The Option Investor Newsletter Tuesday 03-02-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Dollar Dominates Futures Markets: Index Trader Wrap: Market Sentiment: Super Tuesday? Not on Wall Street Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 03-02-2004 High Low Volume Adv/Dcl DJIA 10591.48 - 86.70 10678.36 10568.88 1.87 bln 1416/1807 NASDAQ 2039.66 - 18.10 2064.40 2039.66 1.87 bln 1236/1920 S&P 100 565.86 - 3.57 569.71 565.02 Totals 2652/3727 S&P 500 1149.10 - 6.87 1156.54 1147.31 W5000 11225.44 - 64.00 11297.80 11213.94 SOX 510.24 - 2.90 521.15 509.97 RUS 2000 591.06 - 3.71 596.22 590.96 DJ TRANS 2896.90 - 19.70 2923.86 2894.80 VIX 14.86 + 0.42 14.89 14.18 VXO (VIX-O)14.60 + 0.42 14.60 14.03 VXN 22.42 - 0.12 22.93 21.97 Total Volume 4,061M Total UpVol 1,303M Total DnVol 2,716M Total Adv 3053 Total Dcl 4205 52wk Highs 705 52wk Lows 16 TRIN 1.36 NAZTRIN 1.35 PUT/CALL 0.71 ************************************************************ Dollar Dominates Greenspan must be irritable lately because every time he takes the stage he takes aim at the status quo. The shot heard around the world today sent the dollar to the largest one day gain against the Euro ever. Those short the dollar were not happy traders today. The ramifications from Greenspan's currency talk reverberated through all the markets, stocks, bonds and commodities. Dow Chart - Daily Nasdaq Chart - Daily The economics today were mostly positive with Chain Store Sales flat but up from last weeks -0.2% rate. The most positive report was the Challenger Layoff Survey for February. The headline number showed a -34% drop in layoffs from the January level with only 77,250 in February. This was the lowest level in five months but the recent average is still in the 100,000 per month range. The level prior to the recent recession was averaging only 50,000 per month. The drop in the headline number was very encouraging. The components showed the majority of the cuts were in the food services, financial services and industrial goods and layoffs in techs and telecom have dropped substantially. This was a positive report but the Greenspan comments far overshadowed the markets and economics were quickly forgotten. Greenspan took aim at the huge amount of U.S. debt owned by Japan and China and pulled the "gotcha" card out of his deck. He said Japan owned $650B in treasuries and China $450B. He said they bought these securities to keep their currency inline with the dollar and maintain the current favorable trade rates. Today, Greenspan said further intervention by these countries was unsustainable at the current rates. Eventually they would have to let the market forces work and sell much of the debt they currently owned. This would produce a stronger dollar and higher interest rates. Oops! Suddenly the ever declining dollar was rebounding due to the light at the end of the tunnel and those short the dollar were scrambling to cover. Also helping support the dollar was rumors of a ECB rate cut in the wings. This would remove another reason not to own the dollar and helped to provide even more incentive to cover. The dollar rose nearly +2% against the Euro and it was the biggest one day gain since the Euro began. The Euro fell to a two month low against the dollar. Ironically a rising dollar reduces the need for Japan and China to buy more treasury debt and that also reduces the demand for debt paper. On the bond front treasuries plummeted on the prospect of less buying from Japan and China and yields rocketed. The ten-year yields soared to close at 4.05% from the 3.94% low on Monday. With the prospect of a strong dollar returning equities saw some serious sell programs as funds lightened the load on interest sensitive issues and techs. The banking sector saw some heavy selling as did some of the home builders. In the question and answer session Greenspan was asked directly about the coming Fed rate policy. He responded with a grin that "we have said repeatedly that the current policy is accommodative and eventually we will be forced to remove that accommodation." His elaboration to that initial reply was a clear warning that the Fed patience may be wearing thin and there were rate hikes in the future. He did not indicate how far in the future and it is likely several more months or even as long as next year. He bluntly stated that hikes were coming to put the bond market on notice that the honeymoon was not going to last forever. Nobody expected it to but the recent list of weaker than expected economic reports had more analysts going on air to suggest the Fed was on hold until 2005. Greenspan cannot let that thought process continue. He has to keep the markets off balance to avoid a disaster should something unexpected come up. He has to keep the markets always on the edge to prevent traders from loading up portfolios with lopsided rate risk. The equities market was faced with the potential for higher rates sooner than expected and possibly inside the six month window and some institutions decided to take profits. The market typically discounts all events for six months in advance. With the general outlook of no rate cuts until 2005 there was little rate risk built into the next six months of earnings expectations. What happened today was the addition of some rate risk back into the current expectations. Another problem weighing on the markets is the price of oil. On Monday it hit the $37 level and closed today at $36.70. It is normally reported that every $1 increase in the price of oil costs U.S. consumers around $7 billion a year. Most budget estimates assume a historical average oil price in the $22-$25 range. We are currently $12 over that range and that is an $84 billion hit to our economy. Obviously it will hurt companies that depend on oil much more than those who don't but the end result is the U.S. consumer will end up footing the bill and that is real cash out of our pockets. This problem has been mostly ignored for the last couple months but the closer we get to $40 the more press it is going to get. Other commodities are also shooting through the roof. Copper is exploding, platinum just hit a 40 year high and even soybeans have been hitting daily contract highs. Prices for goods made with these raw materials have to rise to cover the increased costs. Again, these costs will be passed on to consumers but in a weak economy with no pricing power there has to be some earnings pressure. Corn prices just rose to a six year high and this is pressuring the livestock industry to the point where the little guys are beginning to give up. Hogs are currently trading for $45 per cwt and it costs over $42 to produce them. In 1998 hogs were selling for $8 per cwt. Corn is up +50% per bushel from last year and soymeal is up +57% over last year. The bottom line for me is that the cost of everything is spiraling up but the pricing power of the producer has not yet returned. This suggests that earnings six months from now may suffer. I got sidetracked on this thought while discussing oil and its pressure on stock prices but there are broader problems in our future. Fortunately the drop in the Euro and the gain in the dollar had a depressing impact to commodities today. It seems hedge funds had been buying commodities to hedge the falling dollar and the trades started coming unwound. Using a falling dollar to buy a rising commodity like gold, oil or soybeans makes sense as long as the divergence continues. Once the dollar begins to rise the divergence collapses. The CRB fell -3.78 today as 14 of its 17 component commodities dropped on the news. The biggest losers were cotton, platinum, silver and soybeans which fell -3.24%. Obviously there is a mixed message here and it may take sometime for the stock market to figure it out. The fallout from all the currency gyrations was a Dow that gave back nearly all of Monday's gains with a -86 point loss. What was so promising near 10700 on Monday evaporated and knocked the index back to support at 10580. We actually came very close to the 50dma currently at 10533. For a few minutes I thought the dip to 10568 was going to hold and be close enough for a test of that average but another bout of selling at the close killed the afternoon rebound. The negative close across all the averages sets up another potential retest of that average at tomorrow's open. The Nasdaq traded up in early trading to a high of 2064 and appeared determined to rescue the Dow from its weakness. The SOX helped support the Nasdaq at the open by quickly adding points to yesterday's gains. Unfortunately the Greenspan currency talk and the prospect of higher rates was bad news for tech stocks and the bottom fell out quickly. Once support at 2050 was broken it never recovered. The Nasdaq did not give up all its gains from Monday but the close was very negative with concentrated selling. XLNX and STX provided mid quarter updates after the close and traders were not happy with either. The Nasdaq closed back under its 50dma once again and we are faced with the potential for another retest of the bottom of our range at 2000. I hate it, you hate it but it is a fact of life that Greenspeak ruined a perfectly good rally once again. The best thing I can say about Tuesday is that the Russell and SOX did not sell off to the same extent as the Nasdaq and Dow. There were buyers taking advantage of the dips and they held the Russell well above its recent support and to only a -3.71 loss for the day. Were it not for the selling right at the close the loss would have been less than two points. The Russell is +12 points above its 50dma and it not in danger of a serious drop unless conditions change drastically. SOX Chart -Daily Russell-2000 Chart - Daily The SOX gained nearly +12 points on Monday and gave back only -2.87 today. Considering the market this is remarkable. At one point today the SOX was well above its 50dma at 517 and was the strongest index on the board. The SOX closed -11 points off its highs but nearly flat for the day. On Wednesday it might not be so strong. The XLNX and STX updates were not exciting and chip stocks sold off slightly in after hours. The good news and we hope it is good news is the Intel update on Thursday night. This normally provides a market boost in advance and sometimes after the update. Many times it is the trigger for the quarterly earnings run to begin. If there was ever a quarter where we needed Intel to produce a bounce this is it. Should the SOX open down tomorrow the next real support is 507 and the 100dma and then horizontal support at 500. Today the Wilshire 5000, the broadest measure of the market, came within three points of a new post 9/11 high. The Wilshire has struggled to shake off the Dow anchor for two months and today's attempt was the highest level since Feb-19th hit 11302 and the current high. On the surface I feel this is the best indication that a rally was in progress and a breakout imminent. How the Greenspan speech will eventually impact the indexes remains to be seen. Wilshire-5000 Chart - Daily We all know that the first reaction is the worst and is typically a knee jerk reaction and not necessarily the real direction for the market. Unfortunately we have a Fed meeting on March 16th and the scuttlebutt will be flowing freely for the next two weeks. Real worry will be absent because the level of new jobs has yet to rise high enough for the Fed to act. However that will not keep traders from being nervous until the meeting statement is read. Wednesday morning we will get the ISM Services report and while no surprises are expected we can not afford to be complacent. The regular ISM on Monday fell slightly but the rising employment index was the key to the Monday bounce. In the ISM Services index the employment component has fallen the last two months. This does not set a good precedent for tomorrow considering the headline number is already expected to drop a couple points. The rest of the week rests on the Intel update Thursday night and the Employment Report on Friday morning. There is no real whisper number for the Jobs report this month and the official estimate of +125,000 jobs is pretty much what is expected. Analysts have been so wrong over the last couple months that they are afraid to second guess the announcement. This sets up the Thursday close and Friday open as very volatile sessions. On Thursday we will have fear of both Intel and Jobs going into the close and we could see some weakness. On Friday morning we will have reaction to both and hopefully both will be positive. That could produce a significant relief rally. The risk here is the XLNX update tonight. They said revenue would be up +9% to +10% for the quarter which was basically a raising of the lower end of the range. It was an upgrade from the +7% to +10% range they had previously given. The lack of material improvement did not excite traders. The stock was down -3% in after hours. This is my greatest fear about Intel. If they just affirm guidance the street will not be pleased. If they raise the bottom end only slightly the street will not be pleased. There is a lot of risk and very little expected reward. Seagate, STX, also updated guidance tonight and they said first quarter disk drive orders were weaker than expected. They also expected first quarter units to decline by 5 to 6 million units. STX primarily makes disk drives for desktop PCs and a drop of five million desktop PCs would be drastic for Intel's projections. Obviously we hope somebody else got the business such as Maxtor and this is just a Seagate problem but until Intel's update we do not have a clue. Remember, Intel was already downgraded by JPM based on channel checks showing a drop in notebook sales. Either way Thursday night is going to be interesting. So, where are we going tomorrow? That is the $64 question tonight and I am afraid I do not have a satisfactory answer. With the STX/XLNX guidance we could start with a negative bias for techs. With the ISM Services that bias could be erased or enhanced depending on the employment component. I would like to think the 2020-2030 level would hold on the Nasdaq but it depends on the SOX and what traders decide to do before Thursday night. Either way I would expect 2000 to hold unless disaster strikes. On the Dow we are entering a congestion zone between 10620 and 10550. The 10550 level should hold especially as the 50dma at 10533 is rising to support it. I am expecting 500 to hold on the SOX and by extension 580 to hold on the Russell. When I say hold I am thinking about Wednesday. Until we see what fallout we have tomorrow from the bonds and techs it will be impossible to predict the rest of the week. I am still in buy the dip mode and while I would love to see another retest of Nasdaq 2000 to pickup one last bargain I would rather not face the possibility that a retest may not hold. I start getting nervous when we near that level. I feel like our ace in the hole is the 50dma on the Dow. Once that is hit it could act as an electric fence and repel the average back higher. It has held every test since April-2003 and while that should comfort me it actually worries me. Eventually it will fail and I just hope this is not that test. Technically nothing has changed. We are still trading in the same range we have seen for the last six weeks (10450- 10700 2000/2100) and until that range breaks we just need to keep buying the dips and selling the highs. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Greenspasam By Jim Brown Monday could have been a wonderful dream and Tuesday was a terrible nightmare. Our problem is to decide which one is real and which one is temporary. The Greenspan speech crushed bonds and commodities and prompted a huge spike in the dollar versus the Euro. The key here is determining if this was a knee jerk reaction, the beginning of a new trend or just a blip in the total scheme of things. Soybeans dropped over -3%, gold fell -$5 and 14 of the 17 commodities in the CRB lost ground for the day. The problem it seems is that hedge funds have been buying rising commodities to hedge a falling dollar. Instead of leaving cash in the bank to lose buying power they parked it in things like oil, copper, gold, platinum, corn and soybeans which were rising daily. This is good business as long as each trend continues but once the trend changes you have to exit quickly to avoid the rush. The dip in commodities we saw on Tuesday may just be the tip of the iceberg or it could have just been a temporary reaction to a speech that did not tell us anything we did not already know. Everybody knew Japan and China were going to go broke eventually trying to maintain the exchange rate artificially. Everybody knew commodities were due for a rest. Only nobody knew when these things were going to happen. The currency fluctuations from the surging dollar were all the more critical because the dollar had been rising slightly for a couple weeks and was at resistance. The blowout today triggered buy stops on traders that had been short and that accelerated the move. The Dollar rose more against the Euro in one day than in any other single day since the Euro began, around +2%. Dollar Index - Chart - 120 min This jump in the dollar and resulting crash in bonds is what tanked our equities markets. Tech stocks and actually stocks in general are priced on the expectations for earnings over the next six months. With analysts suggesting there would be no rate increases until 2005 stocks were priced to perfection. His comments about future rate hikes and the implied higher rates caused by the crashing bond markets put some rate fear back into stocks. Financials, techs and interest sensitive issues bore the brunt of selling. Tomorrow we could see some follow through but I am more worried about the impact to the chip sector from the XLNX and STX updates after today's close. This suggests we need to be ready for another leg lower on the small cap and tech indexes. ES04H S&P Futures The ES retested yesterday's high at 1156.75 and held the 1154-1156 level until noon. Once the speech hit a sell program knocked the supports out and the ES fell to 1146.50. This level held into the close and we are holding at 1149 in overnight trading. The key for Wednesday is the 1140 level. We have already fallen out of the uptrend channel on the 15 min chart and are at risk of breaking the uptrend support on the daily with a trade under 1140. There is horizontal support at 1135 but we really need to hold the higher level. A problem for the internals for Tuesday was the increased volume. There was significantly higher volume on a down day than we saw on the Monday gain. For Wednesday I would be a buyer at 1144 and a seller at 1156. I doubt we will have to worry about the 1156 number and if we did reach it I would definitely want to see some weakness before taking a short position. Should 1144 fail I would be a buyer at 1140. Should we stay in the middle of the range in the 1148-1153 level I would remain flat. This could be a rocky day punctuated by a quick dip. Short 1156 Long 1144 Long 1140 ES04H Chart - Daily ES04H Chart - 15 min ES04H Chart - 500 Tick YM04H Dow Futures The Dow futures crashed at the open and never recovered. On the 233 tick chart they stayed below the midline the majority of the day. The late afternoon recovery made a valiant effort to hold over 10600 but the late day selling was too strong. The 50dma is currently 10523 and the horizontal support is holding at 10550. This suggests we should have a tough time breaking through that level and I would be a buyer on a touch of 10550. The longer term uptrend on the 15 min chart was broken on the dip but the YM recovered to close right on the line. I personally doubt it will hold at the open and I feel reasonably sure we will see 10550 unless the ISM Services report is strongly bullish. Should we break the 50dma at 10523 I would look to be short with a potential retest of the horizontal support at 10400. This would be a drastic break of the trend and I would not expect it without some external event. Long at 10550 Short at 10650 Short under 10500 YM04H Chart - Daily YM04H Chart - 15 min YM04H Chart - 233 tick NQ04H NDX Futures The NQ Futures have a negative bias and I am projecting a retest of the 1460 level on Wednesday. The short term uptrend support at 1474 on the 30 min chart coincides with the longer term uptrend support on the daily chart. If this breaks we get one chance at horizontal support at 1460 an a break there could get ugly, all the way to 1400. I was hoping the Intel update would provide a bullish bias this week but the Greenspeak and the less than expected guidance from STX and XLNX is pressuring the Russell futures tonight. If they fall they will take the NQ with them. I would look to try a long at 1460 with a stop at 1450 and under 1450 I would go short. Long 1460, stop 1450 Under 1450 remain short. NQ04H Chart - Daily NQ04H Chart - 30 min NQ04H Chart - 500 Tick ER04H/MR04H Russell Futures The Russell stood up to the abuse better than the other indexes primarily due to the strength in the SOX. Unfortunately the damage eventually caught up with it and we saw a minor pullback. I reported yesterday that the Russell had strong resistance at 595-597 and expected a tough time breaking that level. The high today was 596 and although it failed it was not due to simple selling but the Greenspan event. I think without him we would have had a good chance at chipping away that level. The Russell did not drop very far and we have two levels of support just below us at 585 and again at the 50dma at 577. I am still bullish on the Russell and would not hesitate to go long on any rebound from those levels. I would not short it at this time. I think the potential for a bounce at any moment could make it too risky. That is probably my bias speaking but you choose for yourself. Long 585 Long 577 No short MR04H (ER) Chart - Daily MR04H Chart - 30 min MR04H (ER) Chart - 233 Tick Outlook For Wednesday I am expecting a rocky day. The Russell futures are down in overnight trading and the Nikkei is flat. I suspect the damage is not over and we will have a negative bias at the open. I have given several long entry points for the various contracts above and I would use them with caution. This could turn into a rough week and the Intel update on Thursday is far less certain to produce a bounce than I would have thought on Monday. The ISM Services tomorrow could also spoil the party if the employment component is negative. If we get an economics dip I would probably be even more cautious about entering any longs. ************************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 ******************** Did you feel the strength? Could you feel the strength in today's trade? Did you see that bullish leadership? That's what bulls wanted to see after Monday's strong session. If you're wondering what the heck I'm talking about, then keep reading, because I (Jeff Bailey) didn't feel much strength, nor see much bullish leadership, and this has the BULLISH side of me alert for DIVERGENCE to the mid-August rebound I was looking and monitoring for. There was strength to be found in today's session, and if your purchasing habits find you often-times hungering for European- made goods, then you may have gotten a boost for your dollar, as the dollar surged higher in today's session, where I think it is/was the fast rate, and not necessarily the rising dollar that had stocks reversing early session gains. It is arguable that a rising dollar could be a fundamental negative for U.S.-based corporations that export products to overseas markets when a rising U.S. dollar then makes the export more expensive for a consumer in Europe, Japan, or any other country whose currency is buying the U.S. product. You and I can perhaps understand how a market (a global market) can get used to such an even, if the move is slow, or methodical, but when the change is sharp and abrupt, that's when markets (stock, bond, commodity) can react to that change just as quick. Market Snapshot / Internals - 03/02/04 Close The NYSE Composite ($NYA.X) 6,717.13 -0.73% has been a notably stronger, or leadership index relative to the also very broad NASDAQ-Composite ($COMPX) 2,039.65 -0.88%, but a simple look at the hourly time line shows that while the NYSE Composite has been closing in on it recent 52-week highs, the top-of-the-hour time lines showed little bullish leadership from 1, 2 and 3-lettered stocks of the NYSE. The often-thought of "stodgy" components of the Dow Industrials (INDU) 10,591.48 -0.81% never saw a tick above yesterday's highs, and while a bull shouldn't demand a higher high each and every day when testing for a market rebound, I'm still testing things pretty harshly for bullish leadership, and I didn't see much from the EXTERNALS in today's session. The advance/decline lines were nothing for a little bull to be writing home about, and the deterioration seen throughout the day was rather slow at the NYSE, where the NASDAQ showed a slightly faster pace of decline, as if the selling was orderly and rather methodical. I'm not going to show the same table I did in last night's Index Trader Wrap of the NH/NL indications, but will quickly not their ratios as of today's close, and those interested can compare them to the table from last night's wrap. The NYSE DAILY NH/NL ratio was 98.7% (yesterday 98.9%) the 5-day ratio is 98.1% (yesterday 96.6%) and the 10-day ratio is 96.5% (yesterday 96.5%). The NASDAQ Comp. DAILY NH/NL ratio was 95.5% (yesterday 97.9%) the 5-day ratio is 95.5% (yesterday 92.9%) and the 10-day ratio is 92.8% (yesterday 92.8%). If I closed my eyes and imagined myself on a roller coaster ride over the past 6 or seven sessions, I'd have to say I've come out of a trough, feel a sense of weightlessness, and seem to be bracing myself for a move lower. But always prepared for another quick lift higher, that would otherwise catch me by surprise. I feel like I'm on the Disney Land roller coaster ride, which I think is called "Space Mountain" where I'm on the roller coaster, that whips around in complete darkness. The worst thing you can do is try and anticipate what the next few seconds has in store, and instead, hold on tight and try and enjoy the ride until its time to get off. As it relates to investing or trading, be alert that we're probably going to see some wild gyrations in the coming sessions, and be disciplined with your stops and targets. Pivot Analysis Matrix - Note: AFTER I marked some of the correlative support resistance levels in the Pivot Matrix, I'm just now seeing that I forgot to color the Daily closes red for the Dow Indu, dia, SPX, spy, OEX, NDX, qqq, SOX.X and BIX.X. As further note, only the North American Telecom Index (XTC.X) 651.22 +0.46%, Oil Service Index (OSX.X) 110.63 +0.3%, Biotechnology Index (BTK.X) 546.06 +0.3% and Health Provider Index (RXH.X) 373.08 +0.03% showed equity-based sector gains in my U.S. Market Watch today. I don't want to hang on day after day and try to make believe that today's trade wasn't DIVERGENT from the mid-August rebound, where during that time, it WAS a day after day type of rise once the COMPX broke back above its 21-day SMA. As such, I'm going to draw a line at tomorrow's DAILY S1 as a defined level where I would certainly have to come to grips with the fact, that if these markets are going to show mid-August SIMILARITY, then the DAILY S1s would be the likely near-term support level. The Semiconductor Index (SOX.X) 510.24 -0.55% traded its WEEKLY R1 of 513.47 with a session high of 521.75, after a major broker upgraded shares of Micron Technology (NYSE:MU) $15.83 +3.12% and Texas Instruments (NYSE:TXN) $31.28 +0.83%. While the SOX.X reversed a negative morning trade yesterday to finish higher 2% higher after some weaker industry data set a negative tone early, today's trade was just the opposite, where chips started out strong, but the bounce faded as the session wore on. U.S. Dollar Index (dx00y) - Daily Intervals One critique of using history as a guide is that some traders/investors believe strongly that "things change," and there are always different dynamics taking place between current day, and "what was." I can't argue with that line of thinking, but having traded markets over the years, you NEVER know for certain what was at play, unless you make various observations, and test against the past. Maybe the dollar has found its bottom, and maybe it spells "doom" for stocks. I made some notes on the above U.S. Dollar Index (dx00y) chart from June 15, 2003 (a Sunday) to August 25, 2003 at some inflection points for the Dollar Index, where I quickly took the closes of some of the major market averages. Over the course of a 2.5-month period, the general trend for the major indices was higher. Note the two green upward trends where the darker trend is more vertical, and the light green trend more gradual. I think today's rather SHARP and BOLD break above 88.00 might have been somewhat startling to market participants, where the immediate, and perhaps wise reaction is to take a "wait and see approach" to trading stocks, bonds and commodities. 10-year Treasury YIELD ($TNX.X) Chart - Daily Intervals Anytime we see a sharp move in a currency, we'd expect some reaction from the bond market. But let's put things in perspective. It is only tonight that I note that the 3.911% YIELD level, which the 10-year YIELD seems to like to "kiss" as support was the closing value on July 15, which you and I can perhaps now tie back with our study period we've been monitoring in recent sessions. What was happening? I believe the bond market was reacting to the realization of a ROBUST economy beginning to unfold, which found a heavy selling from YIELD lows not seen in over 40-years! Right now, we see a bond market that is VERY orderly, and rather calm, which at this time, seems to be "comfortable with the way things are." The one alert I do think broader market equity bulls would be more concerned with is if YIELDS started falling during a dollar rise, which in my opinion would be more of a "defensive" signal from the markets. I will certainly have to test against equities should we start seeing a strong amount of buying that had the 10- year YIELD ($TNX.X) falling below 3.871%. The main thing I think equity traders are monitoring right now, more than anything is SUDDEN or SHARP rates of change in either direction. S&P 100 Index (OEX.X) Chart - Daily Intervals If looking for bullish leadership, or LACK of bullish leadership, the OEX isn't tipping its hand as to direction right now. Think about it. The OEX is comprised of LARGE CAP stocks, that represent so many parts of the U.S. economy and even the GLOBAL economy. Since early January, it has really been a pattern of modestly lower highs, and perhaps a stronger pattern of higher lows. While we've seen some slippage in the S&P 100 Bullish % ($BPOEX) the past week, with a net loss of about 3 stocks to point and figure sell signals, I will tell you that there are stocks that have been generating consecutive (not reversing upward) point and figure buy signals. The OEX, being such a large-cap index, and comprised of so many different sector bellwethers, seems to suggest that the equity market isn't in any type of unison right now. In other words, there isn't enough bullish or bearish leadership at this point to really get a discernable trend. However, the NASDAQ has shown a greater ability for weakness, and that's were bulls should be more cautious and disciplined. Tomorrow, I think I'm going to take some "time off" in the market monitor, and really try and get some different sector charts placed in the intra-day updates. There are a lot of things going on that I want to cover, that I think we should be alert to. 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 **************** Super Tuesday? Not on Wall Street - J. Brown In a very disappointing session the Industrials erased most of Monday's gains and the NASDAQ pulled back significantly closing back under the 2050 level and its simple 50-dma. On Monday the markets felt pretty confident with strong internals and very strong up volume numbers inspired by the ISM report. What was truly encouraging was the ISM's manufacturing employment component, which signaled job growth and sparked excitement over this Friday's unemployment/jobs report. Now suddenly there were comments today that a strong jobs report might give the Fed a reason to raise rates sooner than expected. The reversal today is certainly discouraging but it did not match the bullish enthusiasm from Monday. Declining stocks outnumbered advancers 16.5 to 12 on the NYSE and 19 to 12 on the NASDAQ. Down volume was twice up volume across both exchanges. Tomorrow's ISM services index and the Fed's Beige book report will take center stage and likely drive market direction. I would expect the semiconductor sector to churn sideways in anticipation of Intel's Thursday night mid-quarter update and this could mute any big moves in the NASDAQ. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 7416 Current : 10591 Moving Averages: (Simple) 10-dma: 10616 50-dma: 10533 200-dma: 9688 S&P 500 ($SPX) 52-week High: 1158 52-week Low : 788 Current : 1149 Moving Averages: (Simple) 10-dma: 1146 50-dma: 1131 200-dma: 1042 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 946 Current : 1473 Moving Averages: (Simple) 10-dma: 1478 50-dma: 1492 200-dma: 1360 ----------------------------------------------------------------- True to form the VIX and VXO turned higher with the market's weakness today but oddly the VXN churned sideways. CBOE Market Volatility Index (VIX) = 14.86 +0.42 CBOE Mkt Volatility old VIX (VXO) = 14.60 +0.42 Nasdaq Volatility Index (VXN) = 22.42 -0.12 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.71 699,614 495,954 Equity Only 0.51 597,318 305,438 OEX 0.91 24,720 22,494 QQQ 1.93 37,266 71,796 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 76.1 + 0 Bull Confirmed NASDAQ-100 61.0 + 0 Bear Confirmed Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 85.6 + 0 Bull Confirmed S&P 100 86.0 - 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: 1.01 10-dma: 1.12 21-dma: 1.04 55-dma: 0.98 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 1196 1160 Decliners 1653 1904 New Highs 252 151 New Lows 7 6 Up Volume 648M 577M Down Vol. 1154M 1255M Total Vol. 1820M 1849M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 02/24/04 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 No change for commercial traders. They remain hedged either direction. Small traders haven't made many changes either and remain bullish. Commercials Long Short Net % Of OI 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% 02/24/04 417,490 416,502 988 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 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% 02/24/04 141,559 85,171 56,388 24.9% 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 We're seeing a lot more action in the e-minis than the large contracts above. Commercial traders are bearish but have become slightly less so over the last week. As is typical the small traders moved the opposite direction and while bullish became less so. Commercials Long Short Net % Of OI 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%) 02/24/04 320,425 387,255 (66,830) ( 9.4%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 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% 02/24/04 129,894 63,524 66,370 34.3% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Not much change for the commercial traders in the NDX futures this week but we are seeing a change in the small traders' positions. There appears to be a bullish reversal with a large shift from shorts to longs. Of course a contrarian will note that the small trader is normally wrong so this could be a bearish development for the markets. Commercials Long Short Net % of OI 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% 02/24/04 47,266 40,452 6,814 7.8% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 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%) 02/24/04 12,388 7,310 5,078 25.8% 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 Hmm... commercial traders have become more bullish on the Dow in the last week. Not much change from the little guys. Commercials Long Short Net % of OI 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% 02/24/04 27,176 13,918 13,258 32.3% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 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%) 02/24/04 6,509 14,919 (8,410) (39.2%) 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 03-02-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: WGO Call Play Updates: AET, AHC, ATH, CFC, DHI, QCOM, RJR, RNR, RYL, SLB, UNH New Calls Plays: CDWC Put Play Updates: CHIR, CTSH, MMM New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** Winnebago - WGO - close: 68.75 chg: +1.65 stop: 68.66 The rebound late last week in WGO didn't stop and shares have continued higher. Granted we did turn cautious over the weekend and its weekly candle did look like a "hammer" reversal pattern but we were expecting the rally to just be an oversold bounce. It still could be an oversold bounce since WGO remains under resistance at its 50-dma and the $69-70 level. However, we had lowered our stop to reduce our risk and today's move stopped us out. Bearish traders can still watch WGO for a roll over under $70.00. Bulls may want to give it another glance if it closes over 70.50-71.00. FYI: don't forget that WGO has a 2-for-1 split on March 8th. Picked on February 22 at $68.13 Change since picked: + 0.62 Earnings Date 12/17/03 (confirmed) Average Daily Volume: 276 thousand 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 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Aetna Inc. - AET - close: 80.89 change: +0.52 stop: 77.50 We haven't seen much movement in shares of AET the last couple of days and that may be a good thing given the volatility in the Dow Industrials this week. Fortunately for the bulls AET has maintained its position above the $80.00 level, which was resistance last week. Remember that tomorrow AET will present at the Lehman Brothers Global Healthcare conference and they might offer some positive news to get the stock moving again. Picked on February 29 at $80.79 Change since picked: + 0.10 Earnings Date 02/12/04 (confirmed) Average Daily Volume: 1.2 million Chart = --- Amerada Hess Corp. - AHC - cls: 64.91 chng: -1.30 stop: 63.00*new* Following the powerful breakout in shares of AHC on Friday and Monday, it is only natural to expect a round of profit taking to appear and that's precisely what materialized today, with the stock dropping back on disturbingly high volume. But on the positive side, the stock did remain above the bottom of yesterday's intraday range, even though it did close near the bottom of the day's range. After a 4-day $5 rally, we shouldn't be surprised to see this weakness. The question now is whether there's more upside in store, or if the brief foray over $66 defined the top for the move. Initiating new positions at this point does not seem to be prudent until we've seen a bit more consolidation, so our attention should be focused on managing open positions. Our initial target of $64 was easily achieved late last week, so conservative traders have had ample opportunity to harvest some gains. We'll now want to see if the 10-dma ($63.00) once again provides support for a rally to new highs. With the OSX index once again pushing to new recent highs, the odds look good for the bulls. Note that our stop rises to $63 tonight, and we'll continue to ratchet it higher, keeping it just under the 10-dma until stopped our or our next target at $68 is reached. Picked on February 10th at $59.53 Change since picked: +5.38 Earnings Date 1/28/04 (confirmed) Average Daily Volume = 949 K --- Anthem, Inc. - ATH - close: 86.31 change: -0.52 stop: 82.50*new* The bullish move in ATH is still looking solid, despite a slight pullback on Tuesday. In light of the broad market weakness, we're pretty happy with the slight retracement after hitting a high of $87.40 this morning. It is disappointing to see the stock end at its low of the day and this could very well be a near-term top, requiring a pullback to test support in the $84.50-85.00 area. Traders looking for new entries will want to look for a rebound from that level, which is reinforced by the 10-dma ($84.83) before taking a position. Momentum entries don't look that appealing right here, as the stock has made a better than $5 vertical move from last week's lows. The best bet now is to enter on the next pullback to support, looking for a subsequent resumption of the bullish trend. Raise stops to $82.50, which is now solidly below the 30-dma ($82.62) Picked on February 26th at $85.37 Change since picked: +0.94 Earnings Date 4/28/04 (unconfirmed) Average Daily Volume = 1.43 mln --- Countrywide Financial - CFC - cls: 90.61 chg: -2.64 stop: 86.99 While we're not excited to see the 2.83% drop in CFC today it may turn out to be another entry point for the bulls. A bounce from $90 would be a great entry but if the Industrials continue to slip then CFC might retest support in the $88-89 region. Of course a rebound from this lower level would be a better entry point. Keep an eye on CFC's simple 21-dma. Shares bounced at this technical level last week. Currently the 21-dma is approaching the $88 level. CFC doesn't have any new headlines and we're not going to make any changes to our stop loss. Picked on February 24 at $91.63 Change since picked: - 1.02 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 2.3 million Chart = --- D.R.Horton - DHI - close: 32.89 chg: +0.02 stop: 29.99*new* Wow! The homebuilders have been on fire the previous three sessions and we're amazed that there was almost zero profit taking today despite the Dow's 86 point drop. There looks like a complete lack of sellers, which certainly bodes well for the future of this group. We're going to raise our stop loss to $29.99 just under round-number psychological support at $30.00. Traders looking for a new entry on this play can look for DHI to slip back toward the $32 level. This was resistance in mid- February and it should now become new short-term support. DHI announced today that its management would be presenting at the Citigroup Global Industrial Manufacturing Conference on Tuesday, March 9th. Picked on February 08 at $30.00 Change since picked: + 2.89 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 2.4 million Chart = --- Qualcomm, Inc. - QCOM - close: 62.01 change: -0.74 stop: 60.50 The initial excitement surrounding QCOM's breakout over the $60.50 level has faded somewhat in recent sessions, in large part due to the fact that the NASDAQ is having a hard time getting back over its 50-dma and back into its rising channel. After hitting a high near $64 last week, the stock has been heading lower on declining volume, giving the appearance of normal consolidation. Closing at its low of the day is not an encouraging sign, and it appears the 10-dma ($61.56) will be tested as support, quite possibly tomorrow. A rebound from the 10-dma or even as low as $61 can be used for continuation entries, but bear in mind it is now a more aggressive entry than it was last week. Daily Stochastics have once again tipped over from overbought territory, leaving in place bearish divergence and there is the possibility that the near-term uptrend has run its course. We've thought this before though, so we'll let price action dictate our actions. Should price break under $61, our stop at $60.50 is likely to be tested and if it breaks below there, QCOM will be vulnerable to a continued pullback to the $59.50 level. We've still got our eye on the $67 PnF target, and breakout entries over $64 still make sense for aggressive traders looking to make a quick hit and run play. Picked on February 17th at $59.55 Change since picked: +2.46 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 8.87 mln --- RJ Reynolds Tobacco - RJR - cls: 63.25 chg: +0.65 stop: 59.00*new* Major tobacco stocks like Phillip Morris (MO) and RJR continue to climb higher after last week's major technical breakout above resistance from their three-month consolidation pattern. Credit Suisse First Boston reiterated their "out perform" rating on MO today and raised their price target from $62 to $67. This is above MO's all-time high at $59.50, which it is quickly approaching (MO closed at $58.13 today). The CSFB "upgrade" is due to their belief that the litigation environment is improving for tobacco companies and they reduced their estimated litigation risks by half. Shares of RJR followed MO higher on the news and hit new 20-month highs. RJR is approaching what might be resistance in the $63.75 region followed by additional resistance in the 67.25 area. Short-term traders may want to already be planning their exits as RJR approaches the $65 level. We'll be considering ours if it approaches $67.00. We're going to raise our stop toward the simple 50-dma and place it at $59.00. Picked on February 20 at $60.51 Change since picked: + 2.74 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 699 thousand Chart = --- Renaissancere Ltd - RNR - close: 54.06 chg: -0.26 stop: 50.83*new* We're very impressed with the relative strength in shares of RNR, which have soared higher the last few days while the IUX insurance index has continued to consolidate sideways. The catalyst for the improved-volume powered rally to new highs in RNR remains a mystery but we're not complaining. We're also encouraged by the lack of true profit taking during Tuesday's session while the Industrials erased most of Monday's gains. We're going to raise our stop loss to breakeven at $50.83. More conservative traders might be able to reduce their risk even further with a stop under $52.00 since 52.25-52.50 should be new support. Traders looking for new entries may do well to wait for a pull back toward the $53-52.50 region. Short-term traders can probably begin to plan their exit strategies as RNR approaches the $55 level. We'll consider our own exits if RNR trades near $56-57.00. Picked on February 15 at $50.83 Change since picked: + 3.23 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 238 thousand Chart = --- Ryland Group - RYL - close: 87.64 chg: -1.08 stop: 81.75*new* Wow! The homebuilders have been making some pretty exciting moves lately. The DJUSHB index is at new all-time highs and RYL is trying to catch up with gains in four out of the last five sessions. Today's profit taking was relatively mild and shares came within 80 cents of hitting our short-term goal at $90.00 today. What we find very encouraging is the strong volume during the rally from Thursday through Monday, which indicates strong buying interest. If the homebuilders dip again look for an entry point in the $85 region. Short-term traders can begin planning their exits as RYL approaches $90. We'll consider our own exits if RYL can reach the $92-94 region. In the mean time we're going to raise our stop loss to $81.75. Picked on February 24 at $83.96 Change since picked: + 3.68 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 746 thousand Chart = --- Schlumberger Ltd - SLB - close: 66.36 change: -0.11 stop: 62.75 With a breakout in the Oil Services index (OSX.X) on Monday, it was really no great surprise to see SLB delivering its own breakout, running as high as $66.50 by the end of the session. The bulls tried to follow through with more gains on Tuesday, but the broad market weakness was just too much to handle. That said, we really like how well SLB held onto the lion's share of yesterday's gains, and it looks poised to deliver more upside if the price of crude oil and the OSX continue pushing to new highs. New entries look attractive both on a breakout over $66.50 or on a pullback and rebound from the $65 area, confirming that former resistance as new support. Note that our stop is now at $63.50, just under the 20-dma ($63.52). The stock is in an aggressive bullish trend and a break of the 20- dma would signal that the bullish run is over or at least is taking a rest. Picked on February 24th at $64.47 Change since picked: +1.89 Earnings Date 1/23/04 (confirmed) Average Daily Volume = 3.59 mln --- UnitedHealth Group - UNH - cls: 61.28 chng: -0.36 stop: 59.00*new* After banging its head on the $62 resistance level for more than a week, it seems the UNH bulls have decided they need to rest up for another assault on that barrier. UNH lost ground during Monday's broad market rally and then drifted lower today as well, finding support again at the bottom of the rising channel near $61. A dip and rebound from the $60.50-61.00 area looks like the best bet for new entries, but there's nothing wrong with breakout entries over $62.30. Note that in addition to support at the bottom of the channel, UNH has dual support from the 20-dma ($60.58) and the 30-dma ($60.31). The 50-dma (59.06) is now moving over the bottom seen on the last pullback, so it seems safe to raise our stop to $59. A break of the 50-dma would signal a significant change in sentiment in the stock and we'd want to be out of the play if that happened. Picked on February 24th at $61.92 Change since picked: -0.64 Earnings Date 1/22/04 (confirmed) Average Daily Volume = 2.54 mln ************** NEW CALL PLAYS ************** CDW Corp. - CDWC - close: 72.43 change: -1.91 stop: 66.00 Company Description: CDW Corporation is a direct marketer of multi-brand computers and related technology products and services in the United States. The company offers multi-brand computers and related technology products, including hardware and peripherals, software, networking and communication products and accessories, for use with microcomputers based on a variety of operating platforms, including Microsoft, Apple, Linux, Novel, Oracle and others. CDWC offers more than 80,000 products that include a range of product types from manufacturers including Cisco, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba. With this selection of products, the company can provide its customers with fully integrated, multi-branded technology solutions and the convenience of one-stop shopping. Why we like it: Just under a month ago, we played CDWC in anticipation of a breakout over the $70 resistance level. That bullish move never materialized, with the stock instead drifting down towards its 50-dma ($65.89) and we decided to step aside and wait for more bullish price action before pounding the table on the stock again. Well, that breakout arrived yesterday and it did so on strong volume (more than 50% over the ADV). The stock skyrocketed through the $70 resistance level and stretched as high as $74.43 by the end of the day, on an apparent lack of significant news. Yesterday's breakout generated another strong PnF Buy signal, and reinforces the feasibility of the $93 bullish price target. Looking at the weekly chart, the $80 level looks like strong resistance though, so we don't want to start out with our expectations too lofty. The bulls apparently decided that yesterday's breakout move may have been a bit too much too soon and decided to harvest some gains today. That plays right into our hands. We don't want to chase such a strong bullish move, but a pullback to confirm support near $70 would set up an ideal entry. The 10-dma ($69.85) should reinforce that support and we could see eager bulls buying the dip already this afternoon, as the stock bounced smartly from just above $71. Aggressive traders can look to enter on another dip near the $71 level, while those willing to exercise more restraint may be able to get an entry on a pullback near the $70 level. A continued breakout over $74.50 could work for momentum traders but we're not excited about that option due to the difficulty in setting a reasonable stop. Because we're attempting to enter on a pullback to support, we'll use a wide initial stop at $66, which is at support from last week's lows and will be under the 50-dma ($65.89) by tomorrow. Suggested Options: Shorter Term: The March $70 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 April $75 Call, while the more conservative approach will be to use the April $70 strike. Our preferred option is the April $70 strike, which is in the money and should provide sufficient time for the play to move in our favor. BUY CALL MAR-70 DWQ-CN OI=733 at $3.40 SL=1.75 BUY CALL MAR-75 DWQ-CO OI=981 at $0.90 SL=0.40 BUY CALL APR-70*DWQ-DN OI=729 at $4.70 SL=2.75 BUY CALL APR-75 DWQ-DO OI=122 at $2.00 SL=1.00 Annotated Chart of CDWC: Picked on March 2nd at $72.43 Change since picked: +0.00 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 1.26 mln ************************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 ******************* Chiron Corp - CHIR - close: 49.19 chg: +0.08 stop: 50.51*new* CHIR made some headlines on Monday with news that it had entered into a collaboration agreement with Xoma Ltd (XOMA) to research and develop cancer treatments. CHIR and XOMA will split the cost and potential revenues 70-30 with CHIR shouldering 70% of the costs. The markets failed to react to the news just as CHIR's stock failed to react to news out today that it would be discussing its upcoming Phase III trials for Tifacogin, a treatment for severe community-acquired pneumonia. There was also another article out today over the previously announced review by the Feds into complaints that CHIR has inhibited research over Hepatitis treatments. Unfortunately, there weren't many new details. Checking the action in the stock price we see CHIR continuing to consolidate under resistance at the $50.00 mark while buyers are supporting it near $48.80. Reviewing the weekly chart we see that CHIR has found support at its 50-week moving average. Cautious traders may want to wait for CHIR to break the $48.50 level before initiating new positions. We're going to try and reduce our risk by lowering our stop to 50.51. Picked on February 24 at $49.11 Change since picked: + 0.08 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 1.7 million Chart = --- Cognizant Tech. - CTSH - cls: 45.96 chng: -1.65 stop: 49.00*new* We've been expecting to see some renewed weakness from CTSH after last week's rebound began to weaken and rollover just below the 10-dma ($47.91). Yesterday's feeble rally attempt confirmed our suspicions and sure enough, the stock broke down to new recent lows on Tuesday, closing well below its 100-dma ($47.35) and just barely below the $46 support level that provided a bounce last week. We're not convinced the stock won't attempt another rebound before continuing down towards its $41 target, but based on the strong volume on today's selloff, it looks good for the bears. That said, we're not enthusiastic about entering new positions on continued weakness due to the significant congestion between $44-46. The best entries will continue to be found on failed rebounds below the 10-dma. With today's break to new lows, let's lower our stop to $49, just above the $48.75 peak from last Friday. Picked on February 19th at $47.49 Change since picked: -1.53 Earnings Date 2/10/04 (confirmed) Average Daily Volume = 1.31 mln --- 3M Company - MMM - close: 78.31 change: -0.47 stop: 81.50 Although the stock continues to look weak, MMM's inability to break under the $77.50 level is definitely a point of concern for the bears. As noted in prior updates, we expected to see that support level defended, as a trade at $77 will create a fresh PnF Sell signal and change the tone in the stock from one of mild weakness and consolidation to outright bearishness. In light of the strong gains in the overall market yesterday, MMM's rebound looked pretty weak and it was encouraging to see price once again roll over today, this time without getting anywhere near the $80 resistance level. Note that the 30-dma ($79.93) is about to cross under the 100-dma ($79.91) and that level should now be very strong resistance. Rebound failures below $80 still look like the best entry opportunity until MMM breaks under $77, at which time momentum entries will make the most sense. Our target now looks like $74, as the 200-dma has risen to $73.77. Maintain stops at $81.50 for now, a level that will be below the 50-dma ($81.57) by tomorrow. Picked on February 15th at $79.68 Change since picked: -1.37 Earnings Date 1/20/04 (confirmed) Average Daily Volume = 2.79 mln ************* NEW PUT PLAYS ************* None ************************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 03-02-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: A Brief List for Wednesday ********** WATCH LIST ********** A Brief List for Wednesday ___________________________________________________________________ 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. ___________________________________________________________________ Kohl's Corp - KSS - close: 50.75 change: -0.51 WHAT TO WATCH: If you're looking for a short candidate keep an eye on KSS. The stock broke out of its five-month descending channel in February and ran straight for its 200-dma in a momentum driven earnings run. That earnings run is over and the stock appears to have created a big failed rally with that intraday spike over the 200-dma. Its MACD is rolling over from overbought and it's probably no coincidence that the rally ended at the 50% retracement of the September to January drop. If KSS breaks $50.00 it will look like a bearish candidate with weakness back to $45.00 but conservative traders may want to be patient and look for a breakdown under minor support at $49.00. Chart= --- eBay Inc. - EBAY - close: 67.95 change: -1.28 WHAT TO WATCH: The Internet index was one of today's biggest losers and shares of EBAY eventually gave into this peer pressure. However, bulls are probably watching to see if EBAY can keep its trend of higher lows intact, especially with its simple 50-dma rising up as support. We're watching it for a breakout over the $70.00 mark but aggressive traders might want to consider a bounce from the 50-dma. Chart= --- Robert Half Intl - RHI - close: 22.85 change: +0.60 WHAT TO WATCH: The relative strength in RHI today looks pretty tempting considering its 2.69% gain was a bounce off the $22 level. Shares found support at its 200-dma last week and the rebound has turned its MACD back into a fresh buy signal. Also encouraging was the strong volume supporting today's move. RHI does have overhead resistance at its 50-dma and the $24.00 level but technical traders might consider bullish positions with a stop under $22 and a target near $25-26.00. Chart= --- United Technologies - UTX - close: 90.30 change: -1.90 WHAT TO WATCH: The bounce didn't get very far in this Dow component. Shares of UTX fell out of its recent trading range last week but managed to bounce from its rising 100-dma. That rebound rolled over today and UTX is starting to look like a short candidate if it trades under $90 again. More conservative traders may want to wait for it to take out last week's low at $88.92 and target the $85 level (or the 200-dma near $82.50). 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 ************************************************************** ********** 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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