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  Eric Utley   2/11/02,  4:59:23 PM
WellPoint (NYSE:WLP), the largest Blue Cross and Blue Shield operator, reported fourth-quarter numbers that easily surpassed estimates. The company reported $1.65 per share, while estimates called for $1.59. This is obviously a trend we've seen again and again in the health care providers. Haven't heard any guidance yet, but last quarter's numbers are good on the surface. I'd expect the company to lift estimates for this year, which is why I like the HMOs on a pullback.

  Austin Passamonte   2/11/02,  4:06:58 PM
If traders are placing the market's future on what AMAT or any other single has-been company has to say about the future, I am more certain than ever about sideways chop in the indexes for years.

A convincing rally would have been on large volume today and some of this can be attributed to expiration volatility as Feb put option contracts get unwound. However, I long ago learned better than to try shorting a session like this and will show my simple measure in the Index Wrap tonight. See you there!

  Eric Utley   2/11/02,  4:01:22 PM
Per my last post, take Micron's (NYSE:MU) move today. The stock released from a bullish triangle with its print at $37:


In a bullish SOX, I'd be all over this breakout in Micron. But I'm not trying it today. By my judgement, the SOX is not bullish based on sector bullish percent readings.

I really like how Austin talks about finding the highest odds situations, kind of like the stars aligning. If the chips were bullish right now, I would think that MU would work a lot higher. But the chips aren't bullish in my estimation, which dimishes the odds in a bullish trade right here.

  Eric Utley   2/11/02,  3:54:25 PM
I think that Austin is right now how he talks about letting a position come to you, especially in this market environment. For bullish plays, buying near support when the asset is short-term oversold is just plain smart, kind of like Austin. For bearish plays, shorting near resistance when the asset is short-term oversold is equally as smart. I've never liked the crowd mentality, don't like following trends, and I never play the game late.

With all of that said, if you're style is to trade momentum and breakouts, then in this market I think you have to focus relative strength. That relative strength has been in health care providers and gold stocks recently. Both groups are pulling back today after becoming grossly overbought last week. That much is natural. The next best step is to focus on other groups displaying relative strength. Paper stocks have been kicking butt versus the market and are really sticking out today as bullish.

  Austin Passamonte   2/11/02,  3:52:00 PM
That giant sucking sound we heard today was money leaving the XAU and to a lesser extent bonds to chase hot stocks today. We can expect this continued up & down market action to persist far longer than most investors trapped with decimated stock dare fear.

Once again and far into the future we can expect a traders market of quick in & out plays via stocks and long options. PHSY, TYC and a host of others are now the norm, not exception.

Jack (and Jill) better be nimble, quick and precise on their entries & exits or else! And "buy & hold" investing will likely suffer miserably all along the way.

  Eric Utley   2/11/02,  3:46:12 PM
I think part of today's move in the Biotechs is market-related. Although, the BTK is higher by 2.16 percent while the NDX is better by 1.66 percent and the SPX higher by 1.32 percent. The BTK has gained a very small of relative strength today. What I'd really like to see is a substantial gain in relative strength in the BTK versus the NDX and SPX. That would really strengthen my intermediate-term bullish stance on the group. But for today, I'll take another 2 percent.

  Austin Passamonte   2/11/02,  3:43:19 PM
Right now we see nervous shorts and impatient longs chasing a market higher. It has moved a considerable distance since the session low on Friday... a greater range than many entire weeks we recently suffered thru.

Sure as the sun will rise tomorrow, we will see a pullback to support and intraday chart signals cycle back down to oversold extreme. This will most likely happen tomorrow or Wednesday at the latest.

If daily chart signals are still bullish then and intraday charts turn bullish while price action sits on support or within wedges, call plays from there will be next to free money.

Until then swing traders merely watch & wait.

  Eric Utley   2/11/02,  3:39:40 PM
BTK print at 500.00.

  Austin Passamonte   2/11/02,  3:34:33 PM
The SPX has gained +30 index points in seven market hours since Friday. A significant move that would be +50% higher if techs had joined the party in a big way today. Might have just seen session highs at 3:30pm and wouldn't be surprised to see a slight relaxation of price action into the close.

Traders on the floor are watching for buy order imbalances to post at 3:40pm and if the bias is long, we'll close on session highs. If not, longs will cover some gains and price action will sag a bit from now until 4:00pm. Either way I'm flat options and waiting for Tuesday's action for next chance to play.

  Austin Passamonte   2/11/02,  3:21:00 PM
Friday's 3:00pm EST break of intraday chart wedges and bullish reversals in stochastic values looked like a good long entry on technical basis as we noted in here soon after. I dislike holding call options over a weekend into expiration week as a valuable rule, but this time it was a costly ommission from conservative fashion.

OTM index call options bought then are well over +100% gains right now and rolling. Hard to balance being aggressive enough with conservative enough these days! Next entry is just a day or so away.

  Austin Passamonte   2/11/02,  3:06:18 PM
Readers Write: "Hi Austin, I think I already know the answer to this question but I will ask so I can confirm. When the weekly chart is pointing opposite of the daily can you still play the daily direction?

In this case would you treat the daily/60 minute chart setup the same way one treats the 60/30 minute chart setup? I know you are busy, so a short answer is fine. Thanks [AH]"

Common question "AH" and the answer is That All Depends. If each time frame is in the midst of a stochastic move from one extreme to the next, expect sideways consolidation to ensue. If weeklies are near one extreme while dailes emerge from that extreme, a directional move has likely begun.

This does not mean a large price move is in store and stochastic values must then go right to the opposite extreme from there. Just because charts are bullish now does not guarantee they stay that way until signals reach overbought extreme.

It does mean we should not fade the consensual direction of weekly/daily chart signals if indeed they are aligned in unison.

  Austin Passamonte   2/11/02,  2:59:33 PM
Several readers asked me to comment on Pacific Healthcare (PHSY) that readers played in here last week. While I don't know the specifics of this setup or quite frankly a single thing about the company, one technical fact is clear. It had a big spike higher in price on Friday but quickly sold of and closed just above its high.

That left a bearish reversal candlestick patter in the daily chart known as a "Gravestone Doji" so named from its resemblence to viewing a gravestone from the side profile. When a sharp move up like this meets such heavy selling, overhead supply is crushing that symbol.

A stop right below Friday's open price would have been a good move and an even better one was exit before Friday's close. These smashdown events at a recent relative high are good short entries and fair warning to exit any longs.

  Eric Utley   2/11/02,  2:28:40 PM
The Biotechs (BTK.X) cleared that little short-term congestion above 495 and are trading near their highs for the day. I still think a trade past 500.00 could have these stocks higher in the very short-term. As it relates to the intermediate-term, however, today's trading is less significant. Although the advance past the 10-dma by the BTK.X might be worth a little more bullish conviction.

The index is higher by about 8.50 or 9 percent in the last two sessions. I don't expect that move to be sustained this week, instead a pullback makes more sense to me. But the market doesn't really care what I think. If the short covering that Austin alluded to continues, I could foresee the BTK.X advancing to the 515 to 520 range very soon.

I wrote earlier today that we now have some room to manage positions in biotech. From last Thursday's close, the BTK is about 40 points higher. I don't want to give back all of those gains, so I'm taking steps to define my downside risk in positions right now. However, at the same time, I want to give the positions room to operate because I think there could be a significant move higher from current levels over the intermediate-term. It's a fine line to walk between giving a position room to operate and being stopped out. It's best answered by the individual who knows his/her risk tolerance and time frame best. The most important part is planning ahead and sticking to that plan.

  Austin Passamonte   2/11/02,  2:09:55 PM
Shorts are squeezing steadily into the session as the light volume rally continues. Numerous readers inquire as to market insight and direction going forward. Let me sum it all up by saying the best approach is to play the upside when weekly/daily chart signals are rising and downside when they are falling.

Bucking their direction either way while trying to rationalize why these charts are probably "wrong this time" is a fast track to broke. Trust the weekly/daily charts and trade their direction. You will not always win... some losers will occur. But not many compared to wins, and not nearly the number as fading these signals will suffer.

As for what may happen weeks or months from now, no one on Earth can say although many do guess. I epxect up & down markets in sideways fashion for months and possibly years to come, but that's my best guess on what lies in store when.

We must remain cognizant that the last two Mar/Apr and Sep/Oct periods were large bearish declines each time. Should weekly/daily charts go overbought and look to turn bearish near there, heed the recent seasonal patterns in place.

  Austin Passamonte   2/11/02,  1:48:26 PM
Steady uptrend with all intraday charts pinned in overbought as price action rolls higher. A classic example of trading with weekly/daily chart signal direction, as these are hinting bullish right now. Attempts to short any pause in price action today have failed.

The next high-odds swing trade will be calls from intraday oversold extreme, and scalpers insistent on trying to catch any slight drop have my blessings but not live participation.

  Austin Passamonte   2/11/02,  1:02:18 PM
Eric, it's all right to be bullish on steel, copper, gold and any other commodity stock with bullish technical patterns at the time. Actually, commodity stocks are some of my favorites to trade. So many actual underlying values to compare versus w.a.g. predictions by clueless tech analysts.

Speaking of which, wasn't that Joe Battapaglia just on CNBC? We haven't seen him for awhile, but let me go out on a limb here and guess Bags is bullish the market going forward. Probably gave all sorts of facts & data why markets will rally soon.

My tv was on "mute" but we've heard the same tired mantra from him since Feb 2000 a few dozen times since then.

But better than Ralph Acampora now only seen on the back of milk cartons along with Abbey Clueless Cohen. Mary Meeker make any market calls lately? Whatever happened to the former gurus whose mantra used to move the markets?

  Austin Passamonte   2/11/02,  12:53:48 PM
Tons of questions about SPX block trade activity today. We've seen lots of volume clear on both sides across several popular strikes with buys and sells alike.

This type of massive noise suggests big players are closing or rolling out Feb option positions due to cease trading in the next three sessions ahead. If activity occurred in one or two strikes it would offer insight towards trade filter but not this type of wide-range disparity right now.

  Eric Utley   2/11/02,  12:45:27 PM
Upside alert on Phelps Dodge (NYSE:PD) at $36.

  Eric Utley   2/11/02,  12:33:06 PM
So, Austin, what you're telling me is that it's all right to be bullish on steel stocks, for instance, instead of the sexies in the SOX? By the way, Nucor (NYSE:NUE) is higher by nearly 4 percent today. Nice move, good stock, good sector.

  Austin Passamonte   2/11/02,  12:29:55 PM
Dow's up +88 points, NDX is +3

While I expect tech sectors to reach bottoms and tops faster than old economy issues, most tech sectors and former high flyer darlings will get smeared in performance by old economy issues ahead.

Tech addicts entrenched in their emotional comfort zones inwardly pray the glory days will return for their crashed angels. Such biased traders are doomed to suffer opportunity cost while they languish far behind adept stock pickers devoid of symbol bias.

  Eric Utley   2/11/02,  12:26:54 PM
I'm watching the BTK as it ticks towards 495, its recent high. If it can eclipse this short-term congestion, I'll be look for a print at 500.00.

  Austin Passamonte   2/11/02,  12:26:01 PM
Readers who inquire where the next resistance point is to get short at might wish to rethink their approach. I'm now looking for points of support to go long at. Why? Long-term charts are turning bullish and we may have taken our last good short play for a bit.

Keep in mind the masses just got comfortable with shorting all rallies after that worked like crazy these past six weeks. The herd is always correct in the middle and wrong on both ends of a market move. They are wrong the ends because most people need time for their emotional comfort level to accept directional change. By then it's middle to late in the move and another turn is upon them. Repeat failed approach again.

Don't be part of the herd: anticipate change right when they get comfy with a trend, especially now that 1999 era of sustained trend is dead & gone for months or years to come.

  Austin Passamonte   2/11/02,  12:15:43 PM
The last real good swing trade entry came near 3:00pm EST last Friday when the OEX was at 551 and SPX 1185 areas. A great move since then, but Feb option contracts bought that late in the day and held over a weekend would decay considerably if the markets didn't move sharply in their favor.

Since then until now the slightly OTM strikes have mostly doubled, which worked for high-risk players using 100% risk capital and no stops approach. Too many times a Monday open will counter Friday's closing move and option value opens at -50% or lower from Friday's close.

Looks like the trend will be up this week and at least one or two sessions should move big. Buying calls on Tues or Wed as entry points permit and holding from there could result in significant gains by Friday. We'll see!

  Austin Passamonte   2/11/02,  12:06:27 PM
Indexes gradually trending higher this session to continue Friday's afternoon pop. All longer-term charts for indexes are turning bullish and I'd only play options to the call side right now.

Next high odds entry will be long plays when intraday charts reverse back down to oversold extreme. We've been selling rallies with gusto since first week of January and enjoyed excellent success. The next few weeks will probably be to the upside before the bear market trend is resumed once more... probably mid to late March if two year historical patterns become three!

  Eric Utley   2/11/02,  11:56:27 AM
Express Scripts (NASDAQ:ESRX) is a stock I liked late last week coming out of its recent consolidation after the bullish triangle. The stock is better by about 3.5 percent today. The stock has some congestion up around the $50s and potential resistance near the $52 level with retracement.

  Eric Utley   2/11/02,  11:52:54 AM
...seeing the Banks (BKX.X) turn positive here.

  Eric Utley   2/11/02,  11:50:14 AM
We're seeing a little give back in the Biotechs (BTK.X) today which is reasonable after last Friday's 7 percent pop. The sector is mostly mixed, with some solid gains in several of the components of the BTK. Weakness is being seen in Abgenix (NASDAQ:ABGX), Enzon (NASDAQ:ENZN), Affymetrix (NASDAQ:AFFX), and Cephalon (NASDAQ:CEPH).

Not a component of the BTK, Xoma (NASDAQ:XOMA) is continuing to gain strength relative to the group. The stock is better by 4.5 percent today and is now on a buy signal on its relative strength versus BTK. XOMA is a stock I like on weakness and its strength today adds conviction to my bullish bias on biotechs.

As for the broader BTK, readers who took positions last Thursday need to address time frames. For a trade, further strength in individual stocks or the sector could be used to exit for gains. But, the BTK has the potential to move measurably higher over the intermediate-term. I don't know if it will, but we're in at the right spot in terms of risk management. We have some breathing room to work with this week.

  Austin Passamonte   2/11/02,  11:24:26 AM
Looks like a "paint drying" session right now and next directional move will probably wait until last hour or two of the day.

I'd guess that the next real high-odds swing trade setup will be call plays when 60/30-min chart signals go oversold again.

  Eric Utley   2/11/02,  11:16:55 AM
Some of my favorite shorts in the financial sector are trading heavily today. Those include the high risk lenders such as Americredit (NYSE:ACF), Captial One (NYSE:COF), Metris (NYSE:MXT), and Household International (NYSE:HI).

  Eric Utley   2/11/02,  11:14:07 AM
The financials stick out to me today for their continued weakness. The Banks (BKX.X) and Brokers (XBD.X) are fractionally lower despite the green in the SPX. I don't think the market moves measurably higher without the financials. It's just a thought, but without leadership from the financials, I think the recent rally is explained by short covering.

  Austin Passamonte   2/11/02,  10:48:56 AM
I don't see any trade setups in the indexes that compel me today. A possible short play in any index symbol if the SPX breaks below 1098 after breaching 1100+ and all intraday charts are overbought might work. But I would bet small amounts of capital at best now that weekly/daily chart signals have finished their decline and attempt to turn bullish from here.

This is now an interim zone of the trend and will either begin the next bear-market rally or fail and drop further down. I would bet on another upward bounce to fail at lower highs ahead, but expect plenty of turbulence in the next few sessions as things shift in transition from straight down to what lies next.

  Eric Utley   2/11/02,  10:27:36 AM
International Paper (NYSE:IP) is breaking out of a long-term base today with its advance past $43.


The Forest & Paper Products (FPP.X) group is nearing a triple-top breakout at 348.


The cyclicals, such as papers, remain one of my favorite groups from a bullish perspective in this market. In the paper group, I like IP, Weyerhauser (NYSE:WY), Boise Cascade (NYSE:BCC), Abitibi (NYSE:ABY), and Plum Creek (NYSE:PCL). However, I don't necessarily like chasing these stocks higher. I'd rather buy them lower, at least that's what I've been doing. Buying strong stocks on weakness affords better risk management, which is something I look for in this market environment. If you didn't catch this recent run in papers, wait for the group to come back to a point where risk is easier to manage.

  Eric Utley   2/11/02,  10:17:27 AM
I wrote last week about the importance of the 1410 level in the Nasdaq-100 (NDX.X) as support. That level is the 50 percent retracement of last fall's rally, a natural level for the NDX.X to pause in the current trend.

The 1455ish area is another important retracement level for the NDX.X, but as resistance. The 1455 retracement level comes from the bracket anchored at last May's high to September's low. The 1455 area has acted as a price magnet in recent sessions and will continue to do so until the necessary catalyst pushes the NDX.X away from that level.

Meantime, the NDX.X trades around the 1455 level, which is one of the most efficient places in the NDX.X currently. That makes it difficult to have a bias on short-term direction as risk is a 50/50 proposition right here and now in the NDX.X.

If the NDX.X were short-term overbought, I'd be inclined to short stocks near resistance. But with the NDX.X mostly oversold in the short-term and at resistance, risk grows difficult to measure. Does at resistance and oversold make the NDX.X ripe for a short-term breakout?

  Eric Utley   2/11/02,  10:10:59 AM
Phelps Dodge (NYSE:PD) is a stock Bailey wrote about last week and we discussed for a while during our travels this weekend. Bailey believes there exists an inefficiency between the price of copper and Phelps Dodge. The bullish premise is based upon Phelps Dodge reverting to the price of copper, which means the stock should trade higher. Shares are currently higher by almost 2 percent and I'm watching for an advance past $36 to break that double-top.


  Eric Utley   2/11/02,  9:58:14 AM
The Gold and Silver (XAU.X) is leading to the downside this morning. The XAU.X is currently about 4 percent lower.

Prudential downgraded Newmont Mining (NYSE:NEM) to a sell from a hold rating and lowered its price target to $10 from $21. Prudential estimates a 25 percent decline in reserves through '03.

Shares of Newmont are down by more than 5 percent this morning. Others leading to the downside in the XAU.X include Meridian (NYSE:MDG), Placer Dome (NYSE:PDG), and Anglogold (NYSE:AU). The sector has been one of the best performing this year and Pru's downgrade may be the catalyst to induce a period of consolidation.

  Austin Passamonte   2/11/02,  9:46:34 AM
As expected from last Friday, all technology sectors are in the green and most old economy (banking, healthcare, etc) are still in the red right now. But we're just 10 minutes into the new week and pre-staged orders by the retail masses are being digested by the market right now.

  Austin Passamonte   2/11/02,  9:44:46 AM
For the indexes we begin with a mixed picture. All 60/30 minute chart stochastic signals are nearing or within overbought extreme, which suggests intraday weakness may be ahead. However, all daily chart signals are trying to tun bullish reversals from oversold extreme. How do we interpret this?

Put plays on the next overbought failure may work, but the level of conviction in that direction is slipping. Price action is strengthening in the longer term and IF daily chart stochastic values begin to trade their way up the charts above 20% oversold, we'll be ignoring put plays and taking call plays when intraday chart signals cycle down to oversold extremes as well.

  Austin Passamonte   2/11/02,  9:22:05 AM
There's the weekend weather report, now on to the markets. Looks like a flat open here after the strong surge of short-covering on Friday. No initial catalyst to push price action from the bell, and I expect mixed to choppy markets this week.

Tech sector charts look close to a near-term bottom and our next bear market rally may soon begin. Old economy is still mixed, and expiration week will add a dose of volatility to the brew as well.

  Austin Passamonte   2/11/02,  9:21:47 AM
"Austin! Subscribers felt it necessary to remind you that my bullish trade from earlier in the week now outpacing your bearish short-term comments. Everyone wanted me to know this and that you have "decoy duty" tomorrow morning! Hoooray! In essence Austin, you've got 20-minutes into the close to try and press that SPX back below $1,090! SPX trading $1,093.04 here. [Jeff B.]"

Great Morning!

Either Jeff had some foreign tobacco slipped into his chew or someone forgot that the "short-term" SPX short play he spoke of was covered down near 1080 after it dipped below. Any bearish trade short from 1098 and covered at 1080 area is a done deal while one that rode from 1094 to 1077 took more heat than any Colorado geese did this weekend, with nary a feather disturbed.

But we all set out decoys in the windstorm with gusts recorded to 98 miles per hour, and Jeff could tell some stories about me trying to chase down a few that caught this "breeze".


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