Option Investor
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  Jeff Bailey   3/13/02,  4:23:42 PM
Lucent (LU) $4.92 -12.9% ... new all-time low on 214.3 million shares. Not sure that too many fund managers wanting to show this one to the board or their investors in the quarterly update. Decent call volume in the LU Apr. $5 calls with 10,044 traded. Selling to open a covered by institutions, while speculators give them the fill at the ask no doubt. Bulk of open interest on call side is the April $7.50 and the seller of those is looking like the "smart money" right now.

  Austin Passamonte   3/13/02,  3:07:49 PM
Jeff: no worries about missing too many more bullish moves in the telecom sector as a whole... more than a few of those former "big cap" stalwarts will eventually trade right next to GBLX and similar ilk. We need those bear-market rallies to inflate 'em a little so there's something left in the carcasses to short!

As expected, bulls who've failed to rally these indexes past resistance the last week or so are growing weary of buying lower dips and seem to have pulled their bids heading into the close today. Scaling into May puts across various indexes and sectors has been a favorable (and no-brainer)move with the VIX stuck in its cellar, but wish I'd loaded up on more March puts to boot!

Major option professionals have been going short OEX put/long NDX put intermarket spreads. Why? Pure Vega value. When the VIX rises, no matter which way market direction heads the long NDX options will have higher implied volatility than offsetting OEX options. Odds are the market goes lower from here, which only hastens the Vega spread between these different indexes.

Now THAT is one method of option investing via big-money players!

  Jeff Bailey   3/13/02,  2:52:53 PM
Neogen Corp (NEOG) $16.50 +4.7% ... here's one for bulls to take a look at. Getting upside alert here as bullish from retracement. Have "fitted" retracement from $26.97 to $8.75, which has 38.2% at $15.71 (alert) then 50% at $17.86 and 61.8% at $20.14. Stock broke similar technicals back on 10/23/01 and ran pretty good.

  Jeff Bailey   3/13/02,  2:33:36 PM
F5 Networks (FFIV) $25.62 +1.18% ... subscriber noting bullishness.

To be truthful, only thing I don't like about this stock right now is the "networks" in the name.

P/F chart is bullish and looks like institutions are working this thing over and buying up the scale, then letting her pull back, then buying up the scale to a relative high, then letting her pull in. Link

Would I buy here? Nope.... look for a pullback near $22 if you can. That may also correlate nicely with a rounding higher 50-day at $21.68.

So do I short thinking pullback? No. I don't like to short strong stocks.

  Jeff Bailey   3/13/02,  2:24:16 PM
Who's Bob? Sorry... from 12:13 - 12:16 posts. Bob Pisani on CNBC was giving us some important insight into the "bears using today's retail sales numbers to say they are right."

My point is. Are the bears right from yesterday's close or that move in the Dow Industrials from 8,500 to 10,505.

I get tired of "rear view mirror" drivers. Depending on where you've been trading, some bears have been getting theirs ears nipped. Same goes for some bulls I know in the telecom equipment sector. Yeh, they have their days, but when the big momentum shifts and reality sets in, those bulls that beat their chest from $12 to $15 and tell me that I missed the move and have been on the wrong side of the market don't show up and send me e-mail when the stock gaps down to $10 two day's later. I'm quickly losing track of the bullish moves we've missed in Lucent (LU) the last couple of years.

  Austin Passamonte   3/13/02,  2:20:59 PM
They aren't always this easy and some sessions plain outright stump me, but today was methodical as one could ask. Just short the open or the first & only failed bounce and ride the intraday charts down (in harmony with daily chart signals) from there.

I had to settle for 0.50 on my Q Mar 37 puts opened at 0.30 even though they have a good chance of doing better. Wendy's got a ton of "honey-do" tasks lined up for me out here in NY while we try to squeeze three weeks worth of socializing into one. Don't family & friends realize the markets rule our lives? Something about balanced wheel of life, etc rings a faint bell.

We'll look at longer-term charts in tonight's Market Wrap but suffice it to say I would not be considering index call options of any kind right now! Tonight we'll all see just why that is together.

  Jeff Bailey   3/13/02,  2:11:28 PM
McKesson (MCK) $35.58 +3.04% ... hmmmm... Eric's comments about Cardinal (CAH) sounded like similar company profile as McKesson (MCK). Some may remember the high flying software stocks HBO Company (HBOC) that was bought my McKesson. HBO Co. was a major competitor of PeopleSoft (PSFT). McKesson thought they could buy the HBO software company, then combine that with some of their other back office support and drug distribution and kill 3-birds with one stone when a sales rep visited a hospital or doctor's office. May be some "trickle-down" economic taking place here.

Pure HMO's lead, then things pick up as they order patient management software systems. Older Americans start popping more pills to cure what sickens them.

Aren't seeing any trickle-down economics in the telecoms are we?

  Eric Utley   3/13/02,  1:10:09 PM
I thought I'd pull up a quote.

Cardinal Health (NYSE:CAH) is a diversified provider of products and services for healthcare providers. This is a group, the HMOs, that Bailey and I have been bulling for several months. Cardinal is not a pure play provider like, for instance, Oxford Health (NYSE:OHP). Cardinal is more of the back office support for the broder health care industry. Its services range from drug distribution to IT systems for hospitals.

The stock has not participated with the bigger move in the HMOs. Part of Cah's under performance may have been due to its association with Kmart. The now bankrupt retail chain accounted for about 5 percent of Cah's sales. Profits from those revenues, however, were even smaller due to a "unique consignment structure."

The company is expected to grow earnings by about 20 percent annually this year, which may start to appeal to investors after the recent warnings and reduction of expectations in other sectors of the market.

Technically, the stock is still under performing the broader market Link in terms of relative strength. But after today's move, the stock is closing in on a meaningful breakout above $68 Link -- a triple top resistance level. The current vertical count is $89, which I think makes for a good six to nine month goal using the $68 action point with a stop at $63. About $5 of risk for $21 upside potential.

  Jeff Bailey   3/13/02,  12:40:59 PM
eBay (EBAY) $57.17 -2.56% ... do like we did in today's 11:00 update. Slap a regression channel on eBay from the 12/05/01 high and drag her down. Note that the mid point of the regression channel is just about dead even with that "potential" left shoulder of a reverse head/shoulder. Hmmmm... also an upward trend line on the bar chart from the 04/04/01 low attached to the pullback at 09/27/01. Be aware of the $53 level as potential support if short/put.

  Jeff Bailey   3/13/02,  12:33:59 PM
eBay (EBAY) $57.26 -2.4% ... stock isn't on top of my list as a short candidate in here. Decent setup for short with stop just above the recent high of $60.90, but what's my near-term downside?

One thing I see is "potential" reverse head/shoulder pattern in daily. Neckline is $60, could see pullback to $53, then what? Link

P/F Link does look compelling for short and we do get good feel that stop should be placed at $61. With bullish count currently $83, BEAR MUST have stop at $61.

  Jeff Bailey   3/13/02,  12:16:52 PM
Confused? Don't be. Forget what you believe or hear and trade what you observe! If we listen and take as "truth" everything somebody says on TV then we're going to most likely get crushed at some point.

I doubt that any subscriber agrees with everything I or "even Austin" writes. We all know not to disagree with Eric and Mark makes some very good points from time to time. However, we can listen, think, and then execute if it makes sense.

Make some observations, put together some scenarios (bullish and bearish), then control your risk and trade your targets when they're achieved.

  Jeff Bailey   3/13/02,  12:14:35 PM
That's right Bob! You tell them. This economy stinks and us bears know it! Lucent (LU) is gonn'a trade a new 52-week low soon and this economy is going nowhere fast!

  Jeff Bailey   3/13/02,  12:13:01 PM
C'mon Bob bears have been stinking wrong since September 21st when the Dow Industrials traded 8,062. Don't give me this "story" that the bears have an argument with today's retail sales number. The Dow is at 10,524.

  Jeff Bailey   3/13/02,  12:01:03 PM
Peregrine Pharmaceuticals (PPHM) $2.51 -7% ... no news that I see, but stock doesn't have a lot of daily type news. Pulling back to $2.50 and back below its rounding 50-day. Shorter-term trader looking for the door if long from $2.50, but longer-term investor not worried unless break below 200-day down at $2.00.

This is kind of an interesting look at PPHM. I've taken p/f chart, and setting are "percentage" and 2% box scale. While I'm playing with the % numbers to give me some type of feel for trends and how stock might trade, you can almost take a straight edge down from the top, just like the bar chart.

Last night I got a good question from a subscriber. "Do you (Jeff) interpret "bullish triangle" formations or trends from the % scale charts?"

I don't. This percentage stuff is rather unique to www.stockcharts.com. It gives a different view of things on a percentage scale, but I don't believe Professor Davis or Charles Dow used the percentage scale. Call me "old school," I guess.

However, that doesn't mean we might not find something from time-to-time, like a trend line, that does seem to have had meaningful impact on things. If found, make the observation and then plan for it. Don't just blow it off or ignore it and pretend it doesn't exist.

  Austin Passamonte   3/13/02,  11:54:32 AM
That feeble attempt to rally near 10:00am gave us another nice entry to short. Picked up some QQQ Mar 37 puts for 0.30 now trading 0.50 and from the looks of D/60 chart signals are not finished appreciating yet.

  Eric Utley   3/13/02,  10:49:58 AM
I like Bailey's observation in Microsemi (NASDAQ:MSCC). The Chips (SOX.X) went on a sell signal Link this a.m. with the print at 590.

  Jeff Bailey   3/13/02,  10:38:38 AM
Blast from the past Here's a name long-forgot. Silicon Graphics (SGI) $4.79 +7.6% breaking to a new 52-week high after announcing "significant" Q4 sales wins. Link

P/F chart shows break of bearish resistance trend back at $3.50. Look at that "low pole warning" and potential hint that longer-term reversal of fortune. Expanded p/f chart shows bearish reistance trend had been in place since August 1999. Now that's a long-term trend! Link

Interesting ... a trade at $5.50 would have this one breaking out of a nice little 2-year base. A base that some feel many technology-related stocks may have to form to ever achieve levels found in 1999 or 2000. Could it be that SGI becomes a "leader" in the tech arena?

  Austin Passamonte   3/13/02,  10:31:44 AM
Same-same market today as Wednesday? Morning plunge, then the buyers swoop in to ramp it up, only to get beaten back down on the next gap-lower open? All charts are still bearish and I'm playing the downside lightly. No hyper-active trading for me this week on dial-up service out here in the sticks... temporary setup to trade from negates flying in & out at the speed of cable access.

  Jeff Bailey   3/13/02,  10:28:48 AM
Oxford Health (OHP) $40.02 +2.1% ... Link stock still trading strong and helping pull HMO Index (HMO.X) Link 492.69 +0.7% near top of sector leader board today. Also strong is Morgan Stanley Health Care Index (RXH.X) +1.2% Link .

You can see the technical "superiority" of the hmo stocks can't you?

  Jeff Bailey   3/13/02,  10:21:31 AM
Biotech HOLDRS (BBH) $123.51 +1.69% ... every stock that is component of this group is in the green today with exception of QLT Inc. (NASDAQ:QLT) $18.69 -2%.

Turned bullish the BBH in late February near $120 for "tech bulls" wanting to avoid some of the potential negativity that might come from economic type data. Hasn't been gangbusters, but steady. P/F chart has been more bullish with recent triple-top and break of bearish resistance trend. Link

  Eric Utley   3/13/02,  10:17:42 AM
The weaker-than-expected Retail Sales Report is causing a little pop in Treasuries, taking some money away from stocks. Bond market participants see that 5.266% (risk-less) yield in the Ten-Year (TNX.X) and think that sounds pretty good after the retail sales report helps to ease inflation fears.

  Jeff Bailey   3/13/02,  10:15:42 AM
Biotech Index (BTK.X) 520 +2% and extending earlier gains. Sector "bellwether" Amgen (AMGN) $60.46 +1.47 making its way higher right here at 200-day moving average. Bulls looking for potential entry point on break at $60.62, just above the 03/06 recent relative high, then has some upside to downward trend on bar chart at $65. Link

  Jeff Bailey   3/13/02,  10:12:36 AM
Rockwell Collins (COL) $23.84 -0.5% ... will show bar chart in 11:00 Update with regression overlay that we talked about here from Monday. Yesterday, stock traded down right from upper level of regression (2 std. deviations) and now sits right on mid-trend of this regression. Should we get a pullback to lower part of channel, that would be near $22.50. That would correlate well with the way I have my retracement brackt ($28.46 to $12.95) at 61.8% retracement of $22.53 and very good bullish entry for new bull to stock. Still like the April $25 calls as lottery play with all that is taking place in middle-east and "war on terrorism." The more time a trader can afford to buy the better.

  Jeff Bailey   3/13/02,  10:04:46 AM
Retail Index (RLX.X) 949 -1% ... not getting hit like some might have thought (me included) after this morning's retail numbers. On my way to work was thinking about how strong Kohls (KSS) has been and looming bullish triangle with trade at $70 and sector bellwether Wal-Mart (WMT) has also traded.

Remembering that part of "consumer confidence" is how NASDAQ performs and despite telecom and related telecom-equipment stocks, NASDAQ has done OK. May then have March retail numbers showing more strength a month from now.

Could also be that fund managers still have some window dressing to do before the end of March and retail has been strongest sector in recent months and may still have many stocks finding bidders on end-of-quarter window dressing.

  Jeff Bailey   3/13/02,  9:57:54 AM
April Light, Sweet Crude (cl02j) $24.30 +0.4% after larger than expected drop in inventory levels and the decline in oil exports by Iraq lifting prices.

  Jeff Bailey   3/13/02,  9:56:13 AM
Sector Strength found in Biotech Index (BTK.X) +1 and Oil Service (OSX.X) +1.8%, with marginal gains in Oil (OIX.X) and Nat. Gas (XNG.X).

  Jeff Bailey   3/13/02,  9:54:56 AM
Networking not working ... further weakness in Networking Index (NWX.X) -3% on recent telecom weakness. Wireless Telecom (YLS.X) -1.5%, Fiber Optice (FOP.X) -1.4%, Combined Telecom (IXTCX) -1.95% and N. Amer. Telecom (XTC.X) -1.35% all showing weakness this morning.

  Austin Passamonte   3/13/02,  9:54:52 AM
One fact I remembered this morning is how dead-on Jeff and Eric were in February about bullish percents turning positive for the indices. Remember when Jeff called a buy signal on the SPX near 1094 or some area like that? It was a tad early and took heat in the next couple sessions but traders who would have stayed long above those levels would have seen roughly +80 index points upside range after that.

I keep an eye on these readings every night and am personally grateful that Eric & Jeff take the time to feed us this info in concise form.

  Austin Passamonte   3/13/02,  9:50:50 AM
All D/60/30 chart signals are just beginning bearish reversal rollovers right now. I'm short this market and expect to continue playing that way until such time that charts turn bullish again. Mindful of our capital allottments for options this week: 100% risk capital and no stops from here on out for opening new option plays.

  Jeff Bailey   3/13/02,  9:50:37 AM
Speaking of Celesitca (CLS) $38.45 -1.05% ... good looking short/put again here at $38.45. Stop just above $40 and target $32 again. Willing to play a stock until proved wrong. Link

"First test of bearish resistance can be painful for the bulls."

  Jeff Bailey   3/13/02,  9:48:37 AM
Adelphia Communications (ADLAC) $24 -1.07% ... yesterday I profiled this one as short/put at current levels. Last night was snooping around and saw 500 contracts traded yesterday in the March $22.50 Calls (ADUCX).

I'm thinking "nobody foolish enough" to be buying in the money calls just before expiration, so the must be a willing seller and using the calls to get a little premium, but willing to get rid of some stock on Monday.

Last month, subscriber noted similar action in shares of Celestica (CLS) that I had profiled short/put near $39, where open interest was large at the $40 level. Stock got hit following week after option expiration to $32 level.

  Jeff Bailey   3/13/02,  9:38:25 AM
Phelps Dodge (PD) $41.89 ... Merrill downgrading to near-term "reduce/sell" from "neutral" and lowering it long-term rating to "neutral" from "strong buy." Merrill looking for improved results in 2003, does not believe the magnitude of the expected EPS recovery justifies current price. Notes that stock is trading at nearly double the N. American mining peer group average of 16.1 times earnings. Link

Short-term oriented may take some profits off the table here. Merrill has been wrong on this one for some time. Get the feeling today's call is chance to bring in some sellers, get stock to pull back so they can get some cheaper after missing the move.

Here is a % scale point/figure chart of PD. Might look for nice pullback to upper $30's at/near $37.50.

  Austin Passamonte   3/13/02,  9:36:41 AM
Look at those pretty screens... blood red; the color of life! With our first winning trade behind us and the cash markets due to open in five minutes, holding a growing number of distant-month OTM puts does not feel like a bad plan of action right now. S&Ps -11 points off intraday highs and the opening bell has not even rung yet.

Looks like this could be a real fun day straight ahead from here!

  Jeff Bailey   3/13/02,  9:33:45 AM
"This dog will hunt" Securities Exchange Commission looks to be on the hunt again this morning. Today's "catch" is eFunds (NASDAQ:EFDS) $18.47, trading down 10% at $16.84 after announcing SEC is conducting informal inquiry of eFunds following the company's March 4th announcement regarding the restatement of certain 2001 results relating to the acquisition of Access Cash.

  Austin Passamonte   3/13/02,  9:33:13 AM
My plans for short-term option trades today are very simple: follow the triangle patterns depicted in last night's Swing Trade gameplan section, puts below and calls above the respective consolidation patterns. That equates to roughly DJX 105.90 for puts and 106.50 for calls which were not charted in there. Together with price channels tracked for many days in those same charts, we have easy points of reference to follow!

  Jeff Bailey   3/13/02,  9:27:33 AM
Microsemi Corp. (MSCC) $20.20 ... shoot! Stock set up nice "inside day" and am looking short. Stock trading $18.42 in pre-market after UBS Warburg lowers price target to $25 from $40 based on relative valuation. Link

Can still look short today, but would like to get some ticks above $19. Stop goes just above yesterday's high of $21.20 to start and would cover on near-term weakness to $15.

  Austin Passamonte   3/13/02,  9:23:38 AM
Whoa Nellie!!! At 8:15 I set a sell-limit in the GLOBEX at 1172.00 with stop at 1176.00

I see the market plunged -8.00 from my short entry? Covered... hit buy market order and ring the register!!! Who needs 9:30am to arrive before making breakfast money?

  Austin Passamonte   3/13/02,  8:32:56 AM
A long-time friend writes: "Austin, keep skewering them analysts! I lost nearly my entire fortune following their advice in 2000. Wish I listened to OI closer instead. Cheers, [MO]"

I have nothing personal against sell-side analysts who try to dispense market "advice" from their arm-chair turrets. But it reminds me of the upcoming NFL college draft and Mel Kiper Jr., a self-made draft expert. This guy's entire life is consumed by that single two-day event each year and nobody has more memorized stats, facts & figures than Mel.

But he never played football at any higher level... how can he know the reality of what it takes for a player to succeed? Nor have I ever heard Mel admit that he blew a pick on where a player should go in the draft... it's always some other excuse.

I for one would love to hear Abbey-Clueless, Bullapaglia, Acampoorer or any of the other salaried analysts come on CNBC and say, "We blew that debacle in 2000 big-time. We totally stunk. Can you ever forgive us from touting all those falling knives we touted that carved you to pieces on the way down?"

But they won't because they can't. Impossible to admit one was wrong at something when they never even played the game, and none of these salaried analysts traded in the trenches alongside us. When I'm wrong (frequently), my account balance admits that for me immediately!

Final word on analysts, who do not merit the discussion given here as we wait for the opening bell. I almost forgot how much EST time on our hands we have before the action finally begins. Think I'll take a quick stroll into the woods (less than 100 yards from the office) and listen for some turkeys to gobble. How's that sound, Jeff B.?

  Austin Passamonte   3/13/02,  7:38:32 AM
For now we have pre-market futures positive as expected, but will see how things shape up past 8:30am for a true read into the market's open. As noted in last night's Index Wrap and Swing Trade gameplan charts we have the makings for a solid pop here today and if so, I hope it doesn't waste half the trading energy on a gap-up open!

  Austin Passamonte   3/13/02,  7:35:06 AM
Great Morning!

A note from a long-time reader and good trader passed along to me:

"Man, you sound like a Fleckenstein parrot. Since that comment is nearly verbatim what that idiot wrote recently. I am convinced Fleck is the stupidest person on wall street. He's never made anyone a dime. What does annual PC sales and the MCs of these companies have to do with squat. Obviously nothing! Combined annual sales of the aforementioned companies 84.47B. Combined MCs 647.5B or 7.66 times. Too high, but not 8,000 times. Get real Austin. Don't comments based on a false premise. [WS]" Much as I respect my good buddy WS, part of that above statement is not true. Fleck cannot possibly be the stupidest person on Wall Street by a wide mile. That measure is shared jointly by Abbey-Cohen, Meeker, Battapaglia, Blodgett, Acampora and all the other pure salary mouthpieces who contributed to the loss of -$3 trillion from the bubble they helped create. None of them were paid on trading performance, which Fleck derives his income as a hedge fund manager right in the trenches just like you & me.

As for parroting, those tidbits were from an article I read in a local paper somewhere across Nebraska or Iowa on Saturday. Purely for amusement only, these type of "facts" if you will are certainly not tradable info any more than clueless buffoon sell-side analyst calls are.

MSFT, INTC, DELL, CSCO, GE, WMT or any other stock symbol means nothing to me... no more than soybeans, palladium or feeder cattle futures. Buy or sell the charts without emotion is my approach. The thing that makes stock trading muddy is the CEO's waving pom poms when things are bleak and the sell-side analysts parroting them.

When looking at any company reports good or bad, I mentally replace any stock symbol with a picture of live hogs commodity symbols, and that keeps me in the proper frame of mind. Those who bought into LU's rosy outlook not long ago and held thru yesterday's reality check might consider doing the same!


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