The Option Investor Newsletter Tuesday 11-04-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Good Day For A Walk Futures Markets: Lack of Lustre Index Trader Wrap: Watching the paint dry with a thin coat of red Market Sentiment: Layoffs Cast Doubt Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 11-04-2003 High Low Volume Advance/Decline DJIA 9838.83 - 19.60 9874.83 9819.86 1.75 bln 1693/1522 NASDAQ 1957.96 - 9.70 1971.38 1053.64 2.11 bln 1610/1582 S&P 100 521.38 - 2.63 524.01 520.43 Totals 3303/3104 S&P 500 1053.25 - 5.77 1059.02 1051.70 W5000 10271.46 - 45.70 10317.20 10257.98 RUS 2000 538.87 + 1.03 540.32 535.72 DJ TRANS 2941.56 + 0.80 2952.51 2930.74 VIX 16.55 + 0.00 16.78 16.45 VXO (VIX-O)17.42 + 0.33 17.74 17.11 VXN 25.69 + 0.31 25.96 25.46 Total Volume 4,129M Total UpVol 1,729M Total DnVol 2,319M 52wk Highs 954 52wk Lows 25 TRIN 1.83 NAZTRIN 1.18 PUT/CALL 0.61 ************************************************************ Good Day For A Walk If you took the day off and went hiking, played some golf or maybe started some early Christmas shopping you were spared a great deal of boring trading. The markets wandered aimlessly for much of the day mostly in negative territory. The new highs from Monday were left behind today as the indexes digested the gains and pondered some negative economic news. Considering the Dow had been up for the last six days it was due for a rest. Dow Chart Nasdaq Chart The economic news started out positive with Retail Sales up +0.5% for last week. While it was positive it only retraced about half of the -0.9% drop in the prior week. Sales of Halloween merchandise was reported to be strong but sales of Fall merchandise was hurt by unseasonably warm weather in many areas. Retailers are not daunted and are widely expected to post the best holiday season since 1999. My bet is that competition is going to be fierce with the price slashing to start in the next two weeks. Odds are they will not be waiting for the Thanksgiving break to pass. The October Senior Loan Officer survey showed that the same number of banks that had reported decreases in commercial real estate loan demand in August were still seeing a drop in demand. Bankers also reported a decline in home mortgages for the first time in two years. Despite a decline in the standards required to get a loan the demand for mortgages has fallen substantially over the last three months. No real excitement here or anything we did not already know but there was a small pickup in general business borrowing. The worst news for the day was the Challenger Layoff Report which showed a jump of +125% in the number of layoffs since September. Announced layoffs rocketed to 171,874 from only 76,510 last month. This is more than twice as high as the average for the second and third quarters. This was the largest number since Oct-2002 at 176K and the next largest of Jan-2002 at 212K. The soaring layoffs are not expected to continue despite catching analysts off guard. With the Nonfarm Payroll report on Friday you would expect this to be a factor. However, today's report totals "announced layoffs" and not actual layoffs. These are layoffs that will occur over the next 3-6 months. This does not mean the Friday payroll report will not be negative but it does cast a shadow over the rest of the quarter. Layoffs soared in October last year as well. November saw 157K announced as well before December dropped to only -93k. Far from a trend but it was enough for analysts to cling to and enough to keep the markets from self destructing. I was amazed that the market did not collapse. This was very negative news and news that was not expected. The Dow was already at the lows of the day when it was announced and it dipped another -5 points and then began a rebound. I stared at the screen in disbelief as the Dow gained ground. The bullish sentiment is so extreme that the name bad news bulls fit very well today. Although the markets did not implode the bulls were not able to take them back to positive territory. The flipside was the bears were not able to take them down either. The markets simply traded in a very narrow range after 10:30 and on low volume until time expired. This should not be seen as a win by anybody but the bulls. Tuesday was slated to be a consolidation day at best even before the layoff report. With the Dow up +3% over just the last six days and at new highs there was ample reason for buyers to be passive and profit taking to be aggressive. It simply did not happen. The A/D was flat at 3303:3104 with the edge in favor of the advancers. Declining volume did beat out advancing on the strength of a few high profile losers. RHAT, FHCC, MCDTA, HEPH, PTN, CYCL, PMACA and FIC topped the list with SUNW the winner with over 86 million shares traded followed closely by LU with 84 million shares and a loss of 12 cents. Considering SUNW was up +25% over the prior three days and LU up +41% over the last two weeks a little profit taking should be expected. I am chalking up Tuesday in the bullish column due to the lack of any real profit taking on very negative economic news. However, Wednesday might be a different story. The market felt heavy all day even though there was no drop. After the close today PCLN cut its outlook and warned that demand for airline tickets began to fall in September and that weakness had continued into October. PCLN cut profit forecasts for the 4Q to between 2 cents and 8 cents. The previous analyst view was 8-12 cents. PCLN said the drop would have been worse were it not for some new offerings of hotel rooms, rental cars and some retail products. The bad news was seen as the drop in airline demand over the last two months that seems to be confirming the drop in consumer spending we saw last week. The drop in September was initially ignored as 9/11 event risk but when it continued into October that caused additional concern. PCLN was down -$7 in after hours to 22.50. Southwest Airlines also announced after the close it was shutting down three reservation centers and 1900 workers would be displaced. Adding to our event risk for Wednesday is an appearance before the Senate Banking Committee by Greenspan. He will be grilled about interest rates and the economic recovery. As if this is not enough he will speak on Thursday morning to a group in Boca Raton on "New Developments in the Economy". This speech will be watched very close for signs of position hedging. Currently the Fed Funds futures are not predicting any rate increases until a 25 point hike in May-2004. One reason for no rate hike not quoted in print is the huge borrowing requirements by the government. On Wednesday there is expected to be another $60 billion in various denominations of notes. With the deficit growing daily and several hundred billion in notes to be sold over the next few months there is the implied need to keep rates down until as much of the deficit funding is over as possible. While the "official" interest rate has no direct bearing on the note auctions it does help depress the general bond prices. The mutual fund scandal continues to overhang the markets but no real impact has been seen in equity prices. Officials today said that easily one half of all funds are guilty of allowing market timing and probably one third have allowed some version of late trading. Spitzer went on record as saying that "ALL" and he emphasized "ALL" fees collected by funds while any of these practices were in force "WOULD" be forfeited. Considering these inquiries are going back to 2000 in many cases this could be a huge amount of money. It is far too soon to try and decipher the end result of the investigations, amounts of money paid, what funds will be forced to do to raise this cash and how it will impact the market. The only thing we can be sure of is that it will impact the market if only to keep a cloud over it for the next couple months. Investors will pull money out of some funds and send it to others and the constant churn could keep stock prices from making any large gains. Economically Wednesday should not be a challenge. If the Layoff report today could not deter the bulls the reports on Wednesday should not either. We have Mortgage Applications, Factory Orders and the ISM Services index. We already know mortgage applications are weak so any surprise should be to the upside. ISM Services has been leading the ISM Manufacturing and the estimate is to remain flat so that should be an easy number. The Factory Orders were down -0.8% last month and the estimates are for an increase of +0.6%. Any number over zero should be accepted and ignored. The Greenspan appearance will get more attention than the reports but odds are good the head cheerleader will be in top form. There is always the potential for a slip of the lip but those odds are slim. The general consensus of opinion still appears to be we are still going higher before serious profit taking appears. This is likely the thought process that will prevail but there is a growing contingent that believe otherwise. There were several major analyst firms making dire predictions on stock TV today. "Hard drop by Nov-21st" and "down December" were a couple of the high profile claims. Everybody is welcome to their opinion and everyone has at least one. The earnings estimates for the 4Q have been remarkably quiet. The prognosticators appear to be still crunching numbers and nobody wants to be the first to go public with their results. Despite the increase in the semiconductor sector the outlook for the 4Q is still cloudy. The outlook for the 1Q is even more cloudy and that is when the worry will start building about Fed rate hikes. Once we pass 1/1/2004 the focus will be rates. Once the January earnings cycle has a couple weeks under its belt the investing climate is likely to change drastically. Why is that a worry for us now? Because markets are forward looking by 3-6 months. That 3-6 month window from here is Feb-Apr and that puts the interest rates firmly into focus. The thought process remains that we should move higher this week but the future discounting process may limit any gains. Dow 10500-11000 were being mentioned as targets a lot over the last couple weeks and those numbers are slowly being lowered to 10000-10200. Where we will actually end up is anybody's guess. With the Nonfarm Payrolls on Friday we could continue to wander until that number is out. The estimate is for a gain of 50,000 jobs. While the US markets did not react negatively to the Layoff report the Asian markets did. The Nikkei opened down -108 points and pushed our futures a little farther into negative territory. Still a lot of darkness before the open and far to soon to draw any conclusions. Technically the Dow is holding above support at 9800 and it is still at the high end of the recent 9600-9800 range. There has not been any real weakness appear and we could easily give up a couple hundred points with no harm done. The Nasdaq is also holding at the highs over 1950 and has plenty of support above 1900. It will take a significant change of sentiment to cause any serious damage to either of these indexes. The VXO is still flashing red in the low 17s but nobody appears to be taking notice. We have not seen any obvious changes in the markets despite the extreme levels. November and December are the two best months in normal markets so there is a lot of momentum in the form of historical sentiment behind us. Whether it will be enough to power us much higher is too soon to tell. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** Lack of Lustre Jonathan Levinson The big moves yesterday faded uneventfully today, with the US Dollar Index doing a slow bleed off its highs, ditto equities, while gold and treasuries bounced modestly, retracing part of yesterday's losses. 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 chart shows the difference between large and small traders. I'll leave it to you, faithful reader, to decide which is which, but it leaves one with the same feeling as the audience witnessing the fight between the Empire's battle droids and the rebel forces in that big open field in "Star Wars: Phantom Menace". Enough said. Support is between 92.70-92.80, resistance at 93.90. Daily chart of December gold December gold traded both sides of 380 today, with the real strength in silver which added 2.29% to trade 5.04 as of this writing. The CRB was up .72 as of the close, off its intraday highs. I've generated a year-to-date daily chart of gold to put some context on our analysis at the expense of smaller, blurrier price candles. As can be seen, there's tough sledding to the upside from here, with solid trendline resistance at 390 coincident with confluence resistance dating back to the mid-1980's and mid- 1990's. Add the downphasing oscillators, and my favorite bullish sector is looking like a likely sell here. On the positive side, however, Fibonacci and trendline support held at 377, and this will be the level to watch tomorrow. Below 375, 365-6 is the next significant support. Daily chart of the ten year note yield The ten year note yield dropped 6.3 bps to 4.305%, with 10 year treasuries recovering part of yesterday's losses. The move caused a twitch higher in the now-waffling daily cycle oscillators, which is what one would expect as price coils within the apex of the narrowing pennant. This flatlining will continue until either the upper or lower trendline breaks, and the only comfort for traders is that the move is growing near. Daily NQ candles The upper trendline held, with NQ touching a high of 1444 before pulling back. The range was relatively narrow, and the selling lackluster but persistent. As with the dollar, gold and ten year treasury notes, the NQ retraced part of yesterday's big move. Traders appear to be sufficiently sick of upside that every dip was cheered, but the fact remains that today's selling was nothing more than a very small retracement. It might have also been the last time we'll see these levels, given the persistent prints below 18 on the VXO and equally low QQV and VXN readings, but the charts give us no such indication at this time. The daily cycle oscillators are on buy signals, not strictly upphases yet but clearly not downphasing. If lower trendline support at 1400 can get broken, bears will have more on which to chew, with a preliminary pattern target of 1300, but in the meantime, the trend remains higher, somehow. 30 minute 20 day chart of the NQ The rising trendline on NQ was finally broken around noontime, with the 30 minute cycle oscillators picking off the top perfectly. The bearish divergences discussed in last night's Futures Wrap portended the decline, but I note with some discomfort that the 30 minute cycle downphase has so far been good for all of 20 or so points. This is a relatively small drop, and is not as sharp as the upmoves preceding it have been. If so, then another blast to test the highs is easily imagined, as a weak downphase often precedes a strong upphase. That said, the trendline is now resistance, all the way up at 1445 currently. Support at the low of the day at 1426 will be the first downside test of the still ongoing downphase, despite brief the mid-afternoon stoprunner. Daily ES candles ES pulled back as week bouncing off 1050 support and not threatening any of the bullish uptrend so far. The buy signals on the daily cycle oscillators sustained more damage than those on the NQ, but the same discussion applies. It felt more bearish than it was, and bears need to be careful to not become fuel for the next in what seems like an endless string of short covering panic rallies. 1043 is the support line on the rising bear wedge, and a break below it projects to a possible 987 target. 20 day 30 minute chart of the ES The bearish divergence is flatter on the ES 30 minute chart, but nevertheless foreshadowed today's weakness. My reservations on the weakness of the downphase thus far on the NQ apply no less on the ES, with less than 8 points of downside so far. Given the nascent upphase trying to start on the daily chart, 1050 may well be a strong buy if the 30 minute cycle downphase ends tomorrow morning without more of a dip. We'll then watch for the strength of the bounce, knowing that it's likely to be strong following so weak a downphase. If, on the other hand, the bounce turns out to be weak, with a lower price high below 1060, then the bears can roll out the proverbial barrel. Daily YM candles YM actually finished 4 points in the green. Other than that, the cycle setup is the same as for the ES and NQ. 20 day 30 minute chart of the YM If today's trading was corrective, as it appears to have been on all of the asset classes we follow, then the reversal of today's action could pack some thrust. Bond bulls, goldbugs, dollar and equity bears will need to be nimble and careful to get out of the way if we see reversals tomorrow morning. I am frankly astounded at the weakness of the selling, given that I'm now sufficiently frazzled by the low intraday put to call readings and volatility indices to be unable to pull the trigger on bullish equity trades. I'm barely able to cover intraday short positions for that matter. But, this year has taught me that my own views are of secondary importance, and above all, DON'T LOSE MONEY. That means letting protective or trailing stops trigger, and stepping aside when confused or unsure. My bias is for downside here, but my bias for avoiding losses is stronger. If equities are going to go higher, then we'll try to trade what we see, or at least watch from the sidelines. "Greater fool" buying is fine, but one never knows if/when it's his/her turn to wear the conical cap, holding a fill right at the top. I've never been good at it. For tomorrow, the oscillators indicate that a bounce is growing likely. If support fails out of the gate and those oscillators begin trending, the daily oscillators will flip back down, and it could be time to finally dust off our helmets. 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 ******************** Watching the paint dry with a thin coat of red Today's trade was somewhat similar to watching a fresh coat of paint dry, where by session's end, the lack of economic data and few key earnings reports had profit taking leaving the bulk of sectors and major indices finishing lower with a thin coat of red. Like oil and water, the AMEX Gold Bugs Index ($HUI.X) 212.99 +1.97% recouped just about 1/2 of yesterday's losses and took today's top spot for equity sector winners, while the U.S. Dollar Index (dx00y) 93.28 -0.40% gave back nearly half of yesterday's gains. Outplacement firm Challenger, Gray and Christmas said layoff announcements more than doubled in October to 171,874, the highest in a year, but the news was taken with a grain of salt as October is typically the largest month for layoff notices, as companies slash costs at the end of the fiscal year. John Challenger, the CEO of the company that bears his name said, "While perhaps shocking to some, the October spike follows a trend of heavy year-end downsizing that has occurred since we began tracking job cuts in 1993. With factors like technology, outsourcing and consolidation working against job creation, any job market rebound we see in the near future will be relatively small." The Challenger layoff report showed the auto industry sent 28,363 workers down the road in October, followed by 21,169 announced layoffs in the retail sector and 21,030 in the telecommunications sector. Shares of the Big 3 automakers found General Motors (NYSE:GM) $42.90 trading unchanged, while Ford Motor (NYSE:F) $12.32 +0.81% and Daimler Chrysler (NYSE:DCX) $37.84 +1.04% posted gains. Both the Combined Telecom Index (IXTCX) 176.12 and North American Telecom Index (XTC.X) 541.23 shed just more than 1% in today's trade, while the S&P Retail Index (RLX.X) 386.45 fell 0.73%. A separate poll conducted by Challenger, Gray and Christmas had 78% of corporate personnel managers saying there would not be a significant rebound in hiring before the second quarter of 2004. Eleven percent of those polled said a rebound in hiring wasn't likely until Q3 or Q4 of next year, while 11% said they didn't see a rebound in hiring for 2004. Treasury bulls found the Challenger report to their likely with bonds finding a bid in today's trade, with the shorter-dated 5- year YIELD ($FVX.X) falling 6.6 basis points to 3.259%, while the 10-year YIELD ($TNX.X) fell 6.3 basis points to 4.305%. The longest dated 30-year YIELD ($TYX.X) edged down 4.5 basis points to 5.138%. Tomorrow's economic schedule has the Institute of Supply Management Services Index for October being released at 10:00 AM EST, where modest expansion to 63.4 from September's 63.3 reading is forecasted by economists. The ISM Services report doesn't get as much attention as the recently released ISM Manufacturing Index, which was released on Monday. Also slated for release at 10:00 AM EST is September factory orders, where economists' look for orders to have increased 0.6% after a -0.8% decline in August. Some economists have edged up their numbers in recent days after seeing Q3 GDP data, which was much stronger than previously forecasted, so I wouldn't expect the September factor orders data to provide much surprise. Pivot Matrix The Dow Diamonds (AMEX:DIA) $98.58 +0.07% showed a gain despite the Dow Industrials (INDU) 9,838.823 -0.19% posting a 19-point loss only because a 04:15 PM EST closing trade late Monday at $98.51 created today's discrepancy. Often times we will see the trackers like the DIA,SPY,QQQ show some fractional differences from their parent index with the extra 15-minutes of trade past the 04:00 PM EST mark providing the difference. Some of the correlations that show up in the pivot matrix at DAILY R2 and WEEKLY R1 will most likely be difficult levels to break through on an intra-day basis tomorrow, as Cisco Systems (NASDAQ:CSCO) $21.58 -0.59% is slated to report earnings after tomorrow's close. My gut feel is that the major indices trend higher into the CSCO numbers, where a potential bullish type of "blow off" trade to the still correlative MONTHLY R1 and WEEKLY R2s would only be found on some very bullish forward looking comments out of CSCO. While I'm not much of a "gut feel" trader as it relates to risking large amounts of capital, I will trade my instinct and past observations to an extent. My first observation tonight is that S&P futures (sp03z) settled 1,052.30 and that's above our "bullish bias" level of 1,051.20. With correlation showing up in the MONTHLY R1 and WEEKLY R2 in the SPY, there's still an "old trade" and recent observation eating at me. Here's the S&P Depository Receipt (AMEX:SPY) $105.76 -0.21%, where I'm trying to think through the October 24th trade, and observations made in the weekend Market Wrap on October 26. Here's the http://members.OptionInvestor.com/MarketWrap/mw_102603_1.ASP to that Market Wrap. S&P Depository Receipts (SPY) Chart - Daily Intervals The yellow spot marks the observation of multiple sell programs on October 24, where those sell programs were gobbled up by the MARKET. Was that "smart money" targeting yesterday's highs as it knew about the strong GDP data and October ISM Index data? Since we find similarity to our prior scenario, its time to look for DIVERGENCE to the past. For bullish DIVERGENCE to the past, the one thing a trader looks for early in the session is for support from 105.18 (note MONTHLY 38.2% retracement matching DAILY S2), firming there, and the makings of a rebound back higher, where my "gut feel" is that a trade back above 105.40 would be the pre-rally signal into Cisco's (CSCO) earnings, when reported after the close, has the SPY trading MONTHLY R1, where just by coincidence, the Dow Diamonds (DIA) $98.58 trades MONTHLY R1 of $100.13, which is equivalent to DOW 10,000!!!! Anyway.... this would be a good test for tomorrow, but I don't think the buying done from $102.24-$103.21 has sold yet, but waiting for $107.36 as the bullish target. Today's trade saw a net loss of 2 stocks to point and figure sell signals as the S&P 500 Bullish % ($BPSPX) slipped back 0.4% to 80%. Still "bull confirmed." Dow Industrials (INDU) Chart - Daily Intervals If a Dow 10,000 is to be traded this week, and I do think there is potential for it to be traded, then I'm tying in the SPY observations and tests with the INDU chart above. I'm not EXPECTING disappointing economic data, tomorrow, but see the trade setup for the markets to trend lower early in the session, look for support at DAILY S2's, where a rebound builds into CSCO earnings, where the "good news" then gets sold at 10,000.00 as if market participants just glad it took place. NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval Volume levels in the QQQ suggest there isn't much interest the past three sessions, as if there is some event on the horizon that is deemed more important. I think it is CSCO. Don't take my trade scenario for QQQ as complacent bullishness. It isn't, but this is the kind of thing I think some may not be looking for, and should it happen, THEN the complacent bull scrambles to buy a gap higher near $36.61, just as they get smacked with a load of stock from liquidating longs on the "good news." The BIG test for the QQQ is to show strength above $36.15, and unless some big broker makes comment during tomorrow's trade about how great CSCO's earnings or guidance is going to be, I think the QQQ stays pegged under the $36.00 level, but look for support above the weekly pivot, keeping in mind the QQQ tends to overdo things on the up and downside. 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 **************** Layoffs Cast Doubt - J. Brown The big event today certainly wasn't the market's movement. All the major averages traded in very narrow ranges and the DJIA and the S&P 500 both ended a six-day winning streak. No, the big news today was the Challenger Gray & Christmas corporate layoff report. Planned corporate layoffs soared 125 percent after three months of encouraging declines. Suddenly investors began to doubt the expectation that Friday's employment report would be slightly positive and a continuation of the last jobs report. Despite the negative surprise the markets failed to move. It was a game of chicken with the bulls and bears struggling to see who would blink first. Considering that the markets were so overbought it was not a surprise to see weak hands take some money off the table. Even so the selling was muted. Most sector indices did close in the red but only marginally so. Continuing to weigh on the retail investor's confidence is the growing mutual fund scandal. Yesterday it claimed Putnam's CEO. Today it claimed several employees from Prudential whom the SEC is pressing fraud charges. I guess it's possible that from a contrarian point of view the retail investor might see these headlines and think, "ah, finally the government is doing something... my money should be safer now." But I think that may be a stretch of the imagination. The volatility indices remain low and will continue to undermine the confidence in any future gains until we see a significant pull back. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9896 52-week Low : 7197 Current : 9838 Moving Averages: (Simple) 10-dma: 9720 50-dma: 9584 200-dma: 8840 S&P 500 ($SPX) 52-week High: 1061 52-week Low : 768 Current : 1053 Moving Averages: (Simple) 10-dma: 1042 50-dma: 1028 200-dma: 948 Nasdaq-100 ($NDX) 52-week High: 1445 52-week Low : 795 Current : 1429 Moving Averages: (Simple) 10-dma: 1405 50-dma: 1375 200-dma: 1192 ----------------------------------------------------------------- Volatility indices continue to warn investors that the markets are vulnerable and near a potential top. CBOE Market Volatility Index (VIX) = 16.55 +0.00 CBOE Mkt Volatility old VIX (VXO) = 17.42 +0.33 Nasdaq Volatility Index (VXN) = 25.69 +0.31 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.61 418,717 682,009 Equity Only 0.49 595,255 294,407 OEX 1.03 15,694 16,108 QQQ 3.29 12,426 40,856 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.6 + 0 Bull Confirmed NASDAQ-100 76.0 - 1 Bear Correction Dow Indust. 80.0 + 0 Bull Correction S&P 500 80.0 + 0 Bull Confirmed S&P 100 79.0 + 0 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: 1.11 10-dma: 1.12 21-dma: 1.08 55-dma: 1.09 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 1452 1526 Decliners 1385 1524 New Highs 443 483 New Lows 11 11 Up Volume 618M 960M Down Vol. 1065M 1063M Total Vol. 1703M 2062M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/28/03 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 It's been a long week since last we looked at the COT data and we're still not seeing any big moves by the Commercial traders. The same holds true for small traders but they did reduce some of their short positions. Commercials Long Short Net % Of OI 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%) 10/28/03 391,596 412,498 (20,902) (2.6%) 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 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% 10/28/03 137,791 76,791 61,000 28.4% 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 Hmm... we are seeing some movement in the e-minis. Commercials have upped their short positions by 24K contracts. Small Traders may have gotten the hint too. Short interest is up but the real change is the 45K drop in long contracts. Commercials Long Short Net % Of OI 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%) 10/28/03 220,171 260,644 (40,473) ( 8.4%) 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 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% 10/28/03 123,569 59,742 63,827 34.8% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 This time it's the Small Traders making a move in the NDX futures. Long contracts are up nearly a third to more than 21K. Commercials are still comatose but the trend is growing slowly more bearish with a small bump in short positions. Commercials Long Short Net % of OI 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%) 10/28/03 36,168 46,272 (10,104) (12.3%) 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 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% 10/28/03 21,640 8,830 12,810 42.0% 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 There is very little change here for the Small Trader but Commercial Traders have upped both their longs and their shorts. Commercials Long Short Net % of OI 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% 10/28/03 20,504 11,366 9,138 28.7% 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 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%) 10/28/03 5,295 8,864 (3,569) (25.2%) 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 Tuesday 11-04-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: ICOS Dropped Puts: COF Call Play Updates: APA, COO, FD, IMDC, JCI, LOW, QLGC, VRTS New Calls Plays: ADTN, JBL Put Play Updates: JBLU New Put Plays: None **************** 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: ***** ICOS Corp - ICOS - close: 44.40 chg: -1.45 stop: 42.49 The last few days we've been suggesting that traders exit ICOS at Monday's or Tuesday's close. It looks like Monday would have been the better play. Shares fell more than 3 percent and closed under the $45 level prior to its earnings report after the bell this evening. ICOS' Q3 results were good. Consensus estimates had been for a loss of 79 cents a share. ICOS turned in a better than expected loss of 63 cents. After hours showed ICOS trading back above the $45 level on the news. We're closing the play as of today's closing price (per our previous comments). Picked on October 26 at $45.42 Change since picked: - 1.02 Earnings Date 11/04/03 (confirmed) Average Daily Volume: 1.5 million Chart = PUTS: ***** Capital One Fin. - COF - close: 61.70 change: +0.02 stop: 62.00 As mentioned over the weekend, we were having second thoughts on our COF play, as the stock had rebounded from just above key support, giving the appearance of a bear trap after Thursday's apparent breakdown. Sure enough, the rebound has continued this week, with the stock tapping our $62 stop today. This is precisely why we used an entry trigger on the play. That trigger at $59 was never touched, which means the play never became more than an academic exercise. Based on the rebound of the past 3 days, we clearly want to drop the play as one that never gave us the opportunity we were looking for. Picked on October 30th at $59.68 Change since picked: +2.20 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 2.74 mln Chart = ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** PLAY UPDATES - CALLS ******************** Apache Corp. - APA - close: 68.10 change: -1.47 stop: 66.25 It wasn't an impressive start to this bullish play, as Oil Service stocks have been on the defensive this week. APA has fared worse than its peers though, with today's 2.1% loss looking particularly ominous. Not only did today's drop break the 50-dma ($69.07), but it has the stock dropping back into the lower half of the rising channel. Fortunately, we used an entry trigger on the play at $70.50, which has yet to be satisfied. We'll wait for that level to be reached on a rebound before considering APA a live play. Note that our stop at $66.25 is now actually closer than the entry trigger. If the stop is hit before the play is triggered, then we'll just let it go as a play that never set up for us. If the bulls do manage to get their act together over the next couple days, the momentum move through $70.50 looks like the optimum entry scenario. Picked on November 2nd at $69.72 Change since picked: -1.62 Earnings Date 1/22/04 (unconfirmed) Average Daily Volume = 1.36 mln Chart = --- Cooper Cos - COO - close: 43.62 chg: -0.45 stop: 41.49 *new* Slowly COO continues to climb. The stock was due for a little bit of profit taking after its strong bounce from the 50-dma over a week ago. Yet the worst sellers could do was take COO down to he $43.00 mark. By the afternoon shares were well off their lows. We still refrain from suggesting new bullish positions this close to resistance at $45.00 and short-term traders can be planning their exits on the next pop higher. We are bumping out stop loss up to 41.49, just under the simple 50-dma. Picked on October 12 at $41.40 Change since picked: + 2.22 Earnings Date 09/03/03 (confirmed) Average Daily Volume: 391 thousand Chart = --- Federated Dep Store - FD - cls: 47.31 chng: -0.56 stop: 45.50 Another attempt and another failure is the score for our FD play. The stock has been battling with the $48 resistance level on a daily basis for more than a week now and with yesterday's failed rally above that level and today's red candle, it isn't looking any closer to that elusive breakout. To be fair, it was a day of consolidation throughout the overall market, and today's fractional loss is nothing to get worked up about. But it has been rather disappointing to see the Retail index (RLX.X) pushing to new highs lately, but FD unable to join the party. With a bearish candle pattern and daily Stochastics giving a sell signal, now would be a good time for conservative traders to harvest what gains they've already accrued in the play. Those with a bit more tolerance for risk can still hold out for a breakout over $48, with a plan to sell into strength near our $50 target. With earnings just over a week away, we aren't enthusiastic about new entries, either on a breakout or a pullback. Maintain stops at $45.50. Picked on October 9th at $45.60 Change since picked: +1.71 Earnings Date 11/12/03 (unconfirmed) Average Daily Volume = 1.88 mln Chart = --- Inamed Corp - IMDC - cls: 87.85 chg: +0.28 stop: 82.49*new* Well what do you know? Someone at Inamed must have been listening. On Sunday we suggested that IMDC was a prime candidate for a stock split and very late Monday night (about 8:00 PM ET) the company announced a 3-for-2 split. The split date will be near December 15, 2003 for shareholders on record as of December 1st. The 3:2 split will be enacted as a 50% stock dividend and fractional shares will be paid in cash. IMDC has been trading higher since Sunday but has run into short-term resistance in the 88.00-88.10 range. Fortunately, we continue to see higher lows indicating buying pressure. The best entry point is still on a bounce, preferably from the $85 area but more aggressive traders may be inclined to chase it. We are raising our stop loss to $82.49. Picked on November 02 at $86.16 Change since picked: + 1.69 Earnings Date 10/29/03 (confirmed) Average Daily Volume: 514 thousand Chart = --- Johnson Controls - JCI - cls: 110.30 chg: +1.95 stop: 104.99*new* It was a busy day for JCI. The company announced an agreement with Case Logic, the maker of those soft nylon accessory cases, Black & Decker (BDK), and Master Lock all for accessories to JCI's Railport (TM) Vehicle Personalization System. We're not so sure the deals announced above truly affected the stock price today but shares did gain another 1.79% on strong volume of 625K shares. We're very encouraged by JCI's relative strength with the market's weak today but the highs today are close to what could be JCI's rising channel. If the markets sink tomorrow we would expect some profit taking in JCI. Bullish traders may want to hold back and see where the stock bounces. The stock continues to be a split candidate but we're just speculating on an announcement now that it's over the century mark. We are raising our stop loss to $104.99. Picked on October 30 at $107.07 Change since picked: + 3.23 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 432 thousand Chart = --- Lowe's Companies - LOW - close: 59.64 change: -0.41 stop: 58.00 It was a day of consolidation in the broad market, so it was no great surprise to see LOW take a bit of a breather after yesterday's surge to fresh all-time highs. Giving up less than 1% and printing a nice inside day certainly doesn't cause us any great concern. At this point, critical support is defined by the $58.50-59.00 broken resistance area and a dip and rebound from above there can be used for new entries. Critical resistance comes in at the upper Bollinger band ($60.23) and then at the top of the rising channel (now at $61.85). With price pulling back a bit from that upper Bollinger band right now, momentum entries on a break to new highs do not seem a high odds strategy. Conservative traders should look to sell into strength near the top of that channel if given the opportunity over the next week. We're still going to maintain our aggressive bullish target of $65, but must remind readers that it would require a strong breakout from the 8-month rising channel to achieve that goal ahead of earnings. Better to take the small gain (just below the top of the channel) than give it back due to excessive greed. Maintain stops at $58. Picked on October 23rd at $58.65 Change since picked: +0.99 Earnings Date 11/17/04 (unconfirmed) Average Daily Volume = 3.88 mln Chart = --- QLogic Corp. - QLGC - close: 57.04 change: -0.57 stop: 55.50 Last week's rally up to the $58 level left QLGC bulls a bit stunned as the stock promptly retraced back to the $56 level. More strength in Technology shares, particularly the Semiconductor sector (SOX.X) on Monday took QLGC right back to that $58 level, where it was once again rejected today. But this pullback was a bit milder, with intraday support being found near $57. After the first foray over $56, QLGC came back and found solid intraday support just below that level near $55.90, so it was logical to raise our stop to just below that level ($55.50) to lock in a slight gain in case the rally fails right here. A break below that level would almost certainly have the $53-54 level in play as next support and we don't want to give that much back. Aggressive traders can still look for entries on a pullback and rebound from above $56, but we're not enthusiastic about momentum entries here. QLGC would have to clear $58.40 to qualify for an entry, and then price would just be too close to our $60-61 target. Picked on October 21st at $54.21 Change since picked: +2.84 Earnings Date 1/14/04 (unconfirmed) Average Daily Volume = 4.57 mln Chart = --- Veritas Software -VRTS - cls: 37.05 chng: -0.12 stop: 34.50*new* While it certainly isn't setting any records, VRTS is still looking like a decent breakout candidate. Over the past week, it has been trying to solidify its breakout above $36, trading in a fairly tight range between $36.00-37.50. Despite the lack of additional upside progress so far this week, we certainly like the way the 10-dma ($36.23) appears to be providing intraday support, with the 20-dma ($35.49) as backup. Intraday dips and rebounds in the $35.50-36.00 area look good for new entries as old resistance is verified as new support. Once clear of near- term resistance, the next upside target will be $40, where conservative traders may look to harvest some partial gains. We're raising our stop to $34.50 tonight, which is now under the 30-dma ($34.57) and will be under the 50-dma ($34.42) by tomorrow. Picked on October 28th at $37.27 Change since picked: -0.22 Earnings Date 1/21/04 (unconfirmed) Average Daily Volume = 6.14 mln Chart = ************** NEW CALL PLAYS ************** ADTRAN, Inc. - ADTN - close: 71.73 change: +0.93 stop: 66.40 Company Description: ADTRAN, Inc. develops products and services that simplify access to telecommunications networks. The company's high-speed, digital transmission products improve the operation of, and reduce the costs associated with, building and using communications networks. Small and large telephone companies, long distance carriers and other network service providers use the ADTN's products to deliver high-speed data, voice, video and Internet services to their customers. Businesses, schools and government agencies use the company's products to connect facilities, remote offices and mobile workers, enabling corporate information services, Internet access, telecommuting and videoconferencing within their organizations. Why we like it: To say shares of ADTN have been on fire this year would be a colossal understatement. Since the October 2002 lows, the stock has risen from $15 to a high of $75! And the stock is still looking strong. After a brief bout of selling in the wake of the company's inline report, the stock once again found support at the midline of the year-long rising channel and has been rebounding nicely this week. ADTN looks like it is definitely headed for a retest of resistance at $75, and if the bulls can manage a breakout, then the early 2000 highs near $80 look like a viable target. There's another catalyst for the play, although it may be a bit far out to impact the near-term price action. With its earnings report last month, the company announced a 2- for-1 split, which will be effective on December 15th. With strong dual support from the center of the channel ($66.55) and the 50-dma ($66.42), risk is certainly easy to control with a stop just below there at $66.40. Our preference for entry would be on a slightly pullback and rebound from the $69-70 area. Momentum traders can certainly consider a breakout entry above today's intraday high ($73.10), but that feels pretty risky, with the upper Bollinger band at $74.35 and strong resistance at $75. The better momentum entry would appear to be on a confirmed breakout over $75. Until then we'd suggest focusing on pullback entries. Suggested Options: Shorter Term: The November 70 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 December 75 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 will want to use the December 70 Call. BUY CALL NOV-65 RQA-KN OI= 591 at $3.60 SL=1.75 BUY CALL NOV-70 RQA-KO OI=1226 at $1.15 SL=0.50 BUY CALL DEC-70 RQA-LN OI= 62 at $5.20 SL=3.25 BUY CALL DEC-75 RQA-LO OI= 143 at $2.80 SL=1.50 Annotated Chart of ADTN: Picked on November 4th at $71.73 Change since picked: +0.00 Earnings Date 1/12/04 (unconfirmed) Average Daily Volume = 1.02 mln Chart = ! Editor's Note: We just noticed after hours today that Reuters is reporting ADTN's CEO has sold nearly 4 million shares of his stake in the company. That effectively leaves him 4 million shares. While we don't know how many stock options he may be holding this is bound to look bad to investors. Shares of ADTN are down after hours near the $69.50 level. Traders may want to wait and see how the stock reacts for the first couple of hours of trading before making any decisions. --- Jabil Circuit - JBL - close: 30.11 chg: +1.60 stop: 27.60 Company Description: Jabil Circuit, Inc. is one of the world's largest electronic manufacturing services providers. Jabil manufactures for international electronics companies in the automotive, computing and storage, consumer, instrumentation and medical, networking, peripheral and telecommunications markets. Jabil offers circuit design, board design from schematic, prototype assembly, volume board assembly, system assembly, repair and warranty services from facilities in the Americas, Europe and Asia. (source: company press release) Why We Like It: We are hesitant to add any new bullish plays given the market's current overbought condition and the low volatility indices but JBL's relative strength today is too much to ignore. Looking at the chart readers will see the strong surge in August as traders bid up the stock prior to earnings. Then JBL got hammered in mid-September after the company merely met analyst estimates. Forbes published a negative article a few days later on September 25th suggesting this over priced stock with a P/E of 142 was ready to plummet. The author actually suggested shorting JBL and covering at $20. The next day (9/26) JBL dropped again to break support at $26.00 and its simple 50-dma. It proved to be a bear trap. The stock has spent the last month trading sideways between $26 and $29 and has since received an upgrade from "neutral" to "out perform" and new analyst rating at "over weight". Today's 5.6% rally has us very curious. The move is a bullish breakout on its daily chart above recent trend of lower highs. It is also a bullish breakout on its weekly chart. Plus, the rally produced a fresh triple-top buy signal on its point-and-figure chart. Let's not forget JBL did it all on better than twice its average volume. Yet we can't find any news to contribute to the move. Technicals are all bullish and we think JBL might extend the rally towards the $34-35 region. We're going to start the play with a stop under today's low at 27.60. We will freely admit that it can be dangerous playing expensive stocks (remember JBL's P/E at 142) with the markets so close to a potential reversal. Should the market's truly sell off JBL could take a hit. On the other hand an alternative entry to today's close over $30 would be a bounce from the $29 level. Suggested Options: There are plenty of options to choose from. Short-term traders can focus on November or December strikes. Longer-term traders can use the January or March strikes. We like the 30's even though they are at-the-money. BUY CALL NOV 25 JBL-KE OI= 416 at $5.40 SL=3.00 BUY CALL NOV 30 JBL-KF OI=2135 at $1.35 SL=0.65 BUY CALL NOV 35 JBL-KG OI= 78 at $0.15 SL= -- Riskier! BUY CALL DEC 25 JBL-LE OI=2198 at $5.80 SL=3.50 BUY CALL DEC 30 JBL-LF OI=4352 at $2.05 SL=1.00 BUY CALL DEC 35 JBL-LG OI= 324 at $0.40 SL= -- Annotated Chart: Picked on November 04 at $30.11 Change since picked: + 0.00 Earnings Date 09/18/03 (confirmed) Average Daily Volume: 1.4 million Chart = ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************* PLAY UPDATES - PUTS ******************* JetBlue Airways - JBLU - cls: 55.50 chg: +1.24 stop: 59.50 Our put play in JBLU is off to a good start. The stock dropped more than $3.40 on Monday with strong volume of 2.9 million shares. The drop put JBLU below the $55 support level, which happens to be a 38.2% retracement of the April-October run. Coincidentally a report came out that billionaire George Soros has cut his stake in JBLU by roughly 25% (Reuters). Soros sold 1 million shares near $58.50 and donated almost 3 million shares to the Open Society Institute. He continues to own almost 12 million shares of the airline. Meanwhile airlines as a group were lower today despite improving October traffic numbers. Today's $1.24 gain in JBLU looks like an oversold bounce and traders can look for new entries on a drop back below the $55 mark or a failed rally under 57.50. Yesterday we lowered our stop to 59.50, which remains above the declining 10-dma. Picked on November 02 at $57.67 Change since picked: - 2.17 Earnings Date 10/23/03 (confirmed) Average Daily Volume: 1.5 million Chart = ************* NEW PUT PLAYS ************* None ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** 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 Tuesday 11-04-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: Call - JBL Traders Corner: Williams %R ********************** PLAY OF THE DAY - CALL ********************** Jabil Circuit - JBL - close: 30.11 chg: +1.60 stop: 27.60 Company Description: Jabil Circuit, Inc. is one of the world's largest electronic manufacturing services providers. Jabil manufactures for international electronics companies in the automotive, computing and storage, consumer, instrumentation and medical, networking, peripheral and telecommunications markets. Jabil offers circuit design, board design from schematic, prototype assembly, volume board assembly, system assembly, repair and warranty services from facilities in the Americas, Europe and Asia. (source: company press release) Why We Like It: We are hesitant to add any new bullish plays given the market's current overbought condition and the low volatility indices but JBL's relative strength today is too much to ignore. Looking at the chart readers will see the strong surge in August as traders bid up the stock prior to earnings. Then JBL got hammered in mid-September after the company merely met analyst estimates. Forbes published a negative article a few days later on September 25th suggesting this over priced stock with a P/E of 142 was ready to plummet. The author actually suggested shorting JBL and covering at $20. The next day (9/26) JBL dropped again to break support at $26.00 and its simple 50-dma. It proved to be a bear trap. The stock has spent the last month trading sideways between $26 and $29 and has since received an upgrade from "neutral" to "out perform" and new analyst rating at "over weight". Today's 5.6% rally has us very curious. The move is a bullish breakout on its daily chart above recent trend of lower highs. It is also a bullish breakout on its weekly chart. Plus, the rally produced a fresh triple-top buy signal on its point-and-figure chart. Let's not forget JBL did it all on better than twice its average volume. Yet we can't find any news to contribute to the move. Technicals are all bullish and we think JBL might extend the rally towards the $34-35 region. We're going to start the play with a stop under today's low at 27.60. We will freely admit that it can be dangerous playing expensive stocks (remember JBL's P/E at 142) with the markets so close to a potential reversal. Should the market's truly sell off JBL could take a hit. On the other hand an alternative entry to today's close over $30 would be a bounce from the $29 level. Suggested Options: There are plenty of options to choose from. Short-term traders can focus on November or December strikes. Longer-term traders can use the January or March strikes. We like the 30's even though they are at-the-money. BUY CALL NOV 25 JBL-KE OI= 416 at $5.40 SL=3.00 BUY CALL NOV 30 JBL-KF OI=2135 at $1.35 SL=0.65 BUY CALL NOV 35 JBL-KG OI= 78 at $0.15 SL= -- Riskier! BUY CALL DEC 25 JBL-LE OI=2198 at $5.80 SL=3.50 BUY CALL DEC 30 JBL-LF OI=4352 at $2.05 SL=1.00 BUY CALL DEC 35 JBL-LG OI= 324 at $0.40 SL= -- Annotated Chart: Picked on November 04 at $30.11 Change since picked: + 0.00 Earnings Date 09/18/03 (confirmed) Average Daily Volume: 1.4 million Chart = ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** TRADERS CORNER ************** Williams %R Jane B Fox In his nearly 40 years of commodities trading, Larry Williams has earned what some would say is a pretty unique reputation. He is a well-known trader, author and money manager. He is the all time winner of the Robbins World Cup Championship in futures trading taking $10,000 to $1,100,00 in less than 12 months. He also taught his 16 year old daughter his method and she won the competition the following year. However, I believe his most honored accomplishment is the development of an overbought/oversold oscillator called the Williams %R (pronounced percent R). The William's %R works much like the Stochastic Oscillator and is especially popular for measuring overbought and oversold levels. But before we go any further let's define what is meant by the terms overbought and oversold. Overbought: Overbought conditions occur when prices are considered too high and "may" be susceptible to a decline. This is not necessarily the same as being bearish. It merely means that the stock or index has risen too far too fast and might be due for a pullback. Although you may not want to sell an overbought condition until the price confirms a trend reversal, you can safely say it is not the time to buy. Oversold: Oversold conditions occur when prices are considered too low and "may" be susceptible to a rally. This is not necessarily the same as being bullish. It merely means that the stock or index has fallen too far too fast and might be due for a pullback. Although you may not want to buy an oversold condition until the price confirms a trend reversal, you can safely say it is not the time to sell. The technical interpretation of overbought or oversold is that they represent a likely point for anticipating a trend reversal. The overbought/oversold scale of the William's %R indicator ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold. William %R shows the relationship of the close relative to the high-low range over a set period of time. The nearer the close is to the top of the range, the nearer to zero (higher) the indicator will be. The nearer the close is to the bottom of the range, the nearer to -100 (lower) the indicator will be. If the close equals the high of the high-low range, then the indicator will show 0 (the highest reading). If the close equals the low of the high-low range, then the result will be -100 (the lowest reading). Typically, Williams %R is calculated using 14 periods and can be used on intraday, daily, weekly or monthly data. The timeframe and number of periods will likely vary according to desired sensitivity and the characteristics of the individual security. Once again, it is important to remember that overbought does necessarily imply time to sell and oversold does not necessarily imply time to buy. A security can be in a downtrend, become oversold and remain oversold as the price continues to trend lower. Once a security becomes overbought or oversold, traders should wait for a signal that a price reversal has occurred. One method of using Williams %R is to identify the underlying trend and then look for trading opportunities in the direction of the trend. In an uptrend, traders may look to oversold readings to establish long positions. In a downtrend, traders may look to overbought readings to establish short positions. One method of defining a long-term trend is to use a weekly Williams %R, where bullish is above the midpoint -50 mark and bearish is below the midpoint -50 mark. Then you only take short-term bullish trades when the weekly %R is above -50 and only take short-term bearish trades when the weekly %R is below -50. Let's start with a weekly QQQ chart to get a feel for how the %R moves above and below the -50 line. I am looking for sustained moves and the least amount of false signals. I have placed a heavy Green line at the -50 mark on a William %R(14) and Williams %R(28), using two different %R settings for comparison to see which one would be the most useful. In the timeframe represented by the Green boxes you can see the %R(14) generated one false signal and the %R(28) did not. In the timeframe represented by the Red boxes price pretty well moved sideways and the %R(14) may have been a little bit better roadmap but the move was a whipsaw move and we are looking for long sustained moves. The timeframe represented by Cyan boxes have both the 14 and 28 giving sustained moves. But I think the best test is the timeframe represented by the blue boxes. Here the %R(28) moved above -50 in October of 2002 and has not given a sell signal since. As you can see from the timeframes I have colored, the %R(28) would have had given you a much better long-term roadmap. Probably into the trend later than the %R(14) but would not have triggered at least three false signals. So I will be using the weekly Williams %R(28) to define a long-term trend. Isn't that like everything in life, you have to give up a little reward for less risk. You can also see this is not an exact science but it sure gives you a clear roadmap as to trend. Let's move to the daily QQQ chart now to see how well the bullish and bearish crosses work. Once again I will use a 14 and 28 Williams %R setting to determine which will be the most useful. I have placed green horizontal lines at the -80 to indicate oversold and at the -20 to indicate overbought. One of the most obvious things that jump out at me is the Williams%R(28) setting has not given a sell signal since March. I would say when it does you should probably listen to it. However, that does not do us any good if you are looking to market time and buy oversold and sell overbought. So for the short-term overbought and oversold market timing I will use the daily Williams %R(14). The 7 Green arrows show a %R oversold condition and a bullish cross above the -80 line and each one of those trades were profitable, some very profitable. On the other hand the 7 Red arrows representing an overbought condition and a bearish cross below the -20 line, the trades were only marginally profitable if at all due to the many false signals the bearish %R(14) crosses triggered. This example supports the theory of only taking short-term bullish trades in an long-term uptrend but we need to test how well the theory works in a long-term downtrend. For the bearish test I chose the timeframe represented by the Cyan boxes in the weekly chart where the weekly %R(28) was printing under the -50 mark. On April 5th 2002 the weekly %R(28) crossed under the -50 mark and did not cross back above until October of 2002. Here is a chart of the daily QQQ with a %R(14). This timeframe gave two bearish crosses, no false bearish crosses, and multiple false bullish crosses. Also the two bearish trades would have been very profitable. Recently, I heard Larry Williams reiterating the fact that Williams %R should only be used in conjunction with a longer trend. With that in mind and the two examples I have just cited a good strategy would be to use the weekly %R(28) to define the long term trend and the daily %R(14) for trading overbought/oversold. This would have kept you out of the unprofitable bearish trades since March of this year and put you only into the 7 profitable bullish trades. Actually it would have only been 6 because the first one occurred on March 12th and the weekly %R(28) had not yet crossed. It would have also been very profitable in the bearish period leading up to October. Please keep in mind that whatever overbought/oversold oscillator you chose to use, the most important step is to identify the parameters that best fit the security or index and the timeframe you are looking to trade. Although I have profiled the Williams %R here I believe there needs to be caveat mentioned. Technicians today suffer from an overabundance of technical indicators. Technical analysis packages today offer so many indicators that a trader can be overwhelmed. As a consequence, building a trading system based on an array of these technical indicators requires painstaking investigation to assure that each indicator is appropriate for the task in question. A typical trading system, for instance, could have long, intermediate and short-term indicators intended to produce trading signals with different time horizons. Many indicators have demonstrated unique rates of success for individual markets for different time horizons. On one hand, a simple moving average is a good indicator of the direction of an intermediate to long-term trend, but it is ill-suited to forewarn of a possible reversal. On the other hand, an oscillator will alert a trader of a loss of momentum setting the stage for a reversal, but it will produce ineffective signals regarding the trend, perhaps signaling reversals while the trend continues. The choice of technical studies can confuse more than enlighten. One problem arising from a surfeit of indicators is the possibility of two different indicators duplicating signals. An example of this situation is the application of the stochastics indicator (%K) and Williams' %R. Both indicators are overbought/oversold oscillators. In fact, both of these oscillators observe the same thing. (The stochastics oscillator has two components: %K and %D. Our concern here is directed toward %K, because %D is simply a smoothed version of the %K.) The difference between the ratios determined in the %K and %R are inverse: %K compares the close to the lowest low, while %R compares the close to the highest high. The same high-low price range is used for both indicators, and the only difference is that %K compares the close to the low, while %R compares the close to the high. If you use the same n for the look back period in calculating the two indicators, you should produce the same graphs. Obviously, it's overkill to use both these indicators for one task. You don't need two different technical studies telling you the same thing. The point I am making is always make sure the indicators you are currently using are not walking you into the same house, one through the front door and the other through the back door. Remember trade you plan and plan your trade. Jane ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. 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