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Daily Newsletter, Monday, 03/05/2007

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Table of Contents

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

Market Wrap

"Yen in Doubt," Get Out!

The major U.S. indexes continued their retreat from recent highs as the "yen carry trade" continued to unravel with the Japanese yen showing strength against the dollar and the euro.

Decliners easily outpaced advancing issues at both major exchanges, and since last Monday's Market Wrap, internal measures have turned negative.

The NYSE Summation Index ($NYSI) from StockCharts.com, which measures the relationship between advancers/decliners at the NYSE has given a "sell signal" on its 20-point box which I've been following and updating in recent wrap. Tonight's closing measure is +596.13, thus a "sell signal" below it late January's +580 relative low reading.

More importantly, Dorsey/Wright and Assoc. NYSE Bullish % (BPNYSE) also reversed lower on 03/01/07, suggesting a more DEFENSIVE posture. I will tie in this major market bullish % when we review a bar chart of the NYSE Composite ($NYA.X) 8,837.97 -1.33% later.

StockCharts.com's NYSE Bullish % ($BPNYA) has also reversed back lower, falling 3.45% today (net loss of roughly 104 stocks to reversing lower point and figure sell signals) to 64.42%.

Please note! It takes a VERY MEANINGFUL amount of buying, or selling (as is the current case) to move such a BROAD MEASURE of internal strength and weakness.

Leadership as depicted by the NH/NL ratios has been bearish, with NASDAQ's 5-day NH/NL ratio now deemed near-term "oversold" below 30%.

In Tuesday's Market Wrap I noted that StockCharts.com's NASDAQ Composite Bullish % ($BPCOMPQ) had achieved "bull confirmed" status to 62.00%. Recent action, including today's, now has this very broad measure of internal strength/weakness REVERSING BACK LOWER to "bull correction" status at 54.50%, or 56.00% on its chart.

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The NASDAQ Summation Index ($NASI), which measures advancing/declining issues reversed back lower last week from +260. Tonight's closing measure is +6.88, but has not yet given a "sell signal" below its late-January relative low measure of
-80.00.

On Tuesday of last week, global equity markets fell sharply, with China's equity markets notably weak as investors contemplated the negative impact that a stronger yen against both the U.S. dollar and euro may have on global trade.

In essence, investors of equities may "fear" that too much strength in the yen vs. the dollar and euro could lead to economic weakness in Asian markets, or economies, should accelerated weakness in the dollar and euro have consumers in both of those countries buying fewer Asian manufactured goods.

But tonight's trade in the dollar/yen portion of the "carry trade" may signal some near-term stability for the major indexes as the cross-rate dollar/yen did achieve its point and figure bearish vertical count of 115.30.

Below is a real-time screen capture of the USD/JPY (dollar/yen), where it appears we're seeing a bounce from an intra-session low of 115.23.

Forex Global Currencies - 03/05/07 06:43 PM EST

The above screen capture was taken this evening as I began writing this evening's wrap. Last Tuesday's sharp declines in Asian markets did show some strong correlation to a strong move in Japan's yen.

US Dollar/Yen Cross Rates - 03/02/07

The above point and figure chart is from our good friends at Dorsey/Wright & Associates. Action in Treasuries and gold in recent sessions have suggested that there are some currency concerns.

While any security, or commodity can always exceed a bullish or bearish vertical count (sometimes never meet), if one portion of the "yen carry trade" were to find some stability, the dollar/yen cross rate chart would be a place to begin monitoring things.

Dorsey's chart above (red Os to 116.6355) would have been to Friday's close. I've added my own "blue Os" (O = Supply) down to 115.4764).

Point and figure chartists will note that on 02/27/07 (Tuesday of last week), the very bearish "bearish catapult" pattern was found. Coincidence with last Tuesday's sharp declines? I doubt it!

I don't think any of us need to be "experts" in currencies, but I want traders and investors to have an idea of how the sharp movements have perhaps roiled the equity markets.

If it is true that yen STRENGTH has come with EQUITY WEAKNESS, then perhaps, in the future, the OPPOSITE would be true. I would also want traders and investors to comprehend the STRENGTH in TREASURIES of late as a DEFENSIVE signal from the MARKETS.

All eyes will be focused on Japan's Nikkei-225 ($NIKK) tonight, which would be a first test for any signs of equity market stability.

Japan's Nikkei-225 ($NIKK) - 50-point box

Tuesday's trade for the Nikkei-225 is underway. At the time of this writing (08:55 PM EST), the $NIKK is up 127-points, or +0.77% at 16,770. So far, tonight's low has been 16,649, so we would not be able to currently chart another "O" to 16,500. While Tuesday's trade is not complete, the current session high of 16,770 does have me envisioning "X" with a "?" to 16,750 and suggesting some sign of stability in Japan's equity markets.

Other markets that will open up later this evening are Hong Kong's Hang Seng. Their StockCharts.com symbols is $HSI.

Here at Home in the Good'ol USA

My QCharts' data has had some problems due to last week's surge in volume that created some problems with various computer-related trading at both the NYSE and NASDAQ.

I've tried to correct some of the "more important" 5-dayNet% changes to reflect changes since last Monday's Market Wrap.

US Market Watch - 03/05/07 Close

As you can see, there is very LITTLE of anything except the price of Treasuries, which move inverse of their Yield that has shown a gain since last Monday.

Even as Treasury Yields as depcited by the 5-year ($FVX.X), 10-year ($TNX.X) and 30-year ($TYX.X) have fallen, the higher dividend paying Utilities HOLDRs (AMEX:UTH) $132.25 -1.04% and their 5.26% decline in 5-days should suggest that market participants have taken a DEFENSIVE stance, even for a group that tends to hold up better-than-most as a "defensive" sector.

Today's big losers continued to have the "subprime" area under pressure. Shares of New Century Financial (NEW) $4.56 -68.87%, the third largest US subprime lender plunged further as the company scrambled to avoid a bankruptcy filing following the disclosure of a criminal investigation into its practices.

European-based HSBC Holdings (NYSE:HBC) $85.91 -0.41% reported record earnings, but said it would take at least two years to fix its portfolio of bad home loans in the U.S.

Homebuilders as depicted by the Dow Jones Home Construction Index ($DJUSHB) 640.47 -4.02% were atop today's list of sector losers as investors continue assess tightening of lending standards.

NYSE Bullish % Reverses Lower!

One of the major market bullish % that I feel if imperative to cover this evening is the NYSE Bullish % (BPNYA) from Dorsey/Wright & Associates.

One June 30, 2006 this very broad measure of supply (O) and demand (X) reversed up at 50% bullish, signaling demand was starting to outstrip supply, and that an offensive posture was taking hold.

On Thursday, March 01, 2007 it reversed lower and while still "bull confirmed", bullish investors should not be more than 50% long in their equity accounts.

NYSE Bullish % (BPNYSE) - 2% box chart

The above chart of the NYSE Bullish % (BPNYSE) was screen captured earlier this evening. I'm just now getting today's closing reading where Monday's action saw this indicator fall an additional 3.62% to 63.24% bullish, so we would chart more "O"s down to 64.00 and stop.

Now let's quickly take a look at the NYSE Composite ($NYA.X) and make the tie between the mid-June low from the bullish % and the recent late-February high.

NYSE Composite ($NYA.X) - Daily Intervals

For several week's we've been "dragging up" our 0% retracement from the summer lows, and now we have many of the major market indexes like the NYSE Composite ($NYA.X) falling back below a 19.1% retracement.

A "normal correction" by fibonacci retracement standards would be to see 38.2% of the advance be retraced.

S&P Depository Receipts (SPY) - Daily Intervals

The broad S&P 500 Bullish ($BPSPX) from StockCharts.com and Dorsey/Wrights S&P 500 Bullish % (BPSPX) has also reversed lower.

With the SPY I had been "dragging up" its 0%. At last Tuesday's close, I showed an SPY option chain and option montage that strongly suggested we might see a trade at $137.00 on, or before March's expiration. Further observations since then suggest a March low at/near the $134.00 level.

I was very busy in Tuesday's Market Monitor. While I did not have a PROFILED SPY long trade open, I did suggest that those long above $142.00 sell covered calls as VIX.X.

In the above chart of the SPY, I've shown a PROFILED SPY put trade we made early Tuesday morning. I thought traders should take some money off the table later that day, but hold onto a portion of that trade, but have LOWERED the stop to $4.00 in the option to try and protect a gain from $2.60 option entry.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None None

New Calls

None today.
 

New Puts

None today.
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Cigna - CI - close: 139.11 chg: -1.90 stop: 134.35

Healthcare stocks were trading lower on Monday. The HMO index slipped 1.48%. The sector was hit by news that Congress is considering cuts for Medicare plans. Shares of CI slipped 1.3% and closed under the $140 level. The next stop looks like potential support near $135 and its rising 50-dma. Currently the plan is to buy calls on a pull back into the $135.00-137.50 range. Our official trigger to open plays will be $137.49 but we strongly suggest that readers wait for the dip to end and signs of a bounce to begin before opening positions. If triggered our target is the $145.00-146.00 range. We are suggesting a stop loss under the 50-dma.

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/09/07 (unconfirmed)
Average Daily Volume = 759 thousand
 

Put Updates

Ashland Inc. - ASH - cls: 62.46 chg: -2.17 stop: 68.25

The sell-off in ASH continued on Monday. Shares plunged right from the opening bell and closed at their lows for the session, which is normally a bearish signal for the next trading day. ASH closed with a 3.3% loss on above average volume. Our target is the $60.50-60.00 range. FYI: More conservative traders may want to consider a tighter stop in the $67.00 or $67.50 region.

Picked on March 04 at $ 65.82
Change since picked: - 2.17
Earnings Date 04/25/07 (unconfirmed)
Average Daily Volume = 770 thousand

---

Bausch Lomb - BOL - cls: 50.42 change: -0.21 stop: 52.51

BOL posted another decline and closed under its simple 200-dma but the stock did not break support. Traders bought the morning dip to $50.00 but the rebound struggled and BOL may see another breakdown attempt tomorrow. We are suggesting a trigger to buy puts at $49.49. More aggressive traders may want to jump in early with a drop under $50 while more conservative traders may want to wait for a decline under $49.00 to lessen the risk that we'll be triggered on an intraday spike lower. If we are triggered at $49.49 our target will be the $44.00-42.50 range. FYI: BOL has been extremely late on its SEC filings and recently announced it will file its 2006 10-K on April 30th, 2007. BOL also plans to release news about its preliminary 2006 results in mid-March. This last comment raises the risk level for us since we do not know what's in the announcement or when they will announce it. One might presume that any earnings comments will be negative as the company tries to recover from its eye-infection fiasco last year.

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/07 (unconfirmed)
Average Daily Volume = 678 thousand

---

Harman Intl - HAR - close: 96.39 change: -1.10 stop: 102.01

Weakness continues to weigh on shares of HAR. The stock lost another 1.1% and closed near its exponential 200-dma. If the stock bounces from here look for a failed rally near $100 or the 10-dma (around 101) as a potential entry point for new puts. Our target is the $92.50-90.00 range near its simple 200-dma. FYI: The P&F chart points to a very bearish $80 target.

Picked on March 04 at $ 97.49
Change since picked: - 1.10
Earnings Date 04/26/07 (unconfirmed)
Average Daily Volume = 614 thousand

----

MarineMax - HZO - close: 21.44 change: -0.88 stop: 23.26 *new*

HZO finally succumbed to its bearish trend and broke down under support near $22.00. The breakdown this morning was a new entry point for puts. We are adjusting our stop loss to $23.26. Our target is the $20.25-20.00 range. FYI: It may be worth noting that HZO has a high amount of short interest. The latest data (February) puts short interest at almost 24% of the stock's 16.8 million-share float. That definitely increases the risk of a short squeeze should the stock unexpectedly rally and breakout higher.

Picked on February 11 at $ 22.59
Change since picked: - 1.15
Earnings Date 04/26/07 (unconfirmed)
Average Daily Volume = 300 thousand
 

Strangle Updates

None
 

Dropped Calls

Allegheny Tech. - ATI - cls: 94.44 chg: -2.62 stop: 93.95

Warning! ATI is not bouncing near support like we expected. The market sell-off doesn't appear to be over yet. Shares of ATI lost another 2.69% and broke down under support at both $95.00 and its 50-dma. This now looks like a sell-signal and the next level of support is near $90.00 and its 100-dma. We're suggesting an early exit to cut our losses.

Picked on March 02 at $ 97.49
Change since picked: - 3.05
Earnings Date 04/25/07 (unconfirmed)
Average Daily Volume = 2.7 million

---

Freeport McMoran - FCX - cls: 53.09 chg: -1.54 stop: 51.99

We are suggesting an early exit in FCX. Our plan to try and buy a dip near support is not working. Investors are still in a selling mood and gold and metal stocks are not finding any safe haven buying. Today's decline has broken the trend of higher lows (see chart). Furthermore today's action looks pretty bearish with the gap down at the open. The intraday bounce failed near yesterday's lows, which looks like a short-term bearish reversal/failed rally. We will definitely keep an eye on FCX for future entry points!

Picked on March 01 at $ 55.24
Change since picked: - 2.15
Earnings Date 04/17/07 (unconfirmed)
Average Daily Volume = 6.5 million
 

Dropped Puts

Chicago Merc. Exch. - CME - cls: 554.40 chg: +14.15 stop: 554.25

Our new high-risk, aggressive put play on CME did not work out and we would have been stopped out at $554.25. Shares of CME and its takeover target BOT were both upgraded this morning by Credit Suisse. The rebound did stall near overhead resistance around $560 but we're not suggesting new positions with shares above the 10-dma and $550.

Picked on March 04 at $540.25
Change since picked: +14.15
Earnings Date 05/01/07 (unconfirmed)
Average Daily Volume = 631 thousand
 

Dropped Strangles

None
 

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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