Option Investor
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  Jeff Bailey   2/20/02,  8:32:05 PM
Waste Management (WMI) $24.92 +1.88% ... this was stock we mentioned as bearish on 02/02/02 after big break lower that day. Had mentioned that Eric and I were talking just the night before that some of the "waste management" stocks looked vulnerable.

Trader perhaps holding some July $25 puts since has seen stock drop to $22 and come back a bit. Current vertical count is bearish to $11. Link

From point/figure perspective, I would extend old bullish support trend at 45-degree angle higher to $26. Sometimes the extension of this trend becomes resistance (support broken, becomes resistance).

Not sure of every trader's risk tolerance or how account is doing, but may have to give some room to just above $26.

Relative Strength of WMI vs. SPX is weak and would read "sell signal and column of O." Link

If trader feels they may have bought too many puts, then perhaps close out some of them here and hold some partial. If $11 comes to fruition, then you'll still feel good. If not and stock rebounds to rounding 200-day up at $28, then you've peserved some capital and looking at another good potential shorting point.

  Jeff Bailey   2/20/02,  4:17:11 PM
Communications stocks may be active tomorrow as JP Morgan Communications Symposium begins tomorrow. Notables that will present are NOK, MOT, LU, NT, JDSU and BRCM.

  Jeff Bailey   2/20/02,  3:58:46 PM
Biotech HOLDRS (BBH) $119.48 +2.84% ... trading right up against downward regressions trend. 60-minute chart also shows a rounding higher 50-pd MA right here. Link

Right now, this is what I think still is best "tech" group to be looking long. Still lots of work to be done, but aggressive bull can look long before close, or wait for tomorrow morning to see how things look.

If willing to risk yesterday's low of $115.75 can take 1/2 position long here. Not looking for a piker trade right now, but going for some gusto and the $130 level.

  Jeff Bailey   2/20/02,  3:47:54 PM
JP Morgan (JPM) $29.27 +0.79% ... point figure bearish vertical count was/is $29, which was recently reached. The column of O that we count is the 7th column to left (O's from 39-35). That's the first column of O's that generated the sell signal after the buy signal at $40. Link

Can always exceed the bearish vertical count, but makes one wonder why she has held the $29 level doesn't it?

  Jeff Bailey   2/20/02,  3:16:34 PM
North American Telecom (XTC.X) 620.24 +2.24% ... now leding sector gainer. This has been weakest sector in the market. Action here hinting that massive short-covering taking place and most likely cause for current intra-day rally.

Biotech Index (BTK.X) +2.19% and hasn't extended morning gains, so not thinking "bull market" and pouring cash into stocks in euphoria.

  Austin Passamonte   2/20/02,  2:47:14 PM
Short squeeeeeeezzzzeeeee into the final hour as the Dow is up +180 points off the low. I wised up, switched to the long side once the session lows created an uptrend from there and riding the north-bound seas for now. But not past this closing bell!

  Austin Passamonte   2/20/02,  2:07:55 PM
Several readers have asked me what (if anything) I'm trading today. I have taken numerous small trades via shorting every overbought reading of 10/5/1 minute chart signals and took one long play when the S&P bounced below 1075 and back above.

Most of these plays lasted less than 30 minutes and a couple less than 5 minutes. Too much work trying to catch the next directional move during a rather noisy session, but eventually a directional pop is caught and profits accrue. Key is to cut losses and keep stops trailed to exit near par much/most of the time.

Eventually we'll get a solid swing trade setup this week and lay the bets in high-odds fashion when that happens.

  Jeff Bailey   2/20/02,  1:58:04 PM
Imclone (IMCL) What I hope happened is this... subscriber looked at p/f chart and said... OK, high risk and if it trades $20, that would be a triple-top and might be worth a shot, but not interested until it at least proves something to me. Link

How can one be bullish a stock that hasn't given a "buy signal" since giving a sell signal at $66 and now trades at $19? Unless they wear glasses with rose colored tinting or is an aggressive bull.

  Jeff Bailey   2/20/02,  1:54:56 PM
Imclone (IMCL) $17.96 -6.99% ... question regarding OI profiling this as call play...

To put in blunt, this disturbed me. Whey are we trying to play bullish in a biotech that is at the tail of the snake? This must have been a very high risk play in my opinion. I don't like it, but I didn't make the pick either. Subsriber wanted by opinion and here it is.

  Austin Passamonte   2/20/02,  1:53:24 PM
Upon further review, it appears as if the session lows may hold today and upside test of session highs is next. That's the game played in trading pits on days like this with little news: shorts press down to test old support and longs press up to test resistance. Up & down until some catalyst triggers to push momentum in one direction.

Sideways chop is the day's broad picture for now, and we're waiting for tradable setups to emerge.

  Jeff Bailey   2/20/02,  1:51:16 PM
Siebel Systems (SEBL) $29.00 -9% ... subscriber is short 1000 shares at $30.45 and short 10 SEBL Mar $32.50 puts with premium of $2.80.

In essence, trader is short $33.25 and obligated to buy back short at $32.50. With stock at $29.11 I would do nothing at this point.

Reason is this.... I'm not sure, but I'm thinking trader shorted at $30.45 thinking lower and stock rallied a bit to $34 (oops, stronger than I thought). Trader took some preventive action and sold the puts to work down cost basis in short (decent strategy from my view). At that point decision was perhaps made that I will want to cover for small profit if it ever happens.

Now trade working in favor of original thought. Stick with your original plan when you sold the puts. The vertical count of SEBL is bearish to $27, so thinking $2 downside from here. With SEBL at $29, then $32.50-$29 is $3.50, so option offered here at $4.80 would have us buying back $1.50 in premium.

Since I'm not sure how much premium may have been sold prior, I can't tell if I should buy back if premium is lower now or not, but I'm thinking not.

This is part I now can't answer. Trader must assess risk to March 15 option expiration. How do you view things from here as it relates to your risk profile? On thing to think about is that your current net profit is if both trades are closed out?

Since trader was willing to close out when he/she sold the put, then that's a decision that should be honored. If profitable by $0.50 a share, could close out the put (buy it back) then slap a stop on the underlying 1,000 share short $0.50 above current market to help assure no loss in the trade and move on.

  Austin Passamonte   2/20/02,  1:33:10 PM
Indexes have made a feeble attempt to rally off session lows but doesn't look like it will hold. Short-term charts are topping right now and most likely will roll over again. One of these sessions will see indexes pop and hold higher ground, with such short squeeze rallies usually emerging without warning.

Playing the downtrend on every failed pop is the short-term scalper's method right now, but we are selling into a hole and must keep an eye open for gushers that could blow us out in a hurry!

  Austin Passamonte   2/20/02,  1:01:06 PM
Gotta love those triangle patterns, Eric!

On any time-frame chart we choose to trade, consolidations and breaks from there are a major part of what keeps food on the table for traders.

  Jeff Bailey   2/20/02,  12:40:55 PM
ALTR relative strength check against the SOX.X is bearish... would read "sell signal, column of O's." Link

  Eric Utley   2/20/02,  12:40:28 PM
These bearish triangles are popping up all over the place. Just now, Altera (NASDAQ:ALTR) broke down below $21, completing its bearish triangle.

  Jeff Bailey   2/20/02,  12:39:20 PM
Altera (ALTR) $21 -5.11% ... trade at $21 is "bearish triangle" and bears can take action here to downside. Vertical count now bearish at $16. Link

  Austin Passamonte   2/20/02,  12:38:31 PM
Nice commercial on CNBC by Suze Ormond talking about the power of leverage in a Roth IRA. I hope she wasn't using math based on her investment call of long QQQ shares at $58 this time last year (2001) as her "hot pick" on CNBC.

Kiss goodbye several years of dead money on that one before the hapless wretches who took her "advice" can even dream of breakeven again! There are far better investment strategies than anything she's aware of, that's for sure.

  Jeff Bailey   2/20/02,  12:37:41 PM
Bear market or Python market? slow squeeze lower today after a higher open. Telecom Index (XTC.X) singing to yet another low and can seem to find buyers.

  Austin Passamonte   2/20/02,  12:34:16 PM
The S&P is trading 1077 area right now, a double-bottom from the lows a few weeks ago. Plenty of stops are sitting just below this area so if it breaks, watch for accelerated downside action from there.

That does not necessarily mean continuation, as the index is off almost -50 points since the highs last Thursday. Markets are setting up for a short squeeze ahead, but from where? Impossible to say.

  Austin Passamonte   2/20/02,  12:31:13 PM
Another day of shorting every overbought alignment in short-term tick charts is about the only way to scratch together some bucks so far. I'd still rather enter on Mondays, exit Thursdays and take three days off every week but we probably won't see much of that this year, except perhaps stretches to the downside.

  Austin Passamonte   2/20/02,  12:26:25 PM
Jeff's right on about the "traders" who will only go long a market. What would you think of a taxi cab driver who told you he only makes left-hand turns? Turning to the right requires looking across the dashboard and back over his shoulder, so he's just not comfortable with that minor nuisance. Jump in the back and he'll take you where you want to go, left turns only.

Is that crazy? Yes, and you'd know his cabbie career will be a brief one. But equity traders were tainted with "bull-itis" disease a few years ago and the few survivers from Class of 1999 still think the next big upside explosion lasting for years is right around the corner.

I think a number of these "longs only" will not perform so well if/when the Dow prints 6,000 and Nas Comp 1,000 or lower in the medium-near future.

Coming from a futures trading background I have zero bias or care whether MSFT, GE, S&P 500 index, soybeans or Canadian Dollar go up, down or nowhere at all. Just get me on the right side of any move at all!

  Austin Passamonte   2/20/02,  12:19:26 PM
Somewhat small range but very methodical markets today... they just drop & pause, drop & pause in gentle consolidations before going lower. No signs of any short-squeeze bounce in sight right now, but all intraday charts are grossly oversold so shorts beware!

  Jeff Bailey   2/20/02,  12:18:04 PM
Millennium Pharma (MLNM) $18.93 -1.04% ... break of yesterday's low negates potential for "inside day." Observation that "tail of the snake" being pulled lower and most likely has negative impact on those at the head should it continue. Link

  Eric Utley   2/20/02,  12:18:02 PM
FYI FMKT just printed $19.50, we'll see if that opens the selling...

  Eric Utley   2/20/02,  12:15:28 PM
FreeMarkets (NASDAQ:FMKT) is a stock I'm watching right now as it's about 5 cents away from completing a bearish triangle at $19.50. It's interesting to watch time and sales data as well as Level II, observing how the market maker(s) defend the $19.50 level. If the selling in the Nasdaq picks up the stock will probably print the necessary $19.50. I'm more inclined to enter these bearish triangles near resistance, so I don't think I'll be trading this one. But it's worth while to study how the market makers defend levels of risk, currently using FMKT as an example.

  Jeff Bailey   2/20/02,  12:11:54 PM
Just don't understand I still get e-mails from subscribers that say... "I only buy calls in my account."

Folks.... this makes no sense to me. If I buy a call for $5.00 per contract $500, then that's my maximum risk.

How is that $500 risk in a call option ANY DIFFERENT than $500 in a put contract? I don't understand the difference at all. Why aren't some subscribers able to get over this hump?

  Austin Passamonte   2/20/02,  11:17:51 AM
Sure can tell when those sell programs kick in... order flow just explodes to the downside! What little bit of upward strength seen this morning probably will not last into the close. With both S&P indexes and the Nasdaq in red, broad market weakness continues.

  Jeff Bailey   2/20/02,  11:12:08 AM
Airline /Aerospace According to Dorsey/Wright, this sector is "bull confirmed" at 68% bullish. Quad-tops can be powerful buy signals under this market environment. As always, don't overleverage and stay within your discipline.

  Jeff Bailey   2/20/02,  11:01:12 AM
Southwest Airlines (LUV) $21 +3.5% ... mentioned this one yesterday as bullish at $21. Here we are at $21, which is spread quadruple-top. Would be looking at the $20 strike calls. Link p/f vertical count is bullish at $25.

  Jeff Bailey   2/20/02,  10:52:33 AM
Semiconductors also showing strength vs. the broader S&P 500 and bulls should be looking here too. Here is RS chart of SOX.X vs. S&P 500 Link

While RS doesn't tell us about price up or down, it does tell us about relative strength. For bullishness you do want broader market bullishness and right now this is questionable.

Bull should consider partial positions and need to buy some time in expiration.

  Jeff Bailey   2/20/02,  10:48:24 AM
Why are we thinking bullish on Biotechs? Relative strength is why.... here is chart of BTK.X vs. S&P 500. would read "buy signal and column of X". Link

  Jeff Bailey   2/20/02,  10:40:57 AM
Millennium Pharma (MLNM) $19.70 +2.97% ... setting up potential "inside day" today. Use your p/f to understand the stock and perhaps the trade. Here we go!

P/F chart of MLNM is somewhat bearish as it recently violated young bullish support trend. Current vertical count is bearish to $5.00 so caution for bull is advised.

Relative strength vs. S&P 500 Link also weak and would read "RS on sell signal, but column of X" May hint at some rebound vs. broader market, but needs sector to help her for bullish move.

Relative Strength vs. sector BTK.X looks just the same as SPX. This tells us that stock very dependent on sector to see bullishness. Link

Trader that now understands this or interprets as such, able to grasp the "inside day" and not looking for home runs.

As it relates to the anatomy of a snake.... IDPH and GENZ are at upper head of the snake, while MLNM is near the tail.

With the biotech bullish % close to reversing, best for bulls to focus at the head, but monitor the tail for signs of pulling free. Perhaps trader can use "inside day" for trading in tail section, but understands that the tail needs the head to be leading or moving higher for bullish results from the tail.

At the same time... should tail get pulled lower, then head becomes suspect to looking back and also seeing some pullback.

Right now is very good time to be doing some technical analysis and building some candidate lists. Quick way is that just outlined which helps cover MARKET, SECTOR and STOCK.

  Jeff Bailey   2/20/02,  10:32:05 AM
Giliead Sciences (GILD) $66.17 +2.57% Link p/f chart has stock trading in bullish trend with current vertical count as bullish to $84.

Relative strength vs. S&P 500 is bullish and would read "buy signal and column of X" Link

Relative strength vs. sector BTK.X also bullish and wold read "buy signal and column of X" Link

  Jeff Bailey   2/20/02,  10:24:41 AM
IDEC Pharma (IDPH) Relative strength observations have stock making some improvement vs. the S&P 500 Link here again we see a fairly obvious RS buy signal set up for future.

Quick check of relative strength vs. the sector BTK.X is bullish. Current reading is "buy signal and column of X". In essence, this is a stock that looks to be in favor among biotechs. Trade at $63 most likely quite bullish and should have stock gaining strength from there. Link

  Jeff Bailey   2/20/02,  10:19:34 AM
IDEC Pharma (IDPH) $60.40 +7.8% ... Link point/figure has stock trying to put in a bottom with recent "low pole warning." Still trading below downward trend so caution for bulls is advised. Trade at $63 would be bullish and be triple-top buy signal and break downward trend. According to Dorsey/Wright and Assoc., the biotech bullish % still "bull correction" at 34.3%, but reading of 36% would be enough to get back to "bull confirmed". Look for IDPH as bullish at $63.

  Austin Passamonte   2/20/02,  10:13:52 AM
Could be a quiet session here after a few large-range periods behind us. I went long the S&Ps at 1085.25 and currently hold my stop at 1085.75

If the markets manage to muster a big pop later this session, money is made. If the thing turns tail & tanks, I'm out with costs covered for a "free trade" and zero harm done.

Other than that, I see nothing that compels me to loosen the purse strings right now.

  Jeff Bailey   2/20/02,  10:13:17 AM
Biotech leads sector gainers with the BTK.X +2.84% and HOLDRS (AMEX:BBH) +2.16% ... IDEC Pharma (IDPH) $60.55 +8.10% after FDA gave IDPH's Zevalin drug marketing approval.

Other gainers ... PDLI +4.82%, AFFX +3.46%, GILD +3.3%, GENZ +3.2%.

  Jeff Bailey   2/20/02,  10:01:03 AM
KLA-Tencor (KLAC) $58.50 +0.05% ... at CSFB technology converence presentation, KLAC's CFO says that market in leading edge technology is currently supply-constrained, as sell through of leading-edge chips is better than expected. Company feels optimistic about the current quarter. Link

  Austin Passamonte   2/20/02,  10:00:12 AM
Tough to read anything into the first 20 minutes of trading. It's obvious the bullish market sentiment is dead right now and indexes really want to sink like a rock. Question is, will they? It takes a strong catalyst to push prices straight down but an even stronger one to push them up in an environment like this.

Traders playing March put options without stops using 100% risk capital or total cost of the option as that stop can probably buy anywhere and make money, but better entries than that should lie ahead this week. It is rare for intraday chart signals to stay pinned in an extreme more than three days without release before trend is resumed.

  Austin Passamonte   2/20/02,  9:14:53 AM
Great Morning!

Pre-market futures are actually green? Yep...three sessions in the hole beg for some relief, no matter how slight. We welcome any & all attempts by the market to rally right now, as they can be expected to fail at lower levels of resistance along the way.

Shorting every rally that stalls worked like crazy most of this fresh, new year and can be expected to succeed well into 2002 and probably beyond. So, daring players can try upside plays on a bounce and can make money at that if they're quick, but following the trend when markets "swing" away from that is our high-odds game!


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