The Option Investor Newsletter Tuesday 02-24-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: January 2003 Futures Markets: Dollar Slide Index Trader Wrap: Lack of confidence and conviction Market Sentiment: How many makes a trend? Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 02-24-2004 High Low Volume Advance/Decline DJIA 10566.37 - 43.30 10637.11 10521.70 1.92 bln 1631/1615 NASDAQ 2005.44 - 2.10 2018.07 1991.05 2.06 bln 1398/1786 S&P 100 563.69 - 0.89 566.19 561.29 Totals 3029/3401 S&P 500 1139.09 - 1.90 1144.54 1134.43 W5000 11075.48 - 14.60 11126.20 11034.24 RUS 2000 571.87 + 1.67 575.91 566.21 DJ TRANS 2859.31 + 4.50 2869.94 2836.48 VIX 15.90 - 0.39 16.76 15.77 VXO (VIX-O)15.82 - 0.11 16.72 15.47 VXN 24.68 + 0.30 25.27 24.36 Total Volume 4,330M Total UpVol 1,658M Total DnVol 2,568M Total Adv 3413 Total Dcl 3902 52wk Highs 253 52wk Lows 34 TRIN 1.34 NAZTRIN 1.10 PUT/CALL 0.76 ************************************************************ January 2003 That is how long it has been since the Dow and S&P have been down five days in a row and that is what happened today. The technical support levels are being hit left and right but in reality nothing has changed. Dow Chart - Daily Nasdaq Chart - Daily The two economic reports this morning did not help traders confidence levels with Chain Store Sales down along with Consumer Confidence. Chain Store Sales fell -0.2% for the last week but that was only a very slight drop from the strong gains for the prior two weeks. We averaged +1.6% gains for each of the prior two weeks so the minor drop today was a non-event. Year over year growth rose to +8.1% and the best since May-1999. The majority of the gains came from easy comparisons from severe weather last year. Considering the slow employment and dropping sentiment just holding the gains from the last three weeks is very bullish. The biggest problem for the morning was a drop in the Consumer Confidence to 87.3 from 96.4 in January. This nearly -10 point drop was very significant and followed drops in all the confidence/sentiment reports for the last couple of weeks. The present conditions component fell to 73.1 and the lowest level since October. The expectations component fell to 96.8 from 107.80 but the jobs component dropped to only 11.8. Those expecting to buy a home rose slightly but consumers expecting to buy a car or major appliance fell. More consumers found that jobs were hard to get and fewer found then plentiful. Sounds like the same things but they are separate components. The decline was stronger in the various expectation components and that suggests the election mud slinging is having a negative impact on consumer viewpoints. The magnitude of the deficits and the constant harping on the lack of jobs is producing consumer worry. Also impacting the market weakness was the continuing currency crisis with the dollar losing ground again. John Snow went on record again as supporting a strong dollar. Snow is rapidly losing credibility every time he repeats that statement. We all know the administration is happy with the dollar drop as a way to increase demand for our exports and pressure imports. The firing of the Russian Prime Minister and his cabinet today by President Putin failed to rock the U.S. markets as it was seen as an attempt to bolster his support. The Russian Prime Minister is primarily responsible for the economic policy. Putin said he wanted to avoid uncertainty in the executive structure and was reshuffling the positions to push stronger reforms. The PM was the last holdover from the Boris Yeltsin era. Greenspan took aim at FRE and FNM in front of the Senate Banking Committee and pressed the need for increased regulation. He said that the risk was great for companies that big which needed to grow profits continually to justify their stock price. While they are both GSE firms their debt is not really guaranteed by the government. Greenspan suggested a failure at either company could send shock waves through the banking system and the economy. Greenspan wants their subsidy removed so that normal capital requirements would apply. He suggested the size of their portfolios be limited to reduce risk and unfair competition. Between them they control over 75% of all single-family mortgages worth more than $4 trillion. Because of their size they are able to control market rates. The SEC filed charges against divisions of Fleet Boston for mutual fund trading practices. The SEC alleged the companies allowed market timing in their trades. The EU imposed a minimum one month ban on poultry and poultry products from the U.S. after a much stronger strain of bird flu turned up at a Texas farm. This was the first highly pathogenic strain of avian flue found in the U.S. in over 20 years. The fear from the rapidly spreading strains of bird flu is that a new pandemic could appear. The bird flu is a rapidly mutating type of flu that can move to other animals and even humans. Once the flu mutates in humans it can produce an flu epidemic from which humans have no defense. The last pandemic in 1918 killed more than 40 million people and was started by an outbreak of bird flu like we are seeing now. According to various reports over 100 million chickens have now been killed worldwide in an effort to eradicate this current threat. Unfortunately this threat has been recurring more frequently in recent years and many health researchers suggest the next pandemic event is not a question of "if" but "when" it will occur. The impact is hotly debated with estimates of human deaths from 10 million to 100 million. With health controls and response times much better now than in 1918 those in power suggest the massive deaths are not probable. They are racing to produce a vaccine for the current strain but it will not be available in even limited doses for at least six months. Mad cow? Bird flu? Soy burgers are looking better every day. Major poultry suppliers are PPC, SFD, TSN and SAFM. This was the first time in a year that the Dow and S&P were down for five consecutive days. Sellers are still taking profits but the volume was only moderate. The Nasdaq fought to close over 2000 and managed to regain 2005 after trading down to 1991 intraday. The last time the Nasdaq closed under 2000 was Dec-26th. The Nasdaq has been in a downtrend for the last five weeks but it is still trading in the range we have been discussing between 2000-2100. The drop is only now beginning to appear risky for techs as the Nasdaq nears its 100dma at 1986. Currently the Nasdaq has broken the uptrend support and the support at the 50dma at 2044. The Dow broke with its recent support at 10575 late today and we saw a dip to 10521 before a late day rally brought it back to close at 10566. The 50dma, which has been strong support for the Dow since last April has risen to 10479 and only 42 points from today's low. The biggest market factor today was another drop in the Dow due to a continued fall in UTX. The stock has dropped -$6 (45 Dow points) in the last two days. Despite the thought process that the world is coming to and end for techs you might be surprised to learn that INTC, MSFT, CSCO and IBM all closed in positive territory. Each set new recent lows on Monday and rebounded today in what could be a leading indicator of a tech rebound in our future. The Russell and the SOX both closed in positive territory as well. The Russell seemed to find a bottom today at 570 with a small break of its 50dma at 574. The Russell closed at 572. The SOX appears to have found a bottom at 495 and closed just under 500 with its 100dma at 503. You can easily see that they better find support quickly or we are going to fall out of our current range. Russell-2000 - Daily SOX Chart - Daily I have been suggesting that the major indexes would trade in their ranges (10450-10700, 2000-2100) until we got through the February consolidation period. I think that is still a valid viewpoint as long as the Nasdaq holds its 1986 100dma. The real key for the current market is no longer the techs but the potential for the Dow to hit its 50dma at 10479. This has been a highly visible target since the end of November when it was last tested. Both the major indexes came very close to their critical numbers today. (10479, 1986) The Russell and SOX appear to be finding a bottom and the four biggest tech stocks all closed positive for the day. Today was the fifth down day for the Dow and S&P. All these factors are coming together to suggest it is time for a bounce. In circumstances like this there can be an explosive rebound as shorts who are thinking new lows get caught off guard and race each other to cover. It does not mean we are done with the selling but any decent bounce would relieve the oversold conditions and bring fresh money into the markets. Nothing goes straight down or straight up and a bounce is due. We could still see one more dip to actually test those critical levels before that bounce appears or we could simply move up at the open. I would rather see the dip to conclude the current cycle and I think a touch of the averages would attract stronger buying. Should the current support level (1986) fail for the Nasdaq the next support target is well below at 1900. I need at least one more dip so I can get an entry in EBAY at $65. (grin) That stock just refuses to go down despite a -25% drop in AMZN over the last month. Despite the drop in confidence there is no real sign the economy is slowing. Copper rose over $1 today and that is a clear indication that manufacturing is increasing. Oil closed at $34.58 and the market continues to ignore it even when most U.S. corporate profits are based on $22 oil. The Russian government layoff was ignored. The Greenspan attack on FRE/FNM had little impact on the broader market. This is a normal consolidation period and during a consolidation markets focus on the negative news rather than the positive. The S&P and Nasdaq lost only two points each. No real fear there. I have been telling you that we are going to trade in this range for the last three weeks. I have been suggesting that buying the dip was a valid strategy until conditions changed. Until we close below 10479/1986 those conditions have not changed and those tactics are still valid. We are at the point where that could happen tomorrow so be prepared. It will either be the best entry point of the week or the beginning of a new trend or both. We will not know the real answer until week is over. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Dollar Slide Jonathan Levinson The US Dollar Index gave back most of its gains since Friday morning in a steep reversal. The CRB, gold, silver and the miners benefited, as did treasury bonds. Equities bounced in the last hour of trading but still closed in negative territory. 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. Chart of the US Dollar Index The US Dollar Index got sold when Europe opened, again when London opened, and then got bombed on the 10AM consumer confidence data. I made some cautionary comments last night about not getting too smug about the reversal signals that printed at the end of last week because of the prior predominant price trends in place, and today provided a fine example of just that. The move in the USD Index reversed most of Friday's substantial gains, and while it did not abort the new daily cycle upphase, any further weakness will. Most traders who tried to play Friday's breakout since the early part of the move would now be underwater in their positions. Predictably, precious metals, foreign currencies and the CRB were all up, while equities again declined. For the day, the CRB added 3.23 to close at 268.47, buoyed by coffee, live cattle, cocoa, soybeans, silver and platinum. Daily chart of April gold Those who squinted to find yesterday's closing print will know what to do in order to find today's: a small upside gap followed by a narrow trading range added 1.15% or 4.6 points to close at 404.20. The move cleared recent 402 resistance but never came close to 408 above, closing right on the 61.8% Fibonacci line. Goldbugs won't be able to rest until the 412-414 resistance level has been surpassed, as that price confluence now coincides with descending trendline resistance off the multiyear high printed last month. For the day, HUI added 3.33% to close at 224.33, and XAU gained 2.98% to close at 99.46. Daily chart of the ten year note yield Bond bears had to work for it today, as a strong open received a huge boost from the disappointing 10AM consumer confidence data. Ten year note yields (TNX) gapped down, broke the rising pennant support line but dojied back up, closing in the middle of their day range. 4.0% support held, and we recall 4.02% from sessions past. The TNX lost 2.1 bps to close at 4.029%, a .52% decline Despite the breakaway gap to the downside, the buy signals on the TNX were not negated, though any further weakness tomorrow could do the trick. Below today's support, 3.92% is the next and current strong horizontal support level. Daily NQ candles NQ lost 3 points to close at 1463.50, a .2% move to complete a choppy session that ranged nearly 25 points. Opening weakness bottomed with the release of the consumer confidence disappointment at 10AM, followed by a run to the highs and then an A-B-C decline that bottomed at 3PM at a slightly higher low. The 10AM low took out Monday's low, and the subsequent high was lower as well. This gave us confirmation on the daily cycle sell signals, and the support we saw today is attributable to Bollinger support on the daily and oversold intraday cycles. It was an orderly session and support remains at 1440-1444, followed by 1430. Resistance is at 1465, 1477, 1482 and 1492. 30 minute 20 day chart of the NQ The oversold intraday oscillators from yesterday corrected today, with the 30 minute cycle oscillator peaking the afternoon and beginning a weak decline that was showing all the signs of a whipsaw on the final hour's ramp higher. The daily cycle downphase has so far been strong, and predicts that the 30 minute cycles will top out at progressively lower lows. That pattern has been playing out on cue so far, but the bounce in the last hour has the 30 minute Ketlner channel proxy flattened, which shows up as a small uptick in the downphasing 300 minute stochastic and the Macd. Any strength at tomorrow's open should whipsaw the cycle back up, and cause a wave of dismayed short covering in the process. A sustained break above 1466 could be sufficient. Daily ES candles ES dropped 1 to close at 1139. It too printed a lower low and lower high, and completed its fifth consecutive losing session. I've been discussing the tenacity of the 1130-36 area when it was resistance, and it's so far delivering equally well as support from above. The daily cycle downphase remains the dominant them here, with most of today's chop attributable to intraday cycles only. But viewed beyond the current vacuum, the weakness in ES and its peers remains troublesome in light of the declining US Dollar Index for the 2nd day in a row. While we attributed the divergent equity weakness yesterday to op-ex unwinding and repositioning, today's continued selloff should not have occurred alongside a falling dollar. If the current weakness in equities and the US Dollar Index is attributable to foreigners liquidating US assets, then the recent lows on both the USD Index and the equity indices should break easily, but that's the less likely scenario for now. 20 day 30 minute chart of the ES This chart is the bulls' best case currently, with a large bullish oscillator divergence opposing declining price within a bullish descending wedge. The 30 minute cycle upphase was very weak today, but the downphase that kicked off this afternoon was even weaker. While the 30 minute NQ chart could go either way, the ES is set up far more bullishly on an intraday basis, and looks like it wants to break to the upside. A move above 1140 should seal it, but given the daily cycle downphase, I can only guess that the breakout will bottom at a lower high, either in the 1146 or 1151-3 levels. The slope of the bullish oscillator divergence looks impressive, but then, so does the daily cycle downphase on the previous chart. Support is at 1133, 1130, 1125, 1122, and then at 1115-18. 150-tick ES The short cycle upphase topped at the close, conveniently right below the upper resistance line on the bullish declining wedge above. A failure from here would imply a move back to the wedge low around 1132, but the short cycle oscillators trend easily and could follow a bullish price breakout if wedge resistance is broken to the upside tomorrow morning. Daily YM candles YM was the weakest link for a change, declining .38% to close at 10565. It's set up like ES, with support from 10500-10515. 20 day 30 minute chart of the YM Today was another strong volume session with QQQ trading more than 30M shares above its average daily volume, 129M for the day. On an isolated basis, the charts are playing their usual games- equities are lined up bearish on the daily, potentially bullish on the 30 minute and potentially bearish on the short cycle oscillators. But on an intermarket basis, equities continue to decline with a declining US Dollar. Because dollar weakness / equity strength was the theme for nearly all of the 2003 rally, this recent change of trend is worrisome, and introduces an element of further uncertainty into the charts we follow. On a trading basis, it means that more than usual, we have to expect the unexpected and if a trade goes against you, stick to the plan and respect your stops. For whatever reason, the daily cycle oscillators continue to favor a stronger dollar / weaker equities, but the different markets are clearly in flux. Until they settle back into a reliable rhythm for us, we need stay open-minded and nimble. See you tomorrow. ************************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 ******************** Lack of confidence and conviction Today's economic data from the Conference Board showed consumer confidence fell in February, with a lack of more robust job growth weighing on consumer's thoughts toward not only the present day situation, but also the future. The S&P Retail Index (RLX.X) 390.53 -0.01% finished flat despite weekly chain-store sales falling in the latest week after two straight strong weekly gains. The index fell 0.2% in the week ending February 21. However, it strengthened to an 8.1% year- over-year increase, compared with a 7.5% year-over-year increase the prior week. Dow component Home Depot (NYSE:HD) $35.99 +1.72% rose $0.61 after reporting fiscal Q4 earnings that rose above year-earlier levels and exceeded Wall Street's expectations, while Federated Department Stores (NYSE:FD) $50.95 +1.19% closed at a new 3-year high, but off its best levels of $51.95 after raising its February 2004 same-store sales growth estimates, while also reporting fiscal Q4 earnings that beat analysts consensus estimates. Market volumes were heavy in today's session with the NYSE turning just over 1.5 billion shares, while NASDAQ saw 2.04 billion shares change hands. While today's trade was choppy among the major indices, there seemed to be little conviction among traders, where by the close, most indices finished in the middle of the day's range. Sector standouts were few. A weaker dollar did have spot gold lifting back above the $400.00 level, which then had the AMEX Gold Bugs Index ($HUI.X) 224.33 +3.33% taking today's top spot among sector winners. The Oil Service Index ($OSX.X) 106.09 +1.84% retraced last weeks losses ahead of tomorrow's weekly U.S. oil inventory report, where expectations are for decreases in reserves with colder weather creating strong heating oil demand in the northeast, while refiners also begin stockpiling oil in order to meet peak summer driving demand. Bloomberg reported that refiners have fallen behind on rebuilding gasoline stocks, as greater focus has been given to meeting the demand for heating oil. Market Snapshot / Internals - 02/24/04 Close Today's A/D line at the NYSE seesawed back and forth to finish breakeven, and while the NASDAQ Composite (COMPX) 2,005.44 managed to close above the 2,000 level after a second-consecutive day of probing this support level, decliners still outnumbered advancers by a 3 to 2 margin by the close. The smaller-cap Russell 2000 Index ($RUT.X) 571.87 +0.29% showed a greater amount of bullish resiliency in today's session, but was unable to reclaim its rising 50-day SMA by the close. Russell 2000 Index ($RUT.X) - Daily Intervals Unlike the larger-cap NASDAQ-100 Index (NDX.X) which has been piercing below its February 4th and 5th relative lows, the smaller caps of the Russell 2000 Index ($RUT.X) which comprise smaller cap stocks listed at both the NYSE and NASDAQ have did find buyers just above the February 4th low. Since August, the RUT.X has found bullish bounces within 3 or 4-day's time once the 50-day SMA has been tested, and may well be an index to be an index that index traders should be monitoring closely the next couple of days for SIMILARITY or DIVERGENCE to the past. Pivot Matrix - I've marked some of today's lows in PINK (INDU, OEX, BIX.X) as well as the BIX.X's high where the INDU intra-day low came just above its MONTHLY Pivot. The OEX's intra-day low came just above its WEEKLY S1, where in the WEEKLY Pivot is the only WEEKLY S1 we haven't seen traded as it would relate to a major equity index. While we can't expect the financials to hold a market up by themselves as profit taking would likely build should losses begin to mount in other sectors of the market, the BIX.X has neared its WEEKY S2, where we could begin to tie some importance to the BIX.X's WEEKLY S2 and OEX's WEEKLY S1. Should the BIX.X break below its WEEKLY S2, then next support level lower is the MONTHLY Pivot, where roughly 3.5 points to the downside is a meaningful move for what tends to be a slower moving sector. Some work I did in last night's Market Monitor after finishing the Monday evening Index Trader Wrap has be looking at the DAILY S1s as somewhat of a moving line in the sand over the course of the next several sessions, where I would only look for strength above the DAILY S1s, but if traded, would certainly need to see buyers offer intra-day support back at the DAILY Pivots. I have come to this analysis from the following, which dates back to some observations of trade in August of 2003, where current market technicals look almost IDENTICAL to that found in July and August of 2003. NASDAQ Composite (COMPX) Chart - Daily Intervals In Monday's 03:15 PM EST update I wanted to try and see if there was any bearish divergence between the recent market internals like the bullish % or NH/NL 10-day average ratio's, but could not find any bearish divergence where the internals wouldn't have confirmed the recent highs. I went back through the data and found current market internals, which do show weakening, were VERY similar, but currently a little stronger, than the time period found in the lower left corner of the above chart. Note some of the similarities with trend, as well as the moving averages. It is obvious now that a move above the 50-day SMA was perhaps the signal for strength, where that strength was confirmed further with a COMPX advance above the 21-day SMA, where that advance was confirmed with a shoter-term downward trend, where than advance was confirmed by a new 52-week high. Oscillators today are also very similar to oscillator found back in July/August. As always.... History is no guarantee of the future, but provides and EXCELLENT test for the future, where we would monitor for SIMILARITY or DIVERGENCE. I went one step further when I reviewed how the NASDAQ-100 Index (NDX.X) traded on August 11, which in hindsight would have been the first day of the rebound. It was that day that the NDX traded its DAILY R1 early in the session, then came back to just undercut its DAILY Pivot by 1-point, to then close that session back above its DAILY S1. In a way, that up, down, up seemed to be a coiling type action, which provided the springboard for the rebound. This may be the action we want to be monitoring for in the near- term. Hopefully you can see that a trader didn't need to "jump all over" the trade immediately. NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals Today's volume in the QQQ was heavy once again, and in my opinion, this can no longer be related to Friday's QQQ February expiration. The QQQ was very squirrelly today and while the QQQ had been a tough intra-day trade for me in recent weeks, there was little sense to today's intra-day swings. After a big move up on Monday, Qualcomm (NASDAQ:QCOM) $61.08 -2.16% gave back some of Monday's gains, while MSFT +1.01%, INTC +0.68%, CSCO +1.31% and AMAT +0.14% showed some of the more heavily weighted stocks finding some gains. S&P 100 Index (OEX.X) Chart - Daily Intervals The OEX closed below the lower end of my hand-drawn channel, which is some divergence to the past where the OEX was able to reclaim that trend by a close. This may put greater emphasis on the 560 level near-term where the WEEKLY S1 and MONTHLY pivot reside. Dow Industrials (INDU) Chart - Daily Intervals The INDU popped to a session high at 10:30 AM EST, but once it fell back below 10,600 and the 38.2% MONTHLY retracement (red retracement) intra-day resistance was found. I can't say that an unfavorable ruling against tobacco makers, which did see Altria (NYSE:MO) $56.17 -0.81% fall rather quickly from $56.50 to a session low of $55.71, comprise a late-afternoon spat of selling in the INDU, but it certainly didn't help. Still, buyers seemed to be lined up and ready to buy just above the INDU's MONTHLY Pivot. While MO has little to do with the NASDAQ Composite or NDX/QQQ, their declines as the INDU made a session low was evident, and may well suggest that investor confidence is fragile, where the INDU can play a BIG role in investor psychology. 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 **************** How many makes a trend? - J. Brown One or two days in a row may not make a trend but does five? Stocks slid for their fifth straight session with the NASDAQ hitting another new relative low under the 2000 level before a market-wide afternoon bounce lifted stocks. Throwing a wet blanket on the markets today was the February consumer confidence report. Economists had been looking for a decline to 92.9 from January's 96.8. What we got was a drop to 87.3. In spite of the bad news investors' moods seemed to be nonchalant about the report. As one trader put it today's action was more of buyers taking a break than seller's overwhelming demand. Overall the session wasn't as bad as it seemed. Sure there were more sector losers than winners but market internals were mixed. Advancing stocks edged past decliners 1459 to 1373 on the NYSE and lost the race 1377 to 1697 on the NASDAQ. Up volume did fall behind down volume but it was nothing dramatic. As a matter of fact by the end of the session some of the more optimistic trader talk was suggesting the NASDAQ may bounce tomorrow. While not directly related the volatility indices all traded lower, which means investors were feeling more bullish than bearish. Tomorrow we'll hear the existing home sales numbers and the markets will digest any news from Fed governor Poole's speech in N. Carolina. However, the big event on Wednesday will be Alan Greenspan's talk on his economic outlook. This alone could keep the major indices range bound. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 7416 Current : 10566 Moving Averages: (Simple) 10-dma: 10652 50-dma: 10479 200-dma: 9640 S&P 500 ($SPX) 52-week High: 1158 52-week Low : 788 Current : 1139 Moving Averages: (Simple) 10-dma: 1148 50-dma: 1123 200-dma: 1037 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 938 Current : 1462 Moving Averages: (Simple) 10-dma: 1490 50-dma: 1485 200-dma: 1352 ----------------------------------------------------------------- Volatility continues to drop despite the profit taking across most market sectors today. CBOE Market Volatility Index (VIX) = 15.90 -0.39 CBOE Mkt Volatility old VIX (VXO) = 15.80 -0.13 Nasdaq Volatility Index (VXN) = 24.68 +0.30 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.76 816,858 623,121 Equity Only 0.65 708,377 462,156 OEX 1.25 18,213 22,791 QQQ 4.64 14,027 65,112 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 76.2 - 1 Bull Confirmed NASDAQ-100 63.0 - 5 Bear Confirmed Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 85.6 - 1 Bull Confirmed S&P 100 87.0 - 2 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.23 10-dma: 1.09 21-dma: 1.03 55-dma: 1.01 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 1459 1377 Decliners 1373 1697 New Highs 200 170 New Lows 17 21 Up Volume 726M 877M Down Vol. 1107M 1146M Total Vol. 1869M 2033M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 02/17/04 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 Commercial traders are still stuck in limbo with very little movement, although the movement this week was bullish. As is normally the case small traders moved the opposite direction. Commercials Long Short Net % Of OI 01/27/04 417,089 410,930 6,159 0.7% 02/03/04 411,920 414,596 (2,676) (0.3%) 02/10/04 412,217 414,044 (1,827) (0.2%) 02/17/04 416,148 415,278 870 0.0% 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 01/27/04 143,089 87,828 55,261 23.9% 02/03/04 141,465 81,926 59,539 26.7% 02/10/04 143,496 80,362 63,134 28.2% 02/17/04 141,533 84,227 57,306 25.3% 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 Commercial traders became slightly more bearish last week with a decent increase in short positions. Small traders increased both longs and shorts but overall look a lot more bullish. Commercials Long Short Net % Of OI 01/27/04 291,166 334,618 (43,452) ( 6.9%) 02/03/04 280,519 346,042 (65,523) (10.5%) 02/10/04 297,601 356,630 (59,029) ( 9.0%) 02/17/04 296,313 371,703 (75,390) (11.3%) 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 01/27/04 154,485 60,556 93,929 43.7% 02/03/04 133,293 55,476 77,817 41.2% 02/10/04 110,480 58,428 52,052 30.8% 02/17/04 144,014 64,391 79,623 38.2% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials still aren't making any big changes here but they did turn slightly more bullish on the NDX. Small traders didn't move much. Commercials Long Short Net % of OI 01/27/04 43,704 40,951 2,753 3.3% 02/03/04 43,600 41,441 2,159 2.5% 02/10/04 44,406 40,439 3,967 4.7% 02/17/04 46,104 40,385 5,719 6.6% 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 01/27/04 10,137 10,715 ( 578) ( 2.8%) 02/03/04 8,907 13,729 (4,822) (21.3%) 02/10/04 9,906 13,018 (3,112) (13.6%) 02/17/04 9,630 12,338 (2,708) (12.3%) 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 Minor increases in both shorts and longs for commercial traders lead to a small up tick in bullish sentiment. Small traders turned slightly more negative on the Dow. Commercials Long Short Net % of OI 01/27/04 16,536 8,404 8,162 32.7% 02/03/04 17,765 9,619 8,146 29.7% 02/10/04 21,764 11,974 9,790 29.0% 02/17/04 24,451 12,907 11,544 30.9% 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 01/27/04 7,240 12,372 (5,132) (26.2%) 02/03/04 6,352 13,113 (6,761) (34.7%) 02/10/04 6,267 14,220 (7,953) (38.8%) 02/17/04 6,768 15,623 (8,855) (39.5%) 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 Tuesday 02-24-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: AHC, APOL, DHI, DHR, EBAY, PD, QCOM, RJR, RNR New Calls Plays: SLB, UNH Put Play Updates: AVID, CTSH, MMM, WGO New Put Plays: CHIR, IR **************** 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: ***** None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Amerada Hess Corp. - AHC - cls: 61.47 chng: +0.02 stop: 58.50 Continued strength in the Oil Patch has kept our AHC play looking strong this week, despite the weakness seen in the rest of the market. After last week's rejection at the $62 resistance level, the stock is working off its near-term overbought condition as price drifts sideways between $61-62. A pullback to test mild support near $60 still looks like the best setup for new entries, although we might get lucky and see a deeper dip near $59 support before the rebound gets underway. Traders that would prefer to enter on strength can now target entries on a move over last week's $62.29 intraday high. Maintain stops at $58.50 for now. Picked on February 10th at $59.53 Change since picked: +1.94 Earnings Date 1/28/04 (confirmed) Average Daily Volume = 970 K Chart = --- Apollo Group - APOL - close: 76.15 change: -0.43 stop: 74.00 It took a week of failed breakout attempts near the $79 level to get the bulls to cool their heels a bit and let APOL pull back towards support, as we've been hoping it would. Recall that the prior peak was seen near $75, and with the 30-dma ($75.19) just crossing through that level, today's dip below $75.50 looked like a solid entry into this bullish trend. For traders that may have missed that opportunity, another dip near $75 looks good as an entry point ahead of the next bullish thrust. We can see how the stock has been working its way higher over the past couple months and a test of the 30-dma was the key entry point back in late January. Until proven wrong, looking for a repeat of that pattern should prove fruitful. Maintain stops at $74, as a solid break below $75 support would be the first sign that perhaps the uptrend is weakening. Picked on February 1st at $77.44 Change since picked: -1.29 Earnings Date 12/18/03 (confirmed) Average Daily Volume = 1.60 mln Chart = --- D.R.Horton - DHI - close: 30.01 chg: +0.25 stop: 27.99 The close under $30.00 yesterday looked somewhat ominous for the bulls but both DHI and the DJUSHB homebuilders index managed a small bounce on Tuesday. Unfortunately neither have broken their short-term trend of lower highs and both have produced a new sell signal in the MACD indicator. In contrast their short-term oscillators like their stochastics and RSI are suggesting a potential short-term bottom. As mentioned in earlier updates traders can watch DHI for a bounce from the $29.00-29.50 levels as potential entry points. No change in our stop loss. Picked on February 08 at $30.00 Change since picked: + 0.01 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 2.4 million Chart = --- Danaher Corp - DHR - close: 90.90 cls: -0.24 stop: 90.00 This is it! DHR is at a critical level. Yesterday shares broke down through technical support at its simple 50-dma. Today there was a quick rebound but the stock faded throughout the session and almost hit our stop loss at $90.00. Fortunately, there was a late afternoon rally. Even though DHR is above support at $90.00 we are very cautious on new positions and suggest only aggressive traders look to buy a bounce here, especially considering this is the first time DHR has closed under its 50-dma since last September. If the DJIA breaks the 10,500 level tomorrow we may see DHR breakthrough the $90 level and stop us out. Picked on January 30 at $91.01 Change since picked: - 0.11 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 841 thousand Chart = --- eBay, Inc. - EBAY - close: 67.19 change: -0.54 stop: 66.50 That certainly isn't the way we expected our EBAY play to get started. Rather than breaking out over resistance, the stock has started out the week with a bout of weakness, falling back to the $67 support level and closing fractionally below the 30- dma. We're not ready to throw in the towel just yet, but things don't look particularly encouraging for the play right here. Fortunately, we used a trigger just over $70 resistance and since that trigger hasn't been touched yet, it's only an academic exercise to this point. We would not advocate jumping the gun and buying this dip. Wait for the breakout before playing. If our $66.50 stop is violated, then we'll drop the play, relegating it to the "what might have been" category. Picked on February 22nd at $69.26 Change since picked: -2.08 Earnings Date 4/21/04 (confirmed) Average Daily Volume = 6.89 mln Chart = --- Phelps Dodge - PD - close: 83.26 chg: +1.96 stop: 78.00 Another gain for copper futures helped PD added another 2.4% on Tuesday. The stock did bounce from the $80.00 level, which was expected to be support. However, if you were not brave enough to go long at $80.00 again (we were cautious over the weekend) the Tuesday move over $83.00 looks good too. Today's gain has broken the short-term trend of lower highs and both its RSI and stochastics indicators look bullish. If the recent pull back was nothing more than a bull flag then we can probably expect PD to breakout above the $90 level. Picked on February 11 at $80.51 Change since picked: + 2.75 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 1.6 million Chart = --- Qualcomm, Inc. - QCOM - cls: 61.08 chng: -1.35 stop: 58.00*new* Denying us the ability to enter into the breakout move yesterday, QCOM gapped sharply higher (and right through our entry trigger) following the company's raised guidance before the opening bell. Citing strong demand for the company's mobile station modem and radio frequency chips, the company raised its Q2 EPS guidance from 34-37 cents to 48-50 cents. The stock exploded through resistance, hitting an early high of $63.65 before traders began taking profits. The stock looked pretty weak on Tuesday, falling as low as $60.62 before a slight rebound into the close. Since we didn't get an opportunity to enter on the breakout, we're now left looking for entry on a rebound from new-found support in the $59-60 area. Look for a fill of yesterday's gap to find strong buying support from traders that missed yesterday's move. That will be our cue to initiate new positions. With the initial breakout now completed, let's raise our stop to $58, just below last Friday's intraday low, as well as the 20-dma (now at $58.35). Picked on February 17th at $59.55 Change since picked: +1.53 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 8.73 mln Chart = --- RJ Reynolds Tobacco - RJR - cls: 60.86 chg: -1.01 stop: 57.50 We have good news and bad news for RJR traders. The good news first...the stock rose strongly on Monday and surpassed Friday's failed rally at the 60.60 level on strong volume. Furthermore its soon to be partner British American Tobacco announced earnings today that showed a 4% rise in net profits for 2003. BAT said that they expect stronger growth this year but issued caution that if the dollar continues to be weak it will pressure profits. Now the bad news. Late this afternoon news hit the wires that a federal judge refused to dismiss claims against Phillip Morris (MO), RJR and other American cigarette makers that they specifically targeted children in their advertising to make them customers as adults. The claim is part of a 1999 case the U.S. vs. Phillip Morris (and the rest of the industry) that alleges the tobacco industry engaged in 50 years of "fraudulent marketing practices that included manipulating nicotine levels, lying about the risks of smoking and targeting ad campaigns at tots." (source: Dow Jones Business News). Two of the three main charges have been dropped and the trial is expected to begin on September 13, 2004. Should MO and RJR lose this case the government seeks a $280 billion (with a B) settlement as a disgorgement of "ill-gotten" gains from the marketing practices. Considering the potential impact of this case the $1.01 drop in RJR actually looks bullish. Traders can use the pull back to $60 as another entry point but might want to consider using a tighter stop loss. Picked on February 20 at $60.51 Change since picked: + 0.35 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 699 thousand Chart = --- Renaissancere Ltd - RNR - close: 51.07 chg: +0.07 stop: 49.50 Insurance stocks as a group have continued their slow fade lower but shares of RNR appear to have reached a short-term bottom near $51.00. Traders can still consider positions here but bounces from a dip to $50.00 or a move back over $52.25 can also act as alternative entry points depending on your preferred strategy. Strengthening RNR's fundamentals was news today that Standard & Poor's had raised RNR's credit rating. Picked on February 15 at $50.83 Change since picked: + 0.24 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 238 thousand Chart = ************** NEW CALL PLAYS ************** Schlumberger Ltd - SLB - close: 64.47 change: +1.21 stop: 60.40 Company Description: Schlumberger Limited is an oilfield services company that supplies technology, project management and information solutions that aim to optimize performance for customers working in the international oil and gas industry. The company is comprised of two primary business units. Schlumberger Oilfield Services supplies a wide range of products and services that support core industrial operational processes. WesternGeco, jointly owned with Baker Hughes, is a large seismic company that provides advanced acquisition and data processing surveys. Why we like it: The current rally in SLB has been closely tied with the recent rally in the overall Oil Service Sector (OSX.X), as stocks in this area began responding to the rise in the price of Crude Oil, following the rebound from the $29 level in late November. In that time, the March Crude Oil contract (CL04H) has risen to new contract highs above $36, the OSX has risen from $84 to $106 and SLB has rallied from $47 to $64. All of these are impressive moves already, but every one of these trends is still looking strong, with new breakouts likely in the near future. SLB seems to be a bit ahead of the OSX, actually breaking out to new 2-year highs on Tuesday and the bulls are already setting their sights on next resistance at $68. A quick look at the PnF chart shows the strength of this bullish trend, as it is on a strong Buy signal with a bullish price target of $77. It is unlikely that SLB can rally straight to that target without one or two pauses along the way, so we'll work with some targets that are a bit closer to reality. Our first target will be resistance at $68 and then we'll look for a continued rally up to strong resistance in the $73-74 area. Since we technically got the breakout on Tuesday, we're not going to use a trigger for the play. Pullback entries can be considered on a dip and rebound from near support in the $62-63 area, with that support reinforced by the 20-dma ($62.61). Traders looking to enter on continued strength will want to open positions on a break above $64.50, as SLB takes out today's intraday high. Look for confirmation from the OSX, with a break over $107 giving the "all clear" for higher levels ahead. We're initially placing our stop at $60.40, just under the early February lows. Suggested Options: Shorter Term: The March $65 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the April $70 Call, while the more conservative approach will be to use the April $65 strike. Our preferred option is the April $65 strike, which is at the money and should provide sufficient time for the play to move in our favor. BUY CALL MAR-65 SLB-CM OI=4359 at $1.40 SL=0.75 BUY CALL MAR-70 SLB-CN OI=2173 at $0.30 SL=0.00 BUY CALL APR-65*SLB-DM OI= 116 at $2.45 SL=1.25 BUY CALL APR-70 SLB-DN OI= 10 at $0.60 SL=0.30 Annotated Chart of SLB: Picked on February 24th at $64.47 Change since picked: +0.00 Earnings Date 1/23/04 (confirmed) Average Daily Volume = 3.51 mln Chart = --- UnitedHealth Group - UNH - close: 61.92 change: +0.71 stop: 58.00 Company Description: UnitedHealth Group Inc. provides health and well-being products serving more than 48 million Americans. The company's revenues are derived from premium revenues on risk-based products, fees from management, administrative and consulting services and investment and other income. UNH conducts its business primarily through operating divisions in four business segments: Uniprise; Health Care Services, which includes UnitedHealthcare, Ovations and AmeriChoice businesses; Specialized Care Services, and Ingenix. Why we like it: There have been many times in the past couple years when the bullish trend in UNH has looked like it was about topped out. But every time, the stock pulls back to support and launches itself to new highs. Of course, it doesn't hurt that Health Care is one area of the economy that continues to see robust growth. After rebounding from the 200-dma back in early November, the stock has been moving steadily higher in a fairly steep and tight ascending channel. The most recent dip down to the bottom of the channel near the 30-dma ($59.63) earlier this month found plenty of eager buyers and over the past week they've managed to propel the stock through resistance at $61. Ignoring the broad market weakness on Tuesday, the HMO index managed a small gain and UNH broke out to another all-time high. The stock won't tear up the charts in volatile fashion, but sometimes a reliable and consistent trend holds greater appeal. Flipping over to the PnF chart, we can see where January's breakout took the stock higher out of the 6-month consolidation pattern, and the current bullish price target of $77 tells us that the stock still has plenty of potential upside. With today's breakout, we don't need to use a trigger on the play and can instead choose breakout or pullback entries as suits our own personal trading style. Momentum traders can enter on a breakout over $62 (just over today's intraday high), while those looking for a pullback entry will want to target a rebound from the bottom of the rising channel just above $60. Note that the 20-dma ($60.17) and the 30-dma should both reinforce that support. We'll start the play with our stop set at $58, which is just below the early February intraday lows as well as the 50-dma ($58.35). Suggested Options: Shorter Term: The March $60 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the March $65 Call, while the more conservative approach will be to use the April strikes due to the greater time until expiration. Our preferred option is the April $60 strike, which is in the money and should provide sufficient time for the play to move in our favor. BUY CALL MAR-60 UHB-CL OI=3422 at $2.75 SL=1.50 BUY CALL MAR-65 UHB-CM OI= 948 at $0.35 SL=0.00 BUY CALL APR-60*UHB-DL OI= 114 at $3.50 SL=1.75 BUY CALL APR-65 UHB-DM OI= 16 at $1.00 SL=0.50 Annotated Chart of UNH: Picked on February 24th at $61.92 Change since picked: +0.00 Earnings Date 1/22/04 (confirmed) Average Daily Volume = 2.54 mln Chart = ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Avid Technology - AVID - close: 39.92 chg: +0.37 stop: 42.01*new* The good news for our AVID put play was the early morning drop to $38.43 was within our exit (profit target) range of $38.50 to $38.00. Unfortunately, we were holding out for a move to $38.00 and given today's rebound off the low AVID may make another attempt toward descending resistance near $41.00. In response we're going to lower our stop loss to $42.00. Another positive sign for us is that Tuesday marks the second close in a row under the psychological round-number of $40.00. Given AVID's position so close to our exit we are not suggesting new positions. Picked on February 04 at $42.87 Change since picked: - 2.95 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 612 thousand Chart = --- Cognizant Tech. - CTSH - cls: 46.77 chng: -1.04 stop: 50.50*new* Sure enough, last week's failed rebound near the $50 level did turn out to be a solid entry point, as CTSH rolled over from the 50-dma. Just to reinforce the validity of that resistance level, the bulls were rejected just below $50 yesterday morning, before the stock fell back below $48 at the close. With Technology stocks weak again today, CTSH continued its slide, posting its worst close since the end of December and closing under the 100-dma ($46.93) for the first time since last June. There's still likely to be some support found in the $45-46 area, so momentum entries on further weakness are not likely to perform well, at least in the near term. Our preferred strategy is still to take advantage of failed bounces below the 50-dma to establish new positions. The more likely rejection point is now probably at the 10-dma ($49.19), which today crossed under the 50-dma. Lower stops to $50.50, which shouldn't be challenged except in the case of a trend reversal. Picked on February 19th at $47.49 Change since picked: -0.72 Earnings Date 2/10/04 (confirmed) Average Daily Volume = 1.29 mln Chart = --- 3M Company - MMM - close: 79.48 change: -0.96 stop: 82.00 The bulls continue to stubbornly buy each dip, keeping MMM from breaking down as it should. Still mired in the recent consolidation pattern, the stock bounced yesterday and then was sold back down near 100-dma ($79.61) support today. While it is somewhat disconcerting that the lows have been moving higher, it is encouraging to see the highs on each bounce moving lower. Each of the past 3 rebounds have seen the stock roll over below the 30-dma ($80.85) and that pattern has held true so far this week. A break below $78.90 would take out last week's intraday low and deliver the first crack in the pattern of higher lows over the past 3 weeks. Failed bounces below the 30-dma still look like the best near-term entry, while traders looking to enter on weakness will need to wait for the elusive break under the $77.50 level on a break under the early February lows. Maintain stops at $82 for now. Picked on February 15th at $79.68 Change since picked: -0.20 Earnings Date 1/20/04 (confirmed) Average Daily Volume = 2.72 mln Chart = --- Winnebago - WGO - close: 65.10 chg: +0.10 stop: 70.00 Wow! Shares of WGO are quickly moving towards our target. The stock dropped from $68.00 to less than $64.00 on Monday but closed off its lows. That afternoon bounce continued into Tuesday's session but WGO rolled over again after hitting $66.00. Remember that we're targeting a move to $60-62.00. If you choose to enter on today's afternoon failed rally consider using a tighter stop than our $70.00. Picked on February 22 at $68.13 Change since picked: - 3.03 Earnings Date 12/17/03 (confirmed) Average Daily Volume: 276 thousand Chart = ************* NEW PUT PLAYS ************* Chiron Corp - CHIR - close: 49.11 chg: +0.09 stop: 51.50 Company Description: Chiron Corporation, headquartered in Emeryville, California, is a global pharmaceutical company that leverages a diverse business model to develop and commercialize high-value products that make a difference in people's lives. The company has a strategic focus on cancer and infectious disease. Chiron applies its advanced understanding of the biology of cancer and infectious disease to develop products from its platforms in proteins, small molecules and vaccines. The company commercializes its products through three business units: BioPharmaceuticals, Vaccines and Blood Testing. (source: company press release) Why We Like It: CHIR reported Q4 earnings at the end of January and while results were in-line with estimates they were dramatically improved over last year. Unfortunately for shareholders it wasn't enough to spark any new buying interest and CHIR continued to fail at overhead resistance in its 50-dma. The last several sessions have seen a new trend of lower highs and lower lows finally blossom into a technical breakdown of support at its simple 200- dma and the round-number psychological level at $50.00. The stock attempted a rebound today but failed again, this time at the $50.00 level. It's common to see previous support become new resistance once broken and today's move provides traders a chance to open bearish positions just under resistance. CHIR's point-and-figure chart also shows the bearish breakdown through support and points to a $44 price target. We're going to target a move to $45.00 and start the play with a stop loss at $51.50 above its 200-dma. Suggested Options: Short-term traders can choose from the March or April strikes but we're going to select the April 50 puts as our favorite. BUY PUT MAR 50.00 CIQ-OJ OI=4692 at $2.10 SL=1.05 BUY PUT MAR 47.50 CIQ-OT OI=1135 at $1.00 SL= -- BUY PUT MAR 45.00 CIQ-OI OI= 477 at $0.45 SL= -- BUY PUT APR 50.00*CIQ-PJ OI=2880 at $2.85 SL=1.45 BUY PUT APR 47.50 CIQ-PT OI=2462 at $1.65 SL=0.85 BUY PUT APR 45.00 CIQ-PI OI= 232 at $0.90 SL= -- Annotated Chart: Picked on February 24 at $49.11 Change since picked: - 0.00 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 1.7 million Chart = --- Ingersoll-Rand - IR - close: 64.72 chg: -1.13 stop: 68.00 Company Description: Ingersoll-Rand is a leading innovation and solutions provider for the major global markets of Security and Safety, Climate Control, Industrial Solutions and Infrastructure. The company's diverse product portfolio encompasses such leading industrial and commercial brands as Schlage locks and security solutions; Thermo King transport temperature control equipment; Hussmann commercial and refrigeration equipment; Bobcat compact equipment; Club Car golf cars and utility vehicles; PowerWorks microturbines; Ingersoll-Rand industrial and construction equipment; Dresser- Rand turbomachinery and Kryptonite portable security products. In addition, IR offers products and services under many more premium brands for customers in industrial and commercial markets. (source: company press release) Why We Like It: Shares of Ingersoll-Rand enjoyed a very strong 2003 and that rally continued right through January up until its January 27th earnings report. IR reported great earnings that beat estimates by 6 cents but they only reaffirmed future guidance inline with estimates and investors sold the news. In the last few weeks investor confidence has flip-flopped multiple times over the Fed and the fear of potentially rising rates negatively influencing cyclical stocks like IR. Renewed concerns that the market is just plain tired and stocks like IR may be fairly valued have lead many investors to start taking profits. IR did bounce from its post-earnings selloff but that bounced failed at the $68.00 level. After six sessions of trying to break through the $68 level the selling has begun again. Now IR has broken through support at $65.00 but more importantly it has broken support at its long-term rising trendline. We're going to target an initial move to the $60.00 level but more diehard bears might want to consider a test of the 200-dma. We'll start the play with a stop loss at $68.00. For the bulls out there shaking their head saying cyclicals should out perform given the improving economy, we agree. But short-term the trend is down and if IR can form a new bottom near $60 or its 200-dma then all the better for a new run higher later this year. Suggested Options: Short-term traders have March, April and June strikes to choose from but the April strikes look pretty new. We're going to pick the April 65 as our favorite. BUY PUT MAR 65 IR-OM OI= 262 at $2.05 SL=1.00 BUY PUT MAR 60 IR-OL OI= 212 at $0.50 SL= -- BUY PUT APR 65*IR-PM OI= 20 at $2.90 SL=1.50 BUY PUT APR 60 IR-PL OI= 20 at $1.10 SL=0.55 Annotated Chart: Picked on February 24 at $64.72 Change since picked: - 0.00 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 1.0 million Chart = ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 02-24-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Short & Sweet ********** WATCH LIST ********** Short & Sweet ___________________________________________________________________ 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. ___________________________________________________________________ Deluxe Corp - DLX - close: 38.78 change: -0.02 WHAT TO WATCH: DLX may appear range bound between $37 and $43 over the last five months but the recent downtrend from late January and the tight consolidation between $39-40 in February may suggest something more ominous. DLX has a very long-term trend of rising lows on its weekly chart dating back to September 2001. Shares are nearing this supporting trendline now. Should DLX break this trendline it would spell very bad news. Short- term bearish traders may want to consider jumping the gun on a move under 38.50 but the trendline appears to be near the $38.00 level. Chart= --- Omnicom Group - OMC - close: 78.63 change: +0.69 WHAT TO WATCH: The mid-February pre-earnings bounce to $85 failed right beneath its simple 50-dma. This failed rally was hastened by an earnings miss when OMC missed by a penny. Now the stock has dropped six sessions in a row before today's bounce from its 200-dma. The trend is still very much down but its short-term technical oscillators are suggesting an oversold bounce may be due. Chart= --- Amazon.com - AMZN - close: 42.32 change: -1.65 WHAT TO WATCH: The recent consolidation near its 200-dma turned out to be nothing but a bear flag pattern. It has since come to fruition in another breakdown to new lows. This may feel like a chase but more aggressive bears may want to ride AMZN toward its next support level near $38. One caveat - AMZN has stalled right at support on its P&F chart. Chart= --- First Data Corp - FDC - close: 40.94 change: +1.12 WHAT TO WATCH: Another stock trading at a critical P&F chart level is FDC. Shares have rebounded right back toward P&F resistance. Coincidentally it also happens to be its descending trendline of lower highs on its daily and weekly chart. We happen to like the bounce from its 200-dma today and the intraday action looks pretty tempting. Consider a long over $41.00 or if you need more convincing wait for a move over $41.75. Target a move to $45.00. Chart= ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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