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  Jeff Bailey   2/22/02,  3:52:31 PM
GE and MSFT comparison I think about risk/reward in every trade. As I view the p/f charts of GE and MSFT, I see a "sloppy" chart in GE (buy and sell signals, little consistency) while MSFT is a little cleaner (sell signals, triple-bottoms, etc).

Both have bearish vertical counts associated with their charts. But if we simply look at the p/f charts and do nothing more than weigh the bearish vertical counts against the first buy signal where we might have a stop (where demand exceeds demand) we may see something that would compell bears to stay interested.

Example... GE chart is bearish with vertical count of $28. From $38, stop would be $42 (risking 10.5%) and potential reward of $28 (reward 26.3%) So risk/reward is 10.5%/26.3% Link

MSFT has been discussed in detail. From $58, risking to $63 (8.6%) and reward to bearish count of $47 is (18.9%).

Both are about the same risk/reward, but "tech" looks to be more out of favor and MSFT has had a tendency to achieve bullish/bearish vertical counts.

Now.. don't take this wrong, but time is also money. Not that every tech stock should be shorted just because we perceive it to move faster, but this is part of consideration.

GE may be "perceived" as a little more "stodgy" than MSFT and may not move lower as quickly as MSFT in a weaker market environment.

  Jeff Bailey   2/22/02,  3:32:23 PM
General Electric (GE) $38.10 +1.54% ... subscriber noting that I haven't spoken about GE in some time. Why not?

While I could care less what most in the media talk about, I do realize or at least believe right now, the the negative market action is "accounting related."

Not that there is anything that says GE does have any type of accounting problems, but just the thought of it perhaps having some vulnerability to that issue has me looking elsewhere right now.

I figure... why play with potential fire? Too many other stocks (like CAT perhaps) that haven't had the red flag raised on them and the chart looks more bullish.

  Austin Passamonte   2/22/02,  3:12:17 PM
Looking at the Dow weekly chart, if traders sold support or bought resistance these past six weeks on instruments devoid of time decay they watched money wash in and out of their accounts with no gain at the end.

Investors are stuck in the mud at best while traders with short-term bias have opportunity to make money. By the same token, wrong moves and hesitation during times like this only accentuate losses.

If that sounds like simplistic drivel and you just want to know where the buy & sell signals are without worry of anything else, I really fear for your long-term success. This type of whipsaw action washes out more traders than anything else I've seen.

Intraday scalpers who tested calls early on as all near-term charts aligned in oversold extreme and held thru early turbulence have done quite well. Others who passed and might be lamenting that decision will have two or three more shots next week and each week beyond for the rest of all our careers!

  Jeff Bailey   2/22/02,  2:58:52 PM
Hedged? Short MSFT and long CAT? Both Dow components. One's p/f chart saying sell (MSFT) and the other saying buy (CAT).

  Jeff Bailey   2/22/02,  2:57:32 PM
CAT I have this stocks classified as "machinery/tools." According to Dorsey/Wright, this group is "bull correction" at 48% and would turn "bull confirmed" with reading of 54%. CAT is one of the stocks in the group still showing a buy signal on its p/f chart so thinking stock is a leader in the group.

  Jeff Bailey   2/22/02,  2:54:19 PM
Stocks staging a comeback in latter half of day here. 10-year YIELD ($TNX.X) back near session high and never really cracked the 4.8% significantly. Bond market closes in about 12-minutes and could see a drift higher by stocks into the close.

  Austin Passamonte   2/22/02,  2:51:49 PM
Looks like another short-covering event into the afternoon as zero trend is in place right now. These are markets for short-term plays only, as buy & hold or sell & hold attempts get washed out on any given day and sometimes both in a session.

I feel bad for the part-time trader who made money buying longs in the late 1990s holding for days or weeks and wonder what the heck happened since. Days like the last three are prime examples of what 2002 is possibly like ahead, and changing times mandate changing (defensive) tactics.

I've got an email inbox overflowing and cannot get thru it for days. A majority of today's volume wonders what direction lies next this session and beyond. As noted many times recently, this is a day-by-day market, like that fact or not. Indexes are reaching oversold in longer-term charts but could chop their way lower still.

Traders who want to hold index plays longer than a few hours should be flat into the weekend and deal with Monday when it comes.

  Jeff Bailey   2/22/02,  2:51:49 PM
CAT relative strength for CAT vs. SPX also bullish. Link

and CAT rel. strngth vs. Dow Indu is improving. I'm thinking CAT above $55 has RS chart vs. Dow Indu giving buy signal. Link

  Jeff Bailey   2/22/02,  2:48:03 PM
Caterpillar (CAT) $52.29 +0.79% ... trade at $52 yesterday has this heavy equipment manufacturer triggering a "triple-top." Looks quite bullish and vertical count dating back to October is till intact and bullish to $62. Link

  Jeff Bailey   2/22/02,  1:53:21 PM
Dow Transports (TRAN) $2,708 -0.2% ... still trading tough and still above their 200-day moving average. Also trading just below that downward trend dating back to May 1999. It is a chart like this that should still have a bears attention.

My thinking is that "if the economy were going in the tank again, then this sector should be seeing selling, but it isn't." Link

  Jeff Bailey   2/22/02,  1:49:58 PM
Copper I am still longer-term bullish on Copper and it will take trade at $0.69 to move me from this position.

If long PD still, would consider writing some covered calls to generate some cash and work down cost. Just a little neutral in here.

  Jeff Bailey   2/22/02,  1:47:56 PM
March Copper futures I don't have a p/f chart to show you, but more critical support is obvious at $0.69/pound. Trade at $0.69 would be spread-triple bottom and break of bullish support trend. That would be the supply/demand level to be monitoring.

  Jeff Bailey   2/22/02,  1:44:50 PM
Copper Futures for March are trading near upward trend at $0.70/lb. This is key level perhaps for stocks like Phelps Dodge (NYSE:PD) $36.95 -0.13 and Freeport McMoran (NYSE:FCX) $14.30 unchanged.

Observations from here may play into the "economic thesis" of copper leading an economic recovery.

If I were to see continued buying in Treasuries (lower YIELD) and see copper prices start declining, then economic growth becomes suspect.

  Jeff Bailey   2/22/02,  1:39:23 PM
Reverse head/shoulders potential in Honeywell chart also. Shoulder at $31, head at $29 and neckline at $35. Flip it and we get $41.

Similar perhaps to pointed out reverse head/shoulders in Apache (NYSE:APA) $51.79 from months ago near $46.

  Jeff Bailey   2/22/02,  1:35:46 PM
Similar Technicals Goodyear Tire (NYSE:GT) and current technicals in Honeywell (NYSE:HON) very similar as it relates to bar charts.

Notice the consolidation after move from the bottom and DIVERGENCE we are seeing in some of these "boring" stocks relative to the broader market.

If MARKET is getting more defensive, then some of these stodgy stocks may well be attracting capital in thought of "more predictable" earnings.

GT chart = Link

HON chart = Link

  Jeff Bailey   2/22/02,  1:31:17 PM
Honeywell (HON) $35.18 +3.3% ... getting upside alert here at $35. This is double-top buy signal. Link

This is stock that has been mentioned as potential bullish stock in recent weeks on OI. Note the vertical count of $56 and BULLISH Triangle.

This bullish action may make sense in the scope of things. I have stock listed as aerospace/defense stock and this sector has beens strong. Today's mergear play between NOC and TRW provides some catalyst to bullish move in HON.

  Jeff Bailey   2/22/02,  1:27:25 PM
ACN put activity ... it's alway difficult to say for sure what large put or call activity really means.

It could be put buying influenced on the thought of a lower stock price movement.

It could be put selling by a bull that is selling the premium with the intention of wanting to buy the stock long at the specified strike and simply selling the premium to lower cost basis some.

All we really do is note the action on the put side. Perhaps look at the point/figure chart or bar chart to try and figure out what somebody may be thinking/doing, then set up a scenario to perhaps trade from there.

  Austin Passamonte   2/22/02,  1:03:31 PM
After the morning flurry we have flat, bifurcated markets once more. Other than trying to scalp for quick gains today I would not personally trade indexes at all before Monday morning at the earliest.

As noted earlier, avoiding losing plays on questionable entries in between winners is the key to methodical success. Any traders out there itching to jump back into the action right after closing out profitable put plays? Dying to be in; afraid to miss the next "big move" that's sure to be brewing right from here?

Join the club... those are emotions of greed and fear of loss myself and everyone else feels, but we have nothing but questionable index play entries in fron of us now. We have company in this weekend from back east, so a nice stroll along the local bike paths (Madison's choice) here is a good use of this afternoon.

Taking new entries to hold into Monday is a poor use of this afternoon in my experience of trying to press action that wasn't in the past.

  Jeff Bailey   2/22/02,  12:59:34 PM
10-year YIELD ($TNX.X) 4.807% ... still hanging around 4.8%... haven't seen a rush of buyers. Just making an observation that it isn't a scramble for bonds at this point. You can bet some alerts have been triggered at trading desks, now we look for some type of reaction. Haven't seen it yet.

Operative word is "yet."

  Jeff Bailey   2/22/02,  12:56:36 PM
Thinking short on ACN? Sometimes I like to short , but not sure how to handle things.

One thing a trader can do is this... "Pretend" you are the best trader in the world and saw the "inside day" on Wednesday, and shorted it yesterday on the break lower at the open of trading. According to the discipline, stop would be just above yesterday's high.

Could now think... "if stock break yesterday's low" and institution is hedging a move lower, then short/put break of yesterday's low as action point and pretend I shorted yesterday and just follow inside day trading technique from there. Link

Why wait for break? right now is potential "inside day" too.

  Jeff Bailey   2/22/02,  12:50:26 PM
Do you see perhaps how an institution my be buying some "insurance" in some puts, just in case $22.50 happens. You can see how a trade at $22 may have stock giving "final sell" before support trend comes into play.

Don't know why subscriber was looking at this one, but excellent observation and really makes us think what could be going on doesn't it? Link

  Jeff Bailey   2/22/02,  12:45:08 PM
Accenture (ACN) $25.06 -3.61% ... subscriber e-mailed me that 6000 put contracts traded at August $22.50 (ACNTX) ... yes, I see them.

Point/figure chart looking a little toppy and current vertical count is bearish to $19, which is pretty correlative with upward bullish support trend. Link

May simply be a mutual fund hedging a long position in a market where it is tough to find buyers.

  Jeff Bailey   2/22/02,  12:40:59 PM
Oxford Health (OHP) $39.82 -0.05% ... hanging tough baby.

I'm a realist and understand that extreme broader market negativity might impact stock eventually. No technical weakness at all. But it isn't tech and it's "boring" and recently that's been a plus.

For anyone holding this stock/option from $34, you too must be a realist.

For some that do trade short/put and are seeing profits then they are perhaps willing to let the August calls in OHP ride. For those that may only trade call/long and need to book gains, then I'd snug a stop under $38.

We can always trade long again. For investor/trader, capital preservation should be your formost concern. You will not offend me if you sell to take profit. I will NEVER say "I told you so."

  Jeff Bailey   2/22/02,  12:34:21 PM
Subscriber e-mail I made 55% on the ALTR trade and 100% on the C trade. Profits booked. Your analysis is right on. Thanks for the guidance.

Jeff's comments .... Good trades. Some may think this trader got out "too early." That doesn't matter in the least! When you get a profit and are satisfied, then take it. Good trades and sounds like trader is sticking to some discipline.

  Jeff Bailey   2/22/02,  12:22:50 PM
Microsoft (MSFT) bearish trader can round to full position here, or wait to just before session's end to see how things are going to close out. If you've claimed a stake already, then you're looking good and don't feel urge that you "have" to add more and can be very patient. Get a cup of coffee, pet the dog...

  Eric Utley   2/22/02,  12:19:53 PM
I didn't think it would happen today, but the Ten Year Yield (TNX.X) just printed 4.800%. Stocks are suspect to further downside over the intermediate-term in my opinion. More on this from Bailey...

  Jeff Bailey   2/22/02,  12:19:49 PM
10-Year YIELD Alert! 10-year YIELD ($TNX.X) YIELD trading 4.8%. This is our bearish alert for stocks and MSFT. Link

  Jeff Bailey   2/22/02,  12:13:37 PM
Mr. Softee (MSFT) $57.28 -1.32% at session low after plenty of upticks in first hour. Hey, that 10-year YIELD is also at session lows 4.819%. Interesting, very interesting.

  Jeff Bailey   2/22/02,  12:11:18 PM
RATL trader could do almost exact thing we did for MSFT and 10-year YIELD with retracemet on RATL. Anchor top of retracement at summer highs near $29.21, then lows found in September. Boom! 50% retracement broken at $18.65 today, 38.2% below at $16.16 would be short-term traders target.

  Jeff Bailey   2/22/02,  12:08:28 PM
Rational Software (RATL) This is when it is useful to understand the bullish percent charts. Software getting close to the 30% oversold level and we perhaps understand how sector weakness spills over to RATL. Thus, trader still willing to short/put RATL, but not full position.

Why? Again... sector close to oversold, so must assess risk. As bullish percent goes lower, risk shifts to bears having more risk.

Another reason is that RATL thoughts are that stock being pulled lower only due to sector and may not be "stock specific." Relative strength chart of RATL vs. GSO.X is strong, thus observation that this is strong stock in sector. Link

We then perhaps understand that RATL most likely one of the last dominos to start to fall and give sell signal. Today's sell signal in RATL would take one stock off the bullish % indicator for the group.

  Jeff Bailey   2/22/02,  12:02:27 PM
Rational Software (RATL) $18.22 -5.3% ... got an alert on this one earlier at $18.50, which was triple-bottom sell signal. You can just see how the "head of the snake" keeps turning back in some of these stronger stocks to see what is pulling at the tail. RATL action very indicative of how sector weakness catches up. Link

  Jeff Bailey   2/22/02,  11:59:32 AM
GSTI Software Index (GSO.X) 149.76 -2.10% and tied for third among today's sector losers. According to Dorsey/Wright, sector is "bull correction" at 32.3% and won't go "bear confirmed" unless it takes out September lows with a reading of 10%. Recent high reading was 62% in January, but get feeling that when NASDAQ-100 bullish percent got up at the mid 74% levels, that things just got too "overbought" for much of tech. Software no different.

  Jeff Bailey   2/22/02,  11:27:00 AM
KBW Bank Index (BKX.X) 778.53 -1.45% ... subscriber noting triple-bottom sell at $775. Current vertical count is bearish to $740. Link

I consider technical bearish here. Only question for traders is "what stocks/sectors to be putting that offer the best risk/reward for premiums payed on options?"

Think about maybe playing some select stocks in this group as short. Use your skills in looking at some vertical counts, relative strength to find those with good downside that will keep bears interested and bulls worried of further decline.

  Jeff Bailey   2/22/02,  11:20:57 AM
Microsoft (MSFT) $57.74 -0.53% ... yes, I'm recommending 1/2 position in puts or short the stock here.

In 11:00 Update, I go into great detail of how the 10-year YIELD plays into things.

If I had a retirement account that was full of technology stock mutual funds, I would think about rolling some cash toward my Treasury bond mutual funds.

  Eric Utley   2/22/02,  11:04:17 AM
In Oil Service (OSX.X), Noble (NYSE:NE) just gave a bullish triangle Link buy signal with its print at $34. The stock also generated a new buy signal Link on its relative strength versus the S&P 500.

I'm still not inclined to chase breakouts higher, no matter the sector or stock. I'd rather get long on pullbacks to support, which is the approach I've been using in the oil service patch. Noble is one worth putting on the watch list, especially for longer-term types, for a pullback into a support zone. Vertical count is currently $56.

  Eric Utley   2/22/02,  10:59:53 AM
The PMC-Sierra (NASDAQ:PMCS) straddle/strangle I profiled a month ago should be starting to show some profits after today's $1 drop. I see the potential for support at $15.50 and again at $14.50, either site could be used for an exit point from the straddle/strangle.

  Austin Passamonte   2/22/02,  10:47:50 AM
A feeble pop quickly perished and recent lows in the S&Ps are being tested right now. A break from there and failure to rebound above could really intensify selling pressure into the weekend's close and unknown that lies ahead.

  Jeff Bailey   2/22/02,  10:43:04 AM
Altera (ALTR) $19.74 -0.55% ... see this morning's 09:00 Update and upgrade by JP Morgan. JP Morgan made it a point to say that investors may not "understand" where ALTR derives revenue. Points to storage area as one source of revenue.

Thinking.... isn't Storage Tech (STK) in storage business? How's that stock been doing?

Then wondering if JP Morgan may have big position in ALTR, sees bearish triangle and looking for some retail to prop stock to sell into? Link

No, JP Morgan wouldn't upgrade a stock to get some liquidity.

  Jeff Bailey   2/22/02,  10:30:24 AM
Storage Tech (STK) $17.20 -11.70% ... trading right on 200-day MA. That has those Mar $20 puts (STKOD) up 1,020% and that's good enough for this gamble. Lock-em in!

  Eric Utley   2/22/02,  10:29:17 AM
Getting an upside alert in the Oil Service Index (OSX.X) here at 90.

  Jeff Bailey   2/22/02,  10:24:20 AM
Storage Tech (STK) $17.80 -8.62% .... those lottery puts getting close to original target. Yesterday thought it was good idea to take 1/2 off the table and hold out for the 200-day MA on STK of $17.21, with stock dropping like a rock, ready to lock in the rest. Link

  Austin Passamonte   2/22/02,  10:18:57 AM
We'll see bond yields react to what leads them: cash in or out with plans for equity allocation as Jeff & Eric aptly point out. If the March SP00S index breaks below Thursday lows, watch bonds rally and S&P futures tank, taking the cash markets down in the process.

Biggest players in our profession running $billions do not watch the Nasdaq comp... that's for retail pikers. They focus on what happens in the S&P 500 for broad market direction and hit "buy" or "sell" buttons on the trading desk that move hundreds of millions dollars within minutes over at the CME.

That is the type of institutional activity that drives market trends with strength, not some dead-fish analysts defending INTC dumped into retail hands those brokers want to offload worse than air.

  Austin Passamonte   2/22/02,  10:11:54 AM
Readers Write: "Dear Austin - puts rock! How often do we expect to get these kind of trades? [RR]"

Swing trade setups for the major indexes average one-two solid play entries like this each week. But the key to long-term successful trading is avoiding large losses in between solid gains.

This passing up some losers mandates we miss a few winners along the way, as questionable entries can either blow up or outperform wildly. Without hindsight we have no way of knowing the outcome, so taking clear setups like Thursday morning and passing up all the rest is of the utmost importance.

Get good at accepting the fact that some wins will be missed and we're on our way to survival and then prosperity in the markets!

  Eric Utley   2/22/02,  10:10:14 AM
To Bailey's observation in the 10 Year Yield (TNX.X), I'll add that the 4.800% level is significant in terms of support. I think a breakdown below that level in the 10 Year would put stocks at risk to much greater downside. This chart says it all:


Note that I've used a .50 box size for the Ten Year to get more of a shorter term view.

  Austin Passamonte   2/22/02,  10:06:53 AM
Swing Trade model picked up +10 index points on the OEX and +16 index points on the SPX in just about 7 market hours. I've sure worked longer for less in my lifetime!

All intraday charts are buried in oversold extreme and looking to turn higher. Bullish play entries might work well for intraday players who know what they're doing. Wide bid/ask spreads in this first week of March expiration cycle and sinking VIX make this a challenge for option traders, though.

  Jeff Bailey   2/22/02,  10:05:11 AM
Will discuss the potential MSFT and 10-year YIELD correlation in 11:00 intraday update. It can get confusing without the charts/retracement.

  Jeff Bailey   2/22/02,  9:58:17 AM
Microsoft (MSFT) $57.96 -0.10% .... trade at $58 is double-bottom and spread-triple-bottom sell signal. Would ease in here with 1/2 position short/put and target $51 near-term. Vertical count is bearish to $47. Link

I have retracement from $73.59 to $41.50, this has 38.2% at $61.33, 50% right here at $57.54 and 61.8% at $53.76.

Very correlative too with 10-year YIELD ($TNX.X) 4.831% on retracement. I have 10-year retracement from 5.527% to 4.096% retracement. That has 61.8% at 4.98%, 50% right here at 4.81% and 38.2% at 4.64%.

This is interesting observation perhaps as both of these retracement were independent of each other. May need to see enough buying in Treasuries to have 10-year YIELD breaking below the 4.81% level to get the move going in MSFT.

Want to be careful this isn't a "bear trap" on MSFT, so just 1/2 position right now. If we get break in YIELD then go to full.

  Jeff Bailey   2/22/02,  9:48:35 AM
Circuit City (CC) $18.05 -23% ... so much for that "inside day" trade. Too hard to assess risk in short/put so moving on. Does give the sell signal at $21 and vulnerable to bullish support trend of $13.50. Link

  Jeff Bailey   2/22/02,  9:45:19 AM
Biotech HOLDRS (BBH) $115.59 -1.54% .... stopped for loss from Wednesday's profile of bullish here in market monitor. Keep loss small and move to sidelines for short-term traders.

  Austin Passamonte   2/22/02,  9:44:00 AM
New Swing Trade model stops trailed lower:

QQQ 33.75
DJX 98.75
OEX 548
SPX 1081

Keep in mind we are quite conservative here on locking in gains accrued. I personally believe the indexes will chop around in volatile fashion this morning and slide further in the afternoon, but will err on the side of caution within the trade model.

  Jeff Bailey   2/22/02,  9:43:25 AM
TRW (TRW) $39.80 ... indicating $47-$48 after Northrop (NOC) offer. TRW saying it will meet with Board of Directors to address unsolicited offer to determine appropriate course. TRW saying it finds it regrettable that NOC has chosen to make this proposal immediately following the unexpected departure of its former CEO, and the aberrationally low stock price that resulted in TRW's shares. Link

Hmmmmm.... sounds like TRW may want a higher bid offer?

  Jeff Bailey   2/22/02,  9:29:36 AM
Circuit City (CC) $23.59 ... nice and tight little "inside day" after rather sharp move lower a couple of sessions ago. Warned on earnings this morning. Will hold conference call to discuss. Link

Looking short/put on break of yesterday's low $23.50 if stock will cooperate and not gap lower. Can follow with day-trader's stop above yesterday's high of $24.25. Target over time would be technical at 200-day moving average near $18.50, but use "inside day" technique for following any trades with stop just above previous day's high.

P/F chart would show double-bottom sell at $21 and immediately have a trader/investor assessing vertical count as bearish of $16. Link

  Austin Passamonte   2/22/02,  8:56:02 AM
Great Morning!

Pre-market futures are dead flat this morning, and put players who held over the close hoping for a gap-down continuation have a free pass to exit trades at the lows of yesterday (today's open) and book nice gains.

Prices will be slightly lower than Thursday's close due to implied volatility burst yesterday that will slip a tad today, but there is still great value in current plays today given how this is week one of March expiration cycle.

Or you can hold fast and choose what's behind door #2 instead: substantially lower markets/higher put values and probable up & down chop to get there is likely. But so is a goat in the form of dip-buying bulls and short-covering bears grown fat the past eight weeks.

Some actually think IBM at $96, MSFT at $58 or JDSU at five measely bucks represent great value. Won't they who buy right here and hold for months be surprised, and we don't mean pleasantly, either!


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