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  Jeff Bailey   2/19/02,  5:55:14 PM
Abercrombie & Fitch (ANF) $23.09 +0.21% ... retailer reports Q4 earnings of $0.78 a share, which was better than consensus looking for earnings of $0.73 a share. Reports Q4 revenues of $466.6 million, which was inline with estimates. Giving guidance for Q2 of $0.20 a share, which is inline with estimates.

ANF saying it plans to open 40 adult stores, 30 kids stores and 60 Hollister stores in fiscal 2002. Capital exp. of $105-$115 million in FY02, which is down from $127 million found in FY01. Link

  Jeff Bailey   2/19/02,  5:46:24 PM
Agilent (A) $26.05 -5.27% ... Reports first quarter pro forma loss of $0.29, which was better than consensus looking for a loss of $0.49 a share. Revenues came in at $1.43 billion, also ahead of estimates of $1.32 billion. Company expects to report Q2 loss of $0.20-$0.30 (consensus at loss of $0.33) on revenues of $1.45-$1.55 billion (consensus at $1.41 billion). Company saying "While visibility beyond three months remains very poor, we are comfortable with the current range of analysts' estimates for the secon half of our fiscal year." Link

  Jeff Bailey   2/19/02,  5:38:29 PM
Allegiance Telecom (ALGX) $3.70 +5.11% ... reports loss of $1.09 a share, which was worse than consensus looking for loss of $0.96 a share. Revenues rose 59.8% year-over-year to $151.8 million vs. consensus looking for $152.7 million. Company forecasts revenue growth in excess of 50% for fiscal year 2002. Stock edging higher in after-hours trading to $3.85 Link

  Jeff Bailey   2/19/02,  4:06:31 PM
Microsoft (MSFT) $58.77 -2.4% ... this is a key stock for NASDAQ Comp and NASDAQ-100 that I like to follow. Current vertical count is bearish to $47, trade at $58 would be spread triple-bottom sell. In essence, to bearish count, could still have some 20% downside from current levels. If that takes place, then NASDAQ nowhere close to capitulation levels. Link

  Jeff Bailey   2/19/02,  4:00:49 PM
Time Warner Telecom (TWTC) $6.50 -4.69% ... stock now reversed course from earlier in the day. Gives BIG HINT that shorts were covering early this morning and locking in some gains, when they stopped, stock resumed course as bulls hard to find in the stock. Most likely just a good risk/reward call by the bears to lock in gains.

  Jeff Bailey   2/19/02,  3:58:43 PM
Capitulation Subscriber wondering if we're close to a capitulation point for the bulls?

In my opinion, we're nowhwere close to a capitulation point like that seen in late September. Part of my reason for thinking this is that S&P 500 Bullish Percent ($BPSPX) still quite high and nowhere close to the "oversold" level of 30%. Some might say "we're just getting started." Link

Sure, I've mentioned some short-term bullish trades recently in the QQQ (stopped the next day) and the Biotech HOLDRS (stopped today) for small losses.

At the same time, have weigthed those against some bearish trades in other stocks like C, TWTC, CLS, ADLAC, QCOM and some others. Felt traders should take profits from QCOM and TWTC but others still showing some downside.

  Austin Passamonte   2/19/02,  3:53:31 PM
It goes without saying that sellers are just dumping into the close, and intraday charts have never shown an iota of upside strength all day. A couple places to get short using intraday tick charts for tiny to modest gains depending on trade vehicle chosen. Just another session where the market fell out of bed at the open and drifted lower from there.

Very oversold on a short-term basis, and any gap-down move at the open on Wednesday is likely to be reversed upward in a hurry. But with W/D charts all very bearish right now, swing traders are waiting for that upside swing against the trend for high-odds short play from there.

  Jeff Bailey   2/19/02,  3:10:28 PM
QLogic (QLGC) $42.78 -6.59% ... I have retracement from $64.96 to $18.25. This puts 61.8% up at $47.11, 50% at $41.60 and 38.2% at $36.09. From here, would pretty much have to start any bearish trade with a stop above the $47.11 level in my mind. That's too much heat for bearish trader on full position, so would nip away with 1/2 or 1/4 at this point. Then look for rebound as potential add. Stock has had "habit" of finding support at $43 levels in past, so make observations like that in 02:15 market monitor in regards to relative strength.

  Austin Passamonte   2/19/02,  3:02:24 PM
Modestly tight-range day in the indexes when we back out the wasted gap-open distance lost. Chopping sideways for now with no clear entries either way.

Some days are meant for watching, and setup sessions must occur for tradable events to follow. Not much of interest in the indexes this session to those flat for now.

  Jeff Bailey   2/19/02,  2:27:13 PM
Speaking of Relative Strength ... Emulex (NASDAQ:EMLX) finally giving RS sell signal today versus the S&P 500. Took a very weak market environment to do it, but "head of the snake" in networking looks like its turning back to see what is pulling at the tail.

RS chart of EMLX vs. SPX Link

Point/figure chart of EMLX gave sell signal in early February at $42 and current vertical count is bearish to $32. Link

On bar chart of EMLX, I have retracement from $52.86 (near top of 02/12/01 gap) to $11.81 (04/04/01 low) and that has 61.8% at $37.18 (broken to downside today) and 50% at $32.34 (pretty close to bearish vertical count).

  Jeff Bailey   2/19/02,  2:15:53 PM
Qlogic (QLGC) $43.39 -5.34% .... trade at $43 today was break of bullish support trend. Real trouble with trade at $42, which would be spread-triple bottom. Vertical count has been bearish dating back to January (red 1) at $38. Link

Relative strength of QLGC vs. SPX still a little strong, but get the feeling that may change with trade at $42. Link

Relative strenght of QLGC vs. Wireless Index (YLS.X) also strong, but with reading of 64.68, getting close to giving relative strength sell signal needed at 62. Link

Gives the observation that $42 may be key level for QLGC.

  Eric Utley   2/19/02,  2:13:02 PM
Retracement Update The Nasdaq-100 (NDX.X) is trading below its nearest retracement level at 1410. The next level in the progression of risk is below around the 1335 area. For the S&P 500 (SPX.X), it's trading back at the familiar 1085 retracement level.

  Austin Passamonte   2/19/02,  2:05:45 PM
Readers Write: "Austin, almost no price movement in Index option prices: example OEX 550 puts when Dow -50 550 puts 10.10 x 10.80... with Dow down -102 the 550 puts are at 11.70 x 12.60

Question - when can we expect decent index option price movement? Time factor or other? Also can we use DJX options and expect more or less percentage price movement over OEX? Thanks [B]"

Sorry B (and other index players) on a gap-open move with this much time premium still packed in the contracts, option prices are inflated from the open and stay that way in small-range market.

Keep in mind one thing: index option prices at the open were based on where their respective futures markets were trading... not the false price tickers on CNBC or most chart services.

If you measure the markets from true-range today of gap-open to low, it's been a pretty small range so far this session.

  Jeff Bailey   2/19/02,  1:44:11 PM
Citigroup (C) $42.91 -2.76% ... last week I thought stock might fall to $40 level. Subscriber wondering what to do here. Here is my thinging.

I have retracement from $53.55 to $36.36 so this puts 50% at $44.95, 38.2% at $42.92 (right where stock is trading) and 19.1% at $39.64 (close to $40 target).

Point/figure shows bullish support trend right here at $42 Link

From current levels, a bearish trader targeting $40 has about $2.90 reward to target, so as trader, I would want to bring risk inline with that bearish target.

However... if my account were rather desparate for a gain, then I'd lock in at least 1/2 here, raise some cash and breath a little easier. If I've got some good gains locked in in other areas of the account, then would simply follow with a stop above today's high or Friday's close.

Also think about this... a simple 3-box reversal higher would be to $46. Can your account take that type of rally for the expiration that you bought?

The "triple-bottom" sell signal came at $45. Professor Davis' study indicated that pattern under bear market was profitable 93.5% of the time, average gain of 23% in 3.4 months. The $45 trade came on February 4th, so 3.4 months from there would be mid-May and bear targeting $34.65.

I don't think I'd be to anxious to cover, unless I needed the gain. With MACD on daily chart turniing lower and still below zero level, would be willing to keep trailing stop just above 50% retracement of $45 for now. Then if we see further decline from here, could then move stop down to just above 38.2% retracement of $42.92.

Should also keep eye on fellow bank JP Morgan (NYSE:JPM) as this stock is perhaps most vulnerable to current "accounting worries" of companies currently in play for the bear. I'm not saying that JPM has accounting concerns, just some company's that they and C may have loaned money to.

  Eric Utley   2/19/02,  1:19:48 PM
The Biotechs (BTK.X) are lower by about 4 percent today. The BTK.X is trading around 480. I mentioned last week that I'll get interested, from a bullish perspective, on the BTK down between 450 and 475. It's not there yet.

The negative development surrounding Protein Design (NASDAQ:PDLI) is just the type of event that sets up a retest of a potential bottom in a group of stocks. In the BTK, I'll be monitoring relative strength and developments among components within the group, searching for inherent strength, for a better insight into whether we can trade to the upside again.

  Austin Passamonte   2/19/02,  1:03:53 PM
Readers Write: "Hi Austin, When you say "all intraday charts to release from pinned oversold" am I correct in assuming that means 60/30/10/5 min time frames? Also you mentioned 10/5/1 min chart, which you have mentioned the 1 min before, are you using this time frame alot? Also how are you using it? Thanks again, [DM]"

It would take several chapters in a book to adequately address that common question, but here are the cliff notes: 10/5/1 min time frame charts are used for intraday scalps, such as the S&P from 1092 to 1087 on the latest overbought reversal of these tick charts.

Right now we have 60/30 minute intraday charts pinned in oversold extreme and likely to remain there a while. Swing Traders don't have any high-odds entry points right now, as the market gapped down into oversold conditions and trades a very narrow range so far.

Scalpers can take small gains using the 10/5/1 tick charts every time they go oversold in unison while following the prevailing session's trend. But not using current index options as the bid/ask spread cannot be covered with such small moves.

  Austin Passamonte   2/19/02,  12:57:39 PM
Readers Write: "Hi Austin, the COMPX weekly stochastic (5,3,3) fast and slow lines are oversold for only the 7th time since April 1994. Does this mean anything to you. Thanks, [WS]"

Not really, the Nazz comp is a lagging index right now that I don't personally pay attention to. The Dow and S&Ps will continue to lead market action as they have done for all but a brief abberation in time during 1999.

Everything could remain pinned in oversold for quite some time... there is no rule that says they must immediately turn higher. But we do need to be aware that the next sustained trend move will likely be up, even if indexes all go lower for awhile first.

  Jeff Bailey   2/19/02,  12:51:08 PM
Newport (NEWP) $20.61 -11% ... stock we liked in early January for bounce that treated us right now looking defensive with quadruple bottom sell at $21. Stock is below bearish resistance so sidelines for bulls here. Link

  Jeff Bailey   2/19/02,  12:44:50 PM
Time Warner Telecom $7.17 +5.13% ... after reaching a bearish vertical count of $7.50 on Friday, stock getting a bounce today. Would maintain a stop at $7.50 at a minimum, but traders should be willing to lock in gains if short/put this one. Link

  Eric Utley   2/19/02,  12:44:16 PM
Ciena (NASDAQ:CIEN) and ONI Systems (NASDAQ:ONIS) announced a merger yesterday. The two companies are makers of optical networking equipment.

The companies said that the union will create cost saving synergies and open new markets. For Ciena, the acquisition will give more of a presence in the metro optical market. The deal is expected to save about $60 million in annual operating costs and leave the combined entity with about $1.3 billion in cash net of debt.

Officials said that the merger was not created out of necessity. For ONI Systems, I think it was. Ciena is financially strong and probably would've made it alone through this downturn in spending. The acquisition on the part of Ciena was smart and I think it's the dawn of consolidation among networking equipment makers. The smaller, niche players can't compete in a shrinking market with gorillas such as Cisco (NASDAQ:CSCO). What little of the telecom market that is left is being taken by the stronger players in the group.

The market I speak of is telecom, which companies like Ciena and ONI Systems are highly levered to. Cisco has a lot of business outside of telecom, which is the reason it has performed relatively better. Spending among telecom carriers is expected to drop by about 25 percent sequentially this year to roughly $55 billion. I suspect that number will fall further. Last week, Qwest (NYSE:Q) said that it was having difficutly getting funding. Add to that news the woes in wireless carriers such as Nextel (NASDAQ:NXTL).

While the merger between Ciena and ONI Systems may create some isolated positives for the two companies, the deal can't bring back end-market demand. I suspect more deals will take place in the networking sector in the coming months, especially among those companies closely tied to telecom. But they won't be deals that will attract bullish attention so long as the fundamentals in the end-market stink.

  Jeff Bailey   2/19/02,  12:39:00 PM
Metals under pressure Gold, Silver and Copper all under some selling pressure in the futures market today. Gold down $1.30 at $297.10/oz., Silver down $0.72 at $4.50/oz. and Copper down $0.02 at $0.715/lb.

Prices here impacting corresponding stocks across the board.

  Jeff Bailey   2/19/02,  12:28:51 PM
Stratasys (SSYS) $8.50 +17% ... stock strong after reporting earnings that showed 150% growth in year-over-year for 2001. Company just released a revolutionary desktop office 3d Printer that builds plastic prototype parts directly from CAD (Computer Aided Design) files at a price the company feels will expand its market. Link

3D-Systems (TDSC) $10.15 -9.61% is "the other" rapid prototype stock we had our eye on last week for break above $12.30 as bullish (never happened) and looks to be seeing selling as SSYS perhaps more in favor and new products bringing a catalyst. Link

  Jeff Bailey   2/19/02,  12:07:12 PM
Bubbling Brew? Redhook Ale Brewery (HOOK) $3.24 +13.6% Link , Adolph Coors (RKY) $56.85 +0.42% Link and Anheuser Busch (BUD) $48.40 +0.24% Link , Boston Beer (SAM) $16.55 +0.18% Link , Companhia de Bebidas (ABV) $19.35 +0.78% Link .... 4th of July is just around the corner!

  Jeff Bailey   2/19/02,  11:46:42 AM
PMC Sierra (PMCS) $19.36 -6.37% ... another "bearish triangle" here. Link

  Austin Passamonte   2/19/02,  11:34:14 AM
Ol' Jimmy Awad on CNBC tells us now's the last chance to buy before the big rally kicks in. "Last chance to buy..." are his noted words.

Reminds me distinctly of what Neddie Riley publically said back on CNBC 12/31/01 as well. All us dummies who didn't load up on Elan as one of his top picks there really missed the boat... now that his top picks portfolio is down -24% in six weeks!

Ignore or fade these clueless analysts, filter all that you here and idolize or worship NO ONE when it comes to market forecast & analysis. Trust the charts above all else!!!

  Austin Passamonte   2/19/02,  11:22:26 AM
Readers Write: "Hey dude... Just wanted to let you know....I made $600 today thanks to the insights I have learned from you guys. I bought the DJX.X Mar 98 put ... for 1.40 just sold it for 2.00. Until you get tired of hearing it....many thanks. [S]"

Heaven knows that at one point in my life I worked an entire week of factory labor for less than that sum. What a difference two decades makes for opportunity, and all of us here within OI work real hard to help others trying to learn the profession of trading avoid sudden fiscal death while learning to profit methodically over time.

We hear all sorts of things via reader's feedback, and nice to know many have managed to apply simple tactics for personal gain in their lives. The secret to long-term success is self-education, trading with gradual accrual of account growth in mind and focusing on risk management/loss control. From there the wins take care of everything else!

  Jeff Bailey   2/19/02,  10:50:30 AM
Celestica (CLS) $36.82 -2.84% ... looking good for the bears. This is one we've been a little more than bearish on last week. This was "bearish triangle," but bullish support looked to be serving as support. Link. Trade today at $37 is break of bullish support.

According to Professor Davis' study at Purdue University, the "bearish triangle" is profitable for the bearish trader in bear market conditions 87.5% of the time, for an average gain of 33.3% in 2.5 months on average.

  Jeff Bailey   2/19/02,  10:44:39 AM
Don't over leverage This is a phrase I use often with option traders. Personally, I don't like to use stops on options. I look at it this way.

Take ADLAC for example. If my trading discipline says I will only trade $5,000 in the underlying stock at any one time, then a short in ADLAC would be about 250 shares. If my stop on the stock were $22.50, then I would be willing to risk about $625.00 on 250 shares. Therefore, based on that type of trading discipline, options trader would risk about $625 in an option, NOT over leveraging with a trade of $5,000 in the option.

  Jeff Bailey   2/19/02,  10:39:06 AM
BBH Not holding calls as I didn't want to hold for three-days of time deterioration. Thought was more to play some market history short-term for "day after President's Day."

No, I'm not "hopeful" for a pop today, you just never know for sure though. With bad news in the group, that will weigh on sector most likely.

  Jeff Bailey   2/19/02,  10:36:00 AM
Stock Trader's Almanac mentioned that day after Presidents day was up 6 out of last 8 sessions. Not looking like it now, but you just never know.

I was looking to play Biotech HOLDRS (BBH) as bullish and hold over weekend and look for pop today. PDLI related news working against that one also.

Keeping stop on BBH trade from Friday at $120.25 just under the $117 level. I'm only thankful that PDLI is not part of BBH. As it is... things are going bulls way today as scenario outlined from Friday. I hope I don't have to take a $4 hit on this BBH trade. That would be a 3% hit.

  Austin Passamonte   2/19/02,  10:35:56 AM
Sharp little sell program kicked in there not long ago, and scalpers had the chance to make some pennies gaming 10/5/1 minute charts.

Other than that, we have a short-term oversold market looking to become more so into the session. For index option trades I will impatiently wait for all intraday charts to release from pinned in oversold extreme before testing put plays from here.

Index call plays will not be a consideration while longer-term charts remain bearish. With maximum time-premium bloat and wide bid/ask spreads in the current front month March contracts right now, ideal entry points are more critical than closer to expiration day.

  Jeff Bailey   2/19/02,  10:24:35 AM
Biotech HOLDRS (BBH) and Biotech Index (BTK.X) question from subscriber regarding why BBH down just 1.46%, while BTK.X down 2.78% ... main reason is that HOLDRS Link don't have Protien Design Labs (PDLI) $17.63 -15% as component, while BTK.X does Link have PDLI as component.

  Jeff Bailey   2/19/02,  10:18:54 AM
Continental Airlines (CAL) $30.37 +0.59% ... stock doing battle with bearish resistance right now. Trade at $32 would be bullish and break downward trend and get stock back on buy signal. Link

  Jeff Bailey   2/19/02,  10:16:39 AM
Continental Airlines (CAL) $30.37 +0.59% ... subscribers that took that strangle trade back on November 9th for the June expiration and the "forget me" trade are looking good. Still 4 months to go and call portion up 202.7%, while puts down 90.90%, so net in trade up 62.31%. Link

  Jeff Bailey   2/19/02,  10:11:03 AM
Airline Index (XAL.X) $93.13 +2.36% .... distancing itself as sector winner today and has some room to the $100 level. Link A trade at $95 would be a spread triple top and that might correlate nicely with what we are seeing in LUV.

  Jeff Bailey   2/19/02,  10:08:05 AM
Southwest Airlines (LUV) $20.22 +0.84% ... stock trying to break the $20.25 barrier on bar chart and trade at $21 would be spread-quadruple top. Stock has been one of the strongest in airline group along with Frontier Airlines (NASDAQ:FRNT).

LUV chart Link

FRNT chart Link

  Jeff Bailey   2/19/02,  9:54:49 AM
Adelphia Communications (ADLAC) $19.44 -2.65% On Friday interesting e-mail from subscriber had me making sure our bearish vertical count on ADLAC was right.

Interesting to look at similar technicals in Enron (ENE) dating back to October (red A) when stock reversed from similar pattern. Was $24 at the time and giving sell signal to new lows. Eventuall bearish count was $3. Link

This now has subscribers wondering about our thoughts on ADLAC being good longer-term puts as outlined on Friday. Link

  Austin Passamonte   2/19/02,  9:48:12 AM
Could be a choppy start to the day as expiration week stock gyrations get settled, pre-staged orders clear and the market strives to resume some semblence of direction beyond there.

Hopefully that includes an intraday chart setup of overbought extreme so we can get short, stay short and let time create massive gains from there!

  Jeff Bailey   2/19/02,  9:48:12 AM
Sector Weakness is pretty much across the board with Biotechnology Index (BTK.X) -2.4%, Oil Service (OSX.X) -2.26% and Internet (INX.X) -2.7% pacing the declines.

Sector Strength found in Airlines (XAL.X) +1.42% and Forest/Paper Products (FPP.X) up just fractionally.

  Jeff Bailey   2/19/02,  9:44:40 AM
Challenges for Fiber ONI Systems (NASDAQ:ONIS) $5.76 +3.97% after news that Ciena (CIEN) is going to buy one of its rivals. Very little premium in this deal. ONIS traded a high of $142 in June of 2000. This move for ONIS looks to be one of survival.

  Jeff Bailey   2/19/02,  9:40:34 AM
Protein Design Labs (PDLI) $17.50 -15.8% ... stock seeing selling in early action after SG Cowen reduces estimates. Cowen saying it has checked with experts regaring PDLI's prospects for Zenepax, which is drug for maintaining remission is persons with psoriasis and Zenepax not showing the results to suggest drug is apt to be efficacious. Cowen therefor lowering revenue estimates by $9.8 million for 2002 and $95.7 million for 2003 until a clearer picture on Zenepax emerges. Link

  Austin Passamonte   2/19/02,  9:38:33 AM
Daily chart signals on all major indexes are in the first stage of a bearish reversal out of overbought extreme. Easy trading over the short-term now: sell every blip of a rally that rears its feeble head.

Don't know how long that will last, but we'll play it until the approach ceases to work!

  Jeff Bailey   2/19/02,  9:33:46 AM
Bearn Confirmed! The NASDAQ Composite is "bear confirmed" and has been since mid-January of this year. It would take a reading of 50% to get this market back to a bull-alert status. Current reading is 43.58%. Link

  Jeff Bailey   2/19/02,  9:30:37 AM
Bull Alert! The NYSE remains in "bull alert" status and has been in bull alert status since early October 2001. Current reading is 51.78% and it would take a reading of 48% to get this broad market indicator back into a "bear confirmed" market. Link

  Austin Passamonte   2/19/02,  9:13:16 AM
Great News!!!

Today's guest analyst on CNBC declares the bear market is over. Speaks of the economy with no alternative but to improve. Squeaky-clean companies like IBM being questioned, sold as proof of fear the bottom is almost here, etc.

When have we heard that type of rational, logical reasoning before? Oh yes... about 67 times since March 2000. I expect we'll see many more bottoms called over the months and years ahead, possibly from lower levels than Sep 2001 reached.

  Austin Passamonte   2/19/02,  8:50:40 AM
Great Morning! Especially if you are short the market.

Looks like we'll see no early reversal of Friday's expiration close as so often happens the folling session. Pre-market futures have been weak and getting weaker with an hour to go for the bell.

Many readers pointed out to me last week that some of the big names in newsletter business, i.e. two different guys who've been in business 30+ years were looking for a powerful rally to begin last week for various reasons.

Don't know if they still feel that way but I don't... longer-term charts went from bullish to bearish in less than the past six sessions and it's back to selling every rally if/when bounces in the market appear.

That being said, buying puts right at the open today could be a mistake. Intraday charts are oversold across the board and may not stay pinned there all day. I'll be looking to go short myself, but only when intraday charts release from oversold extreme and go overbought on a short-term basis.


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