The Option Investor Newsletter Tuesday 03-30-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Sleep Walking Futures Markets: See Note Index Trader Wrap: A renewed sense of bullishness Market Sentiment: Window Dressing Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 03-30-2004 High Low Volume Adv/Dcl DJIA 10381.70 + 52.10 10387.26 10306.15 1.63 bln 2059/1066 NASDAQ 2000.63 + 8.10 2000.68 1981.44 1.60 bln 1893/1205 S&P 100 552.53 + 2.07 552.74 548.91 Totals 3952/2371 S&P 500 1127.00 + 4.53 1127.60 1119.66 W5000 11037.06 + 54.50 11039.40 10956.20 SOX 487.03 - 0.50 487.57 478.22 RUS 2000 589.40 + 6.01 589.41 582.14 DJ TRANS 2883.64 - 2.30 2885.77 2862.04 VIX 16.28 - 0.22 16.80 16.13 VXO (VIX-O)15.99 + 0.03 16.92 15.96 VXN 23.18 + 0.02 23.70 23.04 Total Volume 3,541M Total UpVol 2,293M Total DnVol 1,107M Total Adv 4433 Total Dcl 2575 52wk Highs 362 52wk Lows 22 TRIN 0.87 NAZTRIN 0.91 PUT/CALL 0.61 ************************************************************ Sleep Walking by Jim Brown The markets woke up with a hangover this morning after triple digit gains on Monday and promptly went back to sleep. The minor wandering movements for the majority of the day could be seen as traders sleep walking through the session while waiting for the floor show to begin tomorrow. With the economic calendar light for Mon/Tue the economic overdose begins in earnest on Wednesday. Dow Chart - Daily Nasdaq Chart - Daily The minor economics for the day included the Chain Store Sales Snapshot which came in a -1.9% for the week compared to a minor gain of only +0.2% the week before. Analysts claim the constantly rising price of gasoline is taking a painful amount of money from the pockets of consumers. This cash drain is hitting retailers where is hurts, right in the spring product changeover. That extra energy tax does not appear to be disappearing any time soon. Oil closed at $36.12 again after rebounding off the $35 support level we have seen over the last month. The bounce was due to conflicting claims that OPEC was still committed to production cuts to be announced at their meeting on Wednesday. With global consumption continuing to rise any production cuts would guarantee even higher prices for oil. Retailers will have to hold out for the wave of tax refunds to boost their sagging business and offset this undeclared energy tax. We will have earnings from Best Buy and Circuit City before the bell on Wednesday. This could give us a clue for the present trend but retailers in general have been upgrading guidance over the last couple weeks. WMT and TGT both affirmed the high end of guidance just last week. Oil Chart - Daily The only other economic report today was the Consumer Confidence for March. The consensus had been for a drop to 85.8 from 87.3 in February. The headline number came in higher at 88.3 but the really good news was an unusually large number of revisions to prior months. February was revised up +1.2, January +1.2 and December +3.1. These back month revisions are not really important on a current basis but it is comforting to see such broad improvements. With the revisions the March number ended up nearly unchanged and better than expected. The present situation component rose just under a point and the future expectations fell just under a point. Clearly consumers have shaken off the Madrid bombings and the drop in the market and are holding their current levels of optimism. Considering the political mud slinging about the state of the economy this is actually a bullish sign. It suggests consumers are already glazing over from the mud fight and may not let the comments depress them further. Those planning to buy a home rose slightly due to the lower interest rates but those planning to buy an auto dropped substantially from 7.2 to 5.1. This is the lowest level since 1995. The positive Consumer Confidence report provided the only real excitement for the morning and helped pull the markets back from an opening slump. The bounce was minimal and brief but it did help erase the negative bias from the Chain Store Sales. Unfortunately the markets were unable to retain any momentum and slipped back in their rut to wait for the rest of this weeks reports. After a triple digit gain on Monday and an overall bullish tone for the prior three days just consolidating at the highs and in positive territory was a very good sign. The Dow stagnated just under resistance at 10350 and Nasdaq seemed to fixate on 1990 as the price magnet for the day. The Dow was never in danger but the Nasdaq was crippled from the opening bell due to weakness in the semiconductor index. The SOX was down -8.75 or -1.8% at midday on weakness in INTC and AMAT and others. Semis lead techs and techs lead rallies but the reverse is also true on sell offs. Without the SOX to lead the Nasdaq was in trouble. The NDX was also challenged with strong resistance at 1445 and that level held until well after the 3:PM rebound had started. The NDX has strong resistance at the 50dma at 1455 and again at horizontal resistance at 1460. Moving higher is still going to be a challenge but a break over those levels should generate some serious short covering. SOX Chart - Daily NDX Chart - Daily The strongest index for the day was the Russell 2000 with the RUT rebounding to the 590 level and showing almost no weakness all afternoon. This is very encouraging because strength in the Russell normally means mutual funds entering the market. The Russell broke through resistance at its 50dma at 582.50 and closed at the high of the day only 11 points from the magic 600 level. This is a very key indicator for any broad market rally and suggests the buyers are back in control on the mutual fund level. ICI made the formal announcement today that February fund flows had fallen to only $26.2 billion from January's $43B. We already knew there was a drop in flows and we also know there were negative flows two weeks ago. That suggests March is going to be well under February. This is even more important when you look at the Russell gains over the last four days. It bottomed out at 555 last Wednesday and now it is closing in on 600. As of the close today we have already rebounded +6.3% from last weeks lows. For me this is a lot of conviction that this rally has legs and the funds are behind it. This suggests the negative cash flows from two weeks ago are history and funds are eagerly anticipating a big flow of retirement cash now that the quarter is over. Russell Chart - Daily Another index jumping out in the lead today was the Internet Index. The $IIX and the $DOT both broke out of their January downtrends on leadership by YHOO and EBAY. This helped offset some of the Nasdaq weakness from the SOX. The move today capped four days of strong gains and suggests many shorts got caught by surprise. $IIX Internet Index Chart - Daily While the rally continuation today was encouraging there were still signs that it was primarily window dressing and today was the final markup of prices. Now all they have to do is hold them at these levels into Wednesday's close. They will probably try to push them a little higher tomorrow to get the Dow back into positive territory for the year. The Dow closed 2003 at 10453 and we are still about -72 points below that level. The Nasdaq closed 2003 at 2003 and we are VERY close to going positive for the year with today's close at 2000. The S&P-500, the index of choice for comparison of mutual fund performance closed 2003 at 1112 and the 1127 print today pushed that index back into a gain for the year. The Russell is still the winner now up +6% from the 2003 close at 556. Bonds started the day stronger on multiple fronts including short covering in front of Japan's fiscal year end tomorrow. Traders are afraid of any last minute window dressing in the currency markets to try and clean up the massive amount of dollars Japan has been spending to support the Yen. The Yen is on the verge of hitting a three-year high against the dollar and suggests that the intervention suspension talk may have more truth than Japan would admit. Also helping bonds were some negative comments about the lack of jobs on the wires. Bernanke upheld the party line in his Fedspeak for the day. He said we are 2.5 years into the recovery but job growth was still distressingly slow. He also said he expects jobs to recover before year end. This has been their expectation for quite come time and it has yet to come to pass. Bonds ended the day selling off their gains and the ten-year yield closing nearly flat for the day. Traders are facing a mountain of economic reports for the rest of the week and there were adjustments of positions on both sides. Ten-Year Yields - Daily Bonds are set for a volatile session on Wednesday despite any equity market manipulation by the big money to close the first quarter in the green. The economic reports on tap are the Mortgage Application Survey and no surprises are expected there with interest rates still low. The first stumbling block for bonds will be the NY-NAPM. The report has shown sharply accelerating business conditions in New York for the last three months. Last months report hit a new high but there were several components with the early stages of a reversal. Traders will be looking for those to rebound again and hopefully not be worse. The NY-NAPM number for Feb was 267.2 and there is no estimate for March. Next up is the Chicago PMI and it also dropped in Feb from a nine year high in January. Nobody complained about the drop considering the record high in January but another continuation of that drop in March could have trader worry resurfacing that the economic rebound has already peaked. Factory Orders are expected to climb +1.5% from the -0.5% drop in February. Again, a rebound here will bring a sigh of relief where another dip or minimal gain will bring back those recovery fears. These reports are small potatoes compared to the ISM on Thursday and the Jobs report on Friday. The ISM is expected to drop nearly a point for the second consecutive monthly decrease and we could really use a positive surprise here. This is a key indicator of overall economic activity and two down months will not be greeted warmly. The report with the biggest focus for the week is the Employment Report for March, which is due out on Friday. We all remember the estimate games that have been making the rounds for the last four months. The general consensus estimates have been in the 150K range and they have yet to come close. In recent months whisper numbers have risen to the ranks of the insane with up to 350K being tossed about. Last month it was a little more reserved with many of the big guessers a little too ashamed to show their faces back on the air after missing the mark so badly for the prior three months. Their back! Yes, whether it is the spring weather, warm sunshine or just an infection of March Madness the numbers making the rounds are quickly reaching astronomical proportions again. The official "consensus" number is +100,000 but the official "whisper" number is +125K and easing toward 150K. The bigger names are shaping up like this. Lehman has targeted +95K, Goldman Sachs +160K, Wachovia +225K, TheStreet.com +250K and the winner at +350K was an analyst at Prudential. He said he would raise his official estimate to 350K but too many of his clients were already laughing at him at +175K. Wise move. Continuing to raise your public estimates to multiples of the official consensus after being publicly humiliated for multiple consecutive months has got to hurt your credibility. It is like betting on a coin flip and always calling heads. It will eventually end up heads but you could lose a lot of money waiting. In Vegas I have seen fortunes lost on red/black bets on the roulette table. I once saw a string of 37 reds spins. Gamblers were 20 deep around the table all trying to bet their bankroll on black because it just "had" to hit. That is the way I see the jobs numbers. Eventually they will be right but it may not be this month. The proliferation of high whisper numbers has the potential to depress the market more than impress it. Once everyone begins to expect a blowout anything else is a letdown. This is what I expect for Friday. Even if we hit the official +100K number the majority of traders will be disappointed. It could be just like an inline earnings report for Intel. Yawn! Is that all? A four-day rally with the Dow +370 points above last weeks lows is begging for some consolidation. The abundance of economic reports ahead should give traders plenty of excuses for that consolidation. Whether the porridge is too hot, too cold or just right the expectations are already priced into the market. Much of the impact of those expectations was aided by the end of quarter window dressing. Those artificially inflated gains also came on very low volume where the recent sell offs have been on stronger than normal volume. On Tuesday the NYSE and the Nasdaq barely broke 1.6B shares each. This is very light, almost holiday volume and the third consecutive day for volume across all exchanges to barely reach 3.5B shares. This is not a good sign technically. We are also seeing an increase in put buying with the index put/call ratio rising to 1.45 today. This is actually good since it shows a level of fear in the marketplace that is not being reflected in the VIX which has fallen to 16.29. This is definitely shaping up to be an exciting week. That would be a definite improvement over the Tuesday sleep walk. If we do manage to go higher from here the Dow has only minor resistance at 10400 which develops into major resistance in the 10450-10475 range. This is exactly where the Dow needs to be to close the quarter in the green. The Nasdaq is at critical resistance at 2000. It must move higher to break the current downtrend since January and there is plenty of resistance to battle. Helping the Nasdaq will be a little breathing room on the SOX before it hits downtrend resistance just under 500. An even bigger help to the Nasdaq would be a Russell move over 590 resistance giving it a clear run to 600. This more than anything could provide the breakout bias to all the indexes. If the funds have already finished their end of quarter small cap shopping then extending the Russell rally could be a challenge. Let's hope they saved some pocket change to dress the tape at Wednesday's close. With all the economic potholes ahead I would be very leery of opening any new long positions. We need to see some consolidation of the current gains and digest the economic news before moving higher. Next week is plenty of time to join the party if the rally has legs. Of course economic blowouts across the board could push us higher but after four days of our coin turning up heads do your really want to bet heads again? Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************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 ******************** A renewed sense of bullishness While there a probably more technical indicators suggesting a resumption of recent weekly declines should take place soon, observations made during today's trade, right up to the close, gives me the sense of renewed bullishness into Friday's nonfarm payroll numbers. Friday's nonfarm payroll number, where for the most part the number of job gains has been well shy of what many economists and even some Federal Reserve Governors have been looking for in recent months, seems to be creating an atmosphere of upbeat enthusiasm among market participants, enthusiasm, or hope, that you'd be hard pressed to find in many gaming parlors ahead of this weekend's NCAA Basketball finale, let alone the widely followed "Frozen Four," where the underdog University of Denver Pioneers march toward the NCAA Hockey Championship after beating North Dakota on Saturday. What does any of this have to do with the stock market? Despite modes gains in today's trade, there seems to be a renewed sense that the correction is over, and a turning point is at hand. Not everyone has been glued to their TV sets during the NCAA tournaments, but there are games when one team looks to be well on their way to victory, when at some definitive point in the game, the "loosing team's fans" sense they might be able to snatch victor from the hands of defeat. NASAQ Composite (COMPX) Daily Intervals Good gravy! What are YOU doing back here at 2,000 and just 3- points away from breakeven on the year? You were supposed to just go way, fade into the sunset when the NASDAQ Composite Bullish % ($BPCOMPQ) finally turned "bear confirmed." While there's work to be done at that downward trend and falling 50-day SMA, the ability for the NASDAQ Composite to reclaim the 2,000 level may have some bears saying.... "it isn't over till its over!" Market Snapshot / Internals - 03/30/04 Close The recently resurgent Semiconductors (SOX.X) 487.03 -0.11% showed some sign of starting to resume weakness after scrapping back from their recent lows 453, and brief violation of their rising 200-day SMA (465.79) last week. At 01:00 PM EST, SOX.X and NASDAQ bulls looked to be setting up for defeat as the A/D line went negative, but a renewed sense of bullishness took hold late in the session, with the major indices closing at their highs by the close. What took the Dow Industrials (INDU) 10,381.70 +0.50% nearly 5.5 hours to do (gain 28 points) by 03:00 PM EST was nearly doubled in the final hour of trade, and as if followed from script, Caterpillar (NYSE:CAT) $80.00 +0.65% mustered enough strength to see a reversing point and figure buy signal buy the close, with a session high trade of $80.04. Pivot Analysis Matrix - For an SPX/OEX trader, my end of session observation would be that today's highs and lows, and perhaps tomorrow's are currently bound by BIX.X support at WEEKLY R1, and SPY resistance at MONTHLY S1. For two straight sessions, the OEX has dipped below its WEEKLY R1 of 549.93 (just before yesterday's close) and then again today, just before 01:00, where for no news that I could find, a renewed sense of bullish enthusiasm was found and trader's in New York returned from lunch. NASDAQ-100 Heatmap - 03/30/04 Close (www.nasdaq.com) Breadth for the NASDAQ-100 Index (NDX.X) 1,445.25 +0.2% and its Tracking Stocks (AMEX:QQQ) $35.91 +0.33% was positive at 65:35, but among the 6-most heavily weighted components, only Cisco Systems (NASDAQ:CSCO) $23.93 +0.33%, which is staring at a curling lower 50-day SMA ($24.20) was able to muster a gain in today's trade. Marvel Technology (NASDAQ:MRVL) $45.19 +4.77% was today's NDX/QQQ percentage gainer, and after giving a reversing lower point and figure sell signal at $40.00 (and testing its rising 200-day SMA), MRVL's shares have rallied back and threaten to challenge a 52-week high of $46.63 set on November 4, 2004, where a trade at $47, would have MRVL's PnF chart back on a buy signal. While not a "key stock" or heavyweight in the NDX/QQQ, MRVL is a good stock for all NDX/QQQ traders to keep an eye on, as just one stock to try and get a feel for some of the internals at the NDX/QQQ. In PINK, I've squared the six-most heavily weighted components for the NDX/QQQ, which aside from CSCO showed little sign of bullish enthusiasm from bulls. "Value" investors may be scratching their heads when they see Yahoo! Inc. (YHOO) +2.31% and eBay Inc. (NASDAQ:EBAY) +2.12% not only among NDX/QQQ percentage gainers, but closing in on new highs. It is IMPOSSIBLE to follow a lot of stocks closely, but as I look at stocks like CAT and now MRVL on their point and figure charts, there seems to be enough looming demand, when even as many indicators might suggest a resumptions of selling, I can only think this Friday's nonfarm payroll data still has bulls sticking around to see what Friday's nonfarm payroll data has in store. I mention much of the above, mostly as it relates to the BEARISH side of me (my trade weighted philosophy right now would be 60% BEARISH and 40% BULLISH) NOT liking some of the bullish observations, or lacking of follow through BEARISHness. Much of this centers around what I've seen in the bullish % indicators of late, where despite internals weakening, the recent rebound, which may be anticipatory ahead of Friday's nonfarm data, should be a bit unnerving, or of concern to bears. NASDAQ-100 Tracking Stock (QQQ) - 15-minute intervals I thought I'd take a look at the 15-minute interval chart, which gives us a chance to look at the QQQ on somewhat of an intra-day basis, but also allows for several days of observation. I've marked the various major MONTHLY and WEEKLY pivot analysis levels for the QQQ, where today's close comes above WEEKLY R1, which in my opinion, takes some bullish enthusiasm, if not lack of selling. The downward trend you see at the top of the chart, at WKLY R2, that certainly looks to be "in play" right now, where the only levels of pivot matrix resistance would come from the DAILY Pivots. The WKLY and MONTHLY levels should be finding more resistance selling in my opinion, and I'd have to say that they aren't. Almost as if the big players are willing to play a wait and see game into Friday's nonfarm data. While we can see today's low in the QQQ found buyers at what would have been Friday's congestion high, it was also somewhat correlative to Tuesday's DAILY S1. S&P 100 Index Chart (OEX.X) - 15-minute Intervals While support for the QQQ may have come at its DAILY S1 in today's trade (Tuesday), I'm starting to see some action in the OEX, where the MONTHLY S2, which found little resistance selling on Monday, starts to look like a level of support, where when traded, turns on the computers for buying, as if the zone between 549.26 and WEEKLY R1 549.93, which are very close to March's Triple Witch expiration "Max Pain" of 550.00 have become less significant all of a sudden. S&P 500 Index (SPX.X) 1,127.00 +0.40% can perhaps make a similar observation, with 1,125.00, which was March's Triple Witch expiration. Dow Industrials Chart (INDU) - 15-minute intervals Not all that unlike the intra-day 15-minute chart of the OEX, we see some Monday and Tuesday pullback low buying when the INDU has traded, then fallen below its WEEKLY R1 of 10,320. I placed a "whack!" and "smack" annotation at the MONTHLY S2, where that was an obvious "sell" point into the weekend, but either had no sell programs lined up for Monday, or buyers were too strong as if a renewed sense of bullish enthusiasm was taking hold into Friday's nonfarm payroll numbers. 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 **************** Window Dressing - J. Brown It's been a pretty impressive week thus far. The bulls have managed to orchestrate an encore performance on top of yesterday's big gains. It is encouraging to see the NASDAQ close above 2000, the Wilshire 5000 index close above the 11,000 mark and the GHA hardware index, the CYC cyclical index and the OIX oil index all close above their 50-dma's. However, my concern now is that not only are we short-term overbought but this could be nothing more than end-of-the-quarter window dressing by mutual funds. However, this time we may not see any window un-dressing until after the Jobs report on Friday. Right now Wall Street is once again cautiously optimistic for the non-farms payroll report despite being let down again and again. Hope springs eternal but it will have to endure a number of economic reports this week before Friday's jobs report. Tomorrow is the Factory Orders and Chicago PMI while Thursday brings the weekly initial jobless claims, the auto and truck sales numbers for March (which are expected to be positive), the construction spending numbers and the ISM index. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 7929 Current : 10381 Moving Averages: (Simple) 10-dma: 10210 50-dma: 10472 200-dma: 9832 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 843 Current : 1127 Moving Averages: (Simple) 10-dma: 1110 50-dma: 1134 200-dma: 1058 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1014 Current : 1445 Moving Averages: (Simple) 10-dma: 1410 50-dma: 1467 200-dma: 1384 ----------------------------------------------------------------- As investors buy the "correction" the volatility indices are shooting back toward their multi-year lows. No surprises here. CBOE Market Volatility Index (VIX) = 16.28 -0.22 CBOE Mkt Volatility old VIX (VXO) = 15.99 +0.03 Nasdaq Volatility Index (VXN) = 23.18 +0.02 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.61 685,330 418,968 Equity Only 0.46 581,353 267,971 OEX 1.17 15,746 18,486 QQQ 0.30 98,732 29,389 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 70.9 + 0 Bull Correction NASDAQ-100 39.0 + 1 Bear Confirmed Dow Indust. 80.0 + 3 Bear Confirmed S&P 500 73.4 + 1 Bear Confirmed S&P 100 77.0 + 0 Bull Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.74 10-dma: 1.20 21-dma: 1.42 55-dma: 1.17 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 1903 1831 Decliners 915 1223 New Highs 159 110 New Lows 10 7 Up Volume 1155M 893M Down Vol. 444M 573M Total Vol. 1614M 1582M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 03/23/04 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 pared back their positions in both long and short plays but they remain next short, which is a change in sentiment over last week. Small traders significantly altered their short positions but remain net long. Commercials Long Short Net % Of OI 03/02/04 411,932 418,936 (7,004) (0.1%) 03/09/04 418,394 433,237 (14,843) (1.7%) 03/16/04 454,635 449,505 5,130 0.6% 03/23/04 401,456 418,732 (17,273) (2.1%) 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 03/02/04 148,383 84,135 64,248 27.6% 03/09/04 155,947 88,317 67,630 27.7% 03/16/04 159,054 115,023 44,031 25.3% 03/23/04 130,648 89,943 40,705 18.5% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercial traders chopped off a large chunk of open positions from both their longs and shorts and what was left behind is their most bullish reading in weeks. Small traders are still bullish too. Commercials Long Short Net % Of OI 03/02/04 344,805 395,112 (50,307) ( 6.8%) 03/09/04 431,623 485,268 (53,645) ( 5.9%) 03/16/04 472,809 574,241 (101,432) ( 9.7%) 03/23/04 268,647 294,930 (26,283) ( 4.7%) 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 03/02/04 119,382 67,453 51,929 27.8% 03/09/04 135,233 76,558 58,675 27.7% 03/16/04 192,136 96,691 95,445 33.0% 03/23/04 131,879 59,210 72,669 38.0% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 We see the same reduction in outstanding positions in the NDX futures but commercial traders have become more bullish on the NASDAQ while small traders have become bearish. Commercials Long Short Net % of OI 03/02/04 49,959 41,059 8,900 9.8% 03/09/04 57,368 46,082 11,286 10.9% 03/16/04 68,285 54,899 13,386 10.9% 03/23/04 52,014 34,017 17,997 20.9% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 13,386 - 03/16/04 Small Traders Long Short Net % of OI 03/02/04 11,605 7,128 4,477 23.9% 03/09/04 15,533 8,070 7,463 31.6% 03/16/04 27,859 18,333 9,526 20.6% 03/23/04 9,884 12,887 (3,003) (13.2%) 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 Ouch! Commercial traders have switched from bullish to almost bearish with a large drop in long positions and a big jump in shorts. Meanwhile small traders have moved from strongly bearish to bullish. Commercials Long Short Net % of OI 03/02/04 27,594 14,166 13,428 32.2% 03/09/04 26,867 12,845 14,022 35.3% 03/16/04 32,317 17,514 14,803 29.7% 03/23/04 23,048 22,119 929 2.1% 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 03/02/04 6,898 15,874 (8,976) (39.4%) 03/09/04 7,053 19,159 (12,106) (46.2%) 03/16/04 10,002 20,970 (10,968) (35.4%) 03/23/04 8,344 6,734 1,610 10.7% Most bearish reading of the year: (12,106) - 3/09/04 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 03-30-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: ETN Call Play Updates: AVID, LXK, MGG, NEM New Calls Plays: CAT, KBH, NSM Put Play Updates: LTR New Put Plays: UTSI **************** 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: ***** Eaton Corp. - ETN - close: 56.40 change: +0.60 stop: 56.60 We certainly gave ETN plenty of chances to make good on its promises of a significant breakdown, but the bears never pressed their advantage. The stock did make a convincing move under the $54.50 level and it looked like a solid break of support. But the bulls stepped in and bought the dip and over the past few days, it is looking like the downtrend has been broken. With our stop only 20-cents above today's close and ETN ending at its high of the day, it seems a foregone conclusion that our stop will be tripped in the morning. Let's beat the rush and exit the play now. Should we be so fortunate as to see a drop in the morning, take it as a gift of a better exit point. Picked on March 11th at $54.82 Change since picked: +1.58 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 1.21 mln 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 ******************** Avid Technology - AVID - cls: 46.31 change: -0.41 stop: 42.99 The big rally on Monday helped send AVID to a new two-month high above technical resistance at its simple 200-dma and its simple 100-dma. Unfortunately the early morning run to $48.12 faded throughout most of the session but it was more than enough to open the play with our TRIGGER at $47.35. There was no specific headline or catalyst to blame for the pop higher and now we're concerned that the Monday-Tuesday pattern is starting to look like a failed rally. We suggest bullish traders be patient and look for new entries on a bounce from $45.00 or even the $44.00 level if this dip continues. Picked on March 29 at $ 47.35 Change since picked: - 1.04 Earnings Date 04/15/04 (unconfirmed) Average Daily Volume: 663 thousand Chart = --- Lexmark Intl. - LXK - close: 91.71 change: +1.11 stop: 87.25 Like the Little Engine That Could, LXK finally broke over that pesky $91 resistance level today and that sets the stage for a continued rally towards our $95 target as April earnings season gets underway. As noted over the weekend, the most recent pullback entry came on the test of the 10-dma (now at $89.52) and a breakout over $91.10 could have been used for new momentum entries. The $90 level afforded major resistance on the way up, so we can rightly expect it to now act as support. Target new entries on a pullback near $90, with that support reinforced by the 10-dma. Should the bulls really get moving to the upside, we could see our $95 target reached by the end of the week. With the initial push over the $91 level, our tentative bullish price target from the PnF chart has been extended all the way to the $112 level. Clearly, there's still some significant upside potential for LXK. Maintain stops at $87.25 for now, just under the intraday lows from last week. Picked on March 14th at $85.77 Change since picked: +5.94 Earnings Date 4/19/04 (unconfirmed) Average Daily Volume = 1.01 mln Chart = --- MGM Mirage - MGG - close: 45.23 change: -0.77 stop: 43.25 There we are. We've been looking for a bit of a pull back in shares of MGG and we got just such a drop today with MGG find some support at the $45.00 level. While this should be round- number support it wouldn't surprise us to see it dip a little more. Fortunately, the rising 21-dma should also act as support near $44.70. In the news MGG may have hit a snag wit hits $500 million offer to buy the British dog track operator Wembley. A British merger panel said MGG's recent comments that it "might" improve its offer without actually doing so was against the rules. Currently MGG is bidding against BLB Investors who offered $522 million for Wembley. Picked on March 25 at $ 45.69 Change since picked: - 0.46 Earnings Date 04/14/04 (unconfirmed) Average Daily Volume: 597 thousand Chart = --- Newmont Mining - NEM - close: 46.71 change: +0.66 stop: 43.00 Traders that sold into Friday's gold rally thinking it was another failed rally were in for a rude awakening today, as the price of the yellow metal shot right back over the $420 level and the gold stocks played a bit of catch up as investors are starting to believe in the renewed gold rally. The XAU index is now solidly above the $103 level and actually tested the $105 level on Tuesday. The HUI index is also looking better as it continues to distance itself from its broken descending trendline, now down at $228. NEM's breakout over the $46 level last Friday was tested yesterday, with the stock dipping just far enough to fill the gap down to $45.20 before a strong end of day rebound that continued today, resulting in a test of the $47 level early in the day. At this point, any dip into the $45-46 area looks viable for new entries ahead of the expected move up towards strong resistance at $50. Maintain stops at $43 for now. Picked on March 28th at $46.15 Change since picked: +0.56 Earnings Date 2/04/04 (confirmed) Average Daily Volume = 6.38 mln Chart = ************** NEW CALL PLAYS ************** Caterpillar - CAT - close: 80.00 change: +0.52 stop: 77.49 Company Description: For more than 75 years, Caterpillar Inc. has been building the world's infrastructure and, in partnership with its worldwide dealer network, is driving positive and sustainable change on every continent. With 2003 sales and revenues of $22.76 billion, Caterpillar is a technology leader and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. More than half of all sales were to customers outside of the United States, maintaining Caterpillar's position as a global supplier and leading U.S. exporter. The company employs nearly 70,000 people around the world. (source: company press release) Why We Like It: It doesn't hurt to be a Dow component when the Industrials are in rally mode. As of Tuesday's close the Dow is up 330 points in the last four days. This market strength has helped CAT breakout over price resistance in the $78.00-78.50 range and its simple 50-dma on rising volume. However, it's also noteworthy that CAT just had its earnings guidance upgraded yesterday for the second time in a month. CAT isn't due to report earnings until late April so there's plenty of time for an earnings run. On top of yesterday's earnings news another analyst at CSFB said the construction equipment cycle was in the beginning of a strong (and lengthy) growth phase due to the global recovery. Now this play isn't without risk. First of all the Dow is up more than 300 points in a short time frame. It's arguable that we're short-term overbought and due for a dip. Plus, any new interest rate concerns are likely to create volatility here since construction equipment stocks suffer as rates rise. However, the bigger risk is CAT's ongoing negotiations with the UAW union. Discussions began on December 10th and they've still not come to an agreement. The United Auto Works union said their members are prepared to strike if CAT and the UAW don't come to terms and right now the deadline is midnight on March 31st (that's tomorrow). Conservative traders might just want to wait until Thursday before considering any positions here. In the mean time we see two entry points for bullish plays on CAT. Buy a dip to $78.00 or look for a breakout over today's high at $80.04. We're going to choose the latter. If CAT can trade at $80.05 or higher we'll open the play and target a move to $85.00, which was strong resistance in December and January. We'll use a relatively tight stop at $77.49. FYI: Point-and-figure chart readers will note that CAT just produced a new double-top breakout buy signal today with an upside target of $95.00. Suggested Options: We're going to suggest the May options since Aprils are due to expire in three weeks. Our favorite would be the May 75s if you can afford them. Otherwise the May 80s. BUY CALL MAY 75 CAT-EO OI=2084 at $6.40 SL=3.75 BUY CALL MAY 80 CAT-EP OI=5131 at $3.00 SL=1.50 Annotated Chart: Picked on March xx at $ xx.xx Change since picked: + 0.00 Earnings Date 04/22/04 (unconfirmed) Average Daily Volume: 2.5 million Chart = --- KB Home - KBH - close: 80.88 change: +2.05 stop: 76.95 Company Description: Building homes for nearly half a century, KB Home is one of America's premier homebuilders with domestic operating divisions in some of the fastest- growing areas of the country including Arizona, California, Colorado, Florida, Georgia, Illinois, Nevada, New Mexico, North Carolina, South Carolina and Texas. Kaufman & Broad S.A., the company's majority-owned subsidiary, is one of the largest homebuilders in France. In fiscal 2003, the company delivered homes to 27,331 families in the United States and France. It also operates a full-service mortgage company for the convenience of its buyers. Founded in 1957, KB Home is a Fortune 500 company. (source: company press release) Why We Like It: It's no secret that we've been bullish on the builders for months. The low interest rates have been good for the builders and the low mortgage rates are good for consumers. The boom in the builders has been a big plus for the economy. We're fast approaching the prime-time building and home buying season and the Federal Reserve appears to be on hold for the rest of the year. Yet even if the Fed did surprise us with a cut most of the builders have said that they have such a backlog of homes to build they're business wouldn't be affected. After our last couple of successful plays in the group we've been waiting for the right entry point to jump back in. KBH's bullish breakout over resistance at $80.00 looks like the right ticket. KBH is out performing the vast majority of its peers and hit new all-time highs with today's rally. Volume was double the norm, which indicates conviction on the part of the buyers. KBH's P&F chart is very bullish and points to a $104 price target. While KBH might be able to reach triple digit prices it may take awhile. Our short-term goals are a bit more reasonable. True short-term traders can probably target a move to $85. We're going to target a move to the $88-90 range. We'll start the play with a stop loss at $76.95. This is about $1.00 under its rising 21-dma, which has been short-term support for the stock. Suggested Options: We believe that the homebuilders could run for several weeks to we're going to suggest the May or July options. Right now our favorites would be the May 80's even though the Aprils have more open interest. BUY CALL MAY 75 KBH-EO OI= 97 at $8.10 SL=5.25 BUY CALL MAY 80 KBH-EP OI= 94 at $4.80 SL=2.45 BUY CALL MAY 85 KBH-EQ OI= 58 at $2.55 SL=1.35 Annotated Chart: Picked on March 30 at $ 80.88 Change since picked: + 0.00 Earnings Date 03/16/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- National Semiconductor - NSM - cls: 44.43 chng: +0.58 stop: 40.50 Company Description: National Semiconductor Corporation designs, develops, manufactures and markets an array of semiconductor products, including a line of analog, mixed-signal and other integrated circuits (ICs). These products address a variety of markets and applications, including amplifiers, personal computers, power management, local and wide area networks (LANs and WANs), flat panel and cathode ray tube displays and imaging and wireless communications. The Company's operations are organized in five groups: the Analog Group, the Displays Group, the Information Appliance and Wireless Group, the Wired Communications Group and the Custom Solutions Group. Why we like it: Following its rollover from the $560 level, the Semiconductor sector (SOX.X) has been acting pretty sickly these past couple months and even with the strength of the broad market rebound from its lows last Wednesday, the SOX is still struggling with resistance near $490 and once again failed to make any upward progress today. Against that backdrop, the price action in NSM has been downright impressive. After pulling back and putting in a double bottom near the $36 support level, the stock has been in the process of tracing out higher highs and higher lows for the past 2 months. That is a clear point of bullish divergence with respect to the SOX. Last Thursday saw NSM break ou8t over the $42 resistance level on strong volume and this week more resistance near $43.40 has fallen, with the stock inching its way back up towards its December high of $45.25. The PnF chart is looking pretty encouraging as well, with the Buy signal from early January still in force along with its bullish price target of $58. Reinforcing that bullish view, NSM just completed a Bullish Catapult formation and it looks like the upside move is starting to unfold. We'll use a trigger at $45.40, which is just above the December highs. Breakout entries look inviting, but the more conservative approach will be to wait for a subsequent pullback to test support in the $44-45 area before continuing the upward trek. While the PnF chart says the $58 level is a possibility, we can see that the weekly chart has significant resistance near the $50 level, so that will be our initial target for the play. Depending on the strength seen at that level, we may decide to hold on for a push up to higher levels. Initial stops should be placed at $40.50, which is just under the low from last Thursday, as well as the 20-dma ($40.57). Suggested Options: Shorter Term: The April $45 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 May $50 Call, while the more conservative approach will be to use the May $45 strike. Our preferred option is the May $45 strike, as it is currently near the money and should provide sufficient time for the play to move in our favor. BUY CALL APR-40 NSM-DH OI=11989 at $4.90 SL=3.00 BUY CALL APR-45 NSM-DI OI=10021 at $1.50 SL=0.75 BUY CALL MAY-45*NSM-EI OI= 8544 at $2.85 SL=1.40 BUY CALL MAY-50 NSM-EJ OI= 2118 at $1.05 SL=0.50 Annotated Chart of NSM: Picked on March 30th at $44.43 Change since picked: +0.00 Earnings Date 5/25/04 (unconfirmed) Average Daily Volume = 3.97 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 ******************* Loews - LTR - close: 58.95 change: +0.10 stop: 59.25 We remain untriggered in this potential put play but that's not a surprise given the strength in the markets these last two days. Shares of LTR continue to build on what appears to be a bear flag pattern. Currently LTR is challenging overhead resistance near $59, which was support back in late February. This time the $59 level is bolstered by its 40-dma and the 10-dma. Should LTR continue to churn higher more aggressive traders might want to consider shorting a failed rally under the $60.00 mark. We still plan to wait for a move under our trigger at $57.74. It is challenging to find effective bearish candidates with the markets in rebound mode and LTR's technical oscillators are starting to curl higher after three weeks of consolidation. Be patient and wait for the right entry. Picked on March xx at $ xx.xx <--- see trigger Change since picked: + 0.00 Earnings Date 02/12/04 (confirmed) Average Daily Volume: 421 thousand Chart = ************* NEW PUT PLAYS ************* UTStarcom, Inc. - UTSI - close: 29.38 change: -1.49 stop: 32.25 Company Description: UTStarcom, Inc., headquartered in Alameda, California, is a global provider of wireless and wireline access and Internet protocol (IP) switching solutions. The company designs, manufactures, sells and installs an integrated suite of future- ready access network and next-generation switching solutions. It enables wireless and wireline operators in fast-growth markets worldwide to offer voice, data and Internet access services rapidly and cost effectively by utilizing their existing infrastructure. UTSI's products provide a seamless migration from wireline to wireless, from narrowband to broadband and from circuit- to packet-based networks by employing next-generation network technology. The company's customers include public telecommunications service providers that operate wireless and wireline voice and data networks in rapidly growing communications markets worldwide. Why we like it: Something is very wrong with shares of UTSI, as it has been wholly unable to participate in the recent rebound in the Networking sector. The stock has been in a protracted downtrend since topping out near $42 in early January and the resulting slide has pushed the price below all of its key moving averages and the 50-dma is now well below both the 100-dma and the 200- dma. UTSI did managed to bounce with the rest of the market last Thursday, but that rebound was short-lived, with the stock rolling over just below the 30-dma ($32.05) yesterday and continued its sharp slide today, as it lost nearly 5% on volume that nearly doubled the ADV. UTSI saw a similar selloff earlier in the month which halted just above $29 before a sharp short- covering rebound. That rebound appears to have lost its bite though and price is once again approaching that key level of support. A quick look at the PnF chart shows the trouble the bulls are in, as the stock is currently on a Sell signal, below the bullish support line and with a bearish price target of $23. Should the stock break below $29 (as we expect), there is little in the way of historical support until the $23-24 area, so $23 seems like a reasonable target to shoot for. There is some slight support just below $28 and then again near $26, but it is unlikely to produce more than a weak bounce before UTSI continues down towards our target. We want to see proof before plunging in though, so we're going to set our entry trigger at $29. Entries on the initial breakdown look favorable, but more conservative traders may want to wait for a subsequent failed rebound in the $29-30 area before playing. The $32 level looks like very strong resistance now with the rejected rebound at that level and the 30-dma reinforcing resistance there. We'll set initial stops at $32.25. Suggested Options: Aggressive short-term traders will want to use the April 30 Put. Those with a more conservative approach will want to use the May 30 put. Aggressive traders looking for more insulation against time decay can use the May 25 strike. Our preferred option is the May 30 strike, as it is currently at the money and should provide ample time for the play to move in our favor. BUY PUT APR-30 UON-PF OI=5565 at $1.50 SL=0.75 BUY PUT MAY-30*UON-QF OI=6451 at $2.40 SL=1.25 BUY PUT MAY-25 UON-QE OI=2969 at $0.65 SL=0.30 Annotated Chart of UTSI: Picked on March 30th at $29.38 Change since picked: +0.00 Earnings Date 4/27/04 (unconfirmed) Average Daily Volume = 3.48 mln Chart = ************************Advertisement************************* No time to follow the Market Monitor? 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The Option Investor Newsletter Tuesday 03-30-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Mortgages, Auctions, Oil and more! ********** WATCH LIST ********** Mortgages, Auctions, Oil and more! ___________________________________________________________________ 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. ___________________________________________________________________ Countrywide Financial Corp - CFC - close: 94.32 change: +1.49 WHAT TO WATCH: Heads up! This looks like a decent bullish entry point for traders looking to catch a run toward the $100 mark. CFC spent most of last week consolidating above support at the $90 level but we're seeing signs of life again. We didn't hear anything from their annual shareholder meeting today but what more could they say? Analysts have been raising estimates. The stock is set to split 3-for-2 on April 13th and CFC is due to report earnings at the end of April. Chart= --- eBay Inc - EBAY - close: 69.86 change: +1.45 WHAT TO WATCH: We strongly considered adding EBAY back to the play list again. The powerful bounce from the $65 mark and its breakout over the 50-dma looks tempting. Today's 2.11% gain was fueled by positive analyst comments. We would still consider using a trigger to go long on a breakout above the $70.00 level but be aware that shares are probably short-term overbought and last time the rally over $70 failed very quickly. Chart= --- Apache Corp - APA - close: 42.96 change: +0.87 WHAT TO WATCH: Oil and oil service stocks have seen a lot of volatility lately and APA is no different even though a large chunk of its business is natural gas. Yet despite the volatility the trend of higher lows is easy to see, so is the overhead resistance at $43.50. We'd consider bullish plays if APA can breakout above this resistance and target a move to $47.50 or higher. Keep in mind that the impending decision from OPEC on whether or not to follow through with their previously announced production cuts are a headline risk for the entire group although probably less so for APA. Chart= --- Inamed Corp - IMDC - close: 51.49 change: +1.77 WHAT TO WATCH: After weeks of consolidation IMDC is on the move again. Shares recently tested support at its simple 200-dma but what got the stock moving again was a press release that its lap- band system offered similar results to gastric bypass surgery with less of a health risk and a shorter hospital stay. Considering the obesity problem in this country and the growing number of surgical procedures to deal with it this could be big news for IMDC. Volume has been above average on the rally and shares hit a new relative high. We would target a move to $55. Chart= --- Lehman Brothers - LEH - close: 83.19 change: -0.80 WHAT TO WATCH: It may seem like heresy to suggest a bearish play in what was one of the strongest sectors over the last several months but the recent action in LEH looks suspicious. More to the point it looks like a failed rally under resistance at $85.00 and its simple 50-dma. Now we hesitate to recommend bearish plays here and that's why LEH is on the watch list. The stock has support near the $80 level, which should be underpinned by its simple 100-dma. Now if LEH breaks down under the $80 mark, well then we can target a move toward the $75 level. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- COF $75.78 +1.09 - We put COF on the weekend watch list for a breakout over $75 and we got it today. Its MACD has produced a new buy signal and traders might want to target a move to $80. WFMI $72.98 -1.03 - Wow! There's been very little participation in the recent market from WFMI. The stock has broken down to new relative lows and broke its simple 50-dma in Tuesday's trading. Next stop is probably the 100-dma near $70.00. Keep an eye on the homebuilders. The group looks ready to move. A few stocks to follow: RYL, HOV, PHM, CTX, TOL, DHI, MTH. ************************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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