
cover on the shorts and commissions. The 740 puts were selling
for 15 - 17 points if memory serves correct, so I would have
lost at least 12 points each to date just on a buy & hold of
straight puts without closing out.

If the OEX continues to drop by Friday I may have the chance
to exit at a slight loss to solid profits but that's a long
way to go from current market close of 790.

Had I sold OEX credit spreads instead, the chance of early
exercise could have taken me out of the action at the highest
rise in profit which would have been near 9+ points to the
buyer whom I sold to. That's why I stick to the SPX and
it's European-settled options for credit spreads. Even though
my chances of profit are slim, hope still springs eternal. If
I'm out all that capital I sure want to get my money's worth
of entertainment.

Speaking of the SPX, my 1375 short/1400 long call credit spread
added 20 points per contract to my account. Alas, it must fall
to close at 1395 by Thursday night for me to at least break even
on the 5 point difference in the spread. To be completely clear,
someone owns that 20 point credit spread I sold as a 20 point
DIM debit spread they bought. Maximum profit is $500 to them
which as a risk 4 to earn 1 play seems terrible to me but is
looking favorable as we speak. That $500 per will come out of
my account along with the 20 points credited if the S&P 500
closes at or above 1400 by Thursday night. Just about a lead-
pipe lock that play bit the dust!

For every index point below 1495 the SPX may close I get to keep
$100 of that $2000 credit. A huge market slide to 1375 or less
would buy the Jeep Cherokee Limited Wendy has pined over for
so long, but we pretty much know the results by now.

Where did I go wrong? It's easy. I bought too soon! Had I tuned
out the "low trading volume" nonsense and paid attention to my
charts it should have been clear that an upside move was far from
over. Didn't we cover that in the stochastics discussion? Not
well enough for me to internalize. I could have bought & sold
similar spreads much higher in strike prices for the same credit
and debit amounts had I waited mere days.

While we're on the subject, light or heavy volume only indicates
whether an extreme move has lasting power. I think we can all
relate to low volume days that moved much further than we'd like.
That's why I rely on stochastics. they eliminate the weakness
of volume watching on light trading that kills.

Think of it this way; volume tells us how many soldiers are
on the battlefield while stochastics measure the magnitude of
their firepower. Even on days when few soldiers are marching if
they wield heavy artillery the battle lines will advance.
Doesn't mean they will hold the ground for long but it will be
theirs until retreat. Stochastics allow you follow the soldiers
while volume lulls one into waiting for the major assault force.
Trust me, the lead Marines can either save or eliminate you long
before that. Keep volume measures in perspective, I continually
repeat to myself.

Today I had a dental appointment scheduled that wrenched me out
of the office fifteen minutes past the opening bell. Based on
"Market Posture" section by Capital Advisors in OIN showing heavy
open interest above 800 for the OEX, I hoped to buy some June
790/780 put debit spreads if I could have them for 2.5 points or

We entered a buy-limit order for 2.5 when the ask price was 3.375
and rushed out the door. Got filled on the index rise to 798
before bouncing off. If the OEX trades near 770 soon or expires
below 780, this play will break me even for my earlier buy-too-
soon decision. A close above 790 won't break the bank, so it's a
trade I can live with.

On a side note for those who question taking put plays on a
rising market via Skybox bearish 798 trigger today, look how
cleanly the index hit that resistance and broke down. Even
during times when option prices are too high for entry you
will notice this reversal behavior at benchmarks of resistance
quite frequently.

Now for some housekeeping. Many have asked how to change
stochastic settings on charts. I use Qcharts highest-level
service which allows all sorts of interactive tools. There are
other services out there as well. For months I simply used the
live chart applet via Qcharts provided free by OIN in the "Tools"
column at left. The default settings are 21 and 14, but I switch
them to 14 - 3. Smoother settings of 10(3)5 as noted in Monday's
article really perform best on charts that have three selections
instead of 2.

A number of people inquired about books that fully explain
stochastics. To be honest, I learned to use them years ago
from paper chart services. I would strongly suggest the book,
"Technical Analysis From A to Z" by Steven Achelis in the OIN
bookstore. I haven't read it yet but a friend has and tells me
it's excellent. One stopped-out trade could pay for every book
in the library and then some. Books not read won't help you or
me either. Come to think of it I'd best order a copy myself.

I really can't complain. May was a solid month and I've reduced
my positions to a handful of options at a time. The days of
30 - 40 contract plays will wait until the Fed lifts their foot
off our necks and clear sailing is abreast. I'm just having fun,
polishing up my skills and collecting some decent spare change
along the way. More than anything else, I hope you are too!

Contact Support


Update from Orange County

Monday 6PM June 19th, 19200 Von Karman, Irvine, 5th Floor.

Speaker will be our own new internet personality and "market
expert" Dave Baker.  David Baker was a professional equities
and options trader. Each day, David's focus is to identify and
provide you with the best intraday setups in the technology
sector. David is a graduate of University of California at

We have been fortunate in that Dave has added value to many
of our meetings with his "pithy" (yes I spelled it right)
comments.  We are going to ask him to concentate on chart
formations useful to Swing Traders.

Note: If you have been to any of our meetings in the past, you
know that they are SRO. The reason we never have enough chairs
is that only about half the attendees RSVP. So I never know how
many to plan for. Also don't forget to bring your $5.  Our
committee will tell us more about how we are going to enjoy
our $5 meeting dues.


PDLI - Protein Design Labs $158.13 +3.00 (+7.44 this week)

Protein Design Labs develops human and humanized monoclonal
antibodies to prevent and treat diseases.  The FDA approved the
company's first humanized antibody product, Zenapax
(daclizumab), for the prevention of kidney transplant rejection
and there are seven other antibodies in the developmental
pipeline.  Global patents have been issued for the PDLI's
humanization technology and currently they have business
agreements with Eli Lilly and Genentech.

Most Recent Write-Up

Waiting to exhale, and exhale it did on Monday.  PDLI cast off
8.8% or in monetary terms, a hefty $14.56, although the volume
was light.  The downdraft continued in this morning's session.
However it was evident that when PDLI hit $140 the temptation
was too much for buyers to ignore!  And let's keep this all in
perspective.  The pullback to the first two levels of support
was healthy.  Take into consideration the astonishing gains
(+78%) in mere weeks and you really can't scold traders for
taking some cash off the table.  Plus the downdraft provided a
multitude of entry points to get your foot in the door for
another momentum rush.  On Thursday the shareholders will vote
on a proposal to increase the number of authorized shares to
90 mln at the company's Annual Meeting of Shareholders.  If
it's approved then we've got a potential splitter in our midst!


The Biotech sector was down slightly with the market today,
but did rebound from the Monday sell-off.  PDLI continues to
creep up the chart, albeit on light volume.  That is what we
will be watching, volume.  A move over $164 on better volume
would signal a breakout and is worth a look for bullish plays.

BUY CALL JUL-155*RPV-GK OI=65 at $25.25 SL=20.25
BUY CALL JUL-160 RPV-GL OI=20 at $24.75 SL=19.50
BUY CALL JUL-165 RPV-GM OI=31 at $22.75 SL=16.00
BUY CALL JUL-175 RPV-GO OI=68 at $24.63 SL=19.25

Picked on June 4th at   $125.13    P/E = N/A
Change since picked      +31.44    52-week high=$338.00
Analysts Ratings      2-2-4-0-0    52-week low =$ 19.25
Last earnings 03/00   est=-0.04    actual= 0.04
Next earnings 08-04   est= 0.19    versus=-0.14
Average Daily Volume = 1.45 mln


Pandora's Box: A weaker economy is good...or is it?

Blue-chip stocks rallied today amid strength in a number of well
known financial and drug stocks.  Concerned investors received
favorable economic news and the buying interest gathered momentum
after the positive CPI report filtered through the market.  The
consumer price index rose 0.1% in May, well below the expected
0.2% increase.  Analysts said the benign CPI data gives equity
markets a "green light" to rally now that the Fed is relatively
certain to avoid another rate hike at the next FOMC meeting in
late June.  Experts believe there is simply no reason to raise
interest rates with the economy showing signs of reduced growth.
The bullish inflation data failed to impress technology traders
after Tuesday's impressive gains.  Investors sold for profits in
biotech and computer shares even as the effects of the economic
report were bolstering the Dow.  Some analysts believe there is
still the possibility of a negative inflationary impact from the
recent rise in energy prices and many of the institutional buyers
will remain on the sidelines until that outcome is known.  Our
outlook is one of cautious optimism and until the Nasdaq breaks
through the resistance at the upper end of its trading range, we
will continue to offer "in-the-money" positions with low risk and
a high probability of success.

Summary of Previous Picks:

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

NVDA    JUN   100    96.13  126.81   $3.87   7.7% Splits 6/27
BRL     JUN    50    48.38   57.88   $1.62   6.4% Holding up
ARBA    JUN    55    51.63   74.09   $3.37   5.4%
NVDA    JUN    90    85.50  126.81   $4.50   5.3% Splits 6/27
NEWP    JUN  36.6    34.81   82.00   $1.78   5.2% Adj 3-1 Split
RFMD    JUN    90    87.62  105.75   $2.38   5.2% Watch Closely!
LLTC    JUN    55    53.56   65.00   $1.44   5.1% Consolidating
RFMD    JUN    95    90.50  105.75   $4.50   5.0% Watch Closely!

ELON    JUL    60    54.69   65.06   $5.31   6.7%
ABSC    JUL    55    50.75   71.75   $4.25   5.8%
SDLI    JUL   210   193.81  271.31  $16.19   5.8%
HGSI    JUL    90    83.38  129.75   $6.62   5.5%

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

BRL     JUN    50    48.44   57.88   $1.56  15.4% Holding up
RFMD    JUN    85    83.25  105.75   $1.75  14.0% Watch Closely!
LLTC    JUN    55    53.50   65.00   $1.50  13.5% Consolidating
ARBA    JUN    50    48.00   74.09   $2.00  10.6%
NEWP    JUN  31.6    30.66   82.00   $1.00   9.5% Adj 3-1 Split
PLCM    JUN    65    64.12   87.38   $0.88   9.5%
NVDA    JUN    85    83.81  126.81   $1.19   9.4% Splits 6/27
NVDA    JUN    80    77.87  126.81   $2.13   8.9% Splits 6/27
RFMD    JUN    85    82.94  105.75   $2.06   8.3% Watch Closely!
SDLI    JUN   140   136.75  271.31   $3.25   7.3%
SDLI    JUN   195   193.94  271.31   $1.06   6.8%
YHOO    JUN   115   112.75  139.50   $2.25   6.6% Earnings soon
SDLI    JUN   165   163.44  271.31   $1.56   6.3%
AFFX    JUN   105   102.94  177.25   $2.06   6.1%
CHKP    JUN   150   148.87  217.38   $1.13   5.5%

ELON    JUL    50    47.75   65.06   $2.25   9.1%
ABSC    JUL    45    43.44   71.75   $1.56   6.9%
BRCD    JUL   105   101.75  138.13   $3.25   6.8%
HGSI    JUL    75    72.62  129.75   $2.38   6.4%
RBAK    JUL  77.5    75.12  113.50   $2.38   6.4%
SDLI    JUL   170   164.87  271.31   $5.13   6.3%
MLNM    JUL    80    77.81  103.94   $2.19   6.0%

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

JNPR    JUN   270   272.13  226.63   $2.13   6.1% Splits 6/16

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.


BULLISH PLAYS - Covered Calls & Naked Puts

CHKP - Check Point Software  $217.38  *** Internet Security ***

Check Point Software Technologies is the worldwide leader in
securing the Internet.  Their Secure Virtual Network (SVN)
architecture provides the infrastructure that enables secure and
reliable Internet communications.  Secure Virtual Network secures
business-to-business communications between networks, systems,
applications and users across the Internet, intranets and also
extranets.  Check Point's Open Platform for Security provides
the framework for integration and interoperability with solutions
from nearly 250 leading industry partners, including IBM, Compaq,
Nokia, and many others.

Check Point is a dominant company in the Internet Security group.
In May, the company announced that Software Business magazine had
awarded Check Point the "Best Partnering Alliance" across the
entire software industry for its Open Platform for Security
(OPSEC) Alliance.  It also received the Network Computing 2000
Well-Connected Award in the category of Best Firewall for its
VPN-1/FireWall-1.  Recognized for its intuitive interface, high
performance, highest level of security, extensive logging and
reporting and enterprise wide policy management capabilities,
VPN-1/FireWall-1 also provides the security foundation for Check
Point's VPN-1 product family.

CHKP has moved into a relatively stable range near $165-$170 and
our position offers an excellent reward potential at the risk of
owning this industry-leading issue at a favorable cost basis.

CHKP - Check Point Software  $217.38

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JUL 145  YKE SI  4         3.00   142.00     5.3% ***
Sell Put  JUL 150  YKE SJ  128       3.63   146.37     6.3%
Sell Put  JUL 155  YKE SK  65        4.25   150.75     7.3%
Sell Put  JUL 160  YKE SL  88        5.00   155.00     8.5%

Chart =
ENZ - Enzo Biochem  $61.00  *** New Discoveries! ***

Enzo Biochem is engaged in research, development, manufacturing
and marketing of diagnostic and research products based on
genetic engineering, biotechnology and molecular biology. Their
products are used in the diagnosis of and/or screening for
infectious diseases, cancers, and genetic defects.  Enzo is
conducting research on therapeutic products based on their
technology platform of genetic modulation and immune modulation.
They also operate a clinical reference laboratory that provides
diagnostic medical testing services to the health care community.

Enzo shares soared this week after the drug developer said that
clinical trials of its HGTV-43 anti-HIV-1 gene therapy treatment
showed unprecedented results.  The company said a new engineered
cell survived eight months in an HIV-infected individual used in
the trial.  Enzo also reported today that it was commencing Phase
II clinical trials of its proprietary medicine, EHT899, to treat
patients with chronic hepatitis B virus (HBV) based on successful
and highly encouraging results of its Phase 1 trial.  Enzo said
that in clinical trials in which 15 patients were given EHT899
orally, the medicine significantly alleviated the disease and
related symptoms with no adverse effects noted in any patients.
The company reported that its immune enhancement therapy resulted
in a favorable response in 80% of the patients and if the data
holds true in the broader trial now getting underway, EHT899 will
be the medicine of choice for treating chronic hepatitis B virus.

ENZ - Enzo Biochem  $61.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUL 45   ENZ GI  742      18.00    43.00     3.8%
Sell Call JUL 50   ENZ GJ  557      14.75    46.25     6.7% ***

Sell Put  JUL 40   ENZ SH  199       1.31    38.69     8.0%
Sell Put  JUL 45   ENZ SI  206       2.50    42.50    14.0% ***
Sell Put  JUL 50   ENZ SJ  159       4.13    45.87    19.4%

Chart =
GLW - Corning  $237.00  *** Merger Rumors! ***

Corning Incorporated is a global, technology-based corporation
which operates in three broadly based business segments.
Telecommunications handles optical fiber and optical hardware.
Advanced Materials manufactures customized products using glass,
glass ceramic and polymer technologies.  Their Information
Display segment manufactures glass panels and funnels for
televisions and CRTs, liquid crystal display glass for flat panel
displays.  Corning and its subsidiaries manufacture products at
approximately 40 plants in 20 countries.

Earlier this week, Corning projected that second-quarter earnings
would easily beat Wall Street's estimates.  The shares jumped on
the bullish forecast, hitting a new 52-week high in the process.
Now the rumors are flying that Corning will acquire optical-parts
rival SDL Incorporated (SDLI) as it seeks to keep pace with sector
leader JDS Uniphase (JDSU).  The company spent almost $7 billion
last year to achieve dominance in the optical-fiber business and
it appears they are ready to make another big move.

Corning is one of the premier companies in the high profile group
of communications companies and a number of analysts are bullish
on its long-term outlook.  The recent trading range near $175-$200
defines this position as a relatively safe entry into the volatile
networking sector.  Our position offers a low risk cost basis with
a reasonable expectation of profit.

GLW - Corning  $237.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JUL 195  GRJ SS  26        3.25   191.75     4.8%
Sell Put  JUL 200  GRJ ST  168       4.13   195.87     5.5% ***
Sell Put  JUL 210  GRJ SB  90        6.75   203.25     7.4%

Chart =
NEWP - Newport  $82.00  *** Own This One! ***

Newport Corporation, together with its consolidated subsidiaries,
is a global supplier of high precision components, instruments,
micro-positioning and measurement products and systems to the
fiber optic communications, computer peripherals, semiconductor
equipment and scientific research markets.  The company designs,
manufactures and markets components and systems that enhance
productivity and capabilities of automated assembly and test
and measurement for high precision manufacturing and engineering
applications.  Newport also provides sophisticated equipment to
commercial, academic and governmental research institutions
worldwide.  The company operates in three business segments, two
comprising domestic operations, Components and Subassemblies,
and Instruments and Systems.  The third business segment is
comprised of the Company's Europe operations.

In early April, Newport reported first-quarter profits that more
than tripled, easily beating analyst's expectations, as sales to
the optical communications and semiconductor equipment markets
soared.  The company's sales rose 55% on strength in the fiber
optic and chip sectors.  Looking ahead, Newport said it expects
revenue in the second quarter to rise sequentially based on its
current backlog and anticipated sales in their target markets.
In addition, the stock recently underwent a 3-for-1 split and
the trend was completely unaffected by profit-taking.  Now the
issue is on the move and with a new "buy" rating from ABN Amro,
there is little chance for a major setback in the near future.

Analysts agree with the company's positive future and investors
have pushed the issue up $30 in just two weeks.  Our cost basis
allows a conservative position in an industry-leading company
with a bullish technical outlook.

NEWP - Newport  $82.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUL 65   NZZ GC  2        21.13    60.87     5.6% ***
Sell Call JUL 70   NZZ GD  127      17.88    64.12     7.5%

Sell Put  JUL 55   NZZ SK  103       1.69    53.31     7.7% ***
Sell Put  JUL 60   NZZ SL  8         2.75    57.25    11.8%
Sell Put  JUL 65   NZZ SC  29        4.50    60.50    17.7%

Chart =
PDLI - Protein Design Labs  $158.13

Protein Design Labs is a leader in the development of humanized
monoclonal antibodies for the prevention and treatment of
disease.  They have licensed rights to its first humanized
antibody product, Zenapax (daclizumab) to Hoffmann-La Roche Inc.
and its affiliates, which markets it in the U.S., Europe and
other countries for the prevention of kidney transplant
rejection.  They have several other humanized antibodies in
clinical development for autoimmune and inflammatory conditions,
transplantation and cancer.

Bio-techs are on the move and the recent news that gene-researcher
PE Corp Celera Genomics (CRA) has reached another milestone in the
race to map the human gene gave a boost to a number of companies
involved in gene research.  The announcement involved technology
in mapping more than a billion base pairs of the compounds that
link up to make the DNA of a mouse.  With a complete sequencing of
the human genome, the top drug makers aim to identify genes linked
to diseases and develop medicines to stop them.  Now the race to
explore the new discovery is underway and the leading companies in
this technology will dominate the industry.

Protein Design Labs is one of the leaders in the volatile Biotech
Group and among institutional investors, it is also one of the top
holdings.  The current technical outlook is favorable and our
conservative position offers a way to participate in the issue with
relatively low risk.

PDLI - Protein Design Labs  $158.13

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JUL 100  PQI ST  17        2.06    97.94     5.0%
Sell Put  JUL 105  PQI SA  0         2.88   102.12     6.9% ***
Sell Put  JUL 110  PQI SB  2         3.63   106.37     8.5%
Sell Put  JUL 115  PQI SC  12        4.88   110.12    11.0%

Chart =


AMCC - Applied Micro Circuits  $92.88  *** Going Down? ***

Applied Micro Circuits designs, develops, manufactures and
markets high-performance, high-bandwidth silicon solutions for
the world's communications infrastructure.  Their products are
designed to respond to the growing demand for high-speed
networking applications for established WAN standards such as
SONET/SDH and ATM and emerging LAN standards such as Gigabit
Ethernet, ATM, and Fibre Channel.  They also market and sell IC
products that address the needs of the automated test equipment,
broadcast HDTV, high-speed computing and military markets.

This play is simply based on the current price or trading range
of the underlying issue and its recent technical history.  The
AMCC price trend reflects a negative divergence from the long-term
moving average (200-day) line and the recent downtrend has endured
successively lower highs and lower lows, on increased selling
pressure.  With this week's drop, the issue has again failed to
recover after a recent consolidation and for now it appears the
stock has little chance of reaching our sold positions.

AMCC - Applied Micro Circuits  $92.88

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUL 130  AZV GF  110       3.50   133.50    13.0%
Sell Call JUL 135  AZV GG  84        3.00   138.00    11.4%
Sell Call JUL 140  AZV GH  489       2.50   142.50     9.8% ***

Chart =
BRCM - Broadcom  $148.75  *** Looking For A Bottom! ***

Broadcom develops highly integrated silicon solutions that enable
broadband digital data transmission to the home and within the
business enterprise.  Their products enable the high-speed
transmission of data over existing communications networks, most
of which were not originally intended for digital data
transmission.  Using proprietary technologies and advanced design
methodologies, Broadcom has designed and developed integrated
circuits for some of the most significant broadband
communications markets, including the markets for cable set-top
boxes, cable modems, high-speed networking, digital broadcast
satellite and terrestrial digital broadcast and xDSL.

Although the majority of well-known technology stocks have fared
better than the broad market in recent sessions, there remains
a significant amount of technical damage to repair before the
sector leaders can recover.  Broadcom is certainly one of the top
companies in the Semiconductor (and also Communications) group but
for now the issue is simply trying to find solid footing in this
volatile market.

We will use the current consolidation period to benefit from
overpriced option premiums with these relatively conservative,
bearish positions.  The probability of the share value reaching
our sold strikes appears rather low but there is always the
possibility of a recovery rally so monitor the position daily for
changes in technical character.

BRCM - Broadcom  $148.75

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUL 200  RDU GT  597       3.88   203.88     9.5%
Sell Call JUL 210  RDU GB  83        2.88   212.88     7.3%
Sell Call JUL 220  RDU GD  47        2.00   222.00     5.2% ***

Chart =


Vivendi Back in Talks with Seagram
By Matt Paolucci

Nothing quite compares to great American pastimes such as
baseball, hot dogs, cut-off jeans, and apple pie. But if you
asked Seagram CEO Howard Bronfman, you may get answers like mixed
drinks and media.

In case you haven't heard, a French utility-gone-media
conglomerate by the name of Vivendi is back in talks to combine
with Montreal-based beverage giant Seagram Co. (VO), which
happens to own the world's largest music company as well as
Universal Studios.

The companies hope to create an 800-pound gorilla in the global
media arena, boasting combined 1999 revenues of roughly $53

In actuality, it would be a three-way deal, involving Vivendi
subsidiary Canal Plus, a major player in the European film and
cable TV industry. In addition, Vivendi is a stakeholder in
British satellite TV company BskyB (BSY), which provides pay TV
services in the UK and Ireland, not to mention AOL France, an
Internet service provider.

"I'm not surprised that a deal is imminent," said Barry Hyman,
chief market strategist at Ehrenkrantz, King, Nussbaum. "Because
it really is a function of the need for Seagram to become a
bigger player, and to finally come to the realization that either
they go on as a niche player, or try to become a global force."

According to sources familiar with deal, it would be structured
as an acquisition of Seagram by Vivendi and Canal Plus for
roughly $75 a share in stock, which would value Seagram at about
$32.7 billion. Talks had fallen apart earlier in the year due to
price and management issues.

Vivendi declined comment, but reports suggest that the French
conglomerate would also have to digest approximately $9 billion
in Seagram debt, vaulting the total price of the transaction to
almost $42 billion.

If the acquisition were to come to fruition, it would create a
multinational media conglomerate with a combined market
capitalization in excess of $100 billion and revenues in excess
of $65 billion per year.

Seagram, which confirmed that talks were in progress, cautioned,
"discussions are not completed and there is no certainty that an
agreement will be reached or a transaction consummated."

Many analysts equate the combination of Vivendi and Seagram to
January's announced merger between Internet giant America Online
Inc. (AOL), the universe's largest Internet service provider, and
Time Warner Inc. (TWX), the solar system's largest media content

In order to streamline operations while bolstering its media
portfolio, Seagram has sold off several beverage divisions,
including Tropicana and champagne makers Mumm and Perrier-Jouet.
In addition to the Universal Music Group, Universal Studios and a
stake in USA Networks, Seagram also owns several theme parks.

Both companies have been moving to reshape themselves as media
players, trying to move above and beyond their core businesses.
For Vivendi, those core competencies include water treatment,
electricity and construction; for Seagram, it's all about liquor.

Shares of the Canadian beverage behemoth were up $7.25 at $60.25
in late afternoon trading, while in Paris, Vivendi and Canal Plus
shares fell slightly. Canal Plus is 49 percent owned by Vivendi.

For those who are looking for some merger arbitrage
opportunities, the most active contracts on the call side were
the July 55 and August 60 strikes. Looking at the puts, the July
50 and 55 contracts were also quite actively traded. The deal, as
mentioned above, is reportedly valued at $75 per Seagram share.

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