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Daily Newsletter, Wednesday, 09/14/2005

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Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Felt and looked like a triple witch

Stocks slid lower by the closing bell on what I believe was largely some pre-quarterly options/futures expiration-related trade. And while I don't have the time to go back through some of my Dow Diamonds (DIA) $105.57 -0.50% options open interest work from Tuesday's Market Monitor, which suggested a lower trade into the $105.00 strike, or today's SPX/SPY and NDX/QQQQ options work, as well as volatility measures (VIX.X) action, which also suggested a lower trade coming at today's mid-session, traders are welcome to review my Market Monitor postings and decide for themselves if some trickery and "manipulation" was in play today.

But let's get to some meat and gravy, where economic data released before the opening bell had August retail sales falling 2.1%, which was weaker than economists' forecast for a 1.2% decline. Excluding automobile sales, which fell 12%, a 1% gain was stronger than the 0.6% forecast. With gasoline prices rising the data showed retail sales were up 4.4%, which actually gives an "artificial lift" to the total August retail numbers.

All-told, retail sales are up 7.9% on a year-over-year basis.

From the above intra-day table, you can see how stocks opened mixed.

Yes! Fellow analyst Jonathan Levinson made note that the August retail sales decline of 2.1% was the biggest monthly decline in sales since November 2001. And after robust numbers in June and July, attributed to auto sales, we can perhaps see how consumers took early advantage of General Motors', Ford's and Daimler Chrysler's recent sales incentive "family plans" the prior two-months, to have August's auto sales falling 12%.

Yes! Higher gasoline prices also give a "negative boost" to the August retail sales figures. Send gasoline prices up 30% or more and that will take cash out of consumers' pockets, which could have been spent elsewhere, say at Wal-Mart (WMT) $44.70 -0.82%, and the retail sales data for August gets skewed.

Again, when I look at today's hour-by-hour time intervals, I don't see a massively "negative reaction" to the retail sales figures. It would be my intra-day assessment that market participants were saying, "the auto/gasoline data is just too complicated" to make a firm decision on for now.

Then at 09:15 AM EDT, additional economic data was released with August industrial production up 0.1%, which was also below economists' forecast for a 0.2% gain. Capacity utilization, which measures just how much of the nations total manufacturing capacity is being utilized and can be used as one gauge for inflation caused by bottlenecks, was inline with the 79.8% consensus.

Now, one thing I want to mention real quick is that there was some very confusing trade at the opening bell, and took about an hour to get cleared up.

I haven't read any news items on this, but was something I saw and think I found an explanation for.

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Shares of NASDAQ-100 (NDX.X) 1,589.63 -1.10% component Celgene Corp. (CELG) $54.77 3.51% were halted for trade before the opening bell with news pending regarding an FDA advisory panel vote on the company's oncology drug Revlimid. What looks to have taken place was that a "bad tick" to $0.20 on CELG had the Biotechnology Index (BTK.X) 639.88 -0.81% dropping precipitously to 604.40 in early trade. You see, CELG is a component of the NDX/QQQQ and I also saw some great disparity in the NDX falling much lower than its tracker QQQQ.

Computers don't "rationalize" this type of action, and while the BTK.X trades to as low as 604.40 were eventually discarded, I do believe its lower trade error also had the NDX.X looking like it was plunging to 1,592 in the opening 30-minutes of trade. The QQQQ, which trades like a stock, could well have been pressured to $39.49 (good heavens, the biotechs are getting pounded, sell the QQQQQ!), but it didn't fall nearly as far as it should have, based on the BTK.X and NDX.X action.

I mention this for those traders that may hold BTK.X options with stops attached. They may have been inadvertently triggered.

Here's an intra-day (5-minute interval) to try and make things clear. Again, the focus is for traders that DO have Biotechnology Index (BTK.X) option positions with stops attached, or perhaps a trigger for new entries. Check your account, and make sure you didn't inadvertently get filled on a trade that really didn't happen. For the NDX.X, you'll see it doesn't really matter, as the NDX.X did eventually fall below its first 30-minutes of trade. Meanwhile, you'll see (with DAILY Pivot Levels displayed) the disparity between the NDX/QQQQ.

BTK.X / NDX.X / QQQQ Montage - 5-minute intervals

My main point here is to make sure that traders that may have had any trade triggers for a BTK.X trade immediately check your brokerage accounts. ESPECAILLY if you are a NAKED call/put seller. The above montage can be used if you need to prove to your broker/dealer that the trade was in error. Computerized trading is great, but computers don't try to rationalize levels, they simply execute instructions.

Can an options/futures expiration have impact on trade? Today I set up a SHORT in the QQQQ at $39.47 with a target to $39.05 based entirely on some option open interest, VIX.X action (not VXN.X action) and TRIN measures, where it looks to me like there may be some "Max Pain Theory" gravitation toward $39.25 in the QQQQ at Friday's close. You can review my observations in today's Market Monitor.

Things went way too similar to what I presented to traders (except for a trade at target of $39.05 at this point) for today's trade to not have been partially attributed to this week's Triple-Witching expiration.

U.S. Market Watch - 09/14/05 Close

As if today's opening BTK.X action didn't put a little wrench in the opening trade for the NDX.X, the weekly EIA crude oil, gasoline and distillate reading weren't what most had expected after Hurricane Katrina hit Louisiana gulf refiners and producers. Many believe the figures will be adjusted next week.

At 10:30 AM EDT, the EIA said crude oil inventories fell by 6.5 million barrels to 308.3 million barrels, but it was a 1.8 million barrel INCREASE in gasoline inventories, with many gulf area refiners having been shut offline after Katrina that seemed confusing. Distillate inventories fell by 1.1 million barrels.

We saw energy futures trade rather choppy when the data was released, as trader's scratched their heads in wonderment.

However, as the session unfolded, October Crude Oil futures (cl05v) gained $1.98, or 3.14% to settle at $65.09, while October Unleaded futures (hu05v) settled up $0.08, or 4.38% at $1.937. Meanwhile, October Heating Oil futures (ho05v) settled up $0.085, or 4.6% at $1.925. (see lower portion of Market Watch).

This higher energy trade certainly didn't help the broader averages today, but the NDX/QQQQ intra-day charts, didn't really fade lower until late in the session.

Are oil prices having a negative impact on the economy, or portions of the economy?

Yes!

After tonight's closing bell, commercial airlines Delta (DAL) $0.71 -8.97% and Northwest Airlines (NWAC) $1.87 19.10% announced that they were filing for Chapter 11 Bankruptcy protection. It was widely expected that Delta was about to file for Chapter 11, but it wasn't for certain the Northwest was going to file for Chapter 11. In tonight's extended session, Northwest's shares fell to $0.85.

Hey, there's at least two "transportation-like" stocks that won't weigh on the Airline Index (XAL.X) 42.57 -0.53% and Dow Transports (TRAN) 3,584 -0.19% much longer! Survival of the fittest.

I tried to short some NWAC in my personal account just after 03:00 PM EDT today, but my broker/dealer (Ameritrade) didn't have any stock to loan for a short.

NYSE Composite (NYA.X) - Daily Intervals

While energy stocks have contributed to gains among those stocks listed on the "big board," or the NYSE, it hasn't all been energy. How in the heck can such a broad market be trading all-time highs if oil prices are a killer?

Traders and investors will "benchmark." After a nice rally in late August, and initial aftermath of Katrina, that low will be watched over-time as traders and investors still contemplate what economic POSITIVES and NEGATIVES Katrina will have on the economy.

Securities Broker/Dealer Index (XBD.X) - Daily Intervals

Shares of Lehman Brothers (LEH) $112.41 0.11% jumped as high as $115.00 today, but finished soft after reporting strong quarterly earnings. We can see some similarity between the brokers and the NYSE composite. It hasn't all been oil.

There are market axioms that the markets will trade as strong as the brokers. This has been "the leading strength group" among the financials, and while the brokers look extended, they haven't shown sign that financial markets are collapsing.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
None BDK

New Calls

None today.
 

New Puts

Black & Decker - BDK - close: 83.31 chg: -2.35 stop: 87.75

Company Description:
Black & Decker is a leading global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology- based fastening systems. (source: company press release or website)

Why We Like It:
It has been downhill for BDK ever since the company reported better than expected earnings on July 26th. The recent oversold bounce, powered by the market's early September rally, has failed under the simple 50-dma. Now shares of BDK are breaking multiple levels of support including the $84.00 level, its simple 200-dma and its exponential 200-dma. Today's 2.74% sell-off was powered by strong volume about twice the norm. The Point & Figure chart points to a $74.00 target. We see today's decline as an entry point to catch a ride toward the $78-77 range. Expect a bounce at the $80.00 level but we suspect it will only be a speed bump on the way down.

Suggested Options:
We are suggesting the November puts but plan to exit ahead of BDK's late October earnings report.

BUY PUT NOV 85.00 BDK-WQ OI=699 current ask $4.50
BUY PUT NOV 80.00 BDK-WP OI=545 current ask $2.00

Picked on September 14 at $ 83.31
Change since picked: - 0.00
Earnings Date 10/25/05 (unconfirmed)
Average Daily Volume = 636 thousand
 


Play Updates

In Play Updates and Reviews

Call Updates

Amer. Intl Group - AIG - cls: 60.77 chg: -0.23 stop: 57.99

Shares of AIG are holding up relatively well considering the weakness in the broader markets today. We still expect a dip toward the $60.00 level and we're not suggesting new bullish positions at this time.

Picked on September 11 at $ 61.23
Change since picked: - 0.46
Earnings Date 11/08/05 (unconfirmed)
Average Daily Volume = 7.2 million

---

Centex - CTX - close: 67.49 chg: -0.65 stop: 64.99

We've been expecting some weakness in the homebuilders as traders do a little profit taking from the early September rally but now we're starting to turn cautious. We do not like how the DJUSHB home construction index is turning lower under its simple 50-dma. Plus, the DJUSHB index's MACD indicator is starting to fade under the zero line. Technical indicators on shares of CTX aren't look too healthy either. We've been suggesting that readers look for a bounce from the 10-dma on CTX but today the stock broke down and closed under its simple 10-dma. We may choose to exit early and cut our losses if CTX traders under or closes under the $67.00 mark.

Picked on September 01 at $ 68.25
Change since picked: - 0.74
Earnings Date 10/25/05 (unconfirmed)
Average Daily Volume = 1.6 million

---

KB Home - KBH - close: 76.55 chg: 0.64 stop: 71.50

KBH is faring a lot better than the rest of the homebuilders, which are starting to show signs of weakness. Not so for shares of KBH, which are testing resistance at its simple 50-dma near the $77.00 level.

Picked on September 07 at $ 75.89
Change since picked: 0.66
Earnings Date 09/22/05 (confirmed)
Average Daily Volume = 2.5 million

---

MDC Holdings - MDC - close: 78.78 change: -0.41 stop: 74.45

We got some mixed news today from MDC. The company issued both an earnings warning and raised earnings expectations. First, MDC said that earnings for 2005 would probably come in above Wall Street's expectations (obviously a good thing). Unfortunately, due to construction delays their third quarter earnings would come in under analysts' expectations (yup, that's bad). But MDC said that any shortfall in the third quarter would be made up in the fourth quarter. Investor reaction to the news had MDC gapping down to open at $77.20 but there was quick buying interest and MDC closed most of the gap. Currently, we're feeling defensive on the homebuilders (see comments in our CTX update). If MDC trades under the $77.00 level we'll probably close the play early to minimize any losses.

Picked on September 01 at $ 77.01
Change since picked: 1.77
Earnings Date 10/13/05 (unconfirmed)
Average Daily Volume = 489 thousand

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Noble Energy - NBL - close: 88.55 chg: 1.02 stop: 84.99

A rebound in crude oil prices has sparked a new rally in the oil stocks. The OIX index added 1.39% and the OSX services index jumped 1.35%. Shares of NBL added 1.16%. Aggressive traders can use this as a new entry point. We would suggest most of us wait for a new high over the $90.00 mark before buying calls.

Picked on September 11 at $ 89.80
Change since picked: - 1.25
Earnings Date 11/02/05 (unconfirmed)
Average Daily Volume = 796 thousand

---

Noble Corp - NE - close: 70.70 change: 1.31 stop: 67.25

NE was helping lead the charge higher in oil stocks today. The rebound in crude prices sparked a new sector wide rally and shares of NE added 1.88%. This looks like a new bullish entry point but more conservative types may want to wait for a new move over $72.00 before buying calls.

Picked on August 31 at $ 71.30
Change since picked: - 0.60
Earnings Date 10/17/05 (unconfirmed)
Average Daily Volume = 1.8 million
 

Put Updates

Adobe Sys. - ADBE - close: 27.27 chg: 0.45 stop: n/a

Our play on ADBE is not truly a directional put play but a "strangle" play. We are suggesting that readers buy the October 27.50 call and the October 25.00 put. Then we hold over ADBE's earnings report due out on September 15th and look for a big move one way or the other. Currently our bias is bearish but it doesn't matter what direction ADBE moves as long as it moves enough to make our strangle profitable. Wall Street's estimates for ADBE are 27 cents a share. The company should report earnings after the closing bell tomorrow.

Picked on September 13 at $ 26.82
Change since picked: 0.45
Earnings Date 09/15/05 (confirmed)
Average Daily Volume = 6.2 million

---

Fedex Corp - FDX - close: 79.80 chg: -0.22 stop: 83.51

Transportation stocks were weak again following a spike higher in crude oil prices. FDX looks poised to move lower but the Dow Transportation index is hinting at a bounce higher from the bottom of its narrow descending channel. Watch for the $81.00 level to be short-term overhead resistance for FDX. Our target is the $76-75 range.

Picked on August 23 at $ 82.99
Change since picked: - 3.19
Earnings Date 09/22/05 (unconfirmed)
Average Daily Volume = 2.0 million

---

Hershey Co. - HSY - close: 57.60 change: -0.61 stop: 59.51

Heads up! The selling pressure in shares of HSY is picking up speed. The stock lost another one percent today on rising volume that came in well above its daily average volume. Our trigger to buy puts was $57.90 so the play is now open. The MACD indicator is about to produce a new sell signal. Our target is the $54.00-53.50 range.

Picked on September 14 at $ 57.90
Change since picked: - 0.30
Earnings Date 10/20/05 (unconfirmed)
Average Daily Volume = 760 thousand

---

Ishares DJ Fin. Serv. - IYF - cls: 95.46 chg: -0.30 stop: 96.75

So far so good. IYF is off to a decent start with today's decline seeming to confirm yesterday's failed rally. We don't expect the ishares to move very quickly so this is still a good spot to consider new entries. Our six-week target is the $92.00 level.

Picked on September 13 at $ 95.76
Change since picked: - 0.30
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 20 thousand

---

MBIA Inc. - MBI - close: 56.55 chg: -1.20 stop: 59.01

MBI is off to a good start too. The stock lost just over two percent today as shares confirm yesterday's failed rally at resistance. Our short-term target is the $54.25 mark.

Picked on September 13 at $ 57.75
Change since picked: - 1.20
Earnings Date 11/01/05 (unconfirmed)
Average Daily Volume = 1.2 million

---

United Parcel Svc - UPS - cls: 68.30 chg: -0.13 stop: 72.01

We have to apologize here. Shares of UPS actually hit the top edge of our target at $68.00 on Monday, September 12th. We would have closed the play that night per our game plan if we had caught it. Fortunately, as it looks now shares of UPS are poised to hit our target again in the $68.00-67.00 range. More conservative traders can exit at any time.

Picked on August 17 at $ 71.99
Change since picked: - 3.69
Earnings Date 07/21/05 (confirmed)
Average Daily Volume = 2.6 million
 

Dropped Calls

Potlatch - PCH - close: 52.47 chg: -0.96 stop: 51.99

Time to make a run for the exits! PCH showing some relative weakness as the stock under performs with a 1.79% decline on above average volume. The breakdown under yesterday's low and the simple 100-dma is our clue to run. The MACD is about to produce a new sell signal.

Picked on September 07 at $ 54.45
Change since picked: - 1.98
Earnings Date 10/17/05 (unconfirmed)
Average Daily Volume = 229 thousand
 

Dropped Puts

None
 

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