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---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
01/20/99 09:36 AM --------------------------- Enron Capital & Trade Resources Corp. From: trials@optioninvestor.com (Option Investor Newsletter Trials) 01/19/99 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: Tuesday - Option Investor Newsletter 1 of 3 The Option Investor Newsletter Tuesday 1-19-98 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) ************************************************************ 1-19-98 High Low Volume Advances Decline DOW 9355.22 + 14.67 9399.25 9210.01 786,785k 1,507 1,499 Nasdaq 2408.17 + 59.97 2408.43 2364.52 1061,400k 2,258 1,892 S&P-100 623.32 + 6.86 623.32 612.84 Totals 3,765 3,391 S&P-500 1252.00 + 8.74 1253.27 1234.91 52.6% 47.4% $RUT 430.89 + 3.84 431.08 427.05 $TRAN 3177.85 + 29.32 3189.79 3142.30 VIX 29.80 + .05 31.72 29.40 Put/Call Ratio .42 ************************************************************* AtHome dialed Excite's number and Compaq is on hold.... AtHome agreed to purchase XCIT today for $7 billion. This was a significant premium over the current stock price but when you are an Internet stock this could be a one day move. Rumors are flying that Compaq is preparing to make a major Internet purchase maybe as early as tomorrow. Lycos is the most mentioned possible target. This Internet mania helped power the Nasdaq to another record close and is credited with pulling the Dow out of another valuation worry induced profit taking session. How can you be bearish about the market in general when the tech stocks are continuing to beat earnings estimates and blow away whisper numbers. Microsoft announced after the close and showed just how big the $5 bln gorilla really is. The $5 bln was sales for last quarter. MSFT announced $.73 vs estimates of $.59 and blew away the whisper number of $.62. Microsoft was trading up +5.00 after the close. There was no split announcement and this could be attributed to the trial publicity. They don't want to appear too prosperous for the penalty phase. The conference call was typically pessimistic as they tried to keep a lid on analyst's estimates for the future. I would expect MSFT to gap open on Wednesday. The futures are up +6.50 at 7:10 ET and we give the credit to MSFT and several other announcements after the bell. The fly in the ointment could be the Alan Greenspan testimony tomorrow in Washington. He is sure to be asked some "irrational exuberance" type questions and the answers could be earth shaking. Some analysts say Mr. G. has been criticized so severely by congress for his previous market moving performances that future comments will likely be constrained. Don't bet the farm on this. Alan is tasked with many insurmountable projects one of which is keeping the U.S. markets under control. The recent Internet "froth" is something that other Fed governors have pointed at in the past as a sign of a speculative bubble. So even though the futures are up now, we may see some weakness before the testimony. If we get by without any earthquake comments then the week could continue up strongly. The Brazil problem could even be a muzzle for Mr. G. Better to be quiet than roil the markets and have to lower rates again next month to rescue them again. Clinton gets a major play tonight with the televised State of the Union speech. He is under a strong spotlight as people look for signs of cracks in the presidential armor. What should he do? Pull out some heavy firepower! He is planning just that. Clinton will unveil his support for a plan to take some Social Security funds and put them into the market in a retirement savings account program. Estimates in the $500-700 bln range are being tossed about. This is not a new concept but his support for this popular plan is new and timely given the other problems he is facing. Maybe we should keep his feet to the fire longer if he is going to do us favors like this. Not only would I rather my Social Security was gaining ground in an account of this style but can you imagine the market impact of a $700 bln inflow of cash? Don't count your chickens yet but stay tuned for plan details if it is ever approved. Opponents claim losses could occur if a long term bear market were to appear. I got considerable email about the 10% plan in Sunday's commentary. Some good and some bad. Most of the good came from traders that started putting this type of plan into action several months ago when I wrote about it last. Most of them have multiplied their accounts by several hundred percent. The negative mail seemed to come from readers that were new to the newsletter and had small accounts and were adamant that you should only settle for 200-300% returns on every trade. We will see what kind of mail I get several weeks from now when we start publishing the results from the readers who are going to implement the plan. I had many readers email that they were going to faithfully try it and report back. Good Luck! The first ten who can show ten trades will win a years subscription. Anybody can still play. Just send a recap of your completed plays after 1/17/99 using the 10-20% plan from Sundays newsletter. This is going to be an interesting week. Keep your options open and make those trades. With the put/call ratio at .42 and the advances only barely beating the declines 1506/1492, we are not out of the woods yet. Tommorrow could be another record breaker for the Nasdaq but the broader market internals are still weak. Just three stocks in the Dow accounted for over +60 points today. T +7.75, IBM +7.06, GM +4.69. The odds are real good that these stocks will not be the leaders tomorrow and new leaders are hard to find. Without these huge gains today we would have been very negative. -46 without accounting for the positive impact they had on other Dow components. Keep your fingers crossed. Good Luck Jim Brown Market Posture ******************************************************* As of Market Close - Tuesday, January 19, 1999 Key Support Broad Market /Resistance Last Posture/Since Alert **************************************************************** DOW Industrials 9,100 9,730 9,355 Neutral 1.15 SPX S&P 500 1,210 1,280 1,252 Neutral 1.12 OEX S&P 100 600 635 623 Neutral 1.12 RUT Russell 2000 420 435 431 Neutral 1.12 NDX NASD 100 1,900 2,010 2,030 BULLISH 1.19 * MSH High Tech 930 980 991 BULLISH 1.19 * Key Support Technology /Resistance Last Posture/Since Alert **************************************************************** XCI Hardware 830 875 897 BULLISH 1.19 * CWX Software 610 665 687 BULLISH 1.19 * SOX Semiconductor 360 410 402 Neutral 1.8 NWX Networking 420 450 448 Neutral 1.8 INX Internet 470 570 534 Neutral 1.8 Key Support Financial /Resistance Last Posture/Since Alert **************************************************************** BIX Banking 650 710 663 Neutral 1.15 XBD Brokerage 630 725 664 Neutral 1.14 IUX Insurance 590 620 596 Neutral 1.15 Key Support Other /Resistance Last Posture/Since Alert **************************************************************** RLX Retail 800 860 822 Neutral 1.8 DRG Drug 740 795 752 Neutral 1.8 HCX Healthcare 720 780 730 Neutral 1.8 XAL Airline 310 350 331 Neutral 1.12 OIX Oil & Gas 245 260 242 BEARISH 1.14 Posture Alert After advancing into record territory and holding, we have turned BULLISH across select technology sectors including NASD 100, hardware and software. We remain Neutral, however, across other broad market indices and industry sectors. A detailed description of our Market Posture and its applications can be found at: www.optioninvestor.com/marketposture Market Sentiment - By Pinnacle Capital Advisors ************************************************************ Option Speculators Quiet ahead of State of the Union Address With the State of the Union Address and Greenspan scheduled to speak tomorrow, not much was revealed in the market today with respect to market sentiment. Pinnacle is still tracking what option speculators do over the next couple of days for clues as to where the broader market is likely to go. We are entering a new expiration period and therefore some of the indexes and put/call ratios will become volatile over the next couple of days as options traders establish new positions. Pinnacle is still concerned by the excessive Bullish sentiment as tracked by Investors Intelligence latest poll - 60% Bullish, %30 Bearish. This is the highest level for bullish sentiment that we have seen for a while. Pinnacle's short-term 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 (1/15) (1/19) (1/21) Alert **************************************************************** Pinnacle Index (OEX): ----------------------------------------------------------------- Overhead Resistance (620-635) 1.7 1.8 Underlying Support (595-610) 1.0 1.1 Put/Call Ratios: ----------------------------------------------------------------- CBOE Total P/C Ratio .5 .5 CBOE Equity P/C Ratio .4 .4 * OEX P/C Ratio 1.2 1.2 Peak Open Interest (OEX): ----------------------------------------------------------------- Puts 610 610 Calls 610 610 P/C Ratio 1.0 .8 Market Volatility Index (VIX): ----------------------------------------------------------------- CBOE VIX 29.75 31.42 * Investors Intelligence: ----------------------------------------------------------------- Bullish 60.0% 60.0% * Bearish 30.0% 30.0% 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 (1/15) (1/19) (1/21) ----------------------------------------------------------------- (630-635) 2.6 3.0 (620-625) 1.1 1.3 Overhead Resistance (620-635) 1.7 1.8 OEX Close 616.5 622.12 Underlying Support (595-610) 1.0 1.1 (605-610) .9 .9 (595-600) 1.0 1.7 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 ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (1/15) (1/17) (1/19) ----------------------------------------------------------------- CBOE Total P/C Ratio .52 .54 CBOE Equity P/C Ratio .38 .39 OEX P/C Ratio 1.23 1.19 Peak Open Interest (OEX) ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (1/15) (1/17) (1/21) ----------------------------------------------------------------- Puts 610 / 8,152 610 / 9,959 Calls 610 / 8,360 610 / 11,799 Put/Call Ratio .97 .84 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 15, 1999 29.75 January 19, 1999 31.42 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 19, 1999 60.0 30.0 * Please view this in COURIER 10 font for alignment ***************************************************** RESULTS THIS WEEK Index Last Tue Dow 9355 14.67 Nasdq 2408 59.97 $OEX 622 5.66 $SPX 1251 7.63 $RUT 431 3.84 $TRAN 3178 29.32 $VIX 29.8 0.05 Stock Price Change ATI 92.63 9.25 Really worth about $101.25 as of today. T 91.38 7.13 Finally has it's own Internet portal in an indirect way. YHOO 323.00 6.00 Excite stole the lime light today MSFT 155.63 5.88 Earnings Explosion $0.73 vs. $0.59 estimate NOK/A 144.00 5.38 Still a split candidate SUNW 105.31 4.88 Earnings on Thursday/ Split candidate CSCO 106.38 4.69 Approaching 52 week high. LXK 102.38 4.31 Earnings next Monday CHKPF 55.50 4.25 Earnings run for Thursday AOL 150.50 4.00 Major split candidate for next Wednesday (27th) LU 114.06 3.81 Earnings on Thursday/ Split candidate DELL 82.13 3.13 Nasdaq leader and winner CCU 63.13 2.69 Digital radio appears to be a popular idea QCOM 66.50 2.63 Another earnings blowout WCOM 77.25 2.19 Bells continue to suffer in court EMC 102.13 2.06 Just keeps going up. Earnings next week MU 73.00 1.69 New 52 week high COF 131.50 1.06 Met estimates but no split PRIA 35.50 1.00 Part of the Nasdaq charge ETH 49.56 0.63 Consolidating after last week's run DIS 36.50 0.50 MYG 64.69 0.44 Steady as a rock JBL 73.75 -0.13 Wait for upward momentum to return TLAB 84.63 -1.31 Profit taking after last week. Puts WLA 66.44 -3.38 A one drug company? RMBS 87.25 -2.25 Earnings slow down MCHP 33.38 -1.75 Downgraded by 4 brokers in one day LLY 79.50 -1.50 BDX 38.38 -1.38 PKN 94.00 -1.38 DD 55.94 -1.06 CPB 44.25 -0.88 BAC 64.00 -0.56 Missed earnings HSY 60.88 -0.38 AVT 46.00 -0.25 EK 68.75 -0.25 ERTS 47.00 0.50 Up with the Nasdaq MRK 147.75 0.63 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: ****** XCIT $110.00 +42.50 (+42.50) Gapped up on buy out news from At Home (ATHN). Represents one of the biggest Internet deals to date. Pinnacle, therefore, dropping XCIT. It does underscore one of the benefits of buying a put instead of shorting the stock. Only the premium is lost on the $42 gap. BMCS $41.50 +1.44 (+1.44) Pinnacle dropping software firm after BMCS closed above key $41 benchmark and the Software Index (CWX) closed in record territory. PICK NEWS - CALLS ******************************************************* SUNW $105.31 +4.88 (+4.88) This could be a huge week for Sun Microsystems. Already, the horses are off and running. On Tuesday, Sun added +$4.88 to set another all time high in intraday trading at $105.44. In an awesome display of strength, it broke and held above its former resistance level of $104.50. Maybe the move was propelled by some formidable press releases. Royal Philips Electronics NV and the Sony Corp. will announce an alliance with SUNW. The plan is to use Sun's Jini, a form of the Java programming language, to develop software that can network entertainment devices and appliances by using the Internet. The Sharper Image, Digital Video Express, 1-800-FLOWERS, Egghead.com, Inc., and Brite Voice Systems have all turned to Sun's highly reliable servers, storage, and software products to handle their growing needs. More than likely the stock is taking off because of Sun's earnings announcements which are due out after the market closes on Thursday Jan. 21st. Earnings estimates for SUNW are $0.66. Along with a solid earnings report, we are predicting a 2:1 stock split announcement. SUNW last split in November of 1996 when the stock was trading near $60. With 950 mln shares authorized and only 380 mln outstanding they have plenty of room for a split. After MSFT's huge earnings explosion, the techs should take off tomorrow, but then again investor enthusiasm will be fighting investor fear with Greenspan speaking on Wednesday. MYG $64.69 +0.44 (+0.44) Maytag is looking good so far this week. The turn around in the market on Tuesday seemed to help Maytag add +$0.44 on the day. Hopefully the market will continue to stabilize and help MYG challenge its latest resistance level of $66.00 which isn't too far away considering Maytag inched up to $65.25 in intraday trading. Maytag announces its earnings on Feb. 4th and remains one of our split candidates. FTL $18.00 +$1.31 (+1.31) Even though we are playing FTL as a take over play, (on rumors), with this weeks news that the clothing maker is now the exclusive apparel supplier for all 56 Planet Hollywood Cafes, FTL still opened on a down note. But picked up the pace and shot up to $18.75 for the daily high, then settling down to close at $18.00. Rumors had a $23.00 buy out announcement coming on last Tuesday but as we all know, it didn't show. FTL is still showing volatility, so be careful with this one. CCU $63.13 +$2.69 (+2.69) CCU was added as a play this weekend and did not disappoint us on the first day of trading News about this new concept in Internet communications (digital radio) is all around the street. By investing in the research that will carry Net surfing to new levels, CCU might just catch that big wave. CCU opened and tested it's support of $60.00 by dipping its toes below the water line at $59.62. Then came up for a big gulp of air to $64.00, and caught a good wave to finish at $63.12 on the day. Protect your profits, while watching for tomorrow's next call of "surfs up"! EMC $102.13 +2.06 (+2.06) EMC just keeps going up. It set a new 52 week high today, and closed at the high. There was an interesting article at MSN MoneyCentral comparing EMC and its rival NTAP. An observation by the article was that every bit of new e-mail, every sale over the Internet, and every extra page view increases the need to build more storage into the Internet. It also pointed out that EMC has just begun selling software to its customer base. Software sales are expected to grow from $400 million in 1998 to $1 billion by 2001. EMC reports earnings before the open on 1/26 (next Tuesday). JBL $73.75 -.13 (-.13) JBL keeps bouncing around and off its 21 day moving average which is currently at $72.82. We really need something to get this stock going again. We have not had any news, and JBL doesn't release earnings until March. JBL's two main competitors, SLR and SCI, both went up today. JBL has been following these two, so maybe JBL will start moving up. Otherwise, its chart is starting to flatten out and it looks like its momentum is slowing. Wait for confirmation of upward movement before initiating any new trades. UTX $109.00 .69 (-.69) UTX gapped open this morning and then traded down the rest of the day. There was an article today about the run that UTX has been on since October in seeming defiance of a slowing global economy. UTX does about 55% of its business overseas. Analysts pointed out that the company's forecast of 15% growth in 1999 has been one of the keys to its recent run. UTX releases earnings this Thursday. Only play UTX if the Dow is moving up, otherwise wait for the earnings release on Thursday to see which direction UTX is headed. There is the possibility of a split announcement with their earnings but we don't feel that strongly about it. QCOM $66.50 +2.63 (+2.63) QCOM announced earnings today of 65 cents per share and blew away the estimate of 59 cents per share. QCOM also reported the highest quarterly revenues in its 13-year history. Revenues were $941 million for the first quarter of fiscal 1999, an increase of 20 percent over the first quarter of fiscal 1998. Net income for the first quarter was $49 million compared to $37 million for the first quarter of fiscal 1998, a 32 percent increase. In other news, QCOM's joint venture with Microsoft announced their first service offering, named Revolv. Revolv is a service that will provide mobile professionals with secure access to information using a variety of wireless or mobile devices form anywhere they travel. QCOM should have no trouble with its old 52 week high of $67.38 tomorrow. DELL $82.13 +3.13 (+3.13) More un-noticed, great news. "Dell has become a force to be reckoned with in the personal workstation market," said Tom Copeland, workstation analyst at IDC. "Dell's workstation market share grew at 186 percent, substantially more than the industry average of 36 percent, and far more than any other vendor"(Business Wire). Dell is now tied with Hewlett Packard as the number 1 producer of personal work stations. They announce new products weekly without fanfare. Dell closed at a new all-time high today on average volume in the wake of stellar NASDAQ gains. Volume was 14 million shares, a little light for our taste. But we'll take a $3 gain any way we can get it. Look for Dell to move up more, market permitting. Wait for small pullbacks to scale into a position. Earnings to be announced February 16. CSCO $106.38 +4.69 (+4.69) Cisco closed $0.12 off its high of the day. Nice show of strength on 21% higher than average volume. No earth shaking news, but Cisco has announced 3 new programs to not just sell equipment to service providers, but design, manage and implement its installation for maximum efficiency and least cost to the client. More important to the bigger picture, CSCO is the big beneficiary in developing the Internet, including providing equipment for the AT&T/TCI deal. Looking strong, but after 3 days of higher closings, keep an eye out for the dip, and then make your move. Resistance is $108. Still a split candidate. Look for earnings February 2. AOL $150.50 +4.00 (+4.00) Not much AOL news since last week. Today's Internet spotlight held all eyes on @Home's proposed purchase of Excite, which should have thrown some competitive cold water on AOL, but it didn't. Even on 60% of average volume, AOL added $4.00. We'll feel a lot better when AOL adds volume to confirm the upward price movement. In the meantime, AOL adds more tension to the rubber band as it consolidates toward a "snap" date between now and earnings scheduled to be announced on January 27th after 5:00pm ET. AOL is also a split candidate at these price levels (over $120). We anticipate a split along with earnings. For the next couple of days, target shooting your entry to coincide with the dip after opening should get a better entry. As always, confirm market direction first. WCOM $77.25 +2.19 (+2.19) Baby Bells lost another one in court today in an attempt to over turn provisions of the Telecommunications Act of 1996 which are effectively preventing from entering the long distance business. Under the Act, the Bell companies are prohibited from offering long distance service to their local customers until they have opened their local networks to competitors (Reuters). Though this is beneficial for all long distance carriers, WCOM appeared to be an indirect beneficiary of AT&T news. Today's volume was 20% over average, a very good sign. We look for WCOM to test and break through resistance of $79, having cleared $76 easily. The more conservative play is to wait until it breaks $79 and holds. But in light of the telco sector's momentum, we can make a case for jumping in after confirming market direction. Just don't try to catch a falling knife if profit taking sets in. T $91.50 +7.25 (+7.25) Welcome to what seems like the newest Internet play. Michael Armstrong, AT&T's chairman, is trying with measurable success, to turn the Queen Mary on a dime, from a copper-based dinosaur to a broadband fiber based communications powerhouse. AT&T is actually a big beneficiary of @Home's offer to purchase Excite. Here's why: @Home's largest shareholder is TCI who is about to be absorbed into AT&T. With Excite, AT&T now has a substantial "portal" to the Internet which can be delivered over TCI's cable infrastructure. AT&T had, from what we could tell, its largest 1-day gain ever on volume exceeding the average by 80%. Resistance has been obliterated. The sky is the limit, market pending. Watch out for profit taking on such a large 1-day run-up, and buy the dip. MSFT $155.63 +5.88 (+5.88) MSFT blew away earnings estimates true to form, by posting a fiscal Q2 net of $0.73 a share, well ahead of the First Call mean estimate of $0.59. Revenues rose 36.8% to $4.9 billion. As of this writing, we have heard no news of a split just yet. But in after hours trading, the stock was up $9.00 in the $164 range. For those of you with a position held over earnings (which we normally don't recommend), congratulations. Remember to protect your profits with stop-loss/stop-limit orders. Also, don't use a market order to enter a play in the morning, you could be filled at the high of the day. Instead, if MSFT sells off in the first 30-45 minutes of trading, enter the play on the rebound. ***** 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 $10 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. ---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on 01/20/99 09:36 AM --------------------------- Enron Capital & Trade Resources Corp. From: xtrials@optioninvestor.com (Option Investor Newsletter Trials) 01/19/99 09:02 PM Please respond to xtrials@optioninvestor.com To: Option Investor Newsletter Trials <xtrials@optioninvestor.com< cc: (bcc: Mark - ECT Legal Taylor/HOU/ECT) Subject: Tuesday - Option Investor Newsletter 2 of 3 The Option Investor Newsletter Tuesday 1-19-98 Copyright 1998, All rights reserved. Redistribution in any form strictly prohibited. PICK NEWS CONTINUED ********************************************************** TLAB $84.63 -1.31 (-1.31) No news to be found on TLAB today, just old-fashioned profit taking on 1/3 less than average volume. This really is a "buy the dip" opportunity. We still like TLAB and expect further gains when investors de-couple from today's Internet magnet. Confirm upward direction before entering a play. DIS $36.50 +.50 (+.50) Disney edged a little higher today. A judge dismissed the $20 million that had been awarded to Children's Broadcasting Corp. when Disney ended it's agreement to sell national advertising for a Children's Broadcasting deal with AAHS World Radio. Meanwhile, Infoseek, Disney's partner in the Internet portal GO NETWORK (and 43% owned by Disney), has completed its acquisition of Quando, another Internet company. Infoseek's Ultraseek Server powers the web site search capability of many top private and state universities, as well as several corporations. A report shows a drop of 1% in all theme park attendance in 1998. However, for Disney, that may not be too great a cause for concern. Its Magic Kingdom saw a 23% jump in attendance only the year before. NOKA $144.00 +5.38 (+5.38) Nokia blasted to a new intra-day high today of $145.75, and set a new closing high as well: $144.00. Nokia has chosen to use the high performance, highly secure processing products made by Chrysalis-ITS. Separately, Dolphin Telecom, of France, has chosen Nokia to supply and install the infrastructure equipment for its Tetra digital wireless communications network in France. Nokia plans to double production of mobile phones at its plant in Bochum, Germany to meet increasing demand. The entire telecommunications market is hot now, and Nokia is one of the top ten providers of telecommunications products in the world, and the leading maker of cellular phones. Looking strong, Nokia is also a split candidate. MU $73.00 +1.69 (+1.69) Micron gained $1.69 on the day, even as Novellus dropped after reporting earnings only in line with analysts' expectations. The pre-earnings run-up for Novellus had been driven by investors' expectations. Robert Maire, an analyst at Donaldson, Lufkin, and Jennette, issued cautious statements about the semi- conductor industry. He believes that it has not started a full recovery yet and chip stocks are ahead of themselves. Intel and Micron must not have gotten the news, for they were both up today. Intel's numbers showed a 12% surprise, and Micron is reportedly doing well this quarter. MU's current quarter doesn't end until February, though, and earnings won't be out until March--enough time for a bit of an earnings run. PRIA $35.50 +1.00 (+1.00) Up a full dollar is a decent rise on a $35 stock. In fact, this stock was only down one of the last 5 trading days, and that was on a down market day. PRIA has been steadily climbing since its early December correction and it looks like it intends to keep going. The same factors helping the semi-conductor industry will help drive up this stock: increasing demand for computers and other equipment that use chips, and a decrease in the formerly overabundant supply of chips. LXK $102.38 +4.31 (+4.31) LXK had a stellar day today with its rise of 4%. This seems to be a pre-earnings run. We have noted in past commentaries that LXK has had earnings runs of an average of $6.00 over the last four quarters. It seems that this quarter will be no different. There is added expectation that LXK will announce a split. We have the earnings date as January 25th. If we hear different we will update you. LXK had an interesting article written about it's trials in selling printers to China. The problem wasn't the printers themselves, but the paper they were printed on. The paper was so difficult that LXK sent reams of paper to their researchers and told them to develop a printer that would print on the ancient paper. Shows the extent at which companies are willing to go in this world economy. ATI $92.63 +9.25 (+9.25) ATI did as expected and gapped open on Tuesday. The open was $95.75, over $3 above the close of the day. ATI and VOD have stated the deal needs to be completed by December 31st, 1999. The deal states that ATI shareholders will get 1/2 share of VOD plus $9 in cash. This will cause the value of the deal to change as time goes by. ATI is obviously trading well below the true value of the deal, but this is common until the deal is finalized. If you want to play the rest of this deal (since currently ATI should be worth $101.25 based on VOD's close today): *We suggest waiting for the next dip. BUY CALL FEB-85 ATI-BQ OI= 6868 at $10.00 SL=7.50 ITM $7.63 BUY CALL FEB-90 ATI-BR OI=10024 at $ 6.88 SL=5.25 BUY CALL APR-90 ATI-DR OI= 658 at $ 9.25 SL=6.75 LU $114.06 +3.81 (+3.81) LU had a pretty good day on Tuesday and closed just $.75 off its highs for the day. We are now just $6 from LU's 52-week high. We have verified LU's earnings date. Earnings will be announced before the market opens on the 21st of January (this Thursday). We are seeing a nice earnings run which should continue until the earnings release. Watch for pullbacks to initiate new plays. There are always times to purchase, just be patient and buy the dips. XIRC $42.00 +2.13 (+2.13) XIRC shot up today on the expectations of it's earnings announced after the close today. We had the earnings date as January 21st, so we apologize for the mis- information. For those of you that are holding XIRC, the earnings came in at $.39 a share. This is $.04 more than estimates and a penny ahead of the whisper. If anyone is thinking of buying into XIRC, wait for a pullback after the gap open. XIRC's earnings were $.11 same quarter last year. XIRC unveiled high-speed ISDN data support for its Global- Access RealPort Ethernet+Modem and modem-only integrated PC cards. This technology connects notebook PCs at 128Kbps. COF $131.50 +1.06 (+1.06) COF announced earnings today and they came in right on estimates of $1.04. This originally pushed shares of COF down slightly. As the day played on, COF traded up and ended up at its high of the day. The whisper number was the same as the estimate. COF is sitting right around its 52-week high. If the market continues to trend up then COF should be a leader. Their earnings rose from $.86 a share in the same quarter last year. We were a little bit disappointed that they did not announce a split. We are guessing that COF's management does not have a split clause in their compensation. They receive some pretty big bonuses if they can get COF's share price to $175 within the next 2 1/2 years. CHKPF $55.50 +4.25(+4.25) CHKPF took off today and closed just 1/2 a point off its intraday highs. CHKPF blew by its prior 52- week high on strong volume. CHKPF's earnings are on the 21st, and we are seeing the effects of an earnings run. CHKPF has historically blown away earnings estimates. CHKPF's last five earnings surprises have gone like this: 13,22,28,23,78. These are percentage surprises. Numbers like these cause an earnings run. Though a split isn't eminent, they do have shares to do a split. ETH $49.56 +.63 (+.63) ETH traded in a range of $49.13 to $50.75. Not a bad day considering that ETH is not in the technology arena. ETH announced earnings on the 13th of January and beat estimates by $.02. The general feeling out there is that furniture stores had a great holiday season. ETH is still $17 away from its 52-week high. This leaves a lot of room to go. YHOO $323.00 +6.00 (+6.00) YHOO had an interesting day. YHOO opened at $340, which was a premium of $23 above Friday's close. YHOO traded as high as $345 and as low as $318. YHOO got it's boost from the purchase of XCIT by @Home. This has stirred up speculation that other consolidation is in the works. YHOO has had a strong correction over the last week and this could be the start of a new Internet frenzy. This remains a risky play. Wait for upward confirmation. YHOO continues to be a blue-chip of the Internet. The price of Exodus Communications rose 34% from the mention that it is in a deal with YHOO. Remember, YHOO has a split coming up at the end of the month (about 3 weeks). PICK NEWS - PUTS ******************************************************* AVT $46.00 -.25 (.25) Stock experiencing continued weakness off of recent earnings warning. Stock now under short and long-term moving averages. Lots of overhead. Could to retest 52 week lows at $35. stock lost .25 in mixed trading on Tuesday (1/19). Tighten protective stop loss - $48. BAC $64.00 -.56 (.56) The financial sector under pressure because of Brazil. Stock gave up -.56 on Tuesday (1/19). Recommend staying with position while BAC stays below $65. BDX $38.38 1.38 (1.38) Topside consolidation makes for conservative play. Stock is unlikely to go much higher than the trading range of about $43 in the next 3-6 months Earnings are projected to be $1.57 share for fiscal 99 with a PE of 24.5, fairly pricey. Stock trading just above key $38 benchmark. If Stock violates support at $38.00 could retest low set back in September at $34. Tighten protective stop loss - $40. CPB $44.25 -.88 (-.88) Stock gave up another nearly $1 during the mixed trading on Tuesday (1/19). Stock still under pressure with considerable overhead at $49. DD $55.94 1.06 (1.06) Stock gave up what it gain on Firday (1/15). Stock still below declining moving averages and trading just above key support level of $52.. Tighten protective sell stop to $58.25. EK $68.75 .25 (.25) Stock gave up another .25 today in mixed trading and still trading below key benchmark support of $70. Stock also downgraded by Morgan Stanley Dean Witter. ERTS $47.00 +.50 (+.50) The stock up fractionally during Tuesday Fridays strong tech rally. Still sitting precariously at it 200-day moving average. Tighten protective sell stop to $49.25. Whisper number of $1.18 per share for earnings due to be released on 1/21/99. Pinnacle believes that holiday enthusiasm, if any, will be short-lived by the realities of an increasing complex and competitive market for entertainment software. If ERTS trades below $44, could retest prior low of $34-39. HSY $60.88 -.38 (.38) Stock gave up .38 Tuesday (1/19) and trading below key $62 benchmark. Tighten protective stop to $62.25 LLY $79.50 1.50 (-1.50) A leading healthcare management services provider recent topped out at its 52-week high of $91.31 and showing classic signs of a failed rally trading above its 50, 100 and 200-day moving averages. Sold off $1.75 after rallied over $6 last Wednesday. Stock now just trading above key $77 benchmark. Tighten protective sell stop to $80.25. MCHP $33.38 1.75 (1.75) Stock gave up nearly $2 after being downgraded by Alex Brown. Stock trading below consolidation of $36-40. Tighten protective stop to $36.25 MRK $147.75 .63 (.63) Keep an eye on MRKs key benchmark at $145. If MRK trades below this key benchmark, it could re-test support at $136 at its 200-day moving average. Drugs starting to see sector rotation after Fidelitys Magellan Fund reported that MRK is among top 10 holdings. PKN $94.00 -1.38 (-1.38) Beginning to sell off after consolidating tightly in upper range ($90-98). We still anticipate a sell-off and retracement to $86. RMBS $87.25 2.25 (2.25). Stock traded lower today after the high flying chip company whose technology speeds the action of Nintendo game machines, said its near-term earnings faced a slowdown. WLA $66.44 3.38 (3.38). Stock gapped down today after Salomon Smith Barney downgraded stock. Stock now trading below key $67 support benchmark. Tighten protective sell stop to $70.25. ****************** NEW CALL PLAYS ****************** F - Ford Motor Co. $63.94 (+1.94) Everyone knows who Ford is and what they do, but did you also know that Ford is not only the second largest producer of cars and trucks but is one of the largest providers of financial services in the world? Not over twenty years ago, certain analysts had all but the nails in the coffins of the U.S. Automobile Industry. "A dying industry" it was said to be, "no innovation", a "lack of direction", "inefficient". Let's get back to reality. Ford Motor Company has taken on a huge European market and done quite well thank you. Their recent acquisitions of an aluminum stamping company, the assisting of Poland, which is the second largest auto production country in Eastern and Central Europe. Plus recent media reports of Ford taking a 10% stake in Nissan. Almost forces you to take notice of a company with all this potential. We have and we are adding Ford as a new play. First call has Ford reporting earnings on this Thursday, Jan. 21, while we don't recommend holding over earnings, this play has a couple of more days of a possible run up to the announcement. If it posts a positive surprise, you may want to consider jumping back in if you miss the run up. BUY CALL FEB-60 F-BL OI= 944 at $4.87 SL=3.00 BUY CALL FEB-65 F-BM OI=1030 at $2.37 SL=1.00 BUY CALL MAR-60 F-CL OI=2980 at $6.00 SL=4.25 BUY CALL MAR-65*F-CM OI=1562 at $3.75 SL=2.50 Picked on Jan. 19th at $63.99 PE=11.71 Change since picked +0.00 52 week low =$31.12 Analysts Ratings 3-8-5-1-2 52 week high=$66.50 Next earnings 01-21 estimate = $1.25 Chart = http://quote.yahoo.com/q?s=F&;d=3m ****************** NEW PUT PLAYS ****************** NONE ****************************************************************** COMBINATION PLAYS Merger-mania dominates the telecom group... ****************************************************************** U.S. markets closed higher Tuesday and the Nasdaq hit a new record high amid optimism about President Clinton's State of the Union address tonight. The DOW closed up 14 points at 9355 after falling significantly earlier in the session. Internet/Tech stocks soared, driving the Nasdaq up 60 points to 2408.20. Traders said rounds of program trading linked to stock index futures sent stocks lower in the early part of the volatile session. Post-market earnings and positive expectations forced investors to speculate in afternoon trading and that led to a closing frenzy. Traders and analysts are amazed that investors continue to demonstrate bullish sentiment on Technology, Internet and Telecom issues. Our portfolio was quite active, first the new plays: ABI was our conservative bull-call spread (FEB45C/50C) and the prices near the open were favorable at $2.87 debit. HUM was the calendar/time play and the opening price for the MAY20C/FEB20C was $1.25. GMSTF moved higher right away but there was an opportunity near 10 am to fill the spread (FEB40P/45P) at $0.50. ELN surprised us with a morning rally but the best we could manage without "legging" in was $0.75 credit for the FEB80C/75C bear-call spread. COF wandered for most of the day, the average price for the FEB105P/110P credit spread was $0.62. Other activities: We closed the ATI (LEAPS/covered-calls) spread just after the open for $9.50 credit. There just wasn't any reason to risk a loss with a successful merger (shrinking volatility/time values in the options) expected to occur. LU was another morning exit and we closed the debit position for $3.00, (a $1.25 profit.) FTL finally started moving again and the positive activity offered an easy exit for our FEB15C/20C bull-call spread. A closing price of $2.38 was available and after watching it fall last week, we decided to take the safe route; $0.87 profit. LUV was up almost $2 at one point and the FEB22C/25C spread closed easily for $2.25 to achieve a profit of $1.00. OXHP was a calendar position and we opened the FEB20C at $1.25 against our existing MAY20C for a new debit of $1.50. WCOM was another open calendar spread and we sold the FEB75C for $5.25 to reduce the cost basis on our LEAP to $5.62. NXTL was the final play and our GTC limit of $5.00 was filled near the end of the day to close the call option. A profit of $2.12 was the overall outcome for the position. Other notable portfolio movers included: GM, up almost $5.00, SUNW up almost $5 and CPQ was $3 higher on news of a possible Web-deal. Today's plays are mostly speculative positions based on smaller Internet and Telecom stocks. That's where the action is right now and the speculation is fairly cheap... ****************************************************************** - NEW PLAYS - ****************************************************************** PTEK - Premiere Technologies $11.38 *** Internet IPO? *** Premiere Technologies provides enhanced communications services. PTEK services include 800-based services, voice messaging, enhanced document distribution and conference calling. Recent speculation and heavy option volume concerning some of the new technology from the company. Some say it involves USA.net and the ability to listen to your email messages and post email via voice from any touch-tone telephone. PTEK's communications management technology may be used for their mail engine. Others are betting that PTEK ownership of Usa.Net and Web.Md will create revenue if either company goes public. The recent hype of internet IPO's make this a favorable speculation play, using current momentum and taking advantage of overpriced options. PLAY (speculative): BUY CALL MAR-12.50 TQO-CV OI=18 A=$1.68 SELL CALL FEB-12.50 TQO-BV OI=2010 B=$1.06 NET DEBIT TARGET=$0.50 TARGET ROI=100% Chart = http://quote.yahoo.com/q?s=PTEK&;d=3m ****************************************************************** OMPT - Omnipoint $14.06 *** Telecom Takeover *** Omnipoint offers digital personal communications services (PCS) to 16 million customers in the US as well as in 30 countries (via 45 international roaming partnerships) around the globe through GSM (global systems for mobile communications) technology. Worldwide PCS services are obtained by the use of a subscriber information access card. Omnipoint also designs and sells phone handsets for vendor partners including Ericsson, Mitsubishi, Motorola, Nokia, Northern Telecom, Sagem, and Siemens. Just another small telecom getting attention as the merger-mania continues. The short term momentum has this stock over-extended but the risk is worth the reward if it finds a partner. A March position gives us time to sell-off some of the initial debit. PLAY (speculative): BUY CALL MAR-15 QTT-CC OI=20 A=$2.25 SELL CALL FEB-15 QTT-BC OI=1156 B=$1.25 NET DEBIT TARGET=$0.87 ROI TARGET=75% Chart = http://quote.yahoo.com/q?s=OMPT&;d=3m ****************************************************************** SCUR - Secure Computing $26.75 *** Positive Earnings? *** Secure Computing Corporation designs, develops, markets and sells complete network security solutions, including firewalls, filters, authentication and network services. Earnings are due shortly and the whisper number is moving higher. SCUR is expected to maintain a 30-50% growth rate and now option interest is increasing with rumors of a stock split. Paine Webber reiterated a "BUY" rating with a conservative target of $30. The technical outlook is very bullish with recent support around $20 and heavy buying pressure. PLAY (very conservative/debit-spread): BUY CALL FEB-20 UQU-BD OI=62 A=$7.75 SELL CALL FEB-25 UQU-BE OI=298 B=$3.87 NET DEBIT TARGET=$3.50 ROI(max)=42% Chart = http://quote.yahoo.com/q?s=SCUR&;d=3m ****************************************************************** RHD - R. H. Donnelley $17.68 *** Internet Yellow Pages *** R. H. Donnelley is the largest marketer and publisher of yellow pages advertising in the U.S. with operations in about 15 states. The company is a spinoff from business marketing and purchasing information provider Dun & Bradstreet. They sell yellow page ad space to more than 500,000 small/midsized businesses and service organizations. R. H. Donnelley services more than 275 directories through contractual relationships with local telephone service providers such as Ameritech, Bell Atlantic and Sprint. The company is expanding into Internet marketing by selling advertising space on electronic yellow page Web sites. The play is based on Internet momentum and good technical support around $15. PLAY (long-term/debit-spread): BUY CALL MAR-15.00 RHD-CC OI=0 A=$3.50 SELL CALL MAR-17.50 RHD-CW OI=50 B=$2.12 NET DEBIT TARGET=$1.25 ROI(max)=50% Chart = http://quote.yahoo.com/q?s=RHD&;d=3m ****************************************************************** 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 $10 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. 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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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