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Equity futures moving higher

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Equity futures are up across the board this morning and we're seeing S&P futures up 5, NASDAQ futures are higher by 26 and Dow futures are bid up 20 points. Fair value today is $9.03 with buy programs set at $11.06 and selling at $7.11.

Mixed results in Disk Drive sector!

Last night after the bell we had earnings from two members of the Disk Drive Index (DDX.X). This is a group we've been bullish on for the past couple of days and we're watching them close. Read- Rite Corporation (NASDAQ:RDRT) came in with numbers better than analyst's estimates and the stock is being bid higher this morning to $9.50. Yesterday, shares of RDRT closed at $8.15. While RDRT's earnings were positive, SanDisk (NASDAQ:SNDK) is tumbling lower than yesterday's close of $46.13 to $35 in pre- market trading. Yesterday, the provider of data storage products said that it earned 41 cents a share in the four-quarter, topping the average estimate of analysts by 4 cents, but the company cautioned investors about its first and second quarters for 2001, citing soft market conditions, reduced backlog and low near-term order visibility.

S&P Retail Index (RLX.X) close above 875!

The past couple of days we've also been focusing on the retail group and the technicals taking place in this sector. Yesterday the RLX.X broke fractionally above the 875 level and then managed to close above that level by session's end. This group is looking strong and may be giving hint that the MARKET is growing less fearful of a recession and might be thinking the consumer will be spending in the months ahead. This is a "key" group for traders to at least be monitoring as it relates to our scenario for a strong economy going forward.

If there's one stock I'm bullish on in the Oil Service its...

If there's one stock I'm still bullish on in the Oil Service sector its shares of Input Output (NYSE:IO). Some readers know of my history in the oil industry and a long oration I went into months ago about the cycle that oil stocks and oil service stocks can go through. In those comments I've talked about how the "exploration cycle" usually comes at a point when the commodity itself (oil or natural gas) has reached an escalated level. We've certainly seen that lately and it has created sizable budgets for many oil and gas production companies to revamp their exploration efforts; shares of IO may finally start to benefit from this cycle. In September we looked at IO around $7 and felt there'd be sizable resistance at $10.

Input Output Chart - last four years.

I changed the MA's on the above chart to approximate on a weekly chart the 200-day and 50-day MA's (40 weeks x 5 days = 200 days). Sometimes we look at basis that have developed over a month and think it's an eternity. What about the 2.5-year base IO has gone through? As it relates to supply/demand, I don't think there is a lot of supply overhead. Who could have possibly waited more than three years for this stock to recover? A scenario I laid out months ago looks to be holding some water and the numbers still haven't started showing up on the bottom line. It looks like the market might be thinking the numbers (earnings) will be coming soon. If you're a trader that likes to mix in a few "3-6 month long" trades now and then, IO might be worth a second glance.

Supply/Demand Chart of Input/Output - conventional scale.

With the long-term bearish resistance trend broken to the upside, shares of IO have now reversed a long-term bearish trend. Notice the scale changes from $0.25 boxes to $0.50 boxes. This is the supply/demand system for removing noise and measuring significant price movement as it relates to the price of the stock. Our vertical count therefore needs to be done in two steps. The equation is still the same, but our scale changes in the $4.50 to $5.00. In a nutshell, the bullish long-term price objective comes out to be $22.50. With these kind of supply/demand characteristics, there might even be some action for short-term traders in the sessions ahead.

Jeff Bailey
Staff Analyst

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