It was a volatile day on Wall Street where stocks started the session off weak and brought further defensive into Treasuries after the Commerce Department said orders for durable goods fell a sharper than expected -4.9% in July to $204.71 billion, dragged lower by a 16.6% decrease in defense orders and a 20.2% drop in civilian aircraft. Economists were looking for a 1.5% decline in durable goods orders after three straight months of strong gains.
Durable orders in June were revised lower to a 1.9% increase from the previously reported 2.8% increase. Durable-goods orders jumped 7.3% in May.
Economists were generally unfazed by July's decline, citing the expected month-to-month volatility patterns of the data.
"We do not see this decline as anything more than statistical noise at this point. Despite the 4.9% decline in July, over the last three months, durable goods orders have risen at a 17.0% annualized rate," said the economic team at Bear Stearns in a note to clients.
But the tide then turned at the 10:00 hour as the "housing bubble" refused to pop when the Commerce Department said sales of new homes surged 6.5% in July to a new record seasonally adjusted annual rate of 1.41 million. Economists were expecting sales to have slipped to a pace of 1.33 million units annually.
Builders look to be putting up homes ahead of the fall/winter season as the supply of new homes increased 1.8% to a record 460,000.
Reversing a trend of higher prices, the median price of a new home fell to $203,800, which is down 4% in the past year, as builders shift their focus to building homes costing less that $250,000.
Yesterday, the National Association of Realtors said sales of previously owned homes fell 2.6% to a seasonally adjusted annual rate of 7.16 million in July, the third highest sales pace ever.
We did see a fractional "flight from safety" as the benchmark 10-year YIELD ($TNX.X) rose from the 4.164% yield level to 4.20%, with stocks lifting from their lows.
But the action was just getting started and we hadn't reached the 10:30 AM mark when the Energy Department releases its weekly inventory data.
With October Crude Oil futures (cl05v) hovering at the $66.00 level, the contract fell quickly to its WEEKLY Pivot of $65.45 after the EIA said crude oil inventories rose by 1.85 million barrels. But oil stabilized as another huge 3.24 million barrel draw was found in gasoline. Refiners continued to crank out the heating oil with a 1.42 billion barrel increase.
By 11:05 AM EDT, the October Crude (cl05v) contract had jerked back higher to $66.70, briefly piercing Tuesday's high, but equity traders seemed to pull their bids just after 01:00 PM EDT when crude lurched further above the 11:00 AM high, then settle at a new contract high of $67.32 +2.45% on the session.
October Heating Oil (ho05v) settled up $0.528, or 2.85% at $1.9034, while October Unleaded Gasoline (hu05u) settled up $0.6666, or 3.71% at $1.8603.
On a month-to-month basis, crude oil inventories are up 1.6%, or 5.086 million barrels, while distillates are up 5.33%, or 6.7 million barrels. However, its the continued draw on gasoline stockpiles that grows more worrisome, down 6.84%, or 14.3 million barrels the past four weeks.
Also striking bullishness into the energy complex was the National Hurricane Center saying that Tropical Storm Katrina would likely move into the central Gulf of Mexico by Monday, and with the storm intensifying, the NHC would most likely upgrade Katrina to hurricane status.
Shareholders of Houston-based midstream energy concern, Enterprise Group Holdings (EPE) $32.55 +16.25, celebrated their IPO debut with a hefty $4.55 gain. The company priced 12.6 million shares at $28 per share. Underwriters were led by Citigroup (C) $43.05 -1.17% and Lehman Brothers (LEH) $103.76 -2.20%.
While not quoted in my U.S. Market Watch, October Natural Gas futures (ng05v) surged $0.30, or 3.11% to easily settle at a new record high of $10.019.
Volume at the big board was brisk at 1.93 billion shares, but as the month of August draws to a close, average volume has dropped off 2% from July, with average daily volume running 1.83 billion shares. Still, this would be "heavy" considering August of last year, when average daily volume on the big board was running a lackluster 1.21 billion per day.
NASDAQ volume was also brisk at 1.72 billion shares, but so far this month, average daily volume is down a sharp 7% from July's 1.65 million average daily volume.
I must admit though, I am surprised at the end of today that the NASDAQ was able to achieve 90 news highs (best in last 7 sessions), while new lows among 4 and 5-lettered stocks holds around the 30-mark for the 10-straight session. These reading are NOT bullish, they're just not as bearish as I would have expected.
Ah yes... tomorrow's a new day, as is the next. However, when the major indices are trading weak, we should expect the number of new lows to be growing if the inchworm is losing traction. The only buyers of stocks trading new 52-week lows are more than likely shorts locking in gains, and a short usually locks in gains when they sense the bulk of damage has been done.
One notable new 52-week low on the NASDAQ was IAC/InterActive (IACID) $24.35 -2.36%, which recently spun off it popular Expedia (EXPE) $21.60 -0.69% travel business. Since the spinoff, shares of IACID, which according to the CBOE holds an 8.02% weighting in its CBOE Internet Index (INX.X) 189.70 -1.12%, has lost 12% of its value.
U.S. Market Watch - 08/24/05 Close
Miners as depicted by the AMEX Gold Bugs Index ($HUI.X) 200.16 -2.49% were hardest hit in today's session and after a spurt of bullishness in recent weeks, are once again nestled back at the psychological 200 level.
The S&P Retail Index (RLX.X) 451.49 -1.07%, which set an all-time high in late July (489.34), continued its retreat on thought that higher gasoline prices will weigh on the consumer. Applebee's International (APPB) $22.37 -6.98% served up an intra-day new 52-week low after the casual-dining restaurant operator cut its earnings estimates for the third quarter and all of 2005, based on weak same-store sales.
Meanwhile, fashion accessories retailer Coach (COH) $33.99 +4.13% reversed a string of daily losses after the company said its fiscal first quarter is tracking ahead of plan.
The S&P Banks Index (BIX.X) 350.92 -0.96% broke to new monthly lows and now looks to challenge its May, 13 inflection low of 350.28
S&P Banks Index (BIX.X) - Daily Intervals
The BIX.X showed some life Monday with the 10-year YIELD ($TNX.X) rising to 4.25%. Yes... rising. However, the declines in YIELD will continue to pressure margins for the bankers. It WAS A COINCIDENCE that the 10-year yield rose above 4.25% when the major indices achieved their recent relative highs. It is NO COINCIDENCE that a tightening Fed, and LOWER YIELDS for the 10-year and 30-year YIELDS (from buying in those maturities) has pressured the banks.
10-year yield ($TNX.X) - Daily Intervals
An tomorrow is a "new day," and an important one at that. Yes, on May 13th, when the 10-year YIELD ($TNX.X) closed at 4.121%, the Fed had just raised rates to 3.0%. Today, August 24, current Fed Funds stand at 3.5%.
I profiled a bullish trade in shares of PACCAR (PCAR) $69.19 -0.31% at the $70.12 level after the stock had popped to as high as $70.93 earlier in the morning. I "knew" that I needed selling in the longer-dated maturities to not only widen some margins for banks, but also to free up cash that could then flow toward equities. I didn't get it, the market didn't get it, and I got stopped out at $60.50.
And yet, were part of the 1% that just earned profits of $115,665in 28 out of 29 months. How? With my Iron Condor, my exclusive non-directional trading strategies that loyal readers in The Couch Potato Trader use.
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One CAN NOT say that BIX.X May 13th is equal to SPX May 13th. That would be as foolish as picking an arbitrary 10-year yield and equating it with what the stock market is doing. However, I will say... "as long as BIX.X below 359, bulls with have a tough time getting SPX above 1,230.
A note to "frustrated bears" that have been hearing for months that a decline was coming, don't get caught up in the "horse and carrot" routine and start lowering your targets! At least not on ALL OF YOUR POSITIONS. If you've got a couple of options contracts and have seen time eating away, still trade your initial target and take some off the table.
NASDAQ-100 Tracker (QQQQ) - Daily Intervals
When writing last week's wrap, it wasn't until later that evening that I noticed www.stockcharts.com's NASDAQ-100 Bullish % ($BPNDX) had reversed back lower to "bull correction" status at 56%.
Now, since Wednesday, we have seen a net gain of 3 stocks to point and figure buy signals (NDX/QQQQ components) and these would be SNPS $18.62 +0.75%, when it traded $19.00. RIMM $75.95 -1.05% generated a reversing higher buy signal at $74, QLGC $34.69 -0.34% generated a reversing higher buy signal at $35 and APOL $76.50 +1.08% generated a reversing buy signal today.
IACID generated a reversing lower point and figure sell signal at $25 on 08/22.
The much broader S&P 500 Bullish % ($BPSPX) remains in "bull confirmed" mode at 70.80%, and slipped 0.2% today. So, a net loss of 1 stock to a reversing lower PnF sell signal here. It would currently take a reversing lower reading of 68% for this major market barometer to reverse back lower to "bull correction" status.
Keep a very close eye on those NH/NL ratios for a reversal back higher. They'll lead up/down before these slower moving bullish % do.
Kerr Mcgee - KMG - close: 87.15 chg: +1.48 stop: 81.99
A new record high for crude oil undermined the broader market but it powered a new rebound in the oil stocks. Shares of KMG added 1.7%. It didn't hurt that KMG issued a positive conference call saying its Q3 and full year production is on target. Our short-term target is the $89.50-90.00 range.
Picked on August 21 at $ 85.99
Sierra Health Svs. - SIE - cls: 68.05 chg: -0.19 stop: 66.95
We remain on the sidelines with SIE. Our strategy is to use a trigger to buy calls on a breakout over resistance at $70.00 and its simple 50-dma. Our entry point will be $70.11. If triggered our target is the $75.00-75.25 range.
Picked on August xx at $ xx.xx <-- see TRIGGER
Carnival Corp - CCL - close: 50.33 chg: -1.00 stop: 52.51
CCL has executed a perfect failed rally under its simple 21-dma near the $51.50 level. This looks like a new entry point to buy puts. Our target is the $47.75-47.00 range.
Picked on August 10 at $ 51.79
Federated Dept. Stores - FD - cls: 70.72 chg: -1.07 stop: 75.75
Retail giant FD continues to show weakness. The stock lost 1.49% to under perform its peers in the RLX index, which lost 1.07%. We do expect a bounce near the $70 level, bolstered by its 100-dma. Look for the $72.00-72.50 region to act as resistance. Our target is the $67-65 range.
Picked on August 22 at $ 71.99
Fedex Corp - FDX - close: 82.38 chg: -0.13 stop: 86.01
There was an initial rebound this morning but the bounce stalled at midday and FDX gave it all back. Today's failed rally looks like another entry point to buy puts. Our target is the $76-75 range.
Picked on August 23 at $ 82.99
F5 Networks - FFIV - close: 39.55 chg: +1.35 stop: 40.01
Uh-oh! FFIV's rebound is gaining strength. The stock actually displayed a lot of strength today adding 3.5% on above average volume. Oddly enough we can't find any news to support this rebound. FFIV is really out performing its peers today. JNPR is going sideways and CSCO is breaking down to new relative lows. Our stop loss is at $40.01. At this point we expect to be stopped out tomorrow.
Picked on August 03 at $ 38.76
Google - GOOG - close: 282.57 chg: +2.99 stop: 290.51
GOOG displayed some relative strength today adding just over one percent to breakout over its simple 10-dma. It would appear that the move was fueled by yesterday's news over its Google Talk feature yet to be launched. We're concerned over today's move above its 10-dma. Our stop loss is at $290.51 but more conservative traders might want to adjust their stops closer to $286.50. The five-week trend of lower highs is still intact.
Picked on August 11 at $284.50
Ingersoll Rand - IR - close: 77.30 chg: -0.55 stop: 80.61
Wow! It was getting down to the wire. Yesterday we said that if IR didn't hit our trigger at $77.49 today we were closing the play. Well sure enough with today's market weakness shares of IR joined the crowd continued lower. The play is now open. Today's decline should confirm yesterday's bearish breakdown under its simple 200-dma. Technical indicators are bearish. We want to see IR trade toward the $72.50 region but we only have six trading days left. We will close the play on Thursday, September 1st to avoid holding over the September 2nd stock split. You, the reader, may want to choose to hold over the split as sometimes stocks can experience a post-split depression.
Picked on August 24 at $ 77.49
Illinois Tool Works - ITW - cls: 84.54 chg: -0.51 stop: 87.35
There is no change from our previous update on ITW. We would still consider new bearish positions here. Our target is the $80.25-80.00 range.
Picked on August 23 at $ 85.05
KOS Pharma - KOSP - close: 69.65 chg: +1.18 stop: 72.51
KOSP displayed a bit of a bounce today. The good news is that the bounce failed to close over the $70.00 level. The bad news is that the intraday chart shows KOSP poised to move higher. Watch for the $72 level to act as overhead resistance.
Picked on August 22 at
3M Co. - MMM - close: 71.32 change: +0.33 stop: 74.46
MMM hit new 18-month lows this morning before bulls bought the dip near $70.44. We're not suggesting new plays here. Our target is the $70.00-68.00 range but traders may want to consider exiting early between $70.50 and $70.00.
Picked on July 19 at $ 74.29
Simon Prpty Grp - SPG - close: 75.68 chg: +0.07 stop: 77.26
Maybe now SPG is ready to turn lower. The stock surged higher this morning to $76.74 and then turned lower. This was a failed rally at its simple 21-dma. More aggressive traders may want to initiate players here. We would wait for SPG to trade under the $74.75 level first. Our target is the $70.75-70.00 range near the 100-dma.
Picked on August 18 at $ 75.24
United Parcel Svc - UPS - cls: 71.95 chg: -0.16 stop: 74.21
UPS, like its rival FDX, rallied this morning but the bounce failed midday and the stock gave it all back. This looks like a new entry point to buy puts but more conservative traders may want to wait for UPS to trade under $71.80 before initiating positions. Our target is the $68-67 range.
Picked on August 17 at $ 71.99
Wynn Resorts - WYNN - close: 47.39 chg: -0.45 stop: 54.01
There is no change from our previous update on WYNN. Our target is the $45.25-45.00 range.
August 19 at $ 49.95
Best Buy Co - BBY - close: 45.44 chg: -1.53 stop: 51.01
Target achieved. BBY got whacked today with a 3.25% decline on above average volume. The stock really under performed its peers and the broader market. Our target was the $45.50-45.00 range so we're closing the play. The $45 level looks like historical price and psychological support.
Picked on August 08 at $ 49.31
Building Materials - BMHC - cls: 75.40 chg: +1.85 stop: 75.01
This morning's better than expected new home sales numbers sent shares of BMHC soaring at the open. The stock broke through resistance at its 50-dma and the $75.00 level to stop us out at $75.01.
Picked on August 16 at $ 71.33
Also, I follow your options indicator. It seems like this thing keeps showing a pretty bullish view of the market but the market keeps sliding. So what gives? because the market has been falling this month, although without big down days?
My indicator is pretty simple really and is simply a daily volume RATIO of calls to puts for all CBOE equities; this takes out the index volume; e.g., OEX, etc. Why I do that is that there is a fair amount of hedging that goes on with index calls and puts, that amounts to defensive action.
There is a certain amount of buying or selling of index calls and puts, which is more about 'insurance' for some part of a stock portfolio or is an arbitrage against stock and futures, doesn't quite reflect the degree of bullishness or bearishness that IS reflected in trading calls and puts on individual stocks.
Of course, there is covered call writing that is defensive in nature (although still has a bullish 'bias'); or, selling puts on stocks you think are likely to stay steady or go UP. Put activity here has a bullish or market 'neutral' bias.
And, of course I divide total daily equities call volume BY put volume rather than the reverse; i.e., the put-call ratio. I prefer to work with a whole number, which it almost always is when you do it this way, AND this ratio when plotted, behaves more like other indicators, such as overbought/oversold indicators (e.g., Stochastics or RSI)... which, when at a HIGH level implies caution about the market outlook; or, when at a LOW level suggest being careful about continuing to short stock and buy puts.
A high or low extreme in the RSI suggests that risk has become higher, relative to further upside or downside ('reward') potential. Having begun (and gained a modest degree of 'fame' as a market timer at UBS; formerly, PaineWebber) on the Street of Dreams, as the index FUTURES maven, my first consideration in a trade was always an assessment of the RISK to REWARD in a proposed trade.
If you trade futures successfully, you will ALWAYS make this your guide. If you trade options, where you gain or lose mostly on the future DIRECTION of the trends, you had better do the same. That is if you hope to profit on an annual basis. As opposed to punishing yourself (sort of kidding) or GAMBLING (definitely, not kidding).
In the same way, a HIGH degree of bullishness, especially one that persists over the course of a several week decline, is suggesting that there is still risk in being long the market. This according to the theory of 'contrary opinion', which holds that the majority viewpoint is 'usually' or often WRONG. I say usually, because in a runaway bull market, or a stock market 'bubble', a high degree of bullish 'sentiment' goes with the territory.
In a typical market cycle, when the market has back and forth or two-sided trading swings, if you can successfully measure market opinion AND that is just bullish, bullish, bullish, this is not a real favorable situation for those that are betting on a continued rise.
Why? Good question! It is the same reason that an 'overbought' market tends to be vulnerable to a fall ... because, in a sense, within a certain span of time anyway, extreme bullishness suggests that everyone that is going to buy, has bought already. So, on the pullbacks, there is less buying power so to speak.
So, today's rally failure, which was like one a few days ago that fell apart, has had a background of a relatively high level of bullishness, as I measure it. And, extremes in my simple indicator, have preceded a number of market reversals, usually by 1-5 days. You do however, have to put this 'model' or indicator TOGETHER with other technical indicators or study. For example, bullish sentiment is high going into today AND one of the major indexes runs up TO, but fails to pierce, its hourly or daily chart's down trendline.
Before looking at the next chart of the S&P 100 (OEX), I need to point out that my call-put indicator does NOT include TODAY's (equities) call to put ratio, as I will get this number too late to input it. And, as this is a custom indicator, I have to do the division 'my' way and enter the number into a spreadsheet so my TradeStation application can graph it:
Just as with other technical DIVERGENCES, prices are going one way, and the indicator is going another. Hence the 'divergent' slopes to the two (cyan) trendlines above.
[The same kind of dynamic is found when, after making a peak, the subsequent highs in the RSI are falling, but the index (or stock) keeps going up. This kind of divergence often suggests a top.]
The kind of divergence we see above in the call-put ratio, relative to the price trend, has been suggesting that there is 'too much' bullishness than I would typically associate with a market that is about to turn around; or, make a tradable bottom. Perhaps the bottom is near now after today's fall to OEX's up trendline and the low end of the current uptrend channel. Stay tuned on that. And, stay tuned on what the final call-put ratio comes out as.
The last INTRA-DAY reading, not official yet, was 1.4. Lower than it's been of late, but not reflecting perhaps 'enough' bearishness to suggest a bottom. (You may check the final EQUITIES call and put volume totals on the CBOE web site.) ALSO, the close at the low end of a substantial decline in OEX, and a higher high than yesterday in the S&P 500 (SPX) followed by a new low SPX close, was bearish in its implications for these charts.
We're getting close to a bottom I think as the RSI is finally getting into 'oversold' territory. Any one-day reading in my call/put model approaching 1.2, or less, coupled by signs of an upside reversal in the chart/price pattern, would be highly suggestive that the major indices were at or near a bottom. That and the attainment of DEEPER RETRACEMENTS (of the last upswing) would be the place to start exiting puts and buying calls.
Refinement of "retracement" theory came from Leonardo Fibonacci, an Italian mathematician who was doing work with how rabbits (no kidding!) multiply, in the early 1200s.
There is a number sequence named after Fibonacci where each successive number is
the sum of the two previous numbers; i.e., 1, 2, 3, 5, 8, 13, 21, 34, 55, 144,
etc. Any given number is 1.618 times the preceding number (approximately) and
A principle use that "fibonacci retracements" are put to is to measure countertrend retracements of prior price swings; of .382 or 38% (sometimes also 33%), .50 or 50%, and .618 or 62% (sometimes also 66%). Use of these retracements is a very common practice and a popular point of reference among traders.
The average, common or 'typical' retracement of a prior move is one-half in a normal trend. More, often around 62 to 66% in a trend that has been going on a long time without much of a correction. I like to buy calls or puts after up or down retracements of this magnitude, as trade potential is often very favorable to RISK.
Risk to reward is favorable IF, and only if, I exit the trade if the retracement goes more 2-3% BEYOND common retracement amounts; e.g., 50%, or as much as 62-66%. If a retracement goes more than 2/3rds or 66%, often prices are headed back to the starting point of the prior rally low or rally high.
Relative to risking 2-3%, we often see potential of 10-15% on an upside rebound, or a downside fall. As with ALL other technical indicators, I am ALSO waiting to see price action that tends to 'confirm' such a reversal.
Looking at the major index charts on their longer-term HOURLY charts is of interest here, through today, relative to the retracements that have been made dating from the prior lows. Even when that prior low is out the frame to the left, you know what that level was by the lowest dashed (horizontal) line:
The S&P 100 (OEX) has been lagging the broader S&P 500, so it's retracement of IT'S last upswing might be deeper than 2/3rds; e.g., as much as 75% and still hold ABOVE it's prior low in the 553 area ... retracements, especially in a 'lagging' index are sometimes as much as 3/4ths of the prior price swing... the OEX hourly chart is next:
BELOW is the hourly Nasdaq Composite (COMP) chart, and its 'assumed' downtrend channel. If COMP were to continue lower, falling to the low end of its downtrend channel in the near-term, it would also coincide with an approximate 62 to 66% retracement.
Stay tuned on that, but the combination of the two events, if they were to occur, would suggest a possible buy point; at least I would then look to see what was happening in the Nasdaq 100 (NDX) index then; and assess a call buying opportunity.
NDX looks like it may at least achieve a 50% or one-half retracement by a move to just below 1560; this, of relative to the advance achieved from its early-July low (1484) to its early-August peak (1628). [Such a further decline could then reach an oversold reading on 21-hour RSI.]
Moreover, if NDX should fall to the 1540, at the lower end of its uptrend channel on the daily chart (see lower-most up green arrow), it would ALSO coincide with a 62% retracement level. I've had an interest for some time in buying NDX calls in the 1540 area, if reached. Not if prices were in free fall at that point, but if a move down into this area also found buying interest, as could be seen on intraday (e.g., hourly) charts.
Good Trading Success!
Today's Newsletter Notes: Market Wrap by Jeff Bailey, Trader's Corner by
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