Option Investor

Daily Newsletter, Thursday, 11/02/2000

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The Option Investor Newsletter                 Thursday 11-02-2000
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MARKET WRAP  (view in courier font for table alignment)
        11-02-2000        High      Low     Volume Advance/Decline
DJIA    10880.50 - 19.00 10946.50 10869.90 1.17 bln   1766/1111
NASDAQ   3429.02 + 95.63  3433.16  3370.02 2.23 bln   2512/1452
S&P 100   753.52 +  5.13   755.60   747.92   totals   4278/2563
S&P 500  1428.32 +  7.10  1433.27  1421.13           62.5%/37.5%
RUS 2000  506.97 + 11.79   506.98   495.18
DJ TRANS 2789.87 + 37.10  2792.12  2747.17
VIX        26.61 +  0.05    27.66    26.34
Put/Call Ratio      0.50

Election Time, Have you placed your vote for your favorite tech?

The Dow, fresh from a +1300 point gain from the October lows has
now posted two days of minimal losses as traders take profits in
front of Friday's Jobs Report and the Tuesday election. Meanwhile
the Nasdaq is gaining strength in a broad based recovery from the
pounding we have seen in recent weeks. Life is good, the outlook
is positive and a peace has settled over the markets. We all know
Murphy's Law is alive and well but where is he and when is it
going to appear again? Don't you just hate it when I rain on your
parade? Well relax. The only storm clouds on our horizon are very
few and far between and I will get to them later. When Intel and
Compaq both come out with positive forecasts on the same day it
can't be all bad. The Nasdaq chart has been looking more like an
EKG than a stock chart for the last four weeks but that is now
changing. Like I said, life is good!

Nobody sold the rally today, at least not seriously. There was a
brief bout of profit taking around noon but buyers rushed in to
buy the dip. Most of this was related to the Oracle rumor and
once denied the market recovered quickly. If you did not hear it
there was a rumor that Larry Ellison, the second richest man in
America and the CEO of Oracle, was going to leave Oracle. That
rumor knocked over -$5 off ORCL stock and rocked the markets.
Oracle denied the rumor and things recovered quickly. My thought
on this was "so what." Even if it was true how far can you get
away from a company when you have $300 billion in its stock? Do
you think in your wildest dreams that Larry will let someone else
take action that could cost him $50 billion or more in one days
trading? Not hardly. He could be boating in Japan and you could
bet he would be plugged into the Oracle info line even if there
was no CEO after his name. 149 million shares traded today.

More important to me was the Intel and Compaq announcements. What
better way to cure the tech flu than get injections of antibiotics
from tech leaders. Intel said 2001 sales estimates were rising
and that the fourth quarter was on track even though the third
quarter was less than exciting. Intel gapped open almost $3 but
fell back to close +1.81. Compaq said its personal computers sales
in Europe to continue at the same pace as the prior quarter despite
the falling Euro. The CEO said sales revenue was up +21% in Euro
dollars and he was expecting the trend to continue. The positive
comments by both firms calmed tech buyers and provided a positive
boost to the Nasdaq.

Negative news came from PSIX that surprised investors with a
larger than expected loss and a forecast that the fourth quarter
would be lower. The President and COO both quit and the stock was
hammered with a -56% drop to $2.94. PriceLine also surprised
investors with earnings that matched their already lowered forecast
but they lowered their estimates going forward. Heidi Miller, the
high profile CFO which moved to PCLN from Citigroup in February
of this year, quit. The stock had dropped from $57 to $5 since
the much publicized move. PCLN also said they expected October, a
month which is normally their largest, to drop -20% in sales. Not
a good sign. Delta, which had been making noises about selling
their stake in PCLN, had their warrants repriced from $57 to the
current market price of $5. The possible windfall for Delta only
works if PCLN pulls out of the current slump and they could not
do it if Delta dropped out of their network. You can't sell cheap
tickets if Delta, their largest customer, leaves the network.
Delta has been rumored to be joining a new discount network.

In a confusing day for the retail sector JCP and GPS warned of
weaker earnings while TLB and LTD said sales were better than
expected.  Yet they all finished positive as well as recent dogs
like WMT and Sears. The losses it appears was from mark downs on
goods that did not move last quarter when sales were worse. Going
forward the outlook appears to be positive across the down trodden

Oil prices continued to fall on multiple global developments
including the possibility of yet another peace initiative in the
Middle East. The Transports have rallied on this all week and the
possibility of peace, and I use the term loosely, is taking yet
another cloud off our future outlook.

Those of you who attended the Denver seminar were introduced to
the Jeff Bailey leading indicator system and if you are paying
attention you probably got some good trades. YHOO $68, need I
say more. For everyone else Jeff Bailey is a staff analyst that
produces institutional research to determine which sectors the
institutions are buying before the news gets to the retail investor.
Jeff showed the attendees this weekend that the institutions were
buying transports and Internets when both sectors appeared to be
in the tank. On Monday morning he recommended the NOV-260 DTX
call at $2.69 based on institutional buying of transports. The
option closed today at $19.38. The Internet sector was showing
buying by institutions but when we looked at the charts there was
no corresponding patterns. The option we were going to buy on
Monday at the seminar based on his research was the JAN-60 call
on YHOO @ $8.00. Yahoo opened down -$2 with the rest of the Nasdaq
on Monday and we did not take the trade. The option traded as low
as $6.63 on Monday and closed at $15.38 today. Ok Jeff, we are
convinced! Beginning Monday Jeff's commentary will be appearing
on OIN. Check the Sunday newsletter for his schedule as well as
a ton of new features starting next week.

The economic reports today were mixed with the Productivity report
showing gains of only +3.8% down from +6.1% in the prior qtr. This
data is not bad but productivity gains were the cornerstone of the
Fed's view that the tight job market was still under control. If
productivity slows then job costs will rise and inflation will grow.
On Friday we will see the real numbers with the Jobs Report and a
negative report could bring back Murphy. While I think almost
nothing could stop the Fall rally with the amount of cash on the
sidelines, it is still a significant event. With an estimated
increase in jobs of only +180,000 and a small gain in unemployment
to 4.0% we would see confirmation of the slow growth pattern and
the Fed would go back to sleep. Much stronger, and it would have
to be really strong, and the fear of inflation could come beck to
life. With evidence of a slowing economy, even close to a crash, I
don't think this will surprise to the upside by enough to do any
damage to our rally. Still we will watch anxiously on Friday.

Heard the latest election hoax? There is an Internet hoax making
the rounds. The basic concept goes like this. With the presidential
race so close the turnout is expected to be much stronger than normal.
Polling places are bracing for overflow crowds. To solve this
problem, so the hoax goes, the election has been changed to a two
day event. Republicans will vote on Tuesday and Democrats on Wednesday.
Obviously whoever started this rumor was not a Democrat. Now the
bad news, many people actually believed it and were planning

We have plenty of chances for Murphy to appear in the next week.
Just because everything looks strongly positive for our tech picnic
we need to remember to watch for sudden thunderstorms. In order of
appearance we have the Jobs Report on Friday, CSCO earnings on
Monday, the election on Tuesday and the PPI Report along with Dell
earnings on Thursday. Never a dull moment. The worry about CSCO
earnings is the projected growth. With more competition the prospects
of CSCO maintaining its past growth rates are slim. One analyst said
the concept of CSCO increasing sales annually at the currently
projected +32% rate is absurd. If CSCO was going to INCREASE sales
this year by the current $6 billion estimate they would have to ADD
more than TWICE the total sales of EPNY, LBRT, INKT, BRCM, RBAK,
JNPR, BRCD, SCMR, CMTN combined. ($2.5bil) Next year they would
have to increase by FOUR times their combined sales to maintain the
+32% estimates. Don't start firing off those "I love CSCO emails"
because it does not make any difference what we think. I am only
mentioning this because of the potential for a market moving event
on Monday when CSCO announces.

The election on Tuesday is yet another possible market mover. Not
especially up or down but sideways. With each candidate there are
specific positive and negative results. Institutional traders will
probably want to see who wins to decide what to do next. Bush is
seen as more favorable to business and after a Gore election more
gridlock and government programs which is market favorable also from
no major changes. Either way the landscape will be different but the
same. Following the election is the PPI which is our next inflation
gauge. The same day we get Dell earnings. CSCO is at the same point
in time Dell was two years ago. Dell has had the drop off as
expectations came back to reality and now Dell is on the move again.
I expect the announcement to be a non-event since they already warned
they were going to miss the +30% growth targets back in October.
However, we all know what the conference calls can do to a stock AND
the market when a bigcap has problems. They have already lowered
estimates for the fourth quarter and another lowering could be in
the cards.

My forecast going forward is bullish but we do have this wall of
worry to climb. This is natural and good. It keeps the market on
its toes and constantly shuffling shares. The Dow is showing signs
of profit taking but it has not cratered from the +1300 point bounce
and that is a huge positive. Once the election is over I would expect
it to move upward again regardless of the winner. The key point is
the money on the sidelines. The major risk all fund managers are
now facing is not crashing tech stocks or who wins the election but
not being in the market if we get another monster rally like we got
last fall. They have to be invested and time is running out.
Are you having fun yet? I am!

Good luck and sell too soon.

Jim Brown

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By Austin Passamonte

Sen-ti-ment; noun. Feelings of affection; an idea, opinion,
thought or attitude based on emotion rather than reason. That is
the definition of sentiment straight from our dictionary.

Affection: We love trading with a passion or your time would not
be spent reading the work we produce and our time would not be
spent producing it in the first place. What compels us to return
each day for more?

Idea: Trading can be a profitable venture that average people do
succeed at. many of us are living proof with legions more to join

Opinion: We think we can guess which way the market intends to go
next and what approach we should take to follow.

Thought: Successful trading isn't as easy as we once thought.

Attitude: Our next string of winning trades begins tomorrow!

Emotion versus reason: The market can, will or must behave in a
certain way. The market will do exactly as it pleases to our
delight or destruction.

Market Sentiment does the very best it can to remain market
neutral and calling near-term direction in the highest odds
possible to predict. There was a time when this was easy; it's
November - time to load up on bullish plays and sell them in
December for massive gains. Will that work this time? We wonder.

The Dow has rallied almost 1,400 points in the past two weeks and
few seem to care. All eyes are on the tech stocks that continue
to struggle and disappoint while fortunes were missed on those
issues with fewer than four symbols. Now what?

Can the NASDAQ markets pull it together and ascend to lofty
ground? Market bulls hope so and may just get their wish. It is
our belief that we will soon see a massive uptrend that lasts for
weeks or months. Not likely to be dramatic as the past two years
and perhaps mixed in with future capitulation swings as well.

A pattern has developed since this year began on market rallies
and declines. Rallies are a continual struggle for both the Dow
and NASDAQ to advance together while declines are met with equal
aplomb. This may not be new but the degree to which it occurs now
is somewhat disconcerting for the bulls.

Technical patterns remain diverse between markets once again. A
case can easily be made for indexes to head in either direction
which doesn't exactly spell strength or weakness.

Tons of cash still sits on the sidelines but we've heard that for
endless months along with the following.

Institutional traders in the S&P 500 arena continued to hug ten
year extreme net-short positions into this week and seldom lose.
An updated report tomorrow will be interesting to see if it shows
a significant reduction of this status as of Tuesday 10/31 when
the latest figures are compiled.

They began building this position at current SP00S levels and
scaled their way in selling short much higher than this. Enormous
profits were on the table when we tested the most recent lows twice
and still they hold. It truly perplexes us but our best guess as
to why is not good news for those expecting a parabolic market
move up the charts.

The Dow is in great shape and can easily survive a bout of profit
taking. The SPX is sound but suffers from its tech components. The
NASDAQ markets have charts that show signs of life but remain a
technical mess. Earnings season is winding down and we haven't
gathered our rally legs beneath us quite yet.

Will we? Recent history says yes but we will wait to play the long-
term upside on signs of latent overall strength. Frankly, we
expected more than the cyclical rally the Dow has enjoyed and
remain vigilant for signs of broad-based action to arrive.

The question does beg to be asked; what catalyst will drive price
levels higher once earnings season ends? Can we rally strong into
the fourth quarter expectations without being derailed once again?
It is very possible but remains to happen.

Meanwhile, option traders have ample opportunity to profit every
week. Market Sentiment has stated ample times it does not matter
which way the markets move so long as we choose the right strategy.
Three or four strategies each are all any of us need to profit
wildly regardless of underlying market action.

Waiting for market rallies solely to buy calls is just one part of
the three-piece puzzle. A time will come when that's not enough and
it may be sooner than many want to realize. The markets are kind
enough to offer us profits in many forms each and every day. It is
solely up to us for safe harvest of them accordingly.

Regardless of our sentiment, one thing is clear; the markets will
move with us in harmony or opposition of their direction. Let's
be sure to choose the right one!


Thursday 11/02 close: 26.61

30-yr Bonds
Thursday 11/02 close: 5.79%

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)
790 - 775                9,586          295        32.49***
770 - 755                8,921        2,941         3.03

OEX close: 753.52

750 - 735               15,412        7,215          .47
730 - 715                6,662       11,127         1.67
Maximum calls: 745/5,956
Maximum puts : 700/4,790

Moving Averages
 10 DMA  736
 20 DMA  731
 50 DMA  769
200 DMA  777

NASDAQ 100 Index (NDX/QQQ)
 91 - 89                24,480        10,844         2.26
 88 - 86                21,324        17,530         1.22
 85 - 83                44,482        34,429         1.29

QQQ(NDX)close: 82.00

 81 - 79                30,711        51,979         1.69
 78 - 76                10,775        38,032         3.53
 75 - 73                 4,660        48,205        10.34

Maximum calls: 84/25,573
Maximum puts : 80/33,658
Moving Averages
 10 DMA 81
 20 DMA 80
 50 DMA 88
200 DMA 94

S&P 500 (SPX)
1500                   11,585         3,990          2.90
1475                   16,108         4,778          3.37
1450                   11,186         8,695          1.29

SPX close: 1428.32

1400                   27,395        32,840          1.20
1375                   13,265        18,680          1.41
1350                    8,413        23,774          2.83

Maximum calls: 1400/27,395
Maximum puts : 1400/32,840

Moving Averages
 10 DMA 1393
 20 DMA 1385
 50 DMA 1438
200 DMA 1441


CBOT Commitment Of Traders Report: Friday 10/27
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.

                    Small Specs           Commercials
DJIA futures
Open Interest
Net Value              +89                   -483
Total Open
Interest %        (1.07% net-long)       (2.34% net-short)

Open Interest
Net Value              -262                   +85
Total Open
Interest %        (1.48 net-short)       (.21% net-long)

S&P 500
Open Interest
Net Value             +57,031               -66,429
Total Open
Interest %        (31.05% net-long)      (10.72% net-short)

What COT Data Tells Us: Commercial positions in S&P 500 have held
their ten-year extreme short levels while small specs increased
their net-long positions as compiled Tuesday 10/24 by the CFTC.

Tomorrow's data should give a clearer picture to Commercials either
covering some profitable shorts or holding fast into next Tuesday.

Fed's finished
Benign government reports
Certain market leaders showing strength
Seasonal tendency to rally

Oil Prices
COT reports (tomorrow)
Recent pre-warnings, downgrades
Broad market's break of critical M/A support
Market leaders breakdown


As of Market Close - Thursday, 11/02/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,880      10,250  11,100
SPX   S&P 500           1,428       1,385   1,445
COMPX NASD Composite    3,429       3,150   3,550
OEX   S&P 100             753         700     775
RUT   Russell 2000        506         465     520     **
NDX   NASD 100          3,308       2,950   3,550
MSH   High Tech           945         870     975

BTK   Biotech             785         680     820     **
XCI   Hardware          1,288       1,230   1,310
GSO.X Software            428         385     440
SOX   Semiconductor       732         600     805
NWX   Networking        1,065         925   1,180
INX   Internet            388         315     430     **

BIX   Banking             608         545     630
XBD   Brokerage           630         600     655
IUX   Insurance           796         760     830

RLX   Retail              819         730     860     **
DRG   Drug                422         400     440
HCX   Healthcare          885         865     900
XAL   Airline             151         130     160
OIX   Oil & Gas           301         296     320

Four alerts were triggered at resistance in the past two
sessions.  Raising support (SPX, COMPX, RUT, MSH, XCI, GSO.X,
INX, XBD, DRG, HCX).  Raising resistance (RUT, BTK, INX, RLX).
We are continuing to see several sectors strengthen, but traders
should continue to raise their stops to assure profits.


What Moves The Markets Revisited
By Molly Evans

It was such a pleasure to meet several of you at the recent
Denver OIN conference.  What a sharp bunch!  I do hope that all
of you are trading with more confidence and making better
informed decisions about the entire process of option investing
and management.  It was so nice to hear that some of you do read
this column!  I was so pleased and flattered!  Thank you!  For
those of you who couldn't make it this session, well, pencil it
in for the spring session.  These seminars are nothing short of
empowering and provide a perfect backdrop to networking with
other traders.

My topic was a bit different from what one would typically find
at a seminar.  "Reading the Markets: Identifying the Twists and
Turns of Momentum, Sentiment and the Resulting Price Action" was
a didactic in everything from Oil Import/Export reports to market
cycles and McClellan Oscillators.  If I may, I'd like to recap
some of the highlights of that presentation much like Lee Lowell
did in his Tuesday night column.  Thanks Lee!  Great idea!  I
think that I can whip up an article in nothing flat but talking
in front of over a hundred highly intelligent and intense traders
and fellow staff is well...a little intimidating.  Glad to be
back here in my little chair here in my cozy office, fingers
gliding over a keyboard.  Yet, I'd do it again in a heartbeat.
What a great experience.  Thank you Jim and James Brown.

When we think of the market, we must consider the many facets that
impact it every single day.  Everyone knows this.  A bit of news
can heavily impact a trade we have in play in just moments.
However, generally speaking there are four big themes that guide
market performance.  We've termed these Key Market Pillars:
Economy, Corporate Earnings, Interest Rates and Liquidity.  The
interpretation of news or events in any one of these categories
has the most impact upon the moves of the market in varying
time frames.  There's no way that I can elaborate fairly on
each of these pillars in just one column so I'm going to write
just about the economy tonight.  I will revisit these other
themes in subsequent articles.

As far as the economy goes, we had a look at benchmark reports
that come out each month or quarter as it may be.  Jim mentioned
the National Association of Purchasing Managers report in his
Tuesday evening Market Wrap column.  This report is a gauge to
national manufacturing activity and as Jim so aptly reported, the
latest numbers have come in at a continued and persistent
downtrend signaling that there is indeed a contraction of
manufacturing activity.  Read:  the economy is slowing down!  We
knew that, right?  A value of 50 is neutral, while over 50, the
economy is expanding.  Conversely, under 50, it is contracting.
The NAPM values have been in a downward trend since it peaked
last fall.  Consider that the index value was well over 57% this
time last year.  October of 2000's number came in at a two year
low of 48.3%, which was indeed below analyst's expectations.

How does the market react to something like this?  These are
the million dollar questions.  Does it rejoice because this
report would be strong evidence to the Fed that their monetary
tightening has succeeded in slowing inflationary pressures?  Or,
does the market get a shiver down its spine in its worrying
whether this signals a "hard landing" and whispers "recession"?
Even if I knew what the numbers were going to be before they
were announced, I would be loath to try and guess the market's
analysis.  We can't make our trading decisions upon these reports
but it does better enlighten us to how the macro picture is
painted.  Paying attention to these reports at the very least
should deepen our understanding of the fundamental movements of
the market.

The Oil and Gas Import Report is one that piques my interest as
this is tradable stuff.  The report is released each Wednesday.
As I explained to the attendees, the markets have been bullish
for crude oil, gasoline and heating oil.  While the American
Petroleum Institute had assured the nation earlier that
inventories would be replenished, analysts had voiced their doubts.
Furthermore, the oil indices were in a downtrend.  I wondered
out loud that when I'm looking at these things whether I'm
acting as smart money or if I'm way behind the curve and have
missed something really obvious and am thus "dumb money."  It
seemed like a no-brainer.  Shortage of oil equals rise in oil
prices.  If those inventory numbers came in less than expected
as was the popular rumor, we could see a trend reversal in oil.

Guess what?  You've got it.  The API reported that crude oil
inventories declined by almost 750,000 barrels when the market's
expectation was for a substantial rebuilding of stocks by about
3 million barrels.  There is no discernible effect yet from the
supposed increase of production of 800,000 barrels per day that
OPEC said began on October 1st.  None of that oil has shown up
in inventory data.  Hmmm.  Where's the oil?  The OIX.X had three
nice up days in a row.  Did I take my own trade?  Regretfully,
no.  You know me.  I was buying puts on some cursed four-letter
stock!  The agony!  The pain!  What can I say?  You'd have had
to be nimble though - as usual in this market.  The oil indices
and equities fell today as crude oil prices declined about 2% on
news that an Israeli-Palestinian peace plan eased concerns that
Middle East tensions would disrupt oil supplies.  For those who
have subscribed to the www.indexskybox.com free trial, you already
know that Austin's team nailed this one - they remarked that the
OIX.X could be an interesting short here.  Yep.  News and
technicals have a funny way of turning things around.

Next up:  Nonfarm Payrolls.  No other report released by the
government is as widely watched and anticipated by the market as
this one.  Payroll employment is a measure of the number of jobs
in more than five hundred industries in all states and 255
metropolitan areas.   The report provides information on average
weekly hours worked and average hourly earnings, which are
important indicators of the tightness of labor markets - something
the Federal Reserve pays close attention to when setting interest
rates.  The October numbers will be released tomorrow, November
3rd.  The September numbers pointed to the economy maintaining
considerable momentum but job creation had slowed compared to
earlier in the year and 1999. The pool of available workers had
again fallen to under 10 million. The argument is that if fuel
prices remain high and productivity growth weakens, this could
impact workers' bargaining positions and could spur higher wage
demands. At this point, the labor market does not look to be the
source of inflationary pressures.

The PPI (Producer Price Index) and CPI (Consumer Price Index) are
often released within a day or two of each other. The PPI precedes
the CPI and is considered a guide to the CPI so it is usually not
a surprise to the market.  These two indices report changes in
prices for nearly every goods producing industry in the domestic
economy.  The PPI would monitor pricing for agriculture,
electricity and natural gas, forestry, fisheries, manufacturing,
and mining industries.  The CPI would go one step further then
and report the prices on a basket of goods to the consumer.  The
value is in comparing prices to the consumer in terms of the
prior month or the prior year.  Not surprisingly, both the PPI
and CPI numbers were up for September because of...drum roll
please...higher energy costs!  The impact of these facts
are that they could ultimately induce businesses that are
suffering from higher energy costs to attempt to raise their
prices more aggressively.  Labor may also begin to believe that
the higher energy prices are here to stay and become more
aggressive in their wage demands which will in turn put even
more pressure on businesses to raise their prices more quickly.
Unfortunately, these risks suggest that policymakers will not
ease monetary policy anytime soon.  And you thought a rate cut
was coming?  Let's see what the October numbers and beyond bring.

See, I told you I couldn't give my whole presentation in
one article--we're just on the tenth of 52 slides!  Is this
putting you to sleep?  I warned the attendees that I do put people
to sleep in my professional career but I had hoped that wouldn't
be a problem while listening to my talk!  Wake up!  We're almost

Finally, the Gross Domestic Product report is released on a
quarterly basis.  The GDP is a very important economic indicator
yet it is generally well anticipated and subsequently has little
impact upon the market.  The GDP value is measured on the product
side by adding up the labor, capital, and tax costs of producing
the output.  On the consumption side, GDP is measured by adding up
expenditures by households, businesses, government and net foreign
purchases.  Higher growth rate numbers suggest a lead in to
accelerating inflation, while lower growth indicates a weak
economy.  Third quarter was released just last week.  It came in
weaker than expected at 2.7%.  Here are some of the highlights
from that report:  Major demand components were strong - consumer,
business and export demand.  Spending for new and rebuilt housing
slid sharply.  Government spending was also downward and inventory
accumulations were as strong as in the previous quarter.  This,
shifts weakness into the final quarter.  Yes, you better believe
it.  We'll be hearing about those backlog of inventories in
corporate analyses next quarter and you'll be able to say that you
knew about that a long time ago.

Now that you've got all of this great economic information, I have
a little quote for you to think about:

In the words of Aldous Huxley, "Facts do not cease to exist
because they are ignored."

I hope you will now endeavor to pay more attention to the
economic indicators so that you may realize a greater depth as
a market observer as well as a trader.  We'll revisit this and
more next week.  Get out to vote and best wishes for continued
successful trading!

Attention Online Traders:

NobleTrading.com has become the first online trading firm to
offer both Direct Access Trading, and web based trading to its
customers. Trade Direct using any ECN, SOES, and SelectNet, or
trade right through your browser using our web based trading
application. FREE DSL service for active traders.

Visit our website and sign up for a Free real-time demonstration!


Index       Last    Mon    Tue    Wed    Thu   Week
Dow     10880.51 245.15 135.37 -71.67 -18.96 289.89
Nasdaq   3429.02 -86.96 178.23 -36.24  95.63 150.66
$OEX      753.52   6.59  18.16  -2.54   5.13  27.34
$SPX     1428.32  19.08  30.74  -8.18   7.10  48.74
$RUT      506.97   2.87  14.96  -2.50  11.79  27.12
$TRAN    2789.87 157.64  58.01   8.15  37.10 260.90
$VIX       26.61  -3.12  -1.80   0.57   0.05  -4.30


BRCD      243.00 -18.59  19.47   1.63  14.00  16.50  Moving higher
JNPR      194.88 -14.63  28.63 -11.63  11.50  13.88  Dropped
MANU      123.63  -6.28  10.25   2.03   7.66  13.66  New, rally
MLNM       84.00  -4.38   2.13   4.25   7.19   9.19  New, leader
IMPH       77.63   2.75   4.38  -6.13   8.13   9.13  Dropped
PKI       119.13   5.63   2.50  -2.19   1.81   7.75  Break out???
MEDX       70.25  -3.00   1.25   3.81   5.31   7.38  New, Biotech
RIMM      106.50 -16.63  16.69  -4.13  10.63   6.56  Eager buyers
EMC        94.94  -4.38   4.63   1.94   3.94   6.13  Big rebound
ADBE       80.81  -5.19   6.44   1.19   3.56   6.00  Still strong
CMVT      115.81  -1.50   3.44   5.50  -1.44   6.00  Buyers are in
ITWO      171.44 -10.81  13.31   1.50  -0.06   3.94  Rally???
MSFT       70.31   1.38  -0.19   0.75   0.69   2.63  Above $70
PSFT       46.13  -0.94  -0.44   0.94   1.56   1.13  New, growing
LEH        60.88   2.44   0.06  -3.63   0.00  -1.13  Dropped
BRCM      219.94 -14.38   9.69  -7.06   4.63  -7.13  Dropped
NTAP      105.88 -16.81  12.81  -9.19  -3.94 -17.13  Dropped


MERQ      108.13 -11.81   6.00  -2.25  -0.63  -8.69  New, brutal
RMBS       50.63  -3.75  -8.50   3.69   2.00  -6.56  Dropped
SLR        45.00  -0.06  -3.94  -0.56   1.56  -3.00  Relief rally
LVLT       41.69  -1.19   4.50  -5.13  -0.88  -2.69  New, bugaboo
TIBX       66.94  -4.88   2.94  -3.00   6.94   2.00  On thin ice
PHCC       54.75   0.50   3.00   1.19  -0.19   4.50  Dropped
SNDK       57.38  -2.94   4.53  -0.59   4.25   5.25  Dropped
DGX        96.19  -0.75   6.50  -5.31   5.25   5.69  Rolling along

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.


BRCM $220.00 +4.69 (-7.13) The intraday range on BRCM continues
to narrow, which has made it more difficult to take advantage of
the stock's usual volatility.  The $225 level continues to hinder
BRCM from breaking out of its recent consolidation.  Of course,
the warning from Nortel Networks yesterday didn't help BRCM's
case for breaking out.  Although shares never traded below our
stop point at $210, we're no longer initiating new positions in
light of BRCM's recent basing pattern.  However, if BRCM does
eclipse the $225 level early tomorrow, traders should watch how
the stock acts around resistance at $230.  On the other hand,
if BRCM breaks down below its critical support level at $210,
consider stepping out of the way.

IMPH $77.63 +8.13 (+9.13) Short-lived, our play on IMPH fell
through our stop level during the noon hour yesterday, and
couldn't mount a recovery until the buyers returned this
morning.  Even though the strong buying volume today yielded
more than an $8 gain and another all-time high, we need to let
IMPH go because of its technical violation.  For those that
jumped the gun and bought yesterday's dip, keep your stops
tight to prevent giving back your profits.  In this continuing
volatile market, we need to focus on the strongest plays, and
yesterday's performance kicks IMPH off that list.

JNPR $194.88 +11.50 (+13.88) It has been a nip and tuck battle
between the bulls and the bears as JNPR has stumbled its way out
of the abyss it was thrown into when NT slammed the entire
Networking sector with its disappointing earnings report.  While
well off of its lows near $160, we drew our support line on
Tuesday at the $185 level, and the buyers just couldn't hold off
the sellers as yesterday's session wore on.  Normal profit
taking should have halted at this level, but it wasn't to be.
JNPR's recent history of sharp intraday rallies and selloffs
makes it a difficult one to take a position on.  Although it
was encouraging to see another double-digit gain to plus side
today, we need to see a more consistent trend from our
successful plays.  Rather than continue to nurse this seriously
wounded play, we'll drop it tonight to make room for plays with
a healthier trend.

NTAP $105.88 -3.94 (-17.13) Despite the Buy recommendations by
USB Piper Jaffray and First Albany today, NTAP continued to show
weakness.  But quite honestly, the play was over from the get-go
yesterday.  During amateur hour, NTAP sunk fast.  The swift
violation of the $115 mark, which was the set cut-off point from
Tuesday, signaled trouble ahead.  This red flag provided a
warning to close positions and reassess the play.  Before long,
a clear direction presented itself - NTAP was headed back down
to challenge its recent lows.  Even today's early rally couldn't
break the pattern of lower highs and the share price remained
suppressed.  The upward momentum is over and it's time to move
out of NTAP and into a more advantageous plays.

LEH $60.88 +0.00 (-1.13) LEH remained steadfast above the $60
level in today's trading, but the play was over before it began
yesterday.  Shares of investment banks were down across the
board after two influential analysts lowered earnings estimates
for the sector.  LEH took it on the chin and fell hard.  The
share price lost 5.6%, or $3.63 by Wednesday's close.  Salomon
Smith Barney and Goldman Sachs cited concerns over investment
banking operations and trading revenue.  So while the prospects
of playing LEH were exciting going forward into November, we
must cut it from our call list this evening to make room for
more lucrative opportunities.


SNDK $57.38 +4.25 (+5.25) It appears that at least for now,
traders have forgotten about SNDK's legal troubles.  Yesterday,
with a downgrade on ALTR weighing heavily on the Chip sector,
SNDK was able to weather the storm.  While it did close down
1.13%, volume was light, at less than 50% of ADV.  Today, most
Semiconductor stocks traded higher thanks to a bullish conference
call from INTC.  This helped lift SNDK even higher, with the
stock rallying 8%.  While the volume was once again low, clocking
in at 62% of ADV, today's close put SNDK above resistance at $55
and the 10-dma at $55.23.  This suggests that SNDK's downtrend
may be over and with that, we are closing out this play.

RMBS $50.63 +2.00 (-6.56) We jumped on the "beat up on RMBS"
bandwagon Tuesday after rumors surfaced that INTC would be
moving away from using Rambus DRAM products in the future.
Although it is unclear whether there is really a change in
INTC's stance, the selling pressure that pushed shares of RMBS
as low as $36.50 on Tuesday has quickly dissipated in the wake
of more Semiconductor manufacturers (Samsung and Elpida in the
past 2 days) signing licensing agreements and helping to insure
the stream of royalty payments will continue to flow in.
Investors have responded by pushing the price back above $50,
our stop loss point, and trigger for dropping the play.  While
it appears unlikely that RMBS will have a strong upward run
anytime soon, the bearish bias seems to have dissipated, making
it a poor put play as well.  There are plenty of better plays
out there, so we are kicking RMBS off the playlist to make room
for them.

PHCC $54.75 -0.19 (+4.50) After PHCC rallied with the broader
markets on Tuesday, the downward momentum never returned.  In
recent sessions, a sideways trend above the 200-dma (54.31)
clearly established itself.  This pattern and the fact that PHCC
is trading above the $55 mark presents more than enough evidence
to drop the play tonight.  If by chance you have open positions,
exit on intraday weakness.  It's unlikely PHCC will see the
underside of $50 anytime soon.

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The Option Investor Newsletter                 Thursday 11-02-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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MSFT $70.31 +0.69 (+2.63) In an impressive show of strength, MSFT
rallied $0.75 on Wednesday, although both major indexes lost
ground.  Wednesday's volume was over 40 million shares, higher
than the three month average volume of 37 million but lower
than the ten day average volume of 59 million.  On Thursday,
MSFT cleared $70 easily and settled at a trading range between
$70 and $70.50; volume came in at 33 million.  MSFT is situated
comfortably above the 50-dma at $63.40, the 10-dma at $66.10,
and the 5-dma $69.00.  However, shares may struggle to cross
the 200-dma at $73.73.  A breakout above this level on strong
volume could mean the stock has clear sailing ahead and provide
a more conservative entry point.  However, consider that MSFT
has rallied 40% from $50 in only a few weeks, so profit taking
is likely, in which case a pull back to the aforementioned
$66 level might provide a solid entry.  In addition, volume has
been decreasing for the last five days.  Make sure the stock
stays above the 10-dma, and ideally the 5-dma in order to keep
the momentum.  Furthermore, we will continue to use the $64
level as a protective stop.

ADBE $80.81 +3.56 (+6.00) The up-trend that started for ADBE in
mid-October continues into November.  Yesterday, on a day of
light profit taking for the NASDAQ, ADBE managed to find
interested buyers, edging up $1.19 or 1.56% on 170% of ADV.
Bouncing off support at the 5-dma in the early going, the stock
continued rallying for the remainder of the day, closing at near
its high.  Today, ADBE gapped up above what had previously been
resistance at the $77-78 level.  From there, the stock continued
higher, to close up 4.61% on almost 170% of ADV.  Today's move up
was especially impressive as ADBE broke out of its upward sloping
regression channel to the upside.  This suggests that ADBE may
trade higher and in a steeper channel.  For aggressive traders, a
bounce off the $77-78 area could allow for an entry point, with
the 5-dma at $75.72 also providing additional support.  There is
also support from the 10-dma at $72.59.  However, if ADBE drops
below the key level of $70, we would no longer recommend starting
a position in this play.  Conservative traders may want to wait
for ADBE to break through resistance at $83 with volume before
jumping in.

BRCD $243.00 +14.00 (+16.50) On a day of rest for many Tech
stocks, BRCD spent Wednesday defending its 50-dma support level
now at $227.93.  While it did manage to end the day slightly in
the positive, resistance at $230 was strong, as it closed just
below that level.  Today, Merrill Lynch initiated coverage of
BRCD with a Buy rating.  Setting a 12-month price target of $250,
Merrill noted that strong barriers to entry and the ability to
maintain revenue and earnings growth rates of 100 percent as
drivers for the stock price.  With that, BRCD pole vaulted above
resistance this morning as it gapped up at the open.  From there,
the stock spent the rest of the day moving higher to close up
6.11%.  While the volume was average, it is picking up.  Today's
rally put BRCD back above its 10-dma at $237.03, a support level
which could make an attractive entry for aggressive traders.
There is also support in increments of $5 at $240, $235 and $230.
As a note, we are setting a stop at $215.  A move below this
level would likely lead to more weakness.  For conservative
traders, a break through $245, back by increased volume would be
a safer entry, setting BRCD up to challenge its next level of
resistance at $250.

CMVT $115.81 -1.44 (+6.00) While many Tech stocks took a breather
yesterday, CMVT managed to open above its key support level at
$110, using this area as a launching pad to blast through
resistance at $115.  Upon reaching this point, the buyers came in
force, driving the stock higher to close up $5.50 or 4.92%,
backed by almost 120% of ADV.  Today the stock attempted to break
through resistance at $120 but upon reaching that level, some
traders decided to take some profits, though volume was low on
today's slight pullback.  Just in case, we are setting a stop at
$110 and recommend closing out a play if it falls below this
level.  For aggressive traders, targets for entry can be found at
the 5-dma, now at $112.50 as well as support at $115 but confirm
a bounce with volume.  Conservative traders will want to see CMVT
break through $120 with conviction before entering this play.
With news today that tensions in the Middle East are easing, this
could help Israeli-based CMVT move higher.

EMC $94.94 +3.94 (+6.13) On Wednesday, EMC announced that it
would acquire storage software company CrosStor for $300 million.
While such news usually leads to a dip in stock price, EMC moved
higher as the Street applauded the deal.  With the acquisition,
EMC hopes to earn 20 percent of its future revenue from the
higher margin software part of the Storage sector.  The
acquisition also puts EMC in a position to compete in the
Network-Attached Storage (NAS) space, a high-growth area which
NTAP currently dominates.  As a result EMC gained almost $2 on
over 115% of ADV.  Today, comments that EMC is one of the better
positioned Storage companies helped propel the stock even higher.
With that, EMC added another 4.33% to its gains on over 125% of
ADV.  This put EMC back above its 50-dma at $94.61.  A bounce off
that level could provide an aggressive entry, as could a bounce
off the 5 and 10-dma at $89.66 and $91.92, respectively.  In
entering this play off a bounce, make sure that EMC stays above
key support at $86.  For conservative traders, a break above $95
on volume, confirmed with a strong market would be the signal to
enter, putting EMC in a position to challenge the psychological
century mark.

RIMM $106.50 +10.63 (+6.56) Although yesterday was a down day, it
was also a constructive one.  While it started the day weak, RIMM
successfully tested support at the 50-dma.  Finding eager buyers
at that level, the bouncing strongly, narrowing the gap to close
down 4.13% on over 170% of ADV.  Considering that most of the
volume came from buyers, this was a good sign indeed.  Today,
despite a downgrade of NT casting a pall on the Toronto Stock
Exchange (TSE), RIMM was able to move strongly higher.  Gapping
up at the open, the stock ended the day near its highs, closing
up $10.63 or 11.08% on over 150% of ADV.  With today's close,
RIMM is back above all its major moving averages.  At this point,
there is support from the 10-dma at $105.37, the psychological
$100 and the 5-dma at $97.03.  A bounce off support confirmed
with buyer interest would provide for an aggressive entry but
make sure RIMM stays above the key level of $95.  Traders looking
to enter on strength will be watching the $110 level.  A break
above $110 on volume would provide a conservative entry point.

PKI $119.13 +1.81 (+7.75) Flat-lining for the past 2 days, PKI
looks like it is getting ready to break out once again.  Profit
taking in yesterday's quiet session couldn't push the stock
below $116.50, well above our stop loss level of $113.  Although
not a stellar move, it was encouraging to see the buyers step up
to the plate again today, pushing up towards resistance as the
NASDAQ managed to post a solid gain.  Volume today came in on
the light side, with only 500 K shares trading hands, but
improving sentiment in the markets could be just the catalyst
for our play to charge to new highs.  A bounce from intraday
support at $116-117 looks like a decent entry for those who like
to target shoot, while more conservative players will wait for
a breakout over $121 before opening new positions.  Volume will
likely be the key to the stock's near-term direction, so follow
its trend.  If the bulls are serious, strong volume should
accompany any move to new highs.

ITWO $171.44 -0.06 (+3.94) A convincing bounce off $162.50
early in Monday's session generated the momentum that took ITWO
through the immediate resistance at $170.75 and beyond.  ITWO
struggled a bit at $175, but it was the $180 mark that proved
impregnable.  A good effort at $179.38, but no cigar!  Today's
momentum lost its oomph early on, but ITWO traded confidently
at a higher near-term support level of $170.  The stock's
current position is bolstered by the intersecting 10, 30 and 50
dmas at $170.22, 173.80, and $171.86, respectively.  The more
enterprising traders might consider taking an entry on extended
advances through these technical markers.  Conservative
traders, on the other hand, should wait for ITWO to clear the
upper resistance at $180 as ITWO moves closer to its proposed
stock split around December 4th.  Else, target shoot and play a
volatile intraday spread.  But no matter how you choose to
strategize the entry/exit, consider setting your stop no lower
than $160!  We consider the underside of $160 dangerous
territory, despite the rosy market outlook.


SLR $45.00 +1.56 (-3.00) SLR fell another $0.44 on Wednesday on
volume of over 5 million shares.  On Thursday, SLR increased $1.56
on volume of 4.2 million shares.  The stock remains unable to
rally above the 5-dma of $45.67, and the 10-dma of $47.00.  It is
situated right on the 50-dma of $45.16, and a drop below this
could bring it to the 200-dma at $40.00.  If it falls below this
level, it is fairly safe to assume that the next stop is the long
term support at $35.  Volume is above average on down days.  SLR
looks like it is struggling to clear $46.  SLR's total cash is
$2.43 billion, which is exactly equal to the purchase price of
NatSteel.  According to Lehman Brothers, this will be dilutive by
01 to .04 cents next year.  In order for this transaction to be
successful, electronics outsourcing trends need to stay strong,
and SLR must be able to successfully integrate a large Asian
based provider.  If SLR clears $48, this would be confirmation
of an uptrend, and new positions should not be entered.  Consider
entering on a drop below $44 on strong volume.

TIBX $66.94 +6.94 (+2.00) Skating on thin ice, our TIBX play
is trying really hard to break out of its 4-month bearish trend.
More weakness in yesterday's session was followed by a sharp
rally today, propelling our play through the 10-dma ($63.69)
and intraday resistance at $66.  Stronger resistance sits just
overhead at $68, and we are looking for sellers to materialize
near this level to drive TIBX back down towards the $59-60
support level.  Our play is still technically weak, and any
further profit taking in the broader technology sector is likely
to drive our play down again.  Use a rollover near resistance
to initiate new positions.  Place your stops at the $68 level,
and if it fails to contain the bulls enthusiasm for the stock,
consider it a sign that TIBX is on the mend.  More conservative
players will want to use a move down through the 10-dma as their
trigger for initiating new positions, as it will signify that
the bears have taken control again.

DGX $96.19 +5.25 (+5.69) A series of peaks and valleys describes
DGX's trend so far this week.  After seeing the share price
slide to $83.25 on Monday and then to flirt at the $100 level on
Tuesday, it could either be nerve-wracking or an optimum trading
opportunity.  We suppose it depends on your perspective of
whether it was a half-empty or half-full glass of water and, of
course, timing.  The past two sessions continued the rolling
pattern, but unfortunately, the $88 level held a firm bottom
yesterday.  The Strong Buy upgraded by Banc of America
Securities and its positive comments likely influenced trading.
And so, we're back to square one.  Wait for DGX to resume a
downtrend.  A convincing break of $90 would be optimal, but a
high-volume rollover at the current level is quite reasonable.
If the stock tracks upward and you have open positions, keep the
century mark set as a stop!

Attention Online Traders:

NobleTrading.com has become the first online trading firm to
offer both Direct Access Trading, and web based trading to its
customers. Trade Direct using any ECN, SOES, and SelectNet, or
trade right through your browser using our web based trading
application. FREE DSL service for active traders.

Visit our website and sign up for a Free real-time demonstration!


MEDX - Medarex $70.25 +5.31 (+7.25 this week)

One of several Biotechnology companies that is using
genetically engineered mice to create human monoclonal
antibodies and develop therapeutic products, MEDX calls its
invention the HuMAb-Mouse.  Several treatments are in clinical
trials; some target cancers (prostate, colon, kidney) tumors
(head, neck, breast), and others are designed to fight forms of
anemia and acute leukemia.  The company's lead product, MDX-RA,
may prevent secondary cataracts.  Spreading its influence, MEDX
currently has deals with more than a dozen firms, including
Centacor, Merck, and Aventis Behring.

MEDX has been on a steady rise since late May.  April and May saw
shares of Medarex test the 200-dma, but since then the stock has
been posting a series of higher highs and higher lows, and the
rally in the past three weeks has pushed the stock higher by
more than 60%.  Part of the run was likely due to investor
enthusiasm for the company's announced stock split, which took
place on October 18th.  Rather than sell-off after the event
though, MEDX shares headed higher 2 days later, possibly on news
of the alliance formed with ZymoGenetics, whose strong track
record of bringing products to market combined with its
expertise in the field of genomics and protein therapeutics,
should help MEDX to move towards profitability.  The last
earnings report from the company was issued on August 11th, and
if the pattern holds true, we are looking for the company to
release its next quarterly report in the coming weeks.
Although we were unable to confirm a date with the company this
afternoon, we will get a confirmed date tomorrow, and list it in
the play write-up this weekend.  The consolidation earlier this
week at the $60 level provided an ideal springboard for the
stock to launch higher, and a rally in the Biotech sector over
the past 2 days was just the catalyst the stock needed.
Intraday support has been building near $67, with further
support at $64, a level we need to see remain intact for our
play to stay healthy.  Aggressive traders can initiate new
positions on a bounce from this level, but need to make sure
strong volume is confirming the move.  Use $64 as your stop
level, and if it is violated, stand aside from the play.  More
conservative players will wait for MEDX to continue upwards
from current levels (above $71) before stepping into the play.

Since splitting its shares 2-for-1 on October 18th, news has
been rather sparse on MEDX.  The day after the split, the
company announced an alliance with ZymoGenetics to develop fully
human antibody therapeutics.  The combination of MEDX's fully
human monoclonal antibody development technology with
ZymoGenetics' expertise in the field of genomics and protein
therapeutics in bodes well for bringing additional products to

BUY CALL NOV-60 MZU-KL OI=285 at $13.25 SL=9.75
BUY CALL NOV-65 MZU-KM OI=294 at $ 9.75 SL=6.75
BUY CALL NOV-70*MZU-KN OI=301 at $ 5.88 SL=3.75
BUY CALL DEC-65 MZU-LM OI=  6 at $12.88 SL=9.75
BUY CALL DEC-70 MZU-LN OI=327 at $ 9.38 SL=6.50

Picked on Nov 2nd at     $70.25    P/E = N/A
Change since picked       +0.00    52-week high=$103.00
Analysts Ratings      3-3-0-0-0    52-week low =$  3.50
Last earnings 08/00  est= -0.13    actual= -0.16
Next earnings 11-09  est= -0.05    versus= -0.16
Average Daily Volume   =  596 K

PSFT - PeopleSoft $46.13 +1.56 (+1.13 this week)

PeopleSoft's mission is to provide innovative software solutions
that meet the changing business demands of organizations
worldwide.  Founded in 1987, PeopleSoft is a market-leading
provider of eBusiness application software for Fortune 1000-class
corporations.  From an early focus on the enterprise applications
of human resources and finance, PeopleSoft expanded its tools and
application portfolio to support these core business processes:
materials management, project performance analysis, supply chain
planning, manufacturing operations, and eBusiness.

According to their television ads, it's people that power the
Internet.  In the case of the company's shares, it's buyers that
have helped power the stock higher.  While many Tech issues have
spent the past month searching for a bottom, PSFT has been making
new all-time highs.  For the month of October, shares of PSFT
appreciated over 38 percent, using its 50-dma (now at $34.15) as
its starting point and moving up on steadily increasing volume.
A number of factors contributed to PSFT's rise during that time.
The most important factor of all was PSFT change in strategy,
shifting their focus to software that helps companies manage
relationships with their customers.  This was seen by the Street
as a move in the right direction, and for good reason.  PSFT's
main business, which is software that deals with a company's
internal operations such as human resource and accounting, is a
low-growth sector, at 15% a year.  But growth in demand for
customer relations management software is estimated at 45 to 50
percent a year.  Change the annual growth rate in a
discount-pricing model from 15% to 50% and it's no wonder the
stock has been ramping higher.  The large amount of
open interest, narrow bid/ask spread, and low cost of the call
options make this play an especially attractive one.  That being
said, it is important to make sure that the technical picture is
solid when initiating a play.  For aggressive traders, a bounce
off support at the 5- and 10-dma at $44.67 and $44.11,
respectively are targets to shoot for.  There is also support at
$42, but a move below this point would be a signal to close out
the play.  A bounce off the $45 level would also provide for an
entry but for a safer play, wait for PSFT to clear $48 with
volume before entering.

Despite weakness in rival and partner Oracle today, PSFT was able
to continue its ascent.  Volume for the past week has been drying
up while its 5 and 10-dma are converging to provide strong
support.  It appears that the stock may be setting up for a
breakout, with $48 as the pivot point.  A break through that
level would likely carry PSFT to $50 and from there, it's
blue-sky territory.

BUY CALL NOV-40 PQO-KH OI=1434 at $7.25 SL=5.00
BUY CALL NOV-45*PQO-KI OI=3094 at $3.50 SL=1.75
BUY CALL NOV-50 PQO-KJ OI=1399 at $1.44 SL=0.75
BUY CALL DEC-45 PQO-LI OI= 162 at $5.75 SL=3.75
BUY CALL DEC-50 PQO-LJ OI=3348 at $3.50 SL=1.75

Picked on Nov 1st at    $46.13     P/E = 131
Change since picked      +0.00     52-week high=$48.00
Analysts Ratings    2-7-10-0-0     52-week low =$12.00
Last earnings 10/17  est= 0.07     actual= 0.08
Next earnings 01-16  est= 0.09     versus= 0.04
Average Daily Volume= 6.36 mln

MLNM - Millennium Pharmaceuticals $84.00 +7.19 (+9.19 this week)

Millennium Pharmaceuticals is engaged in the commercial
application of genetics, genomics & bioinformatics for treatment
and diagnostics of such diseases as asthma, stroke, colitis, and
Crohn's disease.  It derives revenues from research and
development alliances with the major drug companies.  Currently
Millennium's LeukoSite subsidiary has developed CAMPATH, a
potential leukemia treatment that has received FDA fast-track

Biotechs are back and MLNM is leading the pack.  The stock went
on a tear today and quickly shattered the immediate resistance
at $80.  Volume picked up pace and MLNM charged ahead for a new
52-week high at $84.25.  The bullish close at $84 further
signifies the buying may continue in subsequent sessions.  Look
for the trading activity to mimic today's strong volume at
nearly twice the ADV.  If the momentum extends tomorrow, MLNM
should find near-term support at $82 and $83 on intraday dips.
This level is way above any dma measurements or firmer support.
The converged 5 and 10-day lines are in the proximity of $75 and
$77, which should hold up on a deep pullback.  This level is
rather perilous, so please consider setting stop losses no lower
than $75.  With the company's recent earnings and 2:1 stock
split now a thing of the past, the calendar is clear for a pure
momentum run.

Millennium Pharmaceuticals and Bayer AG recently announced that
their collaboration to streamline the drug discovery process is
a great success.  Currently they're moving more than 70 disease-
relevant validated drug targets into what is called their high-
throughput screening or lead identification in the first two
years of their five-year research alliance.  This "screening" is
a key step in the process of drug discovery.

BUY CALL NOV-80 UMY-KP OI=717 at $7.88 SL=5.75
BUY CALL NOV-85*UMY-KQ OI=618 at $5.50 SL=3.50
BUY CALL NOV-90 UMY-KR OI=736 at $3.63 SL=1.75
BUY CALL DEC-85 UMY-LQ OI= 92 at $9.75 SL=6.75
BUY CALL DEC-90 UMY-LR OI= 50 at $7.75 SL=5.50

Picked on Nov 2nd at     $84.00    P/E = N/A
Change since picked       +0.00    52-week high=$84.25
Analysts Ratings      6-6-2-0-0    52-week low =$17.47
Last earnings 09/00  est= -0.11    actual= -0.13
Next earnings 01-16  est= -0.06    versus=  0.01
Average Daily Volume = 2.12 mln

MANU - Manugistics Group $123.63 +7.66 (+13.66 this week)

Manugistics Group provides a suite of strategic, tactical, and
operational supply chain planning software products.  However
nearly 60% of its sales is derived from consulting and other
related customer support services.  Their blue-chip clients are
in the automotive, chemical, electronics, food, pharmaceutical,
and retail markets.

The rotation back into the techs last week sparked a rally
that could very well take MANU into earnings next month.  The
strong upswing through the century mark was indeed promising,
but it was the clean break of $110 on Tuesday that set the stage
for a momentum run.  The $110 level proved supportive in the
following sessions and today was the latest in a series of all-
time highs that began last Friday.  This element poses to
generate more enthusiasm; especially if MANU moves through
$126.50 with any conviction.  The potential profit taking that
may come shouldn't be thought of as a negative aspect, but
rather a profitable opportunity to take entry.  Dips followed by
strong bounces off the 5-dma ($113.38) or near-term support at
$115 are reasonable entries, even for the more prudent trader.
But take heed of a deep pullback to $110.  Consider setting
stops at this level to protect against sharp retracements.  If
you're a more cautious trader, then consider buying into
strength as MANU mounts a campaign through the immediate
resistance at $125.  Earnings for the company are expected
around December 21st.

In the news, Manugistics Group announced it sold an additional
$50 mln principal amount of 5% Convertible Subordinated Notes
(due 2007) in its recent private placement that ends today.  The
notes will be convertible into MANU common stock at an initial
conversion price of $88.125 p/s.   The company will receive
total net proceeds of approximately $242 mln from the completed
offering and expects to use the net proceeds for working capital
and general corporate purposes.

BUY CALL NOV-115 ZUQ-KC OI= 8 at $18.25 SL=13.00
BUY CALL NOV-120*ZUQ-KD OI=30 at $15.75 SL=11.50
BUY CALL NOV-125 ZUQ-KU OI=61 at $12.75 SL= 9.75
BUY CALL DEC-120 ZUQ-LD OI=12 at $23.38 SL=18.25
BUY CALL DEC-125 ZUQ-LU OI=50 at $20.50 SL=14.75

Picked on Nov 2nd at   $123.63    P/E = N/A
Change since picked      +0.00    52-week high=$126.25
Analysts Ratings     3-8-1-0-0    52-week low =$ 12.50
Last earnings 09/00  est= 0.00    actual=  0.03
Next earnings 12-21  est= 0.06    versus= -0.17
Average Daily Volume =   959 K


LVLT - Level 3 Communications $41.69 -0.88 (-2.69 this week)

Level3 Communications is a global telecommunications and
information services company that is building an international
fiber-optic network based on internet protocol (IP).  Their
focus is primarily on the business market.  Services include
local, long distance, and data transmission as well as other
enhanced services. Currently they serve 20 cities in the US and

Analysts are smitten with LVLT and investors have showered the
company with billions of dollars.  However, the telecom "bugaboo"
of late has driven LVLT below its historical support at the $60
level.  The downward trend generated more momentum last week on
Nortel's earnings woes and then this week, WorldCom (WCOM) shook
up the sector with its 4Q growth concerns and restructuring plans.
LVLT's share price vanquished amid the bad news and fickle
marketplace.  Take a look at AT&T's and Lucent Technologies'
devastating price levels and it's easy to see where LVLT could
end up over the near-term.  Of course we don't want to try and
guess where the bottom is, so keep stops in place to protect
against a recovery.  Consider setting a stop loss at the $48
level, which is currently just above the 10-dma line ($46.59).
The $48 mark provides enough room to take aggressive entries on
high-volume rollovers, but not enough to get hung.  More
conservative entries on intraday rollovers off the 5-dma ($43.93)
could also prove lucrative.  Today's bearish close is just a
fraction from the intraday low of $41.44, so traders might want
to take entries on further weakness - after amateur hour passes
tomorrow, of course.  LVLT hasn't seen the likes of these
basement prices since January of 1999.

BUY PUT NOV-50 QHN-WJ OI=276 at $9.50 SL=6.50
BUY PUT NOV-45*QHN-WI OI=395 at $5.88 SL=4.00
BUY PUT NOV-40 HGY-WH OI=559 at $3.38 SL=1.75

Average Daily Volume = 3.40 mln

MERQ - Mercury Interactive $108.13 -0.53 (-8.69 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.

It's been a brutal October for MERQ, and by the looks of things,
November may not be much better.  Ever since hitting a high of
$162.50 on October 1st, shares of MERQ have traded ever lower.  A
number of factors have conspired to lead to MERQ's decline.
Worries about decreases in capital spending by corporations in a
slowing economy have been an ongoing concern.  MERQ's rich
valuation has also been called into question.  Even with its 67%
year-over-year revenue growth rate, its current market cap, a
hefty $8.64 billion, has buyers shying away, with so many more
attractive and sexy Tech bargains out there to be had.  The large
debt load is another reason, as the company borrowed $500 million
just four months ago.  At a going rate of 4.75%, it would take
more than 25% of MERQ's yearly net income just to service the
interest of that debt.  For a fast-growing company, this is
indeed a heavy burden, and perhaps not the best choice in raising
capital.  A downgrade by Prudential in mid-October, from a Strong
Buy to an Accumulate rating did not help either.  Nor did
tensions in the Middle-East for this Israeli-based company.
During this time, the stock has fallen below its 50 and 100-dma,
currently at $128.37 and $113.87 respectively.  Connecting the
highs and lows since the beginning of October reveals a downward
trending regression channel.  Most recently, the stock has been
encountering strong resistance at the 50-dma and having pierced
the 200-dma (now at $98.32) intra-day, appears to be heading
closer to that direction, on the back of the 5-dma.  For
aggressive traders, a failure to rally above the 5-dma, near
$110, could be an ideal entry point.  There is also resistance at
$115 but in entering near this level, make sure that MERQ does
not trade above $117.  A move above this point could signal a
break in its downtrend.  For the more risk adverse, look for a
break below $105, back by strong selling volume to confirm
negative momentum before entering.

BUY PUT NOV-110 RBF-WB OI=316 at $12.00 SL=$9.00
BUY PUT NOV-105*RBF-WA OI=241 at $ 9.38 SL=$6.50
BUY PUT NOV-100 RBF-WT OI=266 at $ 7.13 SL=$5.00

Average daily volume = 1.75 mln


ITWO - I2 Technologies $171.44 -0.06 (+3.94 this week)

ITWO is a global provider of intelligent eBusiness solutions for
supply chain management and enhanced business applications.  On
June 12, 2000 ITWO merged with Aspect Development (ASDV) to
create one of the largest software providers for eBusiness and
eMarketplace solutions.  TradeMatrix, its Internet marketplace,
provides an open digital community powered by i2's advanced
optimization and execution capabilities that help manufacturers
plan production and other related operations.  Clients include
3M, Compaq, Ford and Nokia.

Most Recent Write-Up

A convincing bounce off $162.50 early in Monday's session
generated the momentum that took ITWO through the immediate
resistance at $170.75 and beyond.  ITWO struggled a bit at $175,
but it was the $180 mark that proved impregnable.  A good effort
at $179.38, but no cigar!  Today's momentum lost its oomph early
on, but ITWO traded confidently at a higher near-term support
level of $170.  The stock's current position is bolstered by the
intersecting 10, 30 and 50 dmas at $170.22, 173.80, and $171.86,
respectively.  The more enterprising traders might consider taking
an entry on extended advances through these technical markers.
Conservative traders, on the other hand, should wait for ITWO to
clear the upper resistance at $180 as ITWO moves closer to its
proposed stock split around December 4th.  Else, target shoot and
play a volatile intraday spread.  But no matter how you choose to
strategize the entry/exit, consider setting your stop no lower
than $160!  We consider the underside of $160 dangerous territory,
despite the rosy market outlook.


The stock closed just below the 50-dma and just above the 10-dma,
so it's wedged in there at $171 pretty good.  We are looking for
ITWO to continue higher on its recent trendline.  If the stock
dips below $170, look for bounces from $165 for entry.  A positive
NASDAQ on the heels of QCOM earnings could help push ITWO over
resistance at $179.

BUY CALL NOV-165 QYI-KM OI= 471 at $15.75 SL=11.75
BUY CALL NOV-170*QYI-KN OI= 468 at $13.00 SL=10.00
BUY CALL NOV-175 QYI-KO OI= 286 at $10.63 SL= 8.25
BUY CALL DEC-175 QYI-LO OI=  20 at $18.75 SL=14.50
BUY CALL DEC-180 QYI-LP OI=  73 at $16.63 SL=13.00

Picked on Oct 31st at   $170.00    P/E = N/A
Change since picked       +1.44    52-week high=$223.50
Analysts Ratings    13-20-4-0-0    52-week low =$ 30.69
Last earnings 09/00   est= 0.10    actual= 0.12
Next earnings 01-16   est= 0.15    versus= 0.10
Average Daily Volume = 4.43 mln

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An optimistic outlook for new economy issues!

Technology stocks rallied today as bargain hunters shopped for
recently downtrodden issues.

Monday, November 1

Technology stocks declined today as profit warnings from Worldcom
(WCOM) and Altera (ALTR) boosted investor fears about a potential
slowdown in corporate earnings.  The Nasdaq closed down 36 points
at 3,333 and the Dow finished down 71 points at 10,899.  The S&P
500 index closed down 8 points at 1,421.  Trading volume on the
Nasdaq reached 2 billion shares, with declines beating advances
2,117 to 1,835.  Activity on the NYSE was heavy with 1.19 billion
shares exchanged.  Broad market declines beat advances 1,461 to
1,426.  The Euro rose to a 19-day high against the dollar amid a
flurry of optimism for the flagging currency.  In the bond market,
the 30-year Treasury rose 1/32, pushing its yield down to 5.78%.

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

Curagen     CRGN   NOV45P/NOV50P   $0.56   credit   bull-put
Eaton       ETN    NOV60P/NOV65P   $0.31   credit   bull-put
Pharmacy.   PCYC   NOV40P/NOV45P   $0.50   credit   bull-put
Vertex      VRTX   NOV70P/NOV75P   $0.62   credit   bull-put

CRGN, PCYC and VRTX were all active during the session, allowing
favorable entries in each position.  Eaton traded in relatively
small range, and the target credit was unavailable.

Portfolio Plays:

Stocks slumped Wednesday as investors sold for profits amid new
concerns of declining revenues in technology bellwethers.  The
sell-off eliminated any hope that the end of October would bring
relief from the fears that caused dramatic declines in the past
few weeks.  Analysts say the market's near-term outlook is mixed
as companies continue to face slowing demand, tougher earnings
comparisons and lofty valuations.  Today's activity was less than
outstanding and technology stocks were particularly weak after a
slew of downgrades in the semiconductor sector and poor earnings
from telecom giant Worldom (WCOM).  Surprisingly, the damage to
the broader market was fairly limited, with much less impact than
the same revenue warnings would have produced at the beginning of
last month.  Many of the issues in the Spreads/Combos portfolio
were uncommonly resilient and only a few of the bullish positions
endured significant losses.  Stocks that rallied in opposition to
the primary trend included Human Genome Sciences (HGSI), EMC Inc.
(EMC), and Home Depot (HD).  In the small-cap category, Read-Rite
(RDRT) and Fairfield Communities (FFD) were the top performers.
One position that may need attention in the coming sessions is
our long-term diagonal spread on Microsoft (JAN03-50C/DEC00-65C).
The short option at $65 is now $5 "in-the-money" and as the time
value declines, there is a small possibility of early exercise.
While the probability of that occurrence is rather remote, it is
also important to stay ahead of the issue, with regard to the
outlook for our bullish spread.  A move to the JAN-$70 Call (in
the sold option) would incur a small debit, but it would also
reduce the potential for loss on the upside, should the recent
MSFT rally continue.  Since there is plenty of time for the play
to become profitable, it is very important to limit the negative
affects of Microsoft's (near-term) bullish activity.

Thursday, November 2

Technology stocks rallied today as bargain hunters shopped for
recently downtrodden issues.  The Nasdaq closed up 95 points at
3,429.  Industrial stocks were less productive and the Dow ended
down 18 points at 10,880.  The S&P 500 index was up 7 points at
1,428.  Activity on the Nasdaq was heavy at 2.07 billion shares
traded, with advances beating declines 2,516 to 1,457.  Trading
volume on the NYSE reached 1.14 billion shares, with advances
beating declines 1,772 to 1,115.  In the U.S. bond market, the
30-year Treasury fell 3/32, pushing its yield up to 5.79%.

Portfolio Plays:

The Nasdaq rallied today as new buying interest in semiconductor
and Internet issues helped the beleaguered index recover from a
recent bout of selling.  At the same time, the industrial average
was boosted by respectable gains in its technology components,
but losses in cyclical stocks kept the blue-chip barometer in the
red.  Today's activity was also centered around optimism in the
biotech and financial groups, and a number of positions in the
Spreads Portfolio benefited from the upward movement.  The top
performer was Handspring (HAND), vaulting $13 to $95 in a classic
technical rebound from losses posted earlier in the week.  Juniper
Networks (JNPR) also recovered, up $13 to $195 as investors moved
back into the downtrodden Networking sector.  Our new selections
in the pharmaceutical industry, Vertex (VRTX) and Pharmacyclics
(PCYC) performed well and in the Data Storage sector, EMC Inc.
(EMC) continued to bounce back from a recent slump.  Maxtor (MXTR)
also enjoyed the upside activity in data storage issues and our
bullish calendar spread (JAN10C/NOV10C) should yield an excellent
profit when the long option finally expires.  Another small-cap
leader, Fairfield Communities (FFD) continued higher today after
franchising giant Cendant (CD) said it would buy the time-share
resort company for $635 million in cash and stock.  Our synthetic
position has exceeded all expectations, returning a $1.50 profit
in just under two weeks.  Traders who are bullish on Cendant can
hold the long options until January, as the final exchange price
may increase to $16 per share, depending on the value of Cendant
stock during the last 20 days before the close of the deal.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
EC - Engelhard  $20.38  *** New Option Interest! ***

Engelhard develops, manufactures and markets technology-based
performance products and engineered materials for a wide range
of industrial customers.  Engelhard also provides services to
precious and base-metal customers.  The company's businesses
are organized into five segments: Environmental Technologies;
Process Technologies; Specialty Pigments and Additives; Paper
Pigments; and Additives and Industrial Commodities Management.

Options volume in Engelhard calls have spiked over the past few
sessions with little news to explain the activity.  The option
prices have also climbed higher with the increase in implied
volatility; a measure of how much traders think a stock can
potentially move.  In addition, as demand for an option rises,
market-makers increase the prices paid for that position.  In
the case of Engelhard options, the near-term IV's have moved up
significantly, as is often the case ahead of earnings or some
other corporate news event.  However, the increased activity in
EC's options can't be earnings-related, considering they company
reported third-quarter results last week.  Englehard announced
earnings of $0.40 a share, a 14% rise from the year-ago period.
Net sales rose 34% to $1.37 billion, driven by a surge in growth
from the company's industrial commodities management division.
Sales from that unit increased 51% to $897 million.

Traders are at a loss to explain the rise in option interest but
one thing is clear, the technical indications in the underlying
issue suggests there is further upside potential.  At the same
time, the upper limits of any extended rally are significantly
affected by the resistance at the sold strike price; a perfect
condition for a time selling position.  Those of you who favor
speculative plays can use the inflated front-month premiums to
help initiate a bullish calendar spread.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-22.50  EC-AX  OI=23  A=$1.75
SELL CALL  NOV-22.50  EC-KX  OI=15  B=$0.50

The strategy is best initiated when the front-month options are
trading at a premium with respect to longer-term volatility.
Most investors prefer to establish these positions at least 3-5
months before the long options expire, to allow the sale of a
number of short-term options.  The basic concept in this type of
spread is selling time value in the call options when they are
overpriced (high implied volatility) and buying it back, if
necessary, when the options return to intrinsic value.  Ideally,
the trader would like to have the stock finish just below the
sold strike when the near-term option expires.  However, when
the short-term position is in-the-money on the last day of the
strike period, you must buy it back so that you don't have to
exercise the long-term options to cover your obligation; that
would defeat the purpose of the strategy.  At the beginning of
each expiration period, you simply sell the next month's call to
further reduce the cost basis of the long position.

SEG - Seagate  $74.06  *** Reader's Request! ***

Seagate Technology designs, manufactures and markets products
for storage, retrieval and management of data on computer and
data communications systems.  These products include rigid disc
drives, tape drives and software. Seagate's rigid disc drive
products currently include rigid disc drives in the 3.5-inch
form factor with capacities ranging from 4.3 gigabytes (GB) to
73 GB.  Seagate sells its products to a number of original
equipment manufacturers for inclusion in their computer systems
or subsystems, and through distributors, resellers, dealers,
system integrators and retailers.

The data storage group appears to be "back on track" and one of
our subscribers requested that we identify a favorable spread
position in this issue.  Based on the technical outlook for the
sector and the underlying stock, a bullish position is in order.
However, with today's rally in technology shares, there is a
potential for near-term consolidation.  In this case, we will
use SEG's recent technical support near $60 as the basis for a
conservative credit spread.  The probability of the share value
falling to our sold strike price appears rather low, but there is
always the possibility of a major correction so monitor the issue
daily for changes in momentum and character.

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-55  SEG-WK  OI=232   A=$0.81
SELL PUT  NOV-60  SEG-WL  OI=3442  B=$1.25
INITIAL NET CREDIT TARGET=$0.50-$0.56  ROI(max)=11%

                   - STRADDLES AND STRANGLES -
MERQ - Mercury Interactive  $108.12  *** Premium Play! ***

Mercury Interactive is a provider of integrated performance
management solutions that enable businesses to test and monitor
their Internet applications.  Mercury's software products and
hosted services help e-businesses enhance the user experience
by improving the performance, availability, reliability and
scalability of their Web sites.  By using its solutions to
identify and assess performance problems, e-businesses can
increase their ability to attract and retain customers, and
improve their competitive advantage.  Their customers represent
a range of industries including Internet consumer companies
such as Amazon.com, America Online, Ameritrade, E*Trade, WebMD,
HomeGrocer.com, Jobs.com, ShopLink.com and WingspanBank.com;
Internet infrastructure providers such as Ariba, Broadbase,
Broadvision, i2 Technologies and Oracle; and Fortune 1000
enterprises Apple Computer, Caterpillar, Cisco Systems, Ford
Motors and Walmart.

Based on the analysis of historical option pricing and technical
trading patterns, this position meets our basic criteria for a
potential credit-strangle.  The underlying issue has a relatively
well-defined trading range near the 150 DMA and heavy overhead
supply at the sold option strike of $145.  The recent volatility
has inflated the near-term option premiums and we will use the
higher prices to our advantage with this relatively conservative,
neutral position.  As with any recommendation, the play should be
carefully evaluated for portfolio suitability and reviewed with
regard to your strategic approach and personal trading style.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  NOV-145  RBF-KI  OI=122  B=$1.25
SELL PUT   NOV-80   RQB-WP  OI=81   B=$1.25
INITIAL NET CREDIT TARGET=$2.62-$2.75  ROI(max)=10%
DOWNSIDE B/E=$77.38 UPSIDE B/E=$147.62

Note: Many traders may favor a more aggressive approach, selling
options that are closer to the current price of the issue, to
produce a higher initial return.  While that technique may be
more attractive, it also increases the theoretical risk of loss.
Only you can know what plays are suitable for your risk-reward
tolerance and experience level.

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Please read our disclaimer at:


Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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