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Whisper, whisper, whisper. Dell misses the whisper number and gets punished. Market slides on Fed weakness.

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        11-12-98         High     Low     Volume   Advances Decline
DOW     8829.74 +  5.92 8907.75  8810.94  693,801k  1,336   1,662
Nasdaq  1851.06 - 11.05 1861.29  1844.53  806,616k  1,834   2,278 
S&P-100  548.99 -  1.56  554.14   547.71   Totals   3,170   3,940
S&P-500 1118.17 -  2.80 1126.57  1115.55            44.6%   55.4%
$RUT     392.20 -  1.27  393.48   391.15
$TRAN   2842.36 +  3.62 2861.17  2818.97
VIX       28.37 +   .83   28.66    26.64
Put/Call Ratio      .69

Whisper, whisper, whisper. Dell misses the whisper number and gets punished. Market slides on Fed weakness.

Dell announced earnings after the bell today and had outstanding results again BUT missed the whisper number and got killed in after hours trading. The official estimate was $.27 and Dell announced $.28 but the official (unofficial) whisper number was $.30. Dell promptly traded down to $65.88 in after hours trading. This was -$3.31 from the close. Dell was already off -$2.75 in regular trading as smart pre-earnings sellers took their profits out.

Where the market got a boost from the Intel announcement on Wednesday it is not likely to get any bounce from Dell on Friday. The strength of the PC sector was already known and without an earnings blowout by Dell the outcome was Ho-Hum.

The market is weak. The talk of being overbought and just plain profit taking from the +1500 point run has taken any incentive out of the traders to place any bets before the Fed meeting on Tuesday. More and more analysts are divided as to the possibility of the Fed cutting on Tuesday. The sell off in the bank sector may be a leading indicator that the inside money is betting against a rate cut.

Whatever the reason there is not any indication that the market will go up any further until after the Fed meeting. Historically the Market has gone down the day after the meeting - even when they cut rates. We could see a flat to down market thru Tuesday at least. We recommend not starting any new positions until next Wednesday. If you are currently long any calls we would suggest setting your stops very close and expect to be stopped out. I won't say I am bearish but I am far from bullish. Friday could be the start of a serious consolidation period. Several of the sectors have started turning over. Drugs like SGP, PFE that have had a good run are rolling over.

Iraq is back in the news. Trying to act like a world power and shame the US into not bombing their military complex into rubble again. Why is this important to us? It is not from a market standpoint. The blip in oil prices today was in anticipation of losing the 1.5 mil bbls of oil Iraq currently pumps but in reality that will help the current world oil glut. No loss there. We don't trade with Iraq. (except insults) The talking heads on CNBC were talking about Iraq influencing the market today. Sorry guys. This is just "fly swatting" not war. Worry about something else and quit giving Iraq free air time.

Brazil is still getting closer to the IMF deal. One reader asked us today if they were going to devalue their currency after they got the handout. If I knew that I could make several million dollars simply selling the news. My guess is not right away.

Our problem now is simply consolidation in front of the Fed meeting. If they do not cut rates again look for 8500. If they do cut -.25 we could still see some sell off since that size cut is already priced into the market from the last three weeks. Any cut would still set the tone and I think we would move up from here.

The first three days of the week were all down on profit taking and the midday rally today disappeared almost as quickly as it came. We expect more of the same the next three days.

Again, as traders we have to try to anticipate the impact of future national and world events on the market and our stocks. We must then take care to not leave ourselves exposed to the negative possibilities. Sure the Fed may cut and the market may rally more Tuesday afternoon. We look at the Fed meeting like Dells earnings. Dell sold off in advance of the announcement as traders prepared for the worst. Dell announced record earnings, beat the street, had incredible increases in sales but still the stock sold off after hours and will likely sell off again tomorrow. Why? Because the anticipation of the good news was already priced into the stock and it would have taken a huge number to move forward. The Fed meeting is a non-event if they announce a minor cut. No cut would have been like Dell missing their number, disaster.

You choose. Hold over earnings/Fed meeting or play it safe on the sidelines. History always repeats itself. Learn by it or repeat the mistakes over and over.

Futures have been down -2.00 but have rallied some to -.90 at 8:30.

Have a great weekend.

Jim

I really opened the can of worms by posting the plays on Monday. The email floodgates opened again and by a large majority the readers requested the plays on a delayed basis. I will try this for a while and see how you like it. The format will probably change daily until I see what works. I am going to try to make this educational instead of just a play history. Here goes....

Personal Plays

Disclaimer: This is an actual account of recent trades. This is not a recommendation of any stock, option, type of trade, method of trading or system. Do not try to mimic these trades. Specific trades are entered into based on market/stock technicals AT THE TIME OF THE TRADE. Technicals can and do change minute by minute and good day trades one day are probably bad trades tomorrow.

There is a saying in option trading circles. "Please, please, I don't want the cheese. Just let me out of the trap." When your greed factor gets you in trouble the concept of profit goes out the window and you just beg the trading gods to let you break even and get out alive. This was my plea today.

If you remember from Tuesday I had 40 Russell-2000 contracts RUZ-KT as my only open position. (negative at the time)

Fortunately the market spiked up Wednesday on the Intel announcement and I was able to unload them at a break-even. Large quantities of contracts on the RUT are hard to sell. The volume is low and the market specialist is ruthless on selling. The bid/ask spread is normally $1.00 or close to it. You can sell up to 10 contracts at market without any trouble but the next ten will be tough.

Today is a prime example of how NOT TO TRADE.

NEVER, NEVER, NEVER follow this example.

Wednesday the Internet stocks were due to sell off after the big runnup on Mon/Tue. I opened the day shorting Yahoo but it did not drop much early. Mid-morning I closed my short for only a small profit. I misread the signals on the Internet stocks when they appeared to bottom and start a rebound in late morning.

I started a position in AOL, CMGI and YHOO with 20 contracts each. IBM also appeared to still be moving up so I bought 20 contracts of the Nov-150 also.

The reasoning here was the AOL split on next Tuesday and Yahoo had reached the price where we are now calling for another split. CMGI is an Internet mutual fund almost. They have holdings in several major Internet companies. They own 25% of Geocities and stakes in over two dozen other Internet stocks. If the Internet sector is going up, CMGI will go up strongly. Their daily volume is low, around one million, so movement is fast.

My trouble started at lunch time as another wave of selling hit the Internets. AOL and YHOO dropped another $3-5 then firmed again. The options I held traded for substantially less than I paid for them and then came back up. My second mistake was seeing this bounce and thinking I sure wish I had some outstanding buys and could have taken advantage of the drop. I quickly put in limit orders for the previous lows, just in case they dipped again. Bang! Within an hour the next wave filled all my orders and firmed again. Now I am a happy camper! I averaged down and now the prices are higher again and I am looking for the rally. The great thing about Internets is the fast movement. The bad thing about Internets is the fast movement. I don't use stop loss orders on these because the dips can be violent and only last several minutes.

Around 2:PM the third wave of selling hit. Within 5 min they had dropped another -$2 or $3 each. Now I am fully involved. When I should have bailed out at the first drop and taken my lumps ($20k) now I am way down. My thought process went like this. Veterans Day, low volume, lack of buyers, Internet profit taking but nothing had changed in the outlook. AOL still splitting Tuesday. I thought there was a good chance of one more up day before the pre-Fed sell off. Now I have about 50-60 contracts of each. Down $40k. Decision time. Hold and hope for the best, sell and take the hit or go with my gut analysis of the sector.

I ran some charts, looked at the news, volume, etc. I thought at this point there might be another run at the close as the rest of the profit takers finally sold the rest of their positions. I placed more limit orders for what I thought worse case might be. If they dropped again and I got filled then I averaged down again at what I hoped was the low of the day. If they did not drop I was definitely happy not to be that low.

If you were watching yesterday you know the Internets got killed at the close. -$10 to $12 across the board then a small rally. Now I am up to 100 contracts on AOL, CMGI, YAHOO, 80 on IBM, and down -$65k. I had all night to decide on the plan. I knew they would sell off again at the open as the rest of the sellers took advantage of any opening bump. I decided to hold as long as they did not sell off again and the Dow stayed above 8800. I did set my mental loss limits on each and vowed to sell to stop the bleeding if they got hit.

After several false starts and trading both positive and negative for the first hour or so then the trend was my friend!! The long term trend reasserted itself. They firmed and as soon as the Dow was able to mount a run over 8860 they rocketed back to big numbers again. I wasted no time selling when the Dow broke 8890 because I expected 8900 to be a resistance level. Fortunately I was able to get right at the high for the day on almost all. The challenge was unloading 380 contracts in a very short period of time without depressing the price. I sold in lots of 10 and 20 contracts. I put in limits orders on the first ones and market orders on the last 20-30 as the market rolled over.

I was very fortunate. The premise was right and the market cooperated but NEVER, NEVER, NEVER do this. Never average down more than once if at all. You are always better off to take the hit and wait for the stock to bottom and actually show some strength moving back up before buying them back. Good stocks go down even when they shouldn't. Never bet on a stock to bounce - before it starts bouncing. These could just as easily gone on down another $10-15 or more. I was very lucky. I repeat - DO NOT TRADE LIKE THIS!!

I am going to list the individual buys so you can see the price progression but the sell price is the average.

                                           Average 
Date Action Stock  Qty  Symbol Price  Sold Price  Profit/Loss
  
Tue  Buy    $RUT   40   RUZ-KT   4.63 Wed  $ 4.75 +   480
Wed  Short  YHOO   1000 YHOO   176.06 Wed  174.94 + 1,120
Wed  Buy    AOL    20   AOL-KH   7.38 Thr  $ 7.08 -   600 
Wed  Buy    AOL    20   AOL-KH   6.75 Thr  $ 7.08 +   669
Wed  Buy    AOL    20   AOL-KH   6.50 Thr  $ 7.08 + 1,160
Wed  Buy    AOL    40   AOL-KH   5.00 Thr  $ 7.08 + 8,320
Wed  Buy    CMGI   20   QGC-KO   5.50 Thr  $ 4.85 - 1,300 
Wed  Buy    CMGI   20   QGC-KO   4.63 Thr  $ 4.85 +   440
Wed  Buy    CMGI   20   QGC-KO   4.00 Thr  $ 4.85 + 1,700
Wed  Buy    CMGI   20   QGC-KO   3.63 Thr  $ 4.85 + 2,440 
Wed  Buy    CMGI   20   QGC-KO   3.50 Thr  $ 4.85 + 2,700 
Wed  Buy    YHOO   10   YHQ-KN  12.38 Thr  $ 8.65 - 3,730 
Wed  Buy    YHOO   10   YHQ-KN  12.00 Thr  $ 8.65 - 3,350 
Wed  Buy    YHOO   10   YHQ-KN  10.50 Thr  $ 8.65 - 1,850 
Wed  Buy    YHOO   20   YHQ-KN  10.00 Thr  $ 8.65 - 2,700 
Wed  Buy    YHOO   20   YHQ-KN   8.38 Thr  $ 8.65 +   540 
Wed  Buy    YHOO   10   YHQ-KN   8.13 Thr  $ 8.65 +   520 
Wed  Buy    YHOO   20   YHQ-KN   8.00 Thr  $ 8.65 + 1,300 
Wed  Buy    IBM    20   IBM-KJ   9.25 Thr  $ 9.91 + 1,320 
Wed  Buy    IBM    20   IBM-KJ   9.00 Thr  $ 9.91 + 1,820 
Wed  Buy    IBM    20   IBM-KJ   8.88 Thr  $ 9.91 + 2,060 
Wed  Buy    IBM    20   IBM-KJ   8.63 Thr  $ 9.91 + 2,560
                                 Net change       +15,619

Current portfolio = all cash

I personally am going to stay in cash until after the Fed meeting. A lesson I learned the hard way.

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