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  Jeff Bailey   2/12/02,  5:24:25 PM
Applied Materials (AMAT) $44.71 -2.1% ... stock trading fractionally higher at $44.86 after reported earnings of 2 cents a share, which was better than consensus looking for break-even quarter. Revenues were inline with consensus of $1.0 billion.


  Jeff Bailey   2/12/02,  5:07:08 PM
Citigroup (C) $45.15 -1.48% ... another "big name" with an inside day today. Link Could see a $2 move either side of the break. Rally to 200-day MA or decline back to the recent lows. One to watch for short-term traders tomorrow.

  Jeff Bailey   2/12/02,  4:47:04 PM
"Easy trading day tomorrow?" Good e-mail from subscriber regaring "inside days" on AOL, QCOM and TYC. Also see one in MSFT and INTC. One could think that all of these are "big players" in their industry and for short-term trader, if we start seeing breaks up or down from inside days, could end up giving us good observations of how things pan out tomorrow at some point.

  Austin Passamonte   2/12/02,  4:03:54 PM
Intraday charts have formed clear wedges within 60/30 min charts and stochastic values are bearish. If pressed to hold over this close, I would play the downside right now.

This would be a high-risk play, but index puts bought now or held until tomorrow have good chance to profit. That should be done using small amounts of capital or 100% risk capital to limit risk.

  Austin Passamonte   2/12/02,  3:21:58 PM
Lunch is over, and so is my long play. When the index broke above 1113 I trailed my stop up to 1112.25 and barely watched the order go live before it was taken out on the downside.

And what was my immediate feeling inside? Was it elation to bag a quick +5 S&P points during a very choppy day? No. I immediately felt remorse that the stop was hit and first instinct was to get back in, long or short just to ride the next directional wave.

But instead I closed the trade window, went back to the kitchen and sprinkled parmesan cheese and garlic powder on my tomato soup. The reason I share this with you is to prove that human emotion, the compelling need to always be in a trade or to resist letting stop orders get hit exists in all of us. It never goes away, there is no cure.

Learning to control our own emotions is far, far more critical for success than some newfangled entry point system to trade.

  Eric Utley   2/12/02,  2:52:12 PM
...the S&P 500 (SPX.X) just broke its inside day.

  Austin Passamonte   2/12/02,  2:45:24 PM
For those who asked if I played the 10/5 min chart signal bounce near 2:00pm EST, the answer is yes. I went long the S&P at 1107.25 and have a stop-loss order in place at 1108.00

Either it runs into the black towards closing bell or I'm stopped out with paltry gains and zero chance for loss, one or the other.

Now I'll whip up some lunch and let price action move where it may... feel like some albacore tuna sandwiches with banana ring peppers to "kick it up a notch" for the bland fish.

  Eric Utley   2/12/02,  2:37:20 PM
The inside day in the Nasdaq-100 (NDX.X) is no more. The break above yesterday's high at 1477.96 might suggest a climb higher here into the close. Simple 10-day moving average overhead at 1483.

  Austin Passamonte   2/12/02,  2:23:56 PM
Earlier today, Jeff B. stated remorse for not giving the exit signal on PHSY last Friday before its free fall. One thing I know about Jeff... he is managing a ton of trade tasks every day, far more than the average person is capable of handling. So many symbols, so many alerts, he cannot possibly micro manage every trade & play nuance involved.

If I were the person playing PHSY on the other side of this screen and saw how it behaved on Friday, an exit by that closing bell would be assured. A hugely bearish reverse hammer or "gravestone doji" was screaming to be sold closed or shorted to anyone who knows simple, basic candle pattern trading.

Individuals who attempt to trade by blindly following anyone else' pure advice without ability to manage their own trade decisions are at a distinct disadvantage to others who arm themselves with simple market-timing tools to filter plays with.

Self-education and independence are key, and everyone at OI works hard to shorten the natural & inescapable learning curve this profession demands.

  Jeff Bailey   2/12/02,  2:16:44 PM
February Option Expiration! is this Friday, so take that into consideration on option selection. I would consider any "February" expiration as "risky" at this point as trader has less amount of time for trade to work.

  Austin Passamonte   2/12/02,  2:15:37 PM
I get a consistent amount of email from readers old & new who are frustrated with trying to time the markets. They dislike trying to decipher chart patterns, oscillators, retracements or other subjective studies.

The most common request I receive is for a method or indicator that offers one or two simple buy & sell signals that anyone can follow. My usual reply is that if such a thing is found, please let me know and I'll pay you for it!

I see traders trying to play markets using only the tick, trin, put/call ratios, Fib retracements or chart patterns alone with nothing else. To a person they all get gutted like fish over time.

Why? Every single indicator gives false signals and using no other filter to sift out noise traps the follower into a series of modest wins and then major losses.

Successful trading from the long side of options or directional with stocks and futures is tough, plain & simple. There are so many variables & nuances that it would take a massive book to cover. Nothing replaces experience, study and practice over time in this profession. Just because it is possible to make big money fast does not mean it's probable, although human hope clings to the belief that each of us will be blessed exception to that truth.

  Austin Passamonte   2/12/02,  2:03:26 PM
Quite a noisy session so far today. A few chances to scalp paltry gains when V-reversal turns are caught, but far too tight range for most traders to survive. The type of session where entering late and then exiting late causes small gains to become par or even small losses while traders wait for continuation.

This type of market behavior is somewhat predictable via mixed chart signals across various timeframes and short-cycle signals refusing to reach extreme zones all forewarn us that sideways, choppy action is most likely scenario.

Hence, I took an early downside trade that broke even exactly and have watched from afar since then. No perfect setup? None of my money goes to work/at risk today. Chicago CBOE & CME are a long ways from Vegas, lest we sometimes confuse the two!

  Eric Utley   2/12/02,  1:45:30 PM
Getting some questions about the PMC-Sierra (NASDAQ:PMCS) strangle/straddle I profiled a few weeks ago. Much to my surprise, the stock has not yet broke from its triangle. PMCS is now six columns deep into its triangle and about to go seven deep if it prints $24 today or later this week. In other words, it's coiling increasingly tighter.

In terms of risk management, now is the time to either get more time in the position or wait for a breakout from the triangle. Once the breakout occurs, I'd be looking to place directional bets. I really think a big move is on the horizon in this stock, but that move could take a few months to be realized. Given the difficulty that is associated with managing risk in options, using the underlying may be a better medium in a directional bet.

I'm seeing triangles showing up all over in the Semiconductor Sector (SOX.X). Micron (NYSE:MU) was one that I talked about yesterday. The omnipresence of triangles among chip shares reinforces to me that a big move is forthcoming in the SOX.X. The more I research the sector, the more difficult it's becoming forming a bias. Bullish percent data begs bearishness, while other metrics, such as Micron's bullish triangle, beg bullishness.

I think we could have a Biotech-like move here in the SOX.X, but I don't have a bias yet. Some input from readers would be appreciated on this. Maybe I could complete a rudimentary sentiment survey based upon reader response to the e-mail address at the bottom of the monitor.

  Austin Passamonte   2/12/02,  1:23:16 PM
Financial markets hate a void. The very moment this morning's gap was filled from Monday's close we saw a bit of selling enter the picture. One reason why I have no interest chasing bullish plays on a breakout right here: the top of that gap or "window" is right overhead and sellers sit their poised to press things down.

If the market comes to me and offers a nice setup I'll take it, otherwise I'm waiting impatiently once again.

  Austin Passamonte   2/12/02,  1:08:32 PM
Once those previous session highs were breached we saw a ton of S&P futures volume clear on the buy side. A whole bunch of shorts sat there with stops and buyers had buy-stops to enter as well. Created a quick surge up that will probably relax a bit before long.

I'm not in a big hurry to catch this move myself as it lacks classic alignment and its only Tuesday, but if 10/5 minute chart stochastic values cycle down to oversold from here to the close I will take a small bullish index position and hold long into Wednesday's open or beyond to see what happens next.

  Austin Passamonte   2/12/02,  12:51:54 PM
Three market phases traders commonly face:
#1 - easy times when entry points are crystal clear, price action trends in our favor and profits roll up in rapid fashion.
#2 - sideways times whenentry points seem rather clear but price action churns sideways in tight-range fashion and stops or theta decay on options result in small losses.
#3 - volatile times when sudden intraday reversals or gap-against opens ravage an account balance on what appear to be rather clear entries.

Traders who enjoy phase #1 are primed for losses when the next cycles invariably follow. It is human nature to expect the best and easy times give us too much confidence. Choppy times of phase #2 frustrate us when easy gains become small, annoying losses. That inner frustration turns to stubborn resolve or desperate acts of greed to rediscover winning ways right when phase #3 is poised to whack our market-chasing, overextended accounts down to new recent lows.

Ever know anyone caught in this cycle? Ever find yourself in there as well? It is easy to beat the markets via proper entry setups etc, but that has little to nil effect on long-term successful trading. Beating our own inner emotions that cause us to buy high and sell low is the core, foundation and crux of successful trading.

  Eric Utley   2/12/02,  12:44:42 PM
In the last three days, we've captured over 60 points, or about 13.5 percent in the Biotechs (BTK.X). Some of the stocks in the group have moved even more in terms of percent. As Bailey pointed out earlier, the sector, either the BTK or the Holders (AMEX:BBH) are near the upper-end of regression channel and various other levels of resistance. Short-term traders, plain and simple, should be locking in gains right here.

On the other hand, if you're time frame is longer and you're looking for more upside, then using protective puts on underying or selling covered calls makes sense to me. But, by all means, use some discipline in here. We've captured a nice move and I don't want to hear of anyone giving it all back. Have a plan and stick with it.

  Austin Passamonte   2/12/02,  12:44:32 PM
Looks like the 60/30 min chart stochastic values are about to post "short-cycle" bullish reversals. This happens when they turn course between overbought and oversold extremes. Not my favorite setup to enter, as many times it turns out to be sideways chop but call plays if/when 30-min chart price wedges break to the upside should offer a fair-odds bullish entry.

I'd still play smaller capital than usual on this one, not seeing an ideal setup falling into place after all.

  Austin Passamonte   2/12/02,  12:23:59 PM
Indexes are just marking time right now, coiling sideways thru the lunchtime lull. Directional action should resume in the final two hours of trading, and we expect a call-play swing trade setup to emerge late today or early Wednesday based on what we see right now.

  Jeff Bailey   2/12/02,  12:08:29 PM
Bullish Phelps Dodge (PD)? Here's something I "uncovered" on Friday evening, or something I think is quite interesting.

On the March Copper futures (hg02h) ... take a retracement from the 05/21/01 close of $0.8095 and anchor to the bottom at $0.613. What you should see is 61.8% at $0.734 (where futures have been hovering) and 50% at $0.711.

If I believe that PD should track copper, then why, oh why if I take similar retracement on PD chart from 05/18/01 close of $49.80 to bottom at $26.56, is PD trading at 38.2% retracement of $35.43 and not 61.8% retracement of $40.92? Is the market just not efficient right now? Is PD going to play catch up, or is copper going to settle back lower?

PD point/figure chart gave buy signal yesterday at $36 Link and Relative Strength vs. the S&P 500 is also "buy signal and column of X," which is strong. Link

  Jeff Bailey   2/12/02,  11:58:37 AM
Inside Day is outlined in the "Bailey's Basics" section of the OptionInvestor.com Link

  Austin Passamonte   2/12/02,  11:57:14 AM
Love this Ameritrade bull/bear coffee shop commercial on CNBC!

Intraday charts are still posting bear flag patterns and I expect lower price action from current to follow later today. Doesn't negate call play setup if D/60/30 min charts all align in bullish fashion late today or Wednesday, but not there yet.

  Austin Passamonte   2/12/02,  11:53:43 AM
Readers Write: "Hi Austin, So this is where I always seem to be wrong. I was able to see the entry point you were talking about in the MM on the S&P 5 and 10 minute charts.

But now that the stochastic are heading back up, where do I acknowledge failure? Should it have been when the fast line crossed back over the 80 mark on the 5 and or 10 minute chart? It's crossed back and forth over that line twice while I've been typing this note, so I guess that's not correct. So what formation do you think that I should look for to know it's time to throw in the towel? [MZ]"

Excellent (and very common)question. We began our high-risk short play by noting that daily chart signals are still bullish. This means a downside play may win, but is bucking the "trend". Next we note that 60/30 minute chart stochastic values are trying to roll down in bearish reversal fashion.

Our plan is to test the downside in harmony with 60/30 charts near-term bearishness. We used the 10/5 min chart setup to get us in right near the next relative price high that fails and turns lower. When bucking the "trend" we need all the precision possible. This is less important when entering with a trend exhibited in longer-term charts.

We are trading the direction on 60/30 min charts and only using 10/5 min charts for precision entry. That means we must follow price action in 60/30 charts for trade exeucation and exit.

Before ever entering any play in either direction, we must choose our "out regardless" point of exit and that's where the initial stop-loss order must go. Either 100% risk capital or a hard stop that can only be moved closer to entry that reduces capital risk if the play performs in our favor.

  Jeff Bailey   2/12/02,  11:51:32 AM
Oxford Health (OHP) $40.75 +3.79% ... subscriber wanting to know if they should sell their OHP based on weakness in PHSY?

I have a longer-term view on OHP and thus my past profiling of the August calls.

However... if you took a "hit" to the downside at PHSY and need the gains from OHP, then by all means, do what you feel necessary to keep your account management intact! Link

If you bought 2 calls on OHP and have a nice gain going and need some of those gains to offset a PHSY loss, then sell a partial position and hold the rest.

  Jeff Bailey   2/12/02,  11:46:50 AM
Thoughts from a subscriber Over the last two years my biggest mistake was not taking profit. I guess greed kept me in to see if there was more only to catch the next sharp reversal. Just took 83% profit off the table on BBH calls in three days. My account is growing, I'm happy.

I love market monitor.

I (Jeff Bailey) also wish I had told every subscriber to "sell" PHSY on Friday when the stock was trading up 8% at $23. Instead, I thought sell just 1/2 position for short-term bulls at retracement resistance. Link)

We can't feed the family, pay the house payment on future gains, just those that we have at hand when opportunity presensts itself. Yes PHSY could have surged further, and the BBH may surge further, but sometimes it is best for traders to lock in some gains, even if it does seem "too early."

  Jeff Bailey   2/12/02,  11:31:56 AM
Flashbacks Getting some flashbacks from late September. It was then that the first couple of stocks/sectors we were looking bullish were the biotechs and PeopleSoft (NASDAQ:PSFT) $31.20 -0.25%.

I looked at PSFT this morning and was thinking "bullish" before I even pulled up the chart. But when I pulled up the chart, I saw an "inside day" and break to the bearish side at $30.67.

I don't trade every "inside day" I see, and am not looking at a bearish trade in PSFT.

I've just become too much of a believer in history. We've had retracement on PSFT since long ago from $49.23 to $17.96 and that has the 38.2% retracement right in here at $29.90, 50% at $33.59.

MACD on daily is turning around, but I just don't like trade setup (bullish/bearish) here. Would be leaning to the bullish side, but stop would have to go under recent lows or a little tighter at $29.75.

Point/figure chart has gotten more bearish recently with talk of "accounting" concerns. Current vertical count is bearish to $21. Link

One reason I'm a little hesitant to short, is that relative strength is "buy signal, but column of O's" and currently looks like a "normal" relative strength pullback based on past RS chart. Link

  Jeff Bailey   2/12/02,  11:12:35 AM
Biotech HOLDRS Getting upside alert at $122, this alert comes at bearish resistance and short-term bulls can look to sell some strength here. Link

Will be showing bar chart of BBH in the 11:00 Update. There too we see downward regressions and retracement levels of resistance right in here. No since trying to get "cute" and would look to book some profits.

  Austin Passamonte   2/12/02,  11:07:45 AM
Our little 10/5 minute tick charts are just now turning overbought bearish reversals as the S&P 500 touched 1108 and fell back to 1107 area. I'd expect another leg down right from this point in time, but it is running counter to daily-chart upward "trend" (if we can accuse the two-day upmove of that) and only high-risk, small amounts of capital plays should be considered right now.

  Eric Utley   2/12/02,  10:48:02 AM
Biotechs (BTK.X) gained that relative strength I've been looking for this morning. The index is now back into a column of Xs versus the S&P 500:


Today's gain strengthens my conviction on the BTK and I would now be looking to add to my initial position on pullbacks to support. In the very short-term, the BTK faces double-top resistance at 515 and retracement resistance at 520 -- both could be used as exit points for the traders.

  Jeff Bailey   2/12/02,  10:45:16 AM
Biotech both the Biotech Index (BTK.X) and Biotech HOLDRS (BBH) nearing upper end of downward regression. Short-term bulls still long from last week may look to sell some strength near-term. Here is chart from last week that shows regression. Link

  Austin Passamonte   2/12/02,  10:34:19 AM
Readers Write: "Morning!! What's the reasoning behind your statement that "daily stochastics rising quite some distance from oversold already is interpreted as a sign of weakness in the recent upmove". At your convenience, [Lon]

Excellent question from a good buddy of mine, and common this morning at that.

When daily or weekly chart oscillators make a big move out of one extreme towards the other side while price action makes a somewhat smaller move than the last cycle, this tells us that pressure built up at the extreme is blowing off too fast for the current price directional move to last.

Lasting directional moves have a much better chance of sticking when price action runs away but stochastic values, especially slow bar moves very slowly from one extreme to the next.

Oscillators measure internal price strength in a manner similar to volume: they quantify pressure building or releasing within a market. If steam blows off quickly to the upside here, look for failure and resumption of the downmove before long.

  Jeff Bailey   2/12/02,  10:23:31 AM
Sector Strength Gold/Silver (XAU.X) +1.68%, Biotech (BTK.X) +1.58%, HMO Index (HMO.X) +0.92%

  Jeff Bailey   2/12/02,  10:00:27 AM
Sector Weakness Networking (NWX.X) -4.27%, Fiber Optice (FOP.X) -3.57%, Combined Telectom (IXTCX) -2.49%, NA Telecom (XTC.X) -2.2%, Internet (INX.X) -2.8%

  Austin Passamonte   2/12/02,  9:59:11 AM
Trading today either direction will be fraught with peril. Only the most daring traders should test either direction as chart signals across different time frames are mixed, suggesting indecision and volatile chop is a high probability right now.

I will be scalping with small amounts of capital, probably that which I don't mind losing 100% of should price action suddenly turn on any decisions made. We are trading "noise" right now until clarity in the charts emerges from here.

  Austin Passamonte   2/12/02,  9:55:26 AM
All intraday charts are poised for continuation to the downside from here. Daily chart stochastic values have risen quite some distance higher up from oversold extreme already, a sign of weakness in the recent upmove.

Aggressive traders could test downside plays today and I will do the same when all 10/5 minute chart signals cycle back up to overbought extreme and then turn down in bearish fashion from there. This gives the best chance for catching any failed lower highs right near the tip this session for possible price slide into the close.

What happens if these tick charts don't complete such a setup today? No worries... they do so several times every day! That's one important way for hitting precision entry points, especially when price direction is questionable.

  Jeff Bailey   2/12/02,  9:51:04 AM
Time Warner Telecom (TWTC) $9.76 -5.33% ... nice "inside day" setup Link.

Point/figure is bearish as stock trades below trend and current vertical count is bearish to $7.50. Link

  Jeff Bailey   2/12/02,  9:41:02 AM
PacifiCare Health (PHSY) $17.07 -10% .. stock getting hit to downside after reiteration of "sell" from this morning. Stock has broken 3 levels of retracement since trading the $23 level on Friday. If bullish would look to move to the sidelines. Point/figure chart Link While I feel this morning's calls is by a firm that is very short the stock, action has turned more bearish since Friday.

If long the underlying, would look to write covered calls, and place a stop (if not already stopped out at 80.9% $20.76, or 61.8% at $18.35) just under this morning's low of $16.66. 50% retracement is $16.86. (retracement from $23.18 to $10.54).

PHSY is expected to report earnings Wednesday after the bell and analysts are looking for earnings of 36-cents a share. Would expect company to address concerns brought up by Fulcrum from this morning's 09:00 EST Update Link

  Jeff Bailey   2/12/02,  9:36:00 AM
Blockbuster (BBI) $19.31 ... Reported Q4 earnings of $0.35 a share, better than consunsus of $0.28. Revenue rose 1.3% to $1.36 billion vs. the $1.41 billion consensus. In 2002, BBI expects to add aproximately 300 company-operated stores. BBI expects to achieve double digit EBITDA growth.

  Austin Passamonte   2/12/02,  9:32:39 AM
What is wrong with Maria B's hair? Has she brushed it at least once since last Tuesday? Haggard times for that girl!

Down open... let's see what transpires from there. May be another chopping session with last-hours directional move into the close.

  Austin Passamonte   2/12/02,  8:55:24 AM
Great Morning!

Pre-market futures show a little dipsy doodle gap-down at the open this morning. A bunch of traders are probably kicking themselves for not buying puts at Monday's close and others are glad they did. Both camps must be watchful of a rapid reversal today.

Remember all those recent sessions where the markets would pop up at the open and fail right around 10:00am? The same scenario reversed is now what to watch for. We knew this week would be volatile, and our objective is to find directional moves amidst the noise.

Assuming it won't all be noise, our beacon of guiding light is the weekly/daily chart setup turning bullish. If that dies out, shorting will work again. If the light stays strong while W/D chart stochastic values continue to rise, we will attempt to buy all dips when they bounce.

Simple(?)as that!


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