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---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
02/01/99 09:51 AM --------------------------- Enron Capital & Trade Resources Corp. From: trials@optioninvestor.com (Option Investor Newsletter Trials) 01/28/99 08:52 PM Please respond to trials@optioninvestor.com To: Option Investor Newsletter Trials <trials@optioninvestor.com< cc: (bcc: Mark - ECT Legal Taylor/HOU/ECT) Subject: Thursday Option Investor Newsletter 1 of 2 The Option Investor Newsletter Thursday 1-28-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://WWW.OPTIONINVESTOR.COM Also provided as a service to The Online Investor Advantage Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 1-28-98 High Low Volume Advances Decline DOW 9281.33 + 81.10 9301.15 9203.57 850,761k 1,552 1,423 Nasdaq 2477.34 + 70.20 2477.47 2438.26 1018,400k 2,067 1,933 S&P-100 632.23 + 10.88 632.95 621.35 Totals 3,619 3,356 S&P-500 1265.37 + 22.20 1266.32 1243.17 51.9% 48.1% $RUT 423.97 + 2.85 424.19 421.13 $TRAN 3078/33 - 10.77 3114.27 3059.52 VIX 28.61 - 2.75 30.51 28.40 Put/Call Ratio .51 ************************************************************* What happened to Brazil? Did Intel or Yahoo buy it? From the 180 degree change in market sentiment we had today you would think that Brazil was taken over by an Internet stock. The Intel split announcement and the Yahoo announcement of it's takeover of GeoCities energized the market and revitalized the tech sector. Brazil was hardly even mentioned in the days news after they reported on the maturity date changes before the market opened. On top of the blooming optimism at the open Alan Greenspan actually blessed the Internet sector during a testimony in Washington. He said basically that he thought investors were viewing Internet stocks as "lottery ticket" plays were the odds were much better. He pointed out that analysis of future earnings and growth was actually culling the good plays from the bad ones. He said that historically investors often buy on faith companies that they anticipate to do well before any actual earnings exist and the Internet sector is no different. When you consider that there are 68,000 new Internet surfers coming online every day it just makes sense that the only five year old Internet will continue to grow at an exponential rate. With that user growth the leaders will quickly amass larger audiences while the smaller less efficient providers will either fall by the wayside or be taken over. Free enterprise is a wonderful thing and tends to continually prune itself of excesses and reward hard work and innovation. Enough preaching but did you know that of the 31 analysts that follow AOL, 28 either recommend a buy or strong buy, even at these prices!! The Nasdaq was the clear winner again today, setting a new closing high. The leaders were the four horsemen, MSFT +5.38, INTC +4.44, DELL +5.38, CSCO +5.44. Most of the Internets were up double digits again and show no signs of stopping. I would remind you that Internets have been weak on Fridays of late as traders take profits from the week. The Dow was led today by the same stocks that took it down yesterday. JPM +4.31, C +1.69, T +4.63, MO +2.25, GE +1.94. Contrary to news hype the Dow traded in exactly the same range as it traded yesterday only without the end of day drop. The 9250-9300 range only provided a positive day today due to the -70 drop at the close yesterday. The market did not "get well" over night. It just recovered from the spike caused by two sell programs at the close. Check out a chart! I really hate to keep coming back to this but the advance/decline ratio only barely broke even today. The NYSE adv/decl 1552/1423 was only positive by 129 and the Nasdaq 2067/1933 was positive by 134. This is definitely not a major move and not a major reversal of the down trend. This could be the start of a new uptrend but the proof is in Friday's numbers. I got some hate mail for being somewhat cautious (bearish) in last nights commentary. When the market had fallen from a +90 high to only +30 at 2:30 this afternoon I was really worried that the caution was justified and it looked like we could close negative for the day. I don't feel like a word of caution after a bad day is particularly bearish but until Brazil resolves it's problems I believe it bears watching. When your life savings is invested in the market it is sheer stupidity not to watch anything that can cause problems. You would not ignore a rattlesnake in your closet just because you can't see it today. Eventually it will come out and probably when you least expect it. Friday is a wildcard. Futures are up +2.00 and it looks bullet proof but I know Murphy's law is alive and well. About the only thing you can count on for tomorrow is more volatility. It would not surprise me to see techs suffer from profit taking. Whenever a stock is up double digits for the week it is a prime candidate. Good Luck Jim Brown ******************************************************* Market Posture ******************************************************* As of Market Close - Thursday, January 28, 1999 Key Support Broad Market /Resistance Last Posture/Since Alert **************************************************************** DOW Industrials 9,100 9,730 9,281 Neutral 1.15 SPX S&P 500 1,210 1,280 1,265 Neutral 1.12 OEX S&P 100 600 635 632 Neutral 1.12 RUT Russell 2000 420 435 424 Neutral 1.12 NDX NASD 100 1,900 2,010 2,105 BULLISH 1.26 MSH High Tech 930 980 1,021 BULLISH 1.26 Key Support Technology /Resistance Last Posture/Since Alert **************************************************************** XCI Hardware 830 875 934 BULLISH 1.26 CWX Software 610 665 677 BULLISH 1.26 SOX Semiconductor 360 410 406 Neutral 1.8 NWX Networking 420 450 446 Neutral 1.8 INX Internet 470 570 564 Neutral 1.8 Key Support Financial /Resistance Last Posture/Since Alert **************************************************************** BIX Banking 650 710 645 BEARISH 1.22 XBD Brokerage 630 725 689 Neutral 1.14 IUX Insurance 590 620 574 BEARISH 1.21 Key Support Other /Resistance Last Posture/Since Alert **************************************************************** RLX Retail 800 860 866 BULLISH 1.28 * DRG Drug 740 795 776 Neutral 1.26 HCX Healthcare 720 780 762 Neutral 1.26 XAL Airline 310 350 293 BEARISH 1.22 OIX Oil & Gas 245 260 229 BEARISH 1.14 Posture Alert A positive showing from the equity market has firmed the bullish bias driven by M&A activity, decent earnings results, favorable economic data, and a stock split from AOL and Intel. After advancing and closing into record territory, we have turned Bullish across the Retail. We caution investors, however, that the current rally has been driven by a few blue-chip companies and that several key industry sectors are still trading at or below their 50-day moving averages including Banking, Insurance, Airlines and Oil & Gas. A detailed description of our Market Posture and its applications can be found at: www.optioninvestor.com/marketposture ****************************************************** Market Sentiment - By Pinnacle Capital Advisors ****************************************************** Percent Bearish Below 30% According to Investors Intelligence readings, the percentage of those who are bearish is now only 28.2%. Investors Intelligence publishes the percentage of newsletter writers who are "Bullish" or "bearish" on a weekly basis. When pessimism evaporates, the market may be nearly a correction. This is significant because such a low number of bears suggests that much of the available capital is ALREADY invested and very little remains to fuel additional market advances. Just by way of benchmark, the percent of "bears" back on July 17, 1998 clocked in at 23.3% - just days before the start of a major sell-off. Other sentiment indicators are still flashing BEARISH overtones over the near-term so we advise subscribers to tightly protect their long positions. Any questions regarding market sentiment can be directed at: pinnacle@optioninvestor.com Market Sentiment at a Glance ******************************************************************** Friday Tues Thurs Indicator (1/22) (1/26) (1/28) Alert ******************************************************************** Pinnacle Index (OEX): ----------------------------------------------------------------- Overhead Resistance (620-635) 1.4 1.9 1.7 Underlying Support (595-610) 1.3 1.3 1.4 Put/Call Ratios: ----------------------------------------------------------------- CBOE Total P/C Ratio .5 .5 .5 CBOE Equity P/C Ratio .4 .4 .4 * OEX P/C Ratio 1.2 1.1 1.1 Peak Open Interest (OEX): ----------------------------------------------------------------- Puts 610 610 610 Calls 610 610 610 P/C Ratio .9 .9 1.19 Market Volatility Index (VIX): ----------------------------------------------------------------- CBOE VIX 32.85 29.35 28.61 * Investors Intelligence: ----------------------------------------------------------------- Bullish 60.0% 60.0% 60.7% * Bearish 30.0% 30.0% 28.2% * The Power of Expectation Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index ----------------------------------------------------------------- OEX Friday Tues Thurs Benchmark (1/22) (1/26) (1/28) ----------------------------------------------------------------- (630-635) 2.7 3.2 3.4 (620-625) 1.1 1.3 1.1 Overhead Resistance (620-635) 1.4 1.9 1.7 OEX Close 610.38 627.17 632.23 Underlying Support (595-610) 1.3 1.3 1.4 (605-610) 1.0 1.0 1.1 (595-600) 1.9 1.9 1.9 Average ratings: Resistance levels 2.0 / Support .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is Moderately weak at the OEX 620/635 level while the underlying support is moderately weak. Put/Call Ratio (10-Day Moving Average) ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (1/22) (1/26) (1/28) ----------------------------------------------------------------- CBOE Total P/C Ratio .53 .54 .53 CBOE Equity P/C Ratio .40 .42 .41 OEX P/C Ratio 1.15 1.13 1.06 Peak Open Interest (OEX) ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (1/22) (1/26) (1/28) ----------------------------------------------------------------- Puts 610 / 11,153 610 / 10,675 610 / 11,645 Calls 610 / 11,865 610 / 10,926 610 / 10,683 Put/Call Ratio .94 .98 1.19 Volatility Index (VIX) ----------------------------------------------------------------- Major Date Turning Point VIX ----------------------------------------------------------------- October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 January 22, 1999 32.85 January 26, 1999 29.35 * January 28, 1999 28.61 * Investors Intelligence Survey ----------------------------------------------------------------- Major Percent Percent Date Turning Point Bullish Bearish ----------------------------------------------------------------- October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top ? 58.3 30.0 January 26, 1999 60.7 28.2 * Please view this in COURIER 10 font for alignment ***************************************************** RESULTS THIS WEEK Index Last Mon Tue Wed Thu Week Dow 9281 82.65 121.26 -124.4 81.1 160.66 Nasdq 2477 30.43 64.10 -26.27 70.2 138.46 $OEX 632 5.68 11.11 -5.82 10.88 21.85 $SPX 1265 8.79 18.33 -9.14 22.2 40.18 $RUT 424 -0.33 3.22 -4.21 2.85 1.53 $TRAN 3078 49.17 26.47 -50.34 -10.77 14.53 $VIX 29 -0.82 -1.18 2.51 -2.75 Stock Price Mon Tue Wed Thu Week AOL 174.44 5.56 8.86 10.50 8.94 33.86 Another 2:1 split on schedule MSFT 174.00 5.63 9.69 -2.94 5.38 17.76 Dip buying en masse SEPR 111.75 2.25 2.50 -2.00 9.50 12.25 Reaction to LLY's Prozac #s?? SUNW 109.31 3.06 5.56 -1.19 3.88 11.31 Dip buying en masse DELL 94.19 1.88 3.63 0.00 5.69 11.20 Time for a pullback BBY 90.44 3.63 3.63 2.13 1.81 11.20 Time for a pullback LXK 110.31 4.88 3.88 1.31 1.00 11.07 Ditto VOD 197.63 3.25 2.88 0.13 4.00 10.26 Looking very strong NOK/A 154.00 -0.56 1.38 -0.13 8.75 9.44 Split Candidate with Earnings EMC 106.88 3.50 -0.25 0.06 5.06 8.37 Internet storage gorilla CEN 80.38 2.38 3.06 1.50 1.38 8.32 On a split run CVC 70.50 2.13 1.31 1.57 2.63 7.62 New pick CLX 121.69 1.43 2.57 0.81 2.50 7.31 New pick,Defensive play CSCO 108.88 0.63 3.69 -3.69 5.44 6.07 Split Candidate on Monday XLNX 83.50 -1.06 5.44 -2.75 3.69 5.32 Dip buying en masse WCOM 79.88 2.81 0.25 -0.38 2.31 4.99 At resistance. MU 75.25 -1.50 2.88 -0.38 3.75 4.75 Influenced by INTC excitement ORCL 53.69 1.19 1.81 -1.88 2.69 3.81 Dip buying en masse ANF 73.00 2.13 2.06 -0.19 -0.75 3.25 Consolidating DH 63.06 0.31 0.63 2.13 0.06 3.13 Great showing Wednesday WMT 85.13 0.00 1.56 1.63 -0.06 3.13 Slow and sure XIRC 45.00 -0.06 0.38 1.56 1.13 3.01 Gaining momentum VIA/B 85.00 0.44 -0.88 1.00 2.13 2.69 Gaining momentum SNC 40.25 1.19 0.56 0.06 0.69 2.50 Consolidating UTX 116.94 1.25 1.44 -1.38 1.06 2.37 Dow bull rider PUTS AVP 35.63 0.00 -1.13 0.13 -0.94 -1.94 Breaking down DD 52.69 0.44 -0.88 -0.75 -0.44 -1.63 Breaking down again BKB 36.31 -0.50 -0.38 -1.19 0.75 -1.32 Leaking AMR 54.50 0.38 0.25 -2.69 1.31 -0.75 Losing altitude BAC 64.88 -0.38 0.25 -2.81 2.75 -0.19 Leaking AVT 44.81 -0.75 1.38 -1.31 0.56 -0.12 Continued weakness AXP 100.44 3.00 0.25 -2.31 1.00 1.94 Continued weakness PHSYB 70.38 1.75 -0.56 -0.44 1.50 2.25 PG 87.81 -1.69 1.94 0.75 1.50 2.50 On the edge BDX 36.31 1.94 0.56 0.25 -0.19 2.56 Selloff still intact CPB 47.00 1.25 -1.44 2.00 0.88 2.69 Soups getting cold MRK 142.44 -1.50 6.50 -0.25 -1.31 3.44 Dropped WLA 72.13 -0.44 1.63 3.13 -0.13 4.19 Dropped HSY 63.94 2.50 0.00 0.44 2.00 4.94 Dropped PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ****** None PUTS: ****** HSY - $64.00 2.00 (5.50) Stopped out of position at $62.25 today (1/28). MRK - $142.50 -1.25 (3.50) Stop out of position on Wednesday (1/27) on drug stock rally at $145.25. WLA - $72.13 -.13 (4.13). Stopped out of position at $72.25 on Wednesday (1/27) on drug sector rally. PICK NEWS - CALLS ******************************************************* EMC $106.88 +5.06 (+8.38) EMC set a new high today and closed near the high. The positive press just continues to roll in. There was an article by The Motely Fool yesterday that is worth reading if you trade EMC. Some of the highlights of the article are that EMC's market share in the data storage market has grown from 28% to 32% while IBM's has decreased from 24% to 20%. The Internet and E-commerce should continue to drive EMC's sales, as 8 of the 10 largest Internet service providers already use EMC storage systems. Also in the news today, Gruntal & Co. started coverage on EMC with a buy rating. ORCL $53.69 +2.69 (+3.81) ORCL set a new high today, and closed slightly below its old high. In the news, ORCL's Japanese subsidiary priced it initial public offering today. It is expected to be one of Japan's hottest IPOs in many months. Like many US IPOs, it is expected to soar on the day of its debut. ORCL's ownership in the company will fall from 91% to 85% after the public offering. The other news item that is probably helping ORCL a little is Informix, the No. 5 maker of database software, announced better than expected earnings. (which is likely to raise expectations for ORCL). UTX $116.94 +1.06 (+2.38) UTX set a new 52 week high at $118.75 after the open on Wednesday, and has traded down since then. As we have said on numerous occasions, with the lack of news, UTX will mirror the Dow. In fact, if you look at its daily chart from today you will see what we mean. UTX took a dip shortly after noon and recovered towards the close. We haven't had any news on UTX, but the Street did like the announcement last week about UTX deciding to sell its underperforming automotive unit. MU $75.13 +3.63 (+4.63) Micron was off slightly yesterday, but today it gapped up at the open and kept on going. We said on Tuesday that while Micron's current quarter ends in February, and earnings won't be released until sometime in March, the stock will react to any news on other chip stocks in the meantime. Most of the sector is in the middle of earnings releases. A 2-for-1 stock split by chip sector leader Intel can only be positive for the other chip stocks. Look for MU to continue moving higher in sympathy. NOKA $152.75 +7.50 (+8.19) Nokia saw a nice jump in its stock price today ahead of tomorrow morning's earnings report. If you sold this afternoon, you locked in your profits and you can jump back in tomorrow if the numbers look good and/or they announce a split. Those who held over should note that earnings will be reported before the NYSE opening bell, so the stock will gap up or down accordingly. Rival Ericsson just reported strong earnings and received an upgrade. Nokia has been looking even stronger than Ericsson in recent months, so we are hoping for big news in the morning. WMT $85.44 +.25 (+3.44) The King of retailers is back to its old ways--a slow but steady climb in price, which is why we picked them up again. WMT is sitting just below the intra-day high it set on Tuesday of $85.94, which is it's only resistance. WMT had a 389,000 share block trade Wednesday at $84.00. This is both a momentum play and a split candidate (which we would expect with earnings). BBY $90.44 +1.81 (+11.19) Best Buy keeps powering ever higher, today setting a new intra-day high of $91.94. BBY seems to have found a successful retail formula, and they sell what consumers want most these days: technology products. Everything is increasing for this company: total number of stores, same store sales, market share, profit margins, and stock price. Higher selling and administrative costs also showed up on their last quarterly report, but they were part of an effort to improve performance and increase volume. The only thing that declined was their interest expense, and that is very positive. Sales for most of the holiday period will show up in the current quarter, so there is probably still good news yet to come. DELL Computer $94.19 +5.69 (+11.19) We often note that volume is critical to sustained price moves, and bemoan Dell a bit on its lighter volume. Fortunately, trading volume swelled yesterday and today to 23 million and 21 million shares, respectively; average is 17.5 million. Dell traded flat yesterday, but was up $5.69 today to a new all-time high. There is still room to run as Dell blasted through resistance with no immediate end in site. Protect your profits with stops and confirm direction first before playing. Earnings are scheduled after the close, February 16. CSCO - Cisco Systems $108.88 +5.48 (+6.07) Cisco was wholloped yesterday into the $103 range, but made it all back, and then some, today on strong volume. NASDAQ is on a tear with CSCO as the 3rd highest weighted stock in the NASDAQ 100. Market willing, expect further advances into earnings. CSCO is also a split candidate with enough shares authorized to announce a 3:2 split along with earnings scheduled for release on February 2. The run has begun. Dips are buyable. Confirm upward movement first and use stops to protect your profits. AOL - America Online $174.75 +9.25 (+34.27) Same league as Microsoft. AOL announced $0.17 earnings yesterday, $0.03 better than estimates, and a 2:1 stock split (effective February 22). Volume swelled to almost 20 million shares, both yesterday and today, sending AOL into orbit. Buying pressure is still on as AOL closed at a new all-time high. Resistance is weak at $176, its all-time trading high set today just before the close. AOL's new target price is $210 and now occupies a top 10 position in the Fidelity Magellan Fund. With so much profit built in, remember to use stops. Dips are buyable. Market permitting, the sky is the limit. WCOM - MCIWorldCom $79.88 +2.31 (+5.00) Here we are again; WCOM just can't seem to break resistance at $80. Market willing, it looks like we'll get another chance to crack it tomorrow. Wait for penetration of $80 with strong volume before making a play. Still benefiting from Supreme Court ruling against the Baby Bells, WCOM is rumored to soon be announcing the start of a new consumer Internet service, different from UUNET, its business ISP. In its acquisition of MCI, WCOM was required to shed its consumer ISP division, Cable and Wireless, in order to gain Federal approval for the merger. Dips are buyable, but wait for a clear reversal. MSFT - Microsoft $174.00 +5.38 (+17.75) A nice surprise, MSFT still wants to run following it's stellar earnings and Monday's 2:1 split announcement (effective 3/26), contingent upon shareholder approval. We expected a pullback, but not as small as the one we got. After losing less than $3 yesterday, MSFT closed today at a new all-time high, just $0.06 off its highest trade on 53% higher than average volume -- extremely bullish. If the market continues up, MSFT will too since they are the largest component of the NASDAQ 100. As always, confirm market direction first [don't forget to use stops] DH - Dayton Hudson $63.06 +0.06 (+3.12) Slow and steady; that's the way the parent company of Target Stores moves. Volume was a little light today -- only 1.3 million shares traded. Yesterday, DH gave us a nice $2+ pop on 2 million shares (2 million average). 70,000 shares traded at the close yesterday at a price of $63, lending some support at this price. No news this week. Look for small rises to continue if the market cooperates. 1189 institutions own 89.5% of the 395 million shares in float leaving about 40 million shares in daily float to trade. Translation: not many sellers; extra volume will tend to goose the price. Dips are buyable on a reversal. DH is a more conservative play. ANF $73.00 -0.75 (+3.25) After the $4.19 run it made on Monday and Tuesday, ANF was due for some profit taking. Wednesday, it lost $0.19 to humor us. Thursday, ANF teeter-tottered back and forth between green and red for most of the day but then finally decided to finish negative. ANF seems to be consolidating before resuming its course. Just to be sure, wait for ANF to show upward movement again before initiating new positions. SEPR $111.75 +9.50 (+12.25) Geez, when we initiated coverage of this pharmaceutical company on Tuesday, we planned on seeing the stock gradually increase. Instead, the stock pleasantly surprised us by spiking up +$11.25 during Thursday trading. It even broke above the new 12 month price target of $112 set by BancBoston Robertson just last Friday. However, it couldn't hold on and finished the day at $111.75. The uphill spurt may in part be due to news of improved sales of Eli Lilly's depression drug named Prozac. Lilly and Sepracor are currently working on an improved version of Prozac (which loses its patent protection sometime after 2001). Set your stop losses tight to prepare for any subsequent profit taking. ***** Play updates continued in section two ***** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.optioninvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@optioninvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ************************************************************* DISCLAIMER ************************************************************* This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
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