Option Investor
Newsletter

Daily Newsletter, Monday, 11/01/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 11-01-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Low Range, High Anxiety 
Futures Wrap: See Note
Index Trader Wrap: NASDAQ-100 achieves "bull confirmed" status  


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      11-01-2004           High     Low     Volume   Adv/Dcl
DJIA    10054.39 + 26.92 10076.59 10010.15 1.72 bln 1633/1164
NASDAQ   1979.87 +  4.88  1983.91  1969.32 1.53 bln 1574/1492
S&P 100   540.50 -  0.15   542.24   539.21   Totals 3207/2656
S&P 500  1130.51 +  0.31  1133.43  1127.53
SOX       413.71 +  1.46   415.00   409.39
RUS 2000  587.00 +  3.21   587.42   581.11
DJ TRANS 3504.07 +  6.65  3521.82  3485.70
VIX        16.27 -  0.00    16.76    16.18
VXO (VIX-O)16.31 -  0.26    17.07    16.27
VXN        22.61 +  0.71    22.85    22.43
Total Volume 3,256M
Total UpVol  1,843M
Total DnVol  1,347M
Total Adv  3207
Total Dcl  2656
52wk Highs  284 
52wk Lows    57
TRIN       0.86
PUT/CALL   0.92 
*******************************************************************

Low Range, High Anxiety
Jonathan Levinson


It was a relatively quiet day, punctuated by small number of 
sharp, narrow range moves.  Volume was light overall, not 
surprising as we approach the elect with its attendant direct and 
indirect uncertainties.  Option volatility increased despite the 
tight range for the day, perhaps caused by option purchases by 
market participants seeking to hedge open positions. 


One year daily Dow Chart


I've squeezed one year's worth of daily candles into a single 
chart to provide some perspective on today's action, or lack 
thereof.  The Dow rose 26.92 points to close at 10054, just above 
The Number but below 10080 confluence and trendline resistance.  
The daily cycle upphase currently in progress is so far 
delivering excellent price traction, and while the market feels 
to me like it wants to correct, the small wedge/flag atop last 
week's sharp rally should act as a continuation pattern with the 
upphase.  A close above 10080 will suggest that the breakout is 
in progress, targeting 10130 and 10175-200 next.


Daily SPX Chart


The SPX rose less than a point to close at 1130.51, one of those 
rare days when every fraction counts.  The daily cycle upphase 
has been very strong since last week as well, but the climb has 
outpaced the oscillators, leaving a potential bearish divergence 
here if the price reverses back below the 1115 support level on a 
closing basis.  Until then, this is merely a potential 
divergence, and only a daily cycle signal will change it.  Above 
1136, 1142-44 looms large on the way to a possible test of the 
year highs.



Daily Nasdaq Chart


The Nasdaq is the closest to a test of this year's declining 
resistance line, looking for a close above the 1985 level 
(today's close was 1979.9) to target 1995-2000, 2025 and 2060.  
The pattern of stochastic highs suggests that the 1980-2000 level 
will be a key battle between bulls and bears, and conveniently we 
have major market moving news due tomorrow.  Below 1950, next 
support is at 1920 and 1900.


Weekly TNX Chart


Bonds were weak today, gapping slightly and spending the day 
above the bulk of last week's range.  On this weekly chart (see 
tonight's Futures Wrap for a discussion of the daily chart), the 
most recent weekly candle is based solely on today's data.  
Despite the strong move higher in the ten year note yield (TNX), 
which added 1.51% in a 6.1 basis point move to close at 4.09%, 
the downtrend off the springtime highs has yet to be violated.  A 
move above the 4.14% level will be the first sign of trouble for 
bond bulls/TNX bears, followed by EMA resistance in the 4.2% 
area.  A break below the 3.85%-.88% level would suggest that the 
current decline is in fact a bear wedge breakout targeting the 
low 3.0% level below 3.59% support.


Weekly Crude Oil Chart


Last week's pullback was being lightly retraced this morning, 
with December crude futures reaching a high of 52.475 as the 
financial press discussed production concerns amid reports of 
wildcat strikes in Nigeria.  The spin abruptly reversed course as 
crude oil took a plunge, with reporters attributing the fall in 
prices to the workers not formally having agreed to strike and 
Iraqi production reaching its highest level since the first 
attacks on that country.  Reuters attributed the action to 
speculation of a Kerry win, citing analysts who expect a more 
interventionist petroleum policy, a less aggressive expansion of 
the Strategic Petroleum Reserves and a more conventional 
diplomatic policy in the Middle East under Kerry.

Whatever the reason, oil was back below the 50 level for the 
first time in a month, lending some credence to the bearish 
divergence in the 10-week stochastic that has been steadfastly 
holding its ground.  Wildcat strikes, kidnappings and fighting in 
the Middle East, and news of the sabotage of a pipeline in 
northern Iraq were ignored.  There's support at 49, with stronger 
confluence at 45-46.  Obviously, the election results will have 
their own impact on this chart, always assuming that the more 
than 10% price drop in the recent days approaching the election 
were merely technically driven.  For the day, crude oil for 
December delivery closed at 50.20 on the Nymex, a 3% decline.


Following Friday's news of the 70+ year low in the personal 
savings rate, the Bureau of Economic Analysis announced US 
September consumer spending and personal income before the bell.  
Personal income rose 0.2% for the month, while consumer spending 
rose 0.6%.  Expectations were a .3% increase and a .6% increase, 
respectively.  The Personal Consumption Expenditure Index (PCE), 
an index that the Fed prefers over the CPI, is now up an 
annualized 2% over the past year, with the core PCE up an 
annualized 1.5%.  There was little reaction to this data upon its 
release, with bonds drifting slowly lower while equities declined 
slightly and then rose.  

The news was notable in that personal spending continued to 
advance faster than personal income, as appears from the attached 
chart from the BEA's report:


BEA chart of Real Disposable Income and Real consumer spending





This month's income figure included an increase of 20B in 
transfer receipts representing net insurance settlements for 
hurricane damage.  Wages and salaries increased by another 20B, 
but according to the report were "partly offset" by a reduction 
in rental income due to uninsured losses resulting from the 
hurricanes.

At 10AM, the Institute for Supply Management reported that the US 
manufacturing sector expanded for its 18th consecutive month in 
October, holding over the 50% baseline but declining to 56.8% 
from an unrevised 58.5% in September.  Expectations were for 
58.5%, and equities dipped immediately on the news.  Also at 
10AM, the Commerce Department reported a US Construction Spending 
for September.  The number was flat for the month, missing 
expectations for a .5% increase.  The August reading was revised 
to a .9% gain from the .8% increase previously reported.  The 
September reading broke a 7 month trend of increases in 
construction spending.

At 3PM, the Treasury Department announced that it intends to 
borrow another $100B in the last quarter of 2004 to fund the 
budget deficit, to be followed by an additional 147B in the first 
quarter of 2005.  The markets greeted this news with a yawn, with 
the US Dollar Index holding steady as well.

Earning season is finally slowing down, and it was a relatively 
quiet day for corporate news.  DCLK was up strongly on news that 
it has retained Lazard Freres to advise the company on increasing 
shareholder value, including potential stock buybacks, dividends, 
the sale of all or part of the company and such.  DCLK rose a
whopping 11.95% to close at 7.12.

TYC reported fiscal Q4 earnings of 22 cents or 454M, which, 
excluding non-recurring items amounted to 45 cents per share, 
beating estimates by 2 cents.  Q4 2003 had seen a loss of 297M or 
15 cents per share.  Led by strong growth in its healthcare, 
electronics and engineered products divisions, revenues rose 13% 
to 10.44B, meeting expectations.  TYC expects to earn 40-42 cents 
in the next quarter, below current analyst estimates of 44 cents.  
TYC rose 1.77% to close at 31.70.

A Wall Street Journal story made the rounds this morning, 
suggesting that internal emails and other documents reveal a an 
effort on the part of MRK to bury the facts showing elevated 
heart risks associated with Vioxx.  The article cited an email 
dated March 9, 2000 acknowledging such risk.  In the afternoon, 
it was announced that Standard & Poor's had placed MRK's triple-A 
credit rating on review for a potential downgrade due the risks 
of additional litigation against the company.  The stock got 
shanked for 9.68% to close at 28.28.

Petrochemical and coal mining company CVX was downgraded by
 Robert W. Baird from "outperform" to "neutral" following last 
week's Q3 results, citing an expected negative impact from 
lingering interruptions in the wake of this years hurricanes, as 
well their anticipation of a "consolidation" in oil prices.  CVX
closed lower by .21% at 52.95.

After the bell, chipmaker NSM lowered its fiscal Q2 targets, with
the company now expecting sales to decline almost 20% to 445M-
450M from its previous forecasted drop of 8%-10%.  NSM was down 
8.03% to 15.35 afterhours as of this writing.  MXIM was also
getting sold afterhours, down 2.51% to 43.10 after meeting 
analyst expectations of 42 cents per share.  Sales were light, 
however, coming in at 435M for the quarter vs. expectations of 
454M.  The company also announced an increase in its quarterly 
dividend from 8 cents per share to 10 cents.

For tomorrow, we have a light menu of economic reports, with the 
ICSC-UBS Store Sales report and the retail Redbook, followed at 
10AM by the Challenger Job report.  That, and the elections.  I 
believe that today's lighter volume, higher option-volatility, 
narrow range action was the prelude to tomorrow's news.  I won't 
bother adding my voice to the deafening chorus of guesses as to 
what will, will not or might happen.  From a trader's 
perspective, we can either try for an educated guess, or wait for 
the market to tell us by moving through or failing to move 
through key levels.  While the temptation is obviously to attempt 
to anticipate a move with a prior (directional) position, that's 
the higher risk alternative.  With the Nasdaq near the top of an 
impressive rally off the August lows while the Dow and SPX 
continue to retrace last month's losses, there's something for 
everyone.  While I am personally expecting some kind of selling 
on the Nasdaq, at least on a corrective basis, that opinion will 
change if  bulls can break the declining resistance lines on the
way to a test of the June highs.  The only certainty is that the 
market will be making a strong move in either direction following 
the light volume, high anxiety action we had today.  If you find 
yourself worrying about the outcome of the election, at least as 
far as your open directional positions go, consider either 
hedging them or lightening up.  Alternatively, a straddle 
properly applied can help you capture the move without committing 
more than necessary to either direction.
 

************
FUTURES WRAP
************

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


********************
INDEX TRADER SUMMARY
********************

NASDAQ-100 achieves "bull confirmed" status

In this weekend's "Ask the Analyst" column we looked closely at 
the Russell 2000 Index ($RUT.X) 587.00 +0.54% and discussed its 
seasonal bullish tendency that begins in November and runs 
through May.

On Friday, the NASDAQ-100 Bullish % ($BPNDX) achieved "bull 
confirmed" status for the first time since falling to "bear 
confirmed" status in February of this year.

NASDAQ-100 Bullish % ($BPNDX) Chart - 2% box size

 

Friday's action saw the narrower NASDAQ-100 Bullish % ($BPNDX) 
achieve "bull confirmed" status.  These are the strongest of 
market internals and strongly suggests DEMAND is really starting 
to outstrip supply.  Bulls and bears will most likely become more 
aggressive with pullback buying.

In this weekend's Ask the Analyst column we discussed the 
historical bullishness from November-May for Russell 2000 Index.  
The NASDAQ-100 has shown an average gain of 12.4% from October-
January.  

Tonight I'm going to place the new November MONTHLY pivot levels 
on the NDX.X point and figure chart (conventional box size 25-
points) and also take a quick look at the past two years of 
trade.  Remember, the letter "A" represents early October, while 
the number "1" represents early January.  Look for the "A" and 
"1" in your bullish % charts.

With the NASDAQ-100 Bullish % ($BPNDX) just now reversing up to 
"bull confirmed" status, I would think the NDX.X and QQQ have a 
good chance at some handsome gains into January.

NASDAQ-100 Index (NDX.X) Chart - 25-point box size

 

On a pure supply/demand basis, it would take a trade at 1,525 for 
the NASDAQ-100 Index (NDX.X) to generate a reversing higher point 
and figure buy signal, and negate the current bearish vertical 
count of 1,125.  But the odds of this happening become high (in 
my opinion) as the internals begin to show a greater number of 
stocks generating supply/demand buy signals from an intermediate 
level of bullish risk.

I've marked the past two October-January seasonal periods where 
from Oct. 2002 to early January 2003, the NDX.X would show a 24% 
gain, where more than likely, that percentage gain was boosted 
from a more deeply oversold condition as the bullish % was 
reversing up from as low as 14%.  

From Oct. 2003 to early January 2004, the NDX.X would have shown 
a more modest 9.25% gain.  Here perhaps the gain was limited as 
bullish risk was higher above 70%.

U.S. Market Watch - 11/01/04 Close

 

Aside from prediction regarding tomorrow's election results, 
which pollsters admittedly say is too close to call, further 
declines in oil was today's top headline.  The conventional 25-
cent box size now has the Continuous Oil Contract ($WTIC) from 
www.stockcharts.com still building its bearish vertical count, 
which is currently to $43.25.  Today's low in the December Crude 
Oil futures (cl04z) contract was $49.25, and from Wednesday 
evening's Index Trader Wrap, this is where I thought we might 
find some firming.  Now look for a little bounce back into that 
$51.50 area, and I think equity bulls then want to see oil get 
slammed back lower from there.

A trade scenario I see is that we now see some oil BEARS locking 
in some handsome near-term gains (it took some guts to short 
above $54 so oil bears should pay themselves by taking profits 
into Wednesday's weekly statistics report.  If oil and distillate 
inventories show increases in inventory, that could then set the 
stage for a scenario of oil gravitating back lower towards $43-
$44 per barrel.

Market Snapshot / Internals - 11/01/04 Close

 

Volumes were brisk, but it makes some sense that today's volumes 
were off of the NYSE's October average of 1.50 billion per day, 
and NASDAQ off its 1.72 billion per day.  

If the MARKET ends up "happy" with things on Wednesday (election 
and oil prices) then I'd have to think a higher trade for the 
indices, and if "super bull" volume watchers would probably be 
looking form volumes to breach 2 billion shares on BOTH the NYSE 
and NASDAQ.  I think if we were to see 2 billion at both the NYSE 
and NASDAQ, coupled with a higher trade, it would be a pretty 
good signal from the MARKET that it sees a good rally taking hold 
into the end of the year.

Pivot Matrix - 

 

MONTHLY Pivot really seems to be the "levels" that stick out as a 
more meaningful near-term level of support.  In today's 03:15 PM 
EDT I showed a chart of the Semiconductor Index (SOX.X) with 
conventional (BLUE) retracement and its MONTHLY Pivot levels in 
PINK.  Now... see that WEEKLY R2 at 430?  That's darned close to 
the conventional 38.2% retracement, and if violated to the upside 
this week, a bullish move there has MONTHLY R2 immediately in 
play.

S&P 500 Index (SPX.X) Chart - Daily Intervals

 

A couple of weeks ago, bears were looking for a short right in 
here, hopeful of a "right shoulder" to short.  However, things 
may NOT have worked out to plan as higher oil prices and some 
problems with insurers (NY Attorney General) had the SPX.X 
falling to the 1,090 level.  

IF we're looking for a bounce in oil (based on Wednesday's Wrap) 
then we might well expect the SPX to pull back into the 1,117-
1,120 "zone."  Conversely, if bears have lost their conviction 
with oil's decline and the SPX unravels into what I consider the 
"right ear" the SPX could easily erupt to 1,152 by Friday's 
close.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) rise 
1.13% with a net gain of 5 stocks to a reversing higher point and 
figure buy signal.  Still "bear correction" status at 63.13% and 
it would take a still higher reading of 68% to achieve "bull 
confirmed" status.

Jeff Bailey


************************Advertisement*************************
 
SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO
 
 
Now you can follow the investment master's actual moves.
 
To get a FREE report that details Warren Buffett's strategy and 
reveals his most recently disclosed, ACTUAL stock picks, Click HERE!
 
 
http://www.bigmoneywatch.com/default.asp?aid=626
 
**************************************************************

 


************************Advertisement*************************

Insiders are Buying these 6 Rocket Stocks.


In the last few weeks, we have pinpointed insider buying on six 
stocks that have the potential to deliver stratospheric gains. 

Click here for our SPECIAL REPORT on these 6 stocks insiders are 
buying and why you should too. 


http://www.insidermoves.com/default.asp?aid=618

**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
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                   Monday 11-01-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: APOL, IBM, SBUX 	
Dropped Calls: None
Dropped Puts:  None
Watch List: Heavy equipment to tech and more! 


************************Advertisement*************************

SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO


Now you can follow the investment master's actual moves.

To get a FREE report that details Warren Buffett's strategy and 
reveals his most recently disclosed, ACTUAL stock picks, Click HERE!


http://www.bigmoneywatch.com/default.asp?aid=626

**************************************************************


*****************
STOP-LOSS UPDATES
*****************

APOL - put play -
  APOL fell another 2.45 percent to $64.38 on Monday.
  Volume was strong and above the average as shares
  broke down under round-number support at $65.00.
  We are lowering our stop loss to $70.01.
  
IBM - call play -
  IBM is back above round-number resistance at the 
  $90.00 mark.
 
SBUX - call play -
  SBUX is inching ever closer to our profit target/
  exit range near $54.00-55.00
 

*************
DROPPED CALLS
*************

None


************************Advertisement*************************

Trade Smarter Using the latest Insider Trades

Is the CEO selling off? Has a key insider loaded up on shares 
before a big price jump? 

Find out now. Get your free download of Real Time insider trades:

http://www.realtimeinsider.com/default.asp?aid=637

**************************************************************


************
DROPPED PUTS
************

None


************************Advertisement*************************

Get your FREE weekly charts of the NASDAQ!

Hot Stix’ stock market report reveals simple, powerful strategies 
for profiting from the QQQ - whether down or up!

http://www.hotstix.com/public/weekly.asp?aid=755

**************************************************************

**********
Watch List
**********

Caterpillar - CAT - close: 81.84 change: +1.30

WHAT TO WATCH: CAT out performed most of its Dow-component 
brethren on Monday.  The stock has been rebounding from a test of 
support at its simple 200-dma.  Now shares are testing overhead 
resistance at the $82 level as technicals turn positive and its 
MACD indicator nears a new buy signal.  The P&F chart is already 
positive with a $102 price target. We would consider long 
positions over $82 even though there is more resistance near $85.

Chart=


---

M D C Holdings - MDC - close: 77.60 change: +0.85

WHAT TO WATCH: This could be a bullish entry point in MDC.  The 
stock recently broke out over resistance at $76.00 to hit new 
all-time highs.  Now after a day of digesting its gains the stock 
is bouncing from the $76 level, which should be new support.  The 
challenge here is that MDC looks a little overbought and in need 
of a bit more consolidation.  We do like the bullish triangle 
breakout on its P&F chart with the $81 price target.

Chart=


---

Potlatch Corp - PCH - close: 48.40 change: +1.31

WHAT TO WATCH: The two week rebound continues in shares of PCH.  
The stock has been climbing with decent volume backing the move.  
Now shares have broken out over resistance at $48 to hit new 
multi-year highs.  The only obstacle above it is the all-time 
high near $52.75 dating back to 1997.  Technicals are strong and 
its MACD indicator has produced a new buy signal about three days 
ago.  The P&F chart is bullish and points to a $69 target. 

Chart=


---

Cabot Microelectronics - CCMP - close: 36.73 change: +0.70

WHAT TO WATCH: There has been a sharp change in direction for 
CCMP.  The stock gapped higher and almost broke out over its 
simple and exponential 200-dma's last week after reporting 
earnings.  The company beat estimates by 5 cents and came in 
above revenue estimates.  On Friday CCMP edged higher to close 
over its simple 200-dma.  Today the stock inched higher again 
nearing the exponential 200-dma.  It's also worth noting that 
CCMP is challenging its 50-week moving average as well.  We would 
watch for a move over $38.25 as a potential entry point.  Many 
suspected that some of last week's rally was due to short 
covering with short interest about 27 percent of the float.  
There is still room for another short squeeze. 

Chart=



-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------

UN $58.85 +0.56 - European food distributor UN is on the upswing 
and challenging its simple 50-dma and resistance at $59.00.

AT $55.78 +0.85 - AT has broken out above minor resistance at $55 
and some minor moving averages with a 1.5 percent rally on big 
volume.  Watch for a move past resistance above $56.00.

PH $72.56 +1.93 - The rally in PH continues with the stock now up 
six weeks in a row.  Shares look very overbought here.

RYL $96.71 +1.32 - Homebuilder RYL is now up several days in a 
row and building on a breakout over resistance at $95 to set new 
all-time highs.

MMP $56.75 +1.35 - This oil services stock doesn't trade a lot of 
volume but shares have broken out over major resistance at $56 to 
hit new all-time highs.  MMP does not have options available.

EASI $49.54 +1.50 - EASI has just broken out over two-month old 
resistance at $48.50 but is now challenging resistance at its 
simple 100-dma, the simple 200-dma and the $50.00 mark.
 

*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
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





DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives