Option Investor

Daily Newsletter, Wednesday, 09/06/2000

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The Option Investor Newsletter               Wednesday  09-06-2000
Copyright 2000, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        09-06-2000        High      Low     Volume Advance/Decline
DJIA    11310.60 + 50.00 11401.20 11253.20 1.00 bln   1594/1237
NASDAQ   4013.34 -129.84  4136.84  4013.34 1.75 bln   1747/2335
S&P 100   814.28 -  9.21   825.08   814.11   totals   3341/3572
S&P 500  1492.25 - 14.83  1512.61  1492.12           48.3%/51.7%
RUS 2000  536.32 -  2.70   539.24   535.27
DJ TRANS 2751.07 + 23.67  2765.36  2724.71
VIX        22.65 +  1.28    22.96    21.79
Put/Call Ratio       .55

Looks Like Buy The Rumor, Sell The News

I know, I know.  It's a cliche that you here on the Street all the
time, but I think the past two trading days are a perfect example.
With a quiet, low volume NASDAQ rally in August, it appears that
investors piled in on the buyside prior to the Labor Day weekend.
After being bombarded with the not-so-subliminal "post Labor Day
rally" mantra, investors not wanting to miss the boat bought the
rumor, attempting to get in front of a perceived rally.  Well,
Labor Day has come and gone, and those myths and legends about
the return of volume have come true...but on the sellside.  Those
money managers just weren't ready to spend those summer savings on
stocks that are at sky-high valuations, at least in the tech arena.
But that's not to say that they aren't spending.  In a search for
value, the two major market indices have once again diverged.

The buying continues at the NYSE, driving the INDU higher and
keeping its uptrend intact.  Traders snatching up interest rate
sensitive issues, especially the Financials, have been shifting
out of tech issues in what has been a two day rotation.  Keeping
the Financial sector hot is the continued consolidation and
speculation as to which outfit will be swallowed up next.  Rumors
surrounding JPM during the past week have fueled the stock's new
highs.  After last week's announcement that DLJ would be acquired
by Credit Suisse for $11.5 bln, the spotlight shifted to JPM.
Today, a German weekly magazine reported that Deutsche Bank was
planning to bid for the Wall Street investment bank.  This sent
the shares of Dow Component JPM up $7.81, almost 5%, to new highs.
With the Fed all but out of the picture for the rest of the year,
investors have been flocking to brokerage stocks and banks.  The
news trickled down to others like BSC(+2.38), also seen as a
takeover target.

Citigroup(C) also made a deal today, announcing that they would
buy Associates First Capital(AFS) for $31.1 bln in stock.  Share
holders of AFS will receive 0.7334 shares of C, making the buyout
price of AFS $42.49, a 56% premium over Tuesday's closing price.
AFS is the largest consumer finance company in the U.S. and also
has a strong presence in Japan.  This acquisition will give C
further global reach in its credit card business, consumer and
commercial finance, and it will provide "recurring and predictable
earnings," according to Citigroup's CEO Sandy Weil.  AFS finished
up +10.63, or 38%, at $38.63 while C sold off $2.56 to $55.

In the wake of this news, JPM's gains managed to outweigh C's loss
and the INDU continued its run.  Today's trading activity found the
INDU bound between 11300 and 11400.  The INDU has been climbing
higher on the back of its 10-dma, currently at 11211.  Profit
takers ravaged the index early last week, but since bouncing from
11100 last Thursday, the INDU continued onward.  Shaking off a
Drug sector downgrade and the negative INTC comments on Tuesday,
the INDU has turned to the Financials and Cyclicals.  Traders
did, however, reverse the INDU's course at 11400, the site of the
April 12th's top before the Spring sell-off.  Volume at the NYSE
was just shy of a billion shares, 999 mln, and the breadth was
positive 4-3.  The sector rotation that we saw last Spring appears
to happening again, as traders move to better value.  And until
the NASDAQ valuations become more attractive to investors, this
trend may continue as we await 3rd quarter earnings.

A Big Board debacle that caused more hurt on the NASDAQ was the
DLJ Hong Kong analyst call on Micron(MU).  With the Semiconductor
Sector still reeling from USB Pipper Jaffray's Tuesday downgrade
of INTC, DLJ's Boris Petersik lowered his rating on MU from a
Buy to an Underperform.  Huh.  Sounds like "Sell" to me!
Especially considering that he slashed MU's price target to $50
from $122!  Sounds like this guy didn't do his homework the first
time around.  Citing an earlier-than-expected drop in DRAM spot
market prices and expected weaker pricing into September, Petersik
essentially commented on the entire sector.  He claims that
inventory build-up among manufacturers will possibly lead to a
DRAM flood in the spot market, pressuring prices down.  But, DLJ
seems to be the lone ranger on this call.  Many other notable
semi analysts came out in defense of MU and the DRAM market as
a whole.  Merrill's Joe Osha acknowledged recent pressure in the
DRAM spot market, but doesn't see it as a meaningful indicator
several months out.  And that's probably because it's the spot
market, being short-term in nature.  MU got crushed with an 11%
drop of $8.63 to $69.88.  Falling in sympathy were:  INTC(-3.56),
ALTR(-3.38), KLAC(-5.75), and AMD(-2.75).  The Semi Index(SOX.X)
lost almost 6% today.

This news spread through the NASDAQ like wildfire, and profit
takers sold first and asked questions later.  After making an
almost 20% recovery from the lows in August(3521 on 8/3) before
the Labor Day weekend, the NASDAQ was a little top heavy, to say
the least.  The fabled buying volume that investors were waiting
on has yet to materialize.  In place of that buying volume has
been negative news a la CIEN and INTC, whispers about 3rd quarter
earnings, and a general shakiness.  As a result, we have seen
some interesting technical developments in the NASDAQ.  The
selling started right at the open, which was also the high of the
day.  The close:  exactly on the low of the day.  A 129 point
range.  A 129 point loss.  The NASDAQ hasn't had a triple digit
loss since July 28th.  But what really is technically concerning
here is the double top near 4300 and the break of the recent
trendline.  On July 17th, the NASDAQ made a high of 4289, and
then on September 1st, 4259.  With the clean break of the
trendline that led the NASDAQ higher in August, this combination
raises some red flags.  The 200-dma, currently at 4001, will be
watched closely by traders and technicians.  Below that, the
50-dma lies at 3966.  Volume on the NASDAQ was a healthy 1.7 bln,
with breadth negative 24-17.  The question remains:  how low will
money managers let this go before bringing back that buyside

We have been mentioning for weeks, even months, that the VIX.X was
reaching historical levels that typically trigger selling.  Today,
the VIX.X closed at 22.56 as selling bred fear in traders and
investors.  An increase in volatility will likely cause a bumpy
ride for the NASDAQ, not to mention opportunity for option traders.

Looking forward, as fear increases and investors begin to question
their faith in the "post Labor Day rally," the NASDAQ appears to
have a downward bias.  The VIX.X has been screaming overbought and
a breather like this isn't out of the ordinary.  Are the money
managers in the huddle picking their plays and licking their chops?
Probably.  They will be the ones to breath fire back into the
NASDAQ stocks.  The NASDAQ's technical picture deteriorated
significantly today, and everyone seems to be standing back waiting
for the dust to clear.  Given a 4.5% drop in the NASDAQ during the
past two days, a bounce may come, but be sure that it isn't a
dead cat bounce.  Is the selling the news over on the NASDAQ?
That is a question that all traders are asking themselves, and
an answer that we all nervously await.  But, it isn't all
nailbiting trading.  The INDU has been pushing forward on the
heels of the Financials.  As a side-note, YHOO was quite active in
after-hours trading on comments made by CEO Tim Koogle at the
Robertson Stephens Internet Conference in San Francisco.  Jim and
I have decided to initiate a special news-related play this
evening.  Please see below for the play.

Matt Russ
Asst. Editor

News-Related Call Play

YHOO $107.88 (close in after-hours)  Entry point!!  After closing
NY trading at $112.06, comments made by YHOO CEO Tim Koogle at the
Robbie Stephens Internet Conference were misinterpreted, sending
the stock as low as $103.25 in after-hours.  Hasty traders sold
YHOO when they misinterpreted Koogle's comments and thought that
he said advertising sales have decreased.  Then, Koogle appeared
on CNBC in an interview clarifying that Yahoo in no way has
changed their guidance.  The stock bounced back and closed
after-hours at $107.88.  Robbie Stephens senior Internet analyst
Lauren Cooks Levitan confirmed that "it was consistent with
comments that Koogle and other management have been making" and
"that their outlook for their potential online advertising remains
very robust."  Due to the miscommunication and selling that
resulted, we are initiating a call play on YHOO at current levels
in an attempt to take advantage of the news.  Earnings are October
10th, confirmed.

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A Trading Tariff?
By Eric Utley

Aren't taxes high enough?  Last Sunday morning, a certain far-
left presidential candidate appeared on one of those morning talk
shows, you know the type.  Mr. Nader - oops, said his name -
told reporters that if he were elected to the White House he
would implement a tax on active traders and speculators, with a
special emphasis on options and futures operators.  A levy above
and beyond the already high taxes imposed upon successful traders.
The trading tax, as Mr. Nader described it, would remove the
excessive speculation from the market, which was deemed
detrimental by Doc Greenspan several years ago.  Now, I'm not a
political pundit, so I won't bore you with my opinions.  But, Mr.
Nader's proposal got me thinking.  What benefit are we, as
options traders, to the market?  Surely our excessive
speculations must be of some benefit to the broader world of
finance.  In the options arena there are three main players:
market makers, hedgers, and speculators.  We generally fall into
the latter camp.  As such, speculators assume the majority of risk
that is associated with the market.  Risk, mind you, that is very
necessary for the wheels of capitalism to keep turning.  As you
have read in OIN columns in the past, options market makers go
into the equity markets to hedge their trades with us, the retail
options players.  Which, in turn, makes the market all the more
efficient and allows for the deployment of capital to the
most useful resources through increased liquidity.  In my biased
opinion, options traders play a crucial role in the operations of
the market.  To hinder our trading, through an additional tax,
would only slow the heaven-sent idea of capitalism.  Needless to
say, Nader won't be getting my vote.

This week's column is filled with a potpourri of requests.  If you
have a stock that smells good, or one that smells rather bad,
send it to Contact Support, and we'll have a
look.  Please put the symbol of your requests in the subject line
of the e-mail.


Citigroup - C

How high can this go? - Anonymous

Citi had been on a pretty steady rise for the last two months
until the news today.  You've probably heard by now that C is
buying Associates First (AFS).  The deal will immediately add to
C's earnings upon completion of the merger, which is bullish for
Citi shareholders.  Through a series of acquisitions and mergers
over the past several years, C has morphed into a financial
powerhouse.  Sandy Weill has successfully combined the forces of
Citibank, Travelers, and Salomon Smith Barney into one successful
company.  Now with the Associates deal, C will gain a further
global presence in Japan, where AFS is the number five consumer
finance company.  C has followed the philosophy that bigger is
better, noting its increasing size through merger and
acquisitions.  So far, the strategy has worked.  With C, you're
getting a company with steady earnings growth around the 15% mark.
Not blowout numbers, but not too bad when you consider the stock's
relatively low multiple.  C is the largest home equity lender and
the second largest credit card company.  If you're looking for a
core financial holding in your portfolio C is probably your best

The fact that C is a definition finance stock makes it highly
subject to interest rate volatility and economic conditions.  As
it stands now, interest rates are stabilized, inflation is in
check, and the economy is still growing, which have all combined
to carry C to new highs recently.  With the current macro economic
conditions favoring the Finance sector, C stands to move higher
from its current levels.  With that said, the sell-off stemming
from the acquisition announcement today might provide an excellent
entry point into the stock.  As long as interest rates and
inflation remain in check, C should rise into the end of the year.
Of course, one bad economic report could change all of that.  For
now, though, things are looking up for C and the rest of the
Finance sector.  The big sell-off today makes it rather difficult
to game a trade in C.  Analysts approved the deal today, but it
might be wise to wait for traders to concur and carry the stock
higher before jumping in.


Ford - F

F has been beaten down lately.  Obviously, the tire fiasco is a
black eye, but it ain't putting F out of business.  Is $25 a
share a good entry point, or would you stay on the sidelines on
this one?  Or maybe a leap play?  - Thank you, Benny

Benny, you're probably right in that the recent tire fiasco is
not going to put F out of business.  With that said, this might
be a good time to pick-up some blue chip stock on the cheap.
However, you all know how I feel about buying stock at depressed
prices.  It's more difficult to do it correctly and it's harder
to make money buying low.  The reason is that you might have to
wait for several months or longer before F rebounds and shows
you a good profit.  The question with situations like F is that
are there better alternatives in the market to put your capital
into.  Chances are, you can probably find stocks with more
potential than F.  To begin with, there are plenty of companies
with better earnings growth than F.  The automobile giant is
expected to grow its EPS by single digits over the next
couple of years.  That's not real exciting.  Of course, using
leaps will leverage a rebound in F, which makes a play on the
stock a little more enticing, but not much.  The bottom-line
is F's earnings growth is dismal, and if the U.S. economy
slows a little more, the stock might suffer a little more.  In
the near-term, the tire issue will continue to influence the
stock one way or another.

Now, if you must fish at the bottom, I think it's safe to say
that F has some solid ground beneath it.  For what it's worth,
DLJ reiterated its Buy rating on F last week, which resulted
in a bounce off its yearly low.  So, if you're looking for
an entry into the stock, you might look for a bounce off the
$24 level, or near that area, over the next couple of weeks.
I think it's safe to say that level is the floor for the stock.
It remains to be seen what sort of liability or financial
responsibility F will have to take on as a result of the tire
issue.  As such, there still exists some downside risk even at
its current levels if the government steps in and levies some
sort of penalty.  If you're really looking to get into F, it
might be more prudent to wait for the tire issue to clear and
jump back into the stock once it climbs out of the recent


Phillip Morris - MO

The stock's been climbing for a while now; top performer lately.
Too late to play this one? - Thank you, Benny

Thank you for sending in two great requests Benny.  I thought it
would be interesting to review MO given its recent performance and
the developments surrounding the company, and its potential for
higher prices into the end of the year.  MO has been smoking
lately, figuratively and of course literally.  Investors have been
jumping back into MO on the hopes of a decline in the claims
against the company, among other issues.  The fact is the worst in
the way of litigation is behind MO, and that's welcome news for
shareholders.  There is a long list of bullish arguments for MO
right now.  Here are just a few:  the company recently raised its
dividend, it's cheap, the company has pricing power with its
products, and investors have overlooked the fact that MO derives
over 50% of its revenues from non-tobacco and foreign operations.
Whether you oppose it or not, the tobacco business is a money-
making endeavor.  Think about - if costs, such as legal fees or
raw materials go up, all MO has to do is raise the price of its
cigarettes.  And, since their product is addictive (as I well
know) consumers are willing to pay higher prices.  Furthermore,
there are tremendous barriers to entry into the tobacco business.
MO won't be facing new competition any time soon.  If you're
looking for a steadily growing company and don't morally oppose
the tobacco industry, it's hard to pass-up on MO.  However, we
come back to the same conundrum we faced with F, in that, are
there better alternatives in the broader scheme of things?  In
the long-term, if you're holding MO you're going to face risks
stemming from the nature of the company's business, tobacco.  That
could present a serious financial risk, depending upon who's in
the White House, which I'll expand upon below.  The bottom-line is
the tobacco industry has treated investors very well in the past,
and will probably continue to do so because of the characteristics
of the business.  Good for investors, bad for consumers!

Political risks abound with MO.  The stock has been plagued over
the last several years by the Clinton administration.  I'm not
attacking the current President and his troops, but they haven't
been the kindest of people to certain businesses, and maybe,
rightfully so.  Boy, I've got to stay away from these political
parallels to the investing world.  Anyway, if Bush gets elected,
MO (and Mr. Softee) stand to reap huge rewards in the way of
less government litigation.  If Bush wins, some analysts suggest
that MO would almost immediately go to $50 or $60, which is
around 200% above its closing price today.  Goldman Sachs
recently said MO is worth $80 per share.  Now, to answer your
question Benny, it's definitely not too late to jump into MO if
these analysts are correct.  However, whether they are or not
remains to be seen.  And, whether Bush wins or not also remains
a variable.  Whatever plays out, things are definitely looking up
for MO as has been reflected in the market recently.


Tyco - TYC

I know Tyco has been a hot topic ever since the great guru of a
shorting newsletter told Wall Street about some accounting
problems that didn't exist.  Shame they never went after him, but
I guess all is fair in love and war.  Alas, a year has gone by
and is only now showing signs of what I think is a recovery.  I
would be interested in your comments and analysis on Tyco. -
Respectfully, Vinny

TYC was the target of a malicious rumor about one year ago.  Like
you wrote Vinny, some big shorts started a rumor that TYC had
some problems with its accounting, which would result in a host
of problems, in turn punishing the stock, etc...  The rumor
hindered the performance of TYC for quite some time.  As I
mentioned last week, even if the talk isn't true, it can still
hurt the stock, as in the case of EMLX and TYC.  What ever came
of the TYC rumor?  Nothing.  So, here's the situation we are now
presented with.  TYC has essentially traded for the last year at
the same level.  By that I mean, pre-rumor TYC was trading around
$55, and now, the stock is around $55.  So, for the last year,
TYC's stock has essentially gone nowhere all the while the company
has been increasing its earnings at a healthy clip.  TYC is
expected to grow its bottom-line by 21% over the next several
years, which gives the stock a pretty cheap valuation relative
to its current price.  The way I see it, because of the rumor
surrounding the company, TYC spent the last year in a huge
consolidation, while making increasingly larger amounts of money.
The stock has just recently emerged from that consolidation and
might be ready to run again.

To give you a little background on the company, TYC is a
diversified manufacturing company.  Its four areas of
focus include, Telecom and Electronics, Healthcare Products,
Fire Protection and Services, and Flow Control.  For obvious
reasons, the Telecom, Electronics, and Healthcare sectors are
pretty good areas of the economy to be operating within right
now.  What's more, TYC recently spun-off its fiber-optic services
business known as Tycom (TCM), which garnered an unexpected $2
bln in its IPO a month ago.  TYC has been lining up healthy
contracts at an equally healthy rate over the last several weeks,
which should boost its profitability into record territory.  To
be quite frank, I don't have anything bad to say about TYC.  As
long as the broader market rises, TYC should outperform.  Given
the whole rumor 'thing', I think the stock represents a good
buying opportunity at its current levels.


Optical Cable - OCCF

What can you tell me about OCCF, it does not have options, but I
have noticed sky high volume on the stock compared to the float
(and the ADV).  95% of the stock is held by insiders, and over
half of the remaining is held by institutions.  The stock has
also ran from the mid 20's to over 40 this week.  - Thanks, Bob

The magic words are 'Fiber Optic'.  OCCF has one of those words
in its name.  Hey, two out of three isn't bad.  All joking aside,
OCCF manufactures and sells high quality fiber optic cables for
high bandwidth uses such as the transmission of data, video, and
voice.  OCCF designs its cable for campus-like applications,
such as schools and suburban corporate centers.  OCCF's cables
are used in moderate distances of up to 10 miles, hence the
campus applications.  OCCF announced its third-quarter results
today, along with several other positive developments.  The
company increased its EPS by a respectable 26% over last year's
profits.  The company also set a 3-for-2 stock split; I commented
on stock splits last week in my review of CIEN, which I spoke
highly of.  However, OCCF's split seems a little, off?  I don't
understand why the BOD would declare a stock split just as OCCF
is coming off its recent lows.  So, the stock split doesn't get
me too excited about the stock.  However, the company's solid
earnings growth over last year's does catch my interest.  What's
more, it's been hard to go wrong with anything in the Fiber Optic
sector this year, ala GLW, JDSU, CIEN, and SDLI.  However, the
preceding are heavy hitters, and OCCF is not.  Which brings me
to the fact that no analysts cover OCCF.  That makes it hard to
gauge what kind of earnings growth prospects the company has.
Yes, institutions control quite a bit of stock, but they can sell
pretty quickly.  ADCT is a company that operates in a similar
business with more of a proven history.

OCCF's recent rally probably attracted you to the stock.  But, I
think the market factored in all the good news today over the
past four trading sessions.  OCCF's big run on huge volume
leaves the stock up in the air right now.  It's hard to pick a
good entry point on a stock that has run so much so quickly.  I
think the most prudent course of action would be to wait for some
consolidation and a pullback in the stock.


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.


Fast Cars, MACD, Etc.
By Austin Passamonte

Last week's discussion of stochastic studies brought the
expected volume of questions.  Leading the pack by far were
requests for one or two good books on technical analysis.

"Technical Analysis From A - Z" by Stephen Achelis & "Getting
Started In Technical Analysis" by Jack Schwager are two of
many I have in my library and refer to frequently.  The former
is basic and concise with the latter much more involved.  The
best of both found right here inside OIN's bookstore.

I stated that 80% of everything applicable to trading with
stochastic study was included within my section.  That leaves
20% to be discovered over time.

I failed to elaborate the fact that endless articles and
book pages read covering the topic went into that boiled-
down version.  Make no mistake, all that extraneous stuff
had importance of its own.

A few readers mentioned need for more extensive, in-depth
study of stochastics.  I say, have at it!  Such was important
to me as well, minimalist that I am.

Can I share a personal story?  Wendy & I were graciously
hosted by Jim Brown, family and company at OIN headquarters
in Denver recently.  One day I joined Jim for a ride in his
very high-end Jaguar sports coupe.

At first glance, it's obviously a beautiful car.  Based on what
I know about cars it seemed rather quick to me by appearance.
Well, Jim barely tapped the accelerator while rolling out of
the parking lot and my head snapped back.  Wow, it'd been awhile
since that happened to me last!  I shrugged it off as a guy
driving a new car he wasn't quite used to.

That idea began to fade when the same thing happened five or
six more times in short order.  A couple hairpin turns deftly
handled convinced me this man & machine worked well together.

Understand I spent a few years tinkering with sports cars in
my youth.  Extensive knowledge it gained back then allowed for
easy decision making in the present.  Jim's car is fast and
that's that.

Some people would need to pop the hood, crawl under the car,
read the owner's manual, download tons of data from Jaguar's
website and quiz numerous mechanics before reaching the same
conclusion I did with equal confidence.

How we arrive at our respective belief levels is much less
important than the fact that we do so.  Confidence in our
decisions come from extensive knowledge of the subject or
blind faith, and everything in between.  By all means take
whatever steps necessary to build your belief system for
any technical tool used to trade money with.

(On a side note, Jim took Wendy for a ride in his Jag at
speeds reported by reliable sources we don't dare put in
print. My girl was instantly ruined forever.  All I've
listened to since then is the very same car for her or bust
and bust ain't an option.  If I can't trade our way to one
soon, she's threatening to take over the trading operation.
Thanks a lot for the pressure, Jim!)

Pop the hood and study to your heart's content or merely
turn the key and go, either way these technical tools
will work for you.

Moving Average Convergence/Divergence (MACD)
MACD is a popular technical indicator used to predict near-
term changes in the underlying market.  MACD measures the gap
between one longer-term moving average versus a short term
moving average.

The indicator has an equilibrium line valued at zero which two
moving averages cross above and below.  It also registers a
"histogram" that graphically shows the gap between moving lines
indicating momentum or strength of the move.

Some chart services offer MACD study with moving average lines
and histogram while others offer only one or the other.  We will
discuss and depict the use of each in these examples.

MACD is useful to determine whether a market is going up or
down in addition to portending possible reversals in sentiment
and direction.

When both moving average lines are below the zero-value graph
it indicates bearish sentiment for the issue.  Likewise, both
moving averages above the zero-value means sentiment is now
bullish.  This equilibrium line is extremely important.  When
both M/A lines cross from one side of this level to the other
it indicates distinct change in market sentiment.  Traders look
to go long markets that move from below zero value to above
and go short those whose lines cross from above to below.

Another valued signal occurs when the fast or shorter moving
average crosses over the slow or longer moving average line.
Fast line crossing over and moving up signals a bullish move,
while fast line crossing down through the slow line is bearish.
This can occur on either side of the zero line but bearish
signals above zero and bullish signals below zero may offer
much stronger changes in overall sentiment and possible price

Histogram bars move above or below their base zero line as the
M/A lines cross over each other.  Longer histogram bars show
the rate of momentum this action is creating.  Traders watch
histogram bars for signals of reversal as they converge or
diverge with current price action.

Let's review some real examples below:

Philadelphia's Gold & Silver Index moved sideways through 1999
and most of 2000.  See any sizable swings in between?  If we used
MACD alone to buy & sell the signal changes, what would our results
have been?

Focusing on the moving-average lines, when both are deep within
an extreme distance from the zero value line, it portends a
stronger price reversal that lines hovering close to zero.  Note
when the fast line crossed the slow well away from the zero line,
a sizeable correction began in the majority of cases.

MACD, as all technical tools, is best used in conjunction with
other studies to filter out false signals but we can see its
behavior in the example above.

The S&P 500 cash-index (SPX) also moved sideways during much of
year 2000.  Buy and sell signals were generated on a frequent
basis, as we identify five substantial buys and sells since

Watching the histogram grow or M/A lines to flare from zero value,
peak and reverse is the signal to alert us for potential trade
setup.  Seeing the lines cross or histogram switch from one side of
zero line to the opposite is our signal to execute the trade.

The NASDAQ 100 Index Tracking Stock (QQQ) followed a defined
ascending channel over the past few weeks.  Considering it was a
strong uptrend, we are best served to ignore sell signals and only
take buy signals based solely on this study.

Four possible entries are depicted as market prices corrected
and pulled back to trendline support.  MACD signals switching from
negative to positive at the time offered brief, profitable trades.

As the NASDAQ 100 struggles to convert overhead resistance to
support we witness the MACD signals at an extreme high cross over.
This could signal near-term weakness at the very least for its
next trading session.

Our personal preference for value settings is 18(8)6 in the
chart service template. Length 1 = 8, length 2 = 18, smoothing
= 6 based on closing price value for each period if requested.

MACD is a popular oscillator technical tool that clearly outlines
potential changes in market sentiment and direction.  It offers an
excellent source of future market action when coupled with other
market indicators.

Best Trading Wishes!

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AGIL - Agile Software Corp. $73.00 -1.06 (-1.75 this week)

Agile Software is the leading provider of Collaborative
Manufacturing Commerce solutions that speed the "build" and "buy"
process across a virtual manufacturing network, thereby improving
time to volume, customer responsiveness and cost of goods sold.
Agile's solutions manage product content, and the critical
communication, collaboration and commerce transactions among
Original Equipment Manufacturers (OEMs), Electronic Manufacturing
Service (EMS) providers, suppliers and customers in Internet time.

Most Recent Write-Up

Like many Tech stocks, July was a rough month for AGIL.  After
failing to break through formidable resistance at $75, the stock
spent the rest of the month selling off sharply.  Finding bottom
at just above the $45 level in the beginning of August, the stock
has since moved higher.  In doing so, it had to break above the
100-dma and 50-dma (now at $53.96 and $64).  Most recently, AGIL
cleared the 200-dma at $65.67, a support that has since been
successfully tested.  AGIL's recovery was also helped by a
stellar earnings report on August 17th, the company posted a
narrower than expected loss of 3 cents versus a loss of 9
cents from the previous year.  Beating Street expectations by a
penny, AGIL moved strongly higher post-earnings.  The stock was
likely helped by positive comments from Chase H&Q and more
recently, U.S. Bancorp Piper Jaffray's Senior B2B analyst Timothy
Klein, who initiated coverage on AGIL with a buy rating.
According to Klein, "We believe that strong industry fundamentals
and the trend toward increased-outsourced manufacturing and
shorter product lifecycles will directly benefit Agile's growth
prospects. In addition, we believe the company has strong
technology, solid fundamentals and very promising growth
potential."  At this point AGIL finds itself where it was in
early July, attempting to overcome strong resistance at $75.
Aggressive traders looking for an entry will look for a confirmed
bounce off the 5-dma at $71.57 or the 10-dma at $69.10.  There is
also support at $71.  A break through $75 on strong volume to
confirm upward momentum will be the signal for conservative
traders to enter this play.


Boy, they hit the NASDAQ today and they hit it hard.  Yet, AGIL
didn't see the price action or the volume action that the broader
tech market saw.  AGIL was spared from the hefty selling as it
traded in a narrow $1.50 range.  Look for intraday support to
hold at $72, with technical support below at the 10-dma of $69.98.
Bounces from either of these levels could provide entry into this
play.  Overhead, $74.50 will pose as intraday resistance.

*** September contracts expire in two weeks ***

BUY CALL SEP-65 AUG-IM OI= 65 at $9.38 SL=7.00
BUY CALL SEP-70*AUG-IN OI=410 at $6.00 SL=4.25
BUY CALL SEP-75 AUG-IO OI= 86 at $4.13 SL=2.50
BUY CALL OCT-75 AUG-JO OI= 48 at $8.13 SL=6.25
BUY CALL OCT-80 AUG-JP OI=186 at $6.25 SL=4.50

Picked on September 5th at $74.06     P/E = N/A
Change since picked         -1.06     52-week high=$112.50
Analysts Ratings        2-7-0-0-0     52-week low =$ 18.31
Last earnings 08/17    est= -0.04     actual= -0.03
Next earnings 11-16    est= -0.02     versus= -0.05
Average Daily Volume    =   558 K


The Semiconductor Sector continues to haunt the Nasdaq...

Technology investors sold for profits today amid concerns over
future earnings and revenue growth.  A number of analysts have
begun to dissect what companies say about current sales and the
outlook for profits and many believe the group is vulnerable to
further selling pressure as the pre-announcement period for the
third quarter approaches.  The semiconductor industry was the
source of much apprehension today and a downgrade of Micron (MU)
following the recent lowered rating on Intel (INTC) sent buyers
fleeing from the sector.  Merrill Lynch and Donaldson, Lufkin &
Jenrette both noted there is inventory in the system that will
place pressure on the DRAM spot market over the coming months.
Meanwhile, the industrial group rallied amid optimism for the
financial arena as merger news lifted the sector.  J.P. Morgan
(JPM) was among the Dow's upside movers, supported by rumors of
a potential buyout but the bullish activity was widespread with
shares of Boeing (BA), Honeywell (HON), United Technologies (UTX),
and 3M (MMM) moving higher.  The "merger-mania" continued in the
banking industry with Citigroup (C) announcing that it is buying
Associates First Capital (AFS) in a stock transaction valued at
about $31 billion.  The merger announcement and expectations that
the group will see more unions sparked the flame and speculation
that Deutsche Bank AG is in talks to acquire J.P. Morgan simply
fueled the fire.  Within the broad market, utility, retail and
paper shares achieved favorable gains but drug and biotechnology
stocks continued to suffer.  Oil and oil service shares rallied
as crude futures climbed to 10-year highs but the upside move
has triggered new concerns over the ability of the stock market
to continuing growing in the midst of excessive energy costs.
Rampant prices have yet to moderate and analysts are convinced
that OPEC will not increase production to subdue the trend when
it meets later this week.  As far as the potential for a September
rally, that could be the one straw that "breaks the camel's back."

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  59.63    $3.50   8.6%
PHCM    SEP    85    78.25  94.44    $6.75   7.1%
ADBE    SEP   115   109.68 127.50    $5.32   6.4%
SMTC    SEP    80    75.43 104.94    $4.57   6.1% 2-1 Split 9/26
MANU    SEP    70    67.81  90.06    $2.19   6.1%
MIPSB   SEP    45    43.25  51.06    $1.75   5.4%
ORCL    SEP    85    82.75  89.25    $2.25   5.2%
ARTG    SEP    90    87.63  97.06    $2.37   5.1%
NAVI    SEP    45    42.87  46.06    $2.13   5.0%
MIPS    SEP    45    42.88  57.25    $2.12   5.0%

Naked Puts:

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

MANU    SEP    65    63.56  90.06    $1.44  14.7%
MIPSB   SEP    45    43.37  51.06    $1.63  14.2%
METHA   SEP    40    38.37  59.63    $1.63  14.0%
INFA    SEP    85    83.50 101.38    $1.50  10.8%
ARTG    SEP    85    83.63  97.06    $1.38  10.4%
TUTS    SEP    85    83.19 101.81    $1.81  10.0%
MIPS    SEP    40    38.87  57.25    $1.13   9.9%
BOBJ    SEP    95    93.31 102.63    $1.69   9.9%
ADBE    SEP   105   102.75 127.50    $2.25   9.4%
VRTX    SEP   57.5   56.44  79.00    $1.06   9.0% Adj 2-1 split
NAVI    SEP    40    39.00  46.06    $1.00   8.9%
QLGC    SEP    85    83.50  99.94    $1.50   8.7%
EMLX    SEP    55    53.75  96.63    $1.25   7.9%
SMTC    SEP    70    68.62 104.94    $1.38   6.9%
MMCN    SEP    55    53.94 107.31    $1.06   6.7%
MXIM    SEP    65    63.75  81.06    $1.25   6.6%
ORCL    SEP    80    79.06  89.25    $0.94   6.4%
INKT    SEP   100    98.62 123.78    $1.38   6.3%
PHCM    SEP    65    63.50  94.44    $1.50   6.2%
MERQ    SEP   100    99.00 123.00    $1.00   6.2%

Naked Calls:

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

SNWL    SEP   100   101.31  72.00    $1.31  10.8% 2-1 Split 9/18
LSCC    SEP    80    81.00  70.50    $1.00   8.7%

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

BLDP - Ballard Power Systems  $110.06  *** New Trading Range? ***

Ballard Power Systems is developing proton exchange membrane
(PEM) fuel cells and fuel cell systems.  A fuel cell is an
environmentally clean power generator that combines hydrogen fuel
with oxygen, without combustion, to produce electricity, with
pure water and heat as the only by-products. It produces power
efficiently and continuously, as long as fuel is supplied.
Ballard is developing their PEM fuel cells for use in
transportation, stationary power generation and portable

The fuel-call sector is rallying again and Ballard is at the "top
of the heap."  Fuel cells are a low-polluting, energy-generating
technology that can be used in a range of industries with various
practical applications such as powering automobiles or replacing
cell phone batteries.  Their potential is enormous with supplies
of oil falling and the cost of finding new energy sources rising.
In addition, fuel-cell technology offers potential in third-world
countries as it can be utilized in making a power grid with low
installation costs in remote areas.  Ballard Power is a leader in
all of the fuel-cell technologies and the company's strong points
include sound management and solid customer base, with many of the
major potential end-users in the industry.

Investor interest in fuel-cell developers is growing and with the
Vice President's affection for alternative energies, this sector
may be one to watch in the coming months.  Today's "break-out"
above a recent resistance area may be just the impetus to propel
the issue to a new trading range.

BLDP - Ballard Power Systems  $110.06

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

Sell Call SEP 105  DFQ IA  212       6.88   103.18     6.0% ***

Sell Put  SEP 100  DFQ UT  450       0.56    99.44     5.5% ***
Sell Put  SEP 105  DFQ UA  34        1.69   103.31    14.0%


INFA - Informatica  $101.38  *** Short-term Speculation! ***

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 its plans to buy 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
and we favor the recent technical support near the cost basis.

INFA - Informatica  $101.38

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

Sell Put  SEP 90   UYF UR  45        0.81    89.19     9.1% ***
Sell Put  SEP 95   UYF US  1         1.69    93.31    15.9%


MANU - Manugistics  $90.06  *** Still Going Up! ***

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 last 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  $90.06

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

Sell Put  SEP 70   ZUQ UN  125       0.81    69.19    14.5% ***
Sell Put  SEP 75   ZUQ UO  144       1.50    73.50    22.6%
Sell Put  SEP 80   ZUQ UP  229       2.31    77.69    27.6%

AVNX - Avanex  $151.00  ** Own This One! ***

Avanex designs, manufactures and markets fiber optic-based
products, known as photonic processors, which are designed to
increase the performance of optical networks.  AVNX's photonic
processors offer communications service providers and optical
systems manufacturers improved levels of performance and
miniaturization, reduced complexity and better cost
effectiveness as compared to current alternatives.

We believe this position offers an excellent risk/reward outlook
for traders who are bullish on the issue in the long-term.
Avanex's unique photonic processors are the main reason for the
company's incredible growth and with new developments occurring
everyday, the outlook for the future is excellent.  At Avanex,
a team of network and system application professionals work with
both carriers and systems integrators to help them optimize their
optical architectures, and at the same time demonstrate the new
enabling capabilities of their products.  The recently introduced
"PowerShaper" dispersion management processors are easily the most
advanced and cost-effective solution to improving current network
performance in slope and dispersion compensation through a range
of different applications.  In addition, the availability of the
new processors offers customers reduced time to market, and along
with other Avanex photonic processors such as the PowerMux and
PowerExchanger, truly provides the tools necessary to deliver
next-generation communications services in today's market.

That sounds great if you are a "photonic" technician but we simply
favor the bullish outlook for the industry and the opportunity to
own this issue at a reduced cost basis.

AVNX - Avanex  $151.00

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

Sell Put  OCT 110  UYN VB  32        2.19   107.81     4.7%
Sell Put  OCT 115  UYN VC  2         3.50   111.50     7.2% ***
Sell Put  OCT 120  UYN VD  74        4.50   115.50     9.0%


METHA - Methode Electronics  $59.63  *** New Entry Point! ***

Methode Electronics is engaged in the manufacture of electronic
components and devices that connect, control and convey
electrical energy, pulse and signal including connectors,
automotive components, printed circuits, and current carrying
distribution systems.  Components and devices manufactured by
Methode Electronics are used in the production of electronic
equipment and other products in the automotive, computer, voice
and data communications equipment, industrial, military and
aerospace, and consumer electronics industries.  Their products
are sold primarily to original equipment manufacturers and also
to independent distributors.

METHA rarely gets any attention but investors have taken notice
since the company spun-off shares of Stratos Lightwave (STLW), a
company which develops, manufactures and sells optical subsystems
and components for high data rate networking, data storage, and
telecommunications applications.  STLW is now a market leader in
high data rate optical subsystems, offering superior optical
transmission line performance with top state of the art EMI
characteristics.  In addition, they market optical components and
cable assemblies for use in these networks and currently, that's
one of the most popular "high growth" industries.

Whether you like one company or the other, it appears that both
issues have a reasonable expectation of increased share value in
the coming months.  However, Methode Electronics will conduct a
conference call in conjunction with its first quarter sales and
earnings release on Thursday and after the news becomes public,
we plan to initiate our "target-shooting" order, based on the
movement of the issue.  Wait for the outcome of the report!

METHA - Methode Electronics  $59.63

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

Sell Put  OCT 45   QME VI  57        1.94    43.06     9.7% ***
Sell Put  OCT 50   QME VJ  15        3.38    46.62    13.3%


NMSS - Natural Microsystems  $72.75  *** Entry Point! ***

Natural Microsystems provides enabling technologies to suppliers
of networking and communications equipment.  Its customers
incorporate its software and hardware products and technologies
into their own commercial offerings in order to enable service
providers and enterprises to rapidly and cost-effectively deploy
data, voice and fax applications and enhanced services in a
networked environment.  They also provide their clients with
software development tools and systems architecture and
engineering design services.

Not content to rest after its 2-for-1 split on August 8th,
Natural Microsystems has spent the past week achieving one
business success after another.  Ericsson recently named Natural
MicroSystems as an approved Worldwide Supplier, and their new
Alliance Generation 4000 voice hardware platform and Natural
Access software development environment was selected as the
basis for a next generation router by Viking Telecom.  In other
developments, Natural Microsystems PolicyPoint 1000, the company's
leading IP traffic classification and shaping platform, received
Sprint's Customer Systems Development Lab certification.  This is
significant because it is a necessary qualification for its being
connected to a Sprint carrier network.

Traders who favor the bullish technical outlook for the company
can use this position to establish an acceptable cost basis in the
underlying issue.

NMSS - Natural Microsystems  $72.75

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

Sell Call OCT 65   YYQ JM  0        13.00    59.75     6.1% ***

Sell Put  OCT 55   YYQ VK  0         2.00    53.00     8.4% ***
Sell Put  OCT 60   YYQ VL  0         3.50    56.50    12.2%
Sell Put  OCT 65   YYQ VM  0         5.13    59.87    13.4%


RIMM - Research In Motion  $80.31 *** Ride The Wireless Wave! ***

Research in Motion Limited is a designer, manufacturer and
marketer of innovative wireless solutions for the mobile
communications market.  Through development and integration of
hardware, software and services, they provide solutions for
access to e-mail, messaging, Internet and intranet-based
applications. Research in Motion's technology also enables a
third party developers and manufacturers worldwide to improve
their products and services with wireless access.

Research in Motion is set to capitalize on the emerging wireless
market, producing a hand-held wireless device, the 957, that
allows wireless access to corporate e-mail, along with their
Inter@ctive Pager product line and the BlackBerry wireless e-mail
solution.  RIMM announced a deal this week with private software
firm Brience to expand enterprise applications to their devices.
Brience specializes in adapting and delivering unique proprietary
corporate information to any handheld in customized form, and the
potential for applications for RIMM's devices is significant.

Although the company is growing by leaps and bounds, Research In
Motion is considered the opportunist in the hand-held computer
sector, coming from relative obscurity to a top contender.  Its
stock, which has moved up substantially in recent sessions, may
not be for conservative, "buy-and-hold" investors.  However, if
you want some excitement and the potential for excellent growth,
consider selling one of these options to take a position in the

RIMM - Research In Motion  $80.31

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

Sell Put  OCT 60   RUL VL  99        1.63    58.37     6.4% ***
Sell Put  OCT 65   RUL VM  30        2.69    62.31     9.5%
Sell Put  OCT 70   RUL VN  96        4.25    65.75    11.3%

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