Option Investor

Daily Newsletter, Thursday, 07/27/2000

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The Option Investor Newsletter                 Thursday 07-27-2000
Copyright 2000, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        07-27-2000        High      Low     Volume Advance/Decline
DJIA    10586.10 + 69.60 10643.40 10516.80 1.16 bln   1389/1446
NASDAQ   3842.23 -145.49  3954.96  3841.62 1.79 bln   1108/2877
S&P 100   793.04 +  1.85   799.99   789.08   totals   2497/4323
S&P 500  1449.62 -  2.80  1464.91  1445.33           36.6%/63.4%
RUS 2000  501.61 - 12.20   513.82   501.50
DJ TRANS 2799.75 -  0.59  2833.85  2791.67
VIX        22.33 -  0.42    22.99    21.82
Put/Call Ratio       .59

It is now official. The July jinx is still alive and well

For three weeks the market rallied with shouts of "summer rally"
being heard from the roof tops. I warned you to take profits quickly
and keep your stops close because late July had produced a -15% sell
off in 1998 and 1999 and was likely to repeat for 2000. I got hateful
emails from people telling me to wake up and join the rally choir
before the Nasdaq hit a new high and my readers revolted. (and that
was from my staff) Well, it is official. The Nasdaq, again in
correction mode, has now dropped -10%, (-442 points) from the recent
high set back on Monday of last week. Am I glad? Heck no but I do hope
that our readers were at least prepared for the possibility that
honeymoon might be over early. Those that took my advice were not
caught holding calls worth a fraction of their original value and
waiting for a bounce. Now lets put the sell off behind us and start
looking for a new entry point.

The culprits today, and there always has to be some, were Nokia,
Amazon.com and Worldcom. Throw in some stronger than expected
economic reports and you have a prescription to move to the

Nokia, NOK, was the most active stock on the NYSE today, trading
115 million shares, after they warned that earnings for the third
quarter would slow. NOK dropped -$14 and put a drag on not only the
telecom sector but semiconductors as well. If cell phones sales are
slowing then the components, mostly chips, would slow also. The
major semi stocks all took hits on top of the recent news that
personal computers may also be reaching a saturation point. Just
last week a noted semiconductor analyst had forecast another 18-24
months of profits from that sector. How quickly investor sentiment

Amazon.com suffered from analyst revolt today after missing growth
targets for the last quarter. Almost every analyst that tracks AMZN
decided to lower estimates and recommendations on the money losing
company. AMZN lost -$4.69 and closed at a 52 week low. Eventually
AMZN will pull out of this hole with millions of satisfied customers
and tens of thousands of products. Sales were up, profits were up,
customers were up and earnings hit the estimates. The company is
just not moving as fast as analysts would like.

Worldcom warned today that sales were slowing and that caused another
ripple in the telecom sector. WCOM lost over -10% (-$5.50) on the
news and was a major drag on the Nasdaq.

APCC warned after the bell that they would miss earnings and
dropped over -$12 in after hours. This is just another in a long
line of earnings warnings that are putting the excellent earnings
from last week into the history books but out of investor memory.

The economic news was mixed with the Employment Cost Index Report
coming in with a +1.0% gain as expected. This was down from the +1.4%
gain in June. That was all the good news however as the Durable Goods
Orders jumped an unexpected +10% when the estimate was for an
unchanged or negative report. Adding fuel to the fire was a drop in
jobless claims of -40,000, much lower than expected. Add to that
the wages and benefits portion of the ECI report is climbing at the
fastest rate in a decade and the soft landing everyone was expecting
is turning out to be just a spring board for another jump.

Still all the news above is just filler. They are the daily excuses
clung to by high profile analysts as reasons for the market drop.
Now think about it. What was the reason in July 1999? July 1998?
July 1997? It sure was not NOK, WCOM, AMZN. Sure there were other
names and numbers but the key here is the SEASON, not the stocks.

Greenspan talks twice during this week each year. Companies warn
in this season every year. They are flush with great earnings
from the last three quarters but they are then faced with the
summer quarter which is normally slower. If you are having trouble
meeting increased expectations during good quarters then a slow
quarter is a cause for confession. Since July begins the summer
quarter in earnest and earnings for this quarter are reported in
October you can see why historically the market has trouble in
this period. Forecasts of summer earnings problems tank the market
in July/August and then actual results, many less than expected,
are reported in October. I don't need to tell you what happens in

If you are a long term investor (years) then this rise and fall
is just cause for some irritability. However if you are a swing
or momentum trader, and if you are reading this tonight you
probably fall into that category, then these represent trading
opportunities. Fund managers also recognize this trend and are
trading it as well. As the Internet trading boom continues to
accelerate the trends will become more pronounced as more and
more investors become traders and learn the system.

Where am I going with this? It is not NOK, WCOM and AMZN. It is
not Greenspan talking. It is purely seasonal. Sure there are
things that accelerate the market moves. I went back to the
summer of 1998 and re-read some of the market wraps and then
it was the Russian default and Japan and the Fed and some earnings
warnings and so on. There will always be excuses but it is a
tradable event. Analysts get so caught up in the daily ebb and
flow of stock news that they try to micro manage their analysis.
It is simpler than that. It just looks complicated. Here is the
answer. Earnings are over, vacations are in progress, cash is
safe. Got it? Earnings warnings just push investors off the fence
and force them to decide if they want to be invested or in cash
while they are away from their computers.

Do you doubt my analysis? What does Mary Redmond say, "follow
the money." According to TrimTabs.com equity funds had redemptions
of $1.1 billion for the three days ended July-20th for a monthly
rate of -$8.4 billion. Aggressive growth funds still saw a small
inflow but tech funds had their largest outflow for any period
during the last six weeks. TrimTabs said it is becoming "cautiously
bearish" due to slowing inflows as well as pressure from a large
backlog of new offerings. The IPO calendar is chock full with
billions of dollars of new stocks coming to market. These new
stocks take liquidity out of the market as people lighten up
on holdings to make room for their new sexy IPO additions.

Ok, so we sold off. Now when do we get back in? The Nasdaq tried
to rally into the close five of the last six days to only crater
again. The bulls are still out there and they are still trying to
buy the dips but they are buying losses instead. The volume is
very strong with the Nasdaq trading 1.78 billion shares and the
NYSE traded 1.15 billion. Strong volume for the Nasdaq on a very
bad day shows that it is not just a sector thing but a market
event. The Dow is rebounding on sector rotation out of techs and
into defensive issues like Drugs, Oil and believe it or not
Financials. No big gains there but still positive.

Stock investors just don't have any reason to buy stocks in
any quantity and those are the guys who drive the market.
Earnings are over for all practical purposes and both major
indexes have fallen below their 200 day moving averages. There
is no momentum and no excitement. About the only thing analysts
agree on is the need to get past the August FOMC meeting and
see if Greenspan has one more rate hike up his sleeve. Then
comes the September economic data a week later to confirm the
Fed's decision. That pretty well knocks out August as a
meaningful rally possibility. Without the Fed a mid August
rebound would be a possibility. Last year the rebound started
on August 10th. In 1998 it began on Sept 1st. With the Fed
ahead on August 22nd the market is more likely to trade
sideways. As more economic data comes available that could

As always a relief rally could break out at any moment. Nothing
moves in a straight line and a -442 point drop from last weeks
intraday high looks like a buying opportunity for some. The
Nasdaq broke through first level support today and came to rest
eight points from the next support level of 3850 I mentioned
on Tuesday. There is pretty decent support here but it closed
almost at the low of the day. If we break down again then 3700
is the next support level and another day like today would put
us below that. The best scenario in my book would be a complete
break down to a retest of 3200-3300 and form a serious double
bottom from which the mother of all rallies would follow.
Granted, we are at 3842 and a drop to 3300 may not even be
possible with the amount of cash still sitting on the sidelines.
I would love to see it. This would clear out all the weak
holders and give us a text book formation for a significant
rally to new highs in the fall. The bears would have their
wish and the bulls would feel free to come back into the market
at a drastically reduced level.

Back to reality! Regardless of how far we drop or if we just
hold here at 3850, the prospect of anything meaningful
before the Fed meeting is slim.  The Dow is benefiting from
the rotation out of techs but that is temporary. If the summer
doldrums really kick in then 10350 is the next serious support
level. 10600 is currently resistance and support and Friday
will determine which is stronger.

The most troubling factor for me is the volume. Summer volume
is typically light. The almost 1.8 billion shares on the Nasdaq
today could mean a more serious undertow than normal. Of course
the bullish view would be that buyers were snapping up shares at
the fire sale prices as fast as sellers could place their orders.
The Dow intraday pattern looked bullish from 12:00 on but
traders sold the rally with a vengeance in the last 30 minutes.

The end result is serious volatility and a directionless
market. Without a trend in place it would be foolish to try
and trade unless you are an accomplished day trader. Preserve
your capital and wait for the markets to settle. Now is the
time to be researching stocks and deciding which one you want
to own when the real rally appears. There is always another
turning point in our future. Let's wait for the real one to
show up!

Don't fight the tape.

Good luck and sell too soon.

Jim Brown


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Summer Rally? Nice While It lasted
By Austin Passamonte

Barring a Lazarus-like recovery the vaunted summer rally has
passed. From the third week of May until late July a number of
stocks enjoyed substantial gains but alas, all good things must
come to a temporary end.

How often this week have you heard the phrase "summer rally"
spoken anywhere in a positive tone? None, nada, zippo. Enough

This is no surprise to astute OIN readers who follow "Market
Wrap" analysis and then weigh the technical measures found
in this section. Evidence enough to convict these markets of
trading past-peak has been ours to interpret for weeks. Those
who played the downside recently have profited nicely from
the action.

With the heart of earnings behind us and continual warnings
for weakened outlook in the future popping up a rally from
here isn't likely. Those that try over the next few sessions
as attempted near 3:30pm EST today can expect to be greeted
with waves of eager sellers thrilled to dump plays they just
bought near the top over the past two weeks.

Our opinion is that we are seeing the final stage of a market
bottom beginning to form. That would be a multitude of weaker
earnings from major companies across the sectors. Such bad
news historically points to final capitulation and the start
of a new sustained rally. The bad news is if that's the case,
we have much further down to go before the turn.

The caveat is the stronger than expected federal reports that
continue to surprise. Durable goods reaching nine year highs?
Copper prices rallying? Oil prices refusing to drop below $25
a barrel? Such is not the base of slowing economies and need
for no further rate hikes.

Most of the recent rate hikes have yet to filter through and
a growing concern is one more may be imminent. Either way,
next earnings season and the one beyond may not resemble
those in the recent past we've enjoyed.

A relief rally in the next session or two is possible. Also,
we've enjoyed market rallies leading into the last few FOMC
meetings as well. We shouldn't expect further market action
to be straight down from here.

A number of stocks and sectors will continue to prosper and
long plays will exist. Be very cautious trying to probe the
bottom on pullbacks in the near term; it may be further
away than you might think. Expect rallies to be brief and
pressured heavily. Horizontal and downside plays will likely
treat you best. Hey, let's be careful out there!


The CBOE Market Volatility Index measures certain S&P 100
option pricing to determine investor sentiment. Historically,
readings near 30 signal possible market bottoms while levels
near 20 indicate possible market tops.

Tues 7/25 close: 21.67       Thurs 7/27 close: 22.21

CBOE Equity Put/Call Ratio
The CBOE equity put/call ratio is a contrarian-sentiment
indicator. Numbers above .75 are considered bullish, .75 to
40 neutral and bearish below .40

                             Tues       Thurs         Sat
Strike/Contracts            (7/25)      (7/27)       (7/29)

CBOE Total P/C Ratio         .53         .59
Equity P/C Ratio             .46         .54

Peak Volume (OEX)
CBOE index put/call ratio is a contrarian-sentiment indicator.
Numbers above 1.5 are considered bullish, 1.5 to .75 neutral
and bearish if below .75

                      Tues         Thurs        Sat
Strike/Contracts     (7/25)        (7/27)      (7/29)

All index options     2.75          1.15
OEX Put/Call Ratio    1.69           .97

OEX Maximum Open Interest Strikes/Contracts:

Puts                  790/6,646   790/7.043
Calls                 805/4,059   810/4,191
Put/Call Ratio          1.64         1.68

OEX S/R (Support/Resistance) Ratio Index
The OEX S/R ratio is a formula to gauge possible support
or resistance based on open-interest disparity. Values
above "5" considered excessive. Divergence of numbers may
indicate future market direction.

OEX                      Tues         Thurs      Sat
Benchmark:               (7/25)       (7/27)    (7/29)

Overhead Resistance:
(840 - 820)               10.11        86.41
(815 - 800)                1.32         1.10

OEX Close:                 802          793

Underlying Support:
(800 - 785)                1.65         1.90
(780 - 760)                3.36         7.66

What the S/R measure indicates: Net open-interest ratios
are heavy above 820 OEX level and firm below 780 A large
move in either direction still favors the downside. The
OEX appears to remain range-bound between 820 and 780 for
discretionary spread or directional play consideration if
the index tests either benchmark.

30-yr Bond:               5.80%       5.77%

Light, Sweet
Crude, Barrel:         $27.93        $28.10

200 Day Moving Average (as of 7/25)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW;   10,760          10,699*       10,586*
NASDAQ; 3,862           4,029         3,842*
NDX;    3,585           3,865         3,681
SPX      1421            1474          1449
OEX       765             802           793

CBOT Commitment Of Traders Report: Friday 7/14
Biweekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.

                  Small Specs    Commercials
DOW futures
Net contracts;    +326 long        +59 long
Total Open
Interest %        2.3% net-short   .4% net-long

Net contracts;    - 689 short      - 5,578 short
Total Open
Interest %        2.6% net-long     38% net-short

S&P 500
Net contracts;    +36,908 long      -44,272 short
Total Open
Interest %        9.8% net-long    11.8% net-short


Interest rates
5.77% on the 30-year Treasury Bond may be signaling the rate
fears are mixed. Fed-Fund futures are pricing a 50% chance of
one or more rate hikes, .25 basis at this time.

Numerous IPO's have been met with positive enthusiasm.



Today's close near 22.21 remains low . We may have seen
the market top, near term.

Major Indexes Struggling
The Dow and NASDAQ are trading below 200 DMAs with numerous
big-cap market leaders weakening or suffering.

Third-Quarter Earnings Warnings
A number of companies pre-warning slowed earnings later in
the year are being met with extreme selling pressure.

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. August Crude closed $28.10 today.
Seasonal energy patterns typically bottom by late summer,
but heating & fuel oil expected to be very high this fall.
Prices in the low $20s would be welcome relief.

COT Report
Latest updated figures show small spec traders heavily
long S&P 500 contracts while commercial traderss continue to
build five-year extreme short position. Widening divergence
in NASDAQ 100 futures market with commercials becoming heavily
net-short. Divergence suggests possible market turn in favor
of commercials soon. Updated this Friday

Seasonal Tendency
The last two years have seen weeks following expiration Friday
result in market decline through fall.  Broad market failure is
confirming history may repeat.


As of Market Close - Thursday, July 27, 2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,586      10,400  10,950    **
SPX   S&P 500           1,449       1,435   1,520
COMPX NASD Composite    3,842       3,650   4,300
OEX   S&P 100             793         775     822
RUT   Russell 2000        501         500     550
NDX   NASD 100          3,681       3,580   4,100
MSH   High Tech           984         965   1,100    **

BTK Biotech               647         610     730
XCI Hardware            1,488       1,440   1,600
CWX Software            1,170*      1,060   1,320    **
SOX Semiconductor         949         880   1,200    **
NWX Networking          1,288       1,250   1,400
INX Internet              506         470     605

BIX Banking               545         540     575
XBD Brokerage             572         500     590
IUX Insurance             696         630     705    **

RLX Retail                904         860     960
DRG Drug                  398         385     430
HCX Healthcare            817         800     855
XAL Airline               167         156     178
OIX Oil & Gas             284         264     308

The CBOE had problems with the CWX Index today (1170 is yesterday's
close).  In just two days, the DOW,MSH,CWX and SOX violated support
levels.  The IUX has broken resistance yet again.  Drugs and
Healthcare have been holding tough among the uncertainty.  Lowering
support (DOW,MSH,CWX,SOX).  Lowering resistance (CWX,SOX,BIX,HCX).
Raising support (IUX).  Raising resistance (IUX).

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Markets Diverge - Paint Not Yet Dry
By Buzz Lynn

Though positive for the Dow, trading continues with a negative
bias on the NASDAQ as volatility remains historically low.  How
much longer will OEX volatility remain low?  Wish we had the
answer.  What we do know is that we are another day closer now
that the NASDAQ has moved under its 200-dma (3872) to 3842, also
just 10 points over its 50-dma of 3832.  Recall our comments
Tuesday noting that awaiting a volatility change is like watching
paint dry - in the meantime, life and trading go on around us.
This is a precarious moment.  It's like being at the center of
the teeter-totter and trying to figure out which end the elephant
is going to fall on.  On the playground, you mostly see the
elephant before it lands, but in the market we're not always that
lucky.  We need to watch closely as any further weakness would
set up the current level to become resistance instead of support.
Read that as possibly more technical damage to follow.  On the
other hand, if the NASDAQ can hold this level and close back
above the 50 and 200-dma, we could chalk it up as a rangebound
market and go back to strategies that work well in that
environment - covered calls, naked straddles and strangles, and
butterflies.  Most of the charts on the HOLDERS indicate the same
"iffyness".  Some like PPH, IIH, and TTH could be putting in a
bottom if the NASDAQ takes a bounce up.  We didn't add these
tonight, but you may want to put them on your radar - IIH and TTH
should the market rally; PPH should the market tank.
Unfortunately, the end of earnings season favors the latter trend
over the next few weeks.  But we'll just have to watch.  The play
list could be lengthy this weekend, but we'll keep it short
tonight and wait for a direction.

Have questions about the various strategies?  Send 'em in!

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    92.19  -2.50   1.25  -0.25  -3.44   0.00  -4.94
HHH Internet     106.13  -5.63   1.44  -2.56  -4.63   0.00 -11.38
BBH Biotech.     176.06  -6.00  -8.50   1.63   0.56   0.00 -12.31
PPH Pharm.        98.31   3.69  -3.38  -0.81   2.06   0.00   1.56
TTH Telecom       68.69  -1.56   0.31  -1.38  -2.81   0.00  -5.44
IAH I-net Arch.   95.13  -4.38   2.38  -0.19  -2.88   0.00  -5.06
IIH I-net Infr.   54.13  -2.38  -0.44  -1.81  -4.94   0.00  -9.56
BHH B2B           43.06  -2.50   0.44  -1.25  -2.63   0.00  -5.94
BDH Broadband     91.38  -2.75   1.81   0.25  -5.63   0.00  -6.31
SMH Semicon.      82.69  -0.38   3.56  -4.06  -6.06   0.00  -6.94
RKH Reg. Banks    96.38   0.25  -0.19  -2.44   0.13   0.00  -2.25
UTH Utilities     93.69   0.00  -0.06  -1.00   1.00   0.00  -0.06


QQQ - NASDAQ 100 $92.19 -3.44 (-4.94 this week) Remember back in
June and early July when support came at $92?  Well, here we are
again nearing a previous bottom of an old trading range.  $92
held up well today too until the final 15 minutes where it dipped
slightly under.  While the 50-dma of $92.25 was violated
slightly, the 200-dma is still good at $89.90.  Don't breathe a
sigh of relief just yet.  Remember that QQQ is comprised of the
top 100 NASDAQ stocks, the whole NASDAQ market is precariously
close to that 200-dma violation.  If it fails, the QQQs could go
with it, 200-dma support or not.  With earnings season coming to
an end and a pessimistic feel to the market, there isn't a
significant reason for it to bounce.  Mild support is at $92, but
if that fails, $91 and $90 are the next stops.  A fall under $90
could set up a near-term trend for further downside action.  If
you are an optimist, perhaps the market is putting in a bottom
and we're about to get a reversal.  The point is we can't tell
for sure and thus need to watch tomorrow's action to see if QQQ
can hold $92.  Today's volume above the ADV wasn't encouraging
for a rebound.  You may want to take a wait and see approach.
Neutral strategies should pay the best rewards in this still
sideways market.

Long Straddle:

We're still waiting for that volatility spike to inflate the time
value of our long options.  We still have time to be right; we
just don't want to lose it by waiting too long.  That's why we
generally want to plan to be out in 30 days.  That way we still
have some time value left to sell.  The good news is that with
NASDAQ sitting precariously on support at 3842, that could turn
to resistance.  We may begin to see the volatility increase if
NASDAQ makes a break to the downside.  Though our call would be
losing intrinsic value, our put would be gaining, and volatility
would be increasing the remaining time value of both.  In
essence, this becomes a race against the clock where we seek to
have a big market move to increase volatility before all the time
value component of our position evaporates.  That's why we buy
enough time to be right and still have enough to sell back if we
are wrong.  You know Jim's saying - buy time if you want, just
don't use it.


BUY CALL DEC- 90 QVQ-LL OI=1440 at $12.88
BUY PUT  DEC- 90 QVQ-XL OI=2133 at $ 9.25
Net Debit = $22.13 or less

BUY CALL DEC- 96 QVQ-LR OI= 981 at $ 9.75
BUY PUT  DEC- 96 QVQ-XR OI=4875 at $12.75
Net Debit = $22.00 or less


BUY CALL DEC- 96 QVO-LV OI= 981 at $ 9.75
BUY PUT  DEC- 90 QVQ-XL OI=2123 at $ 9.25
Net Debit = $19.00 or less

Calendar Spread:

Unlike a covered call, the objective is to sell short-term ATM
calls against a long-term call with the intent to eventually
reduce the cost basis to zero.  If $92 turns out to be support
and not just another step on a stairway to the basement, consider
legging into the long term position on any bounce, while looking
to sell the short term option near any resistance - $92 or $90,
and $96 respectively in this case.  Wait for the bounce to sell
the short-term call at a more expensive price.

BUY  CALL DEC- 90 QVQ-LP OI= 1440 at $12.88

SELL CALL AUG- 94 QVQ-HT OI=  927 at $ 3.13, ND =  9.75 or less
SELL CALL AUG- 96 QVQ-HR OI= 2850 at $ 2.38, ND = 10.50 or less

Long Calls/Puts

The direction of the market from here should determine which side
of the trade you get on.  You can still play support of $92 or
$90 and resistance of $96 for small daily profits.  However, note
that a breakdown under $90 or a bounce south of $96 would make a
good case for buying puts, while a bounce north of $90-$92 would
make a good case for buying calls.  If you are really gutsy and
have great timing skills, you could simultaneously buy puts and
sell calls, or simultaneously sell calls and buy puts, depending
on market direction.  Just make sure you are fast on the trigger
if the trade goes against you

At Support:

BUY CALL AUG-90 QVQ-HL OI=  582 at $5.63 SL=3.75
BUY CALL AUG-92 QVQ-HN OI=  571 at $4.38 SL=2.50
BUY CALL AUG-96 QVQ-HR OI= 2850 at $2.63 SL=3.00

At Resistance:

BUY PUT  AUG-96 QVQ-TR OI= 3206 at $6.63 SL=4.75
BUY PUT  AUG-93 QVQ-TO OI=10893 at $4.63 SL=2.75
BUY PUT  AUG-90 QVQ-TL OI= 3548 at $3.38 SL=1.50

Average Daily Volume = 22.07 mln


IAH - Internet Architecture $95.13 -2.88 (-5.06 this week) This
was a tough day in the market for most technology stocks.  Now
that JDSU has announced their earnings (along with joining the
S&P 500), other optical companies are free to sell off in
sympathy.  That's just what SCMR, JNPR, and CIEN did with double-
digit losses each.  However SUNW and HWP, which have heavy
weighting in IAH, contributed most to today's loss.  That said,
even though the market melted like butter today as the 10-dma was
violated, IAH finished at support of $95.  The good news is that
it still remains well above its 30-dma of $94 from where it has
bounced in the past.  A drop below the 30-dma would be our cue to
walk a way.  A bounce from here would make a nice entry as long
as the rest of the market cooperates.  Resistance is mild at $98
and bit stiffer at $100.  With CSCO not yet reporting earnings
(August 8th), CSCO could add some fire to this index if there are
no further market declines.  Careful though - NASDAQ is perched
to go either way.  On a decline, CSCO goes with it and so does

BUY CALL AUG- 90 IAH-HR OI= 5 at $6.88 SL=5.00
BUY CALL AUG- 95 IAH-HS OI=51 at $3.75 SL=2.25
BUY CALL AUG-100 IAH-HT OI=50 at $1.63 SL=0.75

Average Daily Volume = 45 K


SMH - Semiconductors $82.69 -6.06 (-6.94 this week) Uh oh.  Bad
call.  Recall form Tuesday "if the markets head south, SMH won't
keep its head above water very long."  The market bought Morgan
Stanley's logic earlier this week.  But come Wednesday morning,
the tone had again soured.  Fortunately, nobody should be in this
play since we never came close to an entry yesterday and things
only got worse today.  The news likely causing the spark was
INTC's decision to use chip architecture other than Rambus's,
which of course killed RMBS in the process.  INTC didn't do so
well either.  NOK and ERICY, who both use many different types of
chips in their components didn't help when they warned of future
decreases in revenue growth rate.  What's bad for the goose is
bad for the gander.  Save your time and research efforts for
another play.

No Play



Index      Last     Mon    Tue     Wed     Thu    Week
Dow    10586.13  -48.79  14.85 -183.49   69.65 -147.78
Nasdaq  3842.23 -113.33  48.00  -41.85 -145.49 -252.67
$OEX     793.04   -8.72   6.61  -11.25    1.85  -11.51
$SPX    1449.62  -15.90  10.18  -22.05   -2.80  -30.57
$RUT     501.61   -8.45   0.08   -0.52  -12.20  -21.09
$TRAN   2799.75   11.67 -10.77   -8.98   -0.59   -8.67
$VIX      22.33    1.05  -0.77    1.08   -0.42    0.94


FRX      113.47    1.84  -0.25    0.91    3.50    6.00  New
PVN      106.00   -3.94   1.56   -0.19    6.19    3.63  Great day
GENZ      71.31    0.96  -0.85   -0.19    3.19    3.11  New
COF       56.56   -1.88   0.38   -1.06    3.31    0.75  Winner
ATON     143.00   14.63  -3.00   -4.25   -8.13   -0.75  Intact
LEH      114.00    0.85   3.44   -5.72   -1.38   -2.81  M&A talk
DISH      39.00   -2.88   1.19   -2.31   -1.94   -5.94  Dropped
CMTN      75.44    0.31   0.81   -4.63   -5.44   -8.94  Dropped
ARBA     115.19  -10.25   7.06   -1.56   -7.06  -11.81  Dropped
SCMR     126.00   -5.06   0.19    3.13  -11.00  -12.75  Weak techs
AMCC     146.19   -1.31  13.38   -8.94  -16.69  -13.56  Pounded
NTAP      95.25   -6.56   3.38   -4.25   -6.69  -14.13  Caution
HGSI     138.00   -2.44 -15.19   -3.75   -3.13  -24.50  Churning


VRTS      96.19    0.56   1.13   -4.88   -9.94  -13.13  New
EMLX      48.00   -3.00   1.13   -2.81   -7.81  -12.50  New
CMRC      45.44   -2.69  -1.69   -2.13   -1.44   -7.94  Still room
FON       35.88   -0.88  -1.88   -2.19   -2.63   -7.56  No answer
GTW       57.75   -4.25   1.75   -1.81   -0.81   -5.13  Sliding
ELON      34.56   -2.94   1.56   -1.31   -1.75   -4.44  Lower lows
RFMD      71.00    0.88   8.50   -5.25   -8.50   -4.38  Dropped
CMOS      43.38    0.50   1.41   -0.97   -4.25   -3.31  Huge loss
IP        33.25    0.00  -0.56   -1.63    0.69   -1.50  Slow ride

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


ARBA $115.19 -7.06 (-9.63)  What was once consolidation is now
looking more grim.  While still holding support in the $110-112
area, this past week has seen ARBA consistently close below its
5-dma (now $120.77), and now its 10-dma ($123.73) as well.  On
Wednesday morning, the stock experienced an early morning drop and
spent the rest of the day recovering, closing down just $1.56 on
about 64% of ADV.  Today, however, ARBA sold off with the rest of
the NASDAQ, moving it definitively below key support level at
$120.  While ARBA did successfully bounce above support at $112
for the third time in the past two weeks, the stock now appears
to be drifting down with the beginnings of a downward regression
channel starting to form.  With volume drying up, ARBA appears to
be preparing for a big move but will it be up or down?  With
little news of consequence to drive the stock and a weakening
market for B2B stocks, we are dropping this play.

DISH $39.00 -1.94 (-5.94) The play on DISH is cracked,
shattered, and beyond repair.  The broader markets have simply
put too much pressure on the play.  We had been looking for
possible entries on bounces off the $43 mark, but the breakout
never transpired.  Granted the company isn't announcing earnings
until Tuesday BEFORE the bell, but we're exiting before the
weekend.  There's just not enough time for DISH to recoup from
its two-day slide.

CMTN $75.44 -5.44 (-8.94) Wow! So much for coming out with
positive earnings and maintaining an upswing!  CMTN is now
significantly below the support levels of $86.50 in a steady
week-long decline, losing a whopping $50.00 since July 17th.
Althoug $90 looked like a good entry point, a move through that
level never really materialized.  In light of the recent declines
and weakness in the NASDAQ, CMTN is a goner until it decides to recover.


RFMD $71.00 -8.50 (-4.38)  On Tuesday, RFMD attempted a comeback
on news of a 2-for-1 stock split and bullish comments from the
CEO.  What it gave us was a perfect entry point, closing just
below resistance at $85.  There was no follow-through and on
Wednesday, RFMD experienced a day-after slump.  Failing to
break through $85, the stock sold off strongly during amateur
hour and spent the rest of the day attempting to rally above $80.
Unsuccessful in its attempt, RFMD closed down $5.25 or 6.19% on
higher than average volume.  Today, RFMD got a double shot of
weakness, with negative momentum from semiconductor issues
combined with bad news in the wireless sector as one of its
largest customers, NOK, issued a profit warning for the next
quarter.  This was enough to open the stock below its $75 support
and send our put play into highly profitable territory.  At its
low, RMFD was down $15.  Finding support at the $65 area, the
stock closed down $8.50, or 10.69%, on almost 4 times ADV.  With
a successful move already in our favor and the likelihood of
a bounce from its oversold condition, we are banking our profits
and moving on.


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The Option Investor Newsletter                 Thursday 07-27-2000
Copyright 2000, All rights reserved.                        2 of 2
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AMCC $146.19 -16.69 (-13.56) Violating all the support levels
we listed on Tuesday, AMCC took a pounding with the rest of the
Semiconductors over the past 2 days.  After moving to a new high
on Tuesday, it didn't take much to burst the stock's balloon as
sector weakness, exacerbated by the revenue warning from Nokia
this morning, has been the culprit.  After such a pounding,
you would be justified in wondering why we are keeping the play.
Let's just say that it is on probation and the only reason it
didn't get expelled is the strong bounce that occurred
mid-afternoon today.  Volume picked up as AMCC bounced at
$143.50, the same point where it found support on July 19th.
The final point in the stock's favor is that it managed to close
just above the low seen on July 13th, the day after earnings
when AMCC gapped up over $20 at the open.  Play this one with
caution though.  The sentiment in the sector is decidedly
negative with nearly every stock in the red yesterday and today.
Wait for buyers to confirm they are willing to support the
stock and sector at current levels before playing.  New
positions can be considered on a bounce from current levels, but
stand aside if support at $143 is violated.  A more conservative
play is to wait for a move back up through resistance (old
support) at $151 before playing.

COF $56.56 +03.31 (+0.75) You had to look hard today to find a
winning play, but COF definitely qualifies.  After falling hard
early in the week, our play finally found its feet at the $53
support level and rode the wave higher as Financial stocks
surged higher today.  The entry point came late yesterday
afternoon as the stock moved up off of support on increasing
volume.  The move was confirmed this morning, but the real surge
came in the last hour as volume shot through the roof.  Buyers
really piled on as the price shot up to challenge the highs seen
on Monday.  Although COF didn't quite get there, it did hold
onto its gains to close near the high of the day, posting a new
52-week closing high.  The bounce over the past 2 days has given
us strong confirmation of the $53 support level, which is now
slightly below the 10-dma at $53.63.  The next hurdle will be to
clear resistance at $58, and then our hero can set its sights on
the all-time high of $60.  Consider new positions on renewed
bounces from support, market permitting.  But don't forget to
look for both strong volume and sector strength for confirmation
that our play still has room to run.

NTAP $95.25 -6.69 (-14.13) Up through amateur hour today, we
were wondering when the downhill slide was going to end.  With
the technology sector getting pummeled the past 2 days, NTAP
plunged through support at $100 and then $95.  The slide was
finally arrested just above the 30-dma ($89.39), as buyers came
back to support the stock this morning and we got a convincing,
volume-backed bounce at $91.  After moving back up to $98, NTAP
dropped into rangebound trading for the rest of the session,
and we need to see confirmation of the recovery tomorrow.  After
the strong run in the middle of July, the stock was due for some
profit taking and it looks like the market weakness over the
past two days was the catalyst.  With the NASDAQ closing at its
low of the day on heavy volume, it is hard to get past the
strong negative sentiment, so enter new positions with
caution.  Even though earnings are approaching on August 17th,
if the market heads further south, it will be hard for NTAP to
buck the trend.  A renewed bounce from the vicinity of the
30-dma is buyable, but don't jump in unless volume is backing
it up.  More conservative players may want to wait for buying
interest to push the price back above $100 before stepping into
the fray.

ATON $143.00 -8.13 (-0.56) The terrible action in the Tech
sector over the past two days gave traders reason to lock in
their recent profits in ATON.  Our play fell in the first half
of trading Wednesday, but managed to muster a mid-day rally to
pair its losses.  The return of the profit takers Thursday
pushed ATON below support at $150.  But, the selling in the past
two days has come on relatively light volume.  Plus, ATON managed
to trade above its critical support level at $140 Thursday.
Despite the recent sell-off, ATON's strong technical position
bodes well for our play.  The stock's two-month uptrend is still
very much intact.  If the Tech sector continues to slide
lower, an aggressive trader might consider entry if ATON bounces
off its major support level at $140.  If, however, ATON falls
below $140, the stock has strong support at its 10-dma, currently
at $136.  A more conservative entry point might be found if ATON
can breakout of its trading range, and rally above the $150
level.  Make sure to confirm a move above $150 with heavy trade.

SCMR $126.00 -11.00 (-12.75) SCMR slipped out of the gates
Wednesday morning, dragged lower by a weak Tech sector.  The
stock bounced off support near $128 for most of the day, but
exploded nearly $5 higher in the final moments of trading.
Robertson Stephens came out with some favorable news on the Fiber
Optic sector late Wednesday, which induced a massive SCMR rally.
However, the bullish comments were short-lived as SCMR met an
unforgiving Tech sector Thursday, and news that the pseudo merger
between NT and GLW had fallen apart.  The stock fell past support
at $128, testing the lower end of its three-month ascending
channel.  The sell-off on relatively light volume Thursday might
prove to be a good entry point if the Tech sector reverses
course.  The light volume on which SCMR has traded this week is
indicative of profit taking; once the sellers are done, SCMR might
be ready to rally into its earnings announcement later in August.
But, before entering the play, wait for momentum to return.  Look
for an entry if SCMR can rally above resistance at $130.  A more
conservative entry might be provided upon a move above $135.

HGSI $138.00 -3.13 (-24.51) The Biotech sector diverged Wednesday
as genomic-related issues edged higher while the more traditional
stocks succumbed to selling pressure.  HGSI waged a valiant
battle with the bears.  The stock fell to the $132 level before
reversing its course to finish the day modestly higher.  But, the
Biotech bears returned for another round Thursday, which
pressured HGSI lower.  The stock churned around the $140 level
for the better part of the day.  The volume Thursday was less
than impressive, which has convinced us to stick around for
another round with the bears.  HGSI's unwillingness to give up
Wednesday might lead to a rally if the Biotech sector regains its
footing.  The stock has support just below at $137 and again at
$135.  If HGSI stumbles Friday, watch for an intraday bounce off
support and consider entry if the stock rallies.  Confirm
direction in the Biotech sector before entering the play.  For a
more conservative entry point, wait for HGSI to gather itself and
look for momentum to carry the stock past resistance at $145.

PVN $106.00 +6.19 (+3.63) A heck of a day?  A downright good day
for PVN!  The share price confidently climbed upwards on
mounting volume.  It toppled the near-term resistance at
$103.50, set early on Monday session.  The short lull in trading
that followed Monday's spike may have been all the stock needed
to get rejuvenated.  It now appears PVN is poised for another
charge.  Overhead, PVN must face the 52-week record at $118.50.
So there's no doubt it'll need some serious momentum to pump up
the share price.  Good news or positive analyst coverage would
be a welcome addition.  Again, like today's action, look for
high-volume moves to foretell advances.  Intraday dips to near-
term support at $103 and $104 are practical entries if PVN is on
the move.  However, on a pullback PVN, could slip under the 5-dma
($101.33) and return to the $100 level for stabilization.  Use
stop losses as a safety net.

LEH $114.00 -1.38 (-2.81) The weak markets and expected profit
taking have left us with potential entry points.  What we want
to see now are positive moves off the current level for
confirmation.  Be patient.  Recall LEH was added strictly as a
momentum-type play.  The recent technical advances were also
discerning aspects; although, the main bias is the rumors
swirling around about mergers and acquisitions within the
banking and investment industry.  This scuttlebutt initially
popped LEH over the $115 resistance.  So to reiterate, LEH
should once again rise above this former opposition and find
near-term support in the $118 and $120 vicinity.  In the
meantime, some traders may want to play the spread, if there's
enough intraday volatility to warrant profits.  Ultimately, LEH
must face the recent all-time high of $121.75 it hit in
Tuesday's session.


IP $33.25 +0.69 (-1.50) Watching grass grow has been more
exciting than watching our play in IP, but those of you who
waited patiently were rewarded with yesterday's drop (finally!)
below support at $33.  As the DJIA fell into the basement, the
negative sentiment bled into IP and stock closed at 32.56, just
fractionally above the low of the day on solid volume.
Yesterday's decline dropped the stock through the 30-dma at
$32.75, and it looked like the stock was ready to follow the
market even lower this morning.  Alas, it wasn't to be, as the
DJIA moved up right from the open, taking IP with it.  The day's
action helped lift our play above the 30-dma and the $33 support
level, but didn't have enough momentum to challenge yesterday's
high price of $33.88.  So where do we go from here?  It is
really going to depend on the broader market, as a continued
recovery could drag IP higher and we would look for another
attractive entry point as the stock rolled over near the 100-dma
($36.19) again.  Continued market weakness could be just the
ticket for a renewed decline though and a good entry strategy
would be to open new positions as the stock falls through
support, now at $32.50.  As before, allow the volume pattern to
light your way, indicating the strength or weakness of whatever
move comes our way.

FON $35.25 -3.25 (-8.19) Investors are not answering FON's call.
The beleaguered phone giant fell for the fourth consecutive day
Thursday, en route to tracing yet another new 52-week low.  FON
fell past support at $40 at the opening Wednesday, providing the
entry point we had been looking for.  The heavy volume we saw
earlier in the week returned Thursday as FON fell on over twice
its ADV.  FON's one-time merger partner WCOM guided analysts to
lower-than-expected revenues when they reported Thursday.  The
news only added to FON's problems.  The company said Thursday
that it would issue refunds to Florida customers due to service
outages.  FON's service records are currently under examination
by the Florida Public Service Commission.  The combination of
events Thursday was more than enough motive for traders to take
FON lower.  The fact that FON is trading at a 52-week low leaves
no support below its current levels.  Feel free to enter the play
if FON continues its slide lower Friday morning, wait for the
stock to fall below its intra-day low at $35.25.

CMOS $43.38 -4.25 (-3.31) The Philly Semi Index ($SOX) shed a
dreadful 8% Thursday, adding to its 6% loss on Wednesday.  Wall
Street continues to be confused about the future of the Chip
sector.  The influential Morgan Stanley Semi analyst Mark
Ettleston pounded the table on stocks such as CMOS Wednesday,
which helped it to pair its losses.  On the other side of the
Street, William Blair downgraded the king chip equipment maker
AMAT.  For the most part, the Semi group continues to post
impressive quarterly results.  But, the warnings from LSI and NOK
have been overpowering the positive news.  CMOS gapped down by
$1.50 Thursday morning on the heels of the warnings from the chip
dependent NOK.  The stock dipped below support at $45 and slid
lower as the day wore on.  Volume picked up Thursday as CMOS fell
on 1.5 times its ADV.  The chart is pretty empty in the way of
support until the $40 level.  Consider entry at current levels if
the semis fall under pressure again Friday.  Look for an entry
point if CMOS falls below $43 and confirm a decline with heavy

GTW $57.75 -0.81 (-5.13) The box makers suffered Wednesday after
Micron (MU), one of the leading memory makers,  said it expected
the price for its DRAM memory chips to significantly rise in the
latter half of the year.  The news spurred a slew of sell orders
in GTW, which pushed the stock back below support at $61.  GTW
attempted to rally Thursday, but the bears in the Tech sector
proved to be too formidable.  However, Thursday's selling came
with less conviction than we have seen in the past.  GTW slid
lower on less than half of its ADV.  In fact, the volume has
considerably dried up over the past two days.  The stock has
major support just below its current levels, where GTW was
trading prior to its earnings run two weeks ago.  An aggressive
trader might consider entry at current levels if the Tech sector
shows signs of weakness again Friday morning.  A dip below the
$56 level might provide a more conservative entry.  A
conservative trader might wait for the sellers to return with
volume and consider entry if GTW falls below $55.

ELON $34.96 -1.75 (-4.44) Volume has somewhat dissipated since
the share price slipped under $40 this week.  As of today's
session, the stock's trading activity was under 50% of the norm;
yet the pattern of lower-lows is definitely intact.  Currently
ELON's intraday support is at $35, but a last-minute dip to $34
today sets the stage for a future objective.  The broader market
weakness is certainly helping the downtrend cycle, but let's
keep the stops in place for protection.  ELON may find stronger
support at the $30 level.  If you're looking for new entry
points into this momentum play, then the 5-dma line (now at
$36.71) should be a good gauge on the decline.

CMRC $45.44 -1.44 (-7.94) The post-earnings' decline is still in
full swing.  Momentum has driven the share price down a hefty
14.9% in a mere four sessions.  There is light support at the
current level, however, there's still room for CMRC to fall
before it hits the historical platform at $40.  It's possible
some may choose to use downward bounces off $47 as entries, but
the more conservative will wait for a conclusive move under the
$45 mark for better confirmation.  Keep in mind the current
price is attractive.  Thomas Weisel Partners and Dresdner
Kleinwort Benson Securities both reiterated their Buy
recommendations earlier today.  So let's err on the side of
caution, despite the cooperating markets, and keep stops tight.
In other news, Commerce One and seven Hong Kong companies formed
a partnership to start six B2B Web sites with the objective of
handling as much as 1% of Hong Kong's GDP within three to four
years.  So far the joint venture, Asia2B.com Ltd, has obtained
$40 mln from investors and is expected to be in commercial
operation by this fall.

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FRX - Forest Laboratories $113.50 +3.50 (+13.50 this week)

Forest Laboratories develops, manufactures and sells both branded
and generic forms of ethical products which require a physician's
prescription, as well as non-prescription pharmaceutical products
sold over-the-counter, which are used for the treatment of a wide
range of illnesses.  Forest products are marketed principally in
the United States and western and eastern Europe. Marketing is
conducted by Forest and through independent distributors.

Forest Labs has been on the fast track this year, reaching a 52
week high of $113.31 on July 12th, a whopping 123.1% rise. Add
to that the fact that the stock is up 13.7% in the last 4 weeks,
and it looks like we've got a winner.  The question is, however,
can the company maintain this superhero performance in the
upcoming weeks?  Charging through every near term technical
support level, it appears that it could do just that.  With the
close today at $113.50, the stock blow through the 5- and
10-dmas of $109.85 and $106.33, with the 50-dma clear down at
$88.87, and the 100-dma even further removed at $72.85.  The
company reported first quarter revenues on July 19th of $0.31.
That figure included a one time charge of $14 mln from the
termination of a co-promotion agreement with Warner Lambert.
Booming sales of their very popular antidepressant drug Celexa
put the bottom line $0.04 ahead of estimate, with sales of the
drug up $150 mln in the quarter, almost two times the amount in
the first quarter of 1999.  With all this good news supporting
the upward momentum, look for an entry level on the play on a
bounce near $110.  This is just slightly above the 5- and 10-dmas,
which should also offer support in the $108 area.  The stock
trades with an ADV of 695K, so watch for heavy volume to confirm
any moves.

Standard and Poor's calls the Healthcare and Biotech sectors
"best bets" in their midyear review of top performing sectors,
naming FRX as one of their top picks.

BUY CALL AUG-105 FRX-HA OI= 16 at $11.88 SL=8.50
BUY CALL AUG-110*FRX-HB OI= 47 at $ 6.63 SL=4.50
BUY CALL AUG-115 FRX-HC OI= 69 at $ 6.00 SL=4.00
BUY CALL SEP-105 FRX-IA OI=  0 at $12.50 SL=9.25 Wait for OI
BUY CALL SEP-110 FRX-IB OI=  0 at $12.00 SL=9.00 Wait for OI

SELL PUT AUG-100 FRX-TT OI=305 at $ 2.00 SL=1.00
(See risks of selling puts in play legend)

Picked on July 27th at  $113.50    P/E = 84.30
Change since picked       +0.00    52-week high=$111.31
Analysts Ratings      7-7-5-0-0    52-week low =$ 41.75
Last earnings 07/19   est= 0.27    actual= 0.31
Next earnings 10-19   est= 0.50    versus= 0.32
Average Daily Volume   =  695 K

GENZ - Genzyme Corp $71.31 +3.19 (+3.13 this week)

Genzyme is a biotechnology company that specializes in
developing drugs for rare genetic diseases.  And they actually
make money!  Their business strategy is to buy companies
that can contribute to its in-house development of niche
biopharmaceutical products.  They are also product diversified
with development, manufacturing and marketing capabilities in
therapeutic and diagnostic products, pharmaceuticals and
diagnostic services.

This money-making biotech led its sector higher despite the
NASDAQ's fall from grace.  GENZ not only took the lead, but it
also propelled itself to new heights along the way.  The
intraday move to $72.50 set a new 52-week high.  Yesterday's
Buy reiterations from Robertson Stephens and PaineWebber, as
well as the latter firm's upgraded target price to $80 from $75,
were catalysts for GENZ to advance further today.  Although, it
appears the market's general sentiment towards the Drug stocks
is the primary influence.  It's not to say that the company's
stellar earnings and profitable outlook aren't positive
components stoking the current momentum run.  Last week on July
20th, Genzyme announced a 64% net income increase at $66.1 mln,
or $0.72 p/s, compare with same quarter last year of $40.2 mln,
or $0.46 p/s.  The blowout numbers easily beat the much lower
estimates around $0.53 p/s!  Light support is currently forming
at $68 and $70, which is the proximity of the rising 5-dma
($69.02).  Enter on intraday dips to this level, after
confirming GENZ can move through upper resistance.  You'll want
to note the volume levels too.  GENZ made its recent advances on
more than double the normal trading activity.  There's no
question that taking long positions in the current market
environment is risky, but we're anticipating the more defensive
stocks, like GENZ, have the potential to make some gains in the

A biotech battle!  Genzyme recently filed a lawsuit against
Transkaryotic Therapies for allegedly infringing on its patent
for Replagal, a drug that treats Fabry disease.  The suit claims
Transkaryotic is already trying to market the drug in the US and
Europe.  Both companies are in a heated race to be the first to
win FDA approval to treat this rare metabolic disorder, which
affects on in 40,000 men. The disease is fatal.

BUY CALL AUG-65*GZQ-HM OI=1566 at $7.88 SL=5.75
BUY CALL AUG-70 GZQ-HN OI= 244 at $4.50 SL=2.75
BUY CALL AUG-75 GZQ-HO OI= 107 at $2.50 SL=1.25
BUY CALL SEP-75 GZQ-IO OI=  11 at $4.63 SL=2.75
BUY CALL OCT-70 GZQ-JN OI= 506 at $8.75 SL=6.25

Picked on July 27th at   $71.31    P/E = 30
Change since picked       +0.00    52-week high=$72.50
Analysts Ratings      4-8-2-0-0    52-week low =$30.75
Last earnings 06/00   est= 0.53    actual= 0.72
Next earnings 10-19   est= 0.55    versus= 0.49
Average Daily Volume = 1.19 mln


EMLX - Emulex Corporation $48.00 -7.81 (-12.50 this week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial

Investors that bought the weak rally in EMLX in early July
have been in for a rude awakening over the past two weeks.  The
NASDAQ strength that lifted the index above 4200 hid the
underlying weakness in the stock that was underscored by the
Dain Rauscher Wessels downgrade on July 6th.  Expecting flat
revenue in EMLX's hub business for the June quarter, the firm
downgraded the stock from Strong Buy to Buy and investors
responded by shaving over $12 from the share price on heavy
volume.  The NASDAQ's run higher clouded investors' vision
and embracing the idea of a summer rally, they bid EMLX higher
for the next week, but on rather anemic volume.  When the
technology sector began to roll over, the sellers took control
and have thrown the stock into a sustained and accelerating
downtrend.  Volume has been increasing daily and by today, had
reached 75% of the ADV.  This came on a sharply negative day on
the NASDAQ and the stock plunged through the low seen on July
6th.  Closing right at the low of the day, EMLX is now sitting
just above support at $47.  If the trend continues, look for
sellers to challenge support at $43, then $41, and finally $38.
Earnings are set to be released next Thursday after the close,
and if the recent market behavior holds, anything other than
blowout earnings and revenue growth is likely to be met with
renewed selling.  Overhead resistance is sitting at $53,
followed by $55.  Any rally that is followed by a rollover at
resistance looks like an attractive way to get into the play.
If the market and stock weakness continues unabated, however,
consider new positions as EMLX falls through support at $47.

BUY PUT AUG-50*UML-TJ OI=63 at $6.00 SL=4.00
BUY PUT AUG-45 UML-TI OI=52 at $3.25 SL=1.75

Average Daily Volume = 2.12 mln

VRTS - Veritas Software Corp. $96.19 -9.94 (-2.75 this week)

Veritas Software is the de-facto standard for application storage
management, with over 60 of the world's leading servers and
operating systems integrating its software.  As the leading
provider of enterprise-class application storage management
software, Veritas Software ensures the continuous availability of
business-critical information by delivering integrated,
cross-platform storage management software solutions.  Founded in
1982, the Mountain View, Calif.-based Company has grown to more
than 3,700 employees residing in 24 countries worldwide.

Those who are familiar with the post-earnings sell-off have seen
it happen again and again over the past couple of weeks.  And
Veritas is no exception.  It's a classic tale that is a testimony
to why many smart traders follow the rule of closing plays before
earnings, and how even the best of companies that beat the Street
can be punished instead of rewarded.  After finding a bottom at
the $105 level early in the month, the stock rallied in
anticipation of earnings.  Hitting a double-top and strong
resistance by the middle of the month at $140, VRTS sold off on
high volume the day before earnings.  Last week on July 18th, the
company reported second quarter earnings of 13 cents a share,
beating the Street consensus by a penny.  With second-quarter net
income of $57 mln compared with last year's $29 mln, and revenue
up 77% for the quarter to $275 mln from $156 mln a year ago, the
company posted seemingly impressive numbers.  Yet, the Street
disagreed, citing widening losses and slower-growing sales.  In a
market where whisper numbers are meant to be beat soundly, VRTS
gapped down the next day below both its 50- and 100-dma.  From
there, the stock attempted to build a base around the $110 level.
After a week of holding that line, VRTS is once again on the move
down.  After coming back full circle to the $105 level yesterday,
the stock broke through early this morning on heavy volume.
From there VRTS spent the rest of the day moving lower to close
down $9.94, or 9.36%, on twice the ADV.  In doing so the stock
violated its last line of support, the 200-dma, now at $102.
The next levels of support below are in increments of $5 at $95,
$90 and then $85.  Overhead resistance is strong with the
psychological $100, the 200-dma at $102, the former support level
of $105, and the 5-dma at $106.43.  Look for failure to rally
above these levels as entry points.  As VRTS has been moving in
step with the NASDAQ, make sure market conditions are on your side
before entering and make sure that volume confirms the move.

BUY PUT AUG-100*UVJ-TT OI=193 at $10.25 SL=7.00
BUY PUT AUG- 95 VUQ-TW OI=338 at $ 7.50 SL=5.25

Average Daily Volume = 5.63 mln


CMOS - Credence Systems $43.38 -4.25 (-3.31 this week)

Credence makes test equipment and testing software that is used
in the high-volume production of semiconductors.  The company's
products test digital logic, mixed-signal, and nonvolatile memory
circuits used in such products as televisions, PCs, cameras, and
telephones.  CMOS sells its products primarily to chip
manufacturers, assembly houses, and test services companies.

Most Recent Write-Up

The Philly Semi Index ($SOX) shed a dreadful 8% Thursday, adding
to its 6% loss on Wednesday.  Wall Street continues to be
confused about the future of the Chip sector.  The influential
Morgan Stanley Semi analyst Mark Ettleston pounded the table on
stocks such as CMOS Wednesday, which helped it to pair its losses.
On the other side of the Street, William Blair downgraded the king
chip equipment maker AMAT.  For the most part, the Semi group
continues to post impressive quarterly results.  But, the warnings
from LSI and NOK have been overpowering the positive news.  CMOS
gapped down by $1.50 Thursday morning on the heels of the warnings
from the chip dependent NOK.  The stock dipped below support at
$45 and slid lower as the day wore on.  Volume picked up Thursday
as CMOS fell on 1.5 times its ADV.  The chart is pretty empty in
the way of support until the $40 level.  Consider entry at current
levels if the semis fall under pressure again Friday.  Look for an
entry point if CMOS falls below $43 and confirm a decline with
heavy volume.


This put play has been bleeding with the broader NASDAQ the past
couple of days and has offered very nice entry points.  The key
to playing CMOS is buying those puts at resistance and riding it
right back down.  Today, CMOS held $44 midday, but then broke down.
In the last hour, this level proved to be resistance.  With a
negative NASDAQ tomorrow, dependent on the GDP number, look for
entries on a rollover near $44.  Above that, $45 would be the
next level that sellers step in.  A positive NASDAQ would allow
for some very attractive entries near $46 resistance.  To the
downside, watch psychological support at $40 for trading sentiment.
Also, $38 was the bottom on May 24th, so look to these level for
possible exits on quick intraday trades.

BUY PUT AUG-50 CQS-TJ OI= 31 at $9.00 SL=6.75
BUY PUT AUG-45*CQS-TI OI=270 at $5.88 SL=4.25
BUY PUT AUG-40 CQS-TH OI= 76 at $3.13 SL=1.50

Average Daily Volume = 1.11 mln


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A Flight To Quality?

Technology stocks tumbled on concerns over future earnings growth
while defensive issues rallied in a broad market rotation.

Wednesday, July 26

The market slumped again today as investors pounded technology
stocks following disappointing earnings announcements.  The Dow
closed down 183 points to 10,516 and the Nasdaq ended 41 points
lower at 3987.  The S&P 500 Index was down 22 points at 1452.
Trading volume on the NYSE hit 1.1 billion shares, with declines
beating advances 1,475 to 1,369.  Activity on the Nasdaq Exchange
was moderately heavy with 1.7 billion shares traded.  Technology
declines beat advances 2,373 to 1,591.  In the bond market, the
30-year Treasury rose 1/32, pushing its yield down to 5.80%.

Tuesday's new plays (positions/opening prices/strategy):

Hewlett Packard   HWP   AUG155C/150C   $0.88   credit  bear-call
Qlogic            QLGC   AUG60P/65P    $0.75   credit  bull-put
Sipex             SIPX   AUG35C/40C    $1.25   debit   bull-call
Sipex             SIPX    AUG25-NP     $1.25   credit  naked-put

The slump in technology issues provided favorable entry points
in our new bullish positions.  They are "favorable" only if the
semiconductor sector recovers from the recent correction.  The
brief morning rally in Hewlett Packard offered the target price
in our bearish credit spread.

Portfolio Plays:

Stocks ended lower today amid profit warnings and poor revenue
forecasts from the technology sector.  The big losers came from
the Semiconductor and Internet sectors after LSI Logic reported
that second quarter earnings were below analyst's expectations
and Amazon slumped on a Lehman Brothers downgrade.  On the Dow,
Hewlett-Packard (HWP), J.P. Morgan (JPM), and Johnson & Johnson
(JNJ) led the losers, with the average dropping substantially in
the final few minutes of trade, ending at its session.  Another
blue-chip issue, Xerox (XRX), plunged to $15 after warning that
investors should make significant downward adjustments to the
company's future expectations for its earnings.  In the broader
market, healthcare, gaming and insurance issues rallied, while
photo imaging, electronics and telecom stocks consolidated.

Our portfolio was plagued by the slide in semiconductor issues.
Over the last few months, this group has been able to withstand
all but the worst market corrections.  Now it appears the major
portion of the rally may be at an end and our remaining issues
in the sector are beginning to fail technically.  The stocks on
our watch-list include Altera (ALTR) and Advanced Fibre (AFCI)
and these bullish, credit-spread positions are both on the edge
of the precipice.  Altera appears to have mixed support at this
level but we are confident about the issue in the long-term, so
we are going to close the current play and roll forward to the
SEP-$75 puts at a small credit ($0.38).  Advanced Fibre has a
completely different technical picture and with the distinct
bottom near $43, the issue should offer a favorable roll-out
opportunity if the current technical support level is penetrated.
Those of you who also favor the long-term outlook for the issue
may considered transitioning to a future month and lower strike
price option.  American Online (AOL) retreated through a recent
trading-range top near $57 and it appears the issue is headed for
lower prices.  In the event that occurs, our exit strategy would
be to sell the long option to recover the cost of the spread and
place an order to buy the stock crossing the sold strike at $55.
In the worst case scenario (another retreat after a brief rally),
you would own the stock and sell future calls to offset any
short-term losses in the share value.

Finova (FNV) slid almost $3 ahead of its second-quarter earnings
release.  The company has been plagued by credit concerns and
recently hired Credit Suisse First Boston to help research its
strategic options after acknowledging that marketplace conditions
would slow its growth in the near future.  We were speculating on
a buyout but the morning sell-off took the issue well below any
cut-loss point and we decided to take the small, immediate loss
instead of trying to recover the position over the coming months.
The original spread had favorable premium disparities and the
deflated value of the short-term option prices helped increase
our closing credit.  Those of you with an aggressive portfolio
outlook could simply close the short position for a profit and
hope the issue remains in a small range over the next few weeks.

On the bright side, there were a number of positions that moved
higher during the session.  Allstate (ALL) rallied $1.38 to $27
after a strong earnings report from AFLAC (AFL) and a bullish
research note from Salomon Smith Barney that gave the sector a
boost.  Our bullish diagonal position is now profitable and we
expect the issue to remain above the sold strike at $25.  A.G.
Edwards (AGE) moved up $2 to a new, all-time high near $49 on
continued speculation of additional industry takeovers.  Our new
debit straddle is trading at a small profit after less than two
weeks in play.  Secure Computing (SCUR) reached a morning high
near $21, taking our bullish debit position to a $3.50 credit.
The move offered a reasonable profit on the speculative spread.
Voicestream (VSTR) recovered $5 of Tuesday's losses as traders
speculated on the outcome of the recent merger offer.  Deutsche
Telekom will offer 3.2 of its shares plus $30 in cash for each
share of VoiceStream.  That's roughly $195.75 per share, well
above VSTR's closing price and aggressive investors are almost
certain to bid the issue higher after the current profit-taking
has ended.

Thursday, July 27th

Technology stocks tumbled on concerns over future earnings growth
and defensive issues rallied in the broad market rotation.  The
Dow Jones industrial average closed up 69 points at 10,586 while
the Nasdaq composite slid 145 points to 3842.  The S&P 500 Index
was relatively unchanged at 1449.  Trading volume on the Nasdaq
reached 1.75 billion shares, with declines beating advances 2,874
to 1,112.  Activity on the NYSE was heavy at 1.15 billion shares,
with declines beating advances 1,443 to 1,392.  In the U.S. bond
market, the 30-year Treasury rose 17/32, pushing its yield down
to 5.77%.

Portfolio Plays:

Today the market endured another pummeling in Internet stocks
and the semiconductor sector.  The e-tailing group was led into
the cellar by Amazon.com (AMZN), which received a slew of new
downgrades after reporting a second-quarter loss of $0.33 per
share on Wednesday.  Chip stocks were also hit hard as analysts
began to speculate that the bullish group has peaked in the
short-term.  A future revenue warning from Nokia (NOK) sent the
telecom sector into a downward spiral and networking issues also
suffered substantial losses.  In contrast, the Dow Industrials
managed triple-digit gains as traders moved out of technology
stocks and into drug, oil service, utility, retail and consumer
issues.  Major diversified stocks also edged higher on strength
in the chemical industry.  Goldman Sachs' chief strategist Abby
Joseph Cohen was active again, saying that recent economic data
confirms the suspected slowdown in the economy, and that action
will likely prolong the current expansion.  She also commented
that the U.S. equity markets should continue to generate good,
but not abnormally strong, returns in the coming months.

There were a number of bright spots among the carnage in our
portfolio today.  The old-economy sectors found new buyers as
investors shunned technology issues and the retail group was
among the winners.  Bed, Bath and Beyond (BBBY) rebounded $1.06
to $38.88 and we may yet see a rally ahead of the 2-for-1 split
in mid-August.  Allstate (ALL) also continued higher, ending up
$1 at $27.75.  The credit for our bullish diagonal position is
now at $4.88 and a consideration should be made as to when to
take profits.  A.G. Edwards (AGE) closed $2 higher at a new high
near $51 and our recent debit straddle is offering a 25% profit
to close the play.

On the downside, Advanced Fibre (AFCI) tried to recover a number
of times during the day but the heavy selling pressure in the
technology group was simply overwhelming.  Since we are in favor
of the company's long-term outlook, we decided to roll out, and
down to the SEP-$35 Put for a $0.50 credit.  The premium will be
used to offset any losses on the downside, in the event we accept
assignment of the issue.  Our current cost basis in the position
is $34.12.  Our only remaining concern in the section is the new
play on Qlogic (QLGC) and after today's bearish performance, we
may be making adjustments in that position soon.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -

With the recent slump in big-cap technology stocks, we decided to
offer some conservative positions on lower priced issues.  The
following plays are based on relatively well-known companies in
diverse industries.  Each position is evaluated for probability
of profit using the current price and trading range of the stock
and the recent technical history.  News and market sentiment will
have an effect on these issues.  Review each play individually and
make your own decision about the future outcome of the position.

R - Ryder System  $21.44  *** Options Activity! ***

Ryder primarily is engaged in the logistics and transportation
business with focus on integrated logistics, including dedicated
contract carriage, the management of carriers, and inventory
deployment; and transportation services, including full service
leasing, maintenance and short-term rental of trucks, tractors
and trailers.

Ryder shares have rebounded since the transport and logistics
company reported second-quarter net income of $29 million, a 44%
increase, driven by gains in their logistics units.  Soon after
the announcement, options prices and volume began to rise and
now the implied volatility for front-month options is at a
recent high.  Ryder is an old favorite in the "takeover" rumor
mill and one analyst commented that it was no secret that the
company would be a highly valuable asset to a number of other

We favor the recent change in R's technical character and the
inflated premiums for August options will help us initiate a
relatively low-risk position.

Note: Traders with a more aggressive, short-term outlook can
substitute the SEP-$20 calls for the long position.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  NOV-20.00  R-KD  OI=135    A=$3.62
SELL CALL  AUG-22.50  R-HX  OI=12029  B=$1.43

Chart =

CSX - CSX Corporation  $24.56  *** Improving Fundamentals! ***

CSX is a freight transportation and logistics services provider.
Last year, the company expanded its core rail and inter-modal
operations with the integration of key portions of the Conrail
rail system.  CSX provides inter-modal transportation services
across the United States and into major markets in Canada and
Mexico.  Their rail network serves every major population and
industrial center east of the Mississippi.  The company's rail
system also links 32 ocean and 18 lake ports and provides access
to more than 20 river terminals.

Today CSX posted second-quarter earnings of $55 million, or $0.26
per share, topping analysts' consensus estimate of $0.25 a share.
Although revenues were well short of the same period last year,
the company expects improved operating income through the second
half of 2000 as it continues to boost the bottom-line efficiency
and productivity of its rail system.  The CEO says the railroad is
operating better than it ever has and that's the foundation for
significant improvements in operating income in future quarters.

Based on today's reaction in the share value, investors have a
positive outlook for the company.  With favorable disparities
in the front-month premiums, this position offers an excellent
speculation play for those who are bullish on the issue.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  SEP-22.50  CSX-IX  OI=6    A=$3.00
SELL CALL  AUG-25.00  CSX-HE  OI=494  B=$0.93

Chart =

PAX - Paxson Communications  $10.50  *** On The Rebound! ***

Paxson is a television broadcasting company whose principal
business is the ownership and operation of the largest broadcast
television station group in the United States through which it
broadcasts PAX TV, the company's family friendly programming.
Paxson commenced its television operations in early 1994 in
anticipation of deregulation of the broadcast industry.  The
PAX TV Network reaches US television households through a large
distribution system comprised of broadcast television stations,
cable television systems in markets not served by a PAX station
and nationwide through satellite television providers.  PAX TV
is the brand name for the programming that the company provides
seven days per week through its television distribution system.

Paxson recently initiated a series of management changes in an
attempt to make the most of its digital spectrum opportunities.
The moves were made to boost their role in digital and wireless
industry growth and to increase shareholder value based on the
company's vast spectrum holdings.  Digital television can be
used for high-definition TV, which has a much sharper picture
and better sound than traditional analog signals.  Within this
new spectrum, a station can compress several signals onto one
frequency, offering the potential to broadcast additional data,
generating another form of advertising or pay-per-view revenue.
Broadband content from the spectrum can also be made accessible
to PC users, further exploiting the existing system for future
sources of revenue.

We continue to like the media sector as a hedge for intermediate
downturns in the market.  The favorable option premiums and
bullish technical outlook for the underlying issue make this
play an excellent position for low risk portfolios.

PLAY (conservative - bullish/debit spread):

BUY  CALL  SEP-7.50   OI=680  A=$3.25
SELL CALL  SEP-10.00  OI=686  B=$1.18
INITIAL NET DEBIT TARGET=$1.88  ROI(max)=32% B/E=$9.38

Chart =

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