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Daily Newsletter, Tuesday, 09/26/2000

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The Option Investor Newsletter                  Tuesday 09-26-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        09-26-2000        High      Low     Volume Advance/Decline
DJIA    10631.30 -176.80 10813.20 10615.80 1.11 bln   1245/1603
NASDAQ   3689.10 - 52.12  3795.79  3677.73 1.83 bln   1417/2592
S&P 100   756.87 -  9.14   771.36   756.21   totals   2662/4195
S&P 500  1427.21 - 11.82  1448.04  1425.25           38.8%/61.2%
RUS 2000  509.89 -  5.49   516.47   509.41
DJ TRANS 2518.07 - 37.56  2557.50  2507.52
VIX        25.08 +  0.68    25.40    23.28
Put/Call Ratio       .57
******************************************************************

Time To Digest Some More Worries

Warnings from Eastman Kodak and Lexmark set the tone for the
day on Wall Street.  It was the second day in a row where the
sellers had their way.  The DJIA was the main victim due to
the Eastman Kodak warning, despite positive news for Microsoft.
The blue chip index fell by 176 points and is resting near
short-term support at 10,600.  It wasn't one of those quick
spike, down days either.  This was the slow, bleeding market
made up of too many bears on the sell button and too many bulls
afraid to buy.  All in all, it felt like a typical earnings
warning season trading day.

So let's get right to the white meat.  Eastman announced before
market open that...and I quote..."Our third quarter business
plans required strong September sales growth to enable us to
successfully offset the earnings pressures of a rising dollar,
increased raw material costs and higher levels of digital
investment.  As a result of the lower than expected sales we are
experiencing in September, our third quarter earnings are likely
to fall approximately $.20 to $.25 per share below our previous
guidance range."  That was according to Chief Financial Officer,
Bob Brust.  Now let me translate.  "We really needed September
sales to rocket in order to make up for a lousy quarter and it
didn't happen.  Thus we are letting you know with only three
days left in the quarter."  Fair enough.  It's not like we
haven't heard an Eastman Kodak warning a few times in the last
year.  Actually, in their defense, they had been able to hit
estimates for the past few quarters.  Nevertheless, EK is in
the DJIA and it weighed heavily on the index today as EK closed
at $44.31, down $14.69.

Next, please.  Lexmark announced yesterday evening that they
would also be guilty of lower earnings.  The culprit?  A reduced
forecast of Inkjet cartridge sales and a weak Euro.  Revenues
are still expected to be on track at a growth rate of about 9%
for the quarter, but earnings will be around $0.45-0.50 cents
instead of the previously forecasted $0.56 cents a share.  For
these reasons, plus slower corporate growth, the fourth quarter
will also be suspect.  Translation?  The printer business is
and always has been very tough, just ask Xerox.  LXK finished
at $37.25, down $14.75.

Now fortunately, Microsoft received good news from the Supreme
Court who sent the case to a federal appeals court Tuesday,
handing the computer giant a giant victory and delaying the
government's effort to split it in two.  This came out just
after market open and provide a nice pop in the DJIA and the
Nasdaq.  The action means a final decision on whether Microsoft
must be broken up could be years away.  Unfortunately, the
rally didn't last long, for some strange reason.  MSFT traded
as high as $65.88 on the news, but settled back to $62.63 by
the close, up only $1.44.  Still, it was able to provide some
support for the indices.

The final numbers on the DJIA put the index at 10,631.32, or
31 points above support.  This is an interesting level too
because it was here that the DJIA took off on a breakout move
on August 1st.  You may remember the chart that Jim kept showing
about the diamond formation that it had wedged itself into.
The breakout occurred on the upside and it ran off to 11,400.
Now we are right back to where it started.  The pivot point,
as some traders call it.  Will it hold or fail?  Tough to call,
especially as we head into October, but pivot points usually
produce a good move one way or the other.  We will look more
at the short-term possibilities below.  The volume was good
at 1.1 billion and decliners lead advancers by a 4-3 margin.

The Nasdaq had more heart today in trying to rally.  It traded
up 50 points on the MSFT news, but then the slow bleed began
and really never ended.  Saved by the bell, you could say.
The volume was stronger here as well with 1.79 billion changing
hands.  Decliners were more prominent with a 26-14 margin.
The bad news is that official close was at 3689.10, or under
the 3700 support level.  If there is anything good to add, it's
that we are getting closer to major support levels, especially
3500.  On the chart you can see the levels we are looking for
support in the near-term.




The Vix continued its uptrend and closed out the day at 25.
This is better movement than we have seen in the dull days of
July and August when it just sat around doing nothing, but it
is still in the middle of the historical range.  Bonds moved
up today.  The 10-year climbed 9/32 to yield 5.81, while the
30-year added 15/32 to finish yielding 5.86.  The only economic
news out today showed a small gain in September consumer
confidence from 140.8 to 141.6.  The gain was likely due to the
strong stock market in August, according to analysts.  There is
a bigger dose of news tomorrow with the Durable Goods Orders
being released before the bell.  This report has had some wild
swings in recent months and may be one to watch.  The expectation
is for a 2.4% gain.

3com was the big earnings news after the close today and the
news was good.  In fact, just what the market may need.  They
turned in a loss of $0.12 cents, thoroughly beating estimates
of a $0.33 loss.  Sales were up 20% in the quarter, as well
as margins from 26% to 36%.  The comments from the CEO sounded
positive as well.  "The close of our first quarter marks the
completion of our restructuring.  3Com is now a new company
with a revitalized image and a heightened focus on growth markets.
We now have one quarter of experience for the new 3Com and I'm
encouraged by the results.  The transformation milestones and
business objectives set forth in March 2000 and reaffirmed last
quarter were completed on or ahead of schedule.  We are growing
and favorably positioned to create shareholder value." said
Eric Benhamou, chairman and CEO.  If the growth is returning,
it is hard not to like a company with a 5 billion dollar market
capitalization, while retaining 3 billion dollars in cash.
COMS ended at $14, but was trading around $15.75 after-hours.

Much of the talk amongst traders this week has been about
window dressing.  Obviously Friday is the end of the quarter,
but what impact is it really having?  Is that the reason for
Yahoo's decline back down to support near $100?  Has YHOO
finally gone from being bought ahead of the new quarter to
being sold?  Cisco, Nortel, Microsoft, and obviously Intel,
all appear battered, but at support.  I don't know if there
is time left to shoot the generals for one final capitulation
before a possible earnings run as soon as next week.  After
having made a nice profit on some QQQ puts last week due to
the Intel warning, I have been sitting in cash waiting to buy
when the bottom arrives.  I am actually hoping we hit 3500 on
the Nasdaq by Thursday.

My final thought for the day has to do with a comment made on
CNBC today.  They had an analyst on the show taking phone calls
with Maria B. moderating.  If you saw this one, you already
know what I am talking about.  The caller was asking about
Lucent and meant to say, "Should I take my loss and get on with
my life?"  Instead he said, "Should I take my life and get on
with my loss?"  Is there some sort of subliminal, contrarian
indication here?  I'm sure it was just one of those blunders
that happen with the pressure of 15 seconds of fame on national
television, but the timing was impeccable.  This is the kind
of quote that you will read about in books five years from now
as they pin-point the exact bottom on a chart.

Anyway, take it with a grain of salt.  But right now I am
expecting more entry points than exit points in the coming
days.

Ryan Nelson
Editor

*************************
ADVANCED OPTIONS WORKSHOP
DENVER - Oct 27-30th
*************************

We will be announcing the speaker lineup and the topics they will
cover in the Thursday newsletter. The current list includes 16 
speakers and the amount of critical option education will be 
incredible.

The guest speakers are going to blow you away. You will not
want to miss this event. The current roster of staff instructors
includes:

Ryan Nelson - Managing Editor, OptionInvestor.com
Chris Verhaegh - Options 101/102 Writer and Option Strategist
Steve Rhoads - Technical Analysis Instructor
Molly Evans - OIN Staff writer
Lee Lowell - OIN Staff writer
Austin Passamonte - Editor IS, Staff Writer
Buzz Lynn - Editor, Sector Trader, Staff Writer
Mark Phillips - Leaps Editor, OIN
Vince Dowd - Spreads Specialist
Louis Horkan - Managing Editor, Premier Investor
Steve Pekarek - Editor, SplitTrader.com 
Jeff Bailey - Editor, Premier Briefing
Matt Russ - Editor, OptionInvestor.com
Jim Brown - Head Option guy

This is not the complete list. We still have several topics
and sessions in the race for the final cut. Add in a roster
of guest speakers, names you will recognize from routine
appearances on CNBC and CNN, and you will have a weekend to
remember. In March we had John Dessauer, Mark Leibovit, Harry
Browne, Howard Ruff. We are going to do even better in October!

The workshop is scheduled for the last weekend in October. 
Four days of intense, power packed option education.  

This is not your standard seminar. We start by putting you up
in a luxury hotel and feeding you five times a day. We feed your
mind from a fire hose as well with more than 15 speakers and 
special guests to educate you on every option strategy. 

There is something for everybody. Just mingling with over 15
professional option traders for four days is worth the price of
admission. We even pay for the entire room, all meals and you
will get a professionally produced set of videos of the entire 
weekend.

Need we say more? If you want to learn how to be a better trader,
making more and losing less then you should come to this seminar.
We guarantee you will not be disappointed!

For more info:

http://www.OptionInvestor.com/workshop


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**************************************************************


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

Where's The Beef?
By Austin Passamonte

We've gone from wildly bullish feeling our oats to ground chuck
in a hurry. As you've witnessed, every attempt to rally has been
met with a new round of eager selling. Eventually the buying
dries up as traders bleed to death and walk away from the table.

Technically speaking, not very pretty. Both the Dow and SPX hit
their heads on 200 DMAs for the daily highs and plummeted from
there. The NDX failed its overhead 200 DMA test yesterday and
never came close today. The OEX is so far from the 200 DMA it
might get dizzy trying to look that high overhead.

Is all bullish hope lost? Not really. The inevitable bottom
draws ever closer each session.

The VIX pushed far outside it's upper Bollinger Band a couple
sessions ago and is pinching through the upper extreme even
now. We could see a bullish release from here within days.

Open interest put/call disparity on the OEX is astronomical
below 755. I realize we are a ways from there still and no
bulls want to visit there soon but at least we can quantify
some semblance of a floor.

Pre-earnings confessions should abate by the endof next week
but a few more like INTC and Kodak will not be good. This market
is just waiting for any piece of good news to come along and
give buyers a reason to do what they like best; buy.

We saw the same setups occur in late-May, late July and late
August. Bad news, worse news, bearish media, surprise rally.
Four out of five month-ends may be our fate. No telling from
here.

The best news of all? These 100 and 200 point swings in the
daily range are giving swing traders solid profit potential
every single session. If you see the markets fail to rally
again then heck, just buy some puts and ride the waves of
profit swelling the seas out there in front of us.

Someone is making solid gains playing the downside, we'd be
thrilled if it were you!

*****

VIX
Sat 9/23 close; 25.08

CBOE Equity Put/Call Ratio
The CBOE equity put/call ratio is a contrarian-sentiment
indicator. Small traders are majority of equity-option players.
Numbers above .75 are considered bullish, .75 to .40 neutral
and bearish below .40
*************************************************************
                             Tues        Thur         Sat
Strike/Contracts            (9/26)      (9/28)       (9/30)
*************************************************************
CBOE Total P/C Ratio         .57

Equity P/C Ratio             .54


Peak Volume (Index & OEX)
CBOE Index & OEX put/call ratio is now a "smart money" sentiment
indicator, as majority of buying done by institutional traders.
Numbers above 1.5 are considered bearish, 1.5 to .75 neutral and
bullish below .75
**************************************************************
                            Tues          Wed         Sat
Strike/Contracts           (9/26)        (9/28)      (9/30)
**************************************************************
All index options           .91

OEX Put/Call Ratio          .67

30-yr Bonds
Tuesda 9/26 close; 5.85%

Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.

  (Open Interest)       Calls       Puts         Ratio
S&P 100 Index (OEX)
Resistance:
795 - 780               7,817       6,893         1.13

775 - 760               3,375       8,493          .40

OEX close: 756.87

Support:
755 - 740                  82      16,100       197.55***
735 - 720                   7       9,872      1349.81***

Maximum calls: 800/6,072
Maximum puts : 750/7,580

Moving Averages
 10 DMA  781
 20 DMA  800
 50 DMA  802
200 DMA  783


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 98 - 96              15,038       16,849          .89
 95 - 93              18,011       24,714          .73
 92 - 90              21,643       29,722          .73 ***

QQQ(NDX)close: 89.5/16

Support:
 89 - 87               4,073       25,406         6.24
 86 - 84                 542       17,900        33.03***
 83 - 81                 208        6,097        29.31

Maximum calls: 90/10,166
Maximum puts : 90/17,873

Moving Averages
 10 DMA 90
 20 DMA 91
 50 DMA 91
200 DMA 95


S&P 500 (SPX)
Resistance:
1475                   16,313        12,060          1.35
1450                    7,729        12,737           .61
1435                       98           329           .30***

SPX close: 1427.21

Support:
1425                    11,076        17,602          1.59
1400                     1,252        10,028          8.01
1375                       292        10,359         35.48***


Maximum calls: 1475/16,313
Maximum puts : 1350/23,267

Moving Averages
 10 DMA 1455
 20 DMA 1478
 50 DMA 1476
200 DMA 1446


COT Report: (returns tomorrow, unchanged from Saturday edition)
*****


Bullish:
Fed's finished
Benign government reports
Oversold market levels now
Disparity in overhead call/put ratios
Rising VIX

Bearish:
Oil Prices (easing?)
COT reports (changing?)
Recent pre-warnings, downgrades (killers)
Broad market's break of critical M/A support
Market leaders breakdown
Technical chart indicators


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

As of Market Close - Tuesday, 09/26/2000

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

DOW   Industrials      10,631      10,600  10,900
SPX   S&P 500           1,427       1,420   1,465
COMPX NASD Composite    3,689       3,600   4,000
OEX   S&P 100             756         740     784     **
RUT   Russell 2000        509         500     550
NDX   NASD 100          3,582       3,500   3,850
MSH   High Tech           976         950   1,055

BTK   Biotech             762         730     820     **
XCI   Hardware          1,335       1,300   1,460     **
GSO.X Software            456         430     470
SOX   Semiconductor       870         820   1,000     **
NWX   Networking        1,166       1,160   1,250
INX   Internet            515         510     580

BIX   Banking             603         580     635
XBD   Brokerage           637         610     685
IUX   Insurance           754         720     765     **

RLX   Retail              808         800     875     **
DRG   Drug                404         365     415
HCX   Healthcare          836         785     855
XAL   Airline             144         140     152
OIX   Oil & Gas           304         296     332

Six alarms were triggered over the past two sessions, with the
BTK and IUX hitting resistance alerts.  If the major indexes
were to close below current support levels, that would be a
reason for ongoing concern.  Lowering support (OEX, XCI, SOX,
RLX) Lowering resistance (OEX, XCI, SOX, RLX) Raising support
(BTK) Raising resistance (BTK, IUX).


***********
OPTIONS 101
***********

Above The Fray
By David Popper

Two years ago in January, I bought 200 shares of YHOO and
witnessed the stock rocket 100+ points in one day.  I was
absolutely dumbfounded.  All in all, that was a $26,000 day for
me.  I floated home believing that I was a genius.  Lets see,
$26,000 a day times 20 trading days in a month, at this rate
I'll retire in 6 months.  I told my wife about the conquest and she
promptly asked if I had sold to lock in the profit.  I said no
we did not sell because an analyst gave YHOO an upgrade to
strong buy and set a price target at $800. (At this time, I did
not recognize the concepts of extreme conditions).  Well, YHOO
began to show signs of weakness the next day, and within two
weeks it had plummeted to $130 from a high of $440.  Thankfully, I
sold in the low $300's, but I gave back a substantial amount of
the profit.  What a show, what excitement, and all for the price
of $10,000.  It was exciting, but not as exciting as a new car,
or money in the bank, or 101 different things that could have
been purchased.  This episode provided me with an opportunity
to pause and reflect about my real goals for my account.  My
real goal was to supercharge my retirement account, not buy
a lottery ticket. I wanted steady returns and to be above the
fray of everyday trading.  I began to assess what I needed to
retire and how I could achieve this goal.

What does it take to retire?  Everybody has a number.  One friend
believes that he needs two million dollars to retire.  Another
feels that five million dollars is a necessity.  What are these
people really saying?  They are saying that they want to have
a passive income that is equivalent to a safe return on one, two
or five million dollars.  Current passbook or certificate of
deposit rates are somewhere between 5 and 7 percent.  Therefore,
what my friends really want is anywhere from $100,000 to $350,000
"risk free" income each year.  Unfortunately, these dreamers have
absolutely no idea how they will accumulate this type of wealth,
except winning the lottery.  Most view active trading as too
risky and are content with their index funds.  So, I ask again,
what does it take to retire?  It does not take one to five million
dollars.

Instead, it takes the ability to generate through investments, the
same amount of income that one to five million dollars would
generate.  Active traders are practicing the very skills that can
generate a comparable amount of income with far less capital.
Even the most conservative trading strategies discussed in OIN
could allow you to generate the synthetic equivalent of these
millions on far less.  For example, the conservative deep ITM
calls and OTM puts section produced every Wednesday typically
yield between 3% and 5% monthly.  This is an uncompounded return
of 36% to 60% a year.  At a 36% return, you only need roughly
1/3 of your magic number to achieve the equivalent income.  Where
$1 mln may seem impossible to obtain, $300,000 seems far more
possible, especially if you are accumulating capital through
trading for years before you retire.

What is the point of this pontification?  It is simply the idea
that it may pay to take a portion of your capital and become
skilled at an income generating strategy, even if you place the
majority of your risk capital into more aggressive strategies.
Obviously, practice now will help you learn the subtle refinements
that are only learned through experience.  I, for one, will be
very interested in safety when I finally decide to live on my
portfolio; therefore, I want to be already skilled in conservative
strategies.

So what is your number?  How do you plan to get there?  Are the
strategies that you are now employing allowing you to make steady
progress to that magic number, or are your strategies merely
giving you a thrill?  I have dedicated a portion of my trading
capital to learning the nuances of successfully writing covered
calls.  Nothing is risk free, therefore I want to learn every
subtlety possible.  For this portion of my portfolio, I will try
to achieve 36% per year.  The majority of my trading capital is
spent trying to achieve that "magic number" by trading in more
aggressive ways.

The point is that trading philosophies and strategies should be
designed to fit within and support your larger goals.  Trading
is not an island unto itself.  By understanding your larger
goals, one can select market strategies which are appropriate
in light of those goals and current market conditions.  My larger
goals keep me from developing a casino mentality and keep me
focused on what really matters.  I realize that I do not have to
be overly aggressive to achieve my goals.  I do not have to make
millions.  I can do just fine being a synthetic millionaire.


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

Technical Indicators Work Poorly On Some Stocks
By Mary Redmond

Most traders use several technical indicators as tools to help
guide a trading decision.  Almost all technical indicators have
one characteristic in common.  They are based on the past
trading history of a stock.

Technical indicators can't perform magic.  They can't predict
exactly what a stock will do under various circumstances.  If
this were true, there would be no security analysts, no mutual
funds and no newsletters.  All the factors would be programmed
into a computer to determine what price a stock will be at a
particular point in time.  There would be no need for human
judgment.

There are many intangible factors analysts use, including the
capability and personality of the management team.  Nowadays,
we have to try to judge the response of the market to good
and bad news on a stock, as we have seen many companies which
are fundamentally sound drop to astonishingly low prices on
the whim of market participants.

Many technical indicators have high levels of success in
predicting the future trading pattern of a stock based largely
on the past behavior of a stock.  This is a key point: the
basis for many of the most successful and reliable technical
tools is the past trading history of a stock.

We not only have to chose the right technical indicators, but
stocks which consistently respond well to their signals.  For
example, the stochastic oscillator and the MACD histogram can
both be valuable tools for many stocks.  The stochastic
oscillator compares the present stock price to its price over
a specified period of time.  The stochastic can help to
indicate when prices start to group around their lows in an
upward market and vice versa.

The moving average convergence/divergence indicator histogram
measures the strength of the upward or downward movement of a
stock.  It can often give signals which can indicate trend
reversals with significant accuracy.

However, in order to compare a stock's present price with its
historical trading pattern, the stock needs to have had a
trading pattern for a significant period of time.  These
indicators usually work best on stocks which have been public
for several years, have a high daily trading volume, and
significant daily movement in the stock price.  Bulletin
board stocks, microcap stocks, recent IPOs and stocks with
very low daily volume usually are not good short-term trading
candidates.

The technical indicators are only as accurate as the stock
will allow them to be.  If the stock has not been public very
long, it cannot have established a trading pattern upon which
the stochastic oscillator and moving average are based.  In
addition, a stock which is volatile and has a daily trading
range of 5 to 10 points or more will often have an established
daily moving average upon which indicators are based.

The charts below of Greenpoint Bank show that these indicators
do not show clear or accurate buy or sell signals.  This may
be due to the low daily trading volume, comparatively small
market capitalization, and history of choppy price changes.







The chart below of a bulletin board stock shows that the tools
are virtually useless.  The bulletin boards are usually not as
liquid as other stocks, and often have wider spreads between the
bid and ask prices.  The best way to determine if a company's
stock price responds well to the technical tools is to watch it
for a period of time.  Generally speaking, larger, mature,
liquid companies with a high daily trading volume respond more
consistently to technical indicators.




After the last series of rate hikes by the Federal Reserve in
1995, we had a strong bull market which lasted until mid-1998
without a major correction.  This was a market in which most
sectors participated, and technology and financial stocks had
superior performance.  Many analysts have stated that we are
on track to experience a similar bull market in the coming
years, since the circumstances are similar.

One factor seems different.  Today we have many stocks which
have gained and lost over 30 to 40% of their market value in
one day.  A company which disappoints the shareholders or
warns of lower-than-expected earnings can lose billions of
dollars in market value overnight.  Also, many companies have
increased their market capitalization from approximately $1
or $2 bln to $50 or $100 bln in months, not years.  This speed
of stock price movement has been particularly pronounced since
1998, when investors started to recognize the potential of the
internet.  The volatility and risk associated with it scares many
people.  It is exciting to watch a company quadruple in a few
months, but it can be scary also.  We can never be sure who the
next victim of the market will be, so the share turnover is
greater than it ever has been.

It makes sense that investors started pouring cash into money
market funds since late 1998 and early 1999, with a real
acceleration in the last twelve months.  The chart of the Dow
since 1995 shows a smooth line, with a sharp drop in the summer
of 1998, and many months following it with 1000 point moves each
month.  It may take a few months of a smooth uptrending market
before investors feel confident enough to start depositing cash
to equities as they did in the past.  While we had a high level of
cash flow to equity funds last week, we may need to watch this
occur on a weekly basis in order for the markets to rally.


******

Another High-Potential Sector to Watch: Superconductors
By Scott Martindale

Well, another week, another desperate search for a market bottom.
When will that much anticipated Fall rally start?  Have we seen
the "final capitulation," or is it yet to rear its ugly head?
Certainly we've had some occasions that resembled a capitulation,
but they really haven't felt "final" to me.  Maybe everyone's so
eager to buy the event, that we're preventing the event from
occurring.  No matter.  I still expect a rally by year-end (ultra-
major-selloff-sky-is-falling-run-for-cover-final capitulation or
not).

Two weeks ago, I wrote about one hot, volatile sector that might
be fun to play, i.e., fuel cells (and other alternative power
sources).  Today I'll talk about another new-technology
sector comprising a handful of high-growth companies sporting lots
of buzz, lots of promise, and lots of upside potential
(particularly those quite a bit off a recent high), but with
relatively little further downside risk:  Superconductors.

Like fuel cells and other early-stage technology, this type of
sector is highly news driven.  Because of that, you must be nimble
and ready to strike.  Right now, the stock in superconductor
companies is consolidating, but if a hype story comes out in a
major periodical in the midst of an overall tech rally, the stock
in these companies can really break out in a big way.

But first, what is a superconductor, anyway?  It is an element,
alloy, or compound that will conduct electricity without
resistance at a certain (usually very low) temperature.  Once set
in motion, direct current (DC) will flow forever in a closed loop
of superconducting material, making it the closest thing to
perpetual motion in nature.  We all know about metals that conduct
energy (like electricity) at room temperature, such as copper,
silver, and gold.  But materials like lead and mercury become
superconducting at ultra-cold temperatures, making them better for
superconductor cables and magnets.  This requires a cryogenic
system to stay cold, although new research is trying to find room
temperature solutions.

Some applications:

1. The super-collider project in which high-energy subatomic
particles are accelerated to near light speed using superconductor
magnets to study the structure of matter by recreating the cond-
itions of the early universe ("Big Bang").

2. Magnetic-levitation, such as high-speed trains that "float" on
strong superconductor magnets.

3. Bio-magnetism, in which a strong superconductor-derived mag-
netic field is impinged into the body to force hydrogen atoms to
accept energy and then release it for internal scanning.

4. Electric power generation, in which resistance-free wire is
used to create generators much more efficient and compact compared
with conventional copper-wire generators.  [GE estimates a world-
wide market in the next decade of $20-30 bln.]

5. Electric power storage using superconductor magnets for power
stability during any disturbance or surge in the power grid.

6. Superconductor-based transformers and "fault-limiters" used by
power utilities to allow more current to be routed through exist-
ing cable tunnels without risking disaster.

7. In the electronics industry, ultra-high-performance filters for
passing desired frequencies and block undesirable frequencies in
applications such as cellular telephone systems. [Wireless towers
can get double range, exponentially more capacity, and the elimin-
ation of "dead zones."]

8. High-speed storing and retrieving of digital information.
[We're talking "Petra flops," i.e., thousand-trillion floating-
point operations per second.]

9. Also, superconducting digital routers for high-speed data
communications (internet), light detectors for telescopes, and
gyroscopes for earth-orbiting satellites.

Key players in the superconductor space include American
Superconductor (AMSC), Intermagnetics General (IMG), Conductus
(CDTS), Illinois Superconductor (ISCO), and Superconductor
Technologies (SCON).  Each concentrates on a different
application.  For example, AMSC and IMG focus on the electric
power area, while CDTS, ISCO, and SCON focus on high-performance
filters.  [Currently, only AMSC, IMG, and SCON are optionable.]
You can see from the charts that the companies that focus on
similar products move virtually identically, with the filter-
makers showing greater volatility (including a huge 3500% swing
earlier this year).







The buzz in February-March was caused by a combination of company
announcements of supply agreements and successful tests of new
technologies, news stories trumpeting the high potential of
superconductors, and chat room hype.  For example, on February 16th,
SCON blew right through $20, closing at $30.88, up $17.75 on
minimal news.  Local newspapers in Santa Barbara (company
headquarters) showed pictures of staff shaving their heads in
celebration of reaching the $20 milestone.  Within two weeks, the
stock hit $115 intraday.  Within another week, it was back down to
$50, and a month later, it actually touched $11.  It flirted with
$40 for much of June before gradually settling in around $20,
where it has sat for the past two months.

On September 20, SCON announced some news regarding a major
technology sale, but the stock price reaction was more muted,
indicating that the big moves are more likely to occur within a
strong overall tech market.

Trading in all of the superconductor stocks has been fairly quiet
lately as they consolidate.  An occasional announcement or news
story will start a temporary rally, but then the consolidation
continues.  However, they are ripe for a move at any time.

Because moves in these sorts of stocks can be so sudden, fast, and
brief, the opportunities are infrequent, so we don't often get
them as recommended plays in the OIN.  But if you stay on your
toes, you can get in on these moves.  When good news starts a
little momentum run, consider buying more than one call so that
you can take some profits along the way without having to
completely exit the play.  As the stock runs on the news, you'll
want to lock in some gains or move up your sell stops.  And always
evaluate your position closely before holding it overnight.

Of course, another way to benefit is to buy the stock when it has
come back to rest at support, and just wait for the next move to
happen.  Also, while these stocks are consolidating at support,
you can take advantage of their juicy options premiums by selling
naked puts (as I have been doing).

Alternative fuel stocks like BLDP, PLUG, and FCEL became active
lately when oil prices began to look as though they might not come
back down.  Likewise, with growing demand for electric power,
telecommunications, high-speed data transmission, and high-speed
transportation, and with the associated need for greater capacity
and efficiency, it appears to be only a matter of time before the
superconductor sector gets another big lift.


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*************
SECTOR TRADER
*************

Not Your Average Kodak Moment
By Buzz Lynn
Contact Support

Investors were in no mood to smile as the profit picture at
Eastman Kodak developed into a real negative.  Bad puns aside,
yesterday's lack of follow-through on Friday's recovery was a bad
omen made worse by profit warnings, this time from Dow component
EK.  It shed 25% of its value at the open this morning, losing
over $14 to close at $44.38.  Can you guess the culprit?  Yep -
weak demand, falling Euro.  Sound familiar?  According to First
Call, 64% of the companies providing estimates this quarter will
mill earnings, vs. 55% for the previous quarter, as reported by
briefing.com.  That's a big reason to stay concerned.

Unfortunately, it also says that our comfort in calling for a
market bottom following last Friday's comeback was misplaced.  We
still trust our instruments (MACD and stochastics in this case).
But 1-3 times out of 10, they will be wrong, which brings us to
another important point.  We noted over the weekend that
stochastics had given us a clear entry signal on the OEX, QQQ and
the Dow by poking up through the 20% line.  We further noted that
jumping the gun without benefit of a MACD confirmation on the
daily chart might be an acceptable risk because all three indices
behaved the same.  Not this time.  Those willing to wait for the
MACD confirmation were rewarded by having the patience to stay
out.  The lesson here is that while jumping the gun on an entry
can be profitable, preserving capital (our #1 job in trading)
comes from playing by the rules.  This is also a strong reminder
not to put in a market order the morning after the newsletter
comes out.  It is important to wait for a confirmation.  Trust ALL
of your instruments.  Shooting from the hip accelerates the trip
to the poor house.

That said, what could we expect going forward?  If we knew for
sure, we'd be writing this from our private island in the South
Pacific, not an office in Denver.  However, for the NASDAQ in
particular, 3600 needs to hold, otherwise we are staring 3500 in
the face.  It's been down 4 days in a row and is due for a bounce.
Plus the technicals are way oversold.  That's why despite the
slide over the last three weeks, we won't be offering any put
plays.  Not even news that the Supreme Court refused to expedite
the MSFT case, thus kicking it into an appellate court friendly to
MSFT, was able to help.  Fears of slowing PC sales are further
depressing DELL and INTC, while CSCO is getting clobbered from
fears of slowing equipment sales to telecom providers.  Lots of
fear, but we still think that's a wall of worry ready to be
scaled.

OEX too has broken support at 770 and approached new support of
750.  If that can't hold, OEX may not find its bottom with both
hands until it reaches 730.  The 200 and 252-dma have been
violated too telling us that we may be in for more weakness.  But
as Jim says, it's darkest just before the dawn.  Technically, OEX
too is highly oversold.  It is just a matter time before investors
move to the other side of the boat.

Sometimes it pays to stand aside until a clear direction is
established.  Oil prices, earnings warnings, currency risk - all
will stay at the forefront at least until earnings figures start
to come in.  A few pleasant surprises may be what this market
needs to snap out of the current funk.

***note we have the MACD set at 8,18,6 and the stochastic set at
10(3),5 for all our technical references in this section.***

**************
QQQ
**************

QQQ - NASDAQ 100 $89.31 -1.16  (-3.75 this week) Like a false
start at the Olympics, we wish we call this one back.  No luck.
NASDAQ broke back under 3800 yesterday and 3700 today, taking the
QQQ with it back under $90 support.  The good news is that the
next support is at $88.  While the stochastic breakout looked
pretty good on Friday, MACD never turned positive - but oh so
close!  No matter, breaking the rules can get us in trouble.  We
should have known.  In fact, in the bigger picture (some of you
will hate hearing this) slowing PC and semiconductor sales, a
major component of this bull market, is a logical progression.
Just like MSFT and INTC replaced IBM in the late 1980's, so too
will the optical revolution replace the Wintel dominant landscape.
We're not saying sales are going to zero and these companies will
turn to dust.  Only that growth rates are slowing, while
everything optical is replacing much electronic.  But that's a
whole 'nother story.  If we intend to be good bank robbers, we
have to know where the money is.  The money is still in tech
stocks, which dominate the QQQ.  Technically, the daily stochastic
is barely providing us with a positive signal, but remains above
the 20% oversold mark.  MACD on the other hand is flirting with
turning positive, but isn't quite there yet.  You can daytrade
these from a 30 and 60-min charts, but we prefer the position
trades from a daily chart and will wait for an entry.

Calendar Spread:

While the technical indicators MACD and stochastic may be telling
us that an upturn is near, time decay is going to work in our
favor over the next three weeks as long as we are sellers of time.
We still stick to idea that long as the QQQ is oversold and can be
bought at points of support, now may be the time to enter that
long leg of the spread.  Heck, selling the ATM or OTM short now
may be a good idea too since profit warnings continue to come in
at greater than expected rates.  Remember our plan is to buy the
long leg cheap and sell the short leg dear while letting time
decay evaporate the other guy's premium right into our account,
thus reducing our net debit every month.  Support is at $88.
Resistance is at $90-$91, then $93.  Ideally we could sell when
the market is overbought, but we might miss a monthly premium in
the process.  Time decay for October is beginning to accelerate.

BUY  CALL JAN- 90 QVQ-AL OI= 7056 at $ 9.50

SELL CALL OCT- 90 QVQ-JL OI=10166 at $ 4.00, ND = 5.50 or less
SELL CALL OCT- 95 QVQ-JS OI= 9643 at $ 2.00, ND = 7.50 or less

Long Call:

Oops, not yet.  We still need to wait for the MACD to turn
positive before entering.  Support is at $88.  That might make a
good spot to target shoot so long as the daily stochastic remains
pointed north too.  You might be able to daytrade this on a 30 or
60-min chart.  However, we favor a position trade based on an
entry from the daily chart with a stochastic still above 20% on
its way to 80%, and a positive MACD confirmation.

BUY CALL OCT- 85 YQQ-JG OI=  296 at $7.13 SL=5.00
BUY CALL OCT- 90 QVQ-JL OI=10166 at $4.25 SL=2.50
BUY CALL OCT- 95 QVQ-JQ OI= 9643 at $2.13 SL=1.00
BUY CALL NOV- 95 QVQ-KQ OI=  410 at $4.00 SL=2.50

Bullish Put Credit Spread:

Yes, this play is risky.  You risk $4 to make $1, but you are
protected to the downside as long you are comfortable that QQQ
will close over $90 by expiration date.  You make money by selling
a put and buying a lower strike put for protection just in case,
taking in a credit in the process.  It works in a flat to slightly
bullish market.  If bears don't maul us, it can even work in a
slightly down market as long as both positions are OTM by
expiration.  Currently, open interests indicate that QQQ will be
in the $90-$100 range at expiration.  With the charts still
showing an oversold market (barely), instruments tell us that we
could be in for an upswing.  Understand the trade before you
enter.  Prudence would have us wait for a positive MACD before
entering.  It's for the experienced trader with a margin account.

SELL PUT OCT-90 QVQ-VL OI=17873 at $4.38
BUY  PUT OCT-85 YQQ-VG OI=10623 at $2.63

Net Credit = $1.75 or more

Average Daily Volume = 19.5 mln


**************
OEX
**************

OEX - S&P 100 $756.88 -9.14 (-17.20 this week) Yow!  Pass the
Band-Aids.  Earnings warnings are starting to take their toll on
the OEX.  That little poke through above 20% oversold on the slow
stochastic we saw on Friday proved to be a headfake.  No long
entries have been available from the daily chart Stochastic or
MACD this week.  That said, OEX remains technically oversold and
ready to bounce.  For that reason, much as we'd like to, we don't
list puts.  Boy, don't we wish we bought puts way back on
September 1st?.  When the market turns from its oversold position,
this could be a nice ride up.  In the meantime we have oil,
currency, and earnings warnings working on the market psychology.
Perhaps window dressing and a winding down of warning season will
help out.  Until then, look for support at 750, mildly at 740,
then again at 730.  Resistance is at 770, 780, and 800.

Long Call:

Our stochastic signal disappeared and the MACD is still showing
two parallel lines pointed south.  Despite the oversold position
that looks like it should reverse any day, we won't enter a put
play.  Instead, we will wait for the slow stochastic to poke above
20% and for the MACD to turn positive on the daily chart.  No need
to belabor this since it's a simple technical entry.  Those
wanting a bit more action can attempt to day trade it from the 30
and 60 min charts, but we'd opt for the position trade entry noted
above.

BUY CALL OCT-750 OEZ-JJ OI=  52 at $23.63 SL=16.50
BUY CALL OCT-760 OEZ-JL OI= 475 at $17.00 SL=12.25
BUY CALL OCT-770 OEZ-JN OI=1071 at $12.13 SL= 9.25
BUY CALL NOV-770 OEZ-KN OI=  99 at $19.88 SL=14.50

Bullish Calendar Spread:

If the OEX is going to remain flat to slightly bullish, now may
still make a good time to enter the whole position.  Like the QQQ
above, our job is to buy the long leg cheap and sell the short leg
dear while letting time decay work against the buyer of the short.
If you want to try to squeeze out the last cent, you can leg in.
Just make sure you dust off your timing skills first.  Ideally,
we'd like to wait until the technical indicators leave their
oversold position.  That will be apparent when the slow stochastic
crosses back over the 20% oversold line and MACD turns positive.
Until then, you can play support and resistance, or use a 30 or
60-min chart to daytrade in and out of the short leg

BUY  CALL MAR-780 OEZ-CP OI=   3 at $42.25

SELL CALL OCT-780 OEZ-JP OI=2068 at $ 7.38, ND = 34.88
SELL CALL OCT-800 OEX-JT OI=6072 at $ 2.63, ND = 39.63

Bullish Put Credit Spread:

Kids, don't try this at home.  It carries a fair amount of risk if
you don't understand how the play works.  On second thought, maybe
you could help your parents understand it?  Anyway, the intent is
sell an OTM put and buy a DOTM put for protection in case the
market sinks under your feet, which will put a net credit into
your account.  It's a bit like a covered call, only with a limit
on the loss you would suffer.  First, you must be convinced that
the market has found a bottom and that a rebound is under way.
That will happen when the stochastic moves above 20% oversold and
the MACD turns positive on a daily chart.  Again, not for the
inexperienced.  Understand how the play works before getting in.
This is another play that can work well in a flat to slightly
bullish market.

SELL PUT OCT-755 OEZ-VK OI=1633 at $15.38
BUY  PUT OCT-750 OEZ-VJ OI=7580 at $14.00

Net Credit = $1.38 or more

Average Daily Volume = 1266



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

Index       Last    Mon     Tue    Week
Dow     10631.32 -39.22 -176.83 -216.05
Nasdaq   3689.10 -62.54  -52.12 -114.66
$OEX      756.87  -8.07   -9.14  -17.21
$SPX     1427.21  -9.69  -11.82  -21.51
$RUT      509.89  -3.44   -5.49   -8.93
$TRAN    2518.07 -41.51  -37.56  -79.07
$VIX       25.08   0.23    0.68    0.91

Calls

CFLO      157.00  13.84    5.97   19.81  The cash is flowing
BRCM      257.00   3.50    4.75    8.25  New, difficult trading
CIEN      127.13   6.81   -0.44    6.38  Prevailing optics
MERQ      155.25   4.56    1.75    6.31  The MERQ is rising
JNPR      230.50   2.25    2.63    4.88  New, soaring higher
AFL        66.00   0.94    2.25    3.19  Another new high for AFL
AGIL       83.00   3.69   -0.69    3.00  Looks strong, entry?
CAH        95.06   0.31    2.38    2.69  Shattered resistance
IDTI       96.94  -0.19    1.19    1.00  Bucking Chip bears
QCOM       73.38  -3.00    3.38    0.38  Bulls return today
SEBL      105.25   2.75   -2.50    0.25  Drug down by the NASDAQ
ITWO      184.13  -3.56    1.50   -2.06  Held onto gains today
CHKP      149.25   0.13   -3.31   -3.19  Mirror trading of NASDAQ
ENZN       67.75  -1.94   -1.38   -3.31  Profit mongers selling
FRX       114.63  -2.94   -1.88   -4.81  Expected profit taking
YHOO      102.44  -5.94   -3.06   -9.00  Dropped, sellers command
PEB       108.94   0.75  -10.81  -10.06  Biotech pullback today

Puts

OMC        72.75  -1.06   -3.00   -4.06  New, going under fast
CMOS       31.88  -2.88   -1.13   -4.00  Bears are in charge
EPNY       78.50  -2.13   -1.56   -3.69  Investors aren't buying
MU         49.94  -6.00    3.19   -2.81  Thank you, MU!
DITC       37.25  -5.56    3.31   -2.25  Support yet to be found
AFCI       36.69   0.50   -1.44   -0.94  Tech sector sickness
UK         37.31   0.19    0.00    0.19  Dropped, found bottom
PCS        31.50   3.56   -0.06    3.50  Dead-cat-bounce Monday
PWAV       38.75   3.44    1.69    5.13  Dropped, buyers step in
DIGL       75.19   4.94    1.19    6.13  Dropped, short but sweet


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


CALLS:
*****

YHOO $102.44 -3.06 (-9.00) With a last ditch effort to drive the
the stock through $112 and onto an earnings run, the buyers found
resistance too strong.  Sellers took a commanding control over
YHOO within an hour of Monday's trading session, crushing our
breakout prospects.  It bled steadily throughout the day, closing
near the lows of the day.  With a negative NASDAQ today, YHOO
found itself sliding further.  Along the way, YHOO violated
intraday support at $106, $104, and $102.  While the stock
managed to find a bounce at $100.88 and close over $102, we think
that our best chances for a breakout have passed.  The intraday
ranges that we spoke about in the write-ups certainly were
tradable, yet we were looking for YHOO to break to the next
range.  As a result, we are cutting YHOO loose tonight.  It may
provide entry for a move higher, as it has in this recent range,
yet we will be moving to a better opportunity.


PUTS:
*****

UK $37.31 +0.00 (+0.19) The stabilizing oil prices in conjunction
with government intervention in the euro have combined to stall
UK's freefall.  Furthermore, many analysts have recently defended
UK by saying the company was not exposed to as much currency risk
in Europe as initially thought.  Moreover, the proposed merger
between DOW and UK is expected to close very soon, which might
give the stock a quick pop.  At this point in our long-lasting put
play, we feel the risks are beginning to outweigh the potential
rewards, especially since the stock has not moved a great deal
over the past few trading sessions.  So, we'll gladly take our
profits and run.

PWAV $38.75 +1.69 (+5.13) It appears that PWAV may have found a
bottom last Friday at the $33.50 level.  Unable to break below
that point on Monday, the bargain hunters stepped in to bid the
stock up $3.44 or 10.22% on 140% of ADV.  Today, PWAV continued to
recover some lost ground as it gapped up at the open.  Finding
support near its 5-dma at $37.25, the stock managed to gain 4.55%
by the day's end.  Despite the fact that PWAV continues to
encounter strong resistance at $40 and its 10-dma at $39.14, it
appears that the worst may be over.  As a result we are closing
the play in search of more favorable prospects.

DIGL $75.19 +1.19 (+6.13) It was short, but sweet.  DIGL
consistently offered entries between $75-$80 and followed up
with profitable moves below the $70 mark.  However, it now
appears that Friday's intraday bottom of $63 incited a comeback.
DIGL opened strong on Monday and extended the gains.  As the
broader markets fought to hold their ground, DIGL broke out of
its narrowing trading range with a vengeance.  DIGL's
penetration of the second line of defense at the 200-dma
($76.79) and its attempt to move through $80 amid negative
markets is clear evidence of an impending recovery.  There's
simply no denying the stock is back on the investor's shopping
list.  It's curtains for DIGL tonight.  The company is expected
to report earnings around October 17th.





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The Option Investor Newsletter                  Tuesday 09-26-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

IDTI $96.94 +1.19 (+1.00) IDTI's incredible relative strength
continues to fend off the bears.  In spite of the ongoing turmoil
in the Chip sector, IDTI has held up relatively well.  The stock
gapped higher Monday morning on the news IDTI had joined forces
with Microwave Systems (MWAR), a provider of software and
services.  However, despite the announcement IDTI weakened and
slid lower with the broader Tech sector.  The bulls and bears
cannot seem to come to an agreement, which has left IDTI in a
clearly defined trading range between support at the $96 level
and overhead resistance at $100.  With that said, the aggressive
traders might look to take profits out of IDTI's trading range.
Watch for a bounce off support at $96, and wait for the buyers
to step in and bounce IDTI higher.  The $100 level might provide
a solid exit point for those trading the range.  However, traders
will also want to watch for a breakout back above $100.  The
more conservative traders might do that very thing, and wait for
IDTI to rally on a volume-backed move above $100.  Additionally,
it could be conducive to wait for the $SOX and NASDAQ to rally
before entering new long positions.

ITWO $183.88 +1.25 (-2.06) It's been tough trading for ITWO this
week.  The stock managed to breakout from its six-month long
consolidation Monday morning with its gap higher above the $190
level.  However, the Tech bears proved overpowering as ITWO
stumbled lower Monday afternoon along with the rest of the Tech
sector.  Despite the bears' relentless attacks on the Tech sector,
ITWO managed to buck the market trend today, and finish in
positive territory.  We like the fact that ITWO was able to hold
onto its gains today, while the NASDAQ suffered another loss.
Robinson-Humphrey might be the reason ITWO was able to defeat the
bears today.  The brokerage house reiterated its Buy rating on
ITWO and commented on the company's upcoming quarter.  If the
analysts were convincing today, the buyers might return tomorrow
to lift ITWO.  Aggressive traders might look to enter the play if
ITWO pops back above the $185 level, while the more conservative
traders might wait for ITWO to gain momentum and move back $190,
the breakout point.  The conservative traders might also wait to
enter the play until the NASDAQ turns positive and the heavy
buying volume returns to ITWO.

BRCM $257.00 +4.75 (+8.25) Although BRCM gave us the breakout
we were looking for, trading it has been rather difficult.  The
gap up yesterday morning started the day out above $255, but
this continuation of Friday's rally quickly ran out of steam,
banging its head on resistance at $260.  The past 2 days action
is a reminder of the danger of entering new positions during
amateur hour - you will likely get filled at the high of the
day.  Today's action was a repeat, gapping up at the open and
then falling back from the $260 area.  Prominent earnings
warnings and market jitters drove the major indices lower over
the past 2 days, keeping our play from continuing to drive
higher.  While it hasn't been able to break above resistance
at $260, it has been encouraging to see BRCM hold its ground
while continuing to inch higher.  Volume remains on the light
side, indicating that neither the bulls nor the bears have
enough conviction to drive BRCM in either direction.  Support
in the $250-252 area is still intact and intraday dips to this
level can be considered for new entries.  A more conservative
approach will be to wait for an increase in buying interest to
push our play through resistance.

FRX $114.63 -1.88 (-4.81) Profit taking was overdue on our play
as FRX had recently run up by a staggering 25%.  The stock's
inability to break through the $120 resistance level was the
catalyst and by midday today, our play had dropped to retest
the $110-112 support level.  When you take out the aberration
created by the LLY-induced selloff last month, FRX's trading
volume is just about average.  It was encouraging to see the
selling abate right at support, which is also the site of the
10-dma (currently $111.75).  Further support is found near $106,
and if this level fails to hold, we would suggest standing
aside until the dust settles.  As long as the broader markets
can shake off the spectre of fear, which is being fueled by a
continuing stream of prominent earnings warnings, FRX should be
able to power higher as the October earnings season approaches.
Renewed bounces at support are buyable, so long as they are
accompanied by respectable volume (over 500k shares).  More
conservative players will want to wait for buying volume to
return in earnest, propelling FRX through the $120 level and
into new high territory again.

PEB $108.94 -10.81 (-10.06) It was only a matter of time before
we got some profit taking on PEB, as the stock had been buried
in its upper Bollinger band for well over a week.  Hopefully
you were able to take advantage of yesterday's opening spike to
lock in profits and ready yourself for the next leg of PEB's
momentum run.  Yesterday's opening surge to $126.75 was the
catalyst, and we have seen the stock give up 14% since that high
water mark, and today's close puts our play at a critical
juncture.  Closing fractionally below the 10-dma (now at
$109.06) for the first time in over 2 weeks, and not far above
the $105-107 support level we mentioned on Sunday, PEB is in
danger of breaking the momentum run that has brought it this
far.  A drop to support could provide a very attractive entry
point for our hoped-for earnings run, but it will need to be
followed by strong buying volume.  Mild resistance may appear
near $111-112, and more conservative players may want to wait
for the buyers to scale this level before playing.

CHKP $149.19 -3.38 (-$3.25) The Nasdaq continued its upward moves
Monday morning, following Friday's afternoon rebound.  CHKP
responded positively in early trading by moving up over $4 on
robust volume.  As the trading day progressed Monday, choppiness
became the underlying theme, as a result CHKP bounced around just
above the flat-line and by day's end had closed to the upside on
heavier than normal volume, using the 10-dma once again as support.
The Tech sector was choppy at best Tuesday and CHKP slipped lower
by $5 at mid-day, piercing through support at its 10-dma.  CHKP
could not regain momentum Tuesday afternoon as the Nasdaq and the
Tech sector continued its slide.  By day's end, CHKP had bounced
off its lows for the day and closed at $149.19, down $3.38 for the
day on volume of 2.4 mln shares, just below the 5-dma and 10-dma
at $154.50 and $152.10, respectively.  There are two ways to play
CHKP from here.  Aggressive traders may want to use a pullback to
intraday support at the $145-$146 level followed by volume
supported bounces as a way to gain entry.  The 50-dma is still
down at $133.30.  The more conservative approach may be to wait
for a move back up through the 5-dma and 10-dma accompanied by
strong volume.  It is imperative to watch for profit taking and
to continue to monitor the Nasdaq sentiment before entering a
trade.

AFL $66.00 +2.25 (+3.19) The Tech sector got off to a brisk
Start Monday morning, which caused the AFL speculators to rest,
but by mid-day, the buyers returned, and put AFL in positive
territory.  Volume for Monday was a meager 495K, but AFL ended
the day up $0.94 in new high territory at $63.75.  Tuesday, we
saw a familiar scenario develop in early morning trading.  As
the Tech sector weakened, buyers looked for safe havens and they
were using AFL.  By mid-day, AFL was up $1.75 at $65.50 on
average volume.  During afternoon trading, buyers started warming
up to the Duck, driving it to an intraday high of $67.50 before
pulling back late in the day to close up $2.44 at $66.19 (new
closing high) on volume of 2.52 mln shares (2.3 times ADV).
This baby could keep moving from here at which point the only
resistance may be at today's intraday high of $67.50.  So,
aggressive traders may want to try and catch this one on the way
up or use an intraday pullback as a way to gain entry.  The
more conservative may want to look for a pullback to support at
the $63-$64 level or even back to the almost converged 5-dma and
10-dma at roughly $61.60.  Use bounces from support accompanied
by strong volume to enter a trade.

SEBL $105.00 -2.50 (+0.25) SEBL got caught up in the selling in
the latter-half of trading yesterday and finished well off its
highs at $107.75, up $2.75 for the day.  Tuesday morning, SEBL
announced an agreement with Nokia to offer Wireless eBusiness
Solutions through an alliance that will include worldwide joint
marketing, collaborative selling, and the extensive development
of mobile eBusiness applications.  SEBL also announced that
LookTrade, a leading developer of B-to-B Web sites, had signed
on as a reseller for the Siebel Dynamic Commerce solutions.  On
the brokerage front, UBS Warburg started coverage of SEBL with a
Buy rating and a 12 month target of $135.  The Nasdaq weakness
caught up SEBL as some profit taking took place in early trading
Tuesday and by the half way point SEBL was down $2.25 to $105.50
on light volume.  As we progressed to the end of the day, SEBL did
pullback to an intraday low of $103.13 before bouncing to close at
$105.25, down $2.50 for the day, on lighter than normal volume of
5.6 mln shares.  An ideal entry point would be a pullback to the
5-dma at $103.30 followed by a bounce from there on strong volume.
Be aware, there is minor resistance between here and the old
intraday high of $114.25.  Watch for profit taking and Tech
sector sentiment before opening new trades.

AGIL $83.00 -0.69 (+3.00) Monday saw volume return to AGIL and
with that, the price appreciation.  Bouncing off its 5-dma (now
at $81.50), the stock shot up early to spend the rest of the day
digesting its early morning gains, after encountering resistance
at $85.  Bucking the trend of a down market, AGIL closed up $3.72
or 4.63% on 269% of ADV.  Today, AGIL closed the day down
fractionally but in doing so, offered aggressive traders with an
ideal entry point as an early morning sell-off to its 10-dma (at
$78.60) was quickly bought up.  From there, the stock traded
sideways until some late-day volatility brought in the sellers.
But buyers came in to lend some support to the stock at $82.
With its up-trend firmly intact, aggressive traders may continue
to target shoot bounces off the 5- and 10-dma for entry points.
$85 is the next hurdle to clear and a break above with volume
would make for a conservative entry point.

CFLO $157.00 +5.97 (+19.81) What a way to start the week!  The
cash has certainly flowed into CFLO so far this week as the stock
received a double-shot of upgrades.  First on Monday from Credit
Suisse First Boston analyst Amit Chopra, who boosted the 12-month
target price from $125 to $190.  This was enough to ignite a
buying frenzy as the stock rocketed not only through resistance
at $145, but $150 as well.  CFLO ended the day up $13.84 or over
10% on almost 3x the ADV.  Today, CFLO added to its gains as a
reiteration of a Strong Buy rating from Robertson analyst Dane
Lewis, helping the stock move 3.95% higher on over twice the ADV
in a weak market.  At this point, there is support in increments
of $5 at $145, close to its 5-dma, at $140.  Along with the
10-dma near $132, bounces off support on profit taking could
serve as entry points.  With volume continuing to accelerate to
the upside, a break above $160 would be another possible entry.

MERQ $155.25 +1.75 (+6.31) While summer may be coming to a close,
the mercury continues to rise for MERQ.  Yesterday, the stock not
only broke through resistance at $150, but made a new all-time
high, closing up $4.56 or 3.06% on 150% of ADV.  Today, support
at $150 held up as the stock added to its previous gains.  With
so much weakness across the board on Tech issues, this stock is
displaying unusual relative strength.  Accelerating up volume
has backed MERQ's ascent but the past couple of days have seen
that volume starting to dry up.  With the next resistance point
at $160, make sure there are plenty of buyers to support a move
above this level before entering.  Support can be found below in
increments of $5 at $155, $150, $145 and $140.  A pull-pack on
profit taking to these levels or to the 5- and 10-dma (at
$147.58 and $137.23) would be ideal entry points but confirm a
bounce with volume before entering.

QCOM $73.38 +3.38 (+0.38) Qualcomm's news beacon was flashing
on Monday.  China United Telecommunications Corp, China's 2nd
largest mobile phone company, said it will take over and upgrade
a handful of cellular networks that use Qualcomm's technology.
While this is a good sign that things are moving forward in
Asia, the company's CEO, Yang Xianzu, declined to comment about
reviving plans for a large-scale network potentially worth
billions of dollars to Qualcomm.  In the acquisition arena,
Qualcomm will gain a stake in Com Dev International and its new
mobile high-speed wireless Internet system.  Financial terms
were unavailable.  The stock's trading amid the promising
announcements was however rather glum due to the broader market
environment.  On the bright side though, near-term support
continued to show strength at $69 and $70.  Essentially, we're
looking for the bargain hunters to come back off the sidelines
and take QCOM through the immediate resistance at $75 and the
near-term high of $78.13.  The bigger challenge is of course,
$80.  A powerful move through this tough opposition would
generate lots of excitement ahead of the company's earnings,
which are slated for November 2nd.  If you're interested in
taking a more adventurous approach, look for opportunities near
the 10-dma ($70.35) or the 5-dma ($72.67).  In this fearful
market, the wisest choice may be to wait for the breakout.

CIEN $127.13 -0.44 (+6.38) The optical-related stocks
demonstrated prevailing strength in the face of the menacing
bears this week.  But the spotlight was on Ciena!  After
announcing a major deal with Korea Telecom to supply it with
fiber-optic gear for networks in seven cities, including Seoul,
the stock advanced a whopping 12.8%, or $15.50!  CIEN epitomized
a raging bull as it climbed to new heights once again.  It also
established a much higher near-term support.  In a mere two
sessions, CIEN's launching pad was elevated from the $113-$114
level to $124-$128.  The volume was exceptional at almost three
times the ADV.  The big spike put some strain on getting our
foot in the door, but strong bounces off intraday lows still
offered entries into this momentum run.  Deep dips to the 5-dma
($121.26) currently provide a more aggressive entry to target
shoot.  Expect some resistance at today's intraday peak of $134
and $136.25, Monday's 52-week record.

ENZN $67.75 -1.38 (-3.31) After last week's advances into higher
territory, the profit mongers took some chips off the table.  As
it turned out, ENZN fared well.  The $66 and $68 marks proved to
be a solid support level on a moderate-volume decline.  The
current share price is however just below the 5 and 10 DMAs at
$69.44 and $68.47, respectively.  The current level offers
potential entry points on a rebound.  But unless you're very
aggressive, wait for ENZN to show strength above those
technicals before taking positions.  Our expectation is that
investors will continue to look for "safer stocks" to dress
their portfolios as the Tech sector gets weeded out.  As it
stands, this drug stock is considered by analysts to be a great
value and should generate buying interest over the short-term.

CAH $95.06 +2.38 (+2.69) Strong volume at 1.5 times the norm
accompanied another breakout today.  CAH quickly shattered
resistance at $94 this morning and set another all-time high at
$95.31.  The bullish close, at a fraction from the record peak,
matches analysts' sentiment regarding CAH's future prospects.
Today, First Union Securities reiterated a Strong Buy and raised
the 12-18 month price target to $105 from $97.  AG Edwards also
restated a Buy recommendation and upped their price target to
$110 from $92 as well.  Recall it was upgrades that first ignited
CAH's run; therefore, today's upbeat comments should extend the
gains in coming sessions.  Although, take heed.  Under the
current market conditions and at these price levels, it's
imperative to defend against profit taking.  Keep stops in place.
An aggressive entry would be on an intraday dip to near-term
support around $92 and the 5-dma ($92.83).  Consider waiting and
buying more conservatively as CAH climbs through the immediate
resistance on a strong rally.


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

CMOS $31.88 -1.13 (-4.00) The carryover of the Semi selling
transpired just as planned.  The mass exodus from the Chip sector
picked up steam this week as CMOS and fellow Chip Equipment
makers plunged further into the mire.  For its part, CMOS fell
below its critical support level at $35 yesterday afternoon and
kept falling today on volume that swelled with selling.  As we
mentioned in the weekend write-up, CMOS's pivotal point from last
Fall is just below at the $30 level.  We speculate that the bulls
will be defending the stock at that level.  However, CMOS could
very well continue falling as long as the bears are in control.
The stock continues to look very week with no bottom in sign yet.
With that said, aggressive traders might consider entering new
positions early Wednesday if the NASDAQ continues to stumble.  The
more risk averse traders might wait for CMOS to fall below near-
term support just below at $31.50.  The more conservative traders
might look to enter new positions if CMOS falls below $31 and the
$SOX continues falling.

DITC $37.25 +3.31 (-2.25) Is that the support that DITC
investors have been looking for?  Continuing to sell off with
the broader markets yesterday, our play fell throughout the
day, closing at $33.94, fractionally above the low of the day.
This morning, even with the rest of the market continuing to
head south, DITC dipped to $33.75 before beginning to recover.
The bulls first recovery attempt failed at $37, but after an
afternoon test of the morning's lows, they managed to push
through to close out the session at $37.25.  As good as that
sounds, a quick look at the daily chart will confirm that our
play has a long way to go to get out of bear territory.  Sitting
below all of its moving averages, DITC still is unable to
penetrate the 5-dma (currently $39.31) and the 10-dma is
looming overhead at $42.88.  In addition, there is formidable
resistance sitting at $45.  While we would like to see our play
continue lower, there may be a bit of a relief rally first, so
look to initiate new positions as DITC rolls over from
resistance.  Given the strong volume on today's recovery (triple
the ADV), the morning lows could in fact be a near-term bottom,
so keep your stops in place on any open positions.

PCS $31.50 0.00 (+3.50) As we mentioned in Sunday's update, it
was likely that PCS may see a dead-cat bounce or short covering
rally some time soon.  It happened Monday morning, fueled by an
upgrade on the stock from Lehman Brothers.  Lehman raised their
rating from Neutral to a Buy, citing PCS's low valuation;
ironically they cut their price target by $1 to $58.  The
collaboration announced Monday between PCS and PacketVideo to
deliver wireless video applications to consumers may have been
a catalyst for investors.  Traders thought this was worthy
enough news to do some buying, as PCS tacked on $3.50 to the
upside on over 15 mln shares to close at $31.50.  Tuesday, PCS
and Brittanica.com announced an agreement that will give PCS
users access to the 32-volume Encyclopedia Brittanica through
a new application called Brittanica Wireless.  PCS spent the
morning bouncing back and forth between positive and negative
territory and by mid-day was down $1 to $30.50 on average
volume.  Volume remained light for PCS as the day continued
and it finished flat for the day at $31.50, just below its
5-dma at $32.60.  Traders would be wise to watch for a failed
rally up to the 5-dma on light volume as an ideal way to
enter this trade.

AFCI $36.69 -1.44 (-0.94) AFCI caught the Tech sector fever early
Monday morning, getting out of the gates and quickly running up
over $2 to the $40 level, a former support level.  As the Nasdaq
started to churn, the supporting buyers disappeared and by day's
end AFCI was only up $0.50 to finish at $38.13 on lighter than
normal volume.  Tuesday morning, AFCI bounced between positive and
negative territory, but by mid-day it was feeling the weak Tech
sector pressure and it was down over $1.50 on light volume.  By
day's end AFCI had finished down $1.44 to close at $36.69 on
lighter than normal volume of 1.76 mln shares (75% of its ADV).
Use a continued move down through the $35-$36 level (current
support) on strong volume as an ideal way to gain entry to
this trade.  If it decides to bounce again, use a failed rally
attempt up to the $40 range as a conservative entry point.

EPNY $78.50 -1.56 (-3.69) It's been said that the opposite of
love is not hate, but rather, apathy.  It would be difficult to
find a more fitting word to describe investor sentiment in EPNY.
Monday, interest in the stock continued to wane, despite
positive news.  An announcement from the company that it had
added support for wireless devices to its E.piphany E.5 system
was met with some early morning strength.  The strength was
eagerly sold into despite the gap open, with help from resistance
at $85, to finish down almost $2.13 or 2.59% on 172% of ADV.  The
5- and 10-dma (at $80.30 and $84.34) continue to offer a point of
entry into this play.  Those who are more cautious will want to
see the stock break below $75 with conviction before entering.
Today, the company announced its earnings date has been set for
October 19th at 5 PM EST.  While it is still too early for an
earnings run, keep this date in mind when making a play.

MU $49.75 +2.88 (-2.81) What a great entry point on Monday morning!
With an early morning gap and spike up toward $54.50, sellers took
advantage of the move and drove the stock down to $50.  The INTC
hangover was difficult to shake as Semi stocks tried in vain to
put together a recovery.  After a midday pause on Monday, intraday
support at $50 gave way and now represents resistance.  Today's
trading activity was based on a strong earnings announcement from
Micron Electronics, of which MU owns 60%.  As a result, MU found
some relief from its recent downtrend.  We do not feel that an
announcement of this sort will turn MU around.  Overhead resistance
at $50 continues to hold down the stock.  Look for entry on a
rollover from this level.  If MU manages to move above $50,
resistance will be encountered at $51, $52, and $53.  Sellers will
probably be lurking at these levels, so watch for the rollover.
On the downside, MU found buyers waiting at $46, the lowest level
since March 3rd.  A test of this low wouldn't be out of the
question, especially considering the higher selling volume that
brought the stock down at Monday's close.  A break of $46 leaves
a downside outlook near $40, and would warrant even a conservative
entry.


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

JNPR - Juniper Networks $230.50 +2.63 (+4.88 this week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  JNPR's flagship product
is the M40 Internet backbone router, which complements the
recently-introduced M20, which is a router built specifically
for emerging service providers.  The routers provided by the
company combine the features of the JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and
Internet-optimized architecture into a purpose-built solution
for service providers.

While leading router companies like CSCO continue to languish
with the broader markets, JNPR is soaring to new highs on the
heels of positive analyst comments (see news below).  Continuing
its pattern of higher highs and higher lows, JNPR tagged a new
all-time high of $240 yesterday, and even with weakness in the
broad technology sector today, managed to post a new closing
high of $230.50.  Large intraday moves are the norm for JNPR,
so needless to say, this play is not for the faint of heart.
After reaching a near-term high of $228 in early September,
profit taking set in and the stock fell 20% before finding
support near $182.  Then it was off to the races, as buyers
have flocked to the stock, pushing to new highs again early
this week.  Volume on up days continues to outpace that on
profit taking sessions, frequently near double the ADV of 7.47
million shares.  If the pattern of the past few months remains
in force, JNPR looks like it still has room to run.  Stochastics
have moved into the overbought zone, and the price is sitting
right at the upper Bollinger band, so near-term profit taking
is not out of the question.  But over the past few months, JNPR
has shown a propensity to stay in this area, sometimes for weeks
at a time.  What really gets us interested is the fact that MACD
is still strongly positive and JNPR will help to kick off the
first week of earnings in October.  In July, the company beat
analyst estimates by 100%, and investors are clearly hoping for
a repeat performance when the company posts its numbers on
October 12th.  The 5-dma currently sits at $223, and is just
above historical support at $220-222.  Use intraday dips near
this area as an opportunity to initiate new positions, but make
sure that volume confirms the bounce.  Even though JNPR has
shown tremendous relative strength, no stock can buck the
broader market trend indefinitely.  A more cautious approach
would be to wait for JNPR to break out to new highs before
jumping into the play.

In the wake of the Intel earnings warning, investors have moved
their money into technology stocks with strong analyst ratings,
adding fuel to JNPR's meteoric rise.  Despite a PE north of
2600, all 18 analysts following the stock rate it either a Buy
or a Strong Buy.  Then last Monday, Salomon Smith Barney
analyst, B. Alexander Henderson raised his price target from
$245 to $310, citing extremely strong demand for the company's
router products.  He also expects the company to post extremely
strong earnings in October and sees the company grabbing even
more of CSCO's high end market share.

BUY CALL OCT-230 JUD-JF OI=3178 at $18.63 SL=13.50
BUY CALL OCT-240*JUD-JH OI=1624 at $13.88 SL=10.25
BUY CALL OCT-250 JUD-JJ OI=3755 at $10.38 SL= 7.50
BUY CALL NOV-240 JUD-KH OI= 186 at $23.13 SL=17.25
BUY CALL NOV-250 JUD-KJ OI= 503 at $19.25 SL=14.00
BUY CALL NOV-260 JUD-KL OI= 213 at $15.88 SL=11.50

SELL PUT OCT-200 JUD-VT OI= 377 at $ 6.00 SL= 8.50
(See risks of selling puts in play legend)

Picked on Sep 26th at   $230.50     P/E = 2681
Change since picked       +0.00     52-week high=$240.00
Analysts Ratings     15-3-0-0-0     52-week low =$ 30.00
Last earnings 07/00   est= 0.04     actual=  0.08
Next earnings 10-12   est= 0.09     versus= -0.01
Average Daily Volume = 7.47 mln



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

OMC - Omnicom Group Inc $72.75 -3.00 (-4.25 this week)

Omnicom Group is one of the world's largest advertising
organizations.  Its companies create and produce world-class
advertising campaigns for high-profile clients like PepsiCo,
Anheuser-Busch, and Nissan.  The company also offers marketing
consultation and research services through its Diversified
Agency Services unit, which includes Communications Consulting
Worldwide, the world's largest public relations organization.

Dial 911!  OMC is going under fast!  The share price sunk below
historical support at $80 on rumors and speculation.  On
September 18th, OMC fell 4.3% on news it's in talks to buy
Chicago-based True North (TNO).  It's very likely talks have
escalated; especially now in the midst of a billion-dollar
battle over DaimlerChrysler's ad account.  The bitter rivalry
came about after the carmaker announced it would no longer split
its business between the two firms.  They have until October 6th
to make their respective presentations or as is speculated,
merge.  According to Chris Hansen of Banc of America Securities,
"If something is going to happen, they would like to have it
done before the presentations. This will go down very quickly."
The valuation of the deal is tough to calculate, however it's
estimated that TNO is worth about $2.5 bln.  Needless to say,
OMC is moving steadily downward amid the acquisition
scuttlebutt.  Bear, Stearns & Co believes the weaknesses in the
stock is unfounded.  Last Thursday, it raised OMC's rating to a
Buy from Attractive and issued a 12-18 month price target of $95.
OMC didn't respond to the bullish comments or the broader markets
for that matter.  Today, OMC's 4% fall from grace dropped it
under the shorter-term bottom at $74 and $75.  The 5 and 10 DMAs,
above at $75.63 and $77.54, represent upper resistance.  However
intraday resistance will likely develop lower around the $74 mark.
Consider aggressive entries on high-volume moves through the
0current level or target shoot for positions on intraday spikes.

BUY PUT OCT-85 OMC-VQ OI=833 at $13.00 SL=9.75
BUY PUT OCT-80*OMC-VP OI= 30 at $ 8.38 SL=6.00
BUY PUT OCT-75 OMC-VO OI= 80 at $ 4.63 SL=2.75

Average Daily Volume = 767 K



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

MERQ - Mercury Interactive $155.25 +1.75 (+6.31 this week)

As a provider of integrated performance management solutions
that enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business.  The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing.  MERQ's
client base spans a wide range of industries including
Internet companies such as Amazon.com and America Online,
infrastructure companies Ariba and Oracle, as well as Apple
Computer, Cisco Systems and Ford Motor Company.

Most Recent Write-Up

MERQ $155.25 +1.75 (+6.31) While summer may be coming to a close,
the mercury continues to rise for MERQ.  Yesterday, the stock not
only broke through resistance at $150, but made a new all-time
high, closing up $4.56 or 3.06% on 150% of ADV.  Today, support
at $150 held up as the stock added to its previous gains.  With
so much weakness across the board on Tech issues, this stock is
displaying unusual relative strength.  Accelerating up volume
has backed MERQ's ascent but the past couple of days have seen
that volume starting to dry up.  With the next resistance point
at $160, make sure there are plenty of buyers to support a move
above this level before entering.  Support can be found below in
increments of $5 at $155, $150, $145 and $140.  A pull-pack on
profit taking to these levels or to the 5- and 10-dma (at
$147.58 and $137.23) would be ideal entry points but confirm a
bounce with volume before entering.

Comments

Since breaking out from consolidation late last week, MERQ has
been on an unstoppable climb to record highs.  Big buyers are
supporting MERQ's recent rally confirmed with a recent surge
in volume.  Despite the bears' attempts today, MERQ fought off
the attack and finished the day in bullish fashion on a surge
of buying.  MERQ's strong finish this afternoon could position
the stock to test resistance at $156 early tomorrow, where a
solid entry could be found.  A rebound in the NASDAQ could
unleash the bulls and carry MERQ to new highs above $158.  If,
however, the Tech sector pulls MERQ back, aggressive traders
might watch for the stock to bounce off support at $150.

BUY CALL OCT-150 RBF-JJ OI=644 at $16.88 SL=12.25
BUY CALL OCT-155*RBF-JK OI= 56 at $14.25 SL=10.50
BUY CALL OCT-160 RBF-JL OI= 23 at $12.00 SL= 9.00
BUY CALL NOV-155 RBF-KK OI=  3 at $20.00 SL=14.50
BUY CALL NOV-160 RBF-KL OI=362 at $18.50 SL=13.50

Picked on Sep 24th at   $148.94     P/E = 313
Change since picked       +6.31     52-week high=$157.94
Analysts Ratings      9-3-1-0-0     52-week low =$ 28.38
Last earnings 07/00   est= 0.12     actual= 0.14
Next earnings 10-17   est= 0.16     versus= 0.11
Average Daily Volume = 1.85 mln



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

Stocks Plunge on Earnings Concerns...

Blue-chip issues led the sell-off as worries over future revenues
plagued the market.

Monday, September 25

The market closed lower today after staging an early rally.  The
retreat occurred as concerns resurfaced over quarterly earnings.
The Dow ended 39 points lower at 10,808 while the Nasdaq closed
down 62 points at 3,741.  The S&P 500 index was down 9 points at
1,439.  Trading volume on the NYSE reached 982 million shares,
with declines beating advances 1,583 to 1,271.  Activity on the
Nasdaq was moderate at 1.77 billion shares exchanged.  Technology
advances beat declines 2,251 to 1,795.  In the bond market, the
30-year Treasury rose 7/32, pushing its yield down to 5.89%.

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

Adobe        ADBE   OCT120P/125P    $0.50   credit   bull-put
Delphi       DFG    OCT30P/OCT35P   $0.81   credit   bull-put
Microchip    MCHP   OCT80C/OCT75C   $0.38   credit   bear-call
Smith Intl   SII    OCT90C/OCT85C   $0.75   credit   bear-call

The market's volatility offered a few favorable opportunities to
open our new positions.  However, based on simultaneous entries,
the majority of initial credits were slightly lower than our
targets.  With luck, we should be able to achieve the suggested
prices in the DFG and SII positions, during the coming sessions.

Portfolio Plays:

Stocks pulled back from early gains today, ending lower as the
weakness in technology issues spread to other sectors in the
market.  In early trading, equities drifted higher amid hopes
that a stable Euro and falling oil prices would help increase
corporate earnings.  But, the market soon reversed on concerns
over profit-taking in bellwether technology issues.  On the Dow,
Intel (INTC) slumped as investors continued to punish the issue
in expectation the company will miss quarterly earnings estimates
due to weak demand in Europe.  Hewlett-Packard (HWP) also slid
lower in sympathy with a profit warning from industry competitor
Lexmark International (LXK).  Declines in shares of International
Business Machines (IBM) and Microsoft (MSFT) rounded out today's
retreat in blue-chip technology issues.  On the Nasdaq, large-cap
stocks led the group lower, with Cisco (CSCO), Yahoo! (YHOO), and
Dell Computer (DELL) enduring substantial losses.  Semiconductor
shares also continued their recent slump.  In the broader market,
biotech stocks were strong after Banc of America said the sector
is poised for additional growth.  Wireless telecom stocks moved
up after analysts said the sector has discounted recent bad news
and is ready for a rebound.  Consumer finance and banking stocks
rallied but retail and pharmaceuticals issues pulled back after a
recent rally.  Oil shares consolidated with oil prices after the
U.S. government's decision on Friday to release supplies from the
nation's strategic reserves.

The bullish activity in our portfolio was dominated by technology
issues and the top performer was Research in Motion (RIMM).  The
issue jumped $9 to $86 as traders speculated that the company's
wireless pagers were a step ahead of the competition's products.
In addition, Palm (PALM), the #1 maker of hand-held electronic
organizers, reported fiscal first-quarter operating results that
topped analyst forecasts.  Investors expect the same performance
from RIMM in the company's earnings report due later this week.
Commerce One (CMRC) rose $5 amid strength in business-to-business
software and services providers.  Other notable gains came in the
fuel-cell sector with Ballard Power (BLDP) and Plug Power (PLUG)
both rallying.  Agile Software (AGIL) and HNC Software (HNCS) led
the application software group higher and Polycom (PLCM) topped
the telecom equipment sector, up $3 to $65.  Our debit-spread
combination in Polycom can now be closed for a favorable profit
and the position achieves maximum return above $60.  Read Rite
(RDRT) was the surprise issue in the small-cap group, moving up
$1.12 to end at $10.50.  Our bullish position at $5 is expected
to expire at maximum profit.  Global Crossing (GBLX) was another
unforeseen gainer, rising $1.75 to $30 and the current rally may
create some interest in the flagging issue.

The most exciting activity of the day came in Cell Pathways (CLPA),
which fell $20 to $9.31 after the FDA rejected their new drug
application for Aptosyn for the indication of familial polyposis.
Those of you who did not close the credit strangle for favorable
profits last week are faced with rolling out and down in the sold
Put to recover current losses.  Of course, the company will make
amendments to the existing application and hope for an approval at
a later date, thus creating new speculation for the issue's future.
Ventro (VNTR) was another unexpected loser, down over $2 to $11.38
after the troubled operator of B-2-B trading exchanges announced
it has hired Broadview, a high-tech mergers and acquisitions firm,
to help it find a potential buyer or merger partner.  It is not
known whether Broadview is exclusively seeking a buyer for all or
part of Ventro, or whether the company is also working with other
advisers to somehow restructure.  Traders have speculated that the
recent silence concerning Ventro's future direction is a sure sign
that something is cooking but the stock price suggests otherwise.
Our debit-spread combination has a break-even cost basis near $10
and if the issue fails to stabilize near technical support at $11,
we will consider an early exit or adjustment in the position.

Tuesday, September 26

Blue-chip issues led the sell-off as worries over future revenues
plagued the market.  The Dow endured precipitous losses, falling
176 points to 10,631 while the Nasdaq finished 52 points lower at
3,689.  The S&P 500 index ended down 11 points at 1,427.  Trading
volume on the NYSE hit 1.1 billion shares, with declines beating
advances 1,606 to 1,247.  Activity on the Nasdaq was moderate at
1.8 billion shares traded, with declines beating advances 2,600
to 1,415.  In the bond market, the 30-year Treasury rose 21/32,
pushing its yield down to 5.85%.

Portfolio Plays:

Industrial stocks extended their losses late in the session today
with blue-chip issues falling in the wake of a profit warning by
Eastman Kodak.  The maker of imaging products said third quarter
earnings will come in well short of the previously expected range
and the stock was hit by downgrades from PaineWebber and CS First
Boston.  However, the most damaging news came when the company
reported that slumping sales were unable to offset pressures from
a rising dollar and increased raw material costs.  Warnings from
other U.S. companies substantiated the bearish outlook and gave
investors new concerns that an economic slowdown may hurt profit
growth in the future.  Technology stocks were less affected, but
they also succumbed to the selling pressure.  All of the major
Nasdaq groups finished lower, with semiconductor stocks holding
small gains until late in the day.  The broad market saw positive
action in oil and oil service shares as crude oil edged higher.
Utility stocks also achieved solid gains while financial, retail,
biotech, computer hardware, and drug issues slumped.  Analysts
say that the U.S. economy will eventually achieve a soft landing
but in order to see sustainable advances, the current onslaught
of earnings warnings needs to be digested.  As investors realize
that growth in the leading companies is sustainable, the market
will begin to recover.

Our portfolio was a sea of red with little bullish activity worth
noting.  Research in Motion (RIMM) continued a recent really, up
$7 to $93 after SG Cowen reiterated its "strong buy" rating on
the company, noting the firm expects solid second quarter results
on strong demand for a new device.  Cowen said it expects RIMM's
results to be in line with, or better than expected, on rising
revenues and new product rollouts for Compaq (CPA) and American
Online (AOL).  Qualcomm (QCOM) moved up $3 to $73 after a report
announced that the Chinese government will allow mobile phone
companies decide for themselves which technologies they use to
provide future-generation services and they will not mandate a
standard.  Qualcomm's cdma2000 is a rival technology that may be
used in the development of the country's cellular communications
system.  Bullish positions in both of these issues are expected
to expire at maximum profit.  Read Rite (RDRT) enjoyed another
positive session, ending above $11 at a new, 52-week high.  The
upside momentum stems from some comments made by the company's
CEO, Alan Lowe, during a presentation last week at the Banc of
America Investment Conference in San Francisco.  The chief said
he expects huge unit growth potential for Read-Rite's December
quarter, as well as the possibility of profitability.  He also
added that the company expects to deliver additional inventory
before the quarter ends and he is optimistic about Read-Rite's
new independent fiber optic company, Scion Photonics, which he
expects to eventually go public.

There were other small gains in the section but the majority of
issues ended lower.  Stocks that we have recently identified as
technically "poor" continued to show their weakness during the
session.  Engage (ENGA) was one of those unfortunate issues,
falling to all-time lows on increasing volume.  As suggested
last week, the position in this issue is prime for early exit
or adjustment.  At the same time, the current consolidation is
helping a number of premium-selling positions.  Brocade (BRCD)
has come down to earth, bringing the cost of our credit strangle
back to the initial entry price.  St. Jude Medical (STJ) is also
drifting lower and the early-exit profit remains favorable in
the bullish calendar spread.  Caremark RX (CMX) is beginning to
encounter resistance near $10.50 and that bodes well for the
success of our neutral position at $10.  In addition, our new
bearish credit spread in Microchip Technology (MCHP) is off to
a good start with the issue falling almost $5 during today's
session.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
FDX - Federal Express  $42.25  *** Bracing For A Rally? ***

FedEx is a global provider of transportation, e-commerce and
supply chain management services.  Services offered by FedEx
companies include worldwide express delivery, ground small-parcel
delivery, less-than-truckload freight delivery, global logistics,
supply chain management and customs brokerage, as well as trade
facilitation and electronic commerce solutions.  FedEx offers its
integrated business solutions through a portfolio of operating
companies.  These include Federal Express Corporation, FedEx
Ground Package System, formerly known as RPS, Global Logistics,
FedEx Custom Critical, FedEx Trade Networks, and Viking Freight.
FedEx serves as the holding company parent of FedEx Express and
each of its other operating companies.  Through its subsidiaries,
along with its FedEx Corporate Services, the company is able to
provide strategic direction to, and coordination of, the FedEx
portfolio of companies.

The world's largest air-express package shipper announced last
week that its net income rose 6%, beating analysts' forecasts in
the fiscal first quarter despite higher fuel prices, on volume
growth in shipping and reduced costs overall.  The company also
said it expects earnings per share growth for the year to be at
the high end of its 10-15% target.  Officials noted that revenue
gains previously expected from their new marketing strategy were
a few months behind schedule and that additional returns would
boost the company's earnings in the future.  In addition, the
proposed business alliance with the United States Postal Service
is getting lots of attention and it appears that a deal may yet
be consummated.  Whatever the reason, FDX shares have broken to
a recent high on increasing volume and we favor the technically
bullish outlook for the issue.

This conservative position offers a great way to participate in
the future movement of the issue with relatively low risk.


PLAY (conservative - bullish/diagonal spread):

BUY  CALL  JAN-40  FDX-AH  OI=1900  A=$5.20
SELL CALL  OCT-45  FDX-JI  OI=4892  B=$0.60
INITIAL NET DEBIT TARGET=$4.40-$4.50 INITIAL TARGET ROI(max)=11%


******************************************************************
VECO - Veeco Instruments  $109.88  *** A Big Day! ***

Veeco Instruments designs, manufactures, markets and services a
broad line of equipment primarily used by manufacturers in the
data storage, optical telecommunications and semiconductor
industries.  These industries help create and distribute a wide
range of information age products for today and tomorrow, such
as personal computers, network servers, fiber optic networks,
digital cameras, TV set-top boxes and personal digital assistants.
Veeco offers two principal product lines: Metrology and Process
Equipment.  CVC, a subsidiary of the company, provides cluster
tool manufacturing equipment used in the production of evolving
tape and disk drive recording head fabrication, optical components,
passive components, MRAM, bump metallization, and next generation
logic devices.

Veeco Instruments was "on the move" today, rallying over $15 to a
new all-time high on momentum from an upgrade earlier in the week.
On Monday, Banc of America initiated coverage of the provider of
equipment for the manufacture of optical telecom components with
a "strong buy" rating.  The brokerage issued a $190 price target
on the shares saying that Veeco is delivering excellent growth in
its optics business and the company trades at a favorable discount
to other industry leaders.

Investors appear to share the positive outlook and with the move
above recent technical resistance near $100, this issue is poised
for further upside activity.  If you agree with our bullish view
of the stock, this conservative position offers an excellent entry
point, considering the recent volatility.  Target a higher premium
in the position initially, to allow for a pullback in the stock
from its current levels.


PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-85  QVC-VQ  OI=20  A=$1.00
SELL PUT  OCT-90  QVC-VR  OI=52  B=$1.56
INITIAL NET CREDIT TARGET=$0.68-$0.75  ROI(max)=17%


******************************************************************
AHP - American Home Products  $56.31  *** Trading Range? ***

American Home Products is currently engaged in the discovery,
development, manufacture, distribution and sale of a diversified
line of products in three primary businesses, Pharmaceuticals,
Consumer Health Care and Agricultural Products.  The company's
Pharmaceuticals segment manufactures, distributes and markets
branded and generic human ethical pharmaceuticals, biologicals,
nutritionals and animal biologicals and pharmaceuticals.  Their
Consumer Health Care segment manufactures, distributes and sells
over-the-counter healthcare products.  In addition, the company's
Agricultural Products Group manufactures, distributes and sells
crop protection and pest control products.  AHP's most popular
products include Triphasil, infant nutritionals, neuroscience
therapies, Advil, Robitussin and Dimetapp, Centrum and Centrum
Silver vitamins, and herbal products.

Major drug companies have rallied in recent sessions as investors
look for sectors that offer a safe haven amid concerns over high
oil prices, the falling Euro, and upcoming quarterly earnings.
American Home has also benefited from this movement, climbing to
the top of a recent trading range last week as interest in the
group peaked.  Now the stock is retreating to an area where it
has resided for the past six months and it appears that the rally
is over in the short-term.  We will use this position to speculate
conservatively on the future movement of the issue.


PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-65  AHP-JM  OI=4973   A=$0.25
SELL CALL  OCT-60  AHP-JL  OI=10881  B=$0.81
INITIAL NET CREDIT TARGET=$0.68-$0.75  ROI(max)=17%


This position was discovered with one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity.  In this case, the premiums for
the (OTM) call options are slightly inflated and the potential
for a successful (technical) recovery is significantly affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.







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