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Daily Newsletter, Thursday, 08/24/2000

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The Option Investor Newsletter                 Thursday 08-24-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        08-24-2000        High      Low     Volume Advance/Decline
DJIA    11182.70 + 38.10 11197.80 11120.10  821 mln   1429/1383
NASDAQ   4053.28 + 42.27  4055.44  4004.77 1.53 bln   2200/1772
S&P 100   825.15 +  2.34   826.65   819.90   totals   3629/3155
S&P 500  1508.31 +  2.34  1511.16  1501.25           53.5%/46.5%
RUS 2000  523.30 +  5.42   523.32   517.64
DJ TRANS 2764.79 + 11.44  2759.65  2731.83
VIX        19.10 -  0.76    20.10    18.97
Put/Call Ratio       .43
******************************************************************

Not pretty but we will take it!
By Jim Brown

Three dips and a bounce would be a good description of the Nasdaq
for Thursday. After gapping open the Nasdaq dropped back to 4004
which was the low of the day before sprinting back to 4040 a few
minutes later. Sellers tried to take it down again and the Nasdaq
dropped back into negative territory one more time. Again, slower
this time, it recovered to bounce off resistance at 4040 dropping
to 4014. There was a real battle all day as buyers and sellers
traded salvoes but buyers finally won the battle. With one last
push off the 2:30 lows the Nasdaq closed near the high of the day
at 4054. The Dow struggled with the 11160 resistance level all
day but also rallied at the close to post another respectable +38
point gain.







For traders used to huge intraday swings of 100, 200 even 300
points back in the spring the current ranges of 50-75 points is
like watching paint dry. Not that we are complaining! We will
gladly take these lower volatility ranges that hearken back to
trading patterns of 3-4 years ago. The concept of putting on
trades and feeling comfortable you won't be stopped out 30
minutes later is refreshing. Many new investors are not even
familiar with this type of market. Recent new investors grew
up thinking 300 point intraday swings were common.

Of course if you owned Next Level Communications today your
description of volatility is different than ours. After Lehman
Brothers cut them from a buy to neutral the stock dropped -49
from over $90 to a $42 close. The problem here was a reliance
on one customer for two-thirds of their sales. US West was the
one customer and now that Qwest has bought them they are not as
likely to continue in the same direction with NXTV products
under Qwest control. Several aggressive funds got killed on the
news. Of note the Munder Net Net fund had over one million shares
and lost almost $50 million at the open. That could ruin your
entire day!

The government plans to relax a ban on federally-funded research
using embryonic cells continued to spark a run in biotech stocks.
The main players, STEM, GERN, ASTM were joined by the bigger
biotechs like AFFX +8, HGSI +21, CRA +11, PDLI +8, ABGX +8. The
news plus some upgrades pushed this sector to over +75% gains
for the year and revitalized the sector after the patent problems
from several weeks ago. If you owned them you are a winner but
jumping on stocks up +20% to 30% in two days can be dangerous.

If you would rather invest in calories than biotechs then Krispy
Kreme is your ticket. The "donuts to die for" beat analysts
Estimates of .18 with a solid $.25 and the stock jumped +24% or
+$15 to $78. For investors that gorged themselves today they may
find themselves on a diet soon. KREM had languished recently and
it remains to be seen if it can hold on to those gains.

Economic reports today confirmed the Fed decision to hold on
interest rates with orders for Durable Goods dropping -12.4% in
July which was much stronger than the -7.7% decline analysts
expected. The biggest ever monthly drop in demand for airplanes
and transportation equipment led the way. This was on top of
a smaller than expected gain in June. While this was good for
the market today the true test will come when companies start
posting lower profits from the drop in orders. On the job front
new claims for unemployment insurance rose by +4000 to 314,000
last week. Not earth shaking but going in the right direction.

On the political front, and I mention this only because all of
us are struggling to build as big an estate as possible for our
families before our eventual death, congressional leaders are
sending another bill to repeal the death tax to Clinton for
signature. He will veto it and set the stage for a September
veto override attempt in Congress. The bill would phase out
the "death tax" over the next ten years at a cost of $105
billion. There was sizeable Democratic support since nobody
wants to give the government a huge chunk of money that could
have already been taxed when it was earned.

No commentary of today's events would be complete without at
least a mention of the Survivor hoopla. What a bunch of XXXX.
The insulting of American collective intelligence is incredible.
Any contest where the winner wimped out of the last test and
a 45yr SEAL veteran "forgets" to hold onto an idol and the person
who kicked butt on all the "challenges" gets booted by a hostile
sore loser, and a pick a number between 1 and 10 idiot, is
ridiculous. Please no email on this. I am just venting here.
Yes, I know Richard was the most scheming contestant taking the
"out wit" challenge literally. He played the way I hope I would
have played, in war there are no rules. Remember that Rudy?
But still appearing on Letterman last night, buck naked, in
front of the other 15 contestants for 15 minutes is an insult
not only to them but America in general. If you think this was bad,
get ready. This fall there will be a program where four guys will
be chained to one woman and cameras will record them 24hrs a day.
Each week one man will be voted off with the last one being the
Eventual winner. It is going to be called something like "chains
of love." Now picture yourself chained to four members of the
opposite sex (never mind, some guys are probably fantasizing about
being chained to four girls, bad analogy) when nature calls at
3:AM. By the time you get everybody awake and into the bathroom
it could be too late. But you get my drift. Is this reality TV
thing going to far? You want reality TV? Try showing the trading
post at NXTV for 30 minutes after the market opened today. That
is reality TV!

Back to true reality. The Nasdaq managed to close over 4000
twice now. Not much conviction but still nine positive closes
in ten days has got to be swaying some opinions of those still
in cash on the sidelines. This is where the rubber hits the
road as they say. With many traders planning long weekends this
week and next there may still be some hesitation to come off
the sidelines. However with the market showing good resilience
after that +100 point Nasdaq intraday move on Monday it is
looking good! The Nasdaq has come off the opening drop two
days in a row and that is exactly opposite from the sell at
close pattern of last week. Two days over 4000 is very positive.
The confirmation of the up trend and broad market participation
is encouraging. Even the Dow is along for the ride. This is
investor nirvana. Advances are beating declines, new highs
are strongly beating new lows, the Dow and Nasdaq are moving
in tandem towards April highs. What could possibly be wrong?
Maybe the VIX falling to 18.95 intraday today? Another 52 week
Low! Earnings warning season starts next week?

We are entering into a period of expectation that has not been
seen for months. Everybody is expecting the market to go up.
Nobody is looking for it to go down. The Fed is on hold, the
economy is slowing, politicians are telling us we are better
off today than eight years ago. What we are setting up for is
a major rally unless something comes out of left field and hits
the market while we are busy counting our profits. Non-farm
payrolls are next Friday and they are the next big economic
hurdle. The revised GDP is tomorrow and Personal Income/Spending
next Monday but neither is expected to be a problem. Using my
4000 benchmark from Tuesday you should be long in the market.
We did not get the drop to 3800 since support at 3900 held but
I am not complaining. Simply maintain that 4000 benchmark and
consider closing those positions should we violate it for any
reason. This is easy trading if you follow the rules. Friday
could see some profit taking so expect it. Better to expect it
and not get it than get hit when you are not expecting it. Did
that make sense? I would definitely be a dip buyer, the deeper
the better. Enjoy the ride but keep looking for that pothole
ahead.

Good luck and sell too soon.

Jim Brown
Editor


*********************
FALL SEMINAR SCHEDULE
*********************

Here we go again! Here is your chance to learn from the
pros. The three day Technical Analysis Stock and Option
Fall Seminar Series. Three days of in-depth education.
Don't miss it!

Some comments from recent attendees:

Chris & Steve, I would like to thank both of you for a great
experience at the Atlanta Workshop. I learned more in the
three days of the workshop about investing and trading than
all of my undergraduate and graduate courses combined. It
was a lot of information in a short time and I hope to put
it to use very soon.  Mike

I attended the Atlanta seminar and wanted to forward my positive
comments. The seminar "really lit my fire". I have been a trader
for 20 years and often go to seminars and this was the first one
that really taught me the most. Dr Lloyd

Jim, I had the good fortune of attending the meeting in Orlando.
Like your newsletter, it was a CLASS ACT. Chris and the others did
a great job. Chris was by far the best performer but the gentlemen
beside me was an option trader with several seminars under his belt
and almost freaked out when Chris finished his Index Presentation.
JC

I am writing this note to compliment you and your staff on the
great job they did in Atlanta.  But more importantly I would like
to single out Steve Rhoades as one of the finest speaker/teacher
on technical analysis that I have ever had the pleasure of hearing.
I am doing my best to persuade other members of the two investment
clubs that I belong to, to attend the Detroit seminar.
Sincerely, ML


We guarantee you will not be disappointed. The class size
is small so you will get plenty of individual attention
from Chris Verhaegh, Steve Rhoads and staff.

At less than the cost of a bad trade you can learn how
to analyze stocks and trade options like the pros.
Don't wait, do it now.

Date   City

Aug 28-30 Detroit
Sep 14-16 Chicago
Sep 21-23 Austin TX
Sep 28-30 Boston
Oct 05-07 Portland
Oct 12-14 Charlotte NC
Oct 19-21 San Francisco
Nov 02-05 Phoenix
Nov 09-12 Miami FL
Dec 07-09 Philadelphia
Dec 14-16 San Antonio

Australia coming soon!

Has the market been beating you up? Did you give back
your gains from April? Would you like to understand
all the technical indicators our writers use? Does
the alphabet soup of technical terms like RSI, DMA,
MACD, ROC, Stochastics, Bollinger bands, sound like
Greek to you?

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these indicators, read charts, pick stocks and which
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the cost of one bad trade.

Reserve your seat now for one of our regional seminars.

Click here for more info:

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****************
MARKET SENTIMENT
****************

A Stealth Rally Is Amidst
By Austin Passamonte

Did everyone load up on Boeing LEAPs this spring? That among
many other stodgy, old economy issues would not have been a
bad investment at all.

Market bulls have quietly won the battle since a late July
market slide. We've had a stealth rally sweep us up several
hundred points in the Dow, NASDAQ and NDX from then until now.

Fundamentally everything looks terrific. GE leads many other
stocks to new all-time highs on a frequent basis. Several
sectors take turns each day pushing the broad markets ever
higher. Talk on the street has turned once again to measure
new market highs.

A light-volume rally doesn't prove staying power but it sure
beats a market decline for the bulls. Stocks & options rise
in value based on market price, not underlying strength. Those
who chose well and bought calls have prospered indeed.

Will this strength continue indefinitely? Everyone seems to
think so. There isn't so much as a muted growl emanating from
deep within dank recesses of bear caves. High time we all
go long with reckless abandon.

Or is it?

Technical signals on broad index and individual stock charts
show seriously overbought conditions. The VIX hit an intraday
low of 18.95 to close just above 19. Our position is well-
documented on this one.

Equity put/call ratios and OEX put/call ratios on today's
volume are within bearish contrarian range. Traders are
loading up on calls quite heavily.

Oil prices continue to soar as the U.S. admits to being caught
in a giant short-squeeze. Will our lame-duck president convince
OPEC to forsake massive near-term profits for the good of a
sustained petroleum market? He'll have the same success with
oil that both major US political parties did spurning questionable
donations for long-term good of this country. How easy is it to
walk away from a very deep money trough?

Interest rates did not directly slow down this economy as the
Fed knew they wouldn't. They indirectly slowed the economy by
scaring the stock market into submission. Equity markets didn't
slow because of the economy, the economy slowed via margin calls
and shriveled 401Ks.

Everyone we know invested in the market succumbed to wealth
effect over the last few years. Watching retirement funds
swell several hundred percent can have no other affect. Seeing
those gains turn to ash like our precious western forests has
about the same emotional toll as well.

When faced with gasoline, heating oil and electric bills up
by astronomical amounts going into this fall & winter, how do
you think Joe & Jane consumer will react? See any wild spending
sprees in their future? Biggest Christmas season in years?
A new SUV to replace the old one? Exotic vacations booked on
falling airline rates? Lots of luxury items just because?

Anyone who thinks high oil prices don't impact the economy
for sure don't live in the Northern or Northeastern U.S, where
most of our per capita reside. $500 monthly heating bills
and $200 electric bills from December to April are no fun on
top of normal living expenses. That is reality for many U.S.
citizens, including me. Luckily we're traders, but what about
everyone else?

Tomorrow at 3:00pm EST we'll see the latest COT report. We're
quite curious to see how the big boys are positioned to date.
Are they still laying huge downside bets or have some been
taken off the table? We know small specs remain wildly long.

This market is in a giant state of flux as we speak. It awaits
the next news event to push it one way or the other. Trade
nimble and let disciplined stops keep you safe when it makes
a decision to roar.

Calls or Puts as circumstance dictates will pay all our energy
bills and then some. Merry Christmas regardless!


MARKET SENTIMENT INDICATORS
---------------------------

VIX
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 8/22 close: 19.08      Thurs 8/24 close: 19.10


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            (8/22)      (8/24)       (8/26)
*************************************************************

CBOE Total P/C Ratio         .55         .43
Equity P/C Ratio             .47         .38


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       (8/22)        (8/24)      (8/26)
**************************************************************

All index options      1.47           1.22
OEX Put/Call Ratio     1.77            .71


OEX Maximum Open Interest Strikes/Contracts:

Puts               800/4,291        790/6,293
Calls              810/4,796        800/4,852
Put/Call Ratio       .89              1.30


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:               (8/22)       (8/24)       (8/26)

Overhead Resistance:
(920-865)                1,483       1582.75
(860/840)                52.59         49.34
(835/820)                 5.13          2.11

OEX close:                 818           825

Underlying Support:
(815-800)                 1.06          1.25
(795-780)                 2.44          2.84


What the S/R measure indicates: Net open-interest ratios
are firm above 840 and ridiculous above 865 while very
light all the way to 780. A large index move has downside
clearance to 780 or below with relative ease.

We would consider a failed test near the 835 range an
excellent put entry.


30-yr Bond:          5.71%         5.66%

Light, Sweet
Crude, Barrel:     $31.22        $31.63


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      11,182
NASDAQ: 3,936           3,851       4,053
NDX:    3,672           3,722       3,949
SPX:     1434            1484        1508
OEX:      773             811         825


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. Updated Friday 8/25


                  Small Specs        Commercials
DOW futures
Net contracts;    +116 (long)        - 599 (short)
Total Open
Interest %          2% net-long       3% net-short

NASDAQ 100
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


BULLISH SIGNALS

Interest rates
5.66% on the 30-year Treasury Bond make equity markets the only
game in town. Fed-Fund futures are pricing slight chance of
further rate hikes and dwindling.

Benign Government Reports
Latest statistics hint the economy is cooling and no further
rate hikes may be needed. Today's reports included

Strength In Financial Sector, Many Dow Components
Financial leaders approach or exceed all-time highs as plenty
of old-economy stocks enjoy strong price leadership

Broad Market Strength
All major indexes are well above 200 DMAs and enjoying solid
gains almost every day.

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.

******

BEARISH SIGNALS

VIX
Thursday’s close near 19 has us in EXTREME danger zone.

End Of Earnings Season
Earnings season has all but ended with pre-warning cycle
to begin in two weeks. It may not be pretty this time, due
to..

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. Light, Sweet Crude closed $31.63 today.
All petroleum expected to be extremely high this fall. Prices
in low $20s would be welcome relief but remain just a dream.

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.


**************
MARKET POSTURE
**************

As of Market Close - Thursday, 08/24/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert
****************************************************************

DOW   Industrials      11,182      10,600  11,200
SPX   S&P 500           1,508       1,475   1,520
COMPX NASD Composite    4,053       3,650   4,100
OEX   S&P 100             825         800     830
RUT   Russell 2000        523         485     540
NDX   NASD 100          3,949       3,500   4,050     **
MSH   High Tech         1,104         975   1,110     **

BTK   Biotech             741         640     760     **
XCI   Hardware          1,601       1,450   1,620     **
GSO.X Software            460         405     470     **
SOX   Semiconductor     1,163       1,000   1,200     **
NWX   Networking        1,322       1,210   1,400
INX   Internet            552         460     565

BIX   Banking             595         550     610
XBD   Brokerage           618         570     635
IUX   Insurance           692         680     725

RLX   Retail              823         805     860
DRG   Drug                396         365     415
HCX   Healthcare          815         795     855
XAL   Airline             157         148     168     **
OIX   Oil & Gas           307         280     320

Seven alerts were triggered in the past 2 session.  Six at
resistance levels and one at support.  The NDX, MSH, BTK, XCI,
GSO.X and SOX hit resistance levels and closed higher.  The XAL
hit support and closed higher.  Market bulls should keep an eye
on the RLX.  If everything is as good as it looks then this
group should hold support.  Defensive groups like DRG and HCX
are holding tough.  Stay with the trend, but snug up those stops.
Raising support (BTK, GSO.X). Raising resistance (NDX, MSH, BTK,
XCI, GSO.X, SOX) Lowering support (XAL) Lowering resistance (XAL).


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

You Too Could Be a Writer
By Molly Evans

May I be so bold as to make a few comments on Austin's Trader's
Corner article of last evening: "Education in Options Trading"?
First, I must be really out of it!  I had no idea about the
"Survivor" thing going on until I went to work with real people
yesterday.  Like...whatever!  My conscience is clear Austin!
The second and more important thing I'd like to highlight were
his admonitions to further ourselves as traders and investors by
reading and studying more.  I can read and read and read until my
eyes glaze over but I have just recently started something that
is truly educational.  I have to be "doing something" and this
helps to fulfill that need while teaching me a lot about myself
and the markets.  Journaling.  I know, it sounds like a pain and
maybe it is at first but once it's established, the information
you have recorded is a treasure chest.

For me, it started one day when I reviewed the log of my trades
with the brokerage.  It was a little disconcerting to see
that while I had made progress, there were many, many little
trades gone wrong that I had bailed out.  It occurred to me that
I really didn't have conviction going into those trades in the
first place, I was just trying to see if I could scalp a couple
of points on a move.  Yeah, I win some, but lose a lot too.  I'm
just spinning my wheels and wasting time where it could be spent
more productively searching out the better trade or writing.  In
truth, the only real money being made was for the broker.  My
problem with the markets is boredom!  I get bored watching the
tape and do much better when I simply set my alerts by TA and
then wait.  Now that sounds so easy, but why is it so hard for me
to follow?  I rationalized that if I started a journal, I'd have
to answer to myself about why I made a particular move.  Would it
and could it stand up to a court of my peers?

Journaling is often cited in texts as a means of recording our
progress and putting our goals into black and white.  Authors
tell us that's what we should do and we all say, "Yeah, I ought
to do that" but then don't.  I happen to have an online friend
who is loyal to keeping her journal.  She started April 10th of
this year and it has changed her whole process of trading and
investing and how she sees the markets.  She's very disciplined,
doesn't chase, and has consistently improved her return
performance because she's writing down her plan, confronting
her weaknesses and recording significant events in her journal.
Now, you think you don't have time to do this?  She is the
mother of four under the age of six and the youngest is a
newborn!  I knew if she could do it, I could.  I mean, my kids
are old enough that they can fix their own Ramen Noodles.  As
Austin said, we all can do this, it's the question of whether
we choose to or not.  We're talking about our money here.  Pay
attention.  This is important.  This is a business and should
be taken very seriously.  We owe it to our families and to
ourselves to strive to master the principles of money management,
risk adversity, and capital appreciation.

As to the actual process, I think journaling is a highly
individual endeavor.  How we go about it and what we choose to
track matters only in the way it is of value to us.  It might be
a psychological diary or it might be a tracking of stocks to
learn their movements intimately.  The possibilities are
limitless.  As for my journal expert, each day she notes the
intraday movements of ten stocks only.  She picks only the top
tier performers because as in her words, "I can trust them not
to let me down.  I miss the second tier stocks that run like
crazy as I favor the slower ones.  I'm just very careful not
to get entranced by  something that can easily go worthless
overnight on me.  I simply can't afford that."  In her posts
each night, she does a reading of the daily chart with notations
of her technical indicators.  She is a DMI chartist, denoting
ADX for the presence or absence of a trend and + and - di for
the buying/selling pressure.  She relies heavily on ADX for the
trend and then uses Williams’s %R to determine an entry point.
"Every time EMC or SUNW go into oversold on the daily, (below 20
on %R) I buy contracts and only once has it failed me since I've
been playing them."  So you see, she's not playing everyday.
Only when the getting is good, does she act upon it.  She is
disciplined enough to exit or reduce her position size when she
has her 50% gain too.  Of course her chart reading helps her to
let it run if that's what it's going to do.  She's not obsessed
with buying the bottom or selling the very top.  She is simply
looking to capture the bulk of the trend and it's becoming
a consistent paycheck for her.

E, as I will call her, charts the Nasdaq everyday and has
recently started adding in volume flow, block trades on her
individual stock watches and the closing VIX value.  I'm sure
that somewhere there is a subscription site that you can get
historical volume levels but E could tell us instantly whether
it's dwindling or creeping upwards, if institutions are buying
or selling.  It's all because she's just simply tracking it each
day.  What valuable information!  NOK is one she watches.   We
all know that it recently got put on the chopping block, but do
you know how many shares were traded that initial day?  E will
tell you that it was 119M and that wasn't just tiny investors
running for cover.  Institutions dumped!  Of course, I can see
that on Q charts myself but the point is, when you're tracking
something each and everyday and writing it down, you're going to
recognize patterns and little clues about what the stock is doing
or is about to do.

In her synopsis of the day, E notes the "feel" of the market
and remarks on the reactions to important economic reports.
She records whether the markets were up or down in reaction to
expected or unexpected numbers, to Fed meetings, how the markets
acted on the day of options expirations and the first trading day
afterwards.  All of this comes in handy down the road.  Those who
do not learn from the past are doomed to repeat it - that is if
it was a mistake.  E knows the mistakes and is at least doing
something to rectify the situation.  Favorable conditions might
also be exposed.  You wouldn't have to be home watching the tape
every single day to do this either.  Your journal could be very
simplistic or quite detailed.  The important thing is that you
be consistent in recording the observation or statistics and the
developing patterns will appear after time for you to be able to
act upon it or draw meaningful conclusions.

And so back to my own foray into journaling. I'm forced to really
think about what I saw in the trade setup.  Why did I enter?  Why
did I exit?  What were the technical indicators saying at those
points?  Did I act on intuition or did I see something really
bona fide and HINT HINT - I'm starting to GET IT??  To make
journaling work, one has to be committed to and believe in it.
Other traders are your competitors.  Have you ever read a book
about succeeding in business?  They all say the same thing.  You
have to outwork your competitors.  Journaling is work but if
you'll force yourself to look at every trade and let me emphasize
that: EVERY TRADE, you'll be able to see patterns in yourself
that you might not have ever realized.  You'll see that you
perform well on Tuesdays and horrible on Thursdays, or you
consistently read the market early and are too quick on the
trigger.  Whatever.  Your writing won't lie if you're honest
with it.  I type mine up and print out a chart with notations.
The possibilities are endless in regards to how you want to set
up your own journal.  Whether you choose to physically record
observations is obviously your own decision but you must
familiarize yourself, one-way or another, with your own strengths
and weaknesses before you can overcome obstacles that appear on
the path towards trading greatness.

molly@OptionInvestor.com


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SECTOR TRADER
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Head Faked Times Two!
By Austin Passamonte

Buzzy, are you home yet? We got faked out of our trades faster
than a Michael Jordan fadeaway jumper on Wednesday. Oh yeah,
those entry setups came clean when the indexes sold off from the
open only to catch fire and die by 11:00 am. Classic bear-trap
set by the bulls lying in wait for us put players!

Same thing occurred this afternoon. Just when the markets seemed
poised to break, buyers came in and hit the pullback for another
round of buying. This tight-range trading is not easy, to be sure.

Certain sector HOLDRs fared quite well as we'll lament to any who
care in a bit.


Index             Last    Mon    Tue    Wed    Thu    Fri    Week
QQQ NASDAQ-100    98.56   0.38  -0.13   1.50   1.50   0.00   3.25
HHH Internet     118.25   2.13   0.63   4.06   2.56   0.00   9.38
BBH Biotech      190.25   3.94   4.25   1.19   7.50   0.00  16.88
PPH Pharm.        96.50   1.38  -0.13   0.19   0.06   0.00   1.50
TTH Telecom.      64.81   0.06  -0.63   0.06   0.81   0.00   0.31
IAH I-net Arch.  102.63   0.13   0.25   2.13   0.88   0.00   3.38
IIH I-net Infr.   56.50   0.31   0.50   1.13  -0.13   0.00   1.81
BHH B2B           47.94  -0.19   0.50   0.44   0.69   0.00   1.44
BDH Broadband     94.50  -0.63   0.50  -0.38   0.06   0.00  -0.44
SMH Semicon       99.25  -2.44   0.94   3.81  -0.50   0.00   1.81
RKH Reg. Banks   105.81   0.88   1.88  -0.25  -0.44   0.00   2.06
UTH Utilities    102.75  -0.44  -0.19   2.00  -1.88   0.00  -0.50

**************
Updates
**************

QQQ - NASDAQ 100 $98.63 (+3.31 this week)

Today's action mirrored the previous few. Selling near resistance
and buying at support with very little space in between. Just when
we think a breakout or breakdown is imminent, the pattern repeats
once again.

Technical chart patterns show the NDX greatly overbought but it
could continue higher even so. With the short-term trend going up
we should only take buy signals with oscillator tools but no clear
ones will set up. For this to happen we need a decent price pull
back first.

Trying to time any drop using oscillators on an uptrend is a bit
risky but the moment we pass the trade it will be that nice
downside move everyone waited for. What a dilemma! No clear trade
setup I can see on the QQQs for tonight.

------

SMH - Semiconductor $99.25 (+1.81 this week)

(Is this party over? Near-term indications are it could be. No
sector enjoyed better recent gains than this one, which could
be one reason why profit-taking may be near)




(This daily chart of SMH shows stochastic lines topped out above
80% overbought and turning. MACD histogram bars are on the decline
as well. Upper Bollinger Band was pierced over the past two
sessions and the three day candle pattern "doji-red-doji" signals
negative indecision at a price peak in the market.)

We left that text from Tuesday to illustrate SMH action since
then.  Our bearish candle got engulfed by a bullish one the very
next session. Today's candle is another stalemate doji.  Again,
indecision reigns.

We also have stochastic/price action diversion as well.  SMH was
stopped at the lower-high trendline resistance while stochastic
lines made new highs into overbought territory.  This portends a
market reversal soon.

We stand by our original put play on SMH and consider it a better
entry point. Waiting for the slow (red) stochastic bar to turn
below 80% oversold on the DAILY chart would be a prudent entry
signal in our opinion.

------

BBH - Biotech $190.25 (+16.88 this week)



Tuesday we privately looked at BBH as a potential call-play in
the making. It was trumped by downside posturing the QQQ and
other tech HOLDRs seemed to exhibit. Darn! We missed picking
out the best one. First time that's ever happened to us...oops,
my nose just grew two inches.

Again, stochastic bullish divergence with the market greater
degree oversold while prices hold higher than last time prove
upward bias. Daily slow bar (red) is just turning positive along
with MACD. Under favorable conditions this one has plenty of gas
in the tank. A run to 200 or beyond is very possible indeed.

Pick your call play based on continued sector strength tomorrow.
The BBH has a habit of moving counter to the NDX and COMP lately,
so this HOLDR may run even if the broad index sells off.

Again, pickings are slim until we get a market breakout in either
direction. Pray it comes soon and keep an eye on these two plays
in the interim.

**************
No Play
**************

QQQ
PPH
BHH
IIH
TTH
RKH
UTH


*************
DAILY RESULTS
*************

Index       Last    Mon    Tue    Wed    Thu   Week
Dow     11182.74  33.33  59.34   5.50  38.09  92.67
Nasdaq   4053.28  22.81   5.06  52.80  42.27  27.87
$OEX      825.15   4.80   0.14   0.14   2.34   4.94
$SPX     1508.31   7.76  -1.35  -1.35   2.34   6.41
$RUT      523.30   0.94   1.01   0.42   5.42   1.95
$TRAN    2746.79 -18.55   4.49 -87.73  11.44 -14.06
$VIX       19.10   0.14   0.06   0.24  -0.76   0.20

Calls

CIEN      201.06   5.38   9.31   2.88   6.81  24.38  New
JNPR      189.94   3.00  12.63   0.31   3.19  19.13  $200 next?
VRSN      178.44   2.94   3.50   7.94   4.31  18.69  New
QLGC      109.69   2.25   2.75   8.38   3.31  16.69  Booming
SDLI      411.88  13.25  -4.50  -3.00  10.88  16.63  Like a yo-yo
BRCM      273.63   1.69   2.38   7.72   3.72  15.50  New
VRTS      115.69   1.75   2.63   2.50   1.69   8.56  New
DIGX       89.00  -0.38   0.25   4.56   4.00   8.44  Nice reward
PLXS      139.00   4.38   4.00  -0.88   0.88   8.38  Splits 8/31
GSPN      138.25  -0.56   2.75   0.88   4.81   7.88  Stepping up
NTAP      101.69   1.44  -1.00   5.63   1.69   7.75  New
LSCC       74.50  -3.25   0.81   4.94   4.38   6.88  Watch trend
IDTI       79.44  -3.31   2.88   5.06   1.94   6.56  All-time high
EXDS       65.88   1.44   2.19   0.19   1.63   5.44  Break away
SUNW      127.75  -0.31   0.13   4.50   1.06   5.38  Momentum
MER       139.81   3.69  -0.97  -3.59  -0.13  -1.00  Dropped
EMC        92.13  -0.56   0.88   0.13  -2.50  -2.06  Wall at $95
FDRY       87.44   2.31  -3.56  -1.19  -1.81  -4.25  Dropped

Puts

VSTR      115.50  -9.75  -5.94   4.19   3.63  -7.88  Dropped
AT         52.75   0.06  -1.06  -0.69  -1.63  -3.31  New
UK         40.97  -0.85   0.28  -0.75  -0.59  -1.90  New
TLAB       58.56  -1.25  -3.00   1.44   2.19  -0.63  Dropped
QCOM       60.63  -0.75  -2.38  -0.19   4.19   0.88  Dead cat?
TIBX       96.00  -4.69   4.69   1.44   5.63   7.06  Dropped
YHOO      139.81   5.25  -2.94   6.31   6.00  14.63  Dropped
PWER      158.38  -1.63   7.19   4.38  11.75  21.69  Dropped
MLNM      135.31   2.88   3.19   9.69  10.50  26.25  Dropped


PICKS WE 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.


CALLS:
*****

FDRY $87.44 -1.81 (-4.25) FDRY's upward potential showed signs
of weakness in the past two sessions.  The developing near-term
support at $90 and $92 lost its bottom as the share price began
trading lower at $87 and $88.  Not good.  Plus, the volume
levels, currently at about 75% of the norm, have not returned to
at least average status.  Also not good.  Now let's consider the
market environment.  The NASDAQ was flourishing.  And to boot,
FDRY received new Buy coverage at Argus Research today.  It
appears that FDRY's recent momentum run has come to an untimely
demise.  Let's move on to better plays.  No matter how hard we
try, we can't wish it back up!

MER $139.81 -0.13 (-1.00) After leading the DJIA on an impressive
rally for the past 2 weeks, the Financials have given up their
leadership role to other sectors.  With the proximity of its
2-for-1 split, we would have expected MER to show more strength.
After moving up to nearly $146 on Tuesday, our play had given up
$8.56 before finding support in the middle of today's trading
session.  Although the bounce came on decent volume, the bulls
are looking a little tired and we're not convinced they have the
stamina to continue pushing MER to new highs.  Although it could
still happen, the deteriorating technical picture leads us to drop
the play in favor of better plays in the technology sector.


PUTS:
*****

PWER $158.38 +11.75 (+21.69)  Someone must have put some fresh
batteries into this one.  Ever since finding a bottom at $130 on
Monday, PWER has powered up along with the rest of the market.
On Tuesday, the stock closed above its 5-dma, currently at
$143.37.  Wednesday saw PWER close above its 10-dma, now at
$145.25.  This move came despite encountering some light
resistance at the $148 area.  Opening down in the early morning,
PWER spent the rest of the day moving up to close up $4.38, or
3.08%, on about 91% of ADV.  Today, PWER charged up over 8% on over
120% of ADV.  The stock dipped briefly in the early morning but
for the rest of the day the buyers came in droves, bidding up the
stock past key resistance at $150 on accelerating volume.
Momentum like this can not be ignored and clearly the bulls have
the momentum with this stock.  As a result, we are closing this
put play.

MLNM $135.31 +10.50 (+26.25)  The biotech bull is back, much to
the dismay of this put play.  With no specific news for MLNM, the
stock has been moving in sympathy with the biotech sector.  Right
now, the sympathy is strongly positive.  Blow-out earnings from
MYGN, positive words from the President stirring up excitement
over stem-cell research, and today’s upgrade of HGSI from
Robertson Stephens all conspired to lead the biotech sector
higher.  Yesterday, MLNM took out its 50-dma in the $117 area.  In
doing so, it not only cleared resistance at $120 but also blew
past $125 for good measure, closing up $9.67, or 8.40%, on 81% of
ADV.  With the 5-dma providing support, today saw more upside for
MLNM, closing above not only $130 but also the $135 mark.  With
strong positive sentiment driving MLNM and the biotech sector
higher, we are stepping aside lest we be trampled by stampeding
bulls.

VSTR $115.56 +3.69 (-7.81) VSTR quickly reversed its downward
slide over the past two days on the heels of the approval of
another high-profile international merger.  President Clinton
said he would allow Japan's NTT to buy VRIO.  Traders viewed the
decision as a positive for the approval of the proposed DT and
VSTR merger.  The news helped to narrow the spread between DT and
VSTR.  Coincidentally, DT has stabilized over the last two days
of trading in Europe, which added to VSTR's rebound.  In light of
President Clinton's approval of international mergers, and DT's
stabilizing price action, we must narrow our losses and sell too
soon.

TIBX $96.00 +5.63 (+7.00) TIBX pulled out its relative strength
over the past two days to battle off the bears.  The news of MSFT
entering the e-Business Services sector has faded off into the
background.  Traders are instead focusing on the strength in the
broader B-2-B sector, which has helped to postpone TIBX's recent
sell-off.  Of note, volume during TIBX's last two up days was
much less than that during the stock's big down days last week.
TIBX's recent strength may be nothing more than a sympathy rally.
However, in sympathy of our trading capital, we're going to step
aside from TIBX, and sell too soon.

TLAB $58.56 +2.19 (-0.63) After a promising decline to bottom
support ($52.31) during amateur hour on Monday, TLAB zigzagged
its way upward alongside Ciena (CIEN) and Nortel (NT).  The
resulting climb placed TLAB just above the $56 mark, setting up
for a solid entry if followed by downward movement.
Unfortunately, that wasn't the case.  Today, the news of Verizon's
strike coming to an end and economic data that suggests no more
rate hikes effectively benefited the entire sector.  TLAB peaked
intraday at $58.75 and closed just a fraction away.  The strong
finish near the 10-dma line is also discouraging.  With the
current condition pointing to an impending recovery, we're
exiting this play.

YHOO $139.81 +6.00 (+14.63) Investors seem to have shaken off
concerns about stiffening competition for online ad revenue as
they stepped forward to support the share price of leading
Internet companies like YHOO.  After bouncing on the $125
support level yesterday, our play climbed steadily up to and
through resistance at $130-131 without so much as a pause.
Then, the buyers really piled on and have pushed the stock above
the next resistance level at $138.  Closing the day at the high
of the day on volume nearly 25% above the ADV is not the kind
of behavior we look for in a put play.  With the improving
sentiment in the Internet sector and the bullish technical
picture, it is time to drop our play on YHOO.


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The Option Investor Newsletter                 Thursday 08-24-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

GSPN $138.25 +4.81 (+7.88)  Another step up for GSPN.  While GSPN
opened lower on Wednesday morning, it appeared to be continuing
its trend of consolidation over the past week.  The stock spent
most of the day hovering above the $129-130 support level before
moving up in the last 2 hours of trading to close the day in the
positive, up 88 cents on about 60% of ADV.  If yesterday
was consolidation, then today would be more akin to a breakout.
Gapping up to open at $134.50, the stock blasted off on the first
hour of trading, clearing $135 resistance on strong volume.
However, after that initial pop the stock spent the rest of the
day drifting lower before bouncing above the former resistance
level of $135.  With selling volume for the day light compared
to buying volume, the intraday dip most likely was due to
profit-taking.  The last hour and a half of trading saw the
buyers return to keep the stock above $135 support.  Those
looking for additional support below this point will be watching
the 5-dma, at $132.79 and then $130.  A bounce off that level
with volume could provide for an aggressive entry point.  The
next levels of resistance overhead can be found at $140 and $145.

SDLI $411.88 +10.88 (+16.63) SDLI hasn't given up yet.  Peaking
on Tuesday at $421.75 on Tuesday, the stock has been up and down
like a yo-yo.  Obviously, surviving the profit takers after the
peak, SDLI has continued to offer the volatility that make this
play risky yet rewarding.  Wednesday, SDLI traded in a range of
$13.63, hitting a low of $393 and a high of $406.63.  Following
a similar pattern today, the stock dipped below the 5-dma of
$404.06, falling to a low of $399.31 before noon on strong
volume.  It then regained steam, settling in around the $410
range for most of the afternoon.  Another volume surge late in
the day pushed the stock to the day high of $413 moments before
the bell.  Trading on momentum and not much news, SDLI is still
attractive for the call play.  Closing at $411.88, the nearest
support lies in the 5-dma.  Below that level, there is intraday
support at $400, and then $398.  Continue to look for entries to
the play on dips towards the day lows, which consistently seem to
occur before noon.  If you are feeling hesitant, look for a
convincing drive through $412 as an indication of continued
strength in the stock before taking action.  As we have stated
previously, stops are a must on this play!

SUNW $127.75 +1.06 (+5.38) Go NASDAQ, roll SUNW!  Momentum is
carrying the stock to new highs day after day, and our play
further into the profit zone.  SUNW got a boost today from the VA
Linux (LNUX) earnings report last night.  LNUX reported a
narrower-than-expected loss, and provided analysts with a rosy
outlook for the Linux market.  SUNW makes the servers that power
the Linux software.  The recent renewed strength in the broader
Tech sector should continue to carry our play higher.  If the
NASDAQ looks strong going into the weekend tomorrow morning, an
aggressive trader might consider entering the play at its current
levels, or on a quick rally off the $128 level.  A more
conservative trader might wait for SUNW's momentum to build
before initiating new positions, and target shoot for entry
points if the stock rallies above its intraday 52-week high at
$128.63.  SUNW's 5-dma has moved up to $124, and continues to
provide support during the stock's climb higher.  An aggressive
entry might be found on a pullback to support at $126, or lower
near the 5-dma.

EXDS $65.88 +1.63 (+5.44) The formation of the much-hyped Content
Bridge alliance was formally announced yesterday.  The new entity
will focus on providing content to Web users, and will unify
Internet heavyweights including AOL, ISLD, INKT, and our EXDS.
The news helped EXDS to shrug off the early sell-off yesterday
morning and rally back above the $64 level near the close of
trading.  EXDS has taken control of the reigns of the Tech
sector, and might continue to trade higher as long as the NASDAQ
cooperates.  By breaking away from the $60 earlier this week,
EXDS has bolted into breakout territory.  The stock faces some
congestion above its current levels, with $70 marking the next
major hurdle challenging EXDS's advance.  The stock did bounce
higher in the final moments of today's trading along with the
burst in the NASDAQ.  A solid entry might be found early Friday
morning if EXDS rallies above resistance at $66.  An aggressive
trader might look for a bounce off support at $65, or lower at
$64, if EXDS pulls back on profit taking.

IDTI $79.44 +1.94 (+6.56) The Philly Semi Index ($SOX) posted
gains for the third consecutive day today, en route to carrying
IDTI to an all-time high.  The stock is on an uninterrupted march
higher, using its month long ascending channel as a guide to
higher prices.  The stock's 5-dma, which has moved up to $74.38,
continues to provide support during IDTI's advance, and might be
a place for the aggressive traders to consider entering the play
if the stock falls on light selling.  Volume continues to come in
at above average levels as IDTI charts new territory.  The stock
was the recipient of favorable comments from SG Cowen this
morning.  Analysts at the firm reiterated their Strong Buy rating
on the stock and set a $100 price target, citing the solid
outlook for the SRAM market.  Given IDTI's strong finish this
afternoon, an aggressive trader might look to enter the play at
current levels if the Semi sector shows strength going into the
weekend.  Watch for a move above IDTI's intraday high of $79.56.
In the event of profit taking in the Chip sector, IDTI has
support just below at $78, again at $76, and lower at the 5-dma.

PLXS $139.00 +0.88 (+8.38) Did you catch an entry and ride the
wave topside?  Yesterday, PLXS dipped into the vicinity of the
5-dma at $133.75 before shooting upward to challenge Tuesday's
52-week record ($142.63).  Today, the stock's downgrade from a
Strong Buy to Accumulate at Prudential cut the share price by
over 7 points to $131 before it got fired up again.  The cut
coincides with a change in analyst coverage from James Thayer to
Ellen Chae.  She commented that "although we are impressed with
PLXS' capabilities and are confident in the company's ability to
maintain its growth momentum, we are concerned that upside on
the shares may be limited by valuation."  Prudential, however,
maintains its 12-month price target of $160.  After all was said
and done, PLXS resumed its bullish climb and is currently set on
the higher spectrum of near-term support ($135-$138).  Our
anticipation is that PLXS can crack the overhead resistance in
the coming days before it splits 2:1 on August 31st.  But, be
aware of the potential risks.  Recall that PLXS's recent
momentum has taken it from around $90 to $140 in less than a
month!  At this level, resistance is strong and profit takers
are in the wings waiting to pounce.  Keep the stops tight.

DIGX $89.00 +4.00 (+8.44) Traders received nice rewards from
the momentum play on DIGX.  After a mere couple days of
consolidation at its newer support of $80, DIGX broke to the
upside.  Early on Wednesday, the upper resistance at $82.88
became a dot in the rear-view mirror.  Again, volume was the
master key.  Trading activity was dynamic at around one mln
shares exchanging and we should look for similar results to pump
the stock higher.  Currently, there's light support at $85, which
is just above the 5-dma ($83.04).  If this level stabilizes
intraday, use the subsequent dips to get an entry.  If you're
more adventurous and enter on a straight climb, watch for
opposition near the $95 mark.

JNPR $189.94 +3.19 (+19.13) We're liking the numbers!  JNPR
catapulted to another all-time high on Wednesday.  The share
price crested at $194.25 before some chips were taken off the
table.  The price level, however, maintained strength at $189
and $191 even into today's session, which clearly demonstrates
the momentum is intact.  Yet, the ultimate test will be for
JNPR to penetrate and hold above the $200 mark over the short-
term.  While volume levels continue to be robust, look for
exceptional levels, at 2 mln or better intraday, to signal
more upside action.  Pay attention to general market direction
too.  JNPR likes to strut its stuff on the tailwinds of the
NASDAQ's gains.  So far, this pure momentum play has offered a
multitude of lucrative opportunities.  Let's not throw caution
to the wind and risk our profits.  Set stops, at least mental
ones, on this high-flying Internet.

EMC $92.13 -2.50 (-3.81) Almost, but no cigar.  Going into the
noon hour yesterday, it looked like the bulls were going to be
triumphant in pushing EMC to new highs.  With buying volume on
the rise, the price managed to eclipse Tuesday's high, and
hitting $96.25 before the move ran out of steam.  The buyers
ran out of money to spend and when they did, the profit takers
were all too willing to take some money off the table.  Our play
is now right back near the $92 support level, and further
investor nervousness could produce a retest of the $90 level
before we are ready to make another run at a breakout.  Each
time the bulls charge at the $95 resistance level and fail, it
gets stronger.  The strength of this resistance level can be
seen in the Put/Call ratio, as there are currently 7 Calls at
the $95 strike for every Put.  This creates some strong
resistance, but once we break through, our play could have
another impressive run.  Once this level is cleared, the
psychological $100 level will be the next target.  This brings
up another possible bullish factor -- EMC typically splits over
$100, and if the bulls are successful in scaling the wall of
worry, we could be rewarded with a split announcement.  Intraday
bounces at support look like the best entry strategy at this
point.  Target shoot to your level of risk tolerance, but wait
for the bounce to be confirmed by increased buying volume.

LSCC $74.50 +4.38 (+6.88) Concerns about a slowdown in the
Semiconductor sector's current growth cycle have been tossed
aside as chip stocks continue to surge higher.  Comments from
industry leader Intel that demand continues to outstrip supply
are continuing to fuel demand for chip stocks.  After pulling
back to support at $64 earlier in the week, LSCC took off again
yesterday morning.  Volume was weak until the price penetrated
resistance at $68, and then the buyers really started piling on
board.  The past 2 days have seen volume significantly above the
ADV, which has pushed the stock to close at the high of the day.
LSCC is quickly closing in on the next level of resistance at
$76, followed by $78.  Intraday support is forming near $73, and
demand for the stock is still looking strong.  Better entries
can be had on intraday dips to support, so you can look to
initiate new positions as buying volume returns.  For the more
conservative players, wait for continued buying volume to push
our play through the $76 resistance level before playing.  Keep
in mind that LSCC tends to move higher for 2-3 days before
pulling back to support.  Since it is up strongly over the past
2 sessions, profit taking could occur at any time.

QLGC $109.69 +3.31 (+16.69) Looking ripe for a breakout when we
picked it up as a new play on Tuesday, QLGC is performing
beautifully.  After an early morning dip to $93 yesterday, our
play quickly recovered to consolidate near $97 before the real
fireworks began.  Investors came back from lunch in a buying
mood, and on a surge of volume pushed shares through the $99
resistance level.  Yesterday's session saw QLGC closing near
the high of the day, and the enthusiasm continued this morning
as the price gapped higher at the open.  Today's action pushed
our play through the $107 resistance level, and after such a
strong move, it's no wonder that it spent the bulk of today's
session consolidating its gains.  Our play is looking strong,
as volume has been well above the ADV over the past week as the
share price has risen 33% in the past 6 days.  Look for a dip
to support near $106-107 to provide a better entry, but don't
be afraid to buy this one on strength.  QLGC is in the hot
Storage Area Networking (SAN) sector, and barring a broad
market decline, it looks poised to run even higher.  Investors
that would prefer to buy on a breakout should wait for shares
to trade through the next level of resistance near $110 before
initiating new positions.


*******************
PLAY UPDATES - PUTS
*******************

QCOM $60.63 +4.19 (+0.88)  There is no doubt today that QCOM
bounced.  But what kind of bounce was it?  Was it a technical
bounce off of a bottom, or was it one of the species feline
mortis (aka the dead cat)?  Wednesday morning saw the stock gap
down at the open.  Finding a bottom at the $55 area, the stock
spent the rest of the day recovering to close down 19 cents on
74% of ADV.  Those who watch the Bollinger bands will note that
Tuesday and Wednesday's closes were outside of the bands.  This
suggested that the stock may have been oversold.  Today, we got a
bounce back into statistical normalcy as QCOM gapped up at the
open.  QCOM spent the rest of the day moving higher and in doing
so, closed above both its 5-dma ($58.53) and 10-dma ($59.90).  At
this point, the direction could go either way.  Exercise caution
considering this and the positive NASDAQ.  This could either be a
perfect entry point into a put play or it could be a signal to
close this put play.  A break below the 10-dma with volume could
provide for an aggressive entry.  The more conservative will want
to see QCOM move below its 5-dma with conviction before entering.


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**************
NEW CALL PLAYS
**************

CIEN - Ciena Corp $201.06 +6.81 (+24.44 this week)

Ciena makes multiplexing systems that increase the capacity of
long-distance fiber-optic telecommunications networks.  The
company's systems transmit signals simultaneously over the same
circuit.  Customers such as Sprint, Bell Atlantic, and MCI
Worldcom, use its lines for long-distance optical transport and
for shorter distances.  The company is expanding its product and
geographic breadth as it transforms itself from niche market
specialist to optical networking supplier.

It's time to bring back an OIN favorite in CIEN.  The stock has
been on a tear during the month of August on the heels of the
resurgence in the Telecom Networking sector, with particular
bullishness in Fiber Optic related stocks.  Not only does CIEN
have sector momentum flowing in its favor, the company has the
winds of stellar earnings and new contracts blowing in its sails.
CIEN was able to beat analysts' estimates by two cents when it
reported its second quarter results last Friday with an 80%
increase in revenues.  Moreover, the company said it had
won three lucrative contracts to supply network builders with a
new switching product; CIEN didn't disclose the companies
involved in the deals.  Following the profit and contract
announcements, CIEN was greeted with a host of Wall Street
praise.  ABN AMRO upgraded the stock to an Outperform rating from
a Hold and DLJ reiterated its Strong Buy and set a $260 price
target.  The bullishness with which CIEN is currently engulfed
has carried to stock into record territory over the last week,
which culminated with a finish above the technically and
psychologically significant $200 level today.  CIEN has run over
40% this month, with little in the way of resistance.  CIEN's
uninterrupted run does present some risk in the way of future
profit taking.  The talking heads on CNBC even suggested the
Fiber Optic related issues were due for a pullback.  If the
profit takers do show up Friday, you might look for a bounce off
support at $195, or lower around the 5-dma near $190.  Make sure
to confirm any pullback with light volume.  On the other hand, if
CIEN continues its climb higher tomorrow, consider entering the
play on a bounce off $200 or after the stock clears its intraday
high at $201.31.  If for some reason the NASDAQ tanks under
selling pressure and the VIX.X spikes up, step aside until the
dust settles.

In conjunction with its earnings announcement last week, CIEN
declared a 2-for-1 stock split.  The Board of Directors set the
payable date for September 18th, which is not too far off.  Along
with earnings momentum and sector cooperation, the excitement of
a pre-split run might carry CIEN higher in the coming weeks.

BUY CALL SEP-195 UEE-IS OI=2116 at $17.38 SL=12.50
BUY CALL SEP-200*UEE-IT OI=3572 at $14.63 SL=10.75
BUY CALL SEP-210 UEE-IB OI= 658 at $ 9.88 SL= 7.00
BUY CALL OCT-200 UEE-JT OI=6732 at $24.13 SL=18.00
BUY CALL OCT-210 UEE-JB OI= 700 at $19.38 SL=14.00

Picked on August 24th at $201.06    P/E = 485
Change since picked        +0.00    52-week high=$201.31
Analysts Ratings      9-11-1-0-1    52-week low =$ 26.38
Last earnings 07/00     est=0.17    actual=0.19
Next earnings 10-20     est=0.24    versus=0.03
Average Daily Volume  = 5.21 mln



NTAP - Network Appliance $101.69 +1.69 (+7.75 this week)

As indicated by its name, NTAP pioneered the concept of the
network appliance, an extension of the industry trend toward
specialized devices that perform a specific function in the
network.  NTAP designs, manufactures, markets and supports high
performance network-attached data storage and access devices.
These products, including the company's NetApp file servers
provide fast, simple, reliable and cost-effective file service
for data-intensive network environments.  The company is also
embracing online business through its NetCache Web caching
appliances, which are designed to ease Internet bandwidth demands
by storing information physically closer to users.

It's been a great month for Network Appliance.  Despite a few
dips along the way, those who believed in the stock in the
beginning of August were amply compensated with some nice
returns.  It's also been a busy month for NTAP, reporting
earnings just ten days ago on August 14th.  Revenues for NTAP's
first fiscal quarter came in at $231.2 mln.  This was a 124%
increase over last year's revenues of $103.3 mln.  According
to CEO Dan Warmenhoven, "Revenue for the quarter was driven by
the overall growth of the external storage market, as customer
demand for high-end, scalable systems and data management
software expanded through the quarter.  Storage is becoming the
most critical element of IT infrastructures for today's
content-centric global businesses and Network Appliance is very
well positioned as a leader in network-attached storage and
content delivery solutions."  Despite these bullish comments of a
hot storage market from the CEO, the stock sold off the very next
day, putting NTAP right below its 50-dma (now at $88).  This did
not prove to be much of a resistance point as the stock broke
though the next day and has pretty much moved straight up since
then.  Yesterday, the stock closed right at the all-important
psychological level of $100.  Waiting for NTAP to pick a side
today, the stock moved lower in early morning trading.  Finding
support above its 5-dma at $97.15, the stock spent the rest of
the day moving higher to close above the century mark.  Traders
looking to buy bounces off support levels will find them at $100,
$97.15 and $95.  There is additional support from NTAP's 10-dma
at $93.22.  Overhead resistance may be encountered at $102, $106
and then $110.

News this week was good, with FastLane Technologies Inc.
announcing support for NTAP products through their FastLane
DM/Condolidator 2.5 applications.  Wednesday saw NTAP announce a
new customer in OpenGrid Inc.  Good news will certainly help the
stock's attempt to take out its previous all-time high, but make
sure volume confirms direction before entering.

BUY CALL SEP- 95 ULM-IS OI=1110 at $12.13 SL= 9.00
BUY CALL SEP-100*ULM-IT OI=2356 at $ 9.13 SL= 6.25
BUY CALL SEP-105 ULM-IA OI=2389 at $ 7.00 SL= 5.00
BUY CALL OCT-105 ULM-JA OI=  37 at $12.88 SL= 9.75
BUY CALL OCT-110 ULM-JB OI= 122 at $10.88 SL= 8.00

SELL PUT SEP- 90 ULM-UR OI= 491 at $ 2.56 SL= 4.00
(See risks of selling puts in play legend)

Picked on August 24th at $101.69    P/E = 555.56
Change since picked        +0.00    52-week high=$124.00
Analysts Ratings      17-4-0-0-0    52-week low =$ 14.56
Last earnings 08/14    est= 0.07    actual= 0.09
Next earnings   N/A    est= 0.09    versus= 0.05
Average Daily Volume   = 5.5 mln



VRSN - VeriSign, Inc. $178.44 +4.31 (+18.69 this week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the companys trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organizations employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

What a comeback!  The last time VeriSign was mentioned in the
hallowed halls of the OIN playlist it was as a put play, and a
profitable one at that.  At the time, the stock was caught in a
downward spiral of negative momentum.  So much so that even a
double dose of good news and upgrades could not get the stock to
rally.  Since finding a bottom at the $140 level, however, the
stock has made a beautiful recovery.  Bouncing strongly from that
area, VRSN has managed to claw its way above its 100-, then 200-
and now the 50-dma (at $152, $161, and $166 respectively).  Since
the bounce off of $140, VRSN has been riding its 5-dma ($168.20)
up with little signs of slowing down.  The early part of this
week was spent attempting to overcome resistance at $170.
Yesterday, the stock cleared that level after a successful bounce
off its 5-dma but encountered resistance at $175.  Today, the $175
level was cleared right at the open as the stock gapped up above
that level and spent most of the day moving higher.  There was
some profit-taking just after lunch time but by the close, buyers
stepped in to bid the stock up on accelerating volume.  At this
point, support levels can be found in increments of $5 at $175,
$170 and $165.  There is also support from the 5-dma as well as
the $160 area, courtesy of the 10-dma and the 200-dma.  A bounce
off a major moving average could provide for an ideal entry point
but confirm any bounces with volume before entering.  Overhead,
VRSN encountered resistance at $180 today.  A break above that
level on strong volume may offer an entry point for the
conservative.  Above that the next levels of resistance may be
found at $183, $185 and $188.

In the news this week, VRSN received an upgrade from Merrill
Lynch analyst Mark Fernandes from Accumulate to Buy and a price
target of $210.  Tuesday was news of an alliance with Response
Marketing Group to market matching web site addresses with
toll-free numbers in a cross-marketing deal.  As well, an
announcement of multilingual domain names may extend VRSN's reach
in the international market for web addresses.

BUY CALL SEP-175*QVZ-IO OI=1359 at $13.13 SL= 9.75
BUY CALL SEP-180 QVZ-IP OI=1146 at $10.50 SL= 7.25
BUY CALL SEP-185 QVZ-IQ OI= 642 at $ 8.38 SL= 6.00
BUY CALL OCT-180 QVZ-JP OI=  63 at $22.25 SL=17.75
BUY CALL OCT-185 QVZ-JQ OI=  23 at $20.13 SL=14.50

SELL PUT SEP-170 QVZ-UN OI= 487 at $ 6.38 SL= 9.50
(See risks of selling puts in play legend)

Picked on August 24th at $178.44    P/E = 1187.05
Change since picked        +0.00    52-week high=$258.50
Analysts Ratings     14-11-1-0-0    52-week low =$ 43.75
Last earnings 07/26    est=-0.01    actual= 0.07
Next earnings 10-25    est= 0.05    versus= 0.01
Average Daily Volume   = 4.1 mln



BRCM - Broadcom Corporation $273.63 +3.72 (+15.50 this week)

Sitting in the sweet spot between the Broadband and
Semiconductor sectors, BRCM is a provider of highly integrated
silicon solutions that enable broadband digital transmission
of voice, video and data to and throughout the home and within
the business enterprise.  These integrated circuits permit the
cost-effective delivery of high-speed, high-bandwidth networking
using existing communications infrastructures that were not
originally designed for the transmission of broadband digital
content.  Using proprietary technologies, the company designs,
develops and supplies integrated circuits for several markets
including digital cable set top boxes, cable modems, high-speed
office networks, home networking, and digital subscriber lines.

If you are looking for a low risk call play, trust me, this is
NOT it.  However, if you like momentum plays on clear industry
leaders, BRCM deserves a good look.  Demand for broadband
Internet access continues to explode, and the company has
positioned itself in a leadership position in the industry.
Growing revenues from just $37 mln in 1997, BRCM posted
$437 mln for the first half of this year.  Many analysts
are expecting the company to top $1 bln by the end of the
year.  Following the lead of networking giant CSCO, BRCM is
fueling its rapid growth with strategically wise acquisitions
(see below for details), using its stratospheric stock price
as currency.  One look at the stock's PE ratio (currently north
of 400) is enough to keep timid investors at bay, but the
frequent $15-25 price moves only serve to whet the aggressive
investors' appetites.  BRCM tends to trend very well, making it
a very tradable stock and the wide daily ranges serve up many
attractive entry points.  After moving back above the 5-dma
(currently $264.75) on August 14th, BRCM has used this moving
average as support as it has quickly tacked on nearly $50.  The
last 2 days have seen our play breaking out to new highs, and
today's close near the high of the day is giving the stock a
definite bullish bias.  There is no overhead resistance at this
point, and major support is found at $260-261, followed by
historical support at $248-250.  Intraday support is beginning
to form near $265, which is right on the 5-dma.  Consider
intraday dips to be attractive entry points for the next run
higher.  Although this play is not for the faint of heart, a
more conservative entry strategy is to open new positions as
BRCM breaks to new highs on the back of continuing strong
volume.

Aside from the latest installments of BRCM's ambitious
acquisition strategy there has been little relevant news
recently.  In the past three weeks, the company has snatched up
Altima Communications, Silicon Spice, and NewPort Communications.
BRCM has been very astute in its acquisition strategy up to this
point, and the frequent comparisons to CSCO in this arena only
seem to further whet investors' appetites for shares of the
company.

BUY CALL SEP-270 YRL-IN OI=947 at $16.00 SL=11.50
BUY CALL SEP-280*YRL-IP OI=963 at $11.13 SL= 8.25
BUY CALL SEP-290 YRL-IR OI=569 at $ 7.50 SL= 5.25
BUY CALL OCT-280 YRL-JP OI= 14 at $24.38 SL=18.25
BUY CALL OCT-290 YRL-JR OI=228 at $19.88 SL=14.50

SELL PUT SEP-250 RDU-UJ OI=840 at $ 4.13 SL= 6.25
(See risks of selling puts in play legend)

Picked on August 24th at $273.63     P/E = 427
Change since picked        +0.00     52-week high=$274.50
Analysts Ratings      9-12-0-0-0     52-week low =$ 51.56
Last earnings 07/00    est= 0.19     actual= 0.23
Next earnings 10-17    est= 0.23     versus= 0.13
Average Daily Volume  = 5.31 mln



VRTS - VERITAS Software $115.69 +1.69 (+8.56 this week)

VERITAS Software is the industry's leading enterprise-class
application storage management software provider.  They
furnish storage management software for protection against
data loss and file corruption, efficient file processing
and networks back-up.  VERITAS (Latin for "truth") has made
its name by partnering with such technological heavyweights
as Hewlett-Packard, Microsoft, and Sun Microsystems, all of
which have licensed and embedded VERITAS products in their
operating systems.  Its purchase of the network and storage
management software group of disk drive maker, Seagate
Technology, doubled VERITAS's size and gave Seagate an
approximate 33% stake in the company.

A strong close over the 50-dma prompted OIN to take a closer
look at VRTS.  Essentially, this technical indicator has held
VRTS a virtual hostage since the stock broke down following 2Q
earnings on July 18th.  Until today's session, VRTS wasn't able
to penetrate $115, no matter what the volume activity.  The
support base, however, is firm at $108 and $112.  The $100 level
provides a more solid launching pad, but one that is unlikely to
be tested within the span of this play.  We're betting that this
technical breakout will stir up some momentum as traders start
nibbling.  Currently, the volume is respectable, but not quite
where it needs to promote powerful moves.  Before beginning new
plays, look for high-volume moves above resistance to confirm an
uptrend.  Today's intraday high at $116.88 is the only barrier
shielding VRTS from future advances.  Above that, we're looking
at a target of $125.

Last week, Daniel Morgan at Noble Financial Group reiterated a
Buy recommendation on VRTS.  In other news, VERITAS announced
its family of desktop backup solutions.  The Simple Backup,
Backup Exec Desktop, and Backup Exec Desktop Pro each provide
customers different levels of protection and functionality.
These next-generation solutions augment the company's offerings
of desktop to data center protection.

BUY CALL SEP-110 VUQ-IB OI= 1022 at $11.50 SL= 9.25
BUY CALL SEP-115*VUQ-IC OI=12557 at $ 8.75 SL= 6.00
BUY CALL SEP-120 VUQ-ID OI= 1288 at $ 6.50 SL= 4.50
BUY CALL OCT-115 VUQ-JC OI=   66 at $15.13 SL=11.00
BUY CALL OCT-120 VUQ-JD OI=   18 at $13.00 SL= 9.75

Picked on August 24th at $115.69    P/E = N/A
Change since picked        +0.00    52-week high=$174.00
Analysts Ratings     10-12-1-0-0    52-week low =$ 24.92
Last earnings 06/00    est= 0.12    actual= 0.13
Next earnings 10-12    est= 0.14    versus= 0.09
Average Daily Volume  = 5.66 mln



*************
NEW PUT PLAYS
*************

UK - Union Carbide $41.00 -0.63 (-1.88 this week)

Chemical giant Union Carbide, which Dow Chemical is buying, keeps
a hand in basic chemicals and specialty chemicals.  The company
produces wire insulation, cleaners, catalysts, personal care
items, paint and adhesives, and solvents.  UK leads the world in
ethylene oxide production, which is used in the making of
polyester fibers, as well as ethylene glycol, which is used in
the manufacturing antifreeze.

The Chemicals sector is no place for the bulls.  Investors have
left the group to the bears this year, in favor of high-growth
segments of the economy such as Technology, among others.  And
rightfully so.  In the case of UK, single digit earnings growth
just doesn't cut it.  Despite merger plans with DOW, which is
expected to be completed within the quarter, UK continues to
trace new yearly lows.  Because of the proposed merger, both
stocks trade in sync with one another.  And, you guessed it, DOW
is also hovering near 52-week lows.  Several Chemicals stocks,
including the acquirer DOW, received favorable comments from
Chase H&Q last week.  Analysts initiated coverage on DOW with a
Buy rating and set a $35 price target; DOW closed today at
$26.50.  Despite the attempt from Wall Street last week, the
Chemicals sector has gone on to trace new lows.  In fact, the
losses are accelerating.  Both UK and DOW have fallen for two
consecutive days on unusually heavy volume.  UK slipped to a new
low today on more than twice its ADV.  The fact that UK is
trading at its 52-week low leaves little, if any, support below
current levels.  If the recent increase in volume is a sign of
things to come, UK could be headed much lower, especially if the
Tech sector continues to strengthen and draws capital away from
the beleaguered Chemicals sector.  Consider entering the play
Friday morning at current levels if UK continues falling on heavy
selling pressure.  Make sure to confirm direction in DOW before
entering the play.  If the stock bounces tomorrow morning on
light volume, look for traders to fade the rally, and consider
entering the play on a bump against resistance at $41.50, or
higher near the descending 5-dma at $42.

BUY PUT SEP-45*UK-UI OI=47 at $4.88 SL=3.00
BUY PUT SEP-40 UK-UH OI= 2 at $1.25 SL=0.50

Average Daily Volume = 800 K



AT - Alltel Corp $52.75 -1.63 (-3.31)

Alltel is an information technology company that offers
telecommunication services in the U.S.  Its operations span 23
states, mainly in the Southeast and Midwest. The company offers
its wireline and wireless services, which include local, long
distance, cellular, as well as Internet access and paging, to
over 9 mln customers.

A repeated outlook for 2000 EPS during a conference call with
analysts last Wednesday, August 16th, brought utter devastation
to shares of Alltel Corp.  AT dropped 9.3%, or $5.81, after
executives repeated an estimate, a figure below Wall Street's
forecast, for earnings of $2.70 a share for the year.  Because
Alltel had reported solid results in the first and second
quarters of 2000, many analysts upped their estimates to $2.73 a
share for the year.  This upgrade came despite the company's
steadfast outlook, an outlook first put out in February.
Further inquiries prompted a spokesman for Alltel to reiterate
the declaration, "we've said we're going to be $2.70 and we're
not changing that."  Investors and analysts didn't take kindly
to the re-affirmation.  Shares plummeted in heavy trading and
hit $55.56, the first in a series of new 12-month lows before
base-lining.  The stock also made other records that day too.
AT was among both the volume leaders and biggest percentage
losers on the NYSE!  Frank Louthan at First Union Securities may
not have offered any additional comments, yet he quickly cut his
rating on AT down to a Buy from a Strong Buy.  This week the
situation worsened.  On Tuesday, AT cracked the $55 base support
on increasing volume.  Then, $54 couldn't hold and now the all-
time low to beat is $51.88!  The telecom sector isn't at its best
and with no bottom support to speak of, we expect AT to edge
even deeper in the near-term.  While we don't expect AT to have
intraday peaks near the 10-dma ($57.55), the 5-dma ($54.88) makes
for a reasonable entry point on a downward bounce.  Keep stops
tight for protection.

BUY PUT SEP-60 AT-UL OI=690 at $6.50 SL=4.50
BUY PUT SEP-55*AT-UL OI=272 at $4.00 SL=2.75

Average Daily Volume = 917 K



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

EXDS - Exodus Communications $65.88 +1.63 (+5.44 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

The formation of the much-hyped Content Bridge alliance was
formally announced yesterday.  The new entity will focus on
providing content to Web users, and will unify Internet
heavyweights including AOL, ISLD, INKT, and our EXDS.  The news
helped EXDS to shrug off the early sell-off yesterday morning and
rally back above the $64 level near the close of trading.  EXDS
has taken control of the reigns of the Tech sector, and might
continue to trade higher as long as the NASDAQ cooperates.  By
breaking away from the $60 earlier this week, EXDS has bolted
into breakout territory.  The stock faces some congestion above
its current levels, with $70 marking the next major hurdle
challenging EXDS's advance.  The stock did bounce higher in the
final moments of today's trading along with the burst in the
NASDAQ.  A solid entry might be found early Friday morning if
EXDS rallies above resistance at $66.  An aggressive trader might
look for a bounce off support at $65, or lower at $64, if EXDS
pulls back on profit taking.

Comments

EXDS has been on a tear lately, and we're glad that we're right
in the midst of it.  It has been a steady climb since initiating
coverage, seven days of modest gains.  While a pullback my be
imminent, we see it as an entry point, especially considering
SCMR's earnings release after the close on Thursday.  Look for a
pullback to $65, $64, or $62.50, along with a bounce, for a nice
entry.  If the first level doesn't hold, watch for a bounce
at the next.  Volume has been average, so confirm strong intraday
volume on any bounce.  Look to the NASDAQ for direction.

BUY CALL SEP-60*QED-IL OI=4953 at $7.88 SL=6.25
BUY CALL SEP-65 QED-IM OI=5577 at $4.50 SL=2.75
BUY CALL SEP-70 QED-IN OI=4132 at $2.50 SL=1.25
BUY CALL OCT-70 QED-JN OI= 222 at $5.63 SL=3.75
BUY CALL OCT-75 QED-JO OI=2183 at $4.00 SL=2.50

Picked on August 15th at $57.13    P/E = N/A
Change since picked       +8.75    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 = 8.31 mln



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************************
COMBOS/SPREADS/STRADDLES
************************

Now The Summer Rally Begins?

The major market indices climbed to recent highs as investors
exhibited confidence in the future outlook for the economy.

Wednesday, August 23

The market edged higher today as stocks struggled to define a new
direction in the wake of the Fed’s interest-rate decision.  The
Nasdaq closed 52 points higher at 4,011 on strength in chip and
Internet issues but the Dow lagged behind, ending only 5 points
higher at 11,144.  The S&P 500 index was up 7 points at 1,505.
Trading volume remained light and investors lacked conviction as
864 million shares changed hands on the Big Board.  Broad market
losers beat winners 1,499 to 1,293.  Activity on the Nasdaq was
average at 1.45 billion shares traded, with declines outpacing
advances 2,005 to 1,955.  In the bond market, the U.S. 30-year
Treasury rose 20/32, pushing its yield down to 5.67%.


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

Delphi Fin.  DFG    SEP30P/SEP35P   $1.25   credit   bull-put
Ameritrade   AMTD   SEP20C/SEP15P   $0.06   credit   synthetic

Both of our new positions offered favorable entry points as the
underlying issues dipped during the lackluster session.


Portfolio Plays:

The stock market drifted higher today as investors generally
adopted a "wait-and-see" attitude in the aftermath of the FOMC
meeting.  Concerns shifted to upcoming reports on retail sales
and energy prices and the outcome of the presidential primary.
On the Nasdaq, money continued to flow into leading companies
with issues in the semiconductor industry rallying to recent
highs.  Internet and biotech issues also participated in the
bullish activity.  On the Dow, Intel (INTC), Hewlett-Packard
(HWP) and International Business Machines (IBM) led the gainers
while stocks in the paper and finance groups consolidated.  In
the broader market, oil and oil service stocks were very strong
as oil prices jumped following data from the American Petroleum
Institute, which showed an unexpected drop in stockpiles.  The
sharp rise in crude prices sent airline stocks lower, however,
and Donaldson, Lufkin & Jenrette reduced its earnings estimates
on a number of industry leaders, citing higher fuel prices and
disappointing revenue data.

Almost every one of our technology stocks moved higher during
today’s session.  Qlogic (QLGC) was the big winner, up $8 on
strength in the chip sector and other semiconductor equipment
stocks including Altera (ALTR) and Semtech (SMTC) moved higher
amid optimism for the industry.  Networking, data storage and
telecommunications issues also rallied and the leaders in those
categories included Advanced Fibre (AFCI), Cisco Systems (CSCO),
and Network Appliances (NTAP).  Leap Wireless (LWIN), which fell
to a low of $72 during the session, recovered to close near $75
and it appears the issue is headed for further upside activity.
Echostar (DISH) moved up early in the day to a recent high near
$46 and our debit-spread combination traded at a $1.88 credit.
The original cost of the position was based on collateral for
the SEP-$30 Put, thus the two-week profit is very favorable and
traders should consider locking in current gains if the issue
struggles at the resistance level near $45.  PMC Sierra (PMCS)
was active today, falling to a mid-day low near $217, providing
a great early-exit opportunity in the neutral credit strangle.
The cost to close the position reached $2.88 on a simultaneous
order basis.  That’s a $2.12 profit with three weeks left until
expiration.

On the downside, WellPoint Health (WLP) broke through a recent
technical support level (and a short-term moving average) amid
talk of HMO reform by the Democrats.  The discourse on amending
the health care system sent a shock through the industry and a
number of issues slumped on heavier-than-normal volume.  Our
position is profitable above $79 but the technical indications
are ominous and unless the issue recovers soon, we will consider
using future rallies as a potential opportunity to begin an exit
strategy.  Xilinx (XLNX) is approaching the test that we spoke
of a few days ago and we will monitor the issue closely for a
move through the resistance area near $95 on increasing volume.


Thursday, August 24

The major market indices climbed to recent highs as investors
exhibited confidence in the future outlook for the economy.  The
Dow industrial average ended at its highest close since April, up
38 points to 11,182 while the Nasdaq Composite moved up for a
fourth consecutive session amid strength in biotech and Internet
stocks.  The technology index closed 42 points higher at 4,053.
Trading volume on the Big Board reached 820 million shares with
winners beating losers 1,438 to 1,384.  Activity on the Nasdaq
was moderate with 1.54 billion shares changing hands.  Technology
advances beat declines 2,205 to 1,776.  The yield on the 30-year
Treasury fell to 5.64%.


Portfolio plays:

Today was an exciting day for the Spreads/Combos portfolio with
a number of unexpected moves.  In the technology group, Semtech
(SMTC) led the way, up $8 to $111 on market optimism over strong
second-quarter earnings and a two-for-one split announced after
Tuesday’s session.  We were unable to achieve the target entry
price in our bullish position but it’s nice to see a profitable
outcome for traders that entered the play at a lower credit.  In
the small-cap group, we had slew of upside surprises.  Read-Rite
(RDRT) jumped $1.75 to $7.38 after the disk drive equipment maker
announced deals with a number of its major customers.  Read-Rite’s
giant magneto-resistive recording heads, used in the manufacture
of hard disks that can hold 20 gigabytes per 3.5 inch platter,
have been chosen for use by all four of its major customers and
the announcement represents a significant turning point for the
company's return to profitability.  Our new, covered-combination
has a cost basis near $3.62 and the position should easily expire
at maximum profit.  Caremark RX (CMX) edged up $0.62 to $9.12 on
a lack of public news and it appears the recent consolidation has
come to an end.  Our bullish calendar spread at $10 is once again
profitable and we expect the technical recovery to continue.

The combination position in Red Hat (RHAT) enjoyed some positive
activity after VA Linux, the largest Linux company by revenue and
market capitalization, surpassed analyst expectations yesterday by
reporting revenue of $50 million and a loss of only $0.10 a share.
The stock prices of other Linux companies have received big boosts
in August, after solid earnings news and bullish reports on the
open-source industry, and our recent debit-spread combination is
now trading at a $0.75 profit.  Another issue in that category,
Echostar (DISH) tested a recent high near $47 in early trading,
providing a $2.12 credit in our combination spread.  Conservative
traders may consider closing the play to protect current gains
and limit losses.  Regeneron (REGN) rebounded today in a textbook
bounce off of the previous trading-range top near $31.  Our new
"bull-call" debit spread has a cost basis near $28.75 and we
expect the position to expire at maximum profit.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
MYG - Maytag  $41.00  *** Merger Speculation! ***

Maytag is a producer of home and commercial appliances.  Its many
products are sold to customers throughout North America and other
markets overseas.  Maytag also is the majority owner in a joint
venture in China, Rongshida-Maytag, which produces a wide range
of washing machines and refrigerators primarily for the Chinese
market.  Maytag is among the top three major appliance companies
in the North American market, offering consumers a full line of
washers, dryers, dishwashers, refrigerators and ovens distributed
through large and small retailers across the United States and
Canada.  In floor care, Maytag owns the Hoover brand, which is the
market leader in North America and the brand with the highest
consumer recognition and buying preference in the industry.

Maytag shares rallied today amid speculation over a report that
the home appliance maker is in talks to be acquired by Sweden's AB
Electrolux, maker of the Frigidaire brand.  The New York Times,
citing unidentified executives close to the company, said a deal
for close to $4 billion would create the world's largest maker of
ovens, dishwashers and washing machines.  The report suggested
that a deal is not necessarily imminent but that several rivals
have also made informal overtures to the company about a possible
combination.  Maytag had worldwide sales of $4.3 billion in 1999
and they are widely known as the company with a reputation for
dependability.  Sweden’s AB Electrolux, which makes tractors as
well as household appliances and vacuum cleaners, had global
sales of $14 billion last year and could give Maytag greater
access to overseas markets.

We have received lots of positive comments on this strategy in
the past few weeks and in most cases, it is a relatively safe
method in which to speculate on the future movement of an issue
that you wouldn’t mind adding to your portfolio.  Those of you
who agree with the bullish, long-term outlook for Maytag can
use this position to profit from future upside activity, at the
risk of owning the issue at a favorable cost basis.  We will try
to enter the initial position on a short-term pullback as the
issue consolidates from today’s gains.


PLAY (very conservative - bullish/synthetic position):

BUY  CALL  JAN-50  MYG-AJ  OI=2529  A=$1.50
SELL PUT   JAN-35  MYG-MG  OI=1517  B=$1.31
INITIAL NET CREDIT TARGET=$0.12-$0.25  ROI TARGET=50%  B/E=$35.00

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $1,200 per contract.



******************************************************************
PDLI - Protein Design Labs  $85.19  *** Post-Split Rally? ***

Protein Design Labs is a leader in the development of humanized
monoclonal antibodies for the prevention and treatment of disease.
The company has licensed rights to its first humanized antibody
product, Zenapax to Hoffmann-La Roche and its affiliates, which
markets it in the U.S., Europe and other international countries
for the prevention of kidney transplant rejection.  The company
also has numerous other humanized antibodies in various stages of
clinical development for autoimmune and inflammatory conditions,
transplantation and cancer.

The biotechnology group rallied again today after the National
Institutes of Health announced guidelines allowing government
funding of research on stem cells from human embryos and fetal
tissue.  Shares of companies with ties to this type of research
were boosted by the news and President Clinton also spoke about
the potential for breakthroughs in disease treatment using this
controversial approach.  The research is unsettling because it
involves the destruction of human embryos but scientists hope to
use stem cells to improve treatments for a host of illnesses,
ranging from diabetes to Parkinson's disease.

PDLI is not directly involved in this type of development but the
company is one of the leaders in the industry and will benefit
from any optimism for the group.  Our outlook is based on recent
technical trends in the sector and the underlying issue and we
believe that this position offers a reasonable risk/reward ratio
for traders who are bullish on the company’s share value.


PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-67.50  PQI-UU  OI=12  A=$1.38
SELL PUT  SEP-70.00  PQI-UN  OI=6   B=$1.69
INITIAL NET CREDIT TARGET=$0.43-$0.50  ROI(max)=20%



******************************************************************
                  - STRADDLES AND STRANGLES -
******************************************************************
SAPE - Sapient  $108.12  *** Technicals Only! ***

Sapient is an e-services consultancy providing Internet strategy
consulting and sophisticated Internet-based solutions to Global
1000 companies and startup businesses.  The company helps its
clients define Internet strategies to improve their competitive
position and designs, architects, develops and implements various
solutions to execute those strategies.  These solutions focus on
complex business-to-consumer and business-to-business electronic
commerce, digital customer relationship management, supply chain
optimization, electronic markets and Internet portals.  Sapient’s
services include digital business strategy development; experience
modeling; creative design; technology development and systems
integration; and integrated engagement leadership.

Based on analysis of the historical option pricing and technical
background, this position meets our fundamental criteria for a
favorable credit-strangle.  The issue has overpriced options, a
relatively well-defined trading range, and with the stock split
coming up next week, the recent precipitous decline should begin
to taper off.  The probability of profit from this position is
higher (near 75%) than other plays in the same strategy based on
theoretical option pricing.  As with any recommendation, the play
should be evaluated for portfolio suitability and reviewed with
regard to your strategic approach and trading style.


PLAY (conservative - neutral/credit strangle):

SELL CALL  SEP-140  SUJ-IH  OI=179  B=$1.81
SELL PUT   SEP-85   SUJ-UQ  OI=35   B=$1.75
INITIAL NET CREDIT TARGET=$3.62-$3.75  ROI(max)=15%
UPSIDE B/E=$143.75 DOWNSIDE B/E=$81.25





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