Option Investor

Daily Newsletter, Thursday, 08/17/2000

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The Option Investor Newsletter                 Thursday 08-17-2000
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MARKET WRAP  (view in courier font for table alignment)
        08-17-2000        High      Low     Volume Advance/Decline
DJIA    11055.60 + 47.20 11091.50 10984.40  907 mln   1601/1222
NASDAQ   3940.87 + 79.67  3947.05  3857.75 1.44 bln   2143/1824
S&P 100   815.09 +  8.18   817.04   806.55   totals   3744/3046
S&P 500  1496.07 + 16.22  1499.32  1479.85           55.1%/44.9%
RUS 2000  516.46 +  3.72   516.46   511.79
DJ TRANS 2847.91 - 27.90  2876.34  2835.65
VIX        20.04 -  0.63    21.25    19.81
Put/Call Ratio       .59

Not bad for a summer Thursday!
By Jim Brown

Wow! Today proves the old adage about "never short a dull market."
After futures ended the morning session negative across the board
there was some concern that the market would drop on the "not as
good as first thought" HWP earnings. After opening mixed and trading
on both sides of positive both the Dow and the Nasdaq moved up
strongly and then held their gains into the close. That is the
key point in the last sentence. "Held into the close." While
neither index closed at the high of the day neither did they
suffer serious selling as has been the case recently.

The disaster of the day was Hewlett-Packard. After announcing what
appeared to be blow out numbers after the close on Monday HWP was
up +8.00 in after hours trading. Talking heads were glowing with
praise about the incredible performance. OOPS! Once analysts got
a chance to look behind the headline numbers the skeletons began
appearing. The $.97 posted number already excluded a one-time
gain on the sale of stock but failed to exclude four cents of
other non-operating items. During the conference call CFO Robert
Wayman finally agreed with hostile analysts that $.93 was closer
to the real results. Analysts then subtracted -.04 for a lower
than expected tax rate from a global sales mix and you are now
left with only $.89 or an inline report for operating earnings.
Sales only increased +14.5% and Unix sales only grew by +13%
which was more than ten percentage points below analysts estimates
and way below the +26% from last quarter. The revelations were
met with downgrades and cautious words by analysts. HWP dropped
-2.38 to $108.56 which in reality was not bad. The low was $107
and yesterday's high was $112.56. A big range but the feeling
that HWP did have its act together going forward as well as a
2:1 stock split announcement helped hold it up.

Other major news last night was Brocade which announced
earnings which increased over 1000% and beat analysts estimates
by +.02 cents. The earnings energized the infrastructure sector
with BRCD adding +15, EXTR +17, SCMR +12, JNPR +6. If you own
these there is a good possibility of profit taking on Friday.

The fiber optic sector was also represented by Ciena which
beat analyst estimates of $.17 by two cents and soared +16
in heavy trading. With fiber optics, networking and biotech
again on the move the gains by the Nasdaq were broad based
and strong.

After the close today Agilent posted huge earnings numbers
after warning in June that component shortages were going to
hinder earnings. Agilent's revenue rose +28% to $2.67 billion.
The $.18 to $.22 estimates for the quarter were beaten
soundly with a $.33 announcement. The difference was new
components coming available which enabled completion of pre-
assembled equipment. It was just sitting waiting for a key
component and when the parts came Agilent was able to fill
a huge backlog of orders in a short period of time. "A" was up
+12 during regular trading and rose another +9 in after hours.

Do you see a pattern emerging here? All of a sudden earnings
are being met with huge gains where over the last several weeks
companies sold off instead. I view this as an expression of
several things. One, would be fewer earnings announcements to
capture investor attention. Two, fewer IPO releases to soak up
the extra cash. Three, a return of investor optimism into the
market place. The optimism is quickly replacing the cynicism
which was so common recently. Fourth, the "Fed on hold" concept
is finally taking hold. The short and simple description of
all the above would be, "if the Fed is not going to raise rates
next Tuesday then why wait till after Labor Day?"

The Nasdaq closed just below its 200 DMA of 3945, how convenient!
Dead on resistance. The Dow managed its first positive close
in three days and back over 11000 again. If it was not for the
VIX and the Tuesday Fed meeting I would be mortgaging the kids
for capital. Heck, even Yahoo almost succeeded in shaking off
a day of reckoning by Prudential Securities analyst Mark Rowen.
Mark started YHOO with an accumulate and a 12-month target of
only $155. He said his accumulate rating was based on a "lofty
valuation, slowing growth and shrinking margins." OUCH! This
got plenty of air time on CNBC as they calculated what the
market cap should be based on earnings, over and over and over.
Still YHOO only lost -2.88 on the news. That is a very positive
event for the market. It may not be positive for YHOO going
forward but the market shook it off and powered onward.

Now, the negative side. The VIX hit 19.81 intraday and closed
at 20.04, only .04 above panic mode and only +.58 above the 52
week low of 19.46. Hold that thought. Now everybody knows the
Fed is on hold but until the announcement is made at 2:15
Tuesday afternoon it will still be a black cloud over the
market. We have had a good run but it is entirely possible
that we could see some profit taking between now and the Fed
meeting. That leaves Friday and Monday for those without a
calendar and I would bet on Friday as traders go flat before
the weekend. Semiconductors have been up for five days and
helped power the Nasdaq to similar gains. Investor sentiment
is soaring. The Nasdaq and Dow were both up decent on the same
day. Financials and techs are both setting new 52 week highs.
(AXP, JPM, SUNW for example) Advances are beating declines in
all markets. I can't, other than a rate increase out of the blue
or Iraq launching missiles at Saudia Arabia shutting down oil
production, think of a negative event that could trigger a
broad market decline. No, that is not a challenge, threat or
dare. Just a comment. Here we go with that "too good too be
true" scenario again.

I closed all my long positions this afternoon and I will
be an observer not a participant on Friday. I can see the
possibility of a strong upward spike at the open and I might
speculate on some OEX/QQQ puts after that spike but other
than that I have been burned by the VIX enough to be very
cautious when warning signs are flashing two days before a
Fed meeting.

Good luck and sell too soon.

Jim Brown

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Last Day Of Option Roulette
By Austin Passamonte

We just love expiration week. A few days every month for the
chance to buy cheap and sell very dear. Or watch them instantly
wither & die. Reminds me of pending broad market direction.

There are firm reasons to rally or tank and by God we're fixing
to do one or the other. Which one is the question! How's that
for riding the fence?

We can hear bulls lining up for the gate like thoroughbreds
at Pimlico. When that starting gun goes off we'll likely
see markets trading near levels unfamiliar to us.

Today's action in the NDX was encouraging. Tech leaders will
lead the charge whichever way it goes. Plenty of old economy
stocks breaking out near or above new highs as well.

The other side of that equation is most of those issues are
in the energy field. If anyone thinks letters of request from
a lame-duck president will open OPEC spigots, would you like
to buy some call options on the Tooth Fairy's hedge fund?

We're about to pay some unbelievable energy prices going into
this winter. A harsh one will impact our economy in many ways,
few of them good for equity markets.

Yes, you know what's coming next. The VIX. Today's close just
a hair above 20 was a merciful bounce up from 19. Will it drop
to 10? The last time it was lower than this was July 1998 at a
Dow high of 9300. From there we plunged 20% lower to 7200 before
the next bottom was in place.

While it's doubtful such a correction is in store for us here
today, we wonder just which times similar to this the masses
expected such a plunge? I mean, every other instance (and there
have been several) when VIX hit new lows the broad markets were
at their peak. That's what caused this setup in the first place.
How many traders & analysts were calling for caution and downside
danger then? Food for thought.

A day will arrive in our careers together when the VIX pushes
30 or beyond while the financial world thinks no bottom exists
to the markets. We here in Market Sentiment will have pawned our
last earthly possessions to buy call LEAPs there & then. We'll
report that news to you if not too weak from selling our blood to
raise every last possible dime.

This however ain't one of those days. Remember, every other
market-peak with a buried VIX seemed this same exact way. For
today's raging bulls I hope it's different but that's not how
we must lay our bets. Continue to trade the long side carefully!


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 8/15 close: 20.97      Thur 8/17 close: 20.04

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            (8/15)      (8/17)       (8/19)

CBOE Total P/C Ratio         .55         .59
Equity P/C Ratio             .46         .53

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       (8/15)        (8/17)      (8/19)

All index options       .80           .95
OEX Put/Call Ratio     1.50          1.06

OEX Maximum Open Interest Strikes/Contracts:

Puts               800/6,942        790/6,376
Calls              810/6,564        810/7,603
Put/Call Ratio       1.06              .84

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. Numeral
listed for resistance is the ratio of calls to puts. Support
is ratio of puts to calls. Values above "10" considered firm.
Divergence of numbers may indicate future market direction.

OEX                      Tues         Thurs         Sat
Benchmark:               (8/15)       (8/17)       (8/19)

Overhead Resistance:
(900-835)                1,064       2,072+
(830/810)                    5.12       11.11

OEX close:                   811         815

Underlying Support:
(805-785)                    1.56        1.07
(780-760)                   10.21        8.97

What the S/R measure indicates: Net open-interest ratios
are firm above 815 and ridiculous above 830. A large index
move prior to expiration has clearance to the downside to
790 Market-makers would love to pin the OEX index between
810 & 805 for maximum expiration of worthless contracts.
Let's see how good they are!

We would consider a move testing the 790 range good call
entry prior to Friday's option expiration. A failed test of
820could be an excellent short-term put entry.

30-yr Bond:          5.71%

Light, Sweet
Crude, Barrel:     $31.90

200 Day Moving Average (as of 8/08)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW:   10,792          11,067       11,055
NASDAQ: 3,936           3,851        3,940
NDX:    3,672           3,722        3,830
SPX:     1434            1484         1496
OEX:      773             811          815

CBOT Commitment Of Traders Report: Friday 8/11
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;    +116 (long)        - 599 (short)
Total Open
Interest %          2% net-long       3% net-short

Net contracts;    - 1,854 (short)      + 1455 (long)
Total Open
Interest %          18% net-short       4% net-long

S&P 500
Net contracts;     + 44,924 (long)     -51,720 (short)
Total Open
Interest %           24% net-long       9.5% net-short


Recent Rally
Today's strength in the NASDAQ 100 is especially encouraging.
11,000 support level on the Dow has weathered several tests.

Interest rates
5.71% on the 30-year Treasury Bond signal rate fears are nil.
Fed-Fund futures are pricing no chance a near-term rate hike.

Benign Government Reports
Latest statistics hint the economy is cooling and no further
rate hikes may be needed.

COT Report - NASDAQ 100
Sentiment reversal with small speculators growing net-short
while commercials increase accumulation may suggest expected
strength in the sector over the next weeks or months.



Thursday's close near 20 sees us in the high danger zone.

End Of Earnings Season
Lack of positive news will direct market focus on August
FOMC fears Tuesday should CPI prove bearish.

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 soaring. This affects profit margins and inflation.
Light, Sweet Crude closed $31.65 today. All petroleum expected
to be very high this fall. Prices in low $20s would be welcome
relief but may not arrive.

COT Report - S&P 500 & DJX
Latest updated figures show small spec traders remain heavily
long S&P 500 contracts while commercial traders continue
to hold ten-year extreme short position. DJX commercials added
to net short while small specs added to net long holdings.
Widened divergence strongly implores market turn in favor of
commercials. The market's bottom may still lie ahead.


As of Market Close - Thursday, 08/17/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      11,055      10,600  11,200
SPX   S&P 500           1,496       1,450   1,505
COMPX NASD Composite    3,940       3,500   4,000
OEX   S&P 100             815         790     822
RUT   Russell 2000        516         485     540
NDX   NASD 100          3,830       3,500   3,900     **
MSH   High Tech         1,062         975   1,075

BTK   Biotech             672         570     700
XCI   Hardware          1,552       1,450   1,580     **
GSO.X Software            446         385     455
SOX   Semiconductor     1,111         880   1,120
NWX   Networking        1,325       1,210   1,400     **
INX   Internet            523         460     530

BIX   Banking             589         550     610
XBD   Brokerage           624         570     635
IUX   Insurance           711         680     725

RLX   Retail              824         810     910     **
DRG   Drug                397         365     415
HCX   Healthcare          817         795     855
XAL   Airline             163         156     172     **
OIX   Oil & Gas           311         280     320     **

The NDX, XCI, NWX and OIX all broke resistance levels over the
past two sessions.  The XAL and RLX broke support levels.  The
XAL and OIX have bucked a trend where both of these indexes had
been moving in unison.  Today, the OIX traded through resistance,
while the XAL traded through support, but managed to close back
above the 162 level.  Raising support (NDX, NWX, OIX). Raising
resistance (NDX, XCI, NWX, OIX) Lowering support (RLX, XAL)
Lowering resistance (DOW, XAL).  Snug up those stops, as things
are looking suspiciously bullish.


Well Of Course My Emotions Are Under Control!  This Is Just Me!
By Molly Evans

I figure that my job here in writing this column once a week
is to be the voice of frustration or jubilation for the small
options investor.  Jim knew that I wasn't going to be the
professional advice columnist when we met back in March.  At
least I hope he didn't have such grand designs for me right
away.  I'm a comrade for those of you who are still learning
and are frustrated with educational "tuition" in trading.  For
you old pros, consider my stories as a walk down memory lane.
Why is it that new traders can read everything they get their
hands on but still have to make the mistakes to REALLY learn it?
You can tell us your rules and stories but we don't "get it"
until we do it ourselves, each at his own pace.  When I began
to put some thoughts on paper for this article Monday, I was
pretty high.  I was ready to tell you how I'm finally starting
to "get" this game.  Then, Tuesday and Wednesday escorted me right
back to my seat in the last row.  How about I take a rain check
on my "I GET IT!" article for now?

Granted, since clawing my way out of the bear's den a few weeks
ago, I have managed to increase my portfolio size 17%.  I've
stopped trying to predict exactly when the sky is going to fall
and have started throwing elbows with the best of them.  17% isn't
too shabby I will admit.  However, I hadn't intended to give any
of it back.  Just when you think you're getting "good", the market
whacks you!  Ouch!  Here's the deal.  I've been riding the NYSE
train for a bit.  By Monday, I figured with the VIX down so low,
that the party was winding down there.  So, fool that I am, I
looked to the Nasdaq again.  I had hoped that there would be
profit taking in the non-tech issues and rotation back to the
Nasdaq.  Monday, at least to me, sort of seemed to confirm this
thought.  I distinctly remember hesitating as I clicked the mouse
to buy calls in TIBX and MERQ.  "Do I REALLY want to buy a 20 VIX?
Sure I do!  It's going to get to 18 or 19 before anybody does
anything about it.  If you can't beat em, join em!  The Naz
is ready to rumble.  Oh!  And there's ITWO on breakout over $150.
I'll just pick up 5 calls there too!"  Those deep ITMs were
NOT cheap.

Tuesday rolls around, Dow is down but the Nasdaq hangs on.
Wednesday, "Nasdaq is still holding its own but gee, my stuff
isn't looking so hot.  OIN dropped my MERQ and my TIBX.  Must
review my 'uncle' point.  Ok, there's still some room to breathe.
I can't stand to watch.  Take a walk and it'll all be better
when I get back.  Got to get these emotions in check girl."
Come back but nope, TIBX is past my point.  I will have
discipline!  I will take the loss and move on.  Sure enough,
I click "sell", and the market KNOWS I'm now out and rebounds
strongly right there.  I can't believe it.  Sure enough, if I
hadn't done that it would have tanked as fast and furious as can
be done.  I take this personally.  I hate to lose.  Let's make
matters worse now.  Look over at ITWO.  "JEEZ!  Another fire.
If it breaks $145, I should go."  Somewhere in the recesses of
my mind I hear a wise, deep voice, "When in doubt, get out."
I have no idea who said that.  "Ok, ok!  I have lots of doubt here.
Wait.  No! I'm not going to.  It's going to be just like TIBX.
Don't do it!  Ugh.  It's broke $145.  I've got to do it!  Hang
on.  Let's watch.  There's a bounce.  Yes!  Oh!  No!  Ok, that's
it!  It can't hold the $145."  Click.  Gone.  Gulp.  Yep, sure
enough here comes a nice buy on the close.  Close at $146 1/2.
Isn't that special?  Thursday morning the market has firmed up
and there's ITWO laughing at me.  Along about 11:30 central time
I come home and see this pattern:

I was home for about 10 minutes, saw this setup and didn't even
pause to consider what I was doing.  It was going higher.  This
wasn't a revenge play.  I'd love to have that money back but I'm
not one to lose my head and try to "get back at it."  It was
simply a good setup.  I'm happy again.  It's not the money for me.
I just want to be a good trader.  Do what you love and the money
will follow.

But here's another frustration with my being so disciplined now.
About 10 days ago, I saw strength in ADI so bought calls at $13.
Earnings were due on Tuesday.  Ok, no can hold over earnings so
I'm going to be a good little Molly and sell.  I do so at $23,
the high of the day (for the calls) and curtsy to myself in the
mirror for being so smart.  You all know how this story goes.
I sold when ADI was $76.  Then, of course, they have blow out
earnings and ADI is $94 the next day, and the calls are just shy
of $37.  That hurt too.  I love the "A" stocks but AMCC did
the same darned thing to me.  I sold the day of earnings and I
watch it go through the roof the next day.  I know, I know.  You
can't change midstream.  You've got to stick to the plan.  Plan
the trade, trade the plan.  Seven out of ten times, I think Jim
has warned, stocks drop with earnings.  The idea is to catch a
piece of the trend, not the whole ride from the bottom to the
top.  But still, dang!  Mutter, mutter, mutter!  Agilent (A) has
earnings tonight after the bell. Yes, I did sell BUT this time,
I got out my capital and am letting a few ride.  If they do well,
there's plenty of upside room there.  I'll take the chance on
house money.

I know that so much of this whipsawing around is because of the
lighter summer volume and if you can't take the heat, you're
supposed to get out of the kitchen.  I refuse to let them get me.
I know I've got to learn the ways and cultivate the discipline.
I will get there.  I have no doubt about it.  In retrospect I
know that I bought the ITWO for the breakout over $150 and when it
failed to hold that, I should have bailed.  That would have been
trading the plan.  Because I failed to follow the discipline, and
made the $145 level an excuse for staying in, a financial hit is
the punishment.  That's trading for ya!  But hey, I don't screw
everything up!  I took up a beautiful position in LEH puts and
was rewarded handsomely.  After today it looks like I might get
to do it again!  Agilent was nearly a double as of today.  Dupont,
stodgy ole Dupont, 50% gain on LEAPS in less than a month.  Yes,
indeed I have come a long way in the past year that I've been
doing this.  The markets are nothing other than fascinating for
me.  What mind games!  What a study in human psychology and
economics!  It's all so very interesting.  Whereas last summer
I had no idea that the season had an impact on market moves,
this summer I know it's an entire theme of trading.  Before,
I trusted.  I just assumed that the people on TV giving buy
recommends were looking out for our collective best interest.
Ha!  The other day my husband came into my office asking me if
he should sell his AMAT because some guest on Maria's weekend
show had said he's a seller of AMAT.  Without even looking up,
I told him "No, you just got your buy signal there darlin'."
I had to laugh when I later looked at the AMAT chart.  There
it was sitting at the bottom of its Bollinger Band just waiting
for an excuse to get up and go.  Whatta rat!  "Yes, all you
little people out there, sell me your AMAT at this price!"

Tomorrow is Options Expiration Day.  There are events that occur
in the market that are nothing less than freaky leading up to and
on that day.  I think that there is some heavy-duty manipulation
of prices that occur between institutions and market makers.  You
know it, I know it, and the American people know it.  I'm going
to remember this week next month and vow to be very careful
in trading the September OE week if I do any at all.  But, of
course I will!  However, on that note, I would like to observe
a moment of silence and somber reflection for all of our options
that will be expiring worthless tomorrow.  Maybe you don't have
any but please hold me up while I dab at my eyes here for my own.
See what happens when you don't get out of a trade that has gone
against you?

Happy OE everyone and get out to enjoy the weekend!

Contact Support

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If Not Now, When?
By Buzz Lynn
Contact Support

While there may be some volatility-increasing noise before the
FOMC meeting next Tuesday, NASDAQ's return near its 200-dma of
3945 is a welcome site.  Despite the low volume in the 1.3-1.4 bln
shares lately and the possibility of a quick decline either before
or after the FOMC decision, we think now is ultimately the time to
get ready for a rally.  Heck, it appears the markets are already
willing - the Dow too!  That both indices moved up in unison today
is a good sign.

As we've noted all this week, money managers and investors alike
will be returning from summer vacations after Labor Day and will
have plenty of cash on hand to throw into the hottest sectors.
That's the fuel that should propel the market higher.  To boot,
the outcome of the FOMC meeting will likely be for no more rate
hikes, which should spark talk of a rate CUT at the next meeting
in 2001.  That should ignite the liquidity fuel.  In anticipation,
financial stocks are leading the market higher, as is technology
and oil.  With the exception of oil, rising financials and tech
stocks are what strong rallies are made of.

Of course, the VIX is still historically low, which could indicate
a more serious reversal in the near term.  But nobody seems to
care much about that indicator lately.  It certainly hasn't been
tradable for those of us that want to make money now.  All we can
suggest is to keep your eye on it for signs of life.  Until then,
keep preservation of capital and a good entry as your primary
focus, and enjoy the ride!

Index             Last    Mon    Tue    Wed    Thu    Fri    Week
QQQ NASDAQ-100    95.69   1.94   0.00   1.00   1.75   0.00   4.69
HHH Internet     110.56   2.94   1.75   0.94   0.88   0.00   6.50
BBH Biotech.     176.88  -1.00  -3.44  -4.06   2.63   0.00  -5.88
PPH Pharm.        97.06  -0.81   0.00   0.75   0.25   0.00   0.19
TTH Telecom.      64.56   0.81  -0.19  -0.63  -0.44   0.00  -0.44
IAH I-net Arch.   98.56   0.94  -0.25  -0.13   2.44   0.00   3.00
IIH I-net Infr.   54.50   1.00   0.13   1.50   0.38   0.00   3.00
BHH B2B           46.19   0.69   0.25  -1.31   1.00   0.00   0.63
BDH Broadband     94.19   2.63   0.69   0.25   2.13   0.00   5.69
SMH Semicon.      95.06   5.06   2.88   2.63   1.81   0.00  12.38
RKH Reg. Banks   104.63   1.13  -0.69  -2.00   0.19   0.00  -1.38
UTH Utilities    103.63   1.69   0.81  -0.25   0.88   0.00   3.13


QQQ - NASDAQ 100 $95.63 +1.75 (+4.69 this week) Technology, led by
the semiconductor stocks have hogged the spotlight all this week,
and rightfully so given all the analyst upgrades.  It appears that
rumors of its death last month were greatly exaggerated.
Following last night's blowout earnings report and 2:1 split
announcement by CIEN, not to mention the 3:1 announced by GLW, the
optical issues joined the semis under the bright lights to light
up the NASDAQ stage.  And what is the QQQ made of?  Right.  Mostly
tech stocks!  Technically speaking (no pun intended), the NASDAQ
is now perched right at its 200-dma of 3940, which also happens to
be support and resistance - a pivotal point.  On the other hand,
QQQ has already blown through its 200-dma at $92.07 and it's 50-
dma of $94.  It's even poked its horns up through $95 resistance
with the 5-dma ($93.20) acting as support.  Given the outlook for
the next few weeks, our educated guess is that the market will
progress higher with a buying opportunity dip or two along the
way.  The next level of resistance appears to be about $98.50.
While we think QQQ has a running streak in it now, you may be
better served by waiting for a dip to the 10-dma currently at
$92.44.  Remember it would also find 200-dma support there too.
Aggressive traders may want to target shoot at the 50-dma of $94.
The biggest cap stocks were all positive today.  Watch MSFT, CSCO,
INTC, DELL, SUNW, WCOM, and ORCL for your clues to the sector.
the second and third tier stocks (all those from #101 in market
cap) are holding back the NASDAQ, but aren't part of QQQ.

Calendar Spread:

This was a tough one to enter as QQQ hit $94 and rolled over to
$92.25 only to come back to $95 and stutter back to $94.  From
there, it got a bounce back through $95.  The next level of
resistance is at $98.50, which would be the next level to watch
for a breakout or breakdown.  If you are legging into the play and
already have your long underlying position, a rollover from that
level might make a great place to sell a call to complete the
short leg and the spread position.  If you don't want to have to
worry about buying back a sold position and you are still
comfortable with the idea that the NASDAQ will be higher by the
new year, you can consider initiating an OTM position such as
buying the DEC-100 call and selling the SEP-106 or 110 call.  Get
gamma (rate of change of delta) working in your favor.  This won't
look so hot if the QQQ falls back from these levels, so understand
the trade and know your exit before getting in.

BUY  CALL DEC- 90 QVQ-LL OI= 2671 at $13.88

SELL CALL SEP- 95 QVQ-IQ OI=13202 at $ 5.38, ND = 8.50 or less
SELL CALL SEP-100 QVO-IV OI= 7203 at $ 3.00, ND =10.88 or less


BUY  CALL DEC-100 QVO-LV OI= 4862 at $ 8.50

SELL CALL SEP-106 QVO-IB OI=  277 at $ 1.25, ND = 7.25 or less
SELL CALL SEP-110 QVO-IF OI=12809 at $ 0.44, ND = 8.06 or less

Long Calls

This has been a great week for the QQQ so far.  Target shooters
aiming for a $92.25 entry nailed it on the nose yesterday as QQQ
moved back up to current levels from there.  While there could be
some jitters before next week's FOMC meeting that could send QQQ
back under $95 for a buying opportunity, the brave among you might
even try for an entry at this level, but that isn't our
suggestion.  We would always like to wait for a pullback. . .in
this case, to $92.50 to $93.35, the 10 and 5-dma, respectively.
The more aggressive could look for an entry off a bounce from $94.

BUY CALL SEP- 90 QVQ-IL OI=16636 at $ 8.38 SL=6.00
BUY CALL SEP- 95 QVQ-IQ OI=13202 at $ 5.38 SL=3.25
BUY CALL SEP-100 QVO-IV OI= 7203 at $ 3.00 SL=1.50

Average Daily Volume = 21.75 mln


SMH - Semiconductor $95.06 +1.81 (+12.38 this week) Wahoo!  Party
hats and horns!  The semiconductors are on fire thanks to multiple
upgrades this week.  INTC, TXN, BRCM, MU, and AMAT all posted
strong gains today.  Technology is on most peoples' shopping list
with semiconductors as their number one choice (OK, maybe optical
issues too).  The belief that the FOMC meeting will not result in
any further hikes is getting investors to pull out their
collective investment wallets.  Technically, found predictable
historical support at $88.50.  Yesterday and today, it finally
popped above and found support at the 50-dma of $92.20.  Piercing
congestion in the $94 to $94.50 range was the icing on the cake.
Unfortunately, this is the fifth consecutive day of gains and
nothing goes up in a straight line.  Not only that, but volume is
falling off a bit as the price continues to rise, which indicates
that the sector may soon run out of buyers.  SMH may need a break
after such a strong run.  Not only that, but it has hit the top of
the Bollinger band suggesting it may bounce down from here.  Not
to say it can't go higher, but the chances grow slimmer with every
new uptick.  To that end, and with some congestion up to $97, we
do not suggest taking a position at this level.  Instead target
shoot at the 50-dma of $92, then at another historical level of
support at $90 for the best entry.

BUY CALL SEP- 90 SMH-IR OI= 67 at $8.75 SL=6.25
BUY CALL SEP- 95 SMH-IS OI= 96 at $5.88 SL=3.75
BUY CALL SEP-100 SMH-IT OI=113 at $3.88 SL=2.00
BUY CALL NOV-100 SMH-KT OI= 82 at $8.25 SL=6.00
SELL PUT SEP- 90 SMH-UR OI= 35 at $3.13 SL=1.50

Average Daily Volume = 333K K


BBH - Biotech $176.88 +2.63 (-5.88 this week) Yesterday, this
sector was looking pretty sick.  However, once again, today's gain
makes it hard to drop.  DNA, SEPR, and AFFX take the cake for
losing big today.  Consequently as a result of its recent run, it
may experience more consolidation around its 50-dma of $178.35.
That it broke through its 50-dma yesterday and couldn't get back
through it today is a definite sign of weakness.  We keep it
because it also isn't far off from its historical level of support
at $171-$172.  Only make an entry if you see a bounce north of
that number.  If it falls through, let it go.  We sure will in the
weekend edition if it doesn't get back over its 50-dma tomorrow.
A positive NASDAQ (again) could be just the trick to bring it back
to life.  Confirm market direction before entering.

BUY CALL SEP-175 BBH-IO OI= 21 at $12.63 SL= 9.50
BUY CALL SEP-180 BBH-IP OI=591 at $10.13 SL= 7.00
BUY CALL SEP-185 BBH-IQ OI= 93 at $ 8.13 SL= 5.75

Average Daily Volume = 638 K


IAH Internet Architecture $98.56 +2.44 (+3.00 this week) After
warming up all week, IAH finally cowboyed up for the big event - a
breakout of congestion in the $95-$96 range.  Despite the
incredibly low ADV (55 K shares) on this HOLDR, it is filled with
some heavyweights and is a nice reflection of the market.  It's
almost a shame it doesn't get more attention.  Anyway, on a
technical basis, it broke out of the range today over its 5, 10,
30, and 50-dma.  That's what we'd expect with SUNW, IBM, CSCO, EMC
and SCMR in the mix today.  Notice anything missing?  HWP wore the
concrete ankle weights today (-$12) on analyst downgrades
following great earnings.  That's a bit overdone and we think the
current trend of IAH will continue stronger when HWP stops
bleeding.  The point of resistance is $99, then $101.  It's pretty
strong at the latter.  After that, a break over $105 puts IAH in
blue sky.  Want a sympathy play?  Take a look too at BDH, which
contains many bandwidth developers, but not HWP.

BUY CALL SEP- 90 IAZ-IR OI= 5 at $11.88 SL=9.00
BUY CALL SEP- 95 IAZ-IS OI=10 at $ 8.00 SL=5.75
BUY CALL SEP-100 IAZ-IZ OI= 2 at $ 5.13 SL=3.25

Average Daily Volume = 54 K

No Play



Index      Last    Mon     Tue     Wed     Thu    Week
Dow    11055.64 148.34 -109.14  -58.61   47.25   27.84
Nasdaq  3940.87  60.22    1.97    9.54   79.67  151.40
$OEX     815.09  11.59   -4.53   -4.90    8.18   10.34
$SPX    1496.07  19.72   -7.13   -4.58   16.22   24.23
$RUT     516.46   4.21   -4.55    2.81    3.72    6.19
$TRAN   2847.91  -6.29  -36.80   -8.60  -27.90  -79.59
$VIX      20.04  -0.84    0.66   -0.30   -0.63   -1.11


EXTR     186.56   8.50    5.13   -3.69   16.88   26.81  Blast off
SDLI     383.00   6.81   -1.25    7.82    7.75   21.13  New
GSPN     129.38  -1.53    7.31    6.38    6.50   18.66  New
JNPR     172.19  10.06   -0.25   -3.44    5.88   12.25  Very close
PLXS     132.00   4.63   -2.50    3.00    6.50   11.63  New
ITWO     157.63   7.69   -6.88   -1.19   11.06   10.69  Another pop
DIGL     107.00   2.13    6.88   -1.69   -0.06    7.25  Digesting
SUNW     119.44   1.88    3.31   -2.00    4.06    7.25  Momentum
LSCC      63.63   3.38    2.44   -0.69    1.88    7.00  Get onboard
TQNT      44.81   3.08    2.66   -1.56    1.75    5.92  On a tear
IDTI      69.50   0.44    1.00   -0.13    2.75    4.06  Near highs
EMC       93.13   0.19   -0.88   -0.69    5.13    3.75  Repeating
EXDS      60.00   2.00   -1.13    0.75    2.13    3.75  Great close
MER      141.56   3.38   -2.69   -3.50    5.06    2.25  Bounced
COHR      70.13  -0.16   -0.72    3.94   -1.88    1.19  Clockwork
JPM      145.00   4.06   -1.25   -4.25    2.56    1.13  Holding up
CCU       83.06  -0.88    1.50   -0.69    0.06    0.00  FCC approval
AFL       55.25   2.50   -1.13   -2.63    0.19   -1.06  Dropped
DNA      162.00   3.06   -1.81   -1.75   -1.50   -2.00  Dropped


MLNM     113.00  -3.19   -2.31    1.38    2.63   -1.50  Drifting
SYMC      46.94  -3.13   -1.31    4.38   -1.38   -1.44  Virus news
LVLT      59.50   2.19   -0.13   -2.19   -0.13   -0.25  Going down
SGP       41.88  -0.81    0.31    1.31    0.06    0.88  Dropped

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.


AFL $55.25 +0.19 (-1.06)  Okay, here's the deal.  The crazy duck
is going to be on CNBC tomorrow with the CEO of AFLAC.  Apparently,
AFL is going to unveil its new commercial tomorrow on CNBC, so
there very well may be some buying interest associated with this
press coverage.  Keep this in mind if you are looking for an exit
tomorrow.  We are dropping coverage tonight because of the recent
round of profit taking that has brought AFL below its 10-dma,
currently at $56.01.  In Tuesday's Updates, we mentioned that we
would be cautious with a move under the 10-dma.  Although we are
jumping out about where we got in, this was a successful play,
especially considering it is an insurance stock.  Tomorrow's AFL
feature on CNBC may given the stock a nice little pop when looking
for an exit.  Perhaps, 10 minutes after the unveiling of the duck?

DNA $162.00 -1.50 (-2.00)  This past week has seen DNA test its
key support level at $160 almost every day.  Buying opportunities
are nice, but when a trader is presented with one at the same
level every day, you have to wonder.  Even a trampoline that's
stomped on too many times is likely to break.  After last week's
nice run to $177 resistance and a sharp move down, the volume has
now dried up and while it may look like consolidation, certain
red flags have popped up.  The last couple of days has seen DNA
violate its 10-dma (at $166.60) and its 5-dma (at $164.40).  It
is also having trouble with resistance at the $167-168 area.
News today was mixed to negative as well.  It was reported today
that parent company Roche Holdings AG booked large gains in
selling shares of DNA in order to boost its lackluster earnings
report.  Fear that Roche may sell more shares in the future would
not be good for this call play so with that, we say goodbye.


SGP $41.88 +0.06 (+0.88) Although the action has been choppy,
SGP doesn't look like it is willing to head lower at this time.
Assuaging investors' patent-related concerns, SGP received a
6-month extension of its Claritin patent.  The stock continues
to move up sharply in the morning and then decline throughout
the remainder of the day, but both the highs and lows have been
getting higher over the past week.  Additionally, the closing
price has been above the 10-dma the past 2 days, and MACD, RSI
and Stochastics have turned up.  With the market sentiment
favoring the bulls and diminishing patent fears, this seems
like a good time to get out of the way before we get trampled.

INCY $88.81 +19.88 (+14.00) Don't you just love surprises?  It
seems as though good news always comes out after the market, when
it is too late to get in on a hot deal.  Today, INCY just couldn't
wait, making such a fast climb, it was too late to move either
direction without being impacted.  INCY announced an agreement
with Motorola, allowing them to be the first company to use
Incyte's portfolio of patented genetic information to develop,
manufacture and sell chips that can determine which genes make
a specific protein or other building block of the human body.
Pushing through all near-term support, as well as surpassing
even the 50- and 100-dmas of $88.83 and $81.65, INCY rallied
to a high of $89, and closed only a fraction below this level.
Needless to say, due to this upside surprise, we will be
dropping this as a put play.

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The Option Investor Newsletter                 Thursday 08-17-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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EXTR $186.56 +16.88 (+26.81)  What a great day for our beautiful
play!  Yesterday was a day of rest for our little rocket, but
today the stock blasted off into yet another new all-time high.
The minor resistance at $175 was easily cleared (and then some).
Aggressive traders who bought EXTR this morning when it bounced
above its 5-dma had much to cheer about, as did anyone who has
played this one since we've added EXTR as a call play.  There's
not much to say about this play except "Hooray!"  In the news
yesterday, EXTR was ranked number one for overall Layer 3 port
shipments for the quarter ended June 2000 by the Dell'Oro Group.
With 28% of the market, and more being taken from competitors
like FDRY, the future looks great.  While there was no reaction
yesterday, today the buyers came in large volume to confirm the
up-move.  Support is way below at $175 and then the 5-dma at
$171.35.  There may be some resistance at $190.  With such
"extreme" gains recently, those who have profits may want to clip
them just in case the profit takers step in.

DIGL $107.00 -0.06 (+7.25)  Since the large move up on Tuesday,
DIGL has been digesting its breakout.  In the process, it may be
giving traders an excellent entry point as it heads closer to
test its $105 support and the 5-dma at $104.88.  Today was more
digestion as stock traded only 33% of its ADV in a narrow range,
finishing only fractionally lower.  In fact, the last two days
have been pretty much sideways to down movement on decreasing
volume.  This suggests that the move down is just normal profit
taking and nothing more.  Support for DIGL can be found at $105
and then just below its 10-dma, at the psychological $100.  Below
that, there is support near its 50-dma at $95.  Looking ahead,
there is light resistance at the $108-109 area with stronger
resistance at $110.  For aggressive traders, a bounce off the
5-dma would be a great entry point but confirm with volume.  With
the rest of the optical sector moving up, there is little reason
for DIGL not to tag along for the ride.

IDTI $69.50 +2.75 (+4.06) The Philly Semi Index ($SOX) tacked on
another 3.5% today, which carried our IDTI one step closer to its
all-time high.  The stock spent Wednesday fighting off the profit
takers and falling back down to its 5-dma, currently at $66.88,
on relatively light trade.  The sector-wide rebirth of leading
chips stocks has our play positioned to retest its 52-week high,
which was traced less than a month ago.  But, before breaking to
new highs, IDTI must first hurdle resistance at $70.  The stock
churned around the $69 level during the latter half of trading
Thursday, after staging an impressive rally earlier in the day.
We'll want to watch for another early morning rally to lift IDTI
past its next resistance level.  Look for an entry on a strong
move above $70 early Friday morning on healthy volume.  Make sure
to confirm strength in the broader Chip sector before entering
the play.  If the Chip bears return from their sabbatical, IDTI
has support at its current levels, and below at $68, and the 5-dma.
The stock's pattern of higher lows might warrant an aggressive
trader to consider buying the dips.

EXDS $60.00 +2.13 (+3.75) EXDS announced today that it had teamed
with Network Associates (NETA) to improve and enhance the
performance of its high-speed networks.  Along with help from the
announcement, EXDS rallied early this morning on the heels of the
upbeat profit report issued by BRCD.  EXDS broke away from
resistance at $59 in the latter half of trading to steadily rise
into the close and finish at its day high of $60.  The $60 level
is a significant hurdle for our play.  A strong rally above that
level would signal a breakout from a nearly four-month long
consolidation for EXDS.  Needless to say, we'll be on breakout
watch early Friday morning.  Watch for the bold move above $60
and confirm any attempt at a breakout with strong volume.  A
healthy Tech sector tomorrow morning might be enough to take our
play to the next level.  If the profit takers show up before
week's end, EXDS has help below at $59, and major support at $58
and again near the 5-dma at $57.88.  An aggressive trader might
target shoot for an entry on a bounce off support if any light
selling subsides.

SUNW $119.44 +4.06 (+7.25) Chase H&Q started coverage on SUNW
with a Buy rating yesterday, based upon the company's business
momentum and increasing earnings.  Despite the positive press,
SUNW pulled back to support around $116 to consolidate its
recent gains.  In a twisted way, the HWP earnings report last
night gave our play a little boost this morning.  HWP reported
flat sales of its Unix servers, because of the stiff competition
from SUNW.  The news from HWP combined with the resurgent Tech
sector propelled our play to yet another new high today.  SUNW's
leadership role in the recent Tech rally positions our play well
if the NASDAQ continues to climb.  SUNW finished right near its
day high Thursday, which might warrant consideration to enter the
play at its current levels if the Tech sector shows signs of
strength again Friday.  Watch for a strong rally above the $120
level.  If SUNW pulls back to consolidate again, look for a
bounce off support at $118, lower near $116, or around the 5-dma,
which has moved up to $115.75.  By the way, SUNW announced a 2-1
split at 7:15pm EDT last night.  Look for a gap in the morning.

ITWO $158.00 +11.44 (+11.06) After consolidating for two
consecutive days, ITWO charged back Thursday to trace a near-term
high in its ascending channel.  Our play received a boost from
two separate announcements today.  First, ITWO, IBM, and ARBA
announced they were launching a $90 mln advertising campaign to
promote the threesome's B-2-B projects.  And second, Gruntal & Co
initiated coverage on ITWO with an Outperform rating and set a
short-term price target of $170.  ITWO bounced off its 5-dma
early this morning, and charged past several key resistance
levels to finish strongly on a surge of buying in the final hour
of trading.  ITWO is now positioned to breakout from a nearly
five-month consolidation, with $160 marking the pivot point.
Look for entry on a strong move above $160, and make sure to
confirm a breakout with heavy volume as was the case during
Thursday's trading.  Strong support at $155, and again near the
5-dma at $150, might provide an aggressive trader with an entry
point if ITWO pulls back on profit taking.

COHR $70.13 -1.88 (+1.19) Like clockwork, COHR bolted out of
congestion quickly Wednesday morning above resistance at $70.
COHR's rally was spurred by the news that the company had won a
contract to supply hair removal lasers to one of Britain's
largest health and beauty store operators.  COHR is expected to
supply lasers to some 200 stores over the next several years.
Traders took advantage of Wednesday's rally by locking in profits
Thursday.  COHR fell on light selling pressure and consolidated
down around its 5-dma, near $69.58.  However, the stock's uptrend
is still very much intact, with a pattern of higher highs
developing.  Going forward, we'll want to watch for bounces off
support levels at $70, $69, or the 5-dma.  Aggressive traders
might target shoot for entry points during COHR's pullbacks.
More conservative traders might look for an entry if COHR bolts
back above the $72 level, or rallies past $73, its near-term
high.  Trading activity has been a good indicator of price
action, with more buyers on the up days than sellers on the down
days.  Make sure to confirm advances with above average volume.

CCU $83.06 +0.06 (+0.00) CCU came out strong Wednesday morning
to challenge the intraday resistance at $86.  The news that the
FCC approved its $23.5 bln acquisition of AMFM later in the
session did however change the flow.  The commission is
requiring Clear Channel to sell 122 stations in 37 markets to
meet certain ownership restrictions.  As it turned out though,
the press release resulted in minor damage and effectively
offered traders entries into this media-sector play.  The
commanding volume took CCU down to a daily low of $81.50 before
the stock rallied into a powerful finish smack on the 5-dma line
at $83.  Today's session was also tradable.  The sluggish
broader market brought CCU down a few notches, but once again
there was a solid recovery.  The high-volume moves through the
rising near-term support levels (now at $82-$83) further
reinforced our position that CCU is getting geared up to make
another run.  Take a look at a daily chart.  Firm support is
attractive at the 10-dma line (currently $81.43) and is serving
as a reliable launching pad on pullbacks.  Use stops for

JNPR $172.19 +5.88 (+12.25) We're very close to encountering a
full-blown breakout.  If only a bit more volume would
materialize to substantiate the climb.  Yet, today's trading
activity showed some promise at 6.26 mln shares exchanged,
which is a smidgen over the ADV.  Pullbacks to the supportive
5-dma at $167.64 would provide a champion entry.  Even more
attractive would be entries off the rising 10-dma ($162.16),
assuming this technical line demonstrates strength in troubled
times.  If we're not afforded such deep dips and the NASDAQ is
still in rally mode, then jump into this momentum play on strong
volume moves off $173.  Before committing, know your portfolio's
tolerance.  This is a HIGH-RISK INTERNET play.  Expect upper
resistance at $180 and the $181.25, the 52-week high.

TQNT $44.81 +1.75 (+5.94) Rebounding from a mild slide in the
previous session, the semiconductors were on a tear today.  The
Philadelphia Stock Exchange's semiconductor index rose 3.51%.
It was led higher by the likes of TQNT and INTC, the world's
largest computer chip maker.  We're anticipating that the strong
sector momentum will spark additional gains over the short-term.
More specifically, TQNT's 4.2% gain fortified its intraday
strength at the 200-dma ($41.41).  A push through the 50-dma
($48.56) would provide the more cautious traders with conclusive
confirmation that TQNT can rise to the occasion.  Although, it's
very reasonable to enter after TQNT penetrates the 100-dma
($46.08) with good volume.  Remember to watch the sector
activity as this play is based on that upward momentum.

EMC $93.13 +5.13 (+3.56) Patience is rewarded as EMC repeats
its familiar pattern.  The stock has a habit of moving sharply
higher and then consolidating for several days before repeating
the process.  After charging to new highs by the middle of last
week, EMC spent 5 days meandering between $87-90 as we waited
for some sign of the next breakout.  Declining all day
yesterday, things were not looking too great as the price drop
was coming on increasing volume.  This morning was an entirely
different picture as the stock finally got through the $90
resistance level.  The upward move was looking a little tenuous
until 1pm EST as the volume kicked up and the price surged.
This looks like the beginning of the next big move as buyers
jumped aboard, helping to propel the price within striking
distance of the highs from last week.  With volume ticking up
again today, our play tacked on more than $5 to post a new
all-time closing high of $93.13.  Intraday dips to the $90
support level are still buyable, but if the upward momentum
continues, you may have to content yourself with buying the
breakout over the $94 resistance level.

LSCC $63.63 +1.88 (+7.00) Could that be our entry point?  After
the strong move earlier in the week, LSCC was kind enough to
have a down day allowing us to get onboard.  Profit taking
dragged shares of LSCC lower yesterday morning, but there was
no conviction in the selling.  Volume almost completely dried up
as the price fell below $60 to bounce right on the 200-dma (now
at $60.19).  Then the bulls had their turn as buying volume
increased throughout the day and right up to the noon hour
today.  This took the stock up to resistance at $64.50, which
is right at the 100-dma, and just like clockwork, the move ran
out of gas.  It was encouraging to see LSCC hang on to most of
its gains today, as the stock closed above the 30-dma (currently
at $63.13) for the first time in over a month.  Renewed bounces
from the 200-dma are buyable, as long as volume confirms the
bounce, but a more conservative approach would be to wait for
buying volume to push the stock through resistance before
pulling the trigger.

MER $141.56 +5.06 (+2.25) Now that is a beautiful chart.  MER
has a pattern of moving higher and then pulling back to retest
the previous high.  After tagging a new all-time high earlier
this week, the stock pulled back with the rest of the Financial
sector only to surge higher today.  Look at the bounce that took
place this morning.  Tuesday and Wednesday were tough on the
bulls as the stock fell all the way to $135 (prior resistance in
mid-July), but the bounce this morning came with conviction, as
buyers bid the price higher by more than $5, for a close back
above $141.  Today's surge just fell short of Monday's closing
high, but continued market and sector strength will likely boost
our play to new highs again in the coming days.  Now that it is
only 2 weeks away, the split on September 1st is likely to fuel
even more gains.  Intraday support still sits at $140, $139, and
$137.50.  Continue shooting for new entries on bounces at these
levels or at the $135 support level.  More conservatively, wait
for continued buying momentum to push the price through
resistance at $143 before adding new positions.

JPM $145.00 +2.56 (+1.13) Trading in a narrow $3 range today, JPM
was still unable to break resistance of $147.94, set by Monday's
52-week high.  Hitting a low of $144.06 today, the stock
violated support of $145 offered by the 5-dma.  Recovering from
this morning's low, JPM was determined not to flirt with support
below this level at the 10-dma of $143.77.  Stalling between $144
and $145 for most of the afternoon, the stock found enthusiasm
in the last two hours of trading.  JPM climbed to the day high of
$147.38, but then dropped off on a strong volume move, closing
the day at $145.  Still trading well above all technical supports,
JPM is still looking great for our call play.  If you are feeling
bullish, continue to look for entry points to the play on bounces
off the lows.  Otherwise, a strong volume move to the upside,
breaking though resistance of Monday's established 52-week high
would also give a solidly convincing entry point to the play.
A few indicators to watch for direction on this stock are
interest rate sentiment, the Dow, and the Banking Index, BKX.X.
Financials have had quite a run lately, and with Mr. Greenspan's
meeting next Tuesday, range trading may be the way of this
sector until they find solid ground.  Use stop losses.


MLNM $113.00 +2.63 (-1.50)  Ho hum.  So far it's been very boring
for our put play, but it has provided for some great entry
points.  With MLNM having difficulty with its 10-dma (currently
at $115.85), failures to breach that level have provided many
opportunities to enter this play.  What is heartening to see
though is that with the market moving up the last couple of days,
MLNM has been drifting up on low volume.  Speaking of volume, it
is continuing to ease back so a move one way or another may be
imminent.   One thing to note, however, is that today MLNM closed
above its 5-dma for the first time in over a week.  As well, it
managed to close above the $110 mark.  However, resistance at
$115 continues to hold strong with additional resistance at $120.
Conservative investors looking for confirmation before entering
may want to wait until MLNM breaks below $110 before entering.
With no news in the past week, movements in stock price will
likely be based on technicals and sector sympathy so confirm both
before making a play.

LVLT $59.50 -0.13 (-0.25) It has been more of the same for LVLT
over the past two days.  Namely, lower prices.  After enjoying a
brief reprieve earlier this week, it would appear the
institutions are back to sell LVLT lower, noting the rising
volume on the down days.  Despite the sweeping rally in the
broader markets today, the Telecom sector resumed its laggard
role.  Along with the weakness in its sector, LVLT has fallen
under scrutiny for its lofty valuations.  Investors are having a
hard time justifying LVLT's high price relative to its projected
sales figures.  LVLT's recent sell-off has provided several entry
points as the stock has fallen below key support levels,
including $60 today.  Another entry into the play might be found
if the heavy selling drags LVLT below major support at $59.  A
more conservative trader might wait for LVLT's losses to
accelerate and consider entering the play if the stock falls
below $58.  Confirm continued weakness in the broader Telecom
sector before initiating new positions.

SYMC $46.94 -1.38 (-1.44) Was that an entry point or a reversal?
After bottoming at $42.75 on Tuesday, SYMC bounced sharply
yesterday, running right through the $47 resistance level and
moving as high as $49.13 before running out of steam at the
close.  The stock opened lower today, and then gradually drifted
below the $47 level by the close.  So the pivotal question is
whether this level will act as support or resistance going
forward.  Could the price jump yesterday just be a knee-jerk
response to the "I Love You" virus raising its ugly head
yesterday in Europe?  Only time will tell, but it is encouraging
to see that the impact of the virus this time around has been
well contained.  Be careful not to jump in to the play before
the market tells you which way it wants to go next.  Look for
the price to drop from current levels, confirmed by increasing
volume before opening new positions.  The 10-dma ($49.66)
continues to provide overhead resistance and another failure to
break through this level can be used as an opportunity to buy
puts.  The stock will likely have solid support near $43, so
tighten up your stops as it drops near this level.

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SDLI - SDL, Inc. $383.00 +7.75 (+21.13 this week)

SDL's products power the transmission of data, voice, video and
Internet information over fiber optic networks to meet the needs
of telecommunications, cable television and satellite
communications applications. They enable customers to meet the
bandwidth needs of increasing Internet, data, video and voice
traffic by expanding their fiber optic communications networks
much more quickly and efficiently than would be possible using
conventional electronic and optical technologies. SDL's optical
products also serve a variety of non-communications applications,
including materials processing and printing.

Faster than a speeding bullet, able to leap prior closes in a
single bound.  It's SDLI!  Can you say momentum?  On July 10th,
JDS Uniphase proclaimed its intent to acquire SDLI in a
stock-for-stock transaction worth $41 bln.  Ever since then,
the stock has had the power of a locomotive, climbing to a
52-week high of $460.50 on July 24th.  Clearly, the profit takers
took their cue at that point, sending the stock as low as $315
a week later.  Since bottoming on July 31st, a day after losing
over $50 in a single session, SDLI has been on a roll, regaining
some $70 points.  That about sums up this play: volatile and risky,
but it can be very rewarding.  The nearest support for the stock
lies at the 5-dma of $371.26.  Hitting a low of $373.75 today, the
stock has managed to outpace all technicals, trading as high
as $384.  With the close only $0.69 below the day high, SDLI
seems to have its sights on a replay of July's boom.  Granted, the
fiber optic sector is hot right now, but the stock still seems
well-positioned to shoot higher before calling it quits.  Look for
entry points to the play on dips towards the 5-dma, but remain
aware that the day lows are higher every day.  Likewise, if the
stock trades below today's close, a bounce back through $380 will
also bode well for a move to higher ground, as this level has
continued to offer resistance in the pre- and post-July runs.

While there has been no news as of late, SDLI has been running on
momentum.  The red-hot fiber optic sector is here to stay, and has
been performing well.  Corning(GLW) just announced a 3-1 split
yesterday after the close.  Watch the sector for clues of profit
taking.  As always, a strong NASDAQ and strong volume in the stock
will be indicative of favorable conditions.

BUY CALL SEP-370 OSL-IN OI= 434 at $38.63 SL=30.00
BUY CALL SEP-380 OSL-IP OI= 265 at $34.38 SL=26.75
BUY CALL SEP-390*OSL-IR OI=3247 at $28.88 SL=22.50
BUY CALL DEC-400 OSL-LT OI=2509 at $60.00 SL=46.00

SELL PUT SEP-350 OSL-UJ OI= 503 at $14.38 SL=18.25
(See risks of selling puts in play legend)

Picked on August 17th at $383.33    P/E = 500.33
Change since picked        +0.00    52-week high=$460.50
Analysts Ratings      12-8-0-0-0    52-week low =$ 30.83
Last earnings 07/20    est= 0.30    actual= 0.33
Next earnings 10-26    est= 0.37    versus= 0.10
Average Daily Volume   = 5.8 mln

GSPN - GlobeSpan, Inc. $129.38 +6.50 (+18.64 this week)

GlobeSpan, Inc. is a leading provider of integrated circuit,
software, and system designs for digital subscriber line (DSL)
applications which enable high-speed data transmission over
existing copper wire telephone lines at rates over 100 times
faster than today's 56 Kilobit modems.  Globespan's business is
accelerating communications through high-speed solutions based on
DSL technologies.  The company's innovations make it possible to
do the things that technology companies have been promising for
years - real-time video conferencing, telecommuting, high-speed
Internet surfing, and video-on-demand.  Unlike cable, wireless,
and direct broadcast satellite transmission services, DSL
operates over the "local loop", the vast network of over 800
million copper telephone lines that connect end users to central
office switching centers.

After a quick post-earnings sell-off to start the month, it's
been a great August so far for GSPN.  Reporting earnings on July
31st, the stock sold off sharply the following day.  For the
second quarter, GSPN reported net revenues of $75.9 mln for
an increase of 705% over last year's net revenues of $9.5 mln.
Quarter over quarter, this was an increase of 144.4% from the net
revenues of $32 mln for the previous quarter.  This was good
enough to come in at 11 cents per share, easily crushing Street
estimates of 4 cents per share.  Selling off sharply, the stock
found bottom at the $95 level.  This was just below the 100-dma,
which has been at $100 for quite some time.  Since then, it's been
smooth sailing for GSPN, with only a minor wrinkle.  After failing
to break through resistance at $125, the stock regrouped at $105
before finally powering through the $125 mark today on about 116%
of ADV.  The past couple of days have also seen GSPN move above
its 50-dma (now at $113).  Support for the stock can be found at
$125, $120, and then its 5- and 10-dma in the $116-117 area.
Looking ahead, resistance can be found in increments of $5 at $130,
$135 and $140.  Conservative investors looking to play this one
will want to wait for GSPN to clear $130 with conviction before
entering.  This past month has seen GSPN trade in tight, steep
channels.  Connecting the lows of GSPN for the past four days, the
bottom of the channel currently rests at $117.88 and is moving up
fast.  Be advised though that a channel this steep is usually not
sustainable for long periods of time.  That being said, aggressive
traders may want to target shoot a bounce off the bottom of that

There has been lots of good news for GSPN lately.  This week saw
UBS Warburg analyst Gregory Mischou initiate coverage with a buy
rating and a 12-month price target of $175.  According to
Mischou, "GlobeSpan is a leader in DSL technology with a strong
portfolio of integrated products that allow service providers to
enhance the performance of their offering and realize deployment
and provisioning efficiencies."  Prudential also initiated
coverage with a strong buy rating.  Continued strength in the
semiconductor sector and good news such as this means momentum
for GSPN.

BUY CALL SEP-125*GHY-IE OI= 26 at $16.75 SL=12.00
BUY CALL SEP-130 GHY-IF OI= 33 at $14.25 SL=10.50
BUY CALL SEP-135 GHY-IG OI=  3 at $12.00 SL= 9.00
BUY CALL NOV-135 GHY-KG OI= 11 at $25.25 SL=21.25
BUY CALL NOV-140 GRX-KH OI=266 at $23.13 SL=19.50

SELL PUT SEP-120 GHY-UD OI= 51 at $ 7.88 SL=10.50
(See risks of selling puts in play legend)

Picked on August 17th at $129.38     P/E = N/A
Change since picked        +0.00     52-week high=$167.00
Analysts Ratings       3-6-0-0-0     52-week low =$ 16.31
Last earnings 07/31    est= 0.04     actual= 0.11
Next earnings   N/A    est= 0.09     versus= 0.00
Average Daily Volume =  1.22 mln

PLXS - Plexus Corp $132.00 +6.50 (+12.13)

Plexus provides product realization services to original
equipment manufacturers (OEMs) in the telecommunications,
medical, industrial, computer, and transportation electronics
industries.  Its Plexus Technology and SeaMED subsidiaries
provide the product design and engineering, while its Plexus
Electronic Assembly subsidiary handles manufacturing.  Lucent
and GE account for over 25% of sales.

Pump up the volume!  That's just what happened after the BoD
announced a 2:1 stock split.  The share price catapulted off its
summer low of $86.75 (seen on August 3rd) and is now set to
challenge the 52-week record as it runs towards the split date.
The stock dividend is payable in just a couple weeks on August
31st. It will go ex-div on September 1st.  The company currently
has 60 mln shares authorized with 18.2 mln outstanding.  Upon
completion of the stock split, the number of shares outstanding
will be approximately 37 mln.  Following the announcement, Peter
Strandwitz, Plexus' Chairman and CEO, added his two-cents stating
that the stock split "reflects Plexus' record of strong operating
results and continued growth prospects in the electronic
manufacturing services market."  Investors liked what they heard
and began bidding up the share price.  At first PLXS' upward
propulsion stopped short at a ceiling just under the $120 mark.
But, this week was a different market and PLXS is once again on a
tear.  As the techs came back into particular fashion today, PLXS
responded with a $6.50, or 5.2% advance.  The bounce pushed it
through the $130 level!  The ultimate objective is to move through
$140 and $141.50 and eliminate any upper resistance.  But for now,
look for dips back to near-term support at $123 and the 5-dma
(currently at $124.78) for an entry. If there's no pullback and
PLXS continues to rage on, then be watchful for intraday support
to develop around $128 and $130 before jumping into this split

After Plexus reported record sales and earnings for its 3Q and
nine-month period ended June 30th, two analyst firms reiterated
positive recommendations for the stock.  On July 21st, Prudential
Securities maintained a Strong Buy and raised its 12-month price
target to $160 from $130.  A few days later, Stephens Inc.
reiterated a Buy and upped their price target to $178 from $126.
The earnings report was impressive.  Net sales for the 3Q were
at a record $193.2 mln, representing a 60% increase from $120.4
mln in the same quarter a year ago.  Net income easily beat the
consensus estimate of $0.52 and came in at $11.1 mln, or $0.57
p/s as compared to $5.5 mln, or $0.30 p/s for the 3Q of 1999.

BUY CALL SEP-125 QUA-IE OI=14 at $17.13 SL=13.25
BUY CALL SEP-130*QUA-IF OI=30 at $14.50 SL=11.25
BUY CALL SEP-135 QUA-IG OI= 4 at $12.25 SL= 9.50
BUY CALL SEP-140 QUA-IH OI=10 at $10.13 SL= 7.50
BUY CALL SEP-145 QUA-II OI=43 at $ 8.38 SL= 6.25

Picked on August 17th at $132.00     P/E = 88
Change since picked        +0.00     52-week high=$141.50
Analysts Ratings       7-7-1-0-0     52-week low =$ 24.44
Last earnings 06/00    est= 0.52     actual= 0.57
Next earnings 10-27    est= 0.59     versus= 0.41
Average Daily Volume   =   371 K


No new puts today.


EXDS - Exodus Communications $60.00 +2.13 (+3.75 this week)

Exodus provides Internet system and network management
solutions for companies with mission-critical Internet
operations.  The company offers sophisticated systems along
with technology professional services to provide optimal
performance for customers' Web sites.  Exodus has a long
list of customers, including:  EBAY, YHOO, SUNW, and AMAT.
The company continues to expand its business through
acquisitions and expansion overseas.

Most Recent Write-Up

EXDS announced today that it had teamed with Network Associates
(NETA) to improve and enhance the performance of its high-speed
networks.  Along with help from the announcement, EXDS rallied
early this morning on the heels of the upbeat profit report issued
by BRCD.  EXDS broke away from resistance at $59 in the latter
half of trading to steadily rise into the close and finish at its
day high of $60.  The $60 level is a significant hurdle for our
play.  A strong rally above thatlevel would signal a breakout from
a nearly four-month long consolidation for EXDS.  Needless to say,
we'll be on breakout watch early Friday morning.  Watch for the
bold move above $60 and confirm any attempt at a breakout with
strong volume.  A healthy Tech sector tomorrow morning might be
enough to take our play to the next level.  If the profit takers
show up before week's end, EXDS has help below at $59, and major
support at $58 and again near the 5-dma at $57.88.  An aggressive
trader might target shoot for an entry on a bounce off support if
any light selling subsides.


Closing right at the recent resistance at $60, EXDS saw some good
buying at the end of the session.  Yesterday gave a great
opportunity to enter the play and today's NASDAQ action was very
encouraging for the beleaguered techs.  If the NASDAQ remains
strong, EXDS should make that attempt to close over $60.
Pullbacks to intraday support at $59 would be a good entry.  A
strong convincing move above $60 that can be sustained after
amateur hour would also offer an entry point.  Watch the NASDAQ
carefully for direction and signs of profit taking.

BUY CALL SEP-55 DUB-IK OI=4991 at $8.38 SL=6.50
BUY CALL SEP-60*QED-IL OI=5895 at $5.38 SL=3.75
BUY CALL SEP-65 QED-IM OI=4285 at $3.50 SL=1.75
BUY CALL DEC-65 QED-LM OI=1545 at $9.63 SL=7.25

SELL PUT SEP-55 DUB-UK OI= 637 at $2.75 SL=3.75
(See risks of selling puts in play legend)

Picked on August 15th at $57.13    P/E = N/A
Change since picked       +2.88    52-week high=$89.81
Analysts Ratings     26-5-1-0-0    52-week low =$15.06
Last earnings 06/00  est= -0.12    actual= -0.10
Next earnings 10-23  est= -0.17    versus= -0.07
Average Daily Volume = 8.30 mln

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Success Basics: Managing for Profit - Protecting Against Loss

Developing a reliable and effective trading system is the first
step in becoming successful in the stock market.

Note: The Spreads/Combos editor is travelling to Chicago and the
Chicago Board of Options Exchange (CBOE), where he will review a
number of new features for retail option traders developed by our
friends at Preferred Trade.

Managing for Profit...

Developing a reliable and effective trading system is the first
step in becoming successful in the stock market.

One of our most popular writers often discussed his trading
techniques with regard to military tactics.  He would start by
saying something like, "Each trade you make is similar to the
beginning of a battle.  To be successful in the long run, you
may have to make temporary, tactical retreats."  Indeed, many
of his analyses were right on the mark.  A general's goal is to
exploit troops and munitions efficiently.  As an option trader,
your goal is to maximize profits and preserve capital.  Both
campaigns are similar in this respect; combat casualties are a
certainty and some battles must be sacrificed to win the war.

A trading system is the easiest way to a become a General in the
stock market.  A well-defined plan of attack helps new traders
learn proper money management and the correct use of technical
analysis in identifying precise entry and exit points.  Trading
in a systematic manner is far more likely to produce consistent
profits than a scheme based on intuition, emotion or the trend
of the day.  The benefits to this approach are many but most
importantly, you can eliminate the guesswork that comes from
trying to manage an active position without realistic goals or
loss limits.  The targets and exit strategies are predefined,
leaving no doubt as to when and how to get out of a position if
the market moves against you.  Potential risk is identified prior
to beginning the trade, with a fixed limit on maximum losses and
a formula for taking profits.  There are no positions initiated
without a complete assessment of the capitalization necessary to
carry out the entire strategy, even in the worst case scenario.
A thorough study of the underlying issue's historical data is used
to provide objective goals for future movement, based on expected
volatility and technical indications.  With all of these elements
properly evaluated and arranged, you can develop an effective plan
that contains a suitable risk-reward outlook based on appropriate
strategies that are compatible with your personal trading style.

The first step in developing a practical method for participating
in the market is to determine your comfort threshold and stress
level.  Think about the unique emotional effects of your trading
activities and managing an investment portfolio.  Are you usually
a cautious person or do you feel comfortable traveling at warp
speed?  How will a specific type of trading affect you mentally?
Can you handle the volatility of day-trading options or are you
happier with conservative, longer-term plays.  After you identify
the appropriate trading attitude, it is important to decide what
type of market activity is most favorable to your personal style.
Some traders prefer strategies that profit from trending markets
such as those characterized by a sustained advance or decline.
Techniques that benefit from this type of movement include Put or
Call buying and high potential spreads or combinations.  Another
tactic might be to focus on changes in volatility.  Traders using
this approach buy or sell premium in an attempt to profit from
transitions in market character.  Some utilize neutral positions
such as calendar or ratio spreads when the technical outlook for
the underlying issue is range-bound or static.  Regardless of the
method you prefer, each category of price action demands a unique
type of trading system.  The key to success is to specialize in a
specific kind of market activity and utilize trading strategies
that perform well in that particular environment.

One of the most important steps in developing a profitable system
is identifying the appropriate level of complexity when selecting
trading techniques.  The simplest approach is most often the best
but every strategy has risk and it is impossible to classify any
particular technique as the absolute perfect method.  In most
cases, there is more than one favorable technique and even though
each strategy has different attributes, they can all be useful in
a trader's arsenal at the proper time.  The easiest way to become
successful is to completely understand the mechanics of any
technique that you are using and try to construct a group of
diverse positions based on the correct market outlook.  Of course
you must remember that the individual investment objectives are
far more important than the merits of the technique itself.  If a
specific strategy is not suitable for you or your trading style
then it should not be used, no matter how attractive it appears.
In addition to selecting the proper trading techniques, you must
also identify the appropriate time frame in which to participate
in the market.  Most investors are suited to longer-term plays as
they require less attention and are easy to manage for those who
have full-time commitments to work or family.  Traders who have
the temperament and resources to follow the markets at all hours
should consider short term techniques based on intraday data and
momentum-based trends.  Using the appropriate strategy when the
markets dictates action is the fundamental step in developing the
ability to trade in a disciplined manner.

After you have identified the characteristics of the market and
selected the correct technique to profit from future trends, the
next task is to determine specific entry and exit points for the
underlying instrument.  In most cases, technical analysis should
be used to ascertain the correct parameters for risk and reward.
With this approach, a simple mechanism for money management is
built into the initial position.  Entry timing can be based on a
number of different indicators and the criteria used to identify
a trading opportunity is a personal choice.  The great thing is,
you don't have to open any position until you are satisfied with
the probability of a profitable outcome.  You can search through
charts for the perfect pattern, perform extensive due-diligence,
and wait for the best combination of technical indicators and
favorable market conditions.  In short, you can forego any trade
until the number of reasons to participate becomes overwhelming.
Remember, the market does not care whether you play along or sit
on the sidelines.  In addition, when you trade without a system,
it's amazing how confusing the situation can become.  Once you
are committed, you are playing by the market's rules, not your

Note: In part two, we will continue today's discussion of trading
systems and examine the techniques professionals utilize to manage
their positions.

Good Luck!

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