The Option Investor Newsletter Thursday 10-30-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Boom or Blip? Futures Markets: GeeDP Index Trader Wrap: Just as expected Market Sentiment: Q3 GDP Roars Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 10-30-2003 High Low Volume Advance/Decline DJIA 9786.61 + 12.10 9838.76 9754.01 2.07 bln 1608/1620 NASDAQ 1932.69 - 3.90 1957.53 1929.77 2.01 bln 1494/1685 S&P 100 517.53 - 1.13 520.99 516.37 Totals 3102/3305 S&P 500 1046.94 - 1.17 1052.82 1017.47 W5000 10195.52 - 11.80 10258.46 10171.38 RUS 2000 530.37 - 1.44 536.41 530.03 DJ TRANS 2925.28 + 23.70 2940.07 2897.97 VIX 16.33 - 0.01 16.76 16.01 VXO VIX-O 17.50 + 0.35 18.06 17.01 VXN 24.74 + 0.02 25.09 24.49 Total Volume 4,361M Total UpVol 2,325M Total DnVol 1,977M 52wk Highs 1042 52wk Lows 26 TRIN 1.00 NAZTRIN 0.70 PUT/CALL 0.81 ************************************************************ Boom or Blip? Bet you did not expect the news to be that good. Nobody did and almost everybody did not know how to react. The GDP jump by +7.2% shocked everyone into inaction. The disbelief in the numbers had the talking heads battling the "boom or blip" question all day. The answer? Almost everyone had decided by the close that it was a real number but that could not prevent a pull back that left the Nasdaq in negative territory. Dow Chart Nasdaq Chart S&P Chart - Double Top? Jobless Claims came in at yet another five week low at 386K after last weeks numbers were revised up right on schedule to 391K. Whoever is in charge of producing the numbers needs to just add 5K every week before the number is announced to avoid the weekly embarrassment of having to revise them every week. I love the press releases. "Jobless Claims fell by -5000 this week to another five week low". You would think we were cutting layoffs each week and it was a pattern of falling claims. The revised numbers for the prior four weeks are now oldest to latest, 405K, 388K, 390K, 391K and this weeks 386K which will probably be revised up to 390K or more. Far from a declining pattern as the news would suggest. The news is not bad with four weeks under 400K but just far from improving. The Chicago Fed National Activity Index posted its first positive month since July 2002. The headline number of +0.20 was not a blowout but just another confirmation of improving conditions. The recent low of -1.12 in April has been slowly improving and despite a downward revision of -0.12 to last month the trend is intact. The CFNAI is based on 85 indicators and 57 rose for the period covered in this report. Gains in manufacturing gave the index its largest boost. The Employment Cost Index rose slightly by +1.0% last month and benefit costs were the major expense. This was no surprise and the report was largely ignored with the blowout GDP stealing all the headlines. The Help Wanted Index was flat again at 37 and has shown little movement since a slight bounce in June to 38. Some analysts suggested this could be negative since the 4Q normally sees an uptick in advertising for both permanent and temporary hiring. A flat index would suggest that we transitioned from summer help to fall help without any increase in advertising. This would suggest the current unemployment levels were so high that companies do not need to spend the money to recruit. The current index levels are 66% off the cycle highs. Only 41% of the papers surveyed reported any increase in employment ads. The Labor Turnover Survey dropped -7.8% for August and showed no improvement over the -5.7% drop in July. These numbers are so old they do not get much play but the trend is definitely down. June was the last positive month with a +3.5% gain but that temporary bounce was quickly erased. According to the JOLT Survey the job-opening rate has fallen from year ago levels and is continuing to decline. This does not paint a convincing picture for the Nonfarm Payroll number next week except that this is an August number and conditions could have changed substantially. The big number for the day, actually the decade was the GDP jump to +7.2%. This was well over the estimate of +6% which was already considered too high by many analysts. The sticker shock initially powered a spike from short covering but that spike was short lived. There were so many qualifications that traders did not know which way to jump. This gain was the biggest jump in quarterly GDP in 19 years. To say it was out of the ordinary would be an under statement. Personal consumption, investments in equipment, software spending and exports led the gains. Auto sales added +1.17% but shrinking inventories actually knocked -0.67% off the final number. The $35 billion drop is projecting an even bigger bounce in the 4Q or 1Q as these inventories are replenished. Exports added +.84% to the number and was mostly unexpected. The weaker dollar and stronger global demand helped pump the export number. In Q2 the GDP was powered mostly by defense spending. In Q3 defense spending was almost flat. Federal spending was also flat. Disposable income jumped +7.2% from tax cuts and rebates and helped power the jump in consumption. There are a lot of detractors to the GDP bounce but the internals show a continued increase in home and auto sales despite the high unemployment. Increases in business spending surprised most analysts and many question if the bounce will continue. Regardless of your take on the GDP the market was completely confused. The opening bounce took the Dow back to a high of 9827 but the selling begin almost immediately. The Dow drifted back to 9754, -73 points off its high and nearly -20 points into the red before 10:30. The Nasdaq bounced to 1956, only -10 points from its 52-week high before a quick drop back to support at 1930. The quick drop was due to disbelief by some and profit taking by others. With only one day left in the fiscal year for many mutual funds this was a perfect opportunity to unload stocks. However, they did not sell the bounce and despite the opening dip and the closing dip the action for the day was positive. The Nasdaq was the weakest and closed slightly negative and right on 1930 support. The Dow clung to yesterday's resistance at 9780 and refused to give up ground at the close. For Friday we have another flurry of economic reports and another chance for a news driven market event. The lack of a sell off today could have been related to some month end window dressing that offset any year end rebalancing. This leaves Friday up for grabs. Futures are positive in the overnight session and the post closing analyst musings are suggesting a positive spin to the GDP once the sticker shock dissipates. My analysis of the event is probably a little different from some others. While there are many qualifiers in the GDP number those qualifiers only impact a very select few traders. The general public only sees the headline number and thinks "wow, the economy really is recovering". They begin to feel better about overall conditions and the sentiment numbers over the next month will show another boost. Still my thoughts go more to the underlying market action today. We did NOT sell off. This to me was the biggest event. The current market rally had been predicated on a +6% GDP for the last two months. Everybody with a podium had been using the GDP as a rally point with every speech. If ever there was a number baked into the cake this was it. Everyone who was ready to pull the exit trigger on a +6% or lower number was shocked into inaction by the blowout. Suddenly the concept of market top was called into question. Whoa, if the economy is better than everyone expected then maybe there is more to go. Maybe I should not sell yet. Obviously this is an oversimplification but you get the point. There was selling on the news but there was also buying. The opposing forces were evenly matched and volume was strong. The advancers/decliners were even at 3102/3305 and the markets finished flat. Flat, not +200 on the good news or -100 on the expected news. Confusion reigns and that is a good thing. The VXO (old VIX) hit 17.01 on the bounce today. This is an unbelievable number and only 2 ticks away from breaking the 17 barrier. Any move up on Friday will likely do the trick. That leaves us heading into a weak heavy with economic reports and the market near its highs with the VXO at a five year low. The high odds bettors are backing up the truck to load up on puts. This type of alignment happens very rarely and almost always ends badly. The wild card in that scenario is the GDP. The traders almanac says the first three days of November are normally bullish as funds reinvest the cash they got from selling in October. Since we had almost no selling I would be skeptical of a positive first three days if it were not for the parade of increasingly positive economic reports. Assuming we do not see a sudden reversal of fortune on Friday we will go into the weekend at market highs with good economics and good earnings and even greater expectations for the 4Q. Greenspan could not have scripted it better. Before we get too far ahead of ourselves let's remember that the estimates for growth in the 4Q and the 1Q were only in the +4% range last week. That range could change but with earnings expectations turning down due to a stronger 4Q-2002 comparison there could be some dampening of expectations in the market. The Fed has begun to drain the excess liquidity out of the money supply and interest rates are climbing again. Unemployment is still high and the Fed is still worried about deflation. We are not out of the woods yet but offsetting these negatives is the influx of cash into mutual funds. TrimTabs said we could see record inflows for October of $30 billion. With the +7.2% GDP headline all we need now is a Dow 10,000 headline and even the hard core should become converts. CDs and worthless money market accounts would be tapped to try the stock market again. It makes no difference how badly they were burned in the past they see the lure of easy money and want to be winners too. If you are walking through a casino and pass a table where all the gamblers are cheering and screaming with every roll of the dice it is very hard to keep on walking. When you see them raking profits off the table with every roll the urge to throw some money on the table and get your share is very strong. Of course what I just described is a market top that is doomed to eventually correct but it could be weeks or months before that correction. A quick look at the charts above should prompt caution from any technical analyst. The S&P came to a dead stop at 1050 once again and could easily be forming a double top at that level. Same goes for the Dow and Nasdaq. For any bullish scenario to develop these indexes must break out to news highs over the next couple days of the bulls will become worried and we could see weakness appear again. That brings us back to tomorrow. We could easily move 100 points in either direction or remain flat as October slips into history. I personally think the odds favor some profit taking on Friday. The Dow traded over 9820 three separate times on Thursday and failed to hold the high ground each time. The Nasdaq went out near the low for the day and could be seeing some profit taking by funds. With it being the last day of the month for all and the last day of the year for many, anything is possible. The only resistance above us is the 52-week highs at 9850 and should that break we are only a broad jump away from Dow 10,000. That is still my target for the next real profit taking event. The only real unknown is how far in front of that target will the bulls become nervous and begin exiting the game. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** GeeDP Jonathan Levinson Despite the headline of “Best GDP result in 19 years”, it took just one hour for traders to fade the news, selling off the equity indices from just below their rally highs. Gold and treasuries got dumped as well, with only the dollar rallying. The move felt more like a liquidity drain than anything else, going beyond the Fed’s $2B open market operation drain. Daily Pivots (generated with a pivot algorithm and unverified): Note regarding pivot matrix: The support, pivot and resistance levels above are derived from the high, low and closing price levels by a simple mathematical formula. They are not intended to be predictive of market turning points or to serve as targets, but rather represent the range retracement levels as generated by the pivot algorithm. Do not think of them as market "calls" or predictions. Like any technically-derived indicator or price level, the pivot matrix values should be regarded as decision points at which to evaluate current market conditions. Visit us in the Futures Monitor for our realtime views of the various markets covered here. 10 minute chart of the US Dollar Index The US Dollar Index broke upside resistance, clearing 92 and running to 92.30 starting 45 minutes prior to the release of the GDP data. Gold which had initially traded very strong, found sellers on the dollar strength, with the HUI and XAU pulling back and the CRB dropping 2.03 to close at 247.73. Daily chart of December gold December gold printed an ugly candle on the daily chart, dropping only 3 points but finishing near the bottom of a 10 point range that touched a high of 392.90. My amazement in the Fed’s interventions, its reckless inflation of money supply, and general historical and philosophic leanings all contribute to a strong bullish bias toward gold, silver and commodities in general. However, the similarities between the recent action in gold and the broader equity markets, for which I have a bearish bias, make me technically doubtful as to the capacity for gold to plough through the 390-410 resistance area. I suspect that if there’s a correction in equities, as I expect, then the drain in liquidity should impact gold and the HUI, just as it did in the 2002 selloffs. Ultimately, I expect gold, the HUI and the CRB to emerge as the true winners in a sea of dubious paper, but in the meantime, I believe that there’s risk in metals just as in equities. I hope that my analysis is incorrect, but in the meantime I expect some type of pullback, and a retest of 365 would answer a lot of questions for me. Daily chart of the ten year note yield Treasuries got sold again today, with the ten year note yield (TNX) gapping up and testing the upper trendline at 4.4% before pulling back to close higher by 6.4 bps at 4.339%. I find this action in treasuries to be interesting in light of the Fed’s comments this week. It appears that the treasury market does not believe that the Fed will be buying treasuries any time soon, despite that’s being the implication of its comments. The oscillator trend remains lower on the TNX, but with the price coiling into the apex of this 4 month pennant, we can expect a directional break in our future. Daily NQ candles An extraordinary tape painting job in the last 15 minutes following the cash close got the indices back into positive territory, with NQ finishing higher by 1.50 points, ES +2.25 and NQ +37. Well off the highs, but at least the GDP bullishness was spared the indignity of a negative close on the equity futures. You’ll note that the charts, which use the closing prices at the time of the cash close, reflect red candle prints. The buying came in the 15 minutes that followed, and I’ve manually entered those closing prices in the pivot matrix above. The NQ printed a shooting star doji, blowing off its early gains in a move that failed to set a new rally high. The daily oscillators stalled on their bullish kisses, and on this timeframe, the next move could go either way. However, the daily candle formation is very bearish, and the failure at 1445 served only to reinforce that resistance level. While a break above it could set off a short covering rally, it became a little less likely today. 30 minute 20 day chart of the NQ The spike high this morning set up a sharp bearish oscillator divergence that portended the ensuing drop nicely. Despite the end of day buying, the failed rising trendline was not touched, and it appears that the bears have successfully intercepted the ball. Support at 1410 looks like the next likely stop, with more significant support at 1387. The oscillators are in an uncertain downphase. However, with the volatility indices closing in extreme territory again, with QQV at 22.99 and VXN 24.75, I see risks that go beyond the oscillator configuration and chart patterns. Low volatility such as this has not tended to coincide with high equity prices for long. Daily ES candles The ES was less bearish than the NQ on a daily basis, with more uncertainty reflected in the doji close compared with the shooting star on the NQ. The oscillator configuration is equally trendless on the ES, however, and it appears that the difference is insignificant. As with the NQ, the ES bulls tried to break the rally highs and failed quickly, with three subsequent lower highs printed during the remainder of the day. 20 day 30 minute chart of the ES The 30 minute ES broke below the rising trendline that had supported the lows since Friday of last week, following an upside break above rising resistance. These bear wedge fakeouts have been very common this year, and happily, they no longer inspire the same panic amongst shorts that they did during the spring. The downside support break implies a downside bear wedge target of 1016, and with the VXO rising all of .35 to 17.50, I see that ]as a very reasonable preliminary target. However, on a trading basis, it’s best to follow our timing indicators, as the market has had a way of surprising everyone lately. Support at 1041 was not tested, and 1038, 1032, 1029 and 1024 are all important levels below. The downphase on the 300 minute stoch has been choppy thus far, and 1038 appears to be setting up as the next possible battlezone, always assuming that 1041 gets taken out on this downphase. 150-tick ES The daily chart of the 150 tick ES shows the opening gap higher, followed by the precipitous selloff and the ensuing chop. A short cycle upphase was kicked off by the end of session ramp. Daily YM candles Same story on the YM. 20 day 30 minute chart of the YM For tomorrow, the picture is uncertain due to the waffling in the daily chart oscillators. I can think of many reasons why equities should be getting dropped like a bad habit and am struggling to remain objective. The 30 minute downphase is underway and portends a lower high to the short cycle upphase, but it has been choppy so far. With the daily and 30 minute oscillators uncertain currently, I’m wary of the current range. It will take a range break to settle the uncertainty, and for that we look to 1055 ES to the upside and 1041 to the down. With the volatility indices at multiyear lows, and bonds and gold selling against a rising dollar, I’m favoring a downside break, but tomorrow will have to tell the tale. See you at the bell! ************************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 ************************************************************** ******************** INDEX TRADER SUMMARY ******************** Just as expected This morning's release of Q3 GDP data showed the U.S. economy growing at a 7.2% annual rate, which was well above economists' forecast for 6.0% growth. While the rate of growth may have been a surprise to economists, with the major indices finishing relatively unchanged, the MARKET didn't seem a bit surprised. As economic growth ramped up in Q3, today's release of weekly jobless claims showed new filings for state unemployment insurance stayed below the 400,000 level for a fourth-straight week at 386,000, but still depicted a slow recovery after a long slump. An early pop higher found immediate selling as the major indices came close to their 52-week highs found two-weeks ago, with only the smaller-cap Russell-2000 Index (RUT.X) 530.37 -0.27% getting a quick glimpse of a new 52-week with a trade above its October 15 and 17 matching highs of 534.25 with a morning high of 536.21. An earnings disappointment out of Dow component, and world's largest investor-owned oil company, Exxon/Mobil (NYSE:XOM) $36.30 -3.99% did little to bolster bullish gains for the Dow Industrials (INDU) 9,786.61 +0.12%, or the broader S&P 500 Index (SPX.X) 1,046.94 -0.11% and narrower S&P 100 Index (OEX.X) 517.53 -0.21%, all of which XOM is a component. Exxon/Mobil reported net income of $3.65 billion, or 55 cents a share, up from $2.64 billion, or 39 cents, a year ago, but fell well shy of analysts' estimates of $0.62 per share. XOM officials said the earnings shortfall came from its chemical business and weaker than forecasted refining and marketing in the U.S. and internationally. The CBOE Oil Index (OIX.X) 277.35 -1.49% fell to a three-week low to close back below a trending higher 50-day SMA. While the major indices had trouble holding their early morning gains to finish unchanged, the AMEX Gold Bugs Index ($HUI.X) 215.64 -3.04% witnessed today's most notable reversal of morning profits. After edging to a new all-time high at 223.92 in the first 30- minutes of trade, some sector bulls bugged out sending the HUI.X lower by 6.77-point to the close. December Gold futures (gc03z) $384.40 -0.67%, which saw an anticipatory bullish trade to $392.00 just prior to today's GDP release, ended down $2.60. The only "technical" even I saw in play today was when Jonathan Levinson noted the equity weighted Gold and Silver Index (XAU.X) 97.60 -1.85% traded above the 100.00 level, that tick above 100.00 seemed to be a trigger for selling at a psychologically round number. The stronger than forecasted GDP data saw the U.S. Dollar Index (dx00y) 92.26 +0.43% gaining ground, with current trade above its shorter-term 21-day SMA for this fist time since falling below this simple moving average on September 4, 2003 at 97.53. Treasuries finished their session lower and YIELDs higher, with the shorter-dated 5-year Treasury YIELD ($FVX.X) jumping 10.2 basis points to 3.283%, while the benchmark 10-year YIELD ($TNX.X) saw its YIELD rise 6.4 basis points by the close to finish with a 4.339% YIELD. The longest-dated 30-year Treasury YIELD ($TYX.X) rose a more modest 3.9 basis points to 5.198%. Today's bond action really saw some flattening of the YIELD curve as if the bond market was saying today's report of Q3 GDP at 7.2% wasn't expected to continue in future quarters. Let's take a quick look at tonight's Pivot Matrix. Please keep in mind that after tomorrow's close, we will have new WEEKLY and MONTHLY pivot levels. Today's most notable trade was the OEX morning high of 520.99, and exact match with the WEEKLY R1, as if there was a determined sell program, or some type of formidable seller at that level. This becomes a "key level" in tomorrow's trade, from which a trader would measure bullish strength on a break above. While not marked in the Matrix, we once again find correlation in the OEX for support at 513 at DAILY S2 and WEEKLY Pivot. As such, this is a near-term level of support to monitor closely tomorrow. Pivot Matrix The S&P Banks Index (BIX.X) 329.57 +0.42% was the only index in our WEEKLY matrix to see a trade at WEEKLY R2. Of the 22 components in the BIX.X, 20 showed gains, 2 showed declines. Meanwhile, the OEX.X followed the other indices with a test of its WEEKLY R1 in today's trade. I'm marking BIX.X correlative support at DAILY S1 and WEEKLY S1, which may be very correlative to OEX DAILY S2 and WEEKLY Pivot. While there isn't a single bank in the NASDAQ-100 Tracking Stock (AMEX:QQQ) $35.39 +0.19%, which got a late 15-minute push into its close from an upside earnings report from component American Power Conversion (NASDAQ:APCC) $17.90 +1.58%, which found the stock jumping to $19.35 in extended hours of trade, I've highlighted the DAILY S1 in the QQQ at $35.07, which is right where I had place a stop in today's bullish profile for a QQQ trade. Another correlative level of support that I think is important to hold tomorrow can be found in the Dow Industrials (INDU) 9,786.61 +0.12% at the 9,745 level. I like to subtract 10-points as a little fudge room, so I'm setting a downside alert at the 9,745 level in tomorrow's session. My current mindset, which may not make sense to everyone, is the mindset of a bull trying to inflict as much pain on a bear as possible, in order to trigger short-covering. Why this mindset? For one, I know that bullish risk is high in the bullish % indicators, but just as I know the indices are either at or near 52-week highs, overhead supply of stock at 52- week highs is limited. But with this mindset, what is a BEAR probably thinking? He/She may accurately be thinking, "hey, all the good news is baked into the cake right now and stocks are headed lower." From the perception of risk, and taking a bears beliefs to heart, what index might be the more logical one for the bear to be shorting? I think the answer is the OEX. It's full of large cap stock, perceived as being stodgy, and slower moving. Even on a move to new highs, the move will more likely than not, be slower moving in percentage terms, and less painful to a bear should the cake not be fully baked. My bullish profile in the QQQ is not because I think there is any "great value" to be had, but more likely, some jittery bears. As we neared tonight's close I asked myself, if after seeing today's trade, would I rather be long or short the QQQ? I thought long. Let's take a quick look at the OEX, as even a QQQ long begins to understand, they need to see strength from the OEX, where today's high at WEEKLY R1 does grab my attention. The 5 largest cap weighted found GE +0.17%, MSFT -2.31%, WMT -0.08%, C +0.59% and XOM -3.99%. According to my Qcharts sort, GE has overtaken MSFT for the top weighted market cap again. One stock to keep an eye on near-term is Microsoft (MSFT) $26.21 -2.31%, which has been sold lower since it reported quarterly earnings on October 23 and closed that evening at $28.81. That's a 9.9% haircut for what was the largest market cap stock. While a bounce from the 200-day SMA might make technical sense, a continued decline below this moving average and its August lows of $25.43, could well drag the major indices lower, not to mention have negative impact on a technology-bull's psychology. S&P 100 Index Chart (OEX.X) - Daily Intervals OEX support above 513, but resistance of 521 was firm today. MSFT has been one of the weaker stocks in the OEX, and if MSFT continues weaker, is going to most likely have lingering negative impact on OEX. Conversely, a technical bounce from MSFT at its longer-term 200-day SMA should keep OEX above 513. Today's trade saw a net gain of 1 stock to a reversing upward point and figure buy signal. This has the S&P 100 Bullish % ($BPOEX) edging up 1% to 80%. Still "bull correction" status and would take a higher reading of 84% to achieve "bull confirmed" status. S&P 500 Index (SPX.X) Chart - Daily Interval Oscillators look almost exactly the same today as they did earlier this month as it relates to MACD trying to cross above its Signal, while the Stochastics oscillator is now "overbought." In an upward trending security, I give more weight to MACD and remain bullish the SPX above 1,039, and look for some momentum support from the rising 21-day SMA. From my personal perspective, I just think it would be difficult to close a bullish trade out here (have not bullish position) and then have the conviction to get back on board on a move above the 52-week high. This may not be appropriate thinking based on a bulls tolerance for risk, or need to book a gain, but would rather play it out, see if bears flinch with a short-cover rally to new highs, and play support at 1,039. Today's trade saw a net gain of 2 stock to new point and figure buy signals as the S&P 500 Bullish % ($BPSPX) rose 0.4% to 80.00%. Still "bull confirmed." I really want to commend a trader that sent me an e-mail today, where he saw today's trade as being SIMILAR to that found on October 15 in the QQQ based on the 60-minute interval chart. This is EXCELLENT and now provides us a near-term look, and swing trader's view of the QQQ. He was looking at the QQQ on a 60- minute interval. Today, I profiled a bullish trade for QQQ at $35.27, stop $35.07, target $36.20. Once again, I may be off by 2-cents in my stop and bullish target based on tomorrow's DAILY S1 and DAILY R2. (as I was in the SPY) as I look at this chart. Another trader also e-mailed me expression concern over the QQQ 60-minute chart's MACD. This too may be a very good observation, which we will test tomorrow. NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval First the observation of today's trade on the 60-minute interval chart looking very SIMILAR to that found on October 15, when the QQQ spiked higher in the first hour of trade, to get pushed immediately back to that hours low. See the pink horizontal trend I place at $35.52? That was the "rally high" on October 15, which was tested early the following day as resistance when the QQQ the FAILED that test and turned lower. Two ways a BULL could have protected was to have a really TIGHT STOP under $35.27, or $35.07. Done... that's it and a good test for tomorrow for WEAKNESS. For DIVERGENCE and STRENGTH, QQQ needs to get above $35.64. Tell you what, I'll set an alert at $35.60, just so I'm alert if the QQQ comes close to $35.64. And maybe I should adjust a bullish stop a little lower than tomorrow's DAILY S1 of $35.07. If I'm going to get short covering rally in the QQQ to TARGET of $35.20, DAILY R2 is $36.18, then it will more likely have to come on a move above $35.64, than a move BELOW $35.07. And what about MACD. Doesn't look good on the 60-minute chart does it? MACD on this time interval didn't look very good at the left of the chart either, but QQQ price action followed the 21- day SMA higher from $34.50 before the more notable 60-minute interval break of $35.07. The one difference I see in the above chart as it relates to early October (left chart) is our 50-hour SMA is trying to turn higher, but not "ramping" up like it was in early October. So... I KNOW I need HIGHER PRICE ACTION in the QQQ to get that 50-hour ramping higher. Today's trade saw no change in the NASDAQ-100 Bullish % ($BPNDX). Still "bear correction" status at 78.00%. I've run out of time, and have been given strict deadline for content delivery. Will follow with an INDU chart in the morning. Jeff Bailey ************************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 ************************************************************** **************** MARKET SENTIMENT **************** Q3 GDP Roars - J. Brown Q3 GDP roared at a 7.2% pace, more than double the Q2's 3.3% run. This was the fast growth in 19 years but the markets reaction was ho-hum. Many already had big expectations and the report merely confirmed what the Street was looking for. Although it was certainly above and beyond the estimates there is already talk of it being revised lower when the data is finalized. Investors were also happy to hear that jobless claims remained below the pivotal 400,000 level with 386,000 filing last week. The recent trend under the 400K level suggest that companies have slowed their layoffs, which is the natural precursor to any turnaround in new hirings. We continue to remain cautious with the volatility indices so low. The VXO or old VIX hit a new multi-year low yesterday and closed at 17.50 today. This is a contrarian indicator of extreme bullishness or lack of fear in the markets. Traditionally, when investors become this complacent it's usually time to expect a short-term top in the market averages. The markets will also have to contend with fiscal year end for mutual funds, which takes place tomorrow. While I would normally expect most of the portfolio shuffling to be completed by now October has been a very strong month for fund inflows. It's possible that money managers could do some last minute window shopping. However, normally, funds tend to put their money to work in early November. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9850 52-week Low : 7197 Current : 9772 Moving Averages: (Simple) 10-dma: 9695 50-dma: 9555 200-dma: 8822 S&P 500 ($SPX) 52-week High: 1053 52-week Low : 768 Current : 1046 Moving Averages: (Simple) 10-dma: 1039 50-dma: 1024 200-dma: 946 Nasdaq-100 ($NDX) 52-week High: 1439 52-week Low : 795 Current : 1417 Moving Averages: (Simple) 10-dma: 1399 50-dma: 1368 200-dma: 1186 ----------------------------------------------------------------- We did see a small jump in the volatility indices but yesterday was a new relative low for all of them. The VIX and VXO continue to suggest caution for bullish investors. CBOE Market Volatility Index (VIX) = 16.33 -0.10 CBOE Mkt Volatility old VIX (VXO) = 17.50 +0.35 Nasdaq Volatility Index (VXN) = 24.74 +0.02 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.81 725,972 585,376 Equity Only 0.70 627,894 439,451 OEX 0.66 26,132 17,264 QQQ 3.19 41,569 132,431 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.3 + 0 Bull Confirmed NASDAQ-100 78.0 + 3 Bear Correction Dow Indust. 83.3 + 0 Bull Correction S&P 500 80.0 + 1 Bull Confirmed S&P 100 80.0 + 2 Bull Correction 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-dma: 1.00 10-dma: 1.10 21-dma: 1.00 55-dma: 1.07 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 1456 1406 Decliners 1379 1652 New Highs 241 260 New Lows 8 9 Up Volume 1024M 1173M Down Vol. 971M 902M Total Vol. 2016M 2106M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/21/03 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 Unfortunately we're still not seeing much change in sentiment for the Commercials in the big S&P futures. They remain slightly net short. Small traders aren't making many moves either and they remain net long. Commercials Long Short Net % Of OI 09/30/03 395,713 397,577 ( 1,864) (0.0%) 10/07/03 390,232 402,964 (12,732) (1.6%) 10/14/03 391,972 410,299 (18,327) (2.3%) 10/21/03 394,176 411,246 (17,070) (2.1%) 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 09/30/03 144,681 96,801 47,880 19.8% 10/07/03 138,644 88,018 50,626 22.3% 10/14/03 133,940 86,418 47,522 21.6% 10/21/03 136,643 88,290 48,343 21.5% 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 It's the same story here. Commercials increased their positions in both longs and shorts but remains slightly net short. Small traders trimmed some short positions and opened 30K more long contracts just in time for the late week weakness. Commercials Long Short Net % Of OI 09/30/03 163,828 218,991 (55,163) (14.4%) 10/07/03 212,273 225,377 (13,104) ( 3.0%) 10/14/03 221,897 233,066 (11,169) ( 2.5%) 10/21/03 226,985 236,906 ( 9,921) ( 2.2%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 09/30/03 131,698 65,259 66,439 33.8% 10/07/03 134,990 63,560 71,430 36.0% 10/14/03 161,208 59,213 101,995 46.3% 10/21/03 168,236 56,564 111,672 49.7% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Sorry...no big changes for the Commercial traders here either. They remain net short while the Small Trader remains net long. Commercials Long Short Net % of OI 09/30/03 33,571 42,993 ( 9,422) (12.3%) 10/07/03 33,253 40,861 ( 7,608) (10.3%) 10/14/03 34,639 41,880 ( 7,241) ( 9.5%) 10/21/03 36,314 43,305 ( 6,991) ( 8.8%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 09/30/03 19,803 9,917 9,886 33.3% 10/07/03 18,182 9,688 8,494 30.5% 10/14/03 16,822 9,046 7,776 30.1% 10/21/03 16,917 9,750 7,167 26.9% 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 No one seems willing to make any big bets. Commercials have been stuck in the same range for weeks now and remain net long the DJ futures. Small traders took some money out of their long and dumped some of it into shorts but not much. Commercials Long Short Net % of OI 09/30/03 16,561 8,932 7,629 31.5% 10/07/03 16,277 9,528 6,749 26.2% 10/14/03 16,595 9,433 7,162 27.5% 10/21/03 16,876 9,037 7,839 30.3% 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 09/30/03 7,578 8,125 ( 547) ( 3.5%) 10/07/03 7,392 7,910 ( 518) ( 3.4%) 10/14/03 6,427 8,495 (2,068) (13.9%) 10/21/03 5,392 8,842 (3,450) (23.1%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************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. 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The Option Investor Newsletter Thursday 10-30-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: ABC Dropped Puts: None Call Play Updates: COO, FD, ICOS, LOW, QLGC, SYK, VRTS New Calls Plays: JCI Put Play Updates: None New Put Plays: COF **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** AmerisourceBergen - ABC - close: 56.73 change: -0.47 stop: 55.75 ABC has been a huge disappointment, not so much because it went against us, but because it never did much of anything. We initially set an entry trigger at $59, which the stock never was able to reach. After one failed attempt, ABC has been drifting along near the $57.50 price magnet and it is showing no sign of breaking from the current rangebound action. With earnings set to be released next Wednesday, there really isn't enough time left before we'd need to drop it, even if it were to trigger first thing tomorrow. We're dropping the play tonight to make room for more promising plays. Picked on October 21st at $58.44 Change since picked: -1.71 Earnings Date 11/05/03 (confirmed) Average Daily Volume = 1.68 mln Chart = PUTS: ***** None ************************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 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Cooper Cos - COO - close: 43.40 chg: -0.16 stop: 40.99 *new* Bulls are taking a breather today after three strong sessions in shares of COO. We were encouraged to see COO hold above the $43.00 level in today's consolidation. We're getting close to our first target of $45.00 and short-term traders may want to begin planning their exits. We are going to inch up our stop loss a tad to $40.99. Picked on October 12 at $41.40 Change since picked: + 2.00 Earnings Date 09/03/03 (confirmed) Average Daily Volume: 391 thousand Chart = --- Federated Dep Store - FD - cls: 46.96 chng: -0.44 stop: 45.50 "I think I can, I think I can", you can almost hear FD chant as it continues to try to surmount the $48 resistance level. But with a flat performance from the Retail index (RLX.X) over the past two days, the stock never really had a chance. Despite the lack of upward progress since Tuesday, FD is still looking positive as it continues to hold above its 20-dma (currently $46.00). Traders still looking for an entry will be best served by either targeting a rebound from support near $46 or a breakout over $48. Remember that our target for the play is $50 and if that level is traded, it would make for a good opportunity to harvest some gains ahead of the company's earnings report on 11/12. Picked on October 9th at $45.60 Change since picked: +1.36 Earnings Date 11/12/03 (unconfirmed) Average Daily Volume = 1.91 mln Chart = --- ICOS Corp - ICOS - close: 45.96 chg: -1.12 stop: 42.49 The bounce from $39 and its 50-dma was getting a little tired and shares of ICOS pulled back a bit after hitting a new relative high this morning. Traders can look for a dip and bounce from $45 or $44 depending on how deep any pull back may occur in the markets. Either level would make a trade worthy entry point for new bullish positions. HOWEVER, traders should keep in mind that earnings are expected on Nov. 4th and we don't plan to hold over the announcement. That doesn't give us much time and may make this play undesirable for less active investors. Picked on October 26 at $45.42 Change since picked: + 0.54 Earnings Date 11/04/03 (confirmed) Average Daily Volume: 1.5 million Chart = --- Lowe's Companies - LOW - close: 59.45 change: +0.15 stop: 57.00 LOW hasn't made much progress over the past couple days, but it is impressive that it is holding above the $59 breakout level. Thursday's performance was particularly impressive, even though the stock only chalked up a 15 cent gain. Both the $DJUSHB index (-1.28%) and the RLX index (-0.14%) lost ground, and that puts LOW in a position of relative strength. Intraday rebounds from the $58.50-59.00 are the best bet for continuation entries, although momentum-types can consider entering on a break above $60. For now, we'll maintain stops at $57, just below the bottom of the recent consolidation zone. Picked on October 23rd at $58.65 Change since picked: +0.80 Earnings Date 11/17/04 (unconfirmed) Average Daily Volume = 3.94 mln Chart = --- QLogic Corp. - QLGC - close: 56.19 change: -0.67 stop: 52.99*new* We had a pretty good idea a bout of profit taking was on its way and Thursday's very bullish open provided just the opportunity. QLGC gapped sharply higher at the open (to $58.30) and immediately proceeded to lose altitude with the rest of the market. By the end of the day, the stock had not only given back all of its early gains, but all of its gains from yesterday as well. The close above $56 is encouraging, but we must be prepared for a continued deterioration before the rally once again gets under way. We're raising our stop to $52.99 tonight, which is just below Tuesday's intraday low. More conservative traders might want to harvest gains near current levels or work with a tighter stop at $55.75, just under the intraday lows from the past couple days. We're still looking for a continuation of this rally up over the $60 level, but first we may have to endure some consolidation of the recent gains. Look to initiate new positions on a dip and rebound from above the $54.00-54.50 area. Picked on October 21st at $54.21 Change since picked: +1.99 Earnings Date 1/14/04 (unconfirmed) Average Daily Volume = 4.68 mln Chart = --- Stryker Corp. - SYK - close: 81.16 change: -0.13 stop: 79.00*new* In the boredom category, we have SYK, which has managed to spend the past several sessions trading in a roughly $1.30 range. Support is being found at the 10-dma (currently $80.85), with resistance being provided by the $82 level. Something is bound to give and soon. Aggressive traders can use the intraday dips to support to establish new positions ahead of the expected breakout, while more conservative traders will want to wait for the break above $82 before playing. Remember, we're still looking for a run to the $86 level once the breakout occurs. Based on the consolidation over the past week, we're reducing our risk in the play by raising our stop to $79, as that level should not be touched if the upside truly has any potential. Picked on October 26th at $81.51 Change since picked: -0.35 Earnings Date 1/15/04 (unconfirmed) Average Daily Volume = 704 K Chart = --- Veritas Software -VRTS - close: 36.34 change: -0.55 stop: 34.00 After a failed attempt at reaching higher levels yesterday following Tuesday's breakout, VRTS was dealt a bit of a setback on Thursday, losing 1.5% to end just above the $36 support level. This looks like the setup for a new entry point. Remember that dips in this stock have all provided solid entry points for months. So until that pattern changes, we have to look at pullbacks to support as viable entry points. Note that $36 was strong resistance before this week's breakout, and we should now see it act as equally strong support. A rebound from that level looks like the best opportunity for new entries, although more aggressive traders may be able to nab an entry closer to $35 on a rebound from either the 10-dma ($35.48) or the 20-dma ($35.12). Maintain stops just below $34. Picked on October 28th at $37.27 Change since picked: -0.93 Earnings Date 1/21/04 (unconfirmed) Average Daily Volume = 6.39 mln Chart = ************** NEW CALL PLAYS ************** Johnson Controls - JCI - close: 107.70 chg: +1.07 stop: 102.99 Company Description: Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of integrated seating and interior systems, and batteries. For non- residential facilities, Johnson Controls provides control systems and services including comfort, energy and security management. (source: company press release) Why We Like It: Building on the bullish wave in the markets and growing net income, shares of JCI have propelled themselves from the $72.50 level in April to $107 in October. The month of October has been exceptionally strong after Bank of America raised their price target on JCI to $125. Fellow vehicle-interior maker Lear Corp (LEA) also benefited from a strong start in October and positive analyst coverage. When the markets pulled back JCI investors saw shares dip toward the $103 level but dip buyers moved albeit on lower volume. Earnings were on Oct. 22nd and the company's fiscal Q4 profits rose 16% while they beat estimates by 3 cents with $2.31 a share. We will admit that the daily and weekly chart on JCI looks extended and overdue for a deeper correction. However, until that time comes we're going to play the trend, which is up, and see how far it can run. Its point-and-figure chart is currently showing a triple-top buy signal after faking out the shorts with a bear trap. We like entries at the current level but momentum traders can look for a new high over $107.40. If you prefer to enter on a dip wait for a pull back to $105 or $106. We're going to initiate the play with a stop loss at $102.99. We also note that JCI is a split candidate. The company last split its stock 2-for-1 on April 1, 1997 at the $80 level. There has been ample opportunity to split since and they did not. However, shares are now trading at all-time highs and October was the first time they broke the century mark. Suggested Options: Short-term traders can choose from the November and December options while longer-term investors may want to look at January 04 and April 04 strikes. We like the 105s and 110s. BUY CALL NOV 105 JCI-KA OI=563 at $3.20 SL=1.60 BUY CALL NOV 110 JCI-KB OI=254 at $0.80 SL= -- BUY CALL DEC 105 JCI-LA OI= 1 at $4.20 SL=2.20 BUY CALL DEC 110 JCI-LB OI= 10 at $1.70 SL=0.90 BUY CALL DEC 115 JCI-LC OI= 0 at $0.60 SL= -- Annotated chart: Picked on October 30 at $107.70 Change since picked: + 0.00 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 432 thousand Chart = ************************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 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* None ************* NEW PUT PLAYS ************* Capital One Fin. - COF - close: 59.68 change: -3.70 stop: 62.00 Company Description: As one of the top 10 credit card issuers in the U.S., Capital One's secret weapon is its vast databases. The company uses this data to match a potential Visa or MasterCard customer to any one of its thousands of cards, varying in annual percentage rates, credit limits, finance charges and fees. Ranging from platinum and gold cards for preferred customers to secured and unsecured cards for customers with poor credit histories, the company has a credit card for just about anyone. The company also sells wireless phone services, mortgage services, and consumer lending products. Why we like it: Investors have been buying the promises of improving business over the past year, and this earnings season their expectations are being put to the test. Shares of COF have had an impressive run from the March lows near $25, topping out just below $65 ahead of earnings earlier this week. This was a major level of resistance, as it turned the bulls back in the middle of 2002. Unfortunately, the press was better than reality, and when COF reported earnings yesterday, investors were disappointed enough to knock the stock back for a 5.8% loss today on volume that nearly tripled the ADV. COF beat earnings estimates by 11 cents, so you're probably wondering what the problem was. It was the guidance that was a problem, as the company guided slightly lower for 2004, and there's no room in current valuations for that kind of pack-pedalling. There's no question this is an aggressive play, coming the day after a sharp reaction to earnings and with the PnF chart still on a Buy signal. This could be just a one-day negative reaction, with the stock once again rebounding tomorrow, so we're going to use a trigger of $59 for the play. Remember that Buy signal on the PnF chart? Well, it will become a Sell signal with a trade at $59. We'll look to enter the play on the initial breakdown, while more conservative traders can wait for a break below the 50-dma ($58.63) before playing. After the initial break of $59, a failed rebound in the $60-61 area can also be used for entering the play, although our preference is for trading the initial break. While there is some mild support near $56 (the site of the bottom of the 9/09 gap as well as the late September reaction low, but we're going to target a move down to $50, with an outside chance of a move down to $48. Set stops initially at $62, just above today's intraday high and the converged 10-dma ($61.68) and 20-dma ($61.56). Suggested Options: Aggressive short-term traders will want to focus on the November 55 Put, as it will provide the best return for a short-term play. Longer term traders will want to look to the December 55 Put, as it should provide ample time for JCI to move in our favor without time decay becoming a major factor. BUY PUT NOV-60 COF-WL OI=5898 at $2.60 SL=1.25 BUY PUT NOV-55 COF-WK OI=4384 at $0.80 SL=0.40 BUY PUT DEC-55 COF-XK OI=3712 at $1.65 SL=1.25 Annotated Chart of COF: Picked on October 30th at $59.68 Change since picked: +0.00 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 2.62 mln Chart = ************************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
The Option Investor Newsletter Thursday 10-30-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: CALL - JCI Traders Corner: Trading Anxiety & Stress – You Bring It On Yourself ********************** PLAY OF THE DAY - CALL ********************** Johnson Controls - JCI - close: 107.70 chg: +1.07 stop: 102.99 Company Description: Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of integrated seating and interior systems, and batteries. For non- residential facilities, Johnson Controls provides control systems and services including comfort, energy and security management. (source: company press release) Why We Like It: Building on the bullish wave in the markets and growing net income, shares of JCI have propelled themselves from the $72.50 level in April to $107 in October. The month of October has been exceptionally strong after Bank of America raised their price target on JCI to $125. Fellow vehicle-interior maker Lear Corp (LEA) also benefited from a strong start in October and positive analyst coverage. When the markets pulled back JCI investors saw shares dip toward the $103 level but dip buyers moved albeit on lower volume. Earnings were on Oct. 22nd and the company's fiscal Q4 profits rose 16% while they beat estimates by 3 cents with $2.31 a share. We will admit that the daily and weekly chart on JCI looks extended and overdue for a deeper correction. However, until that time comes we're going to play the trend, which is up, and see how far it can run. Its point-and-figure chart is currently showing a triple-top buy signal after faking out the shorts with a bear trap. We like entries at the current level but momentum traders can look for a new high over $107.40. If you prefer to enter on a dip wait for a pull back to $105 or $106. We're going to initiate the play with a stop loss at $102.99. We also note that JCI is a split candidate. The company last split its stock 2-for-1 on April 1, 1997 at the $80 level. There has been ample opportunity to split since and they did not. However, shares are now trading at all-time highs and October was the first time they broke the century mark. Suggested Options: Short-term traders can choose from the November and December options while longer-term investors may want to look at January 04 and April 04 strikes. We like the 105s and 110s. BUY CALL NOV 105 JCI-KA OI=563 at $3.20 SL=1.60 BUY CALL NOV 110 JCI-KB OI=254 at $0.80 SL= -- BUY CALL DEC 105 JCI-LA OI= 1 at $4.20 SL=2.20 BUY CALL DEC 110 JCI-LB OI= 10 at $1.70 SL=0.90 BUY CALL DEC 115 JCI-LC OI= 0 at $0.60 SL= -- Annotated chart: Picked on October 30 at $107.70 Change since picked: + 0.00 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 432 thousand Chart = ************************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 ************** Trading Anxiety & Stress – You Bring It On Yourself By Mike Parnos, Investing With Attitude Playing the percentages pays off. Maybe not today. Maybe not tomorrow, but, in the long run, you'll be further ahead. That's what we, at the CPTI, count on. And it seems to be working. However, for most it takes patience, discipline and common sense – traits that are hard for some to develop. The learning process takes time. There's a withdrawal period as you change your trading style from aggressive to conservative. It's painful. We live in a world where we mentally throw a fit and stomp our feet. Why? Because we "want it now." Trading can also play havoc with a marriage – particularly trading directional strategies (which are a "no-no" at the Couch Potato Trading Institute). The constant anxiety and stress can alter personalities and make one difficult to be around. A trade gone bad can put you in a foul mood for days at a time. In Case You've Wondered Why are trader's wives heavier than wives of non-traders? Answer: Non-traders wives come home, see what's in the fridge and go to bed. Trader's wives come home, see what's in bed and go straight to the fridge. ______________________________________________________________ Dear Mike, In your Sept. 14 column discussing the long term ITM QQQ strangle you write: "2) QQQs are at $35? a) The $33 calls can be bought back for $2.05 and rolled into the $33 Nov. calls for $2.30 (+ $.25 time premium). b) The $33 puts can be bought back for a nickel and rolled out to the $35 ATM puts for $1.15. c) Total new premium credit = $1.40. If I understand correctly, this creates a short term short $33/$35 strangle? But originally you argue that we should establish a straddle, taking in the most possible premium? Or do we assume (gamble) that the market will move BACK to $33?? If it doesn't (it keeps rising for 2-3 more month), do we keep expanding the range of our strangle? I am new to CPTI and going through your columns methodically with GREAT enthusiasm. I am determined to master your methods!! (I have a couch already). Hi Joseph, Methodically is good! Enthusiasm is even better! You do it right and you may never have to get off the couch again. The answer to this question is a bit complicated, so grab your cushions and prepare to focus. When we sell the near term puts and calls against the 2005 LEAPS, we have two diagonal calendar spreads -- a bull call spread and a bear put spread. By selling the near term options close to where the QQQs are trading (at the money) we will take in the most premium. When both short puts and calls are ATM, it's true we take in more premium, but we're also sacrificing a little bit of flexibility in our rollout choices. Read on. There is an argument for establishing a short strangle with options near the money – as opposed to the at-the-money straddle. We take in a little less, but our rollout life may ultimately be easier. We know that we're going to want to (or have to) roll out our short positions prior to expiration. Under certain circumstances, a small strangle may be easier to roll out from. If the market has moved more than a few points from a short strike price, it will require more to buy back the option. For instance, let's say we're short the $33 call. The QQQs are trading at $36.50. On our rollout, it would require us to buy back the $33 call for at least $3.55. That leaves the question of which option we would roll it out to. The only way we can recoup the $3.55 we just spent would be to roll out to the same strike price. That means we need the QQQs to come back down. It's entirely likely that the QQQs will bounce around within the LEAPS range for quite some time (within a single cycle as well as future cycles). Therefore, it will probably come back to us -- hopefully around rollout time. If the QQQs are at $36.50 at time of rollout, we might then find ourselves rolling out to the $36 puts and the $33 calls. We might take in only $.75 that month, maybe less. On the other hand, if you are short the $34 calls (and $32 puts) instead of the $33 calls, it will take less to buy back the $34 calls (as part of the rollout) and will simplify the roll back process because it's a full point closer to the new rolled out $36 short puts. You will also get a little more time premium (maybe a dime) when you roll out because you're a little closer to where the QQQs are trading. It gets tricky rolling out as the market comes back down, but it can be done if you maintain patience and discipline. But that's all part of the game. If you aren't totally confused by now, you're doing great and I'm one hell-of-a teacher. If you are totally confused, well, I'm still a hell-of-a writer, you just need to go over it another time or two. Now, aren't you glad you asked? ____________________________________________________________ NOVEMBER AND ONGOING POSITIONS Position #1 – SPX Iron Condor – Trading @ 1046.94 We sold 10 contracts of November SPX 985 puts and bought 10 contracts of November SPX 975 puts for a credit of $1.10 ($1,100). Then we sold 7 contracts of November SPX 1075 calls and bought 7 contracts of November SPX 1090 calls for a credit of $1.50 ($1,050) and a total net credit of $2,150. We've created a maximum profit range of 985 to 1075. With 3+ weeks left, that's a reasonable range. Position #2 – AFCI Iron Condor – Trading @ $24.48 We sold 10 contracts of the AFCI November $25 puts and bought 10 contracts of the AFCI November $20.00 puts for a credit of $1.05. Then sold 10 contracts of the AFCI November $30 calls and bought 10 contracts of the AFCI November $35.00 calls for a credit of $.60. Our total net credit was $1.65. Our safety range was $23.35 to $31.65. Position closed for $700 loss. AFCI has rebounded back into what would have been profitable territory, but we're traders with a plan. So, we bid AFCI a not so fond farewell. We'll meet again. Position #3 – OEX Iron Condor (By Request) – 517.53 We sold 10 contracts of the OEX November 490 puts and bought 10 contracts of the OEX November 480 puts for a credit of about $.90. Then, sold 10 contracts of the OEX November 545 calls and buy 10 contracts of the OEX November 555 calls for a credit of about another $.90. Our total net credit will be about $1.80. Our maximum profit range is 490 to 545. Position #4 – BBH – Siamese Condor - $127.65 Sell 10 contracts of the BBH November $130 puts and 10 contracts of the BBH November $130 calls for about $8.50. Then, buy 10 contracts of BBH November $140 calls and 10 contracts of the BBH November $120 puts for about $2.40. The net credit should be about $6.10. Our profit range is $123.90 to $136.10 and those are also our exit parameters. The closer BBH finishes to $130, the more we will make. Position #5 – QQQ Put Calendar Spread – Trading @ $35.39 We decided to risk a buck. Since many folks think the market is due to correct. We created a cheap play that will let us take advantage of a nice down move. Meanwhile, we will continue to sell against the January put while we wait. We bought 10 contracts of January 04 QQQ $32 puts and sold 10 contracts of October 03 QQQ $32 puts for a total debit of $1.00 ($1,000). The October $32 puts expired worthless and, when the QQQs dipped, we rolled out to the November $32 and took in a $.30 credit. We now have a new cost basis of $.70. OEX – Bearish Calendar Spread – OEX @ $517.53 We own 8 contracts of OEX November 470 puts @ $10.60 and sold 8 contracts of OEX September 470 puts @ $2.20 for a total debit of $8.40. The Sept. 470 puts obviously expired worthless. We sold the October 490 puts, took in another $3.10 and those also expired worthless. On Thursday we sold the November 485 puts for $2.60. Our cost basis is now $2.70. If we're going to make money on this position, we'll need some cooperation from the market. The OEX will have to trade down to about 490 in the next few weeks. Then, we may have to make an adjustment. This may get a bit tricky – another adventure and learning experience. QQQ ITM Strangle – Ongoing Long Term -- $35.39. We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. Then we sold 10 contracts of the QQQ Oct. 33 puts and 10 contracts of the QQQ Oct. 34 calls for a total credit of $1,900. We bought back our $33 puts and $34 calls and rolled out to November $34 puts and $34 calls, taking in another $1.15 ($1,150). So far, so good. HPQ (Hewlett Packard) Bear-Put Spread – HPQ at $22.08 This is a directional bet. We anticipate HPQ may return to the $15 range. We own 10 contracts of the HPQ Feb. 2004 $20 puts @ $2.25 and we sold 10 contracts of the HPQ Feb. 2004 $15 puts @ $.40. Total debit of $1.85. Potential max profit of $3.15. We'd gladly accept a profit of $800-900 and close the position early if the opportunity presents itself. This is a long-term position. __________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page 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 _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. 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