The Option Investor Newsletter Sunday 07-27-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Saddam Rally Futures Market: Gold soars, Treasuries Fade Index Trader Wrap: ROAD TRIP Editor's Plays: I Am Not Having Fun Market Sentiment: Extreme Readings Ask the Analyst: Looking for "short squeeze" candidates Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 7-25 WE 7-18 WE 7-11 WE 7-04 DOW 9284.57 + 96.42 9188.15 + 68.56 9119.59 + 49.38 + 81.16 Nasdaq 1730.70 + 22.20 1708.50 - 25.43 1733.93 + 70.48 + 38.19 S&P-100 502.94 + 1.44 501.50 - .98 502.48 + 6.40 + 4.47 S&P-500 998.68 + 5.36 993.32 - 4.82 998.14 + 12.44 + 9.48 W5000 9599.36 + 52.70 9546.66 - 64.23 9610.89 +148.38 +104.02 RUT 468.88 + 4.12 464.76 - 9.01 473.77 + 17.42 + 7.60 TRAN 2615.79 + 39.50 2576.29 + 30.71 2545.58 +130.27 - 1.72 VIX 19.94 - 1.42 21.36 + .64 20.72 - 0.89 - 0.10 VXN 30.04 - 3.37 33.41 + .61 32.80 + 0.33 + 1.54 TRIN 0.67 0.60 0.94 1.98 Put/Call 0.67 0.61 0.98 1.07 Avg Highs 365 522 791 435 Avg Lows 31 29 21 25 *************************************************************** Saddam Rally by Jim Brown The markets rallied off strong support on Friday on mixed economic news and news about Hussein from Iraq. A general reportedly said they were getting closer to catching Saddam after a group of his aides and body guards were captured on Friday. With this highly volatile market and a definitely bullish undertone I am sure more than a few bears realized the extreme weekend risk and covered their shorts. Bulls happy about the better than expected Durable Goods report saw the market bounce off strong support and they jumped on for the ride. The result was the third strongly bullish Friday in a row. The economic reports continued to show a glimmer of hope for those squinting to see a recovery ahead. The Durable Goods rose by a better than expected +2.1% pace and better than the expected +1.5% consensus. Nondefense capital good rose for the second month in a row. The only really negative component was communications equipment which fell by -9.6% and increased its rate of drop for the fifth consecutive month. Computers posted the smallest gain at +0.8% and Aircraft/Autos rose the most at +4.2%. Shipments and unfilled orders both rose as well. Also showing positive momentum was the Weekly ECRI Leading Index which rose to 127.4 from 126.8. This was the best level in three years. It made these gains on only two components, Jobless Claims and 10-year Treasury Yields, with minor declines in most of the other components. This shows the economy is poised to expand and the ground work has been laid. It is not however showing an expanding economy. The mediocre internals are struggling to make the gains but still creeping to new highs. The recovery is in progress but at a snails pace. New Home Sales jumped +4.7% to 1.16 million units and +21% higher than the same period last year. However May was revised down to 1,108 from 1,157 and April was revised down to 999 from 1,028. These were significant downward revisions but as long as the June number holds at 1,160 nobody will care. The problem will come if June is revised down next month. The higher mortgage rates will pressure home sales going forward and it will be difficult for future numbers to match these levels. After several years of record sales the demand for new homes is beginning to slow. As the baby boomers begin to retire over the next few years there will be a surplus of used homes to pressure the market. Existing Home Sales fell unexpectedly to 5.83 million from 5.85 million in May and was much less than the 5.97 million that was expected. Sales in the Northeast fell by -4% and the Midwest by -3% and increased +3% in the West. Inventory levels soared to levels +10.6% higher than the same period last year. More for sale signs are appearing just as mortgage rates are beginning to soar. AOL was under pressure on Friday after disclosing that it had padded the subscriber numbers in 2001-2002 by giving away subscriptions to marketing partners for $1 to $3 each. The very discounted subscriptions accounted to about 15% of their subscriber base during that growth period. Essentially they sold these highly discounted subscriptions in bulk to employers and marketing partners which those companies then gave to employees. This distorted the true value of the subscription base when analysts multiplied average revenue by gross subscriber numbers. AOL said they lost -846,000 subscribers in the second quarter and they were continuing to clean up the subscriber lists and eliminate nonpaying customers. AOL called it a nonevent but they did warn that revenues would be light for the current quarter due to the falling subscribers and weak advertisement revenue. Richmond Fed President Alfred Broaddus spoke on Friday and said he was disappointed in the lack of economic progress. He said "there were a few signs that the recovery may be gaining strength but in my view there is not much hard evidence that it is happening yet." He also said "it was too soon to conclude from recent hopeful indicators that a faster-paced expansion had taken hold." We will get look at the GDP for the 2Q next week and most analysts think we will be lucky to see a +1.7% gain after the +1.4% gain in the 1Q. With the country gearing up for the war most feel the first half of the quarter was flat to down. This will be a hindsight number and should not be a market mover unless it is significantly less. Still it is one more mile marker for the current economic progress. The Wendover-Global Insight IT Spending Index, an independent survey of 80,000 businesses and 300,000 individuals, showed that tech spending fell -14% in the second quarter. It predicts lower IT spending for the balance of the year. The Q2 spending levels were the lowest since the index was started in 1999. This was also the first time the index had been released to the public. While most smaller surveys predict spending will be flat to +6% for the rest of the year the Wendover Index shows declining spending sentiment. The index fell -6.2 points to 37.6 in the latest survey. The high was 115.4 in Q2-2000. They did show a slight increase in spending in the CRM and ERP markets. They also showed a sharp drop of -45% in new tech initiatives. They said they were seeing a trickle of new spending budgeted over the next 6-9 months but far from the flood that had been hoped. They said businesses are waiting for significant signs that the economy is recovering before planning on committing any new funds to IT projects. The survey showed that companies are still concentrating on cutting costs to maintain profitability and much of those costs were in capex spending. 40% of all capital expenditures are on IT projects. With businesses accounting for two thirds of all U.S. tech spending there will not be a tech recovery until the economic recovery is well underway. The stock market was rocked on Friday morning by what was called an asset allocation program where stocks were being sold and bonds bought. This clearly shocked many traders as this would be a very bearish signal. Just when bonds are reaching three month lows and economic reports are starting to show a glimmer of hope you would not expect a huge shift of assets out of stocks. Those stocks should benefit from an improving economy and bonds should continue to go down. That poses a question why a major player would drastically change directions. The Dow dropped nearly -100 points on the sell program before triggering a series of offsetting buy programs when the S&P futures hit the 50 DMA at 975. There are some very mixed views about the current market. After Friday's bounce, the third bounce for the week, the bulls are frothing at the mouth. They are pointing at the 161 companies that have either initiated or raised dividends over the last six months as positive proof that the economy and the market is improving. There were only 110 positive dividend events in all of last year. The average increase is +18%. They are also pointing to the +15% growth in S&P earnings so far this quarter as better than the expected +14% growth. With 65% of the S&P already reported, the better companies report early, it is still likely we could see 14% or even worse. Remember, the majority of these earnings have come from cost cutting not from sales. What the bulls do not want to acknowledge is the 2:1 ratio of negative guidance to positive guidance for Q3. During the Q2 earnings cycle in 2002 the ratio was only 1.3:1 for the same period. With drastically lowered expectations for Q3 already the warning pace is drastically worse than Q2-2002. What is wrong with this picture? After watching the markets alternate triple digit days this week I have to admit I am about ready to concede. We have had multiple chances to fail and have tested the critical support on the S&P five times in the last seven trading days. Each day it held and on more than one occasion soared to very near a Dow high. This is very bullish trading for the third week of July. This is not the normal July pattern. I am seeing bullish events breaking out all around me in a typically bearish period. This is not to say we are not seeing some bearish events as well. The bearish sentiment as recorded by Investor Intelligence is extremely low at 19.8. This is also reflected in the VIX which finally closed under 20 and the first close under that level since March-28th of 2002. This was also the last time the Dow touched 10,500. Coincidence? Like I said earlier, I am about ready to concede. That should mean there is a capitulation due any day. When all the indicators line up in one direction a change in that direction can come at any moment. The close on Friday was very bullish but what caused it? I think it is the Lazarus syndrome. Saddam has been off the radar screen for a couple months. When the U.S. removed his top two biological weapons last week the markets exploded. At least they exploded for one day. Bears have a decent short term memory. They remember getting killed by the resurrection of the Hussein name only two days ago. When a general said on Friday that the noose was closing on Saddam they listened. When more of his aides and bodyguards were captured on Friday on tips from Iraqi citizens they listened. They weighed the potential for risk over the weekend and decided there was more potential for upside than downside. They weighed the Durable Goods numbers and the ECRI and the New Home Sales and decided the risk reward ratio was not favorable for shorts. Bulls on the other hand were seeing money come out of bonds and yields rising which normally means economic growth on the way. They kept hearing the spin about the better than expected earnings and Ralph Acompora's Dow 10,500 forecast. Dollar signs blinded their reasoning and they bought stocks before they ran away from them. They heard the rumors about Saddam and thought if we can get +150 on his sons we can get +300 on the father. They bought stocks. Do you remember the market during the war? The rumors, the UN meetings and the showdown at the UN corral? The market jumped all over the place for no rhyme or reason. Well this has definitely brought back memories of that time. The volatility has been huge but the VIX closed at a new low. What do you suppose will happen if Saddam is not found over the weekend? Once reader theorized we could add +1000 points over the next couple weeks if we could get a new Saddam capture rumor every day next week. When does he become priced into the market? I am not going to tell you today that the Dow is going to 8500. If this hype continues we could see 9500 before 8500. I am going to tell you that 9300 is serious resistance. I am going to tell you that S&P 1015 is huge resistance. Neither are unbreakable. You might also notice that the S&P closed at 998, just under the 1000 barrier with the Dow already at 9275. The Dow is 35 points away from its high and the S&P is 17 points below its high. The broader market is not keeping up with the Dow. The Nasdaq is -46 points from its high, farther than the Dow. All of these things can change and we could be on the verge of a massive bullish breakout. Stranger things have happened before. Next week is going to be more dangerous than a casual stroll though Monrovia, Liberia. It will be equally dangerous to both bulls and bears. Monday will be neutral with no economic reports scheduled but the calendar heats up fast. Tuesday has July Consumer Confidence but that should not be a market mover. Wednesday has the Fed Beige Book. The fireworks start on Thursday with Jobless Claims, adjusted?, Employment Cost Index, GDP, PMI and the Help Wanted Index. Friday has Personal Income/Spending, Nonfarm Payrolls, ISM, Michigan Sentiment and Construction Spending. Whew! I would not want to be a market maker going into Friday. These reports will be dangerous to both sides because they will reflect the economic conditions for the first month of the 3Q. As July goes, so goes the quarter. If they are seen to be weakening then the party may be over. If they are seen to be getting stronger then break out the champagne. Remember what happened to EBAY on Friday? They lost $6 at the open after record earnings because the market wanted more. It wanted something to justify the huge gains over the last several months. Well at 9300 the Dow is priced to perfection. MMM jumped from $126 to $141 last week on strong earnings. That is a huge gain and a new 52 week high. CAT jumped to $65 from $58 and a new 52 week high but stalled. DD jumped +10% and is near a new high. INTC soared to over $25 after earnings and a new high but stalled to close at 24.91 for the week. AA +10% and at new high. These leaders are very extended and carrying a lot of baggage. Consider the charts for MO, IBM, GM, WMT, JNJ, MRK, HD, BA, HPQ and SBC. How much farther can the leaders run with a third of the index on their back? Before you decide I am a perma bear I would like to restate my position. I am bullish on the market long term. I think the cost cutting and restructuring will be very beneficial when the future recovery appears, hopefully in the fourth quarter. While I have been anticipating a dip at the end of July it was only because a historical period of consolidation and profit taking normally occurs at this time each year. If I look at the charts with a bullish bias I could paint a bullish case despite the calendar. Wilshire-5000 Bullish Chart Using the Wilshire-5000, the broadest market indicator of all, we can avoid material spikes from $15 moves in MMM and see what the real market is doing. We had a bounce in the $TMW.x from 7503 in March to 9692 in June with very few pauses for profit taking. That is a +29% gain in four months. This is highly abnormal. At the top of that gain we dropped back -400 points and held on 9300 for two weeks. Then we made another try at the highs and have pulled back again for two weeks but at a higher low around 9400. This sideways consolidation is bullish. We have held the majority of the gains and are slowly inching higher. A bearish view would say a lower high on this current attempt will signal doom for the bulls and they could be right. They are not right until the index falls below 9300, which is very strong support and it will have to break the 50 DMA at 9379 first. 9300 on the Wilshire happens to equate to 9000 on the Dow. Dow Chart Bullish View The Dow chart looks very similar to the W5K chart in that it is clearly showing a nice consolidation pattern between 9000-9300 and higher lows since July 1st. The resistance at 9300 is strong but you can see the upward pressure building. Depending on whether your glass if half full or half empty you could also paint a bearish case from these charts. Using the Nasdaq below you can see for the last two weeks it has been trending down. Down in an uptrend channel but down. The real test is about to occur if it can break that declining resistance line around 1740. You can see the resistance/support points narrowing and something is going to break soon. With the uptrend line now at 1700 the importance of holding that level is becoming stronger. Nasdaq Chart Bearish View Dow Chart - Bearish view The Dow bearish view anticipates a double top failure at 9300 and a failed retest of Dow 9000. Granted that is a lot to swallow today but that is the bearish view. The problem all along has not been the case for investing in stocks. I have been saying for months that when bonds crashed billions of dollars would find its way into the stock market. Well boys and girls bonds crashed. They gave up nearly 2.5 years of gains in the ten year and 3.5 years of gains in the 30 year. This takes into account the price of the bonds and the yields. The ten-year yield at 4.2% is very near a 12 month high. This all happened since the June-25th Fed meeting. This bond disaster will hit home when the monthly statements come in about a week and the bond buyers thinking they are in a safe investment will get a serious shock. Stocks will start looking a lot better very soon if we get one more leg down in bonds. I actually think bonds will improve over the next two weeks. Why? Because there is a FOMC meeting on Aug-12th. While the Fed Funds futures are showing a zero chance of a rate cut there has been some noises out of a couple Fed heads last week that things are not rosy. Bernanke said deflation was still a substantial risk and could increase even with a pickup in the economy. Broaddus said he was not convinced a recovery had started. The biggest reason of all is to shock bonds. If Greenspan popped another surprise 25 point cut out at the Aug-12th meeting the bond market would go crazy. They would start worrying like there was no tomorrow and rates would plummet. The housing market would get back on track and we would be back in the grove. Idle speculation on my part but then it would solve a major problem for Greenspan. That brings us back to the original July decline premise. It is historical and very dependable. However you don't normally get a multiyear bond meltdown in July. This was a catastrophic event in the bond market that has shaken the normal July calendar. Add in some glimmers of hope in the economic reports and we could be off to the races. Except for a couple of points. Obviously from the multiple attempts to break support last week there are quite a few people who are not convinced the recovery is in progress. Whether you admit it or not there was some heavy selling several times. Also, remember those fat finger trades that were determined to be real trades once the smoke cleared? Not everybody is on the Sugarland express and expecting to be popping champagne with Acompora at the 10,500 party anytime soon. Yes, I am almost ready to concede the July dip has been cancelled due to lack of interest and a bond catastrophe that will be talked about for years. Almost. I still have that nagging thought in the back of my mind that if Saddam is still in hiding on Monday the outlook could change quickly. If they catch him over the weekend then Dow 9300 is history and the entire conversation will begin again at a higher level. There are no guarantees for anyone and least of all traders. Just when you think you have everything figured out something changes. That is what keeps it exciting. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Gold soars, Treasuries Fade Jonathan Levinson I was set to write that equities rallied after Friday's action, but they merely challenged the week's range, printing a lower lows on the NQ, ES and YM contracts and a lower high on the NQ, while admittedly closing at their session highs. Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 1013 1005 990 982 967 YM03U 9277 9273 9265 9261 9253 NQ03U 1286 1249 1230 1193 1174 10 minute chart of the US Dollar Index The US Dollar Index was sold aggressively Thursday night and again Friday, with CDN dollar futures rising 1.3% on Friday, euro futures +.45% and swiss franc futures + .28%. On a weekly basis, the US Dollar Index completed a gravestone doji top last week and an evening star this week, with a lower high and lower low. It appears to have commenced a new leg down. Conversely, gold printed a dragonfly doji last week and a morning star this week, as one would expect. Daily chart of August gold Gold advanced again on Friday, not with the same ferocity as in recent sessions, but it did not pull back either and closed at its session high of 364.50, +2.20, despite the ambiguous candle print on the above chart. This was a wildly bullish week for gold and precious metals stocks, and the breakout setup discussed here last weekend has played out to a "T". Daily chart of the ten year note yield Treasuries had another bearish week, with the ten year note yield printing a bullish kicking candle formation, higher highs and higher lows on the weekly TNX. The steep uptrend in the yield brought us a pullback in the MBA's mortgage and refi indices this week, as homeowners begin to take a breather from "as-good-as-it- gets" borrowing rates. I continue to expect this pullback in debt origination to cause a pullback in market liquidity and therefore stock and bond prices. I also remain fascinated with the selloff in treasuries, and wonder at what point the Fed will be forced to put its money where its mouth is regarding its targets for the long bond yield. For equities, the question remains as to the effect of Bernanke's words. If the Fed aggressively inflates the money supply, nothing stops equities from reaching even higher valuations, as this money chases assets, be they bonds, stocks, other currencies or precious metals, just as we saw during the spring rally. The markets were uncertain as well, with the Friday rally giving bears pause to consider the possibility. The rally was led by GE and MSFT throughout the session. Daily NQ candles NQ gave us a bullish engulfing candle, turning the longer cycle oscillators back up, once again touching the rising trendline and bouncing higher. 30 minute 20 day chart of the NQ The extent of the action is clearer on the 30 minute candles, on which we can see that the NQ left us holding a perfect question mark as to the action for Monday. The upper descending trendline on our neutral pennant was the exact closing print on the NQ contract. An upside break is a very real possibility because of the oscillator configuration (bullish) and because the neutral pennant tends to be a continuation pattern. In this case, as we see on the daily chart above, the trend has been up for months, and on this basis, the bias would be towards an upside break. Lastly, as can be seen in the chart of the ES, the upside resistance trendline was broken on a closing basis. Daily ES candles ES is still sucking wind below its broken rising trendline, but the action Friday was a massive bullish engulfing. Bears caught in the squeeze got very small pullbacks in which to cover, and the ES closed less than one point off its high of the day. The oscillators are trying for a turn as well, but the real bull victory is in the next chart. 20 day 30 minute chart of the ES Whether it holds or proves to be a throwover, to use the great J.M. Hurst's term, we can only guess, but it's not a bearish chart. That said, the upper daily trendline is looming just above 1000, and the ES is going to have to deal with that resistance if the rally continues into Monday. Daily YM candles The YM also had a massive day on Friday, admittedly on light summer volume. We are left with the same question as for the NQ futures, with the closing print right at the upper resistance line. 20 day 30 minute chart of the YM On a weekly basis, the equity futures didn't have the explosive upward bias of gold or the downward bias of treasuries and the dollar, but they didn't fall apart either, all closing positive. The week's range proved to be lethal for all but the most patient directional traders, with numerous sudden moves interspaced with long, aimless drifts. Traders should be asking themselves what they think of the long term prospects for equities, particularly at or above the yearly highs. The action on Friday gave traders reason to expect a test of those highs, and it's better to have your game plan clear in the event that those levels get printed. Bears made much ado about the downright silly reasons given to paper the Wednesday and Friday rallies. On Wednesday it was the killing of two enemies, two boys who, to the best of my knowledge, had no positions in or relevance to the US markets or economy. On Friday, it was a rumor of Hussein's capture. The fact that GE and MSFT we rallying before the Friday rumor circulated should not be lost on traders. Rumors don't move markets, but they exploit vulnerabilities in the markets. Whether the Friday rally sticks or not, there was a great deal of room to run to the upside off the Friday low. Traders need to be ready for the possibility of the move's continuing on Monday, particularly given the breakout on the ES 30 minute chart. Have a great weekend and see you at the bell! ******************** INDEX TRADER SUMMARY ******************** ROAD TRIP By Leigh Stevens lstevens@OptionInvestor.com Probably better to take one then do any significant level of summer trading in this market, as the Indices appear to have reached some level of equilibrium for now. THE BOTTOM LINE - Pretty much on cue, at least from what I was seeing in the Index charts, the marker trend last week continued sideways and was more of a premium sellers market on balance. I've sold some Index puts here and there but have not taken on much trading in the summer doldrums. Tough to make money on outright long calls/long puts unless you catch an Index right at the low or top end of its current price range. The trend, or some would say "trendless" (i.e., sideways) market, is right in line with what is being reported about business conditions. On the one hand you have select stocks reporting better earnings, such as Eastman Kodak, 3M and Amazon, but other companies like Sun Micro are suffering and eBay suffered a downgrade based on its future prospects - although it should also be noted that its Q2 revenues and profits doubled. There was a slight pickup reported for the leading economic indicators put out by the Conference Board, but then there was Fed Governor Ben Bernake saying earlier in the week that the Fed is keeping its options open to even go down to a 0% Fed funds rate if that's what it takes to prevent deflation. And with inflation worries moribund, what does gold do but make a sharp jump last week! And, it seems the bond market more believes a pick up in economic activity as the benchmark 10-year yield closed the week at over 4%. As Jeff Bailey noted last week, the Fed Governor's comments could be seen as doing some "jawboning" by the Fed to have bond traders putting a floor under T-bonds after a sharp sell off (yields higher)in recent weeks. These comments set a somewhat negative tone to equities earlier in the week, as well as the U.S. dollar on trader fears that the Fed is still concerned about deflation hampering any further economic recovery. So what's a poor investor to do in the face of this conflicting and uncertain news!? - Road trip! More barbecues!! Take a swim!!! FRIDAY'S TRADING - The S&P 500-stock index was up 17 points to 998.68, with the Dow 30 (Industrials) higher by 172 (+1.9%) to end at 9284.57. The Nasdaq Composite (COMPX) gained 29 points (+1.7%) in Friday's session, to end the week at 1730.7. The major indexes were in a rally mode on buying that appeared to be partly linked to short-covering type buying into the weekend, as U.S. troops made progress in Iraq, with the capture and killing of Saddam Hussein's sons, numbers 2 and 3 on the most wanted list - number 4 was captured alive and he was Saddam's trusted personal aide. No doubt he has some interesting stories to tell! The shorts were of course thinking about what the effect on the market would be should U.S. forces find the man himself, Saddam Hussein. The influence of better earnings can't be overlooked - according to Friday's (Wall Street) Journal, 67% of Q2 profits have exceeded forecasts, which is significant even with the low expectations for the second quarter. A bullish influence should also be noted for a report on a substantial rise in durable good orders during June - a 2.1% jump was reported by the Commerce Department, the largest single monthly gain since January 2003 and well above economists' expectations for a gain of 1.2%. Durable goods figures are a traditionally volatile number, but this much of an increase is taken as a bullish sign for the economy and that the U.S. manufacturing sector is recovering. Besides this is just the psychological shift as investors want to believe in recovery. Orders for non-defense capital goods were up by 2% in the month after rising just 0.2% in May - what a difference a zero makes! Overall durable goods, those goods expected to last 3 or more years, were produced at an increased rate of nearly 1 and half percent, after rising at less than a percent in May. Overall goods orders that exclude the fluctuations of the defense sector rose 1.7%, after being up 1.2% in May. Friday saw existing home sales reported as in a slight decline. The National Association of Realtors (NAR) reported that existing home sales for June fell 0.3% to a seasonally adjusted annual rate of 5.83 million units, which was below a consensus forecast for a 6 million annual rate. The NAR also said May sales were revised down to 5.85 million units from a previously reported 5.92 million. June sales were still close to 9% above the pace set by June of last year and tied for the 4th highest month on record - so, it's all relative! Year-to-date (existing) home sales are 4.5% above the same period in 2002, and are at a pace, should it continue, that would make for a new record this year. New home sales however, set records as the Commerce Department reported a 4.7% jump to a 1.6 million annual pace - this was higher than the 1.1 million forecasted. Commerce said new home sales were country wide as every region in the country posted gains for June. Dow component AT&T (T) was up 2% to 20.4 after the company reported a Q2 profit - cost cutting helped T swing to net of $536 million from a loss a year ago and the company increased its quarterly dividend by 27%. Noted by the consumer (more than stock investors I suppose), in their less than robust confidence of late, is that cost cutting usually means JOB cutting - Kodak noted earlier will be reducing its work force by 6000 - so far absent from the business news is that company XYZ is ADDING a few thousand folks to its payroll. OTHER MARKETS - Treasuries finished lower on Friday and for the week, with the 10-year YIELD ($TNX.X) finishing higher at 4.178%, its highest weekly close since early-January. The dollar traded down slightly against the Yen, to 118.81 from 118.89 late Thursday in New York, while the euro strengthened to $1.15 from $1.1473. INDEX OUTLOOKS – Along with "other" markets, I always tend to keep my eye on gold and the commodities index in general in an awareness that they tend to move counter-cyclical to equities. (Not always counter to bonds however.) Note the qualifying word "tends" to. Not always, which is what makes the markets such a puzzle sometimes. Even if gold is an anxiety barometer, which we have plenty of in the new mellenium, it's a point of wonder as to whether the unrest and economic uncertainty reflected in the rising price of the gold mining shares is going to also lift stocks much this year - What's noticeable with the XAU chart above is the decisive bullish breakout above the triangle marking the reaction lows and relative highs. Usually this is a bullish technical indication for a breakout and further run up. If the (time) premiums weren't so rich, I might be long the calls. (Again, a possible put sale candidate.) S&P 500 (SPX) - Daily chart: Again, the daily chart tells the story on the S&P (SPX) 500 - when SPX got down to the low end of its recent price range, and held a "line" of support at and just under 980, a rally followed. I continue to suggest buying near the low end of this range (better to then be able to exit with a break to below the range) and sell at the upper end of the sideways channel - currently in the 1015-1017 area. The sideways drift is keeping the RSI in a more or less "neutral" range. Right now there seems to be the propensity to rally when the RSI has dipped to below 50. My sentiment indicator is more or less neutral also. Neutral chart, neutral oscillators, neutral sentiment. Well, you get the picture. That said there is room on the upside for another challenge of the 1000 mark. The 21-day moving average is also telling the story here, as movement back and forth across the 21-day is showing a definite sideways trend - I suspect its a consolidation before a typical seasonal move higher into a September - October peak. Dow Industrials Hourly (DJX.X) chart: Still plenty of upside if the Dow were to rally now toward the upper end of either its recent sideways trading range. First of course it has to get through a line of resistance at 92.80 which has been the top of the recent range on an hourly closing basis. Not far above that is a cluster of prior highs at 93.4. A daily close above 93.4 is needed to suggest a bullish breakout and move more toward the upper channel line. I'm not looking for such a breakout anytime soon but there could be surprises also of course. 91 is key near support and a close under 9100 for the Dow is a definite technical bear move. 9000 is probably "must hold" support for the bulls. Overall a bullish outlook is warranted as long as the Dow Index trades within its hourly uptrend channel. The trend starts to turn neutral however with a continued sideways move that takes prices out beyond the outlined channel lines above. S&P 100 Index (OEX) – Hourly chart: The hourly chart continues to best show the chart and technical picture for the OEX. The Index continues to find support in the 485-495 zone - this past week a double bottom low was made in the 491.5-492 area. Resistance or selling interest can be anticipated on moves up the area of the prior highs around 511-512 or just a bit higher - the previously broken up (magenta) trendline is what I am watching. I suggest put purchases in the 510-515 zone, especially as the longer (21) hourly stochastic gets back up into the overbought zone. Nasdaq Composite Index (COMPX) – Daily: The Composite is still "holding" its daily chart uptrend channel, as the lows last week walked up the lower line so to speak. Such a well-defined trendline - well, the market is being supported on breaks. 1700 is near support, then 1650, support assumed at the 50-day moving average. I would take a close under this average to put the near-term trend down again. 1800-1825 is key near technical resistance. Interestingly, the recent downswing is causing the 14-day stochastic to fall enough to be near to oversold again. A sideways to lower trend will cause this indicator to fall and it doesn't have to fall a big distance price wise. If the trendline that contained the price dips of last week is pierced by a move below Friday's low at 1685, the pattern immediately suggests a bearish reversal - this because the chart formation would then look like a bear flag reversal. Absent that, on a technical basis, continue to give the benefit of the doubt to the bullish influences that are looking ahead to a hoped for improvement in the economy and in tech spending in particular. Nasdaq 100 Tracking Stock (QQQ) - Hourly: And, last but not least, there is not a whole lot new to say about the Q's on a technical basis from last week. They held their bull trend channel (lower) boundary on the last two sell offs. Resistance and selling interest is assumed to be in the area of the prior highs around 32.50 to 32.70 - exiting as least some long trading positions and even shorting the stock is suggested in this area. On short positions, my suggested stop point is at 33.20. A daily close over the prior 32.5-32.7 highs suggests further upside potential in QQQ possibly to as high as the upper channel boundary and I would not want to buck this trend. The overall trend is still up, but my assumption is that we're also moving into a sideways trading range like the other indices. In a trading range, you can either stay out and wait for the trend (or a new trend) to resume or you can trade the range. If there is a decisive downside penetration of the prior hourly closing lows in the 30.70-30.80 area, I continue to suggest being short on the break, looking for an eventual downside objective to the 29 area. Good Trading Success! ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** I Am Not Having Fun The alternating triple digit days on the Dow have played havoc with our August DJX puts. They have been doubling and halving almost daily and driving a serious speculator to drink. Without going into too much detail today we are very close to done. Initially I had suggested a stop loss at Dow 9300 and 9350 but that was two weeks ago when there was still some time premium left. The options closed on Friday at 20x35 after trading over $1.00 last week. At 25 cents there is little incentive for me to sell them. With an adjusted cost of 44.6 cents each we could get out with a scolding and go on to other things. Instead I am looking at them as a lottery play for a quarter. We still have three weeks until expiration and who knows what will happen in the market. I actually bought more on Wednesday's pop for 35 cents so I am a believer. At least I was a believer on Wednesday. Dow 9300 will be the key. If we break over that level and hold then I would expect them to expire worthless. If we fail at that level next week then we could get to something below 9000 very fast if the economic reports turn sour. Unfortunately there is a Fed meeting in two weeks and although the Fed funds futures are showing a zero chance of a rate cut it is still a possibility. That means the retail traders could be bidding up the market if any Fed head starts making rate cut noises. My exit plan at this point is still the same. Go for broke if we drop on Monday. If we rally on Monday then start looking for any dip that brings us back to 50 cents and bail. With only three weeks left we need to get a major trend change to ride down quickly or we will never get back over 50 cents. Dow Chart (DJX) ************** EBAY Call 2:1 split $112.28 While EBAY took a licking on Friday it is still kicking and has a 2:1 stock split in its near future. The stock dropped -$6 at the open on Friday and then recovered to lose only -3.50. The retail trader is alive and well and EBAY is their favorite Internet stock. The cult following should follow it all the way to the split but we should be gone long before that. The record date is Aug-4th and the split date is Aug-28th. If the market is positive EBAY should move back to its pre earnings high around $118 by the record date. I am suggesting the September $115 call for $4.80 with a target price of $7.00. I know it does not sound like much but it is a 40% profit in a little over a week. You could go high risk and use the August $115 call for $2.25 but the time premium should be dropping like a rock next week as we hit Aug-1st. It would be a race to see if EBAY could hit $117 before Aug-5th just to break even. With the September options you do not have the time pressure to worry about. Quick play, in at $4.80 or better on Monday, out at $7.00 to $7.50 if you get lucky. The stop loss on this is $110. If EBAY gives up its gains then we will abandon ship and shop elsewhere. EBAY Covered Calls Another way to play this would be to buy the stock on Monday and write covered calls on it. Using margin at $56 it works out like this. Sept-$115 $4.60 + difference between $112.25 and $115 = $7.35 $7.35 divided by $56 = 13%. Sept-$120 $2.80 + difference between $112.25 and $120 = $12.35 $12.35 divided by $56 = 22%. (Probably not called) You could write the $120 and have the stock rise to $118 and not be called. You keep the stock and the premium. DO NOT hold the stock/option over the split. The post split depression can be violent. EBAY Chart ******************************** Play updates: I am only listing the current recommendations with a link to the initial write up and unless the play changed substantially. None Powerball It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Extreme Readings Jonathan Levinson The VIX made a new closing low for the year today at 19.94, while the QQV and VXN came close. The bullish percents and record high percents are pinned to the tops of their ranges, while the bullish vs. bearish advisor surveys remain very close to multiyear bullish extremes. Despite the all-out bullish tenor to our breadth, sentiment and volatility measures, equity prices have failed to advance, with the Dow and SPX trading for a month below its rally high, while the Nasdaq more bullishly printed its high during the week before last. One would be correct to identify this as an unhealthy situation, with traders beating the drum harder but from lower levels. Unfortunately, reading the secondary indicators is never an absolute science, and the story need not be bearish. The VIX, for instance, could be leading an upside move in equity prices with its bearish divergence, as the smaller, "sharper" options market sends volatilities lower, possibly signaling a fresh break to the upside for stocks. As with all indicators, their effectiveness is based on the respect of their usual range. In daytrading, a favorite strategy for playing a declining market was to sell downside spikes in the TRIN.NQ. As the market's bias was downward, every downside spike in the TRIN.NQ tended to be an unsustainable spike in buying pressure, and signaled a short term top. Unfortunately, in a turning or a rising market, when the longer "waves" of buying pressure are building, this sensitive indicator would become buried at extreme low levels for hours or even days at a time. These low readings were signaling not selling opportunities, but their opposite. In reviewing the weekend data, I find it useful to try seeing both sides of the trend, particularly as a defense against surprises during the trading days to follow. As always, minds work best when they're open. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9353 52-week Low : 7197 Current : 9284 Moving Averages: (Simple) 10-dma: 9148 50-dma: 9015 200-dma: 8491 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 998 Moving Averages: (Simple) 10-dma: 990 50-dma: 979 200-dma: 906 Nasdaq-100 ($NDX) 52-week High: 1316 52-week Low : 795 Current : 1278 Moving Averages: (Simple) 10-dma: 1269 50-dma: 1219 200-dma: 1078 ----------------------------------------------------------------- If the VIX and VXN were stocks one might think they were both about to breakdown to new lower lows. Or in the VIX's case, follow through on the breakdown through support. Low VIX readings typically indicate market tops as bullish sentiment reaches extremes and buyers have absolutely no fear. CBOE Market Volatility Index (VIX) = 19.94 -0.52 Nasdaq-100 Volatility Index (VXN) = 30.04 -1.41 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.67 508,821 339,703 Equity Only 0.54 378,442 205,434 OEX 0.60 33,855 20,404 QQQ 2.68 16,922 45,392 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 69.4 + 0 Bull Confirmed NASDAQ-100 75.0 - 1 Bull Confirmed Dow Indust. 80.0 - 7 Bull Correction S&P 500 75.8 + 0 Bull Correction S&P 100 82.0 - 2 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 0.96 10-Day Arms Index 0.93 21-Day Arms Index 1.05 55-Day Arms Index 1.13 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals -NYSE- -NASDAQ- Advancers 1900 1775 Decliners 927 1257 New Highs 113 123 New Lows 8 6 Up Volume 1214M 1003M Down Vol. 413M 542M Total Vol. 1634M 1559M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 07/22/03 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Not much new for us to decipher in the full contracts of the S&P 500 futures. Commercials remain slightly next short and the small traders remains significantly net long, expecting the markets to rise. Commercials Long Short Net % Of OI 07/01/03 415,976 453,005 (37,029) (4.3%) 07/08/03 415,053 453,720 (38,667) (4.5%) 07/15/03 414,020 453,033 (39,013) (4.5%) 07/22/03 411,206 442,131 (30,925) (3.6%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 18,486 - 6/17/03 Small Traders Long Short Net % of OI 07/01/03 150,232 75,937 74,295 32.8% 07/08/03 152,239 74,749 77,490 34.2% 07/15/03 148,716 70,279 78,437 35.8% 07/22/03 155,891 76,466 79,425 34.2% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 In contrast to the full size S&P contracts above, the E-minis is showing a drastic change. Commercial traders have been moving from net short to net long the last four weeks and the longs have finally out numbered the shorts. Right on cue, the small traders have turned the most bearish they have been in months. Commercials Long Short Net % Of OI 07/01/03 175,893 216,993 (41,100) (10.5%) 07/08/03 192,815 224,124 (31,309) ( 7.5%) 07/15/03 214,274 218,765 ( 4,491) ( 1.0%) 07/22/03 249,392 249,386 6 0.0% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 6 - 07/22/03 Small Traders Long Short Net % of OI 07/01/03 57,639 67,449 (9,810) (7.8%) 07/08/03 56,394 72,090 (15,696) (12.2%) 07/15/03 45,372 54,654 (9,282) (9.3%) 07/22/03 45,945 76,071 (30,126) (24.7%) Most bearish reading of the year: (30,126) - 07/22/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is little change in the NDX futures by the commercial traders or small traders. Commercials Long Short Net % of OI 07/01/03 28,662 48,265 (19,603) (25.5%) 07/08/03 30,489 48,311 (17,822) (22.6%) 07/15/03 28,467 49,154 (20,687) (26.7%) 07/22/03 32,502 48,139 (15,637) (19.4%) Most bearish reading of the year: (20,687) - 07/15/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 07/01/03 26,777 8,498 18,279 51.8% 07/08/03 26,136 9,035 17,101 48.6% 07/15/03 26,489 8,004 18,485 53.6% 07/22/03 27,321 8,844 18,477 51.1% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders are becoming even more bullish on the Industrials while small traders are slowing increasing their net short positions. Commercials Long Short Net % of OI 07/01/03 20,504 11,871 8,633 26.7% 07/08/03 20,752 11,860 8,892 27.3% 07/15/03 21,607 7,855 13,752 46.7% 07/22/03 22,198 8,176 14,022 46.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 07/01/03 5,799 6,822 (1,023) ( 8.1%) 07/08/03 5,005 8,093 (3,088) (23.6%) 07/15/03 5,475 9,717 (4,242) (27.9%) 07/22/03 6,110 10,898 (4,788) (28.2%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Looking for "short squeeze" candidates I like to trade stocks and even options on a 3 to 5 day time period and have seen some pretty good moves from trades that you've profiled as short squeeze candidates. Can you tell me what you look for, other than a high short interest to identify some of the better candidates? There are a lot of stocks with high short interest that don't move, or actually go lower as shorts have been right. I don't know if there is one thing particular that I look for in a "short squeeze" candidate, but I'll tell you this. The stocks I do find often come from something technical like a spike in volume, a fellow competitor having just made a big move higher, a stock's chart that looks to be having pressure building up in a pennant-type of formation, a stock that is has shown ability to trade a wide range historically, stocks breaking to new highs or looks to challenge historical highs, and a "super ludicrous, or no-way-it-could-ever-trade-that bullish vertical count stock" from the point and figure chart can be the best candidates! Once I find a stock with some interesting technicals described above, I will then go and look at what the stock's short interest has been doing and what the number of days to cover is looking like. Has a building short interest had any negative impact on the stock, or have shorts just been feeding liquidity to hungry bulls over a 2 to 3-month time period? Then I like to imagine I'm short the stock, and try and determine a "level" where I would certainly look to cover my loss. Perhaps that will be the point where other bears would look to for cover. When all the bears head for the exits and bulls pull their offers, that's when the squeeze begins. Remember too, "the bigger the base, the bigger the pace" potential for the move higher. Sometimes a good short squeeze will get the correctly analyzed candidate a quick 2 to 3-day pop on a short-squeeze, but a very impressive percentage move higher as shorts become aware that they might have been wrong. Some stocks, with smaller public floats and/or thinly traded will provide a more longer-lasting type of squeeze, which can last weeks on end. If looking to trade some smaller floats, I still prefer to stick with stocks that trade at least $3 million capital per day. For instance, a stock that is trading at 100,000 shares per day at $50 per share is $5 million. A stock that is $2 and trades 1,000,000 shares per day is probably being scalped for pennies by day traders, and may not be on a hedge fund or institutional watch list. In the past couple of years, hedge funds have attracted a lot of capital and these types of fund managers are looking to try and break a short and get a squeeze going. At the same time, a lot of these hedge funds are "synthetically" hedged with a stock, but they'll cover their short aggressively if the stock begins moving against them quicker than their offsetting bullish trade. These hedge fund managers usually want to be trading in liquid stocks where they can get out of a position quickly if need be. Volume One trader analogy I believe in is "volume precedes price." As one starting point, look for stocks in a stock scan for "strong volume gainers." Stockcharts.com provides such a screen for FREE! http://www.stockcharts.com I'll discuss some patterns a trader might look for in a minute, but when you make some observations of stocks that have shown a volume spike, even if it looks like it made too big of a move, or is in a consolidation phase, at least make a note of this stock as it may be a week or two, if not a month later that your volume observation pays off. Know the competition Last Friday (07/18/03) in OptionInvestor.com's Market Monitor, I made an observation that a stock/company a friend of mine works for had made a major move higher. A conversation I had with a neighbor that works for a competitor month's prior, had him saying that business was stabilizing. Market Monitor observation/thinking - 07/18/2003 I "missed" a good short-term move in SLNK, but knew AV was in the same type of business. The following session, Monday (07/21/2003), evidently Dougherty & Company was thinking the same thing I was, or they were following Avaya (NYS:AV) from a fundamental point as they initiated coverage with a "buy rating" and target of $10. I thought... "10?, the Point and figure chart's vertical count is $20! That's ludicrous enough to get further attention." While there was good potential for some micro-sector type of bullishness to build near-term for Avaya after seeing what SLNK did, I checked the NASDAQ website for short interest and make some observations. Avaya Short Interest - Reported monthly from NASDAQ Short interest had been declining since January, but a recent decline in volume and still having roughly 1.8% of float short, might have recent earnings from SLNK and upgrade from Dougherty moving the rest of bears to cover. Where would I cover if I were short right now... with what I know. Stock's at $7.00, (reward 7), bullish count $20 (risk $13), competitor blows away earnings, business doing better, S&P 500 (market) still holding tough, but off the highs. Pattern (supply/demand) While AV's short interest isn't the "prime" example for short squeeze in the making, there are observations that can be made as to what bears are doing, or what they've been doing, and what the rest of the pod might be looking to do. A trader that's going to try and trade a short squeeze, really wants to put himself/herself in the paws of the bear and imagine you're short. Then figure out what the exit plan is going to be. Then get set to implement that plan, but from the bullish side of the trade. Avaya Inc. (NYSE:AV) - Daily Interval Conventional retracement from the recent lows near $2.00 and June 6th high was of little help and really didn't tie in with how AV had been trading. One chart I created with retracement and regression is shown above. The "spike" in volume on June 6th and that high represented some type of "important level." Observations from short interest and Days to cover gives the impression that bears were pretty sure the high was in at $7.91. If they could only get a break below the combined 21-day, 50-day and regression support, bears would have a chance. If not, then exit points were $6.98, or back above the high of $7.91. Bears could also wait to see if $10 were tested, but "there's no way AV would ever trade $20.25!" Ok... SLNK catch's fire, I'm near some support moving averages, so stop my bearish trade out on move above $7. The "patterns" I like best for short squeezes are stocks that have made a "big move higher," and have had a BIG volume spike in the move higher. The VOLUME spike shows INTEREST and DISAGREEMENT among market participants. I look for stocks where OVERHEAD SUPPLY is relatively nonexistent where a higher short interest or days to cover will have the shorts looking over their shoulder with the understanding that there my not be much bullish liquidation if the stock begins to make a break higher. Remember, the lowest a stock can go is $0.00, and the highest is infinity if not at least the bullish vertical count. Counting cards You've heard the term "counting cards." I don't know if it is illegal to count cards in Las Vegas, NV, but I would think if the casino thought you were counting cards at the blackjack table, you might be asked to leave. Here's how a trader might also look to use short interest data along with a company's disclosure of how many shares it has in the public float, to "count cards" if you will, to determine just how a the number of shares short in a stock might tilt the scale markedly toward some type of excess demand situation coming into play, where supply (public float) is limited. Monster Worldwide Short Interest - Reported monthly from NASDAQ Short interest has been declining, if not steady the past two months. Volume patterns have been declining, and the past two months, that has the days to rising during the same period. What grabs a traders attention if looking for a short squeeze is the public float is 63.2 million shares and July 15th short interest is 13.4 million shares. That would have roughly 21% of the public float short right now! The "float" is defined as the total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from the outstanding shares. According to Yahoo! Finance, MNST has 111.8 million shares outstanding. However, a trader looking for a short squeeze in MNST may find the HIGH level of shares short (needs to be bought back and returned at some point in the future) of 21% rather high compared to the float (total supply currently available in the market). Now... using some of the short interest data above (make note of May 15 to July 15 short interest data) you can apply your skills of "fitted retracement" to perhaps create a chart that looks something like this. Let's do this. Imagine right now, today, YOU are short 13.4 million shares at $22.25. Up until three days ago, you have been the best bearish trader in the bunch. Monster Worldwide (MNST) Chart - Daily Intervals Short interest is reportedly monthly, but a trader can still try and "count cards." The trend of short interest hints that bears were relatively comfortable or not doing much covering from May 15 to July 15th and that comfort level might be defined by the $25.25 level. As noted in Thursday's 01:00 PM EST update at premierinvestor.net and OptionInvestor.com, the move above $22.25 on Wednesday, is a little suspicious in that MNST was able to close above that level, the day before WEEKLY jobless claims came in below economists' forecast and lowest levels since February 8th. While we can never "count cards" as it relates to short interest, I might think this. Even if ever share traded in the past three days was ENTIRELY short covering, that would equal roughly 9 million shares. I might cut that in half as there were most likely some bulls doing some buying too and still leaves a rather high short interest relative to the public float. I looked at MNST's point and figure chart, and the first buy signal and bullish vertical count on the stock, when it was trading under the NASDAQ symbol TMPW was bullish to $31.50. However, since April, when the stock built that bullish count, it did give a double bottom sell signal at $18.50, which negated that count, but Thursday's trade at $24.00 got MNST's PnF chart back on a buy signal and the current bullish vertical count is currently building to $45.50. MNST is one of those "volatile" stocks. You can see from the chart above that the stock traded a daily range of $1.70. When a short squeeze unfolds, you just never know for sure how long or how powerful it can become. Bulls should also be cognizant that sometimes, bears can still be correct in their convictions, thus the high levels of short interest. A trader looking to play a short squeeze in MNST as I have profiled (disclosure, I currently hold bullish position in MNST), that has made a stronger move after giving a better entry to a more alert trader just above $22.25, may want to turn to the options market where a more minimal amount of capital risk can be exposed, but still allow for exposure and some time for an near- term extended chart to work itself out longer-term. An example I'd reflect back on right now is SanDisk (NASDAQ:SNDK) $56.44 +2.95%. In early June, when the stock was trading the $35 level, a trader was wondering if it was time to "short/put" SNDK as it had nearly doubled in price from the $20.00 level. My comments at the time.... while the stock did look "extended" and I wasn't sure that the bullish vertical count of $81.50 would be reached (humph... that bullish count is still intact as no sell signal has been given) volume patterns and such an unrealistic bullish vertical count should have a bear at least waiting for a sell signal. Some of you bulls have got to remember SNDK from early 2002 when the stock fetched more than $160 per share. Don't you? I think there's a few bears that remember it too. Heck... I'm sure some bulls remember when TMP Worldwide (TMPW), now Monster Worldwide (MNST) fetched more than $80 per share. I'm sure some bears do too! Notes: To get short interest from the NASDAQ site (www.nasdaq.com) simply enter a symbol of a stock in their "get up to 10 quotes" box, then click the "Flash Quotes" button. A refreshed browser page should be created. Click the scroll down button that contains the words "FlashQuotes" (a pull down menu of categories should be seen) and select short interest. Jeff Bailey ************* COMING EVENTS ************* ========================================== Market Watch for the week of July 28th ========================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- ACE ACE LTD Mon, Jul 28 After the Bell 0.99 APD Air Product Chems Mon, Jul 28 Before the Bell 0.55 LNT Alliant Energy Mon, Jul 28 Before the Bell 0.23 AFC Allmerica Financial Mon, Jul 28 After the Bell 0.03 AXP American Express Co Mon, Jul 28 -----N/A----- 0.57 AFR Am Finl Rlty Trst Mon, Jul 28 Before the Bell N/A AMKR Amkor Technology, Inc Mon, Jul 28 After the Bell -0.12 BOH Bank of Hawaii Corp Mon, Jul 28 Before the Bell 0.48 ABX Barrick Gold Mon, Jul 28 -----N/A----- 0.06 BRG BG Group Mon, Jul 28 Before the Bell N/A BIO Bio-Rad Laboratories Mon, Jul 28 Before the Bell 0.81 BMC BMC Software Mon, Jul 28 Before the Bell 0.02 CHK Chesapeake Energy CorpMon, Jul 28 After the Bell 0.26 DTE DTE Energy Company Mon, Jul 28 Before the Bell 0.40 ETR Entergy Mon, Jul 28 Before the Bell 1.17 ENT Equant NV Mon, Jul 28 After the Bell -0.42 FMX FEMSA Mon, Jul 28 -----N/A----- 0.97 FCNCA First Cit BancShares Mon, Jul 28 -----N/A----- N/A FHCC First Health Group Mon, Jul 28 -----N/A----- 0.38 GGP General Growth Prop Mon, Jul 28 -----N/A----- 1.48 HLT Hilton Hotels Corp Mon, Jul 28 Before the Bell 0.14 HUM Humana Inc. Mon, Jul 28 Before the Bell 0.29 ITT ITT Industries Mon, Jul 28 -----N/A----- 1.02 JP Jefferson-Pilot Mon, Jul 28 After the Bell 0.87 K Kellogg Co. Mon, Jul 28 Before the Bell 0.47 MXICY Macronix Intl Mon, Jul 28 Before the Bell N/A MVSN Macrovision Mon, Jul 28 After the Bell 0.16 MWV MeadWestvaco Mon, Jul 28 Before the Bell 0.08 WFR MEMC Electronic Mats Mon, Jul 28 -----N/A----- 0.11 MCY Mercury General Mon, Jul 28 -----N/A----- 0.70 NFS Nationwide Finl Serv Mon, Jul 28 After the Bell 0.72 NTES Netease.com Inc Mon, Jul 28 After the Bell 0.24 NOC Northrop Grumman Mon, Jul 28 Before the Bell 0.86 PSO Pearson plc Mon, Jul 28 Before the Bell N/A PD Phelps Dodge Mon, Jul 28 Before the Bell -0.26 PNW Pinnacle West Capital Mon, Jul 28 -----N/A----- 0.72 PVN Providian Financial Mon, Jul 28 After the Bell 0.10 RCII Rent-A-Center Mon, Jul 28 After the Bell 1.43 ROH Rohm and Haas Company Mon, Jul 28 Before the Bell 0.39 RCL Royal CaribCruises Mon, Jul 28 Before the Bell 0.15 RPM RPM INTL INC Mon, Jul 28 Before the Bell 0.37 SAFC Safeco Corp. Mon, Jul 28 Before the Bell 0.37 SEM Select Medical Corp Mon, Jul 28 After the Bell 0.31 PCS Sprint Corp Mon, Jul 28 After the Bell -0.11 FON Sprint FON Group Mon, Jul 28 After the Bell 0.33 SPW SPX Mon, Jul 28 -----N/A----- 0.65 TI Telecom Italia Mon, Jul 28 -----N/A----- N/A TEM Telefonica Moviles Mon, Jul 28 Before the Bell N/A RSE The Rouse Company Mon, Jul 28 -----N/A----- 0.93 TRI Triad Hospitals, Inc Mon, Jul 28 Before the Bell 0.49 TZA TV Azteca S.A. de C.V Mon, Jul 28 -----N/A----- 0.17 TSN Tyson Foods Mon, Jul 28 -----N/A----- 0.21 UDR Un Dom Rlty Trust Mon, Jul 28 After the Bell 0.38 VMC Vulcan Materials Mon, Jul 28 After the Bell 0.65 WEG Williams Energy Part Mon, Jul 28 Before the Bell 0.85 XRX Xerox Corporation Mon, Jul 28 Before the Bell 0.12 ZBRA Zebra Technologies Mon, Jul 28 Before the Bell 0.67 ------------------------- TUESDAY ------------------------------ ABB ABB Tue, Jul 29 Before the Bell N/A ACS Affiliated Computer Tue, Jul 29 -----N/A----- 0.59 ALA Alcatel Tue, Jul 29 -----N/A----- -0.17 AC Alliance Capital Tue, Jul 29 -----N/A----- 0.47 ALD Allied Capital Corp Tue, Jul 29 Before the Bell 0.52 AIB Allied Irish Banks Tue, Jul 29 Before the Bell N/A AHC Amerada Hess Tue, Jul 29 Before the Bell 1.22 AHM Amersham Tue, Jul 29 Before the Bell N/A ADP Automatic Data ProcessTue, Jul 29 Before the Bell 0.38 AVE Aventis Tue, Jul 29 -----N/A----- 0.68 BLDP Ballard Power Systems Tue, Jul 29 -----N/A----- -0.25 STD Banco Santander Cntrl Tue, Jul 29 -----N/A----- N/A BVF Biovail Corporation Tue, Jul 29 Before the Bell 0.47 BSG BISYS GROUP INC Tue, Jul 29 After the Bell 0.28 BP Bp PLC Tue, Jul 29 Before the Bell 0.79 BTI British Am Tobacco Tue, Jul 29 Before the Bell 0.58 BPO BROOKFIELD PPTYS CORP Tue, Jul 29 -----N/A----- 0.52 BG BUNGE LIMITED Tue, Jul 29 Before the Bell 0.71 CPT Camden Property Trust Tue, Jul 29 After the Bell 0.74 CZ Celanese AG Tue, Jul 29 Before the Bell 0.45 CNP CenterPoint Energy Tue, Jul 29 -----N/A----- 0.12 GIB CGI Group Tue, Jul 29 -----N/A----- N/A CRL Charles River Lab Tue, Jul 29 After the Bell 0.41 CINF Cincinnati Financial Tue, Jul 29 Before the Bell 0.43 CCU Clear Channel Comm Tue, Jul 29 Before the Bell 0.37 COH Coach, Inc. Tue, Jul 29 Before the Bell 0.30 CE Concord EFS Tue, Jul 29 Before the Bell 0.18 CVH Coventry Health Care Tue, Jul 29 Before the Bell 0.87 CREE Cree Inc. Tue, Jul 29 -----N/A----- 0.16 DD DuPont Tue, Jul 29 Before the Bell 0.57 ECA EnCana Corporation Tue, Jul 29 Before the Bell 0.77 ENH Endurance Specialty Tue, Jul 29 After the Bell 0.70 EC Engelhard Corporation Tue, Jul 29 Before the Bell 0.45 EOP Eq Office Prop Trust Tue, Jul 29 Before the Bell 0.69 FSH Fisher Scientific IntlTue, Jul 29 After the Bell 0.57 FLR Fluor Corporation Tue, Jul 29 After the Bell 0.55 FMC FMC Corporation Tue, Jul 29 After the Bell 0.58 FDP Fresh Del Monte Prod Tue, Jul 29 Before the Bell 1.27 GGB Gerdau S.A. Tue, Jul 29 -----N/A----- 0.55 HMC Honda Motor Co. Ltd. Tue, Jul 29 Before the Bell 0.48 KEG Key Energy Services Tue, Jul 29 Before the Bell 0.05 KIM KIMCO REALTY CORP Tue, Jul 29 Before the Bell 0.79 KG King Pharmaceuticals Tue, Jul 29 Before the Bell 0.36 KYO Kyocera Corporation Tue, Jul 29 Before the Bell N/A TVL LIN TV Corp. Tue, Jul 29 Before the Bell 0.17 LPX LP Corp Tue, Jul 29 Before the Bell 0.15 MCD McDonalds Corporation Tue, Jul 29 -----N/A----- 0.37 NBR Nabors Industries Tue, Jul 29 -----N/A----- 0.17 NEU Neuberger Berman Tue, Jul 29 Before the Bell 0.39 ORLY O'Reilly Automotive Tue, Jul 29 After the Bell 0.50 OMC Omnicom Group Tue, Jul 29 Before the Bell 1.03 PH Parker Hannifin Corp. Tue, Jul 29 Before the Bell 0.47 PFGC PERFORMANCE FOOD GRP Tue, Jul 29 -----N/A----- 0.49 PER Perot Systems Tue, Jul 29 Before the Bell 0.13 PDG Placer Dome Tue, Jul 29 After the Bell 0.08 PAA Plns All Am Pipeline Tue, Jul 29 Before the Bell 0.38 PNM PNM Resources Tue, Jul 29 After the Bell 0.29 PDLI Protein Design Tue, Jul 29 After the Bell -0.06 PUK Prudential PLC Tue, Jul 29 -----N/A----- N/A RJR R.J. Reynolds Tobacco Tue, Jul 29 Before the Bell 0.84 RCI Renal Care Group, Inc Tue, Jul 29 After the Bell 0.52 SSCC Smurfit-Stone Cntanr Tue, Jul 29 Before the Bell -0.05 SO Southern Company Tue, Jul 29 Before the Bell 0.45 STTS ST Assembly Test Serv Tue, Jul 29 After the Bell N/A SRCL Stericycle Tue, Jul 29 -----N/A----- 0.33 SLF Sun Life Finl Serv CanTue, Jul 29 -----N/A----- 0.41 TEF Telefonica de Espaqa Tue, Jul 29 Before the Bell N/A TU TELUS Tue, Jul 29 During the Market N/A TPP Teppco Tue, Jul 29 -----N/A----- 0.35 TEVA Teva Pharmaceutical Tue, Jul 29 -----N/A----- 0.44 TGN Texas Genco Holdings Tue, Jul 29 -----N/A----- N/A MHP The McGraw-Hill Comp Tue, Jul 29 Before the Bell 0.73 RIG Transocean Inc. Tue, Jul 29 Before the Bell -0.02 TMIC Trend Micro Tue, Jul 29 Before the Bell N/A TYC Tyco International Tue, Jul 29 Before the Bell 0.35 UNEWY United Business Media Tue, Jul 29 Before the Bell N/A UCL Unocal Tue, Jul 29 After the Bell 0.69 VLO Valero Energy Corp. Tue, Jul 29 -----N/A----- 1.07 VZ Verizon Tue, Jul 29 Before the Bell 0.68 WPC W. P. Carey & Co. LLC Tue, Jul 29 Before the Bell 0.66 ----------------------- WEDNESDAY ----------------------------- AES AES Corporation Wed, Jul 30 Before the Bell 0.11 AET Aetna Inc. Wed, Jul 30 After the Bell 1.02 AGU Agrium, Inc. Wed, Jul 30 After the Bell 0.50 AMI ALARIS Medical, Inc. Wed, Jul 30 Before the Bell 0.04 ACL Alcon Inc. Wed, Jul 30 After the Bell 0.51 AEE Ameren Corporation Wed, Jul 30 Before the Bell 0.66 AEP American Elect Power Wed, Jul 30 Before the Bell 0.40 APPB Applebee's Intl Wed, Jul 30 After the Bell 0.43 ARI Arden Realty Inc Wed, Jul 30 After the Bell 0.67 ASL ASHANTI GOLDFIELDS LTDWed, Jul 30 Before the Bell 0.07 BCE BCE Wed, Jul 30 Before the Bell N/A BYD Boyd Gaming Wed, Jul 30 -----N/A----- 0.27 CMX CareMark Rx, Inc. Wed, Jul 30 -----N/A----- 0.25 CB Chubb Corporation Wed, Jul 30 After the Bell 1.03 COP ConocoPhillips Wed, Jul 30 Before the Bell 1.43 CAM Cooper Cameron Wed, Jul 30 Before the Bell 0.37 COX Cox Communications IncWed, Jul 30 Before the Bell 0.00 CVS CVS Corporation Wed, Jul 30 Before the Bell 0.48 XRAY DENTSPLY Intl Wed, Jul 30 After the Bell 0.53 DUK Duke Energy Corp Wed, Jul 30 Before the Bell 0.31 DRE Duke Realty Corp Wed, Jul 30 After the Bell 0.59 ENB Enbridge Inc. Wed, Jul 30 -----N/A----- N/A ELE Endesa, S.A. Wed, Jul 30 Before the Bell N/A ETM Entercom Comm Wed, Jul 30 Before the Bell 0.35 ESS Essex Property Trust Wed, Jul 30 After the Bell 1.09 EXC Exelon Corporation Wed, Jul 30 Before the Bell 1.08 FRT Fed Rlty Invstmnt TrstWed, Jul 30 After the Bell 0.63 FBR Friedman, Bill, RamseyWed, Jul 30 Before the Bell 0.32 GRMN Garmin Ltd. Wed, Jul 30 Before the Bell 0.43 HTV Hearst-Argyle Tele Wed, Jul 30 Before the Bell 0.28 HB Hillenbrand IndustriesWed, Jul 30 Before the Bell 0.95 IMDC INAMED Wed, Jul 30 After the Bell 0.65 IM Ingram Micro Wed, Jul 30 After the Bell 0.11 INGR Intergraph Wed, Jul 30 After the Bell 0.08 IVX Ivax Wed, Jul 30 Before the Bell 0.17 JNS Janus Capital Group Wed, Jul 30 Before the Bell 0.20 KMT Kennametal Inc. Wed, Jul 30 Before the Bell 0.42 KMG Kerr-McGee Wed, Jul 30 Before the Bell 0.81 MKL MARKEL CORP Wed, Jul 30 -----N/A----- 3.38 MLM Martin Marietta Mat Wed, Jul 30 Before the Bell 0.73 MC Matsushita Elec Indl Wed, Jul 30 After the Bell N/A MX Metso Corporation Wed, Jul 30 Before the Bell N/A MNST Monster Worldwide Wed, Jul 30 After the Bell 0.08 MUR Murphy Oil Corp Wed, Jul 30 After the Bell 0.59 NFG National Fuel Gas Co Wed, Jul 30 After the Bell 0.32 NXTP Nextel Partners Wed, Jul 30 Before the Bell -0.16 IX Orix Corporation Wed, Jul 30 -----N/A----- N/A PIO Pioneer Corporation Wed, Jul 30 -----N/A----- N/A PXD Pioneer Natural Res CoWed, Jul 30 Before the Bell 0.69 PDE Pride International Wed, Jul 30 After the Bell 0.09 STR Questar.com Wed, Jul 30 After the Bell 0.39 RDA READERS DIGEST ASSN Wed, Jul 30 Before the Bell 0.06 REP Repsol YPF Wed, Jul 30 Before the Bell 0.45 RSG Republic Services, IncWed, Jul 30 After the Bell 0.37 SKYW SkyWest Wed, Jul 30 Before the Bell 0.24 SYT Syngenta Wed, Jul 30 Before the Bell N/A TDK TDK Wed, Jul 30 -----N/A----- N/A SPC The St. Paul CompaniesWed, Jul 30 Before the Bell 0.86 UN Unilever N.V. Wed, Jul 30 -----N/A----- 0.90 UL Unilever PLC Wed, Jul 30 Before the Bell 0.64 UMC United Microelec Wed, Jul 30 Before the Bell 0.02 VSH Vishay IntertechnologyWed, Jul 30 Before the Bell 0.07 WDR Waddell & Reed Finl Wed, Jul 30 Before the Bell 0.27 WGL WGL Holdings Wed, Jul 30 After the Bell -0.16 WFMI Whole Foods Market Wed, Jul 30 After the Bell 0.42 YPF YPF, S.A. Wed, Jul 30 Before the Bell N/A ------------------------- THURSDAY ----------------------------- SE 7-Eleven Thu, Jul 31 Before the Bell 0.29 ATG AGL Resources Thu, Jul 31 -----N/A---- - 0.25 ABF Airborne, Inc. Thu, Jul 31 Before the Bell 0.11 AW Allied Waste Indus Thu, Jul 31 After the Bell 0.20 APCC American Power ConversThu, Jul 31 After the Bell 0.17 APC Anadarko Petroleum Thu, Jul 31 -----N/A----- 1.25 AU Anglogold Limited Thu, Jul 31 During the Market 0.27 ATH Anthem, Inc. Thu, Jul 31 Before the Bell 1.25 ASN Archstone-Smith Trust Thu, Jul 31 -----N/A----- 0.46 BEC Beckman Coulter Thu, Jul 31 Before the Bell 0.77 BAB British Airways Thu, Jul 31 -----N/A----- N/A BTY BT Group PLC Thu, Jul 31 Before the Bell N/A BOBJ Business Objects Thu, Jul 31 After the Bell 0.17 CCJ Cameco Thu, Jul 31 -----N/A----- 0.51 CAJ Canon Thu, Jul 31 Before the Bell N/A CAH Cardinal Health, Inc. Thu, Jul 31 Before the Bell 0.89 CRE Carramerica Realty Thu, Jul 31 After the Bell 0.80 CTL CenturyTel, Inc. Thu, Jul 31 Before the Bell 0.55 CBI Chicago Bridge & Iron Thu, Jul 31 Before the Bell 0.34 CBB Cincinnati Bell Inc. Thu, Jul 31 -----N/A----- 0.12 CMCSA COMCAST HOLDINGS CORP Thu, Jul 31 -----N/A----- -0.02 BVN Compania de Minas BV Thu, Jul 31 -----N/A----- 0.51 CEG Constellation Energy Thu, Jul 31 Before the Bell 0.40 TEU CP Ships Thu, Jul 31 Before the Bell 0.29 CCI Crown Castle Intl Thu, Jul 31 After the Bell -0.33 DB Deutsche Bank Thu, Jul 31 -----N/A----- N/A DDR DEVELOPERS DIVERSIFIEDThu, Jul 31 After the Bell 0.67 RDY Dr. Reddy's Lab Thu, Jul 31 Before the Bell N/A E ENI SpA Thu, Jul 31 -----N/A----- 1.34 EPD Enterprise Products Thu, Jul 31 Before the Bell 0.13 EQY Equity One Thu, Jul 31 Before the Bell 0.36 ETH Ethan Allen Interiors Thu, Jul 31 Before the Bell 0.55 XOM Exxon Mobil Corp Thu, Jul 31 -----N/A----- 0.56 FFH Fairfax Financial Thu, Jul 31 After the Bell N/A FIA Fiat S.p.A. Thu, Jul 31 -----N/A----- N/A FMT Fremont General Thu, Jul 31 Before the Bell N/A GPRO Gen-Probe Thu, Jul 31 Before the Bell 0.21 GILD Gilead Sciences Thu, Jul 31 After the Bell 0.44 HAL Halliburton Company Thu, Jul 31 Before the Bell 0.02 HAN Hanson PLC Thu, Jul 31 Before the Bell N/A HIW Highwoods Properties Thu, Jul 31 After the Bell 0.65 HIT Hitachi Limited Thu, Jul 31 -----N/A----- N/A ICI Imperial Chemical Ind Thu, Jul 31 Before the Bell N/A IRF International Rectif Thu, Jul 31 -----N/A----- 0.23 IRM Iron Mountain Incorp Thu, Jul 31 Before the Bell 0.17 JHF John Hancock Finl ServThu, Jul 31 After the Bell 0.75 JNY Jones Apparel Group Thu, Jul 31 Before the Bell 0.56 KPP Kaneb Pipe Line Part Thu, Jul 31 Before the Bell 0.80 KROL Kroll Inc. Thu, Jul 31 Before the Bell 0.31 LAF Lafarge North America Thu, Jul 31 After the Bell 1.21 LIZ Liz Claiborne Thu, Jul 31 Before the Bell 0.41 MON Monsanto Company Thu, Jul 31 Before the Bell 1.01 NWL Newell Rubbermaid Thu, Jul 31 Before the Bell 0.42 NMR Nomura Holdings, Inc. Thu, Jul 31 -----N/A----- N/A ORH Odyssey Re Holdings Thu, Jul 31 After the Bell 0.37 OLN Olin Thu, Jul 31 After the Bell 0.15 OCR Omnicare Thu, Jul 31 Before the Bell 0.46 OKE ONEOK Inc. Thu, Jul 31 After the Bell 0.21 PHS PacifiCare Health Sys Thu, Jul 31 After the Bell 1.33 PNP Pan Pacific Retail Thu, Jul 31 Before the Bell 0.80 PCZ Petro-Canada Thu, Jul 31 Before the Bell 0.96 PDS Precision Drilling Thu, Jul 31 -----N/A----- 0.05 PG Procter & Gamble Thu, Jul 31 Before the Bell 0.86 O Realty Income Thu, Jul 31 -----N/A----- 0.69 RTP Rio Tinto PLC Thu, Jul 31 Before the Bell 2.33 SPP Sappi Limited Thu, Jul 31 -----N/A----- 0.15 SLE Sara Lee Thu, Jul 31 During the Market 0.38 SHR Schering AG Thu, Jul 31 Before the Bell N/A SHPGY Shire Pharmaceuticals Thu, Jul 31 Before the Bell 0.37 SPG Simon Property Group Thu, Jul 31 Before the Bell 0.93 SKM SK Telecom Thu, Jul 31 Before the Bell N/A SU Suncor Energy Thu, Jul 31 -----N/A----- 0.28 TNE Tele Norte Leste Thu, Jul 31 Before the Bell -0.09 TLSN TeliaSonera AB Thu, Jul 31 -----N/A----- N/A SMG The Scotts Company Thu, Jul 31 Before the Bell 2.81 TOC The Thomson Corp Thu, Jul 31 -----N/A----- 0.18 WPO The Washington Post Thu, Jul 31 -----N/A----- 7.32 TXU TXU Corp. Thu, Jul 31 Before the Bell 0.35 UNTD United Online Inc. Thu, Jul 31 Before the Bell 0.28 DIS Walt Disney Thu, Jul 31 -----N/A----- 0.16 WEC Wisconsin Energy Thu, Jul 31 -----N/A----- 0.33 XL XL Capital Ltd Thu, Jul 31 After the Bell 1.94 ------------------------- FRIDAY ------------------------------- AVZ AMVESCAP PLC Fri, Aug 01 Before the Bell 0.21 CVX ChevronTexaco Fri, Aug 01 Before the Bell 1.53 CI CIGNA Fri, Aug 01 Before the Bell 1.08 DVA DaVita Fri, Aug 01 Before the Bell 0.51 DEG Delhaize Group Fri, Aug 01 Before the Bell N/A FS Four Seasons Hotels Fri, Aug 01 Before the Bell 0.18 GFI Gold Fields Limited Fri, Aug 01 -----N/A----- 0.10 NDE IndyMac Bancorp, Inc. Fri, Aug 01 Before the Bell 0.72 ICST Integrated Circuit SysFri, Aug 01 -----N/A----- 0.22 LYG Lloyds TSB Group Fri, Aug 01 Before the Bell N/A VRC Varco International Fri, Aug 01 Before the Bell 0.23 WPL W.P. Stewart & Co. Fri, Aug 01 Before the Bell 0.23 XEL Xcel Energy Fri, Aug 01 Before the Bell 0.23 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable PULB Pilaski Financial Corp. 2:1 Jul 21st Jul 22nd MRTN Marten Transport 3:2 Jul 24th Jul 25th SYNX Synergx 2:1 Jul 25th Jul 28th -------------------------- Economic Reports This Week -------------------------- Wall Street is heading into its fourth full week of corporate earnings. We're also approaching the end of the month. Friday, August 1st, is packed with a truckload of economic reports. ============================================================== -For- Monday, 07/28/03 ---------------- None Tuesday, 07/29/03 ----------------- Consumer Confidence (DM)Jul Forecast: 85.0 Previous: 83.5 Wednesday, 07/30/03 ------------------- Fed's Beige Book (DM) Thursday, 07/31/03 ------------------ Initial Claims (BB) 07/26 Forecast: 400K Previous: 386K Employment Cost Indx(BB) Q2 Forecast: 1.0% Previous: 1.3% GDP-Adv. (BB) Q2 Forecast: 1.7% Previous: 1.4% Chain Deflator-Adv. (BB) Q2 Forecast: 1.4% Previous: 2.4% Help-Wanted Index (DM) Jun Forecast: 37 Previous: 36 Chicago PMI (DM) Jul Forecast: 53.7 Previous: 52.5 Friday, 08/01/03 ---------------- Auto Sales (NA) Jul Forecast: 5.5M Previous: 5.5M Truck Sales (NA) Jul Forecast: 7.6M Previous: 7.5M Personal Income (BB) Jun Forecast: 0.3% Previous: 0.3% Personal Spending (BB) Jun Forecast: 0.4% Previous: 0.1% Nonfarm Payrolls (BB) Jul Forecast: 5K Previous: -30K Unemployment Rate (BB) Jul Forecast: 6.3% Previous: 6.4% Hourly Earnings (BB) Jul Forecast: 0.2% Previous: 0.2% Average Workweek (BB) Jul Forecast: 33.8 Previous: 33.7 Mich Sentiment-Rev. (DM)Jul Forecast: 90.7 Previous: 90.3 ISM Index (DM) Jul Forecast: 51.5 Previous: 49.8 Construction Spnding(DM)Jun Forecast: 0.4% Previous: -1.7% Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** 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 $49.95. The quarterly price is $129.95 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 Sunday 07-27-2003 Sunday 2 of 5 In Section Two: Watch List: More Bullish Ideas Call Play of the Day: AZO Dropped Calls: SNPS Dropped Puts: INTU ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** More Bullish Ideas Electronic Arts - ERTS - close: 82.63 change: +1.12 WHAT TO WATCH: We came very close to adding ERTS to the OI play list this weekend. It looks like a very tempting call candidate. Shares have reacted strongly to the company's earnings report where ERTS beat estimates by 10-cents. The breakout to new highs and Friday's retest of $80.00 as support looks like an entry point. Chart= --- Amgen Inc - AMGN - close: 68.71 change: +0.41 WHAT TO WATCH: We want to keep our eye on AMGN. The current trend has been almost non-stop since last November. Now that earnings are out (July 22, AMGN beat by 3 cents) we could see a consolidation back to the trendline. Currently, that trendline is near $65.00 but we suspect the rising 50-dma nearer to $66 should offer support. A bounce there might be an entry for bulls. Chart= --- EchoStar Communications - DISH - close: 37.51 change: +0.73 WHAT TO WATCH: We've not played DISH in a while. Shares have been consolidating sideways between $34 and $37.50 for weeks. Despite this sideways action the longer-term up trend is still intact. A breakout above $38.00 or a dip back to $35.00 looks like tempting entry points for the bullish trader. Earnings are in mid-August. Chart= --- Pepsico Inc - PEP - close: 47.13 change: +0.46 WHAT TO WATCH: Shares of PEP don't move that fast but for investors looking for less volatile stocks that is just fine with them. Longer-term traders or covered call writers might find interest in PEP. On the weekly chart the stock has broken out above the $45 level and been able to maintain its gains. The recent bounce on Friday from the $46.00 mark looks like an entry point for the bullish minded. Next overhead resistance should be $50.00 then again at $53.00. Chart= =================================== RADAR SCREEN - more stocks to watch =================================== PCAR $74.06 - We had tried to play PCAR prior to its earnings announcement in hopes of some pre-earnings excitement. Buyers failed to show up but there were no sellers either. Now that earnings are out we still don't see any sellers. Look for a breakout above $75.00 for new potential bullish plays. TEVA $55.90 - TEVA remains on the radar list with a strong bounce from the $52 mark and back above the $55 level. Is this just a bull flag consolidation pattern? If so, then a move over $57.50 could herald a test of $60.00 and a possible new leg higher. CSCO $19.08 - We're keeping an eye on CSCO. Shares have been building on a series of higher lows. We suspect a breakout above resistance at $19.50 and again at $20.00 might be worth trading for the short-term investor. Earnings are Aug. 5th. AXP $45.60 - Shares of AXP look very tempting. The stock has been in a strong up trend since March and the recent breakout over resistance coupled with Friday's bounce smells like an entry point. Earnings are the 28th so we'll find out soon how their quarter went and how investors react. BUD $52.19 - The recent consolidation between $50.00 and $52.00 looks about done. Unfortunately, BUD has strong resistance at $54.00-$55.00. Has it built up enough steam to make new highs? ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************* THE PLAY OF THE DAY ******************* Call Play of the Day: ********************* AutoZone, Inc. - AZO - close: 80.17 change: +1.40 stop: 77.00 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Synopsis, Inc. - SNPS - close: 60.15 change: +0.13 stop: 58.75 The only thing that saved SNPS from a complete breakdown on Friday was the fact that the Semiconductor index (SOX.X) staged a major rebound from the bottom of its channel. SNPS dropped early in the day (on no news) to trade just barely above $58. The early hint that more weakness might be in store came from yesterday's break below the 50-dma. The early trade in SNPS on Friday violated our stop, and despite the sharp intraday rebound to actually end the day with a fractional gain, the technical damage has been done. Further evidence of the waning strength is seen on the daily chart, where the stock ended the session below the 50-dma for the second time in a row -- the first time the stock has done that since early March. We'll take this as our warning to exit the play. Use any continuation of Friday's rebound on Monday to exit open positions at a more favorable level. Picked on July 22nd at $61.04 Change since picked: -0.89 Earnings Date 08/20/03 (unconfirmed) Average Daily Volume = 1.51 mln Chart link: PUTS ^^^^ Intuit Inc - INTU - close: 42.37 change: +0.63 stop: 42.51 The rally on Friday was too much for bears in INTU and they either covered or were overwhelmed by new buyers. Or maybe underwhelmed is a more appropriate word. Shares added just 1.5% on the day and the intraday high was $42.51, which coincidentally is our stop loss. The current trend from its June high is still down but if the markets plan on starting a new leg higher then investors might be tempted to buy INTU thinking its relatively oversold condition makes it cheap to its peers. For traders still willing to stick it out, the $43.00 level looks like tougher resistance. However, be forewarned that many of the oscillators are curving higher suggesting there may be more bounce left in the stock. Picked on July 8th at $43.35 Change since picked: -0.98 Earnings Date 08/19/03 (confirmed) Average Daily Volume = 4.1 million Chart link: *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** 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 Sunday 07-27-2003 Sunday 3 of 5 In Section Three: Current Calls: FDX, GENZ, LOW New Calls: AZO, GDW Current Put Plays: BBBY, FITB, FRE, HD, LEH, LEN, PGR, XL New Puts: None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Fedex Corp - FDX - close: 65.25 change: +0.70 stop: 61.99 Company Description: With annual revenues of $22 billion, FedEx Corp. is the premier global provider of transportation, e-commerce and supply chain management services. The company offers integrated business solutions through a network of subsidiaries operating independently, including: FedEx Express, the world's largest express transportation company; FedEx Ground, North America's second largest provider of small-package ground delivery service; FedEx Freight, the largest U.S. provider of regional less-than- truckload freight services; FedEx Custom Critical, North America's largest provider of expedited time-critical shipments; and FedEx Trade Networks, North America's largest customs broker and a provider of international freight forwarding and trade facilitation services. FedEx ranked highest in the J. D. Power and Associates 2002 Small Package Delivery Service Business Customer Satisfaction Study(SM) in the categories of air, ground and international delivery services. (source: company press release) Why We Like It: Traditional Dow Theory states that for the market to have a sustainable rally it needs the Transportation sector to lead or accompany the markets higher. Take a look at the $TRAN now. Friday's action pushed it above significant resistance at 2600, appearing very much to be a breakout bulls can build on (unless you count the 200-week MA just overhead). The rally was not lost on shares of FDX either. The stock added another one percent and closed above the $65 level. We had been suggesting all week that traders consider bounces from the $64.00 area as opportunities for new entries. FDX offered two such opportunities this week. Now we're ready to see some follow through. We're going to leave our stop at $61.99 for now but more conservative traders can probably cinch theirs higher to just under the 50-dma at $63.25. If you missed the dip, FDX still looks attractive at current levels. It would be nice to see some follow through on last Monday's fresh P&F chart buy signal. Suggested Options: We're going to list the August, September and October 65 and 70 calls but the recent dips have probably offered opportunities to jump on the 60 strikes as well. BUY CALL AUG 60 FDX-HL OI= 491 at $5.80 SL=3.00 BUY CALL AUG 65 FDX-HM OI=1986 at $1.40 SL=0.70 BUY CALL AUG 70 FDX-HN OI= 290 at $0.15 SL= -- higher risk! BUY CALL SEP 65 FDX-IM OI= 228 at $2.40 SL=1.25 BUY CALL SEP 70 FDX-IN OI= 369 at $0.60 SL= -- BUY CALL OCT 65 FDX-JM OI=3753 at $3.10 SL=1.65 BUY CALL OCT 70 FDX-JN OI=1684 at $1.00 SL=0.55 Annotated chart of FDX: Picked on July 20 at $65.32 Change since picked: -0.07 Earnings Date 09/23/03 (unconfirmed) Average Daily Volume: 1.70 million Chart = --- Genzyme Corp - GENZ - close: 50.45 change: +0.99 stop: 46.49 Company Description: Genzyme Corporation is a global biotechnology company dedicated to making a major positive impact on the lives of people with serious diseases and medical conditions. This commitment has driven innovation in treating both widespread diseases and rare genetic conditions, in providing leading diagnostic products and services, in bringing the benefits of biotechnology to the practice of surgery, and in developing novel approaches to cancer. Genzyme's 5,300 employees worldwide serve patients in more than 80 countries. (source: company press release) Why We Like It: Any companies who have missed significantly or warned about future quarters are getting the share prices pummeled. Which is standard operating procedure on Wall Street. However, investors are also disciplining stocks when the earnings quality is being called into question. Fortunately, GENZ is not one of them. The company's most recent earnings report was very strong. The company reported earnings on July 16th and beat the consensus estimates by two cents. Q2 revenues jumped 30 percent to $347.7 million compared to the same quarter a year ago. Net income also rose by 43 percent to $70.8 million. The positive results were powered by strong drug sales and the company gave an upbeat outlook for the future and narrowed its guidance to the upside. The technical picture for GENZ looks pretty attractive too. Wednesday's move higher produced a fresh double-top breakout (buy signal) on its P&F chart. Shares are at new yearly highs after consolidating under resistance between $49 and $50. The recent dip to $48.00 was seen as a buying opportunity. Traders quickly pushed GENZ back above $50.00. If the BTK biotech index can show some strength and bounce from the 450 level and its rising 50- dma, then GENZ may get the chance to really lead the group higher. Our next target is $55.00. Currently our stop is $46.49 but conservative traders seeking to reduce their risk might be able to play it with a tighter stop. Suggested Options: GENZ has August, September and October options available. We're going to list the August and Septembers as our preference. If you like the 45 strikes, consider waiting for a dip to time your entry. BUY CALL AUG 45.00 GZQ-HI OI= 632 at $6.00 SL=3.50 BUY CALL AUG 47.50 GZQ-HS OI=2279 at $3.80 SL=1.85 BUY CALL AUG 50.00 GZQ-HJ OI=1817 at $2.25 SL=1.15 BUY CALL AUG 55.00 GZQ-HK OI=1078 at $0.50 SL= -- higher risk BUY CALL SEP 47.50 GZQ-IS OI= 17 at $5.10 SL=3.00 BUY CALL SEP 50.00 GZQ-IJ OI= 239 at $3.60 SL=1.80 BUY CALL SEP 55.00 GZQ-IK OI=1573 at $1.45 SL=0.70 Annotated chart of GENZ Picked on July 22 at $49.76 Change since picked: +0.69 Earnings Date 07/16/03 (confirmed) Average Daily Volume: 3.52 million Chart = --- Lowe's Companies - LOW - cls: 48.23 chng: +1.13 stop: 46.00*new* Company Description: As a retailer of home improvement products, Lowe's has a specific emphasis on retail do-it-yourself and commercial business customers. The company specializes in offering products and services for home improvement, home decor, home maintenance, home repair and remodeling and maintenance of commercial buildings. Why we like it: After the recent breakout over $46 a couple weeks ago, LOW has been consolidating that breakout in a very healthy fashion, consistently finding support above the level of that breakout. Continuing to show the relative strength that first attracted us to the stock, LOW finally gave us the breakout over $48 that we've been waiting for. Recall that one of our near-term concerns when we initiated coverage after that breakout was that price was above the upper Bollinger band and we needed to see some sideways price action to allow that band to expand upward. Well after 2 weeks, that is just how it has played out, with several opportunities to get aboard on dips near the $46.50 level and today's subsequent breakout. The upper Bollinger band is now at $49.44, providing more room to the upside. Now we can look to enter on either breakout over $48.40 or a pullback and rebound from the vicinity of the 10-dma ($47.16) for new entries ahead of the expected push to our $50 target. Note that on the daily chart below, LOW did dip as low as $45.71 last Tuesday. Looking at an intraday chart though shows that it was a very short-lived dip and our new stop at $46 should be safe. Suggested Options: Shorter Term: The August 47 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the September 50 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders could utilize the September 47 call. BUY CALL AUG-47 LOW-HT OI= 3756 at $1.85 SL=0.90 BUY CALL AUG-50 LOW-HJ OI= 1819 at $0.65 SL=0.30 BUY CALL SEP-47 LOW-IT OI= 91 at $2.70 SL=1.25 BUY CALL SEP-50 LOW-IJ OI= 1543 at $1.45 SL=0.75 Annotated Chart of LOW: Picked on July 13th at $46.87 Change since picked: +1.36 Earnings Date 08/18/03 (unconfirmed) Average Daily Volume = 4.80 mln Chart = ************** NEW CALL PLAYS ************** AutoZone, Inc. - AZO - close: 80.17 change: +1.40 stop: 77.00 Company Description: AutoZone is a retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of its more than 2900 stores in 42 states and Mexico carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items and accessories. Approximately half of its domestic stores also have a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations. Why we like it: You certainly haven't heard much on the topic from Stock TV lately, but automotive related-stocks look like they might actually be a beneficiary of the recent rise in interest rates. If it cuts into consumers' willingness to take on the payment for a new car, that means they'll need parts and service for their existing vehicles, right? That seems to be what investors are thinking, as shares of AZO have been gradually working their way higher over the past few weeks. There was a fair amount of indecision around the 200-dma in late June and early July, but the bulls eventually prevailed, leading to the trend we're seeing on the daily chart tonight. The stock has been tracing out a nice bullish triangle, with higher lows and horizontal resistance in the $79.50-80.00 area (see chart below). The bulls were so eager for a positive conclusion to that pattern that they broke above the top of that pattern on Friday at the close. It wasn't just horizontal resistance that was eliminated either, as the close over $80 was also a breakout over the 50-dma. It gets better too, as the PnF chart is on a Buy signal, in a column of X and has a vertical count of $90. Can AZO break out to new highs ahead of its earnings report at the end of August? Stranger things have certainly happened in the past, but we aren't going to set our sights quite that high. Our initial target will be for a rally to the $85 resistance level and if it really gets moving, then we may target a trade in the $88 area (very strong resistance) as our profit exit. But first we need to get into the play. Aggressive traders can use a further breakout over $80.30 (Friday's intraday high) to enter the play, while more patient dip-buyers can look to enter on a pullback and rebound from either the 10-dma ($78.82) or the ascending trendline and 20-dma which are overlapped near $77.75-77.80. Set stops initially at $77, as that is just below the low print of last Tuesday's dip. Suggested Options: Shorter Term: The August 80 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the September 85 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders can use the September 80 Call. BUY CALL AUG-80 AZO-HP OI=2361 at $2.00 SL=1.00 BUY CALL AUG-85 AZO-HQ OI= 722 at $0.40 SL=0.00 BUY CALL SEP-80 AZO-IP OI=1366 at $3.80 SL=2.25 BUY CALL SEP-85 AZO-IQ OI= 713 at $1.60 SL=0.75 Annotated Chart of AZO: Picked on July 27th at $80.17 Change since picked: +0.00 Earnings Date 08/26/03 (unconfirmed) Average Daily Volume = 1.29 mln Chart = --- Golden West Fincl. - GDW - close: 85.66 chg: +2.46 stop: 80.99 Company Description: Headquartered in Oakland, California, Golden West is the nation's third largest savings institution with assets of $72 billion as of June 30, 2003. Currently operating 476 savings and lending offices in 38 states under the World name, the Company has one of the most extensive thrift branch systems in the country. (source: company press release) Why We Like It: If the economy really is on the rebound then the financial sector is going to be leading the race. Both the BKX and BIX rebounded strongly in Friday's market rally and from the looks of it they looked primed for another leg higher. One of the leaders in that group is GDW. The company reported very strong profits on July 21st. Estimates were for $1.69 a share, GDW beat them by 7- cents. Net income jumped 22 percent. Not only is GDW building its loan and mortgage portfolio but they're doing it in a way to protect themselves for when interest rates rise. Here's an excerpt from the company's earnings announcement by Marion Sandler, Chairman and CEO: "Despite the exceptionally low rates being offered by our competitors on their fixed-rate alternatives, the majority of our new loan volume in the second quarter was in the form of adjustable rate mortgages, also called ARMs. These mortgages have many consumer benefits, and are desirable from the Company's point of view as well, because they help limit our earnings exposure when market interest rates rise." Adjustable rate loans comprised 91% of new lending in the second quarter of 2003." Wall Street must be cheering because the stock just closed at all-time highs on Friday. We like the way its MACD has just produced a bullish buy signal and its remaining oscillators are all pointing higher. Even more attractive is the fresh breakout from its bullish triangle on the stock's point-and-figure chart. This happens to be one of the most powerful (and profitable) bullish patterns in a rising market. We're going to initiate the play with a stop loss at $80.99. Shares have bounced twice at the $81 mark in the last few weeks so this should suffice for support. Our first target is $90.00. Once reached we'll re-evaluate the play. Suggested Options: GDW has plenty of options to choose from with August, September, November and February's. We're going to list August and September strikes. BUY CALL AUG 80 GDW-HP OI= 463 at $6.00 SL=3.50 only 34 cent premium BUY CALL AUG 85 GDW-HQ OI=3738 at $1.70 SL=0.90 BUY CALL AUG 90 GDW-HR OI= 25 at $0.20 SL= -- BUY CALL SEP 85 GDW-IQ OI= 0 at $2.75 SL=1.00 BUY CALL SEP 90 GDW-IR OI= 0 at $0.60 SL= -- Annotated chart: Picked on July 27 at $85.66 Change since picked: +0.00 Earnings Date 07/21/03 (confirmed) Average Daily Volume: 581 thousand Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Bed Bath & Beyond - BBBY cls: 39.10 chng: +1.04 stop: 40.25*new* Company Description: Bed Bath & Beyond is an operator of stores selling predominantly better quality domestics merchandise and home furnishings typically found in better department stores. As of May, 2002, the company had stores in 44 states. Domestics merchandise includes bed linens and related items, bath items and kitchen textiles. Home Furnishings include kitchen and tabletop items, fine tabletop and giftware, basic housewares and general home furnishings. Why we like it: Was that a bear trap? To be sure, last week provided some interesting and volatile swings, but that is to be expected in the heart of earnings season. But there has been no such influence on our BBBY play. Proceeding according to plan on Wednesday, the stock broke below the $37.50 level, and with the expanding volume it looked like the bears were off to the races. "Not so fast", said the bulls, as they stepped in just above the 200-dma and bought the dip. That gave rise to a strong move upwards on Thursday and another strong gain to close out the week back over $39 and the 20-dma. Further confusing things, the rebound has also come on strong volume. That leads us to the very real possibility that last week's drop may have been a bear trap. Looking at the Retail index (RLX.X), we can see how it rebounded from the bottom of its ascending channel on Friday, and that's another problem for our play. But we're going to force the market to prove us wrong before pulling the plug, as BBBY is still below its descending trendline from the early June highs. We're moving our stop just slightly lower this weekend to $40.25, still just above the 50-dma. More conservative traders will want to use a stop just above the descending trendline, perhaps at $39.50. We need to see renewed weakness before considering new positions after the strong rebound last week, and at this point it would require a reversal back lower that drops price back under $38. Ideally, that will be accompanied by the RLX dropping under $335, breaking the bottom of its channel. Suggested Options: Short-term traders will want to focus on the August 37 Put, as it will provide the best return for a short-term play. Conservative traders will want to utilize the 40 strike, as it is still in the money. Aggressive traders looking for a longer-term move down towards $35 will want to utilize the September contract, due to its greater insulation against time decay. BUY PUT AUG-40 BHQ-TH OI= 2097 at $1.65 SL=0.75 BUY PUT AUG-37 BHQ-TU OI=10851 at $0.55 SL=0.25 BUY PUT SEP-37 BHQ-UU OI= 469 at $1.40 SL=0.75 Annotated Chart of BBBY: Picked on July 22nd at $37.71 Change since picked: +1.39 Earnings Date 09/17/03 (unconfirmed) Average Daily Volume = 3.34 mln Chart link: --- Fifth Third Bancorp - FITB - cls: 56.50 chg: +1.51 stop: 57.01*new* Company Description: Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $88 billion in assets, operates 17 affiliates with 943 full-service Banking Centers, including 132 Bank Mart. locations open seven days a week inside select grocery stores and 1,883 Jeanie. ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and West Virginia. The financial strength of Fifth Third's affiliate banks continues to be recognized by rating agencies with deposit ratings of AA- and Aa1 from Standard & Poor's and Moody's, respectively. Additionally, Fifth Third Bancorp continues to maintain the highest short-term ratings available at A-1+ and Prime-1 and is recognized by Moody's with one of the highest senior debt ratings for any U.S. bank holding company of Aa2. Fifth Third operates four main businesses: Retail, Commercial, Investment Advisors and Fifth Third Processing Solutions. (source: company press release) Why We Like It: Uh-oh! The rally on Friday really helped the bulls' sense of confidence and the financials look ready to lead the next leg higher. This is bad news for our bearish play in FITB. While previously the stock appeared to be ignoring any rallies in the banking sectors, its relatively oversold status could now attract investors thinking this is a "value" compared to its peers. The big bounce in FITB from its $55 mark back above the 200-dma is a warning signal. Fortunately, it is still below overhead resistance at its 50-dma and the $57.00 level. However, we mentioned on earlier that the stall in the descent near $55 had many of the oscillators turning up. Several are really starting to turn higher now. This could just be a bear flag consolidation pattern over the last four or five days but we want to preserve our capital. Thus we're going to lower our stop loss to $57.01. More aggressive traders who are more willing to take the risk can leave their stops at $57.50 or $58.00. This is really too bad. The daily and weekly and P&F charts on FITB all looked (and some still look) so promising for a bearish trade. Suggested Options: We are not suggesting new entries at this time. Annotated Chart: Picked on July 17th at $55.26 Change since picked: -0.27 Earnings Date 07/15/03 (confirmed) Average Daily Volume = 2.4 million Chart link: --- Freddie Mac - FRE - close: 50.75 change: +0.42 stop: 53.00 Company Description: Freddie Mac (Federal Home Loan Mortgage Corporation) is a stockholder-owned corporation tht was established by Congress in 1970 to support home ownership and rental housing. FRE purchases single-family and multi-family residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets. The company guarantees these securities and mortgage lenders sell their loans to the company and use the proceeds to fund new mortgages, which in turn increases the money supply to homebuyers. Why we like it: "Gotcha!" said the bears early on Friday, as shares of FRE got pummeled under $50, triggering our play to active status. But then a funny thing happened. The market bottomed at the end of the first hour of the day and FRE caught a strong rebound from the $49.50 level, ending the day just shy of $51. Now we're going to see if it is just an oversold rebound or something more significant. The descending trendline from the July 9th highs crosses just above $52 and that will line up nicely with horizontal resistance at that level early next week. A rollover from that area could set up a solid entry for those that didn't want to chase FRE lower on Friday. There are a lot of skeletons I FRE's closet and we're suspecting that there are still several of them that haven't been revealed yet. Fear of the next revealed skeleton should keep the stock under pressure, especially if the mortgage market continues to be pressured by the rise in Treasury yields. Maintain stops at $53. Suggested Options: Short-term traders will want to focus on the August 50 Put, as it will provide the best return for a short-term play. Conservative traders will want to utilize the September 50 Put, while aggressive traders looking for a longer-term move down towards $45 or below will want to utilize the September $45 contract, due to its greater insulation against time decay. BUY PUT AUG-50 FRE-TJ OI= 4977 at $1.20 SL=0.60 BUY PUT SEP-50 FRE-TU OI= 371 at $2.35 SL=1.25 BUY PUT SEP-45 FRE-UU OI= 423 at $0.85 SL=0.40 Annotated Chart of FRE: Picked on July 22nd at $50.33 Change since picked: +0.42 Earnings Date N/A Average Daily Volume = 7.17 mln Chart = --- The Home Depot - HD - close: 32.00 change: +0.52 stop: 33.25 Company Description: A home improvement retailer, The Home Depot operates more than 1500 stores throughout the United States. The do-it-yourself warehouse retail stores offer building materials, home improvement products and related furnishings. Additionally, the company provides lawn and garden products and an assortment of services to both individual home-owners and independent contractors. Why we like it: It looks like we've got ourselves an ideal relative strength play working in the Home Improvement sector. While we'd certainly like to see more weakness out of HD, there's no argument that it has been doing a good job of fulfilling its role as the weakling in the group. Last week HD broke below the 50-dma (now $32.40) and after finding resistance at that level through Thursday, started the final day of the week with a slight dip down to $31.24. That was as good as it got for the bears though, as HD caught a pretty decent bounce from the broad market strength and recovered back to $32 by the close. Note the daily chart shown below is erroneous, as it shows HD trading below $31 -- that was a bad tick. That doesn't mitigate the reality that Friday's session looked pretty bullish and now we're likely to see whether that was just an oversold bounce or the punctuation at the end of the decline. Since we're still covering the play, you may correctly surmise we think the latter is the correct choice. The descending trendline from the recent top in early July currently falls at $32.80 and that lines up with solid resistance (broken support) near $32.70. It's going to take more than an oversold bounce to clear that resistance level and before even getting there, the bulls will have to contend with resistance near $32.25. Entries still look favorable on a rollover from one of those resistance points, especially if the strong stock in the sector (LOW) falters in its breakout move. Keep stops set at $33.25. Suggested Options: Aggressive short-term traders will want to focus on the August 32 Put, as it will provide the best return for a short-term play. More conservative traders will want to utilize the September 32 contract due to its greater insulation against time decay. BUY PUT AUG-32 HD-TZ OI=9582 at $1.15 SL=0.50 BUY PUT SEP-32 HD-UZ OI= 340 at $1.80 SL=0.80 BUY PUT SEP-30 HD-UF OI= 457 at $0.75 SL=0.40 Annotated Chart of HD: Picked on July 10th at $32.43 Change since picked: -0.43 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 9.51 mln Chart = --- Lehman Brothers - LEH - close: 63.53 change: +0.35 stop: 66.50 Company Description: Through its subsidiaries, LEH constitutes one of the leading global investment banks, serving institutional, corporate, government and high-net-worth individuals clients. The company is engaged primarily in providing financial services, including securities writing and direct placements, corporate finance and strategic advisory services, private equity investments and securities sales and trading. Completing its array of banking, research and trading capabilities, LEH also engages in the trading of foreign exchange, derivative products and certain commodities. Why we like it: What's wrong with LEH? Another solid bounce in the Brokerage sector (XBD.X) barely had an effect on shares of LEH on Friday. While the XBD managed to produce a 1% gain and close at its best level in the past 7 sessions, shares of LEH only managed a positive close by virtue of a sector-driven rebound from the lows. The explanation is easy -- relative weakness. LEH has been underperforming its sector for the past several weeks and given the rather anemic buying volume (compared to recent bearish sessions) on Friday afternoon, it doesn't look like that pattern is going to change any time soon. After breaching $63 early on Friday, the stock was magnetized right back to that 50% retracement near $63.50 at the close. There's mild resistance in the $64.00-64.25 area, followed by strong resistance in the $65.50-66.00 area. A bounce and rollover from either of these levels can be used for new entries. Due to the stingy manner in which the stock has been trending lower in recent sessions, we're not really interested in chasing a breakdown below $62 with new entries, especially given the fact that our eventual target for the play is just down at $60. Maintain stops at $66.50, and remember to look for weakness in the XBD to confirm weakness in LEH before playing. If the pattern of relative weakness continues, a rollover and subsequent selloff in the XBD should act like a sledge hammer, driving the stock down through support to hit our target for a nice gain. Suggested Options: Short-term traders will want to focus on the August 65 Put, as it will provide the best return for a short-term play. Aggressive traders looking for a move down towards the $60 level or below will want to utilize the September 60 contract, which although it is currently out of the money, should provide enough time to achieve profitability before time decay has a pronounced effect. BUY PUT AUG-65 LEH-TM OI=1218 at $2.70 SL=1.25 BUY PUT AUG-60 LEH-TL OI=3081 at $0.65 SL=0.30 BUY PUT SEP-60 LEH-UL OI= 485 at $1.75 SL=0.80 Annotated Chart of LEH: Picked on July 20th at $65.18 Change since picked: -1.65 Earnings Date 09/18/03 (unconfirmed) Average Daily Volume = 2.85 mln Chart = --- Lennar Corp. - LEN - close: 67.80 change: +0.05 stop: 71.50 Company Description: Lennar Corporation has two core businesses, homebuilding and financial services. The company's homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through its unconsolidated partnerships. Its financial services subsidiaries provide mortgage financing, title insurance, closing services and insurance agency services for both buyers of its homes and others, and sell the loans they originate in the secondary mortgage market. Why we like it: What happened to the housing boom? All we have to do is look at the action in the bond market for that answer. Yields have been rising and with them go mortgage rates. That's putting the pinch on Housing stocks as measured by the $DJUSHB index, as investors infer that higher rates are going to put a significant crimp in the recent growth rate in the sector. Whether right or wrong, that is the sentiment that is playing out in the group. Contrary to some recent past attempts at a bearish play in the sector, this one is actually behaving itself fairly well. After breaking below $70 just over a week ago, LEN came pretty close to reaching our first target of $65 last Tuesday, with an intraday low of $65.61. Proving that they hadn't given up just yet, the bulls staged a nice little rebound, which ran out of steam just below $70 on Wednesday morning and it continues to drift lower. Of course, things looked a lot better for the play before The short- covering rally off the early lows, but so far there really isn't a sign of a strong rebound brewing. That means fading the rallies is still the way to go. The 10-dma ($69.36) has been providing intraday resistance and just above there we have the 50-dma lurking at $70.05. Failed rallies below those two measures of resistance should make for strong entries in anticipation of a subsequent breakdown under $65. That breakdown can be used for quick momentum entries, for a quick play down to our anticipated final target in the $62-63 area. For now, keep stops set at $71.50. Suggested Options: Aggressive short-term traders will want to focus on the August 65 Put, as it will provide the best return for a short-term play. With the volatility seen in the Home Building stocks lately, more conservative traders may want to use the August 70 contract, which is currently in the money and less susceptible to the ravages of time decay. Since there is nearly 2 months to the company's next earnings release, we've also listed a SEP contract, for those traders looking to take advantage of a longer-term move. BUY PUT AUG-70 LEN-TN OI=3417 at $4.00 SL=2.50 BUY PUT AUG-65 LEN-TM OI=2073 at $1.70 SL=0.80 BUY PUT SEP-65 LEN-UM OI= 219 at $3.10 SL=1.50 Annotated Chart of LEN: Picked on July 15th at $71.12 Change since picked: -3.76 Earnings Date 09/09/03 (unconfirmed) Average Daily Volume = 1.68 mln Chart = --- Progressive Corp - PGR - close: 66.39 chg: +1.09 stop: 67.51 Company Description: The Progressive group of insurance companies ranks third in the nation for auto insurance based on premiums written, offering its products by phone at 1- 800-PROGRESSIVE, online at progressive.com and through more than 30,000 independent insurance agencies. (source: company press release) Why We Like It: From February though June 2003 we heard from bears wondering what could be driving shares of PGR higher. Every dip appeared to be bought. Finally, when its Q2 earnings announcement came out and the company beat estimates by 7-cents bears had something to cheer about. All right, we're being sarcastic. The company had a strong quarter but we suspect the "quality" of the earnings was called into question or PGR didn't hit some insurance sector metric that analysts were looking for. Whatever the case, investors took profits and took them fast. What made this so appealing to us was the completely lack of bounce from its big drop. We've seen a couple of big rallies in the markets since then and PGR failed to participate. Even this last Friday's 1.6% gain for PGR didn't do much for it. The stock is still making new lower lows and lower highs in this current six-day old trend. We feel that PGR is worth evaluating for new positions at current levels BUT it would certainly be more comforting to see a close under the $65.00 mark. Less confident bears might feel better waiting for such a close. Our short-term target is $60.00, near its 200-dma. Suggested Options: PGR has plenty of options to choose from. Currently there are August, September, November and Februarys to choose from. Our preference will be for the August-September strikes with an emphasis on August 65's. BUY PUT AUG 70.00 PGR-TN OI=443 at $4.20 SL=2.75 BUY PUT AUG 65.00 PGR-TM OI=528 at $1.35 SL=0.65 BUY PUT AUG 60.00 PGR-TL OI=865 at $0.30 SL= -- BUY PUT SEP 65.00 PGR-UM OI= 61 at $2.40 SL=1.20 BUY PUT SEP 60.00 PGR-UL OI=156 at $0.90 SL= -- Annotated Chart for PGR: Picked on July 23 at $65.22 Change since picked: +1.17 Earnings Date 07/16/03 (confirmed) Average Daily Volume: 941 thousand Chart = --- XL Capital Ltd. - XL - close: 78.50 change: +1.92 stop: 80.50 Company Description: XL Capital Ltd. provides insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. Insurance business written includes general liability, other liability, professional and employment practices liability, environmental liability, property, program business, marine and energy, aviation and satellite, as well as other product lines. Reinsurance business written includes treaty and facultative reinsurance to primary insurers of casualty and property risks, as well as life reinsurance, primarily European term assurances, group life, critical illness coverage , immediate annuities in payment and disability income business. Why we like it: Holy Rebound, Batman! Just as swiftly as XL sliced through the 200-dma on Wednesday as though it didn't exist, the stock found strong support on Friday morning just above $76. Throughout last week's wild gyrations, there hasn't been anything of note on the newswires, and our best guess is that the sharp drop following the failed bounce from the prior week was simply the expected bearish follow-through after that technical break of $80. But we would have expected some hint of support at that moving average on the way down. Perhaps that's why price halted at $78.50 on Friday, just below the 200-dma ($78.61). As much as we'd like to see price rollover from below this measure, we suspect there may be enough gas in the bulls' tank to stage a rally attempt up to the $79-80 area. That will be the moment of truth. We would expect a rollover from that level of strong support-turned- resistance and would be the point where we would recommend looking for new entries for a decline into earnings on July 31st. Remember, our eventual target is in the $73-74 area, so a breakdown under $76.25 can be used as a momentum entry for a quick play down to that target. Suggested Options: Aggressive short-term traders will want to focus on the August 80 Put, as it will provide the best return for a short-term play. Traders with a more conservative approach will want to utilize the September contract, as it should not be subject to as much time decay over the near term. BUY PUT AUG-80 XL -TP OI=1074 at $3.20 SL=1.50 BUY PUT AUG-75 XL -TO OI= 50 at $1.15 SL=0.50 BUY PUT SEP-75 XL -UO OI= 80 at $2.20 SL=1.00 Annotated Chart of XL: Picked on July 17th at $79.64 Change since picked: -1.14 Earnings Date 07/31/03 (confirmed) Average Daily Volume = 755 K Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 07-27-2003 Sunday 4 of 5 In Section Four: Leaps: Bulls Will Be Bulls Traders Corner: When Is The Last Time Your Underlying Rose? Traders Corner: Elliott Wave Play Updates Traders Corner: Where is the Dow Going? Futures Corner: Emini Momentum Trading ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** Bulls Will Be Bulls By Mark Phillips mphillips@OptionInvestor.com My closing thought from last week's column was that I didn't expect a typical listless summer ahead of us. That was certainly the case last week, with plenty of volatility to keep everyone guessing. Take a look at the hourly chart below and I think you'll see what I mean. Hourly Chart of the S&P 500 Down, up, down, up, etc. For all those oscillations, the bulls certainly didn't make much headway now, did they? By my count, the SPX gyrated from 993 down to 977, back up to 990, down to 980, up to 997, and back down to 977 before finally closing at the high of the week at 998. Adding up the numbers, that makes a total of 97 points of directional movement -- all to tack on a measly 6 points from Friday to Friday. A return to wider intraday swings has got to have the futures traders smiling again, but it doesn't do much to reinforce any feelings of strong bullishness when all of those gyrations are only good for a 0.6% advance on the week. So far, that plays right into our view of an imminent market top. So allow me to throw in a new twist. Looking at the longer-term picture, I certainly am forced to consider the possibility of another strong upward leg. Care to take a look? Daily Chart of the S&P 500 vs. the VIX There's a lot of critical information in the chart montage above, so let's take it one step at a time. First up, note how the SPX has consistently found strong support near 975 since early June. There have been a couple intraday violations, but there has been a concerted effort to keep the index above that critical level. A quick look at a weekly chart would show the criticality of this level, as it was important resistance in 1997 and then closing support in late 1998. It is also very close to where the index bottomed (965 on a closing basis) following 9/11. Anyone can pick an arbitrary point and call it "critical" support or resistance, but I think the market is telling us that 975 is important. I've made no secret of my bearish long-term view of the equity market for the next several years due to the still ridiculously huge valuations due to the remaining speculative excesses that ruled during the late 1990s. I've been eagerly looking for the next top to aggressively short for nearly 3 months now and based on what I see in the charts, we're no closer to it than we were in early June. Since early June, the market has trended sideways between 975-1015 in what appears to be a very healthy sideways consolidation. That has given the 50-dma time to catch up with price action and after 3 tests last week, Friday's sharp rebound from that moving average seems to indicate that we're going back up. That view would seem to be confirmed by the action of the VIX over the past several weeks. I've been wondering why with the lack of upside momentum, the VIX seems to be indicating a lot of complacency. Well, with Thursday's dip below 20 and Friday's close just below that level, the complacency just got a bit more entrenched, bringing us that much closer to where we'll see a top put in. But we need to remember that there is nothing magical about the 20 level -- it is a general area, rather than an exact value. Last spring, the VIX trended down to 18.87 before the bottom was in. But isn't it interesting how even after the March high was in (3/19), we can see that the VIX continued drifting downwards until the end of March (3/28)? So following that pattern, we could have already seen the top in terms of price and the VIX could continue to drift lower for a couple more weeks. So what does it all mean? I still think we are very close to an intermediate term top, but I am cooling my jets on whether we're really going to see a major drop between now and September. Fundamentally, I still think this market is a pig and is currently valued at least double where it should be. And if I'm right, there are some nasty surprises in store for the US economy in the years ahead. But the market doesn't care about that -- it only wants to know what is just over the 6-month horizon. Clearly, based on the price action, investors see a recovering economy, floated upwards on the surging sea of liquidity and easy money provided by Uncle Alan, Benevolent Ben and the rest of the gang at the Fed. Speaking of that strong surge in liquidity, it appears the gold market is viewing the long term picture as less favorable for the US dollar. Gold surged sharply higher last week, and NEM - THE bellwether gold stock broke out above major resistance to set new 5-year highs. Remember when we finally gave up on our Watch List play on NEM as it broke through $32 in early June? A bit more patience and we could have taken an entry on the rebound from the 50-dma near $31 just over a week ago. Another missed opportunity... The key point here is that the gold market sees economic problems that the equity market is currently ignoring. We'll have to pay the piper eventually, but that isn't on the agenda right now and technically this market looks like it wants to break out to the upside. What is so astounding about that technical view is that we are talking about starting from a VERY overbought condition, at least in terms of the Bullish Percents. I know many of you may be getting tired of hearing me prattle on about this measure of market internals, but I think it does an excellent job of keeping us on the right side of the dominant tide in the market. So let's review what happened in that view last week. NASDAQ-100 - 75% Still Bull Confirmed, down from the 91% high NASDAQ Composite - 71.83% (just off the 73.50 all-time high) DOW - 80% (Finally reversed into Bull Correction) S&P 500 - 75.80% (Cycle high of 82.80% - Now Bull Correction) S&P 100 - 82% (Just below cycle high, 11/98 all-time high = 84%) As we've been noting in recent weeks, the BP internals have been awfully stingy about giving up any ground and that still remains the case. We're starting to see a bit of fraying about the edges, but the best any of the major indices have been able to muster is a reversal into bull correction in the case of the DOW and the SPX. Even the NDX (now 16% below its cycle high) is still in Bull Confirmed. But this is where I think the SharpCharts of the Bullish Percents really give us an edge. Recall that in the past few weeks, I've been talking about my expectation for the indices (particularly the SPX and NDX, as they have shown weakness first) to rebound, produce a lower BP high and then break down. Take a look at the charts below for the SPX and NDX and you can see that does indeed seem to be playing out. SPX Bullish Percent SharpChart Holding true to the pattern we've been talking about in recent weeks, the SPX BP is weakening, with a pattern of lower highs, and BP below its 10-dma, with the CCI oscillator showing weakness below the -100 level. NDX Bullish Percent SharpChart We have a similar picture in the NDX as well, with the expected pattern of lower highs in BP, the BP line below the 10-dma and the CCI oscillator threatening to break back under -100 after failing to move above the +100 line. Now these two indices seem to be showing the most weakness internally of all those we follow here, and it is not overwhelming by any stretch of the imagination. Take a look at the other indices' SharpCharts, and we can see possible signs of topping, but again, they are in the very early stages of showing weakness. http://stockcharts.com/def/servlet/SC.web?c=$bpspx,uu[w,a]dacaynay[dd][pb10] [iLd20]&pref=G Here are the pertinent Bullish Percent symbols. DOW - $BPINDU SPX - $BPSPX OEX - $BPOEX NDX - $BPNDX COMPX - $BPCOMPQ Astute readers will recognize that there are some serious mixed signals being given by the market, as least based on what I've shown above. The expected weakness in the internals is certainly coming to pass, but the market has been very stingy about showing any weakness so far. Looking at the price action, we see the indices (we've looked at the SPX) holding important support over the past several weeks and absolutely refusing to deliver a breakdown under key support levels. My bias is still to the downside, but as we've seen, that hasn't been working out very well lately. I'm not changing my expectations for the market, as I think significant upside from here is going to be hard to manage. At the same time, until we see some sort of technical breakdown, gaming the downside remains an exercise for those able to stomach the continuing volatility. Before we really have any conviction to the downside, the SPX needs to close below 975 (giving another PnF Sell signal), the DOW needs to break 9000 and the NDX needs to puncture 1230. I'm sure more than a few of you have noted the seeming inconsistency in the term volatility, as the VIX is breaking to levels not seen in well over a year. But at the same time, we're seeing the intraday movement in the market become more volatile. That increase in intraday volatility is actually welcome, as it perhaps is telegraphing that the broad market is getting ready to break out of the range in which it has been trapped for the past 2 months. The direction and sustainability of that break should give us a much better read on what to expect between now and the historically more active (and bearish) period in September and October. I've once again run much longer with my general market commentary than I had intended, so let's now turn to our list of plays and see what developments occurred over the past week. Portfolio: AIG - As I feared, our AIG play finally broke out of its recent consolidation and did so to the upside following the company's earnings report last week. Thursday's breakout also triggered our stop and the play is (thankfully) removed from our Portfolio. More details below. HD - The continued rise in bond yields has really exerted some nice downward pressure on those stocks that have benefited in the past several months from the housing and refinancing boom and HD finally gave us some of the weakness we've been expecting. The week started off nicely with a break of the 50-dma and after finding resistance near that level through the middle of the week, it looks like we're on our way to our target at $28. Friday's sharp rebound from just above $31 is somewhat concerning, but with all the major moving averages above in the $32-33 area, any rally from here is going to be an uphill battle. There should now be strong resistance at $33 and traders still looking to enter the play can use a rollover below that level as the trigger. We're lowering our stop to $34 this weekend, as a rally over that level would be a clear indication that the bulls have gotten a fresh shot of adrenaline. SMH - Volatility was the name of the game in the Semiconductor sector last week, and the apparent breakdown on Monday was sharply reversed later in the week, with the SMH closing the week back above the midline of its ascending channel and it looks like our $33 stop could be threatened as early as Monday. It will require a close below the rising 20-dma (currently $30.98) to give us an indication of incipient weakness. Due to my bearish expectations for the group, if stopped out, I will be looking for another setup to enter the play, as the SOX (and SMH) should lead to the downside once investors accept the reality that economic recovery in the second half is nothing more than a fantasy. ADBE - Close, but no cigar! ADBE continued last week's breakdown on Monday, but found support at $32, which just happens to be the site of the ascending trendline connecting the October and March lows. The stock then spent the remainder of the week pinned between that trendline and the $34 level, with downward pressure being exerted by the 10-dma ($33.71) and 20-dma ($33.76). Additionally, the declining 50-dma ($34.01) is adding to this stiff resistance and it appears to me that the bears are gaining the upper hand. But we're going to need a break and close below $32 before we really have confirmation of that weakness. After that, the next big test will be at the $30 support, which is the top of the mid-March gap, as well as the site of the 200-dma (currently $29.89). I'm still keeping a pretty wide stop on the play, but it should be safe to lower our stop to $36.50. Watch List: DJX - Another week of rangebound action and the DJX appears closer to a breakout than a breakdown. So what's it going to be? As you can tell by my bifurcated commentary above, I really don't know. But my gut feel is that we're going to see at least a bonified test of the recent highs and perhaps a run to the $95 area before it tips over for good. What's so significant about the $95 level? Well, $94.74 happens to be the 50% retracement of the entire drop from the all-time highs in early 2000 to the lows in October of last year. So here's the strategy -- if the DJX tips over from within the listed entry point, we'll be in the play. However, if it rallies through the $94 level, then we'll be looking for a rollover just south of $95. In either case, no entry will be taken until the rollover begins. With August looming around the corner, the listed December '03 strikes are getting awfully close to where they will feel the pinch of time decay more than we are comfortable with in our LEAPS approach. So while that strike is still listed, we're recommending that traders look to the '04 strikes for insulation against the ravages of time decay that we come to expect from LEAPS. LEH - Quite honestly, I was a bit surprised to see the complete lack of buying interest in LEH last week, especially with the Broker/Dealer index (XBD.X) catching a solid rebound from the $550 support level. That's relative weakness for you. For those of you that use Qcharts, type in "LEH /index:xbd.x" in the symbol field for a graphical display of this relative weakness. Last week, that chart broke down to levels not seen since late 2000 and the stock looks very unhealthy relative to its peers. The stock did manage a mild rebound from the $63 area on Friday, but even that looked quite anemic. The problem we're faced with now is finding a favorable entry point, as the stock is overdue for a rebound. We want to wait for that rebound and then enter on the rollover. The last rollover occurred near $69, and I'm looking for the 20-dma (currently $66.04) to provide stiff resistance. So our entry target moves down to the $66-67 area and if filled, we'll start with our stop at $70, just above both the early July top and the 50-dma ($69.09). The PnF chart is now on a very clear Sell signal and the tentative vertical count projects down to a bearish price target of $56, which is just below the bullish support line at $58. There's plenty of downside there for a nice gain if we can get a favorable entry, but it does not appear prudent to chase the stock lower from here. RIMM - The NASDAQ certainly caught a nice bounce on Friday, and that allowed RIMM to cap off a very bullish week with a close at $22.94 on strongly expanding volume. I've got no interest in trying to short into that sort of ramp, but we could have a nice entry setup delivered next week. The bottom of the stock's broken channel is now at $23.25, with the recent relative highs looming near $23.80. a rejection from that level looks favorable for new entries, but we must see the rollover before playing. Earnings aren't in the picture until the end of September, so in the near term the stock will be left to trade on its own technicals and whatever fundamental news may appear. We're still looking to fade this rally near resistance, and we've raised our entry target accordingly to $23-24 this weekend. If we get a favorable entry, initial stops will be set at $26, just above the top of the gap from April of 2000. If RIMM closes above $24 before rolling over, then we'll stand aside and wait for a clearer bearish setup. Radar Screen: WMT - More tight rangebound action was served up in both the Retail index (RLX.X) and WMT last week, with the latter still underperforming the RLX. A relative strength chart shows that pattern of relative weakness quite clearly. I still view WMT as a solid bearish candidate once the RLX starts to weaken, but so far that hasn't happened. The RLX is still working higher in an ascending channel and WMT is trading near the upper end of its 4- month range. Despite this underperformance, I remain cautious due to the picture on the PnF chart. A look at the weekly chart shows descending trendline resistance firmly in place at $60, which the PnF chart shows us the potential for another Buy signal on a trade at $58. That gives me a confused technical picture to deal with, so I'm content to leave WMT on the Radar Screen for now, pending further price developments. LEN - Continued weakness in Treasuries has yields continuing to rise, and mortgage rates are doing the same. That delivered more weakness to the Housing sector, although we haven't seen a huge breakdown either. I'm still hopeful that we'll get a favorable setup for playing LEN to the downside, but we need to see a pop to higher levels to set that up. At a minimum, I want to see the stock able to scale the $70 level, and that seems unlikely in the near term. My ideal entry scenario is still for a failed rally in the $73-75 area, but that will have to wait until the current bout of weakness has been played out. We may not get an opportunity to see this play come to fruition, but it is still worth watching. BBH - Given the increased volatility in the broad market, I continue to be impressed with the resilience in the Biotechnology sector, with the BBH holding in a tight range between $130-135 for the past couple weeks. I expect to see a breakout to the upside, but that breakout should be short-lived. Very strong resistance lies in wait near $140-145, and given the sector's recent relative strength, I'm content to wait for some weakness and/or a lower high to form before sticking my neck too far out. GM - Now that is precisely why I've been in no hurry to initiate a bearish play on GM, the automotive company that I think runs the greatest chance of bankruptcy in the years ahead, primarily due to the incredible hidden load of its underfunded pension obligations. Additionally, recent earnings reports have shown the company is wholly unable to profitably engage in what used to be its core business -- the manufacture and sale of cars and trucks. Virtually all of GM's net income is coming from its financing arm (GMAC) and with rates on the rise, that cash cow may find itself having to get lean as well. See how the stock managed to find a floor near $35 over the past several weeks and actually participate in Friday's strong broad market rally. The $40 level should be very strong resistance, and if the stock can get near that level, we'll look at putting it back on the Watch List. For now, we watch in amazement. XL - The mild rebound from just below $80 was just about what I was expecting from XL, but I was caught by surprise by the very sharp downward move last week that sliced through the 200-dma as though it didn't even exist. It looked like a sure deal for the stock to then fall into the $73-74 area ahead of earnings, but there was another surprise in store. Friday's session saw a strong rise in the stock, and I think we could see a run back to the $80-81 area ahead of the company's earnings report on Thursday. I think the prudent course of action is to wait for that report and let any reaction to the news play out before sticking my neck on the line. Providing there are no surprises, and the stock can't scale the $82 level (which should now be strong resistance), look for XL to make the Watch List next weekend. Closing Thoughts: I had every intention this week of adding a couple more Watch List plays (LEN and XL were the leading candidates), but after finishing my commentary above, I decided that I just didn't have the conviction to believe in a pending collapse in the broad market. Both LEN and XL gave too much price weakness last week for us to have considered them as viable plays in the near term. That coupled with my divergent opinion of the broad market left me erring on the side of caution. Note that I don't have any confidence in significant upside from here, but I also don't want to step in front of what could be a strong breakout above near resistance in the major indices. Wait and watch is still my chosen approach, but with the weakening of the internals and the VIX closing under 20, I feel we are inching closer to that elusive top that should provide at least moderate downside action through the remainder of the summer. Have a great weekend! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: HD 07/09/03 '04 $ 32 HD -MZ $ 2.45 $ 3.00 +22.45% $34.00 '05 $ 30 ZHD-MF $ 3.20 $ 3.70 +15.63% $34.00 SMH 07/09/03 '04 $ 30 SMH-MF $ 2.70 $ 2.45 - 9.26% $33.00 '05 $ 30 ZTO-MF $ 5.00 $ 4.70 - 6.00% $33.00 ADBE 07/17/03 '04 $ 35 AEQ-MG $ 4.20 $ 4.90 +16.67% $36.50 '05 $ 35 ZAE-MG $ 7.20 $ 7.50 + 4.17% $36.50 '06 $ 35 WAE-MG $ 9.00 $ 9.00 + 0.00% $36.50 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: DJX 05/04/03 $93.50-94.00 DEC-2003 $ 92 DJV-XN $95 DEC-2004 $ 92 YDK-XN LEH 07/20/03 $66-67 JAN-2004 $ 65 LEH-MM JAN-2005 $ 65 ZHE-MM JAN-2006 $ 60 WHE-ML RIMM 07/20/03 $23-24 JAN-2004 $ 22 RUL-MX JAN-2005 $ 20 XRY-MD New Portfolio Plays None New Watchlist Plays None Drops AIG - $62.20 Over the past couple weeks, I had been growing concerned that our bearish AIG play was not going to deliver the breakdown I had been expecting these many weeks. The price action early last week seemed to confirm that fear as the stock edged up over $60 (within spitting distance of our $61 stop) leading up to the company's earnings report. That report on Thursday provided the fuel the bulls had apparently been waiting for with earnings 2 cents ahead of consensus estimates. The stock exploded higher on strong volume and triggered our stop just after the open and it appears we did have that stop set at just the right point. After clearing that $61 level, the stock ran strongly higher throughout the remainder of the week, closing at $64.65, its best level since December. No matter how many ways I look at it, I can't see where the play was flawed, and if given the setup we had at the outset back in April, I would take it again. This is just one of those plays that never went far enough in our favor to allow us to tighten the stop, and we got kicked out at our "max pain" point. That's what those stops are for. ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************** TRADERS CORNER ************** When Is The Last Time Your Underlying Rose? By Mike Parnos, Investing With Attitude For some out there it has been a long draught. When you ain't gettin' any, it can be very frustrating. Profits, of course. As outrageous as it may seem, there are still people holding LU in their portfolio, fully expecting that it will return to its glory days. They also believe in the Easter Bunny, the Big Bang theory, that Elvis lunches at Burger King in Kalamazoo, and that "buy and hold" refers to stocks and devices requiring inflation and/or four AA batteries. This is absolute proof that Artificial Intelligence is no match for Natural Stupidity! CPTI students know better. They have been to the mountaintop. They have looked over and seen the profits. They need not fear any man (except market makers). They know that we shall overcome! However, for the less fortunate souls in our reading audience, we will devote some space to a "hands off, off, off" strategy. It's also a worthwhile strategy to keep in your arsenal because it can also be used in most IRA accounts. _________________________________________________________________ Rising From The Dead The market leaders of years past have been beaten down. Some have come back up nicely in the recent market upswing. Others have not. Will they follow? Will the economy continue to improve? Will Sadam Hussein's two sons rise from dead, only to be found running a party store in Queens? Who the hell knows? Maybe some of the downtrodden will, indeed, have a second coming. But when? Will it be in three months? Six months? A year? Two years? Since we can't even tell if it's going to rain tomorrow, what would lead us to believe that we can figure out where a stock is going? It's that chaos theory or random walk theory. If you're going on a random walk, don't use credit cards -- they can be traced. In life, all we can count on is the TV guide – and even that's subject to change. ____________________________________________________________ An Old Favorite Let’s start with an old favorite – SUNW (Sun Microsystems) -- currently trading at $3.97. Buy 1,000 shares of SUNW @ $3.97 Buy 10 contracts of SUNW January 2006 $5.00 put at $2.20 Your total out of pocket investment is $6.16. For the next 30 months, your total risk is only $1.16 – the time premium. That's only 3.5-cents per month. The other $1.03 represents intrinsic value that will always be there. Let’s look at a few “what if” scenarios which will show you why your risk for 2 1/2 years is only $1.16 and how you can profit. Going Up? What if . . . in 6 months SUNW is 7.50? The January 2005 $5 put would still have a value of about $.50 and the stock would be worth $7.50 – for a total of $8.00. Your cost was $6.16, so your profit would be $1.34 with 2 more years until January 2006 expiration. Going Down? What if . . . in 12 months SUNW is $2.50? The January 2006 $5 put would have a value of about $2.70 and the stock would be worth $2.50 – for a total of $5.20. With a cost of $6.16, you would have a paper loss of $.96 with 18 more months until January 2006 expiration. The Worst What if . . . at January 2006 expiration SUNW is $4.25? The January 2005 $5 put would have a value of $.75 and the stock would be worth $4.25 – for a total of $5.00. With a cost of $6.16, you would have incurred the maximum loss of only $1.16. The Best What if . . . at January 2006 expiration SUNW is $10? The January 2005 $5 put will expire worthless, but the stock would be worth $10. With a cost of $6.16, your profit is $3.84. Take a look at the SUNW January 2006 $5 call options. You could buy it for just $1.35. Is that a better deal? After all, you be tying up only $1,350 for 2 1/2 years instead of $6,160 (for 10 contracts). Benefit of Owning The Stock Vs. The Call Well, if you’re right – and that’s a big “if” – owning the stock enables you to participate penny for penny as SUNW moves up. The delta on the January 2006 $5 call is only about 53%. It’s your call. Here are a few more stocks that may rise from the dead – or they may rest in peace. They trade millions of shares every day. There must be a lot of praying going on. NT (Nortel). Trading at $2.98. The January 2006 NT $2.50 put is $.90. Total cost is $3.27. Risk is $.77. Upside is unlimited! LU (Lucent). Trading at $1.79. The January 2005 LU $2.50 put (the 2006 LEAPS should open up soon) is $1.15. Total cost is $2.94. Risk is $.44. Upside is unlimited! GTW (Gateway). Trading at $4.14. The January 2006 GTW $5.00 put is $1.85. Total cost is $5.99. Risk is $.99. Upside is unlimited! MOT (Motorola). Trading at $9.17. The January 2006 MOT $10 put is $2.95. Total cost is $12.12. Risk is $2.12. Upside unlimited! COMS (3 Com). Trading at $4.77. The January 2006 COMS $5.00 put is $1.25. Total cost is $6.03. Risk is $1.03. Upside is unlimited! A lot can happen in 30 months – good and bad. These beaten down companies were among those that led the markets higher during the tech bubble of a few years ago. There still may be some "ho" in their horoscope, some hot dog left in their buns, some personality left in their pet rocks, some fight left in their neophyte. Then again, maybe not. Time will tell. ____________________________________________________________ NEW AUGUST CPTI PORTFOLIO TRADES August Position #1 – BBH Iron Condor – Closed at $132.95 Let's sell 10 contracts of BBH August $125 puts @ $1.45 and buy 10 contracts of BBH August $120 puts @ $.80 for a net credit of $.60. Let's also sell 10 contracts of BBH August $140 calls @ $1.75 and buy 10 contracts of BBH August $145 calls @ $.85. We have a maximum profit range of $125 to $140 with a total credit of $1,550. Our risk is $3,450. At $132.95, we're comfortably positioned – right in the middle of the range. August Position #2 – LLTC Sell Straddle – Closed at $36.21 We're sold 10 contracts of LLTC August $35 call @ $1.45 and sold 10 contracts of LLTC August $35 put @ $2.40 for a total credit of $3.45. Our maximum profit can be about $3,450 if LLTC finishes at $35. Our profit range is from $31.55 to $38.45. Our bail-out points are at the parameters of the profit range. Someone goosed the bulls today. At $36.21, we're still in good shape, but there's still a long way to go. August Position #3 – SPX Iron Condor – Closed at 998,68 This is a slightly more aggressive position than usual. Why? The range is smaller. Also, note the different number of contracts we use for the calls and the puts. We sold 3 contracts of the SPX August 1025 calls and bought 3 contracts of the August 1050 calls for a net credit of $3.70 ($1,110). Then, we'll sold 6 contracts of the August SPX 960 puts and bought 6 contracts of the August SPX 950 puts for a net credit of $2.00 ($1,200). The total credit was $2,310 – and that's our maximum profit. I reduced the number of contracts on the bear call spread because there's a $25 exposure. As of Friday's close, SPX did not have call strike prices between 1025 and 1050. Monday, no additional strikes were opened, so we went with the original plan. Thus far, no additional strikes, between 1025 and 1050 have been opened. The SPX closed at 998.68– comfortably within our range. _________________________________________________________________ Words Of Wisdom Keep them coming! Remember, 1,000 words are worth one picture – and a smile. _________________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our plays or our strategies? Feel free to email me your questions. An excellent source for new students is the OptionInvestor archives where we've been discussing strategies and answering questions since last July. To find past CPTI (Mike Parnos) articles, look under "Education" and click on "Traders Corner." They're waiting for you 24/7 ______________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP ************** TRADERS CORNER ************** Where is the Dow Going? By Steve Gould We have two cats. Nay. My kids have two cats. As far as the cats are concerned, they let me live in the house. Stubborn creatures, those cats are. When they make up their minds to do something, nothing gets in their way. For example, they like (or shall I say liked) to lounge on the dining room table. I don't particularly care for them to be up their, so whenever I would see one of them on the table, I would try and make it an unpleasant experience for them. You would think they would get the hint. Yet, day after day, I would enter the room and see them lounging leisurely on the table. Even in the face of repeated bouts of raving hysteria, they would defiantly make this their favorite resting places. Not until I took drastic action did they relent and find some where else to laze. (Don't ask what drastic action I took.) Up until last week, I was without a doubt stubbornly convinced that the markets were going to tank at any moment. Then after one of my buddies shot nerf darts at me (OK, OK, I admit it. I shot nerf darts at the cats.) I saw clearly that the markets are going to head higher before making the trek downward. In the light of overwhelming evidence, I am officially changing my tune. NO, I am not turning into a bull (just yet), but I am saying that the markets will trend higher for a bit before coming back down. I am still long term bearish, but short term bullish. Chart: Dow Daily Obsolete 7/25/2003 Here is the daily chart of the Dow the way I used to label it. The chart as labeled connotes that the Dow is just starting a long downward correction that could take it all the way down to 2000. It is a little difficult to label this chart as the waves are not really well behaved. One trick is to use a larger timeframe to try and ascertain what the overall wave pattern is for the stock. Knowing what the bigger picture is sometimes makes it easier to figure out how the subdivisions need to be labeled. With this in mind, let's look at the Dow weekly. Chart: Dow Weekly Obsolete 7/25/2003 Here is a weekly chart of the Dow with the same wave labeling. Unfortunately, this is not any clearer. So now what do we do? Another trick is to use a stock that parallels the one you are trying to label. For example, if Citibank is not exhibiting a clear pattern, perhaps the banking index would. As the following charts show, the S&P 500 pretty much parallels the action of the Dow and vice versa. The NASDAQ follows the general up and down but appears to be much more intense. This is because the NASDAQ is heavily weighted with volatile technology stocks whereas the Dow and S&P 500 are more of an overall view of the markets. Chart: S&P 500 Weekly 7/25/2003 This weekly chart of the S&P 500 exhibits a much clearer wave pattern for the last four years. Since the Dow and S&P 500 march in lock step, I am going to relabel the Dow to match this wave pattern. Chart: Dow Daily New Labeling 7/25/2003 It is a little bit of a struggle to label the subdivisions, but I am going to trust the S&P 500 as its wave pattern is very clear. I wish I could stop right here and say that I now know where the Dow is going based on the S&P 500, but I can't. In order to see why, let's take a closer look at the weekly S&P 500, since it is the clearer of the two markets. Chart: S&P 500 Weekly Interpretation 1, 7/25/2003 Let's assume for now that Advanced Get has labeled the chart correctly. What we are looking at is the makings of a classic Type I set up. It does not look like the C wave is complete which means that the 4 wave has not yet topped. (When we look at the daily the reason will be clear.) However, the following Type I criteria are satisfied: 1. The S&P 500 has retraced 38.2% and looks like it will retrace anywhere from 50-62%. 2. The oscillator has retraced about 140%. Depending on how much higher the S&P 500 goes, this may reach the 162% retracement level. 162% is the maximum the oscillator level can retrace without lowering the likelihood that this is actually a Type I setup. 3. The A and B waves are very well defined 4. The PTI is greater than 35. Chart: S&P 500 Daily Interpretation 1, 7/25/2003 The daily chart of the S&P 500 shows that the C wave on the weekly is segmenting nicely into a five wave basic pattern. The daily S&P 500 is now starting the wave 4 retracement. I believe that over the next several weeks, the S&P 500 will fall to somewhere around the 930 level before making the final thrust higher. At that point the C wave on the weekly will be complete and the S&P 500 will start heading down toward 650 by February 2005. (Depending on your political leanings, this could be a good or bad thing.) Unless of course, it doesn't. There is another valid interpretation of the S&P 500 weekly chart. Chart: S&P 500 Weekly Interpretation 2, 7/25/2003 What if Advanced Get labeled the pattern incorrectly and the 5th wave is already complete? This would mean that the S&P 500 is starting the A-B-C correction. The wave pattern and the oscillator could support a completed 5th wave as the oscillator has retraced more than 90% and exhibits divergence. If this interpretation plays out, then again, the A wave will trend a bit higher before the B wave starts. However, the B wave will probably not trend lower than 800 and will most likely complete by the end of the year. We will then start the new year off trending higher. This interpretation would be consistent with the behavior of the stock market during a presidential election year. In either case, I believe that the daily market is currently in a five wave basic pattern and is just starting the 4 wave. The markets will complete the wave 4 retracement over the next several weeks before running up again. At that point we will see the markets trend lower. Just how low it goes depends on which scenario plays out. Note: I am going to be on vacation from Aug 1-10 to attend my XXth high school reunion. (That is not a misprint. I do not want you to do the math.) I am feverishly trying to get my laptop set up to take with me but I am having many technical difficulties. I hope to be able to get it working in time so I can continue to submit articles, but if not, I will be back on the 17th. ************** TRADERS CORNER ************** Elliott Wave Play Updates By Steve Gould DJX Chart: DJX update 7/25/2003 The Dow seems to be taking an inordinate amount of time tracing out this retracement pattern. We are rapidly running out of time. As stated in "Where is the Dow Going?", I believe that the Dow will trend lower. According to Advanced Get, the first resistance level is going to be at 8800. I would hang on to the puts for two more weeks. If the Dow does not hit at least that level by then, close out the play. If the Dow breaks through 9353, close out the play. Option The original option values on 6/6/2003 were DJX – 90.62 Pos Qty Sym Strike Type Bid Ask Delta IV Buy* DJVIN SEP 92 Call 2.80 3.00 0.51 15 Buy DJVUJ SEP 88 Put 2.70 2.90 -0.33 23 ---- ---- ----- 5.50 5.90 0.18 Current values on 7/25/2003 are DJX – 92.84 Pos Qty Sym Strike Type Bid Ask Delta IV Buy* DJVIN SEP 92 Call 2.55 2.95 0.64 13 Buy DJVUJ SEP 88 Put 1.00 1.15 -0.22 22 ---- ---- ------ 3.55 4.10 0.29 * sold last week QQQ Chart: QQQ update 7/25/2003 The QQQs should follow the Dow and S&P 500 in retracing this 4 wave. The first target is going to be 28.50. Stochastics indicate that the QQQs may trend a bit higher first, but I suspect that the QQQ should continue to decline over the next week or so. Hold. Option The original option values on 6/13/2003 were QQQ – 29.96 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 3.00 3.20 -0.44 32 Sell 1 QQQSK Jul 03 37 Put 6.90 7.10 0.99 41 Credit: .50 Current values on 7/25/2003 are QQQ – 31.80 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 1.95 2.05 -0.35 32 Sell 1 QQQSK Aug 03 37 Put 5.10 5.30 0.94 37 Liquidation 1: -1.40 + .50 = -0.90 BA Chart: BA update 7/25/2003 If you weren't watching the markets on Friday's open, you missed an opportunity to buy back the 30 call when BA gapped down to 31.50 on the open. The hourly chart shows that this is as far down as BA is going to go. If you haven't already done so, buy back the Aug 30 calls and ride the Jan 37.50 calls as BA should now be headed to 39. Option The original option values on 6/17/2003 were BA – 36.15 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 6.10 6.40 -99.5 29 Buy 2 BAAU Jan 04 37.5 Call 2.70 2.85 52.6 25 Credit: 0.40 Current values on 7/25/2003 are BA – 32.68 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAHF Aug 03 30 Call 2.75 2.85 -95 21 Buy 2 BAAU Jan 04 37.5 Call 0.75 0.80 26 22 Liquidation value: -1.35 + .40 = -0.95 T Chart: T update 7/25/2003 T met our entry criteria on Thursday. This play will make money as long as it moves. Based on the hourly chart, T should move a bit higher, probably 21.50, before it starts to head down. Option T: $20.00 (entry) Pos Num Sym Strike Type Bid Ask Delta Vol OI Sell 1 TIC Sep 15 Call 5.00 5.30 100 25 70 Buy 3 TJX Oct 22.5 Call 0.50 0.65 31 368 10285 Credit: $305 WEN Chart: WEN update 7/25/2003 I think we got in at the optimal time for WEN. I believe we are starting the iii wave of the 3 wave which should be a forceful move down. Stochastics and the oscillator suggest WEN is headed down more the beginning of the week. Option The original option values on 7/22/2003 were WEN – 28.84 Option Pos Qty Sym Strike Type Bid Ask Delta IV Buy 10 WENME Jan 04 25 Put 0.85 0.95 -20 34 Current values on 7/25/2003 are WEN – 28.06 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 10 WENME Jan 04 25 Put 1.00 1.10 -23 34 ************** FUTURES CORNER ************** Emini Momentum Trading That is probably a misnomer and it should be called Momentum Oscillators. I say that because it is really an oscillator system that centers around a 100/130 PMA pivot on the 30 min chart. The system evolved out of some averages I was experimenting with for stocks on the 15 min chart. I found that the 52 and 130 EMA on the 15 min chart (2/5 day) provided a pretty good short term trade timer. When the 52 crosses the 130 trade in the direction of the cross. While I had these averages dialed in on my charts as defaults I noticed that the 130 period average seemed to be relative on nearly every time frame I tried. The shorter average did not work as well but the 130 was amazing for trading. To me the hardest part of trading is entering the trade. There are always so many factors that tempt you to think that any given bounce, dip, resistance or support becomes an entry point for something. I found myself constantly entering on emotion and not logic. You only need check my swing trading on Friday to see the proof of that statement. Once you have a system, regardless of how the system works then you eliminate much of the emotion from the trade. While experimenting with the 130 pma (30) on the ES I found that the 100 closely tracked the 130 at normally a two point range. That means if the 130 was at 985 the 100 was probably 983. Both seemed to give consistent resistance and support. I found that the ES tended to cross the averages about once every 3-5 days back in May and that decreased to 2-3 days in June and lately every other day. The problem is the consolidation phase we are currently seeing. This system works best when the markets are trending up or down. Sideways is more of a challenge because of the more frequent crosses. When the ES crosses the average in a trending market it would sometimes stay crossed for 20-30 points or more. In the current sideways market we have been seeing 10-15 point swings as common. Knowing how the ES reacts and the point range to expect it is easy to pick a simple entry point on a cross of the averages and then close for +10 on the other side. It is only easy if that is what you are trying to do. I get greedy and keep remembering those 20-30 point swings in May/June and have held on too long recently and gave back some nice gains. However, since I restructured the system in early June we have been seeing some decent gains on a weekly basis. Had I not been trying to hold for the home run we would have gotten more. Week ended 7/25 +13.75 Week ended 7/18 +12.75 Week ended 7/11 +29.25 Week ended 7/03 +18.00 Week ended 6/27 +16.53 Week ended 6/20 +14.50 System components. The averages I use for this system (50/100/130) are based on an exponential average of the high and low for the bar. In TradeStation you set the Price input in Moving Average Exponential to (h+l)/2. This is how you set it up in Qcharts. Moving Average Setup If you have any doubt about these averages impacting the ES you only need to look at this chart from the last two weeks. The averages consistently acted as support or resistance. ES Chart - Failure and Support Once you determine the validity of the averages as support and resistance then the next step is determining the distance from that pivot level for the average swing. In the chart below you can see the different swing amounts away from the averages before they return to cross/bounce again. ES Chart - Point Swings I am not going to reprint a bunch of timeframes here because of space but put these averages on your chart system and then scroll backwards to see the number of times they come into play. System Operation This is not a complicated system. In fact it is extremely simple. When the price crosses or bounces off the 100/130 (normally the 130 controls) you trade in the direction of the trend until the trend changes. The more success we have with the system the more it will be refined. The only major problem is when to enter on a touch of the average. If you are flat and the ES is below the average then you are faced with two possibilities. The ES will bounce off the averages as overhead resistance and make another dip or break through the averages and sprint to the upside. You have to make the decision at the time it touches the average as to which way it is going. It is never nice and clean. Resistance and support never are. There are usually multiple candles touching the average before one catches fire and rockets away. You need to apply your market sentiment to the decision process to decide which way you are going to trade. If the markets are weak then expect a failure at resistance. If strong then expect a bounce off support. I have been entering as the price moves away from the average by a couple points as you can normally determine internals from the trend change by then. Simple system: Trade in the direction of the price away from the averages. Prepare to exit at +10 points and trail a stop for longer moves. After you exit simply wait for the next bounce/cross of the averages. Should be good for two trades a week. Complex System: Because the swings have been so easy to see recently I have used the average as the zero line with the ES as an oscillator. When the swings have become extended I have been going short/long at the extensions. Unfortunately this requires you to make judgment calls as to entry points at tops and bottoms. It is much harder to target the entries because you do not have any fixed point that you know will be a pivot. ES Chart - ES as Oscillator Exits I am attempting to improve the exit procedure for the system to prevent giving back large gains and still be in for the homeruns. I am going to attempt to exit in quarter increments at +10, +15, +20, +25. Obviously this is not a perfect world and we will very seldom get a full 25 points. In order to get the most out of the exit I am not going to trail the entire portion where I can be stopped out on a spike/dip. Using a short at the current 997 level in the chart above I would tighten up the stop as the price approached the averages in anticipation of a bounce off support at the 130. I would exit 1/4 at the 130 PMA of 987 for +10 and move the stop to +5 for the balance. If we broke through the averages then I would exit another 1/4 in the 982 range and move the stop on the balance to the 130 pma of 987. I now have 50% of my initial position and a decent profit. Now remember, the average point swing is between 10-20 points from the average. Once we get 10 points away from the average we need to start getting ready to exit the balance. In this example it would be 977 which just happens to be the support line where we would expect a bounce. In this example the answer is obvious, exit the balance because of support. If support was not so clearly defined I would exit another 1/4 at 977 and snug up the stop on the remaining 1/4 to as close as you dare depending on market conditions. If you are playing the outside swings it would be best to exit it all and get ready to focus on the next entry. 100/130 ? Why have both averages? As you can see by the examples and your own charts the 130 is the predominant average but the 100 seems to also come into plan from time to time. It gives me a better focus on the range of support/resistance. Also, in cases where you are playing the swings from the outside you can use the touch of the first average to exit and watch for a direction change. A break of the second average is a signal to reenter in the direction of the move. It is kind of like a safe zone in the middle. If the market is moving fast and directional then just sit tight. If it is wandering then the averages are more likely to hold and exiting on a touch is the better plan. 50 ? Originally the 50 was supposed to be the exit average. Kind of a trailing stop loss. With the new exit strategy I think of it as more of a guide to impending action. If the price moves back across the 50 after an extended period below then I would exit any remaining positions. You need to go back to a period where the market was trending to see the benefit of this. However, I like the staged exit plan better. Back testing If you want to back test this I suggest you use the $SPX as the symbol as it is not contract dependent and has a consistent volume of candles for as far as you want to go back. AutoTrading If all this seems too complicated then Alan Knuckman and Andy Aronson would be happy to autotrade this for you. Their firm, OneStopOption.com is setup to trade the momentum system for you. They will handle everything from entries to staged exits. aknuckman@OptionInvestor.com aaronson@OptionInvestor.com Questions This is a really easy system to understand and does not have any complicated combination of indicators and a bunch of rules. If you have any questions feel free to email me and I will try to answer them. Jim Brown ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** 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
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