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Daily Newsletter, Wednesday, 07/12/2000

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The Option Investor Newsletter               Wednesday  07-12-2000
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MARKET WRAP  (view in courier font for table alignment)
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        07-12-2000        High      Low     Volume Advance/Decline
DJIA    10783.80 + 56.60 10834.30 10722.20  999 mln   1742/1152
NASDAQ   4099.58 +143.16  4103.65  4001.73 1.77 bln   2480/1535
S&P 100   805.91 +  4.86   809.09   801.01   totals   4222/2687
S&P 500  1492.92 + 12.04  1497.69  1485.26           61.1%/38.9%
RUS 2000  540.25 + 10.51   540.26   529.74
DJ TRANS 2882.02 + 64.92  2882.02  2826.97
VIX        23.08 +  0.69    23.32    22.56
Put/Call Ratio       .39
******************************************************************

Could It Be, Can It Really Be...A Summer Rally?

After all the suffering of this boring, rangebound market, we
finally had a day that we actually can call encouraging.  Well,
it looks like YHOO came through in the clutch to save the day.
Overall market activity continues to heat up, as mega-merger after
mega-merger is announced.  Consolidation is creeping into the
market.  Interest rates concerns have subsided since last Friday's
job report.  Investors have their sights set on an upbeat second
half of the year.  But, it's still early.  We're not out of the
woods quite yet.  I've said it once, and I'll say it again, we
need to have follow-through tomorrow.

Earnings season is certainly in full swing.  YHOO was the victor
today as investors rewarded the Internet giant for Tuesday night's
better-than-expected earnings.  Investors seemed to ignore
concerns over future advertising revenue growth, and it appears
that the markets are focusing on the good news rather than the
bad.  This says that people are looking for reasons to rally this
market.  YHOO's 18% gain today sparked the Internet sector, and
the NASDAQ as well, into a well-sustained rally today.  Looking
at the NASDAQ intraday chart below, you can see how convincing
the buying was today.  Talk amongst NASDAQ traders is that today's
pattern exemplifies a greater panic on the buy side.  Now that's
what we like to hear.  After weeks and weeks of hearing "summer
rally" echoes, we just might be seeing some action rather than
simple talk.  This bullish thinking coupled with volume of 1.7 bln
shares on the NASDAQ is a very healthy signal that momentum may
be returning to the market.  For a summer trading session, 1.7 bln
is considered strong volume.  From here, it is essential that we
build on 4100 in order to confirm a breakout.




Technically, the NASDAQ made some very impressive accomplishments
today.  The aforementioned retest of 4000 support this morning
helped give investor confidence in putting some of that sidelines
money to work.  It very well may have been this event that spurred
the panic buying.  Secondly, the NASDAQ broke through 4050 which
acted as resistance during last Friday's employment rally.  Going
forward, it is key that the NASDAQ hold 4050 as support.  Most
importantly, today the NASDAQ broke through and closed above
the elusive 100-dma at 4062.  All throughout this rangebound
trading since June, we have had our sights set on this technical
as a benchmark for a bullish breakout.  And with a sigh of relief,
we finally got it.  The significance is great, considering that
the index has not traded above the 100-dma since breaking it all
the way back on April 11th.  It's been three months and a long
lesson in rangebound trading.  Believe me, it hurt.




Today's triple digit gain of 143 points surpassed another key
NASDAQ level, 4069:  the starting point for the year 2000.  That
means that the tech index is out of the red.  Now the question
still remains whether we can sustain this rally with, yes,
follow-through.  The driving catalyst undoubtedly will be
earnings.  Tonight we had a handful of earnings reports in the
tech sector.  Advanced Micro Circuits(AMCC) chalked up a 4 cent
better-than-expected profit, posting $0.21 per share, excluding
special charges.  With record operating margins and robust sales,
this was a 250% increase from the year previous.  After an
$11.69, or 10%, gain in regular trading, AMCC traded up $4 in
after-hours to $129.50.  Another favorite NASDAQ stock beat the
Street.  B-2-B company Ariba(ARBA) came in with a 3 cent
narrower-than-expected loss of $0.05 per share.  Investors added
another $12 after-hours onto the $12.38 gain during regular
trading.  ARBA is currently trading at $115.75.  If these reports
have a similar effect to YHOO's today, the NASDAQ very well could
confirm its breakout.  Internet networker JNPR reports tomorrow
after the bell.

On the NYSE, there were a handful of stock that traded at or near
all-time highs.  In particular, the Brokerage sector had a very
strong day.  This came on news that Swiss bank giant, UBS, will
be buying PaineWebber(PWJ) in a $11 bln stock and cash deal that
would help expand UBS' global underwriting reach into the U.S.
PWJ, the #4 U.S. brokerage house, advanced 34% on the news,
closing up $16.94 to $66.88.  UBS lost 9% on the day, off $13.56
to $135.19.  The news drove up other brokerage stocks in
speculation of further consolidation in the sector.  At or near
new highs are the following:  LEH(+5.19), AGE(+3.19), MER(+2.56),
BSC(+2.06), and MWD(+0.63).  We will be watching the financials
closely to hold and continue their uptrends.  They are an
essential part of a broad market rally, especially with the
economic data due out on Friday.  Reporting tomorrow before the
bell is JPM, which spiked $4.63 to $122.56 today in anticipation.

Market internals have been very strong at the NYSE as advancers
have beaten decliners for seven straight sessions.  As a result,
the INDU has made great strides at reversing the dominant
downtrend that overtook it April 12th.  The diamond pattern that
Jim has mentioned in his Wraps had been narrowing, and at the
point of reckoning, buyers picked up the beaten down index.  You
can see from the chart below that the INDU not only broke the
downtrend line, but also had three days of follow-through.  This
breakout has turned around the technical health of the INDU.  It
did, however, encounter resistance at 10800, which is the most
recent short-term top from early June.




On the weaker side of the NYSE were the cyclicals.  After two days
of rallying, investor began the rotation again in favor of techs,
financials, and even airlines.  Just a month after the UAL bid for
U.S. Airways, consolidation continues to be the theme.
American Airlines(AMR), the #2 carrier, made an $3.7 bln bid for
Northwest Airlines(NWAC), the #4 carrier.  This deal would value
NWAC at $44 per share, a value that Northwest feels is undervalued.
Northwest wants upwards of $100 per share, according to industry
analysts.  These mega merger talks are clear signs of a growing
health in the overall market, as companies see the necessity to
say competitive.  AMR closed up $1.19 at $30.63.  NWAC tacked on
almost 6%, or $2.13 to $37.88.

Motorola(MOT) reported earnings tonight and analysts were keenly
awaiting the results.  MOT's earnings were in line with Street
estimates of $0.23 per share.  Yet, the silver lining was the
company's margins.  Wireless handset operating margins came in
at 4%, convincingly higher than the 3 - 3.3% expected.  Their
chip production margins were also higher than expected.  After
closing up $2.69 in NY trading at $35.31, investor added $1
in after-hours trading.

Looking forward, good ol' Uncle Alan is speaking this evening
before the Council of Foreign Relations about Global Crises, but
don't expect him to tip his hand.  The markets will be digesting
the numerous earnings reports from today and tomorrow, yet
Friday's PPI and Retail Sales numbers certainly will be looming
overhead.  Tomorrow's trading should be a bit more subdued to
the upside given Friday's data.  We will be paying close attention
to key technical levels for both the INDU and the NASDAQ to see
if this building momentum continues to move the markets out of
their recent ranges.  Follow-through, follow-through,
follow-through.  That will be the key.  Keep your stops tight
in order to protect healthy profits from today's advance.
Remember, a small profit is always better than no profit.

Matt Russ
Asst. Editor



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***************
ASK THE ANALYST
***************

It Looks Like The Bull Is Back...
By Eric Utley

I just hope the beast stays for a while.  It appears that the
almighty bull has returned from its early summer retreat to
Spain last week.  Maybe the talking heads on CNBC will rest with
the rally talk.  At first glance, it would appear the market is
ready for take-off into the fall.  The school of Dow Theory got
a bit of confirmation Wednesday.  The technicians are pointing
to the plethora of stocks breaking out of trading ranges along
with the bullish advance/decline lines, and the new 52-week high
list.  The fundamentalists are arguing the fantastic profits
that many companies have reported, with Yahoo epitomizing that
fact.  And, the money managers might finally get off the piles
of cash they have been hording for the past two months and start
putting money to work and carry this market higher.  But wait,
before the bulls get carried away, there are a few issues to
delve into.  The NASDAQ is nearing a 66% retracement of its
sell-off last spring, which some might suggest is the prime
profit taking point.  Furthermore, the VIX is hovering near
dangerous levels as many at OIN have been suggesting.  The sheer
amount of investor optimism is enough to give me pause, even
though I'm elated to see all the green arrows on my quote sheet.
Like I just mentioned, the current bullish sentiment is clearly
evident in the low level of the VIX.  We'll delve into that
further below on one of the charts.  But before we do that, just
remember, it's always brightest just before dusk.  Or wait, it's
always darkest just before dawn.  Oh, you get my point!

The request list has been getting a little low lately, I'll be
back next week at the same time and place, and I promise to
review five stocks if you send them.  Don't be shy, send your
requests to:

Contact Support

Please put the symbol in the subject line of the e-mail.

----------------------------

CBOE Market Volatility Index - $VIX

Since the VIX is such a great indicator of reversals, why
wouldn't this be used as the most important indicator?  Is there
any chance that you could do an article on the VIX?  Thank you.
- Jim

Jim, I think your request to review the VIX is very relevant
given the current market conditions.  You've probably heard Jim,
Ryan, and Matt all warn OIN readers about the precariously low
levels at which the VIX is currently trading.  Before I delve
into the analysis of the VIX, let me briefly explain what the
index actually measures and its significance.  The VIX is one of
the most widely used measures in forecasting implied volatility
when determining the price of an option.  The index is calculated
by taking the weighted average of the implied volatilities of
eight OEX calls and puts with an average time to expiration of
30 days.  Essentially, the VIX is a consensus forecast of future
stock market volatility and measures how traders are reacting to
the current market conditions.  The VIX is used by savvy
speculators in a contrarian fashion.  If the market declines and
the demand for puts increases, the VIX will rise, which signals
fear in the market and a possible reversal.  On the flip-side, if
the market rallies and the VIX declines, it reveals bullish
investor sentiment which may ultimately lead to a pull-back.

Historically, the VIX trades between the 20 - 30 range.  The
reason for the range bound trading between those two levels is
due to investors' expectation for the overall market to fluctuate
between 10% and 15% in any given year.  The VIX, along with most
averages in the mathematical universe, usually reverts back to
its mean.  That's important to remember when the VIX reaches
extremes at either end of its range.  For example, when the VIX
hit 41.53 on April 9th, market participants were expecting the
end of the financial world.  Savvy traders interpreted the
extreme reading as a telling sign of a reversal which ultimately
lead to a profitable rally in many leading stocks.  The VIX has
been trending downward ever since hitting its April high and is
approaching the lower end of its trading range.  Some traders
might start taking profits off the table given the VIX's current
low levels.  Yet, with the internals of the market increasingly
improving, the VIX is somewhat of a contradiction right now.
Although, the VIX did advance Wednesday in light of the broad
rally in the market.  That suggests traders are expecting a
sell-off in the coming days.  When viewed contrarily, the VIX's
advance bodes well for the health of the current rally for the
next few days.  But its relatively low level gives reason to
pause.  Investor psychology is probably the most powerful force
behind the market's movements.  The VIX gives you quantifiable
data to read current market sentiment.  If you wait for the few
times each year that VIX reaches extremes and act accordingly,
you can make a ton of money using the index!  To answer your
question Jim, I think one of the reasons that the VIX is not as
widely followed on Wall Street is because it is relatively new.
The CBOE created the volatility index in 1993.




----------------------------

Go2Net - GNET

What do you think of GNET? - Richard

GNET is one of those rare Internet companies that is profitable.
Very profitable I might add!  The company has established itself
as one of the premier content providers on the Web.  The company
operates several popular Web sites including Go2Net, Silicon
Investor, and MetaCrawler among others.  Along with providing
content to consumers, the company provides business and enabling
services.  So, in an indirect way, GNET is also a B-2-B play.
The Internet research firm Media Metrix consistently ranks GNET
among the top destinations of Web viewers.  The company has a
superb management team and very strong fundamentals.  GNET's
balance sheet is next to pristine.  The company has zero debt and
about $240 mln in cash.

As you well know Richard, GNET executives told analysts last
Monday that the company is "Super Comfortable" with its third
quarter estimates scheduled to be reported on July 17th.  The
hint of better-than-expected earnings is always a welcome sign!
GNET is expected to grow its bottom-line at a 67% clip over the
next five years, giving the stock an amazingly low PEG of around
0.40.  What's more, the company has surpassed analysts' estimates
by an average of 114% over its last five quarters.  To be
perfectly honest, I think the selling of GNET was a bit overdone
this spring.  The stock was dragged down along with the rest of
the Internet sector.  Upon examining the company's fundamentals,
GNET was unfairly punished for being in what is predominately a
money-losing sector.  However, for those of you who are believers
in the long-term viability of the Internet, GNET might be worth
considering for a long-term investment given its current
discount.  GNET's chart is shaping up nicely after its spring
sell-off.  The stock established solid support at $40 and has
since rebounded to test resistance at $50.  The eight week
consolidation bodes well for GNET's next major rally.  Volume is
returning to the stock which makes the chart look all the more
attractive.  A breakout above $50 on about 1 mln shares might
provide the entry point for new long positions.




----------------------------

Williams Communication Group - WCG

I am curious of your outlook on WCG.  I bought some of the stock
for a longer term core holding as I think the long-term outlook
is very good considering their foothold in the fiber optic arena.
There have been rumors of buyouts that may move the stock short
term.  What is your opinion?  Thanks. - Ralph

WCG owns, leases, and operates a nationwide fiber optic network
that voice, data, Internet, and video services to communications
providers.  The company operates in three distinct divisions,
Network, Solutions, and Strategic Investments.  The Network
division offers Internet services to communications companies
such as long-distance carriers, local phone companies, and
Internet service providers.  The solutions division distributes
And integrates equipment for networks.  And finally, the
Investments division infuses capital into businesses that are
creating demand on WCG's networks such as Concentric, UniDial,
and UtiliCom.  The roll-out of high-speed Internet services is
reshaping the telecom landscape.  We're in the early stages of
the build-out of fiber optic networks which makes companies like
WCG an attractive investment.  However, the networks which WCG is
building requires huge amounts of capital.  The hope by investors
is that WCG can build these networks and, obviously, profit off
them in the future.  If WCG can execute properly, the stock
should do quite well over the next five years.

But, it's been WCG's incredible spending that has continues to
plague the stock.  About two weeks ago, WCG told analysts that it
was going to spend an additional $1 bln more than initially
expected to build fiber optic networks over the next several
years.  The additional $1 bln will require WCG to tap into the
capital markets, which means the company will have to take on
more debt and/or dilute stockholders' stake in the company.
Needless to say, the announcement didn't go well with investors
last month.  When you consider that WCG is already mired in
losses with no sign of profitability for the next several years,
the prospects of more debt on its balance sheet doesn't sound
good.  Like I said before, the intense investment and spending
now is expected to lead to profits down the road.  And, if WCG
is successful, the stock is worth holding onto.  But, in the
near-term, given the current investor demand for profits, I don't
see WCG moving substantially higher, unless of course the company
is taken over like you suggested Ralph.  The chart is not a
pretty picture, but at least the stock has appeared to stabilize
at its current levels.  I don't like the increase in volume over
the past two weeks as the stock has slipped lower.  I hope I
don't sound too pessimistic Ralph, but I just don't see a major
catalyst for WCG over the next 3-6 months.  However, you're
patience as a long-term investor may be rewarded in the next five
years.  As I have mentioned before, I'm still waiting for high-
speed Internet access, and I live in a densely populated area!
The demand for WCG's services is there, the company just needs to
turn that demand into profits.  The sooner the better!




----------------------------

Electro Scientific Industries - ESIO

Great stock if people catch on - institutions playing games with
the price?  Be interested in your opinion of the stock.  Thanks.
- Todd

ESIO is a company that makes products used in electronics
manufacturing, commonly referred to as a chip equipment
manufacturer.  The company supplies chip makers in the wireless,
computer, and automotive areas with fabrication equipment.  The
company is one of the leading providers of laser systems used to
make chips store more memory and ramp-up production.  The big
news early this week, for obvious reasons, was that ESIO blew
away analysts' profit prediction of 56 cents by earning an
impressive 61 cents per share.  The better-than-expected earnings
came in part from the growing demand of chip makers for ESIO's
products, and from the companies ability to capture market share
from competitors.  ESIO's profits are expected to continue to
grow at a healthy rate for the remainder of this year, and for
several years to come.  The risk with the chip-related stocks
right now is whether or not the infamous semi cycle is peaking
or not.  The downgrade of the entire Chip sector by Jonathan
Joseph of Salomon sent a warning shot throughout the group last
week.  But, if the chip companies exceed estimates like ESIO did,
the group should continue to advance into the end of the year.

On the buy-side of Wall Street analysts, Brett Hodess of Merrill
Lynch initiated coverage on ESIO last week with a Buy rating and
set a $62 price target.  On a quick tangent, the practice of
setting price targets has to be one of the most inexact sciences
in the world.  From the looks of it, ESIO will reach Hodess'
target price by week's end.  Sorry about that, back on track now.
ESIO has made an incredible advance so far this week, making the
stock a little hot to game right now.  With such a stellar
profit report earlier this week, I could see ESIO breaking out to
new highs in the coming week.  However, a hint of a slowdown in
the demand for chips could send this high-flyer back down very
quickly.  The uncertainty revolving around the chip cycle right
now has created vast amounts of volatility in the sector.  You
might want to wait to see the stock consolidates a bit before
jumping in.  Of course, the long-term prospects for ESIO also
rely heavily on the continued viability of the Semi sector.  If
the company's earnings report is a sign of things to come, ESIO
should continue to climb into next year.




----------------------------

DISCLAIMER:
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.



***********
OPTIONS 101
***********

Wisdom and Discipline
By David Popper

In the New International Version, Proverbs 1:2 describes
the purpose of proverbs is to obtain wisdom and discipline.
Wisdom and discipline, what a combination.  Wisdom is
the ability to use knowledge (facts) in a situation.  It is the
ability to formulate a plan.  Discipline is a self
determination to execute that plan under fire.  Websites,
financial articles, books and seminars will, over time, give
you the ability to gain knowledge and eventually wisdom.
They cannot give you discipline.  Discipline is easy when
the trade moves with you.  It is difficult when the trade
does not move your way.  When a trade moves against you,
self doubt emerges.  One begins to question the reason for
the trade.  One begins to feel like a fool.  The world will
end.  You end the pain by closing a position and the pain
subsides, until the stock turns on a dime and shoots for the
moon.  The pain is now worse than before.  Before, you
questioned your plan.  Now you question your nerve.
Trading can have psychological implications.  Can you
insulate yourself from this damage?  Yes, with discipline and
experience, over time.  Let's discuss some possible
remedies:

1.  ONLY TRADE TOP STOCKS IN TOP INDUSTRIES.

I operate from the premise that technology is here to stay.  I
look for companies that are on the cutting edge areas of
technology, where it is acknowledged that there is room to
grow.  In fiber optics for example, the battle is not a fight
over an increasingly smaller piece of the pie (like the paper
industry), the competition is more akin to the Oklahoma
Land Rush.  There is plenty of growth room for everyone.  The
fight is between the companies acquiring the best piece of
land.  In short, the market is not mature.

Within these hot sectors, I look for the acknowledged leaders
using the criteria established by Investors Business Daily.
(Earnings per share 90% plus, relative strength 90% plus.)  I
try to trade at a technically favorable time.

2.  DECIDE THE METHOD OF TRADE.

Once I have selected the stocks I wish to trade, it is now
necessary to choose the method of trading.  As I have stated
many times, I cannot watch the computer all day, therefore,
I usually am more comfortable selling long term calls (four
to six months) in exchange for a 20% to 25% return.  However,
during earning seasons or just before a split, I may hold the
stock for the run, but afterwards, I will usually sell it or sell
a long term call.  Finally, I may periodically channel trade 100
shares of a stock if it is in a well defined channel.  All of
these methods together, involve less risk and provide a healthy
return.

3.  KEEP CASH.

I will keep a sizable amount of cash.  With cash position and
long term calls, you become enabled to take advantage of downside
moves as well as upside moves.  When I was fully invested and
margined, I shuttered whenever an economic report was coming.  I
was upset when the report was bad and I rejoiced when the report
was good.  In short, I was emotional.

Armed with cash allows you to buy on dips for quick profits.
Long term calls on great stocks allows you to ride out the stormy
seasons of the market.  Being armed with these two friends allows
you to roll with the market instead of hoping the market moves
your way.

When you are postured to be flexible, the volatility can be
fun and profitable.  You get a feeling of confidence and
being in control - because you are.

No, this is not fool proof.  Nothing in the market is fool
proof.  Nothing in life is fool proof.  Your odds are better
though.  Is that not what a trading system is all about?

Contact Support



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

In And Out, Etc.
By Austin Passamonte

When you want advice, ask the experts.  Considering they read
OIN, that's precisely what I did on Monday.

Plenty of good advice & suggestions continue to roll in.  I
think we can do some tinkering to the tools already.

Tripp Adams writes in to suggest we try MACD settings of
8(18)6, instead of the default 12(26)9 I was using.  This seems
to be more crisp and responsive for faster signals, less lag.
Thanks a bunch Tripp, the change has been made.

A number of readers asked which chart service I use.  Qcharts
has been my choice mainly because they supply the live applet
in OIN, so it was an easy link for me.  I'm sure other chart
services also offer similar features.  This allows me to arrange
technical studies any way I want, and drawing tools provided are
important as well.

My historical research is also done by dragging these charts
back in time to months and years past.  Certainly a great help
when testing different theories on past price action of stocks
and specific option contracts.

For those who asked if the live applet within this website can
be used, the answer is yes.  We can't overlap the technical
studies and it's stochastic settings aren't quite as effective
but to be honest, I made more money trading the OEX from that
free chart than I do with my $80 monthly setup.  Intraday moves
from 20 to 50+ points will improve any chart service, for sure!

Stochastic settings can be switched to 10,5 on the live chart
applet but this leaves them erratic.  I'd suggest playing around
with them a bit (when available) to mimic price action effectively.

Such charting services really are invaluable to active traders.
For example, I have several hot lists customized for specific
study. One is a trading chart set up just like you see in this
series. I have entered a key list of all the various index sectors
that options are currently available for.

The new "Sector Trader" section on OIN is quickly becoming my
favorite.  Buzz Lynn and the rest do a superb job ferreting
out all the index setups while I stay busy splashing around in
our new pool.  When dusk arrives we towel off, stroll inside and
see what's cooking next.  Any potential plays get clicked into my
chart and screened for pending call or put entry.

It may be the worst-kept secret that I prefer trading index
options to specific stocks.  Not that I haven't made good money
doing so, but stock picking offers the added dimension of news
breaks that affect the action sharply.  SDLI comes to mind as
we'll review it next Monday.  No doubt during selective rallies
it is vital to be proficient at picking specific stocks.
There's nothing wrong with that approach.

The advantage to trading entire sectors is the smooth, blended
behavior they exhibit.  Maybe the action isn't fast & furious
but trading signals via this system are much more reliable,
and the bottom line is picking a majority of winners.  Keep an
eye on those "Sector Trader" index plays and judge results for
yourself.  As for me, Christmas came real early this year!

Of course, it's easy to slap together a trading model like we
did and "optimize" it looking back in history when signals and
moves are completed.  One can justify why we would or wouldn't
have bought, sold or stood aside to make the results seem
foolproof.  I try to think I'm not such a fool but the jury's
out on that one.

First, we should begin at the parameters of trade entry signals.
If we can wait for all indicators to signal, chances for a par-
stop or profitable trade seem to be roughly 80% on the 30 minute
chart or better on the daily chart.  Trouble is the daily charts
generate sure-thing trades once or twice a month, too seldom for
most active traders.  Some of the movement that occurs before the
trigger confirms on 30 min charts is lost, which could make the
difference between slight gains or none on brief moves.

We need to identify what personality a trader has and go from
there.  If you're content to trade only when the planets align
but enjoy big wins and profits hauled in wheelbarrows, consider
using daily charts and entering only when all signals converge.

If you start developing nervous ticks because your last trade
was at yesterday's close and withdrawals are setting in, I'd
say 30 minute charts are probably for you.

May I suggest using both?  Watch daily charts for high-odds
plays and enter LEAPs, spreads or back-month long option trades
to give yourself breathing room.  Trade small positions of
front-month options relative to your risk level for quick
swings in the 30 min charts to keep you "busy" until the next
big move shapes up.

The sequence of development remains the same.  Let's dissect
a bullish call-play.  The setup occurs when prices move into
the lower Bollinger Band and pushes or at least touches the
extreme zone.  This gets our attention.

Stochastic bars should both be at or preferably below the 20%
oversold measure with fast bar or both beginning to clearly
turn up.

The MACD histogram MUST have been on the negative side of it's
zero line and is now moving toward even or turning positive.
The MACD moving average lines should be crossing fast above
slow and we'd love it if both lines were moving from the
negative side of zero line up into positive range.

At this point the candlestick price bars will have moved off
the lower B-band and form one of several bullish reversal
patterns (learn to identify the basic formations).

That's the anatomy of a solid entry point, but many traders
would have entered before now.  I'd likely lead the pack.
Every developing trade looks like the next big winner to me,
one of them incurable trigger-happy types.  Seen any of those
on your side of this screen lately?

I've learned over time that it's O.K. to jump short-term, 30 min
chart trades when stochastic bars BOTH turn away from extreme
readings as candlestick price bars release from the B-Band IF
a reversal pattern forms.  We'll worry about MACD later.  More
false signals occur but my positions are small and stops keep
me from losing my shirt.  These days, moves are tight and a bit
of anticipation on entry won't kill me using few contracts.  As
the move develops or breaks down I use MACD signals to confirm
follow-through and stick with the trade.  Of course, my stop-loss
point was chosen before entry and placed when filled in case I
got faked out on this one.

Daily trades are another story.  I patiently (ugh) wait for
ALL signals to clearly converge before entering planned trades.
We don't need to get stopped out of last-gasp swings just
before a major move runs as I painfully described before.
If our signals are accurate, we can concede the beginning of
large moves to safely harvest solid chunks from the middle.

Trust me, when the OEX moves 50 points or the QQQ moves 20 you
can make ends meet by catching 30 and 14 of those, respectively.
Especially when you do that on 80% of the big moves traded.  The
key is to enter a trade once the move has committed itself and
your play begins to profit immediately.

Entry rules are simple.  Fine-tune your chart signals and wait
for as many to converge as sanity allows before jumping in.
When to take profits is another matter.  Sell too soon rings a
bell from somewhere, doesn't it?  If you wait until the next
reversal signal appears on the chart, some profits may be lost.

Picking price targets and selling when they hit is always a
good idea.  Why don't we exhaust the subject of entry & exit
next Wednesday?  Monday we'll finish the topic by profiling
individual stocks with these charts and see what happens.  So
much to cover, so little space.  A few more trade examples to
keep an eye on this week follow below:

(30 min chart, IIH)




(30 min chart, QQQ)





(30 min chart, OEX)




You make the calls (or puts, pun intended).  Would you have
bought & sold these brief swings for a profit, breakeven, loss
or stood aside?  What do we look for from here heading into
Thursday's action?

See you next Monday!

Contact Support



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

CREE - Cree Research $147.31 +6.56 (+16.81 this week)

Cree makes silicon carbide (SiC) diodes and wafers.  Its blue and
green light-emitting diodes (LEDs), which account for about half
of sales, are used by companies such as Siemens to make dashboard
lights, market tickers, and other products.  Cree also provides
SiC wafers, which work at higher temperatures and voltages than
standard silicon wafers, primarily to research labs.  U.S.
government research contracts account for 10% of Cree's sales.

Most Recent Write-Up

CREE's second-quarter earnings announcement is just around the
corner.  Noting the company's propensity to beat estimates,
investors will be expecting a surprise.  The anticipation of
better-than-expected profits may already be building, noting
CREE's impressive relative strength Tuesday in light of an
overall weak Semiconductor sector.  The semis have come under
pressure recently after the downgrade of the entire sector from
the now-famous Jonathan Joseph of Salomon Smith Barney.  CREE has
smartly rebounded in the past four trading days, returning to its
levels prior to the group downgrade a week ago.  While several
semis are still languishing in the wake of the Salomon call, CREE
has positioned itself for an earnings run.  And it's no wonder,
CREE has carved out a lucrative niche in the Semi sector with its
proprietary SiC technology.  The company has a stronghold of the
market for blue and green LEDs and is expected to increase its
earnings by nearly 100% this year in part from selling those
little light emitting chips.  CREE has surpassed analysts'
profit predictions by an average of about 11% in its last four
quarters and could eclipse estimates again noting the surge in
demand for its products this year.  CREE's technical picture is
shaping up nicely for an earnings run.  A glance over CREE's
daily chart reveals a loosely-formed inverse head-and-shoulders
which might provide the base to propel our play higher.  The
stock has been on a steady uptrend since last week and will need
to clear resistance at $145 before moving higher.  CREE moved
back above its 10-dma Tuesday, located at $136.31, which may
provide support during an intra-day pullback going forward.  Look
for an entry Wednesday morning if CREE can breakout above $145
and confirm a rally with volume.

Comments

CREE rallied with the rest of the market on Wednesday and
conquered its 100-dma of $142.73.  During the day, CREE was
steady and found intraday support at $144.  Below that lies
support at $140.  We would look for entries off of any bounces
from these levels.  Overhead, the stock will encounter resistance
at $150.  Yet, a strong move through that level with good volume
and positive NASDAQ, and CREE could be off to the races toward
$160.

***July contracts expire next week***

BUY CALL JUL-135 RNC-GG OI= 35 at $16.63 SL=13.00
BUY CALL JUL-140*RNC-GH OI=251 at $12.00 SL= 9.25
BUY CALL JUL-145 RNC-GI OI=112 at $10.00 SL= 7.75
BUY CALL AUG-150 RNC-HJ OI= 46 at $17.50 SL=13.75

SELL PUT JUL-135 RNC-SG OI= 48 at $ 5.25 SL= 6.75
(See risks of selling puts in play legend)

Picked on July 11th at $140.75    P/E = 185
Change since picked      +6.56    52-week high=$202.00
Analysts Ratings     6-2-0-0-0    52-week low =$ 23.50
Last earnings 03/00  est= 0.21    actual= 0.26
Next earnings 07-27  est= 0.27    versus= 0.26
Average Daily Volume  =  832 K




*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Yahoo! A General leads the Way!

A huge buying spree in Internet stocks drove the Nasdaq to its
highest level in months.  New interest in financial stocks also
boosted the industrial segment.  The chip sector enjoyed healthy
gains and the broad market saw upside activity in brokerage and
transportation issues.  Good news on the earnings front offset
investor concerns that industry fundamentals are becoming less
positive.  A number of reporting companies suggested they will be
able to accelerate growth earnings going forward into the third
quarter.  The big surprises were Yahoo! (YHOO), which climbed
almost $20 in response to an impressive earnings report, and
Paine Webber (PWJ), with a $17 rally after Switzerland's UBS
said it will pay more than $10 billion to acquire the company.
The Yahoo! earnings report demonstrated that advertising dollars
on the Internet are strong and the Paine Webber buyout stimulated
recent rumors of consolidation in the financial group.  What more
could we ask for!

Of course the upside activity makes it very difficult to initiate
bullish plays so this week we will focus on positions with a high
probability of achieving a favorable monthly return.  Remember,
our approach is based on consistent portfolio profits, regardless
of market conditions.  In the current period of earnings-related
volatility, we are not interested in stock ownership, just steady
growth in the value of our brokerage account.

Editor's Note:

Due to the sudden illness of one of our lead researchers, the
"Big Cap" section of today's newsletter will be smaller than
normal.  We apologize in advance for this inconvenience and
hope that you will all wish Mark Wnetrzak a speedy recovery.

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

***************

ARTG - Art Technology  $122.00  *** A New High! ***

Art Technology Group offers an integrated suite of Internet
customer relationship management and electronic commerce
applications.  Their solution enables businesses to manage and
build online customer relationships in order to  market and
support products and services over the Internet more effectively.
They also provides a variety of consulting, design, application
development,and training and support services through its
Innovation Solutions and Express Services offerings.

American Airlines announced last Thursday that it had chosen
Art Technology to handle American's Web site to enhance its
future personalization, publishing and marketing capabilities.
American said it had made the choice after it commissioned an
extensive platform evaluation that resulted in the selection
of (Art Technology group's product) ATG Dynamo.  The bullish
news helped the issue rally almost $30 in four days and now it
appears the stock is well established in a new trading range.


ARTG - Art Technology  $122.00

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

Sell Call AUG 120  ARY HT  4330     26.75    95.25    4.0%

Sell Put  AUG 95   ARY TS  0        3.25     91.75    9.4%
Sell Put  AUG-92   ARY TZ  0        2.88     89.62    8.5%
Sell Put  AUG-90   ARY TR  30       2.25     87.75    6.8%
Sell Put  AUG 87   ARY TY  5        1.88     85.62    5.7% ***

Chart =
 

******

AWRE - Aware  $57.75  *** Own This One! ***

Aware is a provider of Digital Subscriber Line (DSL) technology
to semiconductor and equipment companies that make products to
enable simultaneous high-speed data and voice transmissions over
copper telephone lines. They also sell software-based compression
products, including WSQ by Aware, AccuPress for Radiology, and
several others.

Aware is one of the leading companies in the development of ADSL,
which it has proven can carry 8 Mbps signals over copper for more
than four miles, enough to overcome most of the switching-distance
problems in the existing U.S. phone system.  The company also has
great technology with its G.Lite version of ADSL and they have a
number of other products to provide the vast array of broadband
data services available over the current "leading-edge" methods of
transmission to the public.

Earnings are due later this month and that may be one reason for
the recent rally.  From a technical viewpoint, the issue has
favorable support near our cost basis and the over-priced option
premiums will allow us to open the position at a reasonable entry
point.

AWRE - Aware  $57.75

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

Sell Call AUG 50   WUQ-HJ  215      10.75    47.00    5.1%

Sell Put  AUG 50   WUQ TJ  11       2.62     47.38    11.7%
Sell Put  AUG 45   WUQ TK  40       1.25     43.75    7.8% ***

Chart =
 

******

MACR - Macromedia  $103.31  *** Ready To Go! ***

Macromedia develops and distributes original technologies and
innovative software tools, servers and services to a range of
customers including developers, consumers and large corporate
accounts.  Macromedia focuses on three key areas: Web Publishing,
Web Learning, and Shockwave.com.  Its Web Publishing products
works together as a complete solution to make online work flow
more efficiently at all stages of development, from concept to
production.  Macromedia's Attain Enterprise Learning System is an
integrated solution for managing the online learning.  Its new
consumer business, shockwave.com, will release various products
that form the basis of this business in the near future.

Macromedia announced yesterday that Timex, IBM and Lexus are
among the brand name companies using the powerful new Macromedia
Director 8 Shockwave Studio to deliver entertainment, advertising
and online education content.  Macromedia has been successful in
selling to other companies and integrating new products with the
Shockwave and Flash Players on the Internet.  Microsoft and MACR
recently announced the most comprehensive integration between the
Macromedia Flash Player and Microsoft's Internet Explorer 5.5,
which was just released.  The company has also entered into other
collaborative endeavors with companies such as Lotus, Nokia,
Oracle, and Apple.

Macromedia is one of the Internet's most advanced presentation
specialists and new developments in their product line should
certainly produce a winner.  Our basis for the position is in
a favorable technical support range near $80-$85.

MACR - Macromedia  $103.31

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

Sell Put  AUG 85   MRQ TQ  40       4.00     81.00    11.9%
Sell Put  AUG 80   MRQ TP  27       2.75     77.25    9.4%
Sell Put  AUG 75   MRQ TO  17       1.68     73.32    6.0% ***

Chart =
 

******

MERQ - Mercury Interactive  $109.88  *** Entry Point! ***

Mercury Interactive is a provider of integrated performance
management solutions that enable businesses to test and
monitor their Internet applications.  Their software and hosted
services help e-businesses improve the user experience by
enhancing the performance, availability, and reliability
of their Web sites.  By using Mercury Interactive's solutions to
identify and assess performance problems, e-businesses can
increase their ability to attract and retain customers, and
improve their competitive advantage.  A wide range of businesses
use their products, including America Online, Jobs.com, Ariba,
Cisco Systems, Ford Motor Co. and Walmart.

This company is one of our favorites for long-term portfolios
and the recent feeding frenzy for Internet Software stocks has
boosted this bullish issue out of an old trading range.  The
sector trend is extremely favorable and we offer this position
as a method of entry for the slightly over-extended stock price.
A reasonable cost basis exists near the previous resistance area
at $90-$95.

MERQ - Mercury Interactive  $109.88

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


Sell Put  AUG 95   RBF TS  5        4.00     91.00    9.7%
Sell Put  AUG 90   RQB TR  15       2.62     87.38    7.9%
Sell Put  AUG 85   RQB TQ  58       1.68     83.32    5.7% ***

Chart =
 

******

TIBX - Tibco Software  $117.31  *** An OIN Favorite! ***

Tibco Software produces e-Business infrastructure software
products that enable business-to-business, business-to-consumer
and business-to-employee solutions.  Tibco's software products
enable businesses to link internal operations, business partners
and customer channels in real-time.  Their software allows
multiple distinct applications, Web sites, databases and other
content sources to be integrated and managed within a common
framework.  Their products also enable enterprises to extend
their information technology infrastructures and business
processes across the Internet to conduct all forms of electronic
business using the Internet.

Tibco's recent success is well known and the company continues
to relentlessly add to its customer base.  The REALM, the first
business-to-business e-commerce hub for the commercial real
estate industry, announced today it has selected TIBCO for its
B2B infrastructure platform.  This follows Novopoint's selection
of the company for its food/beverage marketplace infrastructure.
The market has responded positively to these successes, with the
stock closing $4 higher today on moderately strong volume.  As
noted in recent OIN narratives, the company has achieved its
profitability while remaining debt free, building a significant
cash position.  The issue is viewed favorably by analysts and
investors have confirmed this confidence as the stock continues
to trend upward.

TIBX - Tibco Software  $117.31

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

Sell Put  AUG 95   PIW TS  24       3.62     91.38    10.3%
Sell Put  AUG 90   PIW TR  47       2.37     87.63    7.3% ***
Sell Put  AUG-85   PIW TQ  36       1.56     83.44    5.0%

Chart =
 

******

VRTA - Virata  $71.06  *** On The Move! ***

Virata sells communications processors combined with integrated
software modules to manufacturers of equipment utilizing digital
subscriber line (DSL) technologies.  These integrated product
solutions enable its customers to develop a diverse range of DSL
equipment, including modems, gateways and routers targeted at the
voice and high-speed data network access market.  Virata focuses
its resources on the development and marketing of its products,
while outsourcing the actual manufacturing of its semiconductors.

Virata announced today that its Helium communications processor
has been selected by ARESCOM for use in four of the company's
new NetDSL products.  In addition, ARESCOM has selected Virata's
Magnesium voice processor incorporating their vCore software to
be used in conjunction with Helium in the next generation of
ARESCOM's DSL equipment.  ARESCOM is a leading provider of DSL
router and modem solutions for telecommunication carriers, ISPs
and SOHO markets.  Their selection of Virata's primary products
suggests the company is designing components that meets the needs
of today's fast paced communications industry.

Unfortunately, when a stock like VRTA climbs $20 in three days,
there's room for profit-taking.  In this case, we think today's
move suggests there is additional upside potential in the future
and a cost basis near technical support will suit us just fine.

VRTA - Virata  $71.06

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

Sell Call AUG 55   UFA HK  79       18.88    52.18    4.3% ***
Sell Call AUG 60   UFA HL  425      15.50    55.56    6.4%

Sell Put  AUG 55   UFA TK  15       2.75     52.25    13.0%
Sell Put  AUG 50   UFA TJ  20       1.62     48.38    8.2% ***

Chart =
 



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