Option Investor
Newsletter

Daily Newsletter, Monday, 04/01/2002

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 04-01-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      04-01-2002          High     Low     Volume Advance/Decline
DJIA    10362.70 - 41.24 10402.07 10263.68  1.05 bln   1444/1701
NASDAQ   1862.62 + 17.27  1865.37  1817.25  1.55 bln   1591/1975
S&P 100   576.68 -  1.19   577.87   570.46   Totals    3035/3676
S&P 500  1146.54 -  0.85  1147.84  1132.87             
RUS 2000  504.50 -  1.96   506.46   498.40
DJ TRANS 2867.58 - 50.38  2919.96  2840.08
VIX        20.05 +  0.73    21.11    19.97
VXN        36.45 +  0.17    39.60    36.45
TRIN        1.15
PUT/CALL    0.73
******************************************************************
Look At All The Great News!
By Buzz Lynn
buzz@OptionInvestor.com

Everything is coming up roses.  What used to be NAPM numbers were 
up yet again from 54.7 last month to 55.6.  Anything over 50 is 
considered positive.  Construction spending was up 1.1% over last 
far outpacing the expected .6% increase, and I'm certainly doing 
my part by borrowing money to buy and spiff up my new digs.  
Excess debt - It's the American Dream!  Wahoo!  Party hats and 
horns!  The recession we never had is over!

We're still waiting on auto and truck sales as I write this.  But 
in the meantime, I've noticed something interesting about recent 
economic figures that has become all too prevalent.  This will 
come as no surprise to veteran readers, but I need to point out 
again that aggressive accounting practices are not just the domain 
of American businesses.  

Let's dig deep beneath the reported numbers starting with NAPM 
numbers, which are now known as collectively as the ISM Index.  
While new orders rose to 65.3, a 15-yr high, Inventories remained 
low at 41.2.  Add to this that Production fell off from 61.2 to 
57.8.  Sure, just numbers, but what this says is that production 
is tightly linked to inventory replacement and maintenance rather 
than new economic growth.  Business has no stock to fill orders 
and is producing to maintain minimal inventory, not to warehouse 
any anticipated surge of growth.  Companies still have no pricing 
power and profits (or lack thereof) are still a concern.  To these 
guys, the future remains cloudy, but at least they think they have 
seen the worst of it.

Now let's examine the construction spending numbers.  Those great 
numbers we saw last month for January?  Revised downward to 0.8% 
from 1.5%.  So January wasn't as good as we thought.  February's 
number (1.1% as noted above) was due exclusively to a 3.5% pop in 
residential spending (I'm doing my part now for April numbers).  
The law of averages says then that something else must be taking a 
hit.  You would be right if you guessed that January's slight gain 
was revised to a 3% decline.  Bet the news didn't report that 
though.  

Anyway, the reason I bring this up is not to poke fun at the 
talking heads on CNBC or any other news source for that matter, 
but rather to remind every one that the Department of the 
Treasury, the Bureau of Labor and Statistics, and our local 
representatives collectively in Congress make Enron look like nap 
time in Kindergarten.  No matter, we've lived with it this way for 
years and the world won't fall apart tomorrow.  

All that said, permit just a moment to focus up on today's 
activity on the major exchanges.  After all, that's why we're 
here, isn't it?  Long story short, low volume indicates no 
conviction currently in either direction.  Another thing that may 
be directly related to window dressing from last Friday, 
especially on the Dow stocks, is the big hit they took early in 
the day when the index was down 140 points.  My best guess is that 
those trimming were coming off the tree today.  Now that "dressing 
season is over, those stocks were properly logged into the 
"holdings" column of our favorite mutual funds, and sold today.  
Meanwhile the tech heavy NASDAQ moved up nicely.

P.s. - Merrill painted a bleak picture for retailers noting that, 
"The rally is behind us."  I also want to chime in on Prudential 
downgrade of Ford (F) to Sell.  First, it's rare to get a broker 
to list a Sell rating, but Pru comes out with their fair share, 
most of which are usually right on.  While this is likely a Ford-
specific problem, it's a poor reflection on the industry as well.  
Like the old saying goes, "What's good for GM (Ford in this case) 
is good for the county.  I'll point out again the top six tech 
stocks combined (MSFT, INTC, CSCO, DELL, QCOM, WCOM) fall slightly 
short of just GM's or F's sales.  The auto business is huge with 
only the oil business being in the same league.  It still pays to 
watch the auto business for a barometer of the economy.

Well enough on that. . .to the charts!

Dow Industrial chart - INDU (weekly/daily/60):


 

No great shakes here for the bulls.  Weekly chart has topped and 
rolled and has further downside according the stochastics.  Daily 
chart while showing some minor strength in stochastics only seems 
to have support just below 10,300 for now.  Compressed daily 
Bollinger bands suggest a break is coming and it will likely be 
down thanks the downward sloping upper band.  60-min is merely 
rangebound offering no clear direction except to say that the Dow 
is temporarily on the upswing to the next overbought stochastic 
where it will predictably reverse (again).

NASDAQ chart - COMPX (weekly/daily/60):


 

Pity the poor NASDAQ that is about to smack its head at resistance 
comprised of the 200-dma and a descending daily trendline, not to 
mention the 50% retracement bracket.  Same compressed Bollinger 
bands here too.  Neutral weekly stochastics tell nothing as the 
daily stochastics point to continued strength.  Look for trading 
tops around 1870 tomorrow as 60-min stochastics reach for 
overbought.

S&P 500 chart - SPX (weekly/daily/60):


 


Weekly stochastic here look weak too.  However the daily and 60-
min are cooperating for perhaps further bullish action.  But for 
the near-term trading outlook, the 60-min chart looks bullish to 
1155.

VIX?  Who cares?  It's back above 20, but not by much suggesting 
fear is no where to be found and will not factor into my trading 
for now other than to keep me on high alert for a rise in 
volatility.  When volatility rises, I'll make money from Vega, 
most likely on puts.  But for pure mechanical moves, stochastics 
suggest market direction is in favor of calls.  Should volume 
increase tomorrow, highly likely in my opinion as traders come 
back to work from an extended Easter holiday, buying pressure will 
make itself known on the tape.  I just don't see seller's ready to 
take center stage right now.  But I don't see a giant bull party 
beginning now either.

See you at the bell.


********************
INDEX TRADER SUMMARY
********************

***Note to Readers***
The Swing Trade Gameplan is incorporated with the Index Trader 
summary.
*********************

It Being April FOOLS Day

"The Nasdaq Composite soared back to the 5000 area today and...." 
of course, it being April FOOLS Day, this is my crazy dream.

Meanwhile the more oversold tech-oriented Nasdaq indices (the 
Composite Index - COMP & the Nasdaq 100 - NDX) rebounded today.  
In a market like this, with no earnings wind at our backs yet, 
money managers and individuals are playing the oversold bounces.  
Once there are some gains, participants are quick to bail.  Hence 
the term "profit taking" for every dip in a sector or segment of 
the market that has been performing for a while. Ever wonder who 
always has those profits every time?  The media talking heads 
love those simple sayings.  Simple things for simple people I 
guess.  

But I digress in this, my minor rant. I was close to having 
worked for CNBC and all I can do is say thanks to the universe 
for sparing me this fate -- I would have bailed anyway after the 
100th time in makeup. Actually, thanks to Jerry Seinfeld, as the 
loss of his show and the fortune spent to keep ER, caused NBC to 
put on a hiring freeze, which included even the profitable CNBC. 

SEASONAL FACTORS:
It being April and this being the index section, it's worthwhile 
to look at a "typical" April.  Dec, Jan, Nov. and April have 
actually the best tendency for gains in this order, at least from 
1950 - April 2001 -- a tip of the hat to Yale Hirsch and the 
others at Stock Trader's Almanac. As fund manager Sy Harding and 
others have discovered, you can basically be in the market for 6 
months of the year on average, and stay out the other 6 months 
and double your returns.  More on this "Best Six Months" strategy 
another time. 

STRATEGY NOTE:
Stepping in for Austin this week has its challenges, one of which 
is to blend our recommendations.  Actually this is not that hard, 
as we both see this market, this year, as a trading affair.  
Until there is a strong upside or downside trend, trading 
opportunities with specific limited profit objectives, rather 
than "position" type trades (buy & hold), will be the norm.  My 
view is to trade less however, as there may not be more than 1-2 
outstanding opportunities every week or so.  If your goal is to 
make money, this makes sense.  If you are addicted to the action, 
this is fine, but recognize that your payoff is the action, not 
necessarily PROFITS. 

Notice that the market is not falling apart.  At the right price, 
I have a bullish bias, as I view this market as under 
accumulation (money flow is INTO stocks), at the right prices. I 
emphasize "right".  It is not a market to chase stocks.  And, 
this is not to say that there will not be opportunities to buy 
puts - I sure will. And profits can come quick when we're right!     

MAJOR INDEXES: VIEWPOINT and TRADING STRATEGY:
A very light trading day - lightest of the year to date I 
believe.  Not surprisingly, the bulls got tested as the bears 
thought they had a lock on profits by selling the opening. 
Surprise!  

CHART NOTE: TradeStation, which is the application I use the 
most, will have Index symbols that sometimes differ from Q-
Charts. When this is the case, I will note the Q-Charts symbol.

S&P 500 (Q-charts symbol: SPX) daily & hourly:


 

SPX bounced right from hourly support implied by the previous low 
in the 1131 area and by a return to the previously broken bearish 
down trendline -- resistance, once broken, often "becomes" 
support later on.  Whether we'll get my "ideal" pullback to the 
1120-1125 area, as a place to buy Index calls is now open to 
question.  

The key to further upside potential is whether today's high, at 
the top of the downtrend channel seen on the daily chart above, 
is exceeded.  If so, and if 1150 then holds on any subsequent 
pullbacks, then the next upside target in my estimation is for a 
test of hourly chart resistance in the 1160 area.  If this area 
is penetrated and holds (as support) on subsequent pullbacks, 
look for a test of the top of the trading range, in the 1174-1175 area. 

If there is a breakout above 1150, basis the S&P 500, I suggest 
buying SPX or OEX calls for a play back up to 1170-1174 area.

Key to more downside potential is if the upside move described 
above, does NOT happen and selling pressure develops instead. If 
so, suggest waiting for a possible buy on SPX calls on a further 
dip to the 1130 area or below, especially in the 1120-1125 zone.   

NOTE: The LENGTHS (number of closes looked at) of the hourly and 
daily chart stochastic oscillators above are LONGER than you are 
used to seeing, at 21-bars and 14, respectively. A longer length 
gives fewer buy and sell crossover "signals", but also tends to 
result in fewer "whipsaws".    

OEX TRANSLATION:
Key overhead resistance is the 580-583 zone.  A close above 583 
is needed to suggest that OEX could see a move back up to the top 
end of the trading range in the 593-594 area.  Conversely, a drop 
to below 570, would suggest that a further drop to the 563 area, 
where we'll take a look at buying Calls.



 

NASDAQ 100 (NDX) and QQQ:
Where we could be ABOUT to see technical breakout moves in the 
OEX and SPX, NDX and the Q's have broken out, per the charts 
above. The downtrend channels here have been penetrated to the 
upside. While above average volume would be a "confirming" 
indicator, confirmation by volume is not always seen -- PRICE is 
the key determinant. The stochastic model is confirming a turn in 
momentum back to the upside, from an "oversold" reading.

Interestingly, the NDX pullback was a "picture perfect" 62%.  I 
love buying 62% retracements, as a general rule.  I like this 
level, as the risk to reward is usually quite good, as a stop is 
put just under the aforementioned retracement level.  Upside 
potential (reward) is often 3 times this figure (the dollar 
amount risked).

TRADING SUGGESTION:
Buy the QQQ opening.  The NDX calls jumped in value of course.  
The NDX Apr. 1500 calls rallied 10.80 to 31.80.  It's foolish, 
even on April Fool's Day, to chase such index calls.  You have to 
anticipate these moves, such as buying them today when they 
dipped to and held, recent lows.  


NEW TRADE PLAYS & GUIDELINES: 

Index: Nasdaq 100 (NDX)
Trade suggestion: Buy QQQ tracking stock at 36.50 or better 
Objective: 42
Stop: 35
Change in stop, if any: N/A

OPEN LONG TRADES: NONE 

OPEN SHORT TRADES: NONE


NOTE: Risk to Reward guidelines:  Determining an objective is 
important, even if it is a moving target, as this is the reward 
potential.   Determining reward potential is critical to 
establishing whether a stop that makes “sense” (e.g., a sell stop 
that was placed under a key support level) would, if triggered, 
result in a dollar loss that is in proportion to profit 
potential; e.g., 1/3 of it.  (On occasion, when the purchase 
price of call or put is equal to 1/3 or less of the estimated 
reward potential, there may not be a specific exit suggestion, as 
the cost of the option is equal to the amount that is being 
risked.)   


KEY INDICATORS: 
This section, last but not least, is placed at the end for 
convenience and a final review of the measures of market activity 
that determine direction and intensity of the main trend.
 
Relevance and use of these longer-term Indicators:  
The indicators here could be defined as primary ones and used to 
“time” entry into or out of the market on an intermediate-term 
basis; e.g., the 3 to 6-week or longer time-frame.  While many 
index trading suggestions may be short-term in duration (e.g., 2-
3 days up to 2-3 weeks) the picture present of the market on a 
more medium-term basis will form the foundation of trading 
strategy.  For example, a short-term put position taken when the 
market is in process of coming down to an intermediate low and an 
oversold condition, will not warrant a “full” position or 
warrant the same trading capital that could be committed on a 
high-potential trade, such as where a significant bottom is 
indicated, or, conversely, when a major top is suggested. The 4 
major indicators, plus moving averages and their variations 
(envelopes), will help keep market perspective and manage risk. 


ADVANCE/DECLINE and UPSIDE VOLUME - 

ADVANCE/DECLINE "OSCILLATOR":
A 10-day moving average (blue) of the daily total of advancing 
stocks minus the number of stocks declining that day (i.e., the 
net A/D figure) can be used like an overbought oversold 
oscillator.  When this figure rises or falls to certain areas, 
the market is considered to be overbought or oversold. (The Q-
charts figure plotted below, is a fair approximation of the daily 
figure, but a more precise source for this information is being 
compiled.)       

UPSIDE VOLUME INDICATOR: 
Upside volume is the most important volume figure, as it measures 
the amount of stock bought on up ticks and the general 
willingness of traders and investors to pay up for stock.  When 
the 10-day moving average (blue) of volume contracts to certain 
reoccurring areas, in terms of a 10-day moving average of the 
number, it tends to reflect the potential for a substantial rally 
ahead -- "volume precedes price".  

S&P 500/NYSE – 


 


10-day moving averages of the daily NYSE Advance/Decline figures 
and the daily Advancing Volume suggest that the market is near 
oversold levels in terms of these important market internals.

NASDAQ -  


 


The figures related to NASDAQ are not as clear cut as the NYSE.
In terms of the advance-decline 10-day moving average, the Nasdaq 
is not oversold.  In terms of the advancing volume, number the 
market appears to have bottomed.  

MARKET SENTIMENT:

PUT/CALL RATIO (all options exchanges - Q-charts figures):


 

CBOE: STEVENS CALL/PUT Indicator is CBOE equities options only:


 

VIX:


 


All the Sentiment Indicator having to do with bullish or bearish 
excess, are at NEUTRAL readings, as far as the put versus call 
daily volume figures (or the reverse, calls to puts in the case 
of the CBOE Stevens Equities-only figures).  

The implied volatility figures are extreme and on what has, in 
past years, been a BEARISH reading.  That is, very low implied 
volatility numbers, indicating a possible high degree of 
"complacency".  It has most often been true that VIX readings at 
and under 20, are bearish.  Time will tell as to whether the 
market will be lower in the next 1-3 months, as the low VIX would 
suggest.  

OVERBOUGHT/OVERSOLD & MOVING AVERAGES on LONG-TERM CHARTS:  

S&P - 
The longer-term chart picture is mildly bullish, as the OEX has 
broken out above a long-term down trendline, on the monthly 
chart.  This occurred after the monthly RSI got into oversold 
territory. At a minimum, the market is more oversold than the 
reverse.  


 


NASDAQ - 
The NDX has traced out a possible Head & Shoulder's bottom. A 
bullish outcome would be predicted with a weekly NDX close above 
1530.  


 


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


***********************
SECTOR TRADER GAME PLAN
***********************

***Note to Readers***
Swing Trade Gameplan is in the Index Trader Summary.
*********************

The more oversold tech-oriented Nasdaq indices (the Composite 
Index - COMP & the Nasdaq 100 - NDX) rebounded.  In a market like 
this, with no earnings wind at our backs yet, money managers and 
individuals are playing the oversold bounces.  Once there are 
some gains, participants are quick to bail.  Hence the term 
"profit taking" for every dip in a sector or segment of the 
market that has been performing for a while. Ever wonder who 
always has those profits every time?  The media talking heads 
love those simple sayings.  Simple things for simple people I 
guess.  

But I digress in this, my minor rant. I was close to having 
worked for CNBC, all I can do is say thanks to the universe for 
sparing me this fate -- I would have bailed anyway after the 
100th time in makeup. Actually, thanks to Jerry Seinfeld, as the 
loss of his show and the fortune spent to keep ER, caused NBC to 
put on a hiring freeze, which included even the profitable parts 
like CNBC. 

SEASONAL FACTORS:
It being April and this being the index section, it's worthwhile 
to look at a "typical" April.  Dec, Jan, Nov. and April have 
actually the best tendency for gains in this order, at least from 
1950 - April 2001 -- a tip of the hat to Yale Hirsch and the 
others at Stock Trader's Almanac. As fund manager Sy Harding and 
others have discovered, you can basically be in the market for 6 
months of the year on average, and stay out the other 6 months 
and double your returns.  More on this "Best Six Months" strategy 
another time. 

STRATEGY NOTE:
Stepping in for Austin this week has its challenges, one of which 
is to blend our recommendations.  Actually this is not that hard, 
as we both see this market, this year, as a trading affair.  
Until there is a strong upside or downside trend, trading 
opportunities with specific limited profit objectives, rather 
than "position" type trades (buy & hold), will be the norm.  My 
view is to trade less however, as there may not be more than 1-2 
outstanding opportunities every week or so.  If your goal is to 
make money, this makes sense.  If you are addicted to the action, 
this is fine, but recognize that your payoff is the action, not 
necessarily PROFITS. 

Notice that the market is not falling apart.  At the right price, 
I have a bullish bias, as I view this market as under 
accumulation (money flow is INTO stocks), at the right prices. I 
emphasize "right".  It is not a market to chase stocks.  And, 
this is not to say that there will not be opportunities to buy 
puts - I sure will. And profits can come quick when we're right!     


Sector News and Views  

Best performing today was in the tech area: Semiconductors (SOX), 
Disk drives (DDX), Networking (NWX) along with the XAU (Gold & 
Silver Index).

The continued run up of the Gold and Silver Index reflects real 
and imagined inflationary fears -- if we look at the "core" 
numbers in the CPI figures over past months, these fears may not 
be unfounded as inflation gauges can be read as reflecting a core 
annual rate of increase of 8%.  

The other fear is political, especially that of a Mid-East blow 
up and all this might mean in terms of Arab oil, etc.  However, 
it important to keep this move in perspective.  As shown in the 
chart below, the XAU is fast approaching possible resistance 
implied by the 62% retracement level and chart resistance 
suggested by the previously broken up trendline.  Moreover, the 
RSI indicator has developed a bearish divergence.  I would look 
to buy the May 65 or May 60 puts on a further rally, especially 
into the 75 to 80 area.  



 
 

NEW TRADE PLAY AND GUIDELINE: 

Sector: XAU (PHLX Gold & Silver Index)
Trade Entry:  BUY May 65 and May 60 puts, if XAU trades above 75)  
Objective: XAU to 61
Stop: XAU close above 80
Time frame: 4-6 weeks.

RETAIL HOLDING TRACKING STOCK - RTH


 

Suggestion on a possible buy of "Retail" holding stock RTH, was 
undermined today by a Merrill Lynch report that was bearish on 
select retailers. Entry was suggested if there was one more touch 
and rebound from, the bottom support trendline. The opening 
weakness took RTH to under the support trendline, so no buy was 
warranted.  The other problem with the analysis, was that the 
pattern looks more like a bearish rising wedge, suggesting scale 
up selling, than it does a bullish uptrend channel.  

Those long should consider bailing out on a rebound over the next 
1-2 sessions, especially on a move back up to the 99.00 - 100 
area. This Index looks like a short candidate, especially with 
the recent bearish RSI/Price divergence and I have such a 
recommendation below.  

NEW TRADE PLAY AND GUIDELINE:

Sector: RTH (AMEX: Retail sector trust stock)
Trade Entry:  SELL (SHORT) at 99.00 or better  
Objective: 90
Stop: 102 
Time frame: 3-6 weeks.


OPEN LONG TRADES: NONE


OPEN SHORT TRADES:
(previously suggested by Austin Passamonte)

Sector: XLB at 23.75
Stop: 24.50

Sector: XLP at 26.00
Stop: 26.75

Sector: IYD at 45.25
Stop: 47.00

Sector: IYR at 84.75
Stop: 86.00

Sector: IYE at 49.70
Stop: 52.00


RISK to REWARD guidelines:  
Determining an objective is important, even if it is a moving 
target, as this is the reward potential.   Determining reward 
potential is critical to establishing whether a stop that makes 
“sense” (e.g., a sell stop that was placed under a key support 
level) would, if triggered, result in a dollar loss that is in 
proportion to profit potential; e.g., 1/3 of it.  (On occasion, 
when the purchase price of call or put is equal to 1/3 or less of 
the estimated reward potential, there may not be a specific exit 
suggestion, as the cost of the option is equal to the amount that 
is being risked.)   


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


************************Advertisement*************************
”If you haven’t traded options online – you haven’t really traded 
options,” claims author Larry Spears in his new compact guide 
book:  

“7 Steps to Success – Trading Options Online”.

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*******************
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

 "Contact Support"

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
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Monday 04-01-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*****************
STOP-LOSS UPDATES
*****************

CAH - call
Adjust from $68 down to $68.50

KLAC - call
Adjust from $63.50 down to $65

LH - call
Adjust from $91.50 down to $92

VARI - call
Adjust from $35.25 down to $36

CTX - put
Adjust from $56 down to $54

ISSX - put
Adjust from $25.50 down to $24.25


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

None


************************Advertisement*************************
”If you haven’t traded options online – you haven’t really 
traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*********************
PLAY OF THE DAY - PUT
*********************

VARI - Varian $39.23 +1.29 (+1.29 this week) 

Varian, Inc. is a technology company engaged in the design,
development, manufacture, sale and service of scientific
instruments and vacuum technologies, and in contract
electronics manufacturing. The Company's operations are grouped
into three segments: Scientific Instruments, Vacuum Technologies
and Electronics Manufacturing. 

Most Recent Write-Up

Niche technology firms survived the economic downturn through
diversification and solid risk management. Those firms stand to
benefit most from the recovery, positioned stronger than those
companies dependent on one or two segments of the economy. Varian
delivered stellar results in its most recent report and is on
track to deliver again for the next quarter. The company reported
in January that its increased sales to life sciences customers
boosted the bottom line. Investors will be looking for that
division of the company to deliver once again when it reports
later in April. The stock has reflected the improved outlook for
the company as VARI finished last week's trading just off of its
52-week high at the $38.31 level. A breakout above that level
early next week could bring in the momentum traders who should
carry the stock higher. Traders can look for that breakout in a
strong broader market next week, just make sure to confirm strong
volume before entering new bullish plays into strength above
current levels. Those who'd prefer waiting for a pullback can
look for market weakness to drag VARI back down to the $36 mark
where the 10-dma currently sits. A rebound from there would offer
favorable entries on weakness. Our stop is initially in place at
$35.25. 

Comments

We were looking for a breakout in shares of VARI to get the week
started off right, and we weren't disappointed.  Despite a weak
open for the broad markets, VARI bulls dug in their heels and
refused to let the stock fall.  The brief (and slight) opening
dip quickly reversed course, as momentum traders piled in with
the stock breaking through to new yearly highs.  Volume was
downright stellar, running 75% above the ADV as VAR tacked on
3.4% to close above the $39 level for the first time in over 13
months.  With volume on the rise and daily Stochastics only
midway through their journey back to overbought, VARI looks like
it has room to run.  A dip and bounce in the $36-37 area would
make for a great entry point, but it appears more likely that
we'll have to content ourselves with taking a position on another
breakout, this time above Monday's high of $39.60.  We're raising
our stop to $36 tonight.

BUY PUT APR-35 IUA-DG OI=2191 at $4.60 SL=2.75
BUY PUT APR-40*IUA-DH OI=  77 at $1.05 SL=0.50
BUY PUT MAY-40 IUA-EH OI= 102 at $1.95 SL=1.00
BUY PUT AUG-40 IUA-HH OI=  92 at $3.90 SL=0.50

Average Daily Volume = 247 K



************************Advertisement*************************
If you trade options online, then you need an online broker 
that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the 
option or stock
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and 
more; call 1-888-889-9178 or click for more information.

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


**************
TRADERS CORNER
**************

Candlestick Charting 101
by Mark Phillips
mphillips@OptionInvestor.com

Like most traders, I initially traded using simple bar charts,
eschewing candlestick charts, mainly because I didn't really
understand them that well.  I can't remember what it was that
convinced me to start looking at charts in this format, but
soon thereafter I was hooked.  Even if you don't understand
all the different candle patterns that we're going to discuss
in the weeks ahead, I think their merits are hard to ignore.
Simply put, I think candle charts provide a clearer view of
price action, without giving up any of the merits of the
simpler bar chart format.  Even when you add the color
information to bar charts, it is harder (in my opinion) to
discern meaningful price action and chart formations than
with the candlestick charting format.

Any serious student of candlestick charting will tell you that
the unrivalled authority on the topic is Steve Nison, who is
credited with bringing this form of charting to the Western
world.  Candle charts are Japan's most popular and oldest form
of technical analysis, predating both bar and point and figure
charts.  As far back as the mid-1600s, the Japanese traded rice
futures and candle charts were the format of choice for
technical analysts of the time.  Candle charting techniques,
although widely used in the Far East for generations, were
virtually unknown in the Western world until Mr. Nison published
his first book, "Japanese Candlestick Charting Techniques" in
1991.  While I will do my best to do justice to the basics of
this charting method and some of the more popular chart
formations, I would highly recommend that serious students
acquire and read both the book listed above and Mr. Nison's
follow-on book, "Beyond Candlesticks".  Both are readily
available in bookstores, as well as from online sources such
as Amazon.com.

Let's start our discussion with a quick list of some of the
advantages of the candle charting format, to whet your appetite.

1. Candlestick charting tools are versatile enough to be used
with any of the Western technical tools that we are accustomed
to, such as moving averages, oscillators and support and
resistance lines.  Due to their more substantial appearance on
the page, it is easier to draw many of these technical studies
on candlestick charts.  A key advantage though, is that
candlestick charts can provide signals not available on bar
charts.

2. Candlestick charts allow traders to get a jump on those who
only use bar charts.  Bar chart reversals may take weeks to
develop, whereas many candlestick reversal formations can often
unfold in only 3-4 sessions.

3. Given their long history of use in Japan, candlestick
charting methods have been refined to a high degree.  With a lot
of the refinement already having taken place, this form of
charting can be considered to be a fairly mature form of
technical analysis.

4. The rapidly growing interest in candlestick charts has been
enhanced by the flamboyant terms used to describe the patterns.
Some of the more interesting names are Hanging Man, Dark Cloud
Cover and Shooting Star.  This terminology gives candlesticks
their own personality and many traders find that once they really
give this form of charting a chance, they never want to go back
to simple bar charts again.

Now that we've set the stage, let's get to the meat of the topic.
Candlestick charts are constructed using the same data as bar
charts, using the open, high, low and closing prices for each
day.  (While we are going to talk only about the daily charts in
this series, candlestick charts translate across the whole
spectrum of time periods, from monthly to 1-minute charts.)

Before delving into any of the specific candle patterns, we need
to establish a baseline, so that everyone is working from the
same base of knowledge.  So with apologies to those that are
accomplished in this form of charting, here is the quick
tutorial for all you newcomers.

First up is the construction of an individual candle.  Just like
the construction of a bar chart, we need four prices for each
candle, High, Low, Open and Close.  



 

While the colors chosen are a matter of personal preference, I
think you can see how similar the construction of candles are to
the construction of bars in the standard bar charting world.  My
personal preference is to use red or black for negative or
falling candles, and white or green for positive or rising
candles.

In addition to having their own unique appearance, there are a
couple terminology items that need to be addressed as well.
Important terms to understand are Real Body, Upper Shadow
(Wick) and Lower Shadow (Tail).


 

The Real Body portion of the candle is the solid portion that
is between the opening and closing prices.  For a positive
candle, the Real Body will be white or green and for a negative
candle, it will be red or black.  The Upper Shadow (or Wick) of
the candle is that portion of the formation that is between the
Open and High prices for negative candles, and between the Close
and High prices for positive candles.  The Lower Shadow (or Tail)
of the candle is that portion of the formation that is between
the Close and Low prices for negative candles, and between the
Open and High prices for positive candles.

For those of you that are new to the concept of candlestick
charts, this should give you a starting point to understand how
they are formed and how they relate to the more familiar bar
charts.  Take some time this week and look at some charts in
candle format, getting accustomed to what they look like and
how they appear relative to bar charts.  I think you'll readily
see that there is a lot more information provided in this format
than in standard bar charts.  And the practice will prepare you
for where we're headed next.  

We have now laid the groundwork, and next week we can begin
delving into specific candle patterns with an eye towards
understanding how to interpret them, both individually and
within the broader framework of recent price action and the
current trend.  

In the meantime, watch out for those April Fools pranksters!

Mark


*******************
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

 "Contact Support"

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
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

DISCLAIMER

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

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

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives