Option Investor

Daily Newsletter, Wednesday, 08/30/2000

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The Option Investor Newsletter                Wednesday 08-30-2000
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MARKET WRAP  (view in courier font for table alignment)
        08-30-2000        High      Low     Volume Advance/Decline
DJIA    11103.00 -112.10 11210.30 11096.30  819 mln   1401/1420
NASDAQ   4103.81 + 21.64  4115.99  4065.82 1.54 bln   2143/1901
S&P 100   820.93 -  6.37   827.30   819.48   totals   3544/3321
S&P 500  1502.59 -  7.25  1510.49  1500.09           51.6%/48.4%
RUS 2000  532.33 +  2.70   532.38   529.11
DJ TRANS 2726.17 - 34.27  2760.31  2722.80
VIX        19.59 +  0.67    20.17    19.21
Put/Call Ratio       .53

The Return Of Net Stocks

Has anyone else seen the resurgence in the Internet sector of
late?  This sector is second-to-none when it comes to exciting
investors.  We have been watching stocks in this group begin
to show life this month and the AMEX Internet Index broke out
above resistance this afternoon.  That puts the sentiment on
full speed for a bullish move.  Check out the chart below to
see today's move over 550.  I can't help being excited here too
when I look at the individual charts of some Net stocks.  This
has been a classic summer consolidation and investors are
breathing life back into these stocks.  Many stocks in this
group are trading at a five month highs.  Check out LNUX, FMKT,
INKT for signs of stocks gaining momentum in a hurry.

Time for a deep breath.  I just can't help getting excited
over the prospects of a fall rally after such a dull summer.
Nevertheless, we aren't there quite yet.  The employment report
due out on Friday is still on the forefront of most trader's
minds.  After the strong housing report this week, it will be
crucial to see a number that doesn't spook the Fed.  The
current estimates is for 160K new non-farm payrolls created.
Unemployment is middle of the recent road at 4% and average
hourly earnings is expected to rise by 0.4%.  Also on Friday,
the NAPM will be released for August with an expectation of
51.8%.  These are important numbers to say the least.

Now to the markets.  The senior circuit was on the downside
today as the DJIA fell 112.09 to 11103.01.  Volume was average
at 818 mln while the breadth was even.  I consider this a bout
of profit-taking ahead of Friday's numbers.  The S&P 500 also
lost ground today, giving up 7.23.  But the S&P 500 did have
a nice bounce off support at 1500 late in the afternoon.  And
the Russell 2000 went up 2.74 points today.

The home of the Net stocks, the Nasdaq, rallied today by 21.74
for its first close over 4100 since July 18th.  The official
closing number was 4103.91 on volume of 1.53 bln shares.  Its
nice to see decent volume even though many participants are
waiting until after Labor Day to rejoin the markets.  Advancers
beat Decliners by a 21-19 margin.  The big push for this index
was the B2B sector which received bullish comments from CSFB.

The big news of the day was the announced merger of Credit
Suisse First Boston and Donaldson, Lufkin and Jenrette.  CSFB
will buy the investment banker for $11.5 billion dollars.
Zurich-based Credit Suisse will pay $90 for each outstanding
share of DLJ held by the public, a premium of almost 10% on
DLJ's closing price Tuesday.  DLJ shares saw a 32% runup over
the last two days amid rumors a deal was imminent.  "Combining
these two great firms creates a global powerhouse with the
platform, financial resources and intellectual capital to rival
any financial services organization in the world," said DLJ
Chief Executive Officer Joe L. Roby.  "The goal is to create a
dominant global presence that can compete with the top firms."
This will just fuel more global mergers within the sector.

Amazon.com rose more than 8% on Wednesday after a Wall Street
analyst said that a new French store and a string of recent
partnerships spelled a bright outlook for the online retailing
giant.  In the research note, Goldman Sachs analyst Anthony
Noto reiterated his Buy rating on Amazon, saying the company's
outlook was "positive".  AMZN said on Monday it planned to
start selling digital books using a special Microsoft format
to make such books easier to read on a computer screen.  AMZN
closed up $3.31 to $42.94.

That's not all for major news either.  Broadcom fell for the
second straight day on word that INTC is suing, claiming patent
infringement.  In the suit, Intel alleges Broadcom has violated
five Intel patents, one relating to networking, one to chip
packaging and three to video compression.  Intel is seeking an
injunction preventing further infringement, plus unspecified
damages and court costs.  A spokesman from Broadcom said that
this is the first they have heard about the matter and that
Intel made no attempt to resolve the situation before bringing
suit.  BRCM closed $238.44, down $13.50 while INTC lost $0.63
to finish at $73.44.

So we are starting to see signs of the awakening of the markets.
The QQQs are thinking about a move over 100.  The volume is
picking up on the Nasdaq composite.  The Internets are moving
to a four and a half month high.  What a relief for us Market
Wrap writers who have been rehashing the same "Summer Blues"
sentiment for months.  And while the fog is lifting, there are
always thinks to watch out for.  For instance, the data due out
Friday carries a lot of weight.  The month long rally has been
due in part to a silent Fed.  We could lose that key factor if
more new jobs are created than expected and the hourly earnings
number spikes up.  No one wants to see unemployment back down
to 3.9-3.8%.  Not after the strong Housing Starts number from
earlier in the week.

The DJIA is stalling this week despite some strong individual
moves in the financials too.  The main concern here is that
some manufacturing companies will be hit with profit warnings
due to a further interest rate rise and slowing demand.  This
is the same broken record we've been hearing for months and
months, but it did weigh on the blue chips today.  But it is
time to start thinking about earnings warnings as September is
only a day away.  With the VIX down below 20 still, it will
only take a few key warnings to spice things up.

With that said, I am still optimistic about the signals that
we are seeing.  But the one main signal I have been waiting
four months for has still not happened.  That signal is the
two billion share volume days at the Nasdaq.  I want to see
back-to-back days, followed by a consistent average near that
level.  Then I will be in heaven.  Actually, heaven is hand-
held internet access to my trading account to trade options
from a golf course somewhere, but I will settle strong volume
on the Nasdaq.  (For now anyways!)

The S&P futures are about flat right now.  I expect the range
on the key indices to be somewhat subdued tomorrow.  Volume
should shrink again ahead of the weekend.  This is to be expected
and barring a bad number on Friday, things should pick up again
next week.

Ryan Nelson

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The next step in spotting big winners is picking entry points.
By Eric Ultey

Old traders call it play, but those of us in the know call it
technical analysis.  The practice of plotting time, price, and
volume on a nifty little chart is of the utmost importance in
spotting future winners in the stock market.  Once you've
completed your homework on a company's fundamentals, and decided
it's a stock worth owning, your next step is picking a profitable
entry point.  On spotting entry points, Jesse Livermore had this
to say, "Whenever I have had the patience to wait for the [stock]
to arrive at what I call a 'Pivot Point' before I started to
trade, I have always made money in my operations."  Buying a
stock at the 'right time' is both psychologically and financially
critical.  Earning profits after immediately entering a
position makes it a lot easier to bear the pullbacks that every
stock experiences during extended rallies.

In my opinion, the best time to buy a stock, in hopes of catching
its next big rally, is when it breaks from an extended consolidation.
Like the CSCO situation we reviewed last week, every leading stock
needs time to rest before charging to new highs.  After the
sleeping stock market beauty has consolidated for long enough,
its best to buy when the stock breaks from its slumber.  As I
mention in this column, it is crucial to confirm any breakout
attempt with volume that is relatively heavy.  High trading
activity suggests big institutions are behind the stock's move
and the rally has staying power.  Often times, investors might
miss a stock's initial breakout.  There is still time to buy the
stock.  Take CIEN for example, which I reviewed below.  The stock
broke to new highs two weeks ago, and pretty much hasn't stopped
climbing.  Traders and investors willing to take on a little more
risk might consider buying such a leading stock during pullbacks
to significant support levels, such as the 5-dma in CIEN's case.
Once you pick a winning sector and subsequently choose a leading
stock within the group, you can't just walk blindly into the
investment.  By combining the best of both worlds, technical and
fundamental, add a little discipline, and you've got yourself a
profitable recipe for stock market success.  One more thing, keep
it simple!

Finally, the Summer is winding down.  Let's get back to business
with some decent action in the market and some tradeable trends.
I hope you all have a safe and wonderful holiday weekend, after,
of course, you send in money making stock requests to
Contact Support.  As always, please put the
symbol of your requests in the subject line of the e-mail.


SanDisk - SNDK

SNDK has been consolidating for the last three months.  I would
appreciate your opinions on the stock.  Resistance seemed to be
around 75.  It has broken through that.  Do you think the stock
may be on an earnings/split run? - Thank You, Peter

It looks like Sandisk is breaking out of a base and could be
ready to run again...please tell me what you think? - Thank You,

What is your opinion on SNDK?  I've been playing the upside on
this successfully for the past 3 months.  I don't see you mention
it.  Or, have I missed your blurb? - Dan

We first reviewed SNDK in early July, back when the stock was
stuck in a consolidation.  Due to popular demand, let's do it
again.  To review quickly, SNDK is a leading maker of flash
memory, which is used in all of our neat little electronic
gadgets such as digital cameras, music players, and cell phones.
Since early July, SNDK has lined up several significant revenue-
generating contracts.  The company signed a licensing agreement
with TDK, which covers SNDK's patented flash technology.  Canon
chose SNDK as the key supplier of memory circuits for its new
digital video camcorder.  And, Nike selected SNDK to supply flash
memory for its portable audio player.  What's more, SNDK said in
late August that it was opening sales channels in China.  In
short, business is good for SNDK.  Need proof for the preceding
statement?  Get this.  The company blew away second-quarter
estimates in late July by a whopping 50%, and raised EPS
estimates by four pennies for the current quarter.  Despite
SNDK's recent run, the stock remains relatively cheap when you
consider the company's 37% projected earnings growth rate.
SNDK's low multiple leaves room for expansion, which means higher
stock prices!

SNDK's individual attributes are in place for an extended rally
into the Fall.  But, the macro movements of the Chip sector still
need to cooperate if SNDK is going to move substantially higher.
It would appear the sentiment in the Semi sector has recently
shifted to the side of the bulls, after the bears enjoyed a brief
moment of glory back in July.  As long as the Chip sector
continues to climb, I think SNDK will lead the way, and even
outperform the broader group because of its superior fundamentals
and rosier outlook.  To answer Peter's question, I don't think
SNDK is quite yet into split territory.  I could be wrong, but
start thinking 2-for-1 closer to the $100 level.  Earnings will
be the driving force with the arrival of the Fall.  In the
meantime, more contracts and sector rallies will be the main
catalysts to carry SNDK higher.  I'm very pleased to see that
many of you spotted SNDK's breakout last week.  It was picture
perfect!  A strong rally out of a four month consolidation
combined with confirming volume.  So, what happened?  Well, since
SNDK's breakout last week, the $SOX has consolidated its recent
gains for four straight days, which emphasizes the importance of
sector direction.  Don't fear though, a pullback after a 35%
rally such as SNDK's is perfectly normal.  Call it a natural
reaction.  The declining volume on which SNDK has traded over the
last four sessions is typical.  Wait for the $SOX to resume its
rally and watch for SNDK to lead the Chip charge.


4 Kids Entertainment - KIDE

In the latest issue of OIN, you described how to spot future
winners.  It's earnings that matter - you say - and I can only
agree.  However, there are quite a few stocks out there with
great earnings, no debts and a bright future, but the price
doesn't move.  One pretty good example is KIDE.  Could you have
a look at this stock and tell me, what I may do wrong when
holding this stock.  Maybe I missed something significant. -
Thanks in advance & best regards, Stefan

Thanks for writing into OIN, Stefan!  You're right, earnings do
matter.  And, KIDE has definitely had some great earnings growth
over the past year or two with the introduction of the Pokemon
craze into the United States.  In fact, Fortune Magazine recently
published its infamous list of Fastest Growing Companies.  And,
the #1 company on list was KIDE, who blew away the competition
with 312% EPS growth last year.  The operative words, though, are
'last year'.  So, what gives?  The main issue afflicting KIDE is
the company's revenue stream is so narrow.  KIDE derives a
concentrated 95% of its sales from Pokemon-related products and
licensing.  Such a narrow-focused business leaves KIDE at the
fate of children's fickle tastes and demands.  And, children's
demand for Pokemon paraphernalia is on the down.  My little
sister, Stefanie, who is 10 years young, was a big proponent of
anything Pokemon last year.  She and her friends, who amazingly
have a great deal of purchasing power through their ability to
sway parents, would gather everyday after school to buy new
Pokemon products.  I don't think she has even touched her Pokemon
stuff for over six months.  Ala Peter Lynch, if Stefanie is not
buying Pokemon anymore, I would bet the rest of American children
are not buying.

KIDE's CEO recently appeared on CNBC in an attempt to defend his
company and its focus on the Pokemon craze.  I completely
disagree with his stance that the Pokemon craze is still going
strong.  It's not!  The company needs to diversify in an attempt
to stabilize its revenue streams and fend off the ill effects of
fads.  And, the company is doing just that.  KIDE recently
acquired the rights to the Cabbage Patch Dolls, who were made
famous back in the 80's.  Also, the company is developing
licensing agreements with Marvel to tap into the X-Men movie.
Furthermore, KIDE has over $100 mln in cash on its books to
pursue additional licensing agreements.  So, I wouldn't count
KIDE completely out.  But, at the same time, there's nothing that
really excites me about the stock.  Of course, if somehow the
demand for Pokemon re-ignites KIDE will take off.  But, I just
don't see that happening.  While KIDE was the fastest growing
company last year in terms of EPS, the company's inability to
sustain such growth has hammered the stock down from its peak of
the Pokemon craze.  Future stock market winners must have a
proven history of earnings growth and, more importantly, the
ability to grow profits well into the future.  Unfortunately, I
don't think KIDE will be able to do so given its current business


Titan - TTN

Could you explain the recent sharp fall on TTN, please?  -
Thanks, Connie

What's going on with TTN?  The stock has been heading south
without a reason that I could think of. - Alfredo

First Emulex, and now this?  Today, TTN announced that it would
sue the contraband of shortsellers, who have been spreading false
rumors about the company in an attempt to drive the stock price
down.  Whoa, I love the Internet, I have a great job because of
it, but there have been some weird happenings with the advent of
such a great technology.  To answer your questions, Connie and
Alfredo, the bears have been attacking you and TTN.  It sounds
like a consortium of hedge funds and/or professional short
sellers have ganged up on TTN in hopes of unscrupulous profits.
As far as I'm concerned, those type of stock market participants
are the enemy.  Unless, of course, I'm holding puts on a stock
under attack.  But, seriously now, spreading falsified rumors is
detrimental to a stock.  Just look at EMLX's underperformance
since the hoax last week.  The stock has suffered, for what, a
lie?  Now, there have been some valid concerns raised about TTN's
business model, as was mentioned on an interview with the
company's CEO this afternoon on CNBC.  TTN is a holding company
of sorts, that builds and launches technology related businesses.
One area TTN has taken special interest in is food irradiation.
The technology improves food safety and prolongs shelf life, but
has received scrutiny from Ralph Nader and European regulators,
among others.  However, the FDA has approved food irradiation for
the use on fruits, vegetables, and the meats of the world.  TTN
recently filed with the SEC to spin-off its food irradiation
firm SureBeam, which is expected to raise upwards of $127 mln.

Now, TTN's announcement today presents an interesting situation
for traders and investors alike.  If the company can prove that
the reasons for the stock's sell-off were unwarranted, we might
see a tremendous short-covering rally.  Remember RMBS?
Additionally, TTN is a successful company, with a solid history
of earnings, and an equally solid projected future of profits.
Analysts predict TTN will grow earnings by 32% annually over the
next several years.  That leaves TTN as a bargain at its current
levels for the investor with a longer time horizon.  However,
because of the rumor spreading, TTN probably won't recover all of
its losses prior to the bear attack.  But, even a partial
recovery would yield some handsome profits given the stock's
current low level.  TTN might be worth considering for the long
haul if it beats the bears and clears its name on Wall Street.


Ciena - CIEN

CIEN had bullish comments from ABN AMRO on 08/18/2000,
PaineWebber also set target price of $255/sh after the third
quarter profits and revenues; stock finally broke $200.  Would
you please look at CIEN and see how valid the two projections
are and give us some suggestions how we should approach the
stock.  What is firm support and resistance?  Thank you for your
input. - Denis

CIEN has been on a tear as of late, and not by coincidence, made
its way onto the OIN call list.  The drivers behind CIEN's recent
run are earnings and a stock split.  By now, we all now how I
feel about the former, so I won't bore you with the details.
However, I must mention, along with reporting third-quarter
results, CIEN executives guided analysts to better-than-expected
profits for its current fourth-quarter.  There's nothing quite
like the music of upward earnings revisions to the ears of the
bulls.  During the company's conference call, CIEN's CEO said,
"We believe we'll be able to outperform current consensus
expectations for net income and earnings per share for our fourth
fiscal quarter."  Beautiful!  As I previously mentioned, CIEN
also declared a 2-for-1 stock split two days before reporting
earnings.  Here at OIN, you often read about the potential for a
stock split in our play write-ups, and for good reason.  A split
declaration by a company's Board of Directors signals confidence
in their stock price.  A split announced after a stock has run,
such as CIEN prior to the declaration, can be even more telling.
In fact, I have read, that after a company announces a split, the
stock tends to outperform the broader market by an average of 4%
three days later.  Something to remember for future trades.

At the rate CIEN is going, PaineWebber's target price of $255
might be reached next month.  But, as we all know, stocks just
don't go straight up.  Or do they?  CIEN has been marching with
incredible strength after announcing earnings and declaring its
split.  You can see on the chart that CIEN appears to be climbing
'profit' stairs upwards and into the heavens.  The stock's 5-dma
has been almost a perfect support level during CIEN's run.
Buying the dips is definitely in fashion with CIEN right now.
Until the stock breaks well below its ascending channel, I will
remain bullish on CIEN.  With mo-mo investors currently behind
CIEN, there are two ways to play the stock.  Like I mentioned,
buy the dips or try to get in on the beginnings of a big intraday
rally.  Over the past week, CIEN has tended to charge well past
its previous 52-week highs after momentum builds during strong
intraday rallies.


LM Ericsson Telephone Company - ERICY

I have been watching Ericsson (ERICY) after the poor performance
results over the past few months following the split.  It
appears to be undervalued and potentially in a position to grow
if the Fall rally does materialize.  What do you think of this
pick? - Thanks, Rich

I just couldn't resist reviewing ERICY.  I think the stock has a
great ticker symbol!  If they'd just drop the 'Y'...  In all
seriousness, ERICY has been hit hard over the past few months.
Trouble in the Handset sector really began brewing in late July
when NOK warned profits would come in lower-than-expected in the
third-quarter.  NOK blamed its shortfall on the seasonal summer
slowdown and component shortages.  A little later, ERICY warned
analysts of the same problems.  And, who could forget the failure
of MOT to meet its unit shipment goals?  Aside from the parts
problem and consumer slowdown, ERICY has to contend with greater
competition.  Traditionally, ERICY, NOK, and MOT have dominated
the handset market, but, Asian competitors have recently
entered the space, which has tightened ERICY's already small
profit margin of 9%.  ERICY has been making some strides lately.
The company landed a healthy contract from China Unicom earlier
this month and today announced it would team with manufacturing
partners in an attempt to cut costs.

There's no denying that the cell phone stocks are trading at
depressed levels.  One could argue that ERICY is even cheap at
its current levels.  But, I would argue that if you wanted to
gain exposure to the handset space, you might as well buy the
leader in NOK.  Both stocks are trading at very similar
valuations, but NOK has a little better projected earnings
growth, which is a result of the company's stronghold on the cell
phone market.  I'm not bashing ERICY by any means.  But, if
you're going to buy into a sector that is trading at depressed
levels you better off owning the leader of the group.  The
developments of Internet-enabled phones and procurement of that
technology might spur the demand for cell phones this holiday
season and get these stocks back on track.  The cell phone makers
are manufacturing some pretty neat little gadgets that might
catch the eye of the conspicuous Christmas consumer in a few
months.  Whether it be ERICY or NOK, I think the handset business
will continue to blossom in the years to come, making both stocks
long-term winners.


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


Stochastic Indicator
By Austin Passamonte

Much of my email from fellow readers inquires about learning
technical analysis. What single best book do I recommend, etc.
Well, things I share in this forum about technical indicators
were amassed over fifteen years from dozens of videos & books,
hundreds of magazine articles and thousands and thousands of
actual charts.

I'd guess a majority of it pertained to the commodity futures
market but you know what? I think these tools work much better
and more clearly in the equity world. In my opinion this has
to do with greater liquidity and participants creating smoother,
more predictable action. If that's the case why ain't I rich
yet? Good question Wendy.

There are countless books in print about technical analysis
across the spectrum. Some are MIT-level math that begin far
above my head and rise from there. Others are plagiarism by
professional authors and non-traders. That leaves plenty of
excellent work in the middle for you to discover. Those listed
within OIN bookstore are a great place to begin.

Meanwhile, is it OK with you if I spend the next several visits
here exploring what I've learned in graphic detail? Hope
you don't mind. I will use index and HOLDR symbols in all my
examples but everything applies to individual stocks equally
as well.

After all this time, 80% of what I needed to know lies within
this article. The remaining 20%? Hey, give it fifteen years and
you'll be there! Seriously, the rest comes from watching live
action on your favorite symbols and developing a "feel" for
action/reaction. Shall we proceed?

One of the most popular technical tools are stochastic indicators.
Widely used to determine price changes and reversals in all
financial markets, there are several key signals to identify
near-term price changes.

Stochastic signals are composed of two moving-average lines.
Their movement is based on a rate of change in the underlying
market's closing price versus the high and low over a given period
of time.

These lines are labeled %K and %D. The %K line moves faster
than %D. This is because %D is an averaged figure of %K's
value, so it must react slower in relation. Each of these
lines are commonly referred to as the "fast" and "slow"
lines or bars.

Stochastic indicators are found in two major versions; fast
stochastics with two numeric-value settings are most responsive
to price changes but are erratic and "noisy", giving many false

Slow, smooth stochastics use a third numeric-value to reduce or
blend market "noise", giving a clear picture of overall movement.
I prefer smooth stochastics with a value setting of 10(3)5.
Don't be afraid to experiment with these settings to learn what
correlates best to price action in a chosen market or markets.

There is an incredible array of stochastic setting variables
and discussion on the subject. We'll defer all that, instead
let's focus on basic structure and use of the indicator.

The actual indicator study consists of plotting both moving
lines within a value zone of 0 to 100. As one or both lines
approach or penetrate the area of 0 to 20, underlying prices
are said to be "oversold". The indicator is telling us that
near-term price action has dropped to an extreme and corrective
bounce is likely.

One or both lines reaching or penetrating the area from 80 to
100 is said to be "overbought". This means near-term price
action has pushed levels to an extreme and a corrective sell
off is likely.

Once stochastic fast line turns up from 20% oversold range or
turns down from 80% overbought range, a reversal may be near.
Confirmation of this is the slow line turning to reverse course
in tandem with the fast line.

The clearest trade signals occur when both stochastic fast and
slow lines penetrate one extreme ranges and turn sharply away
to move the other direction. The more rapid and extreme a move
the more volatile underlying action will be.

Stochastics like all oscillator signals work best to predict
corrections within prevailing trends. In other words, buy
signals are best taken within an up-trending market while sell
signals are most reliable in down trends. They predict brief
pullbacks in rallies and brief spikes in declines.

Stochastic signals are best in neutral, flat or rolling markets
when buy or sell indications are equally reliable.

Overbought/oversold is the basic, most prominent use of these
indicators for trading a market. However, in my opinion it
isn't the best use of all.

If every market tool I rely on had to be taken away save for
one, this would be it. I have never used another single study
that gives such high-odds indication as the following does.

Whenever we see divergence action between stochastic signals
and correlating price behavior, a change in current price
action is almost guaranteed. How soon or dramatic is unclear
but change is almost certain.

Such divergence shows that the market today is stronger or
weaker than the last recent high or low as indicated by
stochastic action. We will examine and outline this visually

Diversions are spotted by comparing current market price levels
to the last relative high or low. In other words, if a market
now exceeds new recent highs, are stochastic lines higher than
the previous time as well? If not, our peak is in jeopardy.

If the market is at new recent lows, are stochastics lower than
the last time as well? If not, we may have just put in a bottom.

In summation, stochastic study is the indication of overbought
or oversold extreme conditions in a market. There are many
variable settings and versions, but each act essentially the
same. Diversion of any kind between stochastic movement and
price action is a clear indication of near-term price

Let's review some charts to see these signals in action.

(Daily Chart, TXX)

The CBOE Technology Index (TXX) is a classic example of sideways
market stochastic signals. With the understanding that this study
isn't meant to trade alone, can you see here where buying call
options near oversold 20% zone and puts near overbought 80% zone
would be a highly-profitable venture?

Waiting for one or both lines to near or penetrate an extreme
and turn to reverse is a powerful buy & hold strategy in rolling
markets. If we took every trade marked here using distant-month
options and 25% stop loss protection, what would our potential
results have been? I like our chances!

(Daily Chart, SMH)

Again, looking at the AMEX Semi-Conductor HOLDRs (SMH) we see
a bit more erratic movement in this brand-new market but results
are the same. Lines moving at or into extreme zones and reversing
signal a significant price change.

Notice the two lines from July to August showing stochastics
making a higher-high than the last peak while SMH holders fail
to do the same. What could that mean? Remember what we said about
divergence action before?

(Daily Chart, OEX)

You had to know the OEX would make it into this discussion. Two
clear examples of price/indicator divergence in May and June
clearly led significant price reversals.

In May the index went from 740 to 780+ in four sessions following
clear divergence. Five sessions later the index retraced from
780+ to 724. Again, divergence between price action and the
stochastic indicators emerged. Five more sessions saw a rise from
725 to almost 800 straight up!

Depending on which option contracts bought, these three moves
could yield 100 - 400% returns on option cost. Would you agree
that stochastic/price divergence among other tools are one to
watch? If I could only pick one out of all, this would be it.

(Daily Chart, NDX)

Not to leave technology out, here's a daily chart of the NASDAQ
100. Clear patterns of divergence emerge here as well. If we
took position trades with QQQs or the new CBOE mini-NDX (MNX)
options, how would we fare? 800+ and 600+ point moves leave
plenty of "chunk" in the middle to glean.

(Daily Chart, XOI)

Black gold, Texas tea. Jed Clampett from "Hillbillies" fame would
be doin' right-fine these days and this chart might help him. You
be the judge. If we bought options on the AMEX Oil index (XOI) or
CBOE oil index (OIX) the results would be the same. no possum stew
for us granny, it's first-class dining all the way!

There is much more discussion to stochastic study than shown
but you see most everything necessary within this work. Keep it
simple, focus on spotting extreme reversals and especially price/
stochastic divergence to increase your chances for success.

Monday we'll cover MACD and Wednesday Bollinger Bands. Looking
forward to our visit next week!

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TIBX - TIBCO Software $98.88 +4.13 (+2.63 this week)

TIBCO's ActiveEnterprise enables businesses to connect resources
with customers and automatically deliver event-driven information
across networks and the Web in real-time.  The company also
offers e-commerce, consulting, and support services.  Customers
license the software to integrate, personalize, and distribute
content.  TIBCO is enhancing its business-to-business trading
capabilities.  Reuters owns more than 60% of the company, and
Cisco holds a minority stake of 7%.

Most Recent Write-Up

Yesterday's action brought TIBX near the psychological resistance
level of $100, but backed off before the close.  Today was a
test of support at the 10-dma of $93.09, from which buyers
resurrected the stock several times throughout the day.  The dip
occurred within a ten minute period around 11:00am EDT on about
50K shares and the damage was done.  From there, the selling
subsided and the buyers began their repairs.  With the 10-dma
holding as support, we are especially encouraged as the upside
volume outpaced the downside as the session wore on.  The stock
actually popped a dollar in the final moments on 65K shares.
While the action wasn't news related today, there was some news
out.  IWOV and TIBX announced a strategic alliance to provide
comprehensive solutions in the B2B marketplace.  Not to leave
anyone out, TIBX also inked a multi-year agreement with ARBA to
bundle its infrastructure software with ARBA's buy-side
application, Ariba Buyer 7.0.  Entry into the play can be obtained
on further high volume bounces from the 10-dma.  Below that, a
dip to $90 could provide entry if met with a bounce.  Overhead,
a strong move through $95 could take the stock to intraday
resistance at $97.  Look to the NASDAQ behavior for direction
in this issue.


Tibco recovered nicely from weakness early in the week.  It is
now sitting just under resistance at $100 and threatening a
breakout.  The volume picked up today relative to the past
three sessions and move over $100 on increasing volume would
trigger our entry criteria.  Remember to play cautiously ahead
of Friday's employment data.

BUY CALL SEP- 90 PIW-IR OI=553 at $12.00 SL=9.25
BUY CALL SEP- 95*PIW-IS OI=278 at $ 8.88 SL=6.75
BUY CALL SEP-100 PIW-IT OI=402 at $ 6.50 SL=4.75
BUY CALL OCT-100 PIW-JT OI=428 at $13.00 SL=9.75
BUY CALL OCT-105 PIW-JA OI= 30 at $10.75 SL=7.75

SELL PUT SEP- 90 PIW-UR OI=235 at $ 2.38 SL=3.50
(See risks of selling puts in play legend)

Picked on August 27th at  $96.25    P/E = N/A
Change since picked        +2.63    52-week high=$147.00
Analysts Ratings       5-2-1-0-0    52-week low =$  6.58
Last earnings 06/00    est= 0.01    actual= 0.04
Next earnings 09-21    est= 0.05    versus=-0.01
Average Daily Volume  = 1.55 mln


As the World turns, so the Market goes...(yawn)...

Industrial stocks slumped today as investors took profits in blue
chip issues.  The Dow opened lower and remained firmly in the red
throughout the session, even as a rally in the brokerage group
sent finance shares to recent highs.  The sector was on the move
with major bank stocks leading the way after Credit Suisse First
Boston announced it's buying Donaldson, Lufkin & Jenrette in an
$11 billion deal.  Credit Suisse will pay $90 for each share of
DLJ, a premium of about 10% over the company's current value.  In
addition, Morgan Stanley Dean Witter suggested that the group is
currently sporting reasonable valuations and recommends owning the
stocks because of their inexpensive cost relative to other market
performers.  Meanwhile, the Nasdaq edged higher on strength in
Internet stocks but selling pressure in the semiconductor and
computer hardware groups limited the day's gains.  Rambus was the
most newsworthy issue, falling for the fourth straight session
in the wake of Micron Technology's lawsuit against the company.
Earlier in the week, Micron filed a claim asserting violations of
Federal antitrust laws and infractions relating to certain Rambus
patents.  Micron claims Rambus had an obligation to share a new
SDRAM technology with the private, industry-created committee that
they both are members of, as a means of setting standards.  Rambus
contends that they should have proprietary control of technologies
invented in their laboratories.  Investors appear to have made an
early assessment of the case, dumping both stocks since the news
became public.  In the broader market, biotech and utility shares
were the upside movers while retailers, consumer products, energy,
and major drug stocks were generally lower.  Looking forward, most
analysts believe the fundamental backdrop for the stock market is
still exceptional, and profit growth is expected to remain solid.
Based on that outlook, we will continue to search for positions
that have a high probability of achieving a reasonable profit along
with relatively low risk and reduced potential for loss.

Summary of Previous Picks:

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

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

METHA   SEP    45    41.50  56.75    $3.50   8.6%
PHCM    SEP    85    78.25  86.56    $6.75   7.1%
ADBE    SEP   115   109.68 129.56    $5.32   6.4%
SMTC    SEP    80    75.43 116.13    $4.57   6.1%
MIPSB   SEP    45    43.25  51.38    $1.75   5.4%
NAVI    SEP    45    42.87  46.75    $2.13   5.0%
MIPS    SEP    45    42.88  56.53    $2.12   5.0%

Naked Puts:

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

MIPSB   SEP    45    43.37  51.38    $1.63  14.2%
METHA   SEP    40    38.37  56.75    $1.63  14.0%
TUTS    SEP    85    83.19 115.50    $1.81  10.0%
MIPS    SEP    40    38.87  56.53    $1.13   9.9%
ADBE    SEP   105   102.75 129.56    $2.25   9.4%
VRTX    SEP    57.5  56.44  79.50    $1.06   9.0% Adj 2-1 split
NAVI    SEP    40    39.00  46.75    $1.00   8.9%
QLGC    SEP    85    83.50 105.38    $1.50   8.7%
EMLX    SEP    55    53.75 100.50    $1.25   7.9%
SMTC    SEP    70    68.62 116.13    $1.38   6.9%
MMCN    SEP    55    53.94 118.25    $1.06   6.7%
MXIM    SEP    65    63.75  83.38    $1.25   6.6%
INKT    SEP   100    98.62 126.00    $1.38   6.3%
PHCM    SEP    65    63.50  86.56    $1.50   6.2%

Naked Calls:

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

SNWL    SEP   100   101.31  77.00    $1.31  10.8%

New Candidates:

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


BULLISH PLAYS - Covered Calls & Naked Puts

ARTG - Art Technology Group  $101.88  *** Revenge Play! ***

Art Technology Group offers an integrated suite of Internet
customer relationship management and e-commerce software
applications, as well as related support services.  They enable
businesses to understand and manage online customer relationships
and to market, sell and support products and services over the
Internet more effectively.  Their Dynamo product suite includes
an application server that is specifically designed to enable and
support Web applications, as well as e-commerce and Internet
customer management applications.

Art Technology Group was one of the "Murphy's Law" issues that
we closed prematurely last month, only to watch it rebound to a
profitable finish at option expiration.  Now the stock is "back
on track" and a number of analysts have issued positive forecasts
for the company.  Last Thursday, ABN-AMRO upgraded the company to
"outperform," based on anticipated momentum from the upcoming
analysts' meeting and third-quarter results.  The analyst said the
company has won some high profile accounts recently and the trend
is expected to continue because the company's technology is pure
Java and attractive to developers and engineers.  In addition,
ARTG is expected to accelerate top-line growth at an impressive
rate.  Salomon Smith Barney also recently initiated coverage of
Art Technology Group with a "buy" rating and a 12-month target of
$108.  The analyst reported that ARTG has been aggressively
expanding its client base over the past year and that the company's
systems integrator relationships will play a major role in its
ability to scale its business model going forward.

ARTG - Art Technology Group  $101.88

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

Sell Call SEP 90   ARY IR  386      14.25    87.63     5.1% ***

Sell Put  SEP 85   ARY UQ  116       1.38    83.63    10.4% ***
Sell Put  SEP 90   ARY UR  70        2.38    87.63    14.4%

Chart =


BOBJ - Business Objects  $106.88  *** Technicals Only! ***

Business Objects S.A. develops, markets and supports e-business
intelligence (e-BI) software for client/server environments,
Intranets, Extranets and the Internet.  Using e-business
intelligence, organizations can access, analyze and share
corporate data for better decision making.

Application Software is one of the favorable sectors in the market
and Business Objects is one of the leaders in the industry.  The
company was recently rated a new "buy" at McDonald Investments and
we think the analyst was right on target with the bullish outlook.
From a technical viewpoint, the issue has excellent support near
our cost basis and the favorable option premiums will allow us to
open the position at a conservative entry point.

BOBJ - Business Objects  $106.88

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

Sell Put  SEP 90   BBJ UR  20        0.81    89.19     5.8%
Sell Put  SEP 95   BBJ US  39        1.69    93.31     9.9% ***
Sell Put  SEP 100  BBJ UT  11        3.00    97.00    14.7%

Chart =


INFA - Informatica  $100.00  *** New High Coming? ***

Informatica provides analytic applications and infrastructure
software that help eBusinesses to evaluate and fine-tune the
performance of their key operational areas for more effective
decision making.  Their products help simplify the integration
and analysis of information through an enterprise data
integration platform that automates the process of retrieving,
organizing and consolidating data from multiple systems.  Working
in conjunction with this data gathering capability is a suite of
analytic applications to evaluate the performance of a
corporation's entire chain of customer, partner and supplier

Informatica recently announced it will acquire privately held
Zimba, a leading provider of applications that enable mobile
professionals with real-time access to corporate and external
information via wireless devices, voice recognition and the Web.
The pairing of Zimba's patent-pending mobile applications with
Informatica's market-leading e-business analytic software will
help empower the ranks of information consumers within today's
leading organizations.  Easy access to key corporate data from
any location will help professionals capitalize on the growing
infrastructure for mobility and real-time business insight.  By
enabling anytime, anywhere access to corporate information, the
company will help businesses increase the efficiency of their
mobile professionals.

The key in this industry is to produce software that provides a
company's employees with wireless access to whatever data they
need, at any time of the day, from any location.  Based on the
recent bullish activity in the issue, investors believe that
INFA is destined to be one of the top companies in the group.

INFA - Informatica  $100.00

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

Sell Put  SEP 85   UYF UQ  15        1.50    83.50    10.8% ***
Sell Put  SEP 90   UYF UR  35        2.88    87.12    16.7%

Chart =


MANU - Manugistics  $85.94  *** New Cisco Deal! ***

Manugistics Group is a global provider of intelligent supply
chain optimization solutions for businesses and eBusiness
trading networks.  Its solutions include client assessment,
software products, and consulting services, all of which can
be customized for a clients specific requirements.  Their
newest generation of solutions help businesses to improve
their logistics and trading with their partners by utilizing
the Internet.

Speculation that Manugistics may have won a new contract with
Cisco Systems (CSCO) pushed the company's shares to an all-time
high this week.  According to published reports, the company has
secured a multimillion dollar contract for supply-chain software
and the deal may grow larger as Cisco deploys the new products.
In addition, Manugistics also recently landed a contract with
John Deere, which will use the company's e-business software to
improve its product flow to distribution centers and enhance
communication with carriers.  Manugistics' technology will help
develop capacity utilization at fleet and distribution centers,
improve service levels, and reduce costs.

Those of you who favor the outlook for the company's turnaround
prospects can speculate on the outcome of the reports with this
relatively low risk position.

MANU - Manugistics  $85.94

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

Sell Call SEP 70   ZUQ IN  15       18.13    67.81     6.1% ***

Sell Put  SEP 60   ZUQ UL  97        0.81    59.19     8.6%
Sell Put  SEP 65   ZUQ UM  157       1.44    63.56    14.7% ***
Sell Put  SEP 70   ZUQ UN  136       2.31    67.69    21.2%

Chart =


MERQ - Mercury Interactive $117.13  *** Entry Point! ***

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

In addition to collaborative and business partnerships with
corporations such as Tower Technology, i2, National Discount
Brokers, and Ameritrade, Mercury Interactive has had more good
news this month.  They have received accolades from various
sources, starting with being named one of Fortune Magazine's 100
"Fastest-Growing" Companies for the year 2000.  The magazine
placed Mercury Interactive #13 on this prestigious list.  The
Newport Group, an independent information technology research
firm, reported that Mercury Interactive was the 1999 worldwide
market leader for load testing products and related services.
According to their report, Mercury Interactive solidified its
overall leadership position with its load testing revenues,
securing 49% of the Web market and 43% of the distributed
environment market.  Mercury achieved 323% growth from 1998 to
1999 in the Web space alone primarily due to its innovative
Internet load testing solutions. A full 55% of the company's
load testing business in 1999 came from new customers and that
says a lot about the company's ability to generate future

We simply favor the opportunity to be paid for trying to own
the issue at a great price.

MERQ - Mercury Interactive $117.13

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

Sell Put  SEP 100  RBF UT  80        1.00    99.00     6.2% ***
Sell Put  SEP 105  RBF UA  183       1.88   103.12     9.8%
Sell Put  SEP 110  RBF UB  73        3.13   106.87    13.9%

Chart =


ORCL - Oracle  $88.25  *** New Trading Range? ***

Oracle is a supplier of software for information management.
They develop, manufacture, market and distribute computer
software that helps corporations manage and grow their
businesses.  Oracle is a leader in the information technology
sector and has numerous corporate as well as government clients.

Big-cap technology stocks are the focus of most investors these
days but many of the issues have yet to prove their long-term
standing in the industry.  Oracle is a giant in the Application
Software group and they are also competing in some new, rapidly
expanding categories like customer relationship management (CRM)
and Strategic Procurement marketplaces.  Investors who want to
participate in the growth of Computer software and information
technology should consider this issue for a permanent portfolio
position.  The over-priced option premiums will provide traders
with an excellent entry point and based on the current technical
indications, the issue may soon transition to a new trading range.

ORCL - Oracle  $88.25

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

Sell Call SEP 85   ORY IQ  23263     5.50    82.75     5.2% ***

Sell Put  SEP 80   ORY UP  9484      0.94    79.06     6.4% ***
Sell Put  SEP 85   ORY UQ  5203      2.13    82.88    11.8%

Chart =


LSCC - Lattice Semiconductor  $72.06  *** Range-bound? ***

Lattice Semiconductor Corporation designs, develops and markets
a wide variety of high performance ISP programmable logic
devices and offers integrated solutions for advanced logic
designs.  Their products are sold worldwide through an extensive
network of independent sales representatives and distributors
primarily to OEM customers in the communications, computing,
industrial and military markets.

Semiconductor stocks continued to fall today, adding to losses
sustained in recent sessions.  Rambus (RMBS) was the primary
cause of the decline as the company's shares slid further amid
news of another lawsuit.  This one is from South Korea's Hyundai,
which is seeking a U.S. court's declaration that its products do
not infringe on patents held by the developer of "chip-to-chip"
interface technology.  Although Rambus and Micron (MU) are the
companies in the news, other chip and chip equipment stocks have
slowly begun to give back their Summer gains, with many issues
simply consolidating after a strong run earlier in the month of
August.  Lattice Semiconductor falls into a group of issues that
have enjoyed recent gains but, based on the technical outlook
for the stock, it appears the probability of the share value
reaching our sold strike is rather low.  However, there is the
possibility of a continued rally so monitor the position daily
for changes in technical character.

LSCC - Lattice Semiconductor  $72.06

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

Sell Call SEP 75   LQT IO  758       2.44    77.44    16.4%
Sell Call SEP 80   LQT IP  671       1.00    81.00     8.7% ***

Chart =

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