The Option Investor Newsletter Thursday 01-08-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Resistance Targets Hit Futures Markets: Dollar Dives, Equities Rise Index Trader Wrap: Indices finish higher on valuation concerns Market Sentiment: Will Investors Sell The News? Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-08-2004 High Low Volume Advance/Decline DJIA 10592.44 + 63.40 10592.59 10530.07 2.52 bln 2000/1233 NASDAQ 2100.25 + 22.60 2100.25 2078.05 2.67 bln 1981/1262 S&P 100 562.88 + 3.57 562.88 559.02 Totals 3981/2495 S&P 500 1131.92 + 5.59 1131.92 1124.91 W5000 11009.62 + 52.50 11009.62 10943.02 RUS 2000 579.62 + 5.00 580.22 574.62 DJ TRANS 3029.70 - 4.40 3037.44 3022.89 VIX 15.61 + 0.11 15.68 15.32 VXO (VIX-O)14.46 - 0.39 15.39 14.42 VXN 21.89 - 0.02 22.16 21.36 Total Volume 5,497M Total UpVol 3,836M Total DnVol 1,615M 52wk Highs 1118 52wk Lows 11 TRIN 0.81 NAZTRIN 0.72 PUT/CALL 0.65 ************************************************************ Resistance Targets Hit It was not pretty but after a day of strong volume and numerous direction changes the indexes edged up at the end of the day to close exactly at those very strong resistance levels I have been discussing for the last three weeks. The Dow was the only laggard with a close at 10592 missing my 10600 resistance target by -8 points. The Nasdaq closed exactly on the 2100 level and the Wilshire 5000 closed +8 points over my 11000 target. Friday should be a very exciting day. Dow Chart - Weekly Nasdaq Chart Weekly Economically the day was a draw with the real fireworks held for Friday's open with the December Jobs Report. The Jobless Claims today came in at 353,000 and slightly over the consensus of 350,000. No brain damage there as 350K is the average for the last four weeks. This inline report was actually an upside surprise as the whisper number was for a lot more. This is the first post holiday week, although still a partial, and analysts thought it possible for a surge to appear. Next week is the real number with no holidays to skew the figures. Continuing claims continue to fall and this is pumping up expectations for the Jobs Report on Friday. A drop in Jobless Claims means layoffs are slowing but a drop in continuing claims means there are people either finding work or dropping out of the system as their claim periods expire. Analysts are hoping it is due to hiring. The Wholesale Trade numbers rose slightly in November with Sales up +0.3% and Inventories up +0.5%. This was the lowest sales increase in three months and well below the +2.0% gain in October. Inventories remained the same at the +0.5% level. The inventory to sales ratio remained a its historic low of 1.18 for the second consecutive month. While the rate of growth has slowed it was still positive and continues to predict a rapid inventory rebuild cycle ahead. Consumer Credit fell to $4B in November from $8.3B in Oct and $11.3B in September. Normally this would be a negative occurrence but October was revised up to $8.3B from only $900 million. Talk about a missed estimate there! The gain was almost exclusively in the non revolving component from strong auto purchases. Credit card debt fell for the first time since June. Looks like consumers were getting ready for the shopping season by making space on their cards. Retail Sales rose +4.2% in December according to the ICSC survey. Drug stores and Wholesale Clubs sported the biggest gains at +8.0% for each component. There were some real discrepancies to this in the news today. Major chains warned that sales were weak and earnings would suffer while others raised earnings guidance. It was a very confusing sector. Kohls (KSS) warned and dropped -$3.70 to 41.80 after cutting estimates to 69 cents from prior expectations in the 92 cent range. KSS said same store sales FELL -1.2% for the last five weeks. They aggressively managed inventory and slashed prices to give away merchandise rather than carry it over into January. Competitors claimed they "bought" the business by selling so cheaply. Other retailers warning were TAL, ANF, GPS and WMT. Retailers raising guidance were ANN, BBY, PSUN and HOTT. Wal-Mart said same store sales rose +4.3% as a surge in late holiday traffic saved them from a dismal month. However they warned that earnings would come in at the low end of their previously forecasted range. Despite the weaker than expected performance WMT still sold $33.66 billion for the five weeks ended Jan-2nd. Pretty amazing volume and their one month revenue is more than most retailers sell all year. Hard to grow in double digits when the numbers are already so large. Still despite the various warnings and misses 74% of retailers hit their Dec estimates. Another warning came from Ryland Group that cratered the entire homebuilding sector. RYL said it was disappointed in its fourth quarter sales due to new orders declining for the period. While earnings are still expected to be at record levels it was not a major blow for the company but any sales weakness in new homes produces fear in the sector. RYL is still predicting earnings of $9.50 for 2004. (PE 7.7) They ended the year with an order backlog of 5,841 units worth $1.4 billion in sales. You would have thought they declared bankruptcy from the hit to the stock. RYL dropped -$10 on the news to $72.91. KBH fell -2.83, CTX -5.42, HOV -3.90. The transportation sector took a hit after JBLU was cut by JP Morgan saying it no longer believes the carrier can gain in 2004 due to increased competition and lower traffic than previously expected. With falling seat traffic and increased competition the airline sector is facing an all out price war to attract flyers. The code orange alert and the constant cancellation of flights due to security concerns is going to slow any recovery. American Airlines is going head to head with JBLU by offering a free trip promotion in areas served by both carriers. The telecommunication sector got another boost on Thursday from Nokia after they raised their estimates for the quarter. The sector was hot after Nortel soared earlier in the week on news of a new network build out contract. Even Lucent soared from $2.85 to nearly $4.00 on the positive sector news. LU and NT alone have accounted for more than 20% of the NYSE volume over the last two days with combined volume of more than 400 million shares on Thursday. IBM was a focus of the day and traded up only slightly at $93 after new rumors surfaced that they would miss their revenue estimates. IBM has failed to take part in the rally over the last month on earnings fears. After the close IBM announced that the SEC had issued a Wells notice to IBM and was ready to recommend action for securities fraud in the handling of its relationship with Dollar General. IBM paid $11 million for some equipment that was replaced at DG and the accounting for that purchase and sale placed DG in a favorable position. The SEC alleges that IBM aided DG in a fraudulent transaction to pump up DG's books. HPQ was back in the news with the Nasdaq claiming they were going to be the first NYSE company to double list on both exchanges. Carly Fiorina declined to comment in an on air interview but the floor of the NYSE was a hotbed of concern all day. Analysts feel that any material movement to "list" on the Nasdaq could divert order flow from the NYSE and limit the usefulness of the market makers thereby jeopardizing the current specialist system. Others dismissed the Nasdaq claim saying that most NYSE stocks were already traded electronically on ICNs with no material volume drain. UBS raised their 12 month S&P target to 1200 from 1150 on expectations for better earnings in 2004. With markets at two year highs that is a gutsy call but then 1200 is not much higher than we are now. The S&P closed at 1130 and well below strong resistance at 1160-1175. If we do see some profit taking soon there are several estimates (not mine) that any dip will see 1000-1010. That would put the 1200 UBS estimate +20% off the lows. Without that dip the 1200 target would only be a +6% gain for the year. Currently more than 90% of the S&P are trading over their 200 dma. You have to go back to 1983 for the last time this happened. The indexes closed right at very strong resistance and right in front of the December Jobs report. Talk about asking for trouble. The consensus estimate for jobs is now +127,000. The whisper number last week was for something in the +50,000 range but in less than a week that has changed significantly. I am hearing numbers as high as +250,000. This bullishness has no basis in fact. It is simple hype on top of hype but then considering the recent market action it is right in line. Needless to say the good news is already priced into the market. I went back to last year to see if there were any trends to the hiring patterns. In Dec 2002 jobs lost dropped to -156,000 from November's loss of -81,000. December was largest drop in 2002 since the -165K loss in Feb-2002. You cannot compare 2001 because that was the recession period. Also, comparing 2002 to 2003 is difficult considering the strong rebound in the economy in the last six months. Still some analysts are suggesting caution in front of Friday's report. Obviously nobody is listening to them. The Nasdaq edged up to touch 2100 after the close as the final trades settled. This is very strong resistance as 2099 was the high for all of 2002. Moving over this level should be hard but not impossible considering the already extended conditions. The Nasdaq NDX Bullish Percent is back to 80 and the level where it has paused for the last six months of 2003. Nasdaq Weekly Chart Nasdaq 100 Bullish Percent Nasdaq 100 Bullish Percent PNF I am not suggesting the Nasdaq cannot move up from here but it will be defying gravity and some very strong resistance to do so. The Dow did not reach its key resistance level at 10600 but came very close ending at 10592. The index broke out over the down trend line from Jan-2000 currently a 10550 and pulled within 8 points of 10600. The resistance band from 10600 to 10650 represents the highs from late 2001 and all of 2002. This is very strong resistance considering the current extended conditions. Dow Weekly Chart DJIA Bullish Percent DJIA Bullish Percent PNF While the Dow and Nasdaq are the most followed indexes the broadest market indicator is the Wilshire 5000, $TMW.X or $WLSH depending on your chart service. This index succeeded in touching the key 11000 level intraday and then edged over that level after the close when market on close orders were settled. First, this is very bullish if it can continue its upward progress. It is at the top of its uptrend resistance as well as its horizontal resistance and a breakout here could attract even more buyers. The 11000 level was the high for all of 2002. Are you seeing a common theme here? Dow, Compx and Wilshire are all at 2002 resistance highs. Wilshire 5000 Weekly Here comes the hard part. Back in mid December I predicted the Wilshire would hit 11000 the first week in January. That happened on Thursday and that brought us to a critical point in the markets. You know I have been suggesting the highs for January would be made this week. So far so good. Now we are at that critical point and those resistance highs will either hold or they will be broken. If they hold then normal historical trends would still be in play. If they are broken with the indexes at this already extended level it would be very bullish. I am not the only one expecting a buying opportunity in January. If we move up from here it could mean that buying opportunity is not going to appear and those waiting on the sidelines could begin rushing in to chase prices even higher. Those who have been shorting this rising resistance all week will be squeezed even harder and this already extended market could take off like a rocket. While I personally do not expect a strong gain from here there are those who feel the market is just getting its second wind. Volatility has collapsed with the VXO setting a new multi year low of 14.42 and showing a complete lack of fear in the market. The bullish percent on the NDX is 80% and 86% on the Dow. Traders point to the rapidly increasing volume on the NYSE as proof that the rally is real. Let me quickly point out that 500 million shares on Wednesday and 400 million shares today have been in Lucent and Nortel alone. Take 500 million off the totals for both days and you still have strong volume but far from convincing. Still while almost every indicator is grossly oversold the buyers just keep coming. The internals are extremely positive with 1131 new 52-week highs on Thursday. Only one day this week has been under 1000 new highs and even at 814 it was still bullish. So how do we rationalize this situation? We are at very strong resistance but the market does not seem to care. Resistance levels have been failing for weeks. Even key resistance has buckled. Does that mean this resistance will as well? Nobody knows but the answer is clear. The bulls are stampeding and nothing is stopping them. Even the cautious TV commentators that were suggesting restraint just last week are now tripping over their tongues to praise the market internals. It seems the world has converted to a buy only mentality and until something happens to shock everyone back to reality the sky is the limit. What is it going to take to break the spell? With estimates for market gains for 2004 at +10% to +12% we are already up +5% in the first five days. What is left? Are we going to spend the next 355 days covering that 5-7% left or raise the targets? We all know, whether we want to admit it or not, that this cannot go on forever. Eventually something will happen to break the spell and return us to normal market conditions with alternating up and down cycles. On Friday the Jobs Report is officially expected to show +127,000 new jobs. The whisper numbers are up to +250,000. What if we only grew +50,000 jobs? That is probably not drastic enough to matter. What if we lost jobs? Does the market care. I think that is the key. The market did not care that Gateway warned or Wal-Mart sales are slowing. It did not care that RYL sold fewer homes or the ISM Services index fell. Remember the bubble? Nobody cared about the fundamentals. Buy stocks they are going up. Once the Dow closed over 10,000 in mid December Pandora's box was opened and the investing fever was loosed again. If the Dow is over 10,000 the market must be ok. Buy stocks. Those that did not buy in December are chasing prices in January. I do not know where it is going to end but every feeding frenzy always ends. I can't in good conscience tell you to go long. That decision is up to you. I can only suggest that if you do go long you take out enough insurance to protect yourself. Fortunately with volatility at multiyear lows that put insurance is very cheap. I had a vision today, more of a flashback of a video clip they run on CNBC periodically. You know the one where they show the running of the bulls in Spain. Those in front of the herd are running for their lives and having a great time. Those unable to stay ahead or slipping on the cobblestones get trampled or gored. There are always a greater majority safely on the sidelines watching as the scene plays out. Tonight I am short at Wilshire 11000. If the herd runs by me I will become a watcher from the safety of the sidelines. I refuse to chase after the herd because I do not want to meet it head on when it changes direction. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Dollar Dives, Equities Rise Jonathan Levinson Nothing much changed today, as the dollar sold off sharply, equities rose to new highs, volatility collapsed, and gold and the CRB advanced. Silver declined, while treasuries treaded water following steep gains during recent sessions. 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 ECB's decision not to cut rates resulted in a terrible day for the US Dollar Index, with a more than 1% loss suffered in a matter of hours. Euro and swiss franc futures were up over 1% for most of the session, while gold added just over 8 bps and silver traded both sides of unchanged. The CRB added 1.07 to close at 266.23, led by copper, natural gas, heating oil, cotton, and platinum futures. Crude oil added 1.13% to close at 34, HUI rose .68% to close at 244.03 and XAU add .62% to close at 108.97. Daily chart of February gold Gold rose against the dollar decline, but so did foreign currencies, and other than in US Dollar terms, gold moved mostly sideways. In US Dollars, however, gold held the 420 level and touched a high of 425.90, trading above 424 for most of the session. Next resistance is at 427.50, support at 420, 416 and 412. The daily cycle oscillators continue to waver deep in overbought territory, very extended but with price still respecting the uptrend. Tuesday's record volume session remains the high for the move, and gold bugs want to see rising support at 420 hold. Daily chart of the ten year note yield Treasuries traded mixed today, with the TNX adding all of 0.3 basis points to close at 4.249% after trading both sides of unchanged throughout the session. The slight correction of yesterday's decline in the yield did not prevent the daily cycle oscillators from extending their rollover, and any buying in bonds tomorrow should complete the signal, kicking off the next downphase in the TNX. A print at 4.2% will confirm the break of rising pennant support. Daily NQ candles The NQ went out at the highs of the day and a new rally high, rising by .89% to close at 1530.50, breaking the upper rising channel trendline at the close. The VXN set a new record low at 21.31, closing lower by 1% at 21.69, while the QQV went out at 19.79, -.3% for a new alltime closing low. Extended continues to grow more extended on the daily cycle oscillators, and the current steeply rising channel has not seen any noteworthy selling since the week of Dec 15. Bull, bear, neutral or biased, the absence of correction is becoming eerie. Nasdaq volume was very strong at better than 2.7B shares, and until the rising channel breaks to the downside, this is clearly the bulls' show. 30 minute 20 day chart of the NQ The 30 minute chart of the NQ shows yet another failed 30 minute cycle downphase, as both price and oscillators extend their trend of higher lows. Trendline support has risen to 1525, and it's worth reiterating that a trend is a trend until broken. Volatility on the Nasdaq and NDX has reached levels never before seen, and I continue to smell a sharp, extended, violent correction around every dip. But until even the most casual glance at the chart fails to reveal a steep uptrend, top picking remains countertrend and dangerous. The blowoff this morning was very tempting, and scalp shorts were successful if they were applied at or near the top. Again, tight stops, impeccable timing, patience and intestinal fortitude are prerequisites. The dip buy at the trendline, with the same prereqs, would have also worked. Tomorrow's employment report will be key, and could well provoke yet another blowoff top. I'm simply unable to believe that the trend will run to the upside forever, but there's simply no way to know. My understanding of rallies has always been that retail investors are the last to commit, usually lured by tales of riches and headlines in the non-financial media. The strength in small and OTC stocks smacks of this speculative frenzy. Will it correct tomorrow, or in days, weeks or months? Volume is very strong. The more conservative, safer route is to wait for the daily rising channel to fail with a close below 1500, and follow the line higher. Picking tops is the most aggressive speculation, fine for gunslingers. The low volatility and narrow ranges are trying to squeeze out those traders who fall into neither camp. Daily ES candles The ES rose +.38% or 4.25 to close at 1129.75, peeking above the upper rising channel trendline on a bullish hammer print. GE broke solidly above 32, doing its best to break the right shoulder daily head and shoulders formation that so many have been following. NYSE volume was strong at 1.8B. Unlike on the NQ, which has been climbing since mid-December, the current channel on the ES dates to mid-November. The VXO closed at 14.46, down another 2.63% to a new multiyear low, verging on a full decade. The daily cycle oscillators continue to trend higher, and price trendline support has risen to 1120, with the bottom of the channel now at 1107. Again, a spike high followed by a bearish engulfing plunge is my most likely scenario, but it is overdue, and timing is everything. 20 day 30 minute chart of the ES The 30 minute cycle upphase rolled over following the opening spike high, and the first sign of trouble for bears was the lack of price traction on the downphase. The rising trendline was never tested, and the bounce, weak and hesitant at first, morphed into another squeeze going into the close, turning the 30 min oscillators back up from a higher oscillator low. This is classic trending action, and short of scalping relative highs, there's nothing to do but to wait for the tide to turn. 150-tick ES Once again, the ES gave traders very little with which to work, trading a relentlessly narrow range at the rally highs as volatility collapsed to new lows. A short cycle downphase is due to commence immediately, with ES trading lightly negative as of this writing. Daily YM candles The YM added +.50% or 53 points to close at 10564. It would have been a perfect gravestone doji but for the fact that it was a positive close. The 10 day stochastic is history, maxxed out at the top of its range, but the Macd converged slightly, the first bearish hint from that indicator in many sessions. 10400 is the new rising channel support, above which the trend remains bullish. 20 day 30 minute chart of the YM The YM looks weaker than its peers on the 30 minute charts, with a flatter rising oscillator trend. The ball is still under bullish control, but with volatility so low and the range so narrow, the drop could be sharp and strong. Equities had been advancing on a falling dollar, and yesterday saw the dollar bounce with equities holding firm. They rose again on today's dollar drop. News of BoJ intervention was on the wires today, and if the BoJ, the Fed or its dealers acting in whatever capacity are buying equities, then we have to remain on guard, as if we weren't already, for unexpected moves in either direction. ************************Advertisement************************* No time to follow the Market Monitor? 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Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************** INDEX TRADER SUMMARY ******************** Indices finish higher on valuation concerns The major indices pushed to new 52-week highs after Nokia (NYSE:NOK) $20.47 +13.9% upwardly revised its fourth-quarter earnings outlook, while shares of Sun Microsystems (NASDAQ:SUNW) $5.51 +10.42% lead a broad list of NASDAQ gainers after Banc of America Securities upgraded the stock to "buy" with a price target of $6.25 on the belief SUNW is a leveraged play on improving enterprise spending in 2004, and that valuation is reasonable at 1.1-times sales. UBS revised its 12-month target for the S&P 500 Index (SPX.X) 1,131.92 +0.49% to 1,200 from 1,150 due to greater confidence in an economic expansion, and to reflect a higher 2004 earnings estimate. A quick calculation on my part would have UBS saying there may be an additional 6.01% upside from current levels for this year. Since the SPX has exceeded its bullish vertical count of 1,105, a quick check of the narrower S&P 100 Index (OEX.X) 562.88 +0.63% shows its current bullish vertical count at 595. Considering a potential 2004 trade at 595 from current levels would equate to a 5.7% gain, it may be that UBS's fundamental analysis is worth noting. Networkers ($NWX.X) 292.43 +6.04%, Combined Telecom (IXTCX) 197.74 +2.48%, Semiconductor (SOX.X) 545.01 +3.39% and Disk Drives (DDX.X) 143.38 +2.86% all moved higher. Airlines ($XAL.X) 65.12 -2.34% were notable decliners after JetBlue Airways (NASDAQ:JBLU) $25.67 -11.23% and Frontier Airlines (NASDAQ:FRNT) $12.00 -18% fell on mixed December traffic reports. The Dow Jones Home Construction Index (DJUSHB) 543.99 -4.45% was today's sector loser as homebuilders saw selling, with backlog concerns being cited. A quick look at Stockcharts.com's $DJUSHB point and figure chart does show this index having triggered a spread-triple bottom sell signal at 550.00 on January 5th, and an alert to weakness. A quick check of my $DJUSHB bar chart with 2 fitted retracement shown in prior Index Trader Wraps has today's lows entering an important near-term zone of support and base of bullish regression channel. A break much below the 525 level could have this index vulnerable to 482 and June highs. Dow Jones Home Construction Index ($DJUSHB) - Daily Intervals Homebuilder Index (DJUSHB) traded base of a bullish regression channel taken from March lows. First sign of weakness on the above chart would be trade below 525, where DJUSHB becomes vulnerable to 482.00. The point and figure chart's bullish support trend currently resides at 445. Market Snapshot / Internals - 01/08/04 Close Volume levels continue to build Lucent (NYSE:LU) $3.88 +10.54% and Nortel (NYSE:NT) $6.13 +7.92% were the most actively traded stocks traded in today's market and turned 254.8 million and 156.7 million shares respectively and most likely boosted total NYSE volume rates to its highest level since I started keeping daily tabulations on May 2, 2003, when this impressive bull market had just gotten underway. Pivot Matrix Analysis - The S&P Banks (BIX.X) 338.35 -0.19% found important support at the 337 level again today, and today's fractional losses may have kept the SPX/OEX firm enough to get a test and close above correlative WEEKLY R2 and MONTHLY R1, which based on the pivot matrix, could have the MONTHLY R2's in play as a next level higher. Still, I think the SPX/OEX needs this group, along with other financials to get that type of impressive move higher, and the trigger point may be the BIX.X back above its WEEKLY Pivot. Swing trade bulls in my QQQ trade will note DAILY R2 and MONTHLY R2 of $38.26 and MONTHLY R2 $38.25. This is our swing trade target and I'm looking to take gains there if traded. To protect gains from bullish re-entry of $34.41, I'm moving stop higher to $37.70, but should we see the QQQ slowly edge higher toward target, I will most likely start moving stop higher. QQQ is $38.00 in after-hours, which gives an additional $0.25 upside to target. Doesn't make sense to risk much more than that right now, but I think bears will be willing to pay the piper at $38.25. NASDAQ-100 Tracking Stock (AMEX:QQQ) - 5-minute intervals Santa Claus has been very good to traders in the New Year and it may be destiny calling the QQQ to our current bullish target of $38.25. I noted a BIG volume spike intra-day, that came out of nowhere, and following action has me thinking there was some type of "eagerness" to buy the QQQ there, which I do think was shorted to the market, which had to be bought back by the close, thus the "reason" the Q's continued to trade higher lows and close right at the high. We'll find out tomorrow, but a stop just below DAILY S1 should protect bulls. S&P 500 Index Chart - Daily Intervals The SPX just keeps getting more extended, but its been bulls profiting and bears losing. Bulls shouldn't be complacent, but I'd look for a bullish trade to unfold on a break above 1,132.00, for what could be an impressive display of short covering. Protect it with a stop below 1,129. Dow Industrials (INDU) Chart - Daily Intervals INDU trying to break above the bullish wedge. The INDU traded similar this summer, but came back into channel as it built a sideways base for about 3-months. Similar trade might have INDU trading 10,682 near-term, where bulls can protect with a stop at 10,465. Again... resistance levels can be broken, especially when stocks/indices trade yearly highs were supply of stock is limited, but in what looks to be a slightly extended market, can still trade bullish, just trail with stops. 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 **************** Will Investors Sell The News? - J. Brown Thursday was a banner day for the U.S. stock markets. A better than expected earnings report from Taiwan Semiconductor (TSM) and a very strong earnings report from mobile-phone maker Nokia (NOK) helped set the mood. The strong profit and revenue numbers from these tech companies was enough for investors to ignore the worse than expect initial jobless claims. Economists had been expecting a small rise but instead received an increase of 14,000 to 353,000 initial claims. This number wasn't totally out of the ballpark and the markets shrugged it off. Today was all about tech and telecom stocks extending their lead and the markets trying to follow. Overseas investment firm UBS got into the act by raising their 12-month target on the S&P 500 to 1200 from 1150. Overall the market internals were strongly bullish. The NYSE saw 17 winners for every 11 losers. The NASDAQ's advance decline ratio came in at 19 to 11. New highs totaled 684 to just 8 new lows. Up volume overwhelmed down volume 17 to 7 on the NYSE and 18 to 8 on the NASDAQ. Yes, it was a pretty strong day the bulls and Dow component Alcoa (AA) opened earnings season after tonight's closing bell by beating the estimates by 5 cents with a net income of 39 cents a share. However, the major indices continue to look very extended and tomorrow's December jobs report would be the perfect excuse to sell the news, especially if the results are merely inline. Heaven forbid should the number disappoint. Current estimates are for an increase of 150,000 new jobs in December, up from 57,000 in November. On a side note news that that IBM has received a "Wells Notice" from the SEC could influence investor sentiment. A Wells notice means the SEC is considering civil action against the company for securities law violations. Trade carefully and protect your profits! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10592 52-week Low : 7416 Current : 10592 Moving Averages: (Simple) 10-dma: 10457 50-dma: 9998 200-dma: 9294 S&P 500 ($SPX) 52-week High: 1131 52-week Low : 788 Current : 1131 Moving Averages: (Simple) 10-dma: 1113 50-dma: 1069 200-dma: 997 Nasdaq-100 ($NDX) 52-week High: 1530 52-week Low : 795 Current : 1530 Moving Averages: (Simple) 10-dma: 1480 50-dma: 1428 200-dma: 1285 ----------------------------------------------------------------- Holy Cow, Batman! The volatility in the markets has crashed as the VXO has fallen from over 18 to close under 15 for the first time in years. The VXN has fallen to another all-time low. Bears are probably groaning as readings this low "normally" suggest a market top, but then the market has not been very normal for months. These volatility indices remain signals of caution for anyone willing to listen. CBOE Market Volatility Index (VIX) = 15.61 +0.11 CBOE Mkt Volatility old VIX (VXO) = 14.46 -0.39 Nasdaq Volatility Index (VXN) = 21.89 -0.02 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.65 1,160,572 753,665 Equity Only 0.52 970,355 500,507 OEX 1.00 36,216 36,247 QQQ 4.38 23,541 103,143 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 77.7 + 1 Bull Confirmed NASDAQ-100 80.0 + 1 Bull Confirmed Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 86.8 + 1 Bull Confirmed S&P 100 85.0 + 1 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.86 10-dma: 0.87 21-dma: 0.92 55-dma: 1.06 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 1726 1925 Decliners 1113 1180 New Highs 364 320 New Lows 8 0 Up Volume 1746M 1806M Down Vol. 727M 821M Total Vol. 1486M 2648M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 12/22/03 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Was it a one-week blip? The surge in long positions by commercial traders have evaporated. Was a sudden change of heart or did they just get caught up in the holiday spirit? Of course there was an equally strong disappearing act in commercial short positions so maybe they're just confused. Small traders have really cut back on their shorts and in effect become extremely bullish. Commercials Long Short Net % Of OI 12/02/03 394,531 414,223 19,692 2.4% 12/09/03 396,882 420,859 23,977 2.9% 12/16/03 448,103 460,670 12,567 1.4% 12/22/03 400,066 405,240 (5,174) (0.6%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 12/02/03 154,788 85,776 69,012 28.7% 12/09/03 172,178 99,484 72,694 26.8% 12/16/03 172,947 113,704 59,243 20.7% 12/22/03 147,537 81,596 65,941 28.8% 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 Wow! The disappearing act in the full contracts (above) is nothing compared to the drop in contracts below. Commercial traders really reduced their outstanding long positions in the e-mini's and that's not a bullish development. Right on cue, the small traders cut back on their short positions. Commercials Long Short Net % Of OI 12/02/03 283,199 268,833 14,366 2.6% 12/09/03 294,006 288,385 5,621 1.0% 12/16/03 330,273 361,316 (31,043) (4.5%) 12/22/03 128,801 213,021 (84,220) (24.6%) 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 12/02/03 119,555 77,609 41,946 21.3% 12/09/03 142,173 76,171 66,002 30.2% 12/16/03 177,193 73,694 103,499 41.3% 12/22/03 125,248 43,482 81,766 48.5% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 We see the same contract evaporation in the NDX futures as well. Commercial long contracts lost 1/3 of their number but short contracts were cut in half. That actually sounds bullish. Commercials Long Short Net % of OI 12/02/03 35,569 48,552 (12,983) (15.4%) 12/09/03 39,612 51,443 (11,831) (13.0%) 12/16/03 61,343 73,153 (11,810) ( 8.8% 12/22/03 40,277 36,452 3,825 5.0% 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 12/02/03 21,594 9,429 12,165 39.2% 12/09/03 25,842 10,228 15,614 43.3% 12/16/03 28,676 15,197 13,479 30.7% 12/22/03 22,656 14,544 8,112 21.8% 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 This time it is the small traders that drastically reduced their short contracts. They probably got tired of losing money. Commercials followed suit. Commercials Long Short Net % of OI 12/02/03 21,128 12,379 8,749 26.1% 12/09/03 20,378 11,934 8,444 26.1% 12/16/03 23,509 13,880 9,629 25.8% 12/22/03 14,088 9,998 4,090 17.0% 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 12/02/03 6,667 9,302 (2,635) (16.5%) 12/09/03 6,858 12,006 (5,148) (27.3%) 12/16/03 9,497 19,633 (10,136) (34.8%) 12/22/03 6,915 8,983 ( 2,068) (13.0%) Most bearish reading of the year: (10,136) - 12/16/03 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 01-08-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: BBY Call Play Updates: DGX, DLX, GD, GILD, MXIM, UTSI, YHOO New Calls Plays: None Put Play Updates: WHR New Put Plays: CFC **************** 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: ***** None PUTS: ***** Best Buy Company - BBY - close: 53.72 change: +1.51 stop: 53.50 Proving once again that they are eating CC's lunch, BBY reported a 9.3% increase to same store sales this morning and that was all the bulls needed to drive the stock through our $53.50 stop. The writing was on the wall yesterday with the stock's rally through the 20-dma, which had been providing resistance and today's strong rally closed the book on this bearish play. Any open positions should have been stopped out at the open today and traders reluctant to exit the play on that early burst higher should now be looking to exit on any early weakness tomorrow. This play never worked in our favor, and traders that waited for confirmed weakness in the form of a breakdown avoided the loss altogether. Picked on January 4th at $50.82 Change since picked: +2.90 Earnings Date 3/17/04 (unconfirmed) Average Daily Volume = 4.16 mln ************************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 ******************** Quest Diagnostic - DGX - close: 73.03 chg: -0.60 stop: 69.00 We don't mean to be a broken record here but there continues to be little news and at this point little movement in shares of DGX. The stock is drifting higher with a trend of higher lows and the P&F chart is bullish but buyers are taking their time. Looking closer at today's candle we might expect more of a dip tomorrow with minor support at $72. The next hurdle is the early December highs at $75. Picked on December 30 at $72.95 Change since picked: + 0.08 Earnings Date 01/22/03 (unconfirmed) Average Daily Volume: 836 thousand Chart = --- Deluxe Corp. - DLX - close: 42.52 change: +0.29 stop: 40.50 It hasn't given what could be called an exciting performance so far, but at least our DLX play has started out in the right direction. We're playing for follow-through from Tuesday's strong breakout over the $41.80 level and so far we really haven't seen it. That said, we have had a couple of intraday dips near $42, which could have been used for entry into the play. DLX doesn't tend to move rapidly, but it does have a habit of trending well once it gets moving. Right now, the bulls are trying to work through overhead supply near the 200-dma ($42.83), but once over that level, we can look for a move up to the $44 resistance level. Maintain stops at $40.50 and take advantage of rebounds from the site of the broken H&S neckline ($41.80) as an attractive entry point. Picked on January 6th at $42.30 Change since picked: +0.22 Earnings Date N/A Average Daily Volume = 336 K --- General Dynamics - GD - close: 92.54 chg: +1.54 stop: 87.75 *new* We're seeing a second day to the fresh rally in shares of GD. The same can be said for the DFI defense index. What's driving the move still remains a mystery but volume has been stronger than average. GD really doesn't have much resistance between $91 and $96 and we could see a smooth run higher. Should a pull back occur then traders can look for $91-90 as new support and a potential entry point. We are going to raise our stop loss to $87.75. Picked on December 21 at $88.78 Change since picked: + 3.76 Earnings Date 01/21/04 (unconfirmed) Average Daily Volume: 1.0 million Chart = --- Gilead Sciences - GILD - cls: 61.34 chng: -1.00 stop: 57.75*new* As expected, the recent trading pattern in shares of GILD was a holding pattern, while investors waited for that next catalyst. Well, it arrived with a bang yesterday with bullish comments out from Merrill Lynch, citing "strong sustainable growth and upside to estimates". That seems to have been what the buyers were waiting for, as the stock broke out of its malaise, shooting through the top of its neutral wedge to close at its high of the day. An early attempt at bullish continuation this morning ran into trouble just over $62.50 though and GILD drifted lower throughout the session to end with a 1.6% loss. This places the stock just above $61, which had previously served as resistance and we'll now need to see this level act as support. Obviously, the best entries have now passed by, with the breakout from the wedge pattern. Consider adding to existing positions on a successful rebound from the top of the wedge near $60. With next resistance up near $63.75, we aren't advocating fresh breakout entries at this time. Conservative traders can consider harvesting some gains near $64, although we'll officially be holding out for a run at the top of the September gap near $66. Raise stops to $57.75, just under yesterday's intraday low. Picked on December 21st at $59.40 Change since picked: +1.94 Earnings Date 1/29/04 (unconfirmed) Average Daily Volume = 3.67 mln --- Maxim Integrated - MXIM - cls: 54.32 chg: +1.17 stop: 51.00 *new* The SOX semiconductor index has pushed its way to a new one-year high. Actually, it has hit levels not seen since May 2002. It looks like the SOX could run from its current position at 545 to the 560 level before hitting resistance. Meanwhile MXIM is really enjoying the strength in the chip sector. The stock is up four days in a row with the last three sessions exceptionally strong on rising volume. We know that MXIM can't keep this pace up for very long and we will eventually see a pull back. However, shares should have new support at 52.50 and that may be the next entry point. The next major resistance is the $57.50- 58.00 levels. We're going to raise our stop loss to 51.00. Picked on January 06 at $51.89 Change since picked: + 2.43 Earnings Date 02/05/04 (unconfirmed) Average Daily Volume: 5.4 million Chart = --- UTStarcom Inc - UTSI - close: 41.34 change: +0.15 stop: 37.85 After two days of trading sideways we're about to see some action in shares of UTSI. This morning the stock got some positive news from First Albany who reiterated their "buy" rating on the stock. Yet the real news happened after the bell. In a single press release UTSI announced that it was raising its Q4 guidance from 49 to 50 cents a share to 50-51 cents a share. They also raised their revenue guidance from $630-640 million to $640-645 million. Unfortunately, this merely matches current consensus estimates of 51 cents and $644 million by analysts. The second bit of news is that the company will sell 12.1 million shares of stock to Bank of America. The post-market press release sent shares of UTSI lower on Instinet and the stock could open at $40.00 tomorrow. The question for us is whether or not this will be an entry point. If UTSI pulls back to $40 and bounces, then great. However, if shares trade under $40 we'd be very cautious even though the $39 level should act as support. Picked on January 06 at $40.71 Change since picked: + 0.63 Earnings Date 01/22/03 (confirmed) Average Daily Volume: 3.0 million Chart = --- Yahoo! - YHOO - close: 48.58 change: +0.91 stop: 44.50 *new* The new year has certainly been a good one for YHOO thus far. YHOO ended 2003 at $45 and it's been straight up ever since. This week alone the company has announced plans to tackle Google's dominance in the search-engine industry and today YHOO announced a partnership with electronics maker Phillips to provide content for the next generation of wireless networking electronics (one of the lead products is an Internet ready TV). Remember that our initial profit target was the $50 level and YHOO is getting close. Short-term traders can already plan their escape. However, should YHOO pull back we can look for minor support near 47.00-47.50. We're going to raise our stop loss to 44.50. Picked on December 24 at $45.01 Change since picked: + 3.57 Earnings Date 01/14/03 (unconfirmed) Average Daily Volume: 12.3 million Chart = ************** NEW CALL PLAYS ************** None ************************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 ******************* Whirlpool Corporation - WHR - cls: 72.78 chng: +0.55 stop: 73.50 If it weren't for the early news from JP Morgan, WHR would have very likely had a different trading session on Thursday. The firm initiated coverage of the stock with an Outperform rating and that sent the stock soaring right to strong resistance near $73. Fortunately, that was all the fuel the bulls could muster and WHR drifted lower throughout the remainder of the day. Remember our premise for the play that weakness in the Housing sector should translate to weakness in WHR as fewer homes being built and purchased should result in fewer appliances being purchased. So it is a bit perplexing that the stock didn't exhibit more weakness in the wake of the major earnings warning from RYL today, that sent the housing sector reeling to a 4.45% loss. Only the most aggressive traders should attempt entries up here at resistance and those positions must be protected with a firm stop at $73.50. The more prudent approach to new entries will be to wait for a drop below $70.75 (the bottom of the past couple weeks trading range) before playing. Picked on January 4th at $71.18 Change since picked: +1.60 Earnings Date 2/03/04 (confirmed) Average Daily Volume = 586 K ************* NEW PUT PLAYS ************* Countrywide Financial - CFC - cls: 70.95 chng: -2.05 stop: 75.00 Company Description: Countrywide Financial Corporation is a holding company that, through its subsidiaries, is engaged primarily in the residential mortgage banking business, as well as in other financial services that are in large part related to the residential mortgage market. Primarily through its principal subsidiary, Countrywide Home Loans, Inc. (CHL), Countrywide is engaged in the residential mortgage banking business, which entails the origination, purchase, sale and servicing of residential mortgage loans. The company offers property and casualty insurance, as well as life and disability insurance, both as an underwriter and as an independent agent. Through its banking segment, it operates a nationally chartered bank that primarily invests in residential mortgage loans and prime home equity lines of credit sourced through its mortgage banking operation. Why we like it: Following the meteoric rise of the Housing stocks in recent months, CFC broke out form its consolidation pattern near $55 in September and launched all the way up to the high side of $80 be early December. Since then however, the stock has been weakening and has been looking like a potential bearish trade candidate. The first technical sign of weakness was the simultaneous drop through the 10-dma ($74.62) and 50-dma ($76.76) on 12/23. Since then the 50-dma has not been retested and the 10-dma has crossed below the 50-dma, providing consistent intraday resistance for close to 3 weeks. Up until today, the $72.50 level looked like it should provide solid support for the stock, but the meltdown in the Housing sector appears to have changed the landscape significantly. RYL issued a severe warning this morning, leading the stock to lose more than 12% and pressuring the Home Building sector ($DJUSHB) to a nearly 4.5% loss. Due to its close ties with the sector, if home buying demand truly is weakening, it will likely have a pronounced negative effect on CFC. Investors were wise to that reality today and handed the stock a 2.8% loss, producing a drop through that $72.50 resistance and an intraday foray (quick as it was) below $70. This is critical support and if it breaks, we can look for a significant drop in the stock. Below $70, there's really no meaningful support until $65, and realistically, it looks like a drop to the $60 level could be in the cards. That would likely define the bottom of any downside action though, as the 200-dma ($59.43) is likely to lend support. The PnF chart gives bearish confirmation as well with today's Triple Bottom Sell signal and a tentative bearish price target of $61. We'll use a trigger of $69.70, which is below today's intraday low ($69.73). When that level breaks, momentum entries on the initial break will make the most sense. Traders hoping to enter on a subsequent failed rebound can look for a rollover in the $72-73 area as their opportunity. Our initial target will be $65, but we're really targeting the $60-61 area. Initial stops will be set at $75, just above the 10-dma. Suggested Options: Aggressive short-term traders can use the February 65 Put, while those with a more conservative approach will want to use the February 70 put. While we have listed a January option, with expiration next week, it makes more sense to buy the extra time. The February $70 strike is our preferred option. ! Alert - January options expire next week! BUY PUT JAN-70 CFC-MN OI=1116 at $1.25 SL=0.60 BUY PUT FEB-70*CFC-NN OI=1834 at $3.50 SL=1.75 BUY PUT FEB-65 CFC-NM OI= 748 at $1.75 SL=0.75 Annotated Chart of CFC: Picked on January 8th at $70.95 Change since picked: +0.00 Earnings Date 1/27/04 (confirmed) Average Daily Volume = 1.80 mln ************************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 01-08-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: SEE NOTE ***NEW FEATURE*** Watch List: Stocks for Friday Traders Corner: While The Cat’s Away, They’re Trying To Steal Our Litter Box *************** PLAY OF THE DAY *************** OptionInvestor.com is constantly trying to adjust and tweak our newsletters and website to provide the best possible product. One such improvement is the introduction of a daily watch list in place of a daily "play of the day". Instead of just one "play" for tomorrow, we'll provide several trading ideas for your perusal. ********** WATCH LIST ********** Stocks for Friday ***************************************************************** How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ***************************************************************** Eli Lilly & Co - LLY - close: 68.10 change: -1.72 WHAT TO WATCH: The DRG drug index was one of today's under performers despite the tech-lead rally. Joining the DRG in its decline was LLY. The stock has broken its short-term three-month rising channel and its simple 50-dma on better than average volume. The daily chart suggest that LLY is headed for a test of its 200-dma near the $65.00 mark. However, the weekly chart shows an even older and wider rising channel for LLY. If LLY breaks $65 it could aim for the bottom of this larger channel near $60.00. Earnings are expected at the end of January. Chart= --- Hewlett-Packard Co - HPQ - close: 24.69 change: +1.33 WHAT TO WATCH: Carly Fiorina, HP's CEO, has been making the financial media rounds the last couple of days while the tech industry unveils its latest gadgets at the Las Vegas Consumer Electronics Show. Sounds like investors were happy to hear that HPQ is teaming up with Apple to make their own ipod-like music player because shares of HPQ surged 5.69% to break resistance at $24.00. The next level of significant resistance appears to be the 27.50 level. Interested traders may want to follow this one. Chart= --- Chinadotcom - CHINA - close: 10.83 change: +1.38 WHAT TO WATCH: This stock is a bit cheap to play options on but it sure likes to move. The stock has rebounded strongly off support at $8.00 just a week ago to break resistance at $10.50 today. Volume was very strong today at 15.1 million shares. It's probably no coincidence that the recent lows in December just happened to be the rising support on its P&F chart. Aggressive traders, and I do mean aggressive, might want to watch this for a potential entry point. The next level of resistance may be $13.00. Chart= --- American Standard Cos - ASD - close: 102.61 change: +0.46 WHAT TO WATCH: We have strongly considered adding ASD to the call list several times over the last few days and today's breakout and close over the $102 mark was tough to pass up. Volume has been rising on the recent rally and technical oscillators look bullish. If ASD sees a dip the $100 mark might be a good place to evaluate new entries. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- JPM $38.67 +0.65 - It's interesting to note that after seven months of consolidating sideways that shares of JPM are finally on the move and hitting new highs. JCOM $28.20 +1.07 - We'd watch JCOM for a breakout over the $30 level now that it has reclaimed its simple 50-dma. Watch for some resistance at $32.50. TIF $42.00 -1.06 - High-end retailer TIF appears to be losing the fight. The company raises its Q4 estimates and shares still fall 2.4% on strong volume of 2.2 million shares. If TIF breaks the $40 level look for it to test the 200-dma near support at 37.50. ADBE $38.00 -1.44 - Software maker ADBE is not enjoying the tech- lead rally in the NASDAQ. Quite the contrary, shares have been falling in a pattern of lower highs for weeks. Now the stock threatens to break support at 37.50 and its 200-dma. Should this level break then traders might be able to ride it toward the 32.00 region. PEG & AEG - Both electric utility stocks are at or near new highs and both currently have a dividend yield of more than 4.5%. As investors thoughts begin to turn toward tax season there may be more and more considering the current low dividend tax rates, making PEG and AEG some tempting investments. ************************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 ************** While The Cat’s Away, They’re Trying To Steal Our Litter Box By Mike Parnos, Investing With Attitude Wouldn’t you know it? I go away for a few days and the market goes off its medication. Who would have believed the NASDAQ would be going almost straight up? Not me. It hasn’t even taken a bathroom break. When it does, it’s going to be a doozy!! The bulls are loving it. We, on the other hand, aren’t thrilled. Why? It’s simple. We are doing the best to deal with a trending market using essentially neutral strategies. Even the crap tables, sometimes people have a lucky streak. Over time, they’ll give it all back and the casino will build another addition with their money. At the bottom of every column I write that “mierde” happens and we should be prepared. Well, it hit the fan this month, but while the mess may be distasteful, it’s certainly not as bad as it could have been. It looks like this month will be only the second month in the last 15 that we’re going to experience a loss. But, never fear, it’s manageable – because we know when, and how, to get out of positions gone astray. Here are the adjustments we made this week: NDX Iron Condor – We had to close out the bear call spread of our Iron Condor when the NDX plowed through our short January 1500 call. We bought back the 1500 call and waited to see if the NDX was going to bounce back down. But, apparently, the resistance wasn’t going to hold and after the NDX continued up a bit, we sold the long call. The bottom line is that we’re taking a loss. It cost $4,750 to close out the 1500/1525 bear call spread. Since we originally took in $3,050 in credit, our loss on this position was $1,700. Aren’t we glad we only did five contracts? I am. SOX Iron Condor – Since the market, especially the NASDAQ, was rising out of control, it took the Semi-conductor index along with it. So, we had to close out SOX Iron Condor position with a loss. It cost $5,600 to close the bear call spread. We had taken in $2,345. Therefore, our loss was $3,255. QQQ Diagonal Calendar Spread – Our cheap calendar spread play got a little cheaper early this week when we rolled out our position to February. Remember, we bought the March $34 puts and we’re selling against the position as we wait for the market to pull back. The rate the market is going, I’m not holding my breath, but there’s not a lot on the line. We bought back the January $33 call for a nickel and rolled out to the February $34 puts at $35. Our credit was $.30 – which reduced our cost to $.70. QQQ ITM Strangle – This is our ongoing play that is generating a nice cash flow. With the market – and the QQQs – moving up, there is very little time value left in our $34 calls and puts. So, there was no point in waiting the extra week because there was virtually no additional time value to erode away. We bought back the January $34 calls and rolled out to the February $34 calls for a credit of $.20. We bought back the January $34 puts for a nickel and rolled out to the February $36 puts for $.60 -- a net $.55 credit. Our total credit for the two rollouts was $.75. If the QQQs continue up much further, it’s going to be time to re- establish our position. In other words, we’re going to have to close out our LEAPS positions and establish a new range. The likely new range will be $34 on the bottom and $44 on the top. In Sunday’s column, I’ll go over the procedure for this adjustment. Plus, I will hopefully have the QQQ Adjustment Sheet available to send out to those who are interested. There is a specific order of trades that needs to be adhered to so that your broker (and, of course, you) doesn’t go nuts and to avoid confusion. ___________________________________________________________ I’ll Be Back . . . I’m returning from my adventure very early Friday morning. I will begin to answer your email questions as soon as I can. Thanks for your patience. I know it was a hectic week, but, if you’ve been a dutiful reader of my column, you will have known how to make the adjustments I discussed above. It Isn’t All Bad As of this writing, we still have two positions that have can end up profitable. Our OEX Credit Spread Boogie is almost a lock and the XAU Iron Condor has a decent chance to make us money too. ___________________________________________________________ JANUARY CPTI POSITIONS Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor We sold 5 NDX January 1500 calls and bought 5 NDX January 1525 calls for a credit of $3.70 (x 5 = $1,850). Then we sold 5 NDX January 1325 puts and bought 5 NDX January 1300 puts for a credit of $2.40 (x 5 = $1,200). The total credit was $6.10. Maximum profit range: 1325 – 1500. Potential profit: $3,050. (Closed – see above article). Loss: $1,700 Position #2 – SOX (Semiconductor Index) – Iron Condor We sold 10 SOX January 530 calls and bought 10 SOX January 540 calls for a credit of $1.40 (x 10 = $1,400). Then we sold 7 SOX January 440 puts and bought 7 SOX January 425 puts for a credit of $1.35 (x 7 = $945). Our total credit was $2,345. Maximum profit range: 440 – 530. Potential profit: $2,345. (Closed – see above article). Loss: $3,255. Position #3 – XAU (Gold/Silver Index) – Iron Condor We sold 10 XAU January $95 puts and bought 10 XAU January $90 puts for a credit of $.60 ($600). Then we sold 10 XAU January $110 calls and bought 10 XAU January $115 calls for a credit: $.60 (600). Our total credit was $1.20 ($1,200). Maximum profit range: $95 – 110. Potential profit: $1,200. Position #4 -- QQQ Diagonal Calendar Spread I'm a glutton for punishment, but there's a little voice telling me that we should be positioned to take advantage of a pullback in the market. We tried this in November – January and we ended up losing a dime. Sooner or later we're going to be right. So, let's give it another try. We're going to start out risking a buck and we have two additional months to sell against the March long puts to reduce our cost basis while we wait. It's a cheap speculation. We'll consider this an ongoing position. We bought 10 QQQ March $34 puts for $1.20 and sold 10 QQQ January $33 puts for $.20. Our total debit: $1.00 ($1,000). (Rolled out to February. See above article). __________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term 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. We're going to make money by selling near term puts and calls every month. Here's what we've done so far: October: Oct. $33 puts and Oct. $34 calls – credit of $1,900. November: Nov. $34 puts and calls – credit of $1,150. December: Dec. $34 puts and calls – credit of $1,500. January: Jan. $34 puts and calls – credit of $850. Note: We haven't included any of the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's a great cash flow generating strategy. OEX Credit Spread Boogie We sold 2 December OEX 520 calls @ $9.00 and bought 2 December OEX 545 calls @ $1.55. Total credit of $7.45 ($1,490). Exposure $17.55 ($3,510). Rolled out to five contracts of the January 535/505 bull put spread. In the process we took in an additional $280. Total potential profit of $1,770. Looking good. We want the OEX to finish above 535. _________________________________________________________________ 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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