Option Investor
Printer friendly version
  Jeff Bailey   3/14/02,  10:46:23 PM
Coincidence? Jeff, there was a sale/buy for exactly 50,000 shares at 2:29 pm. Do you suppose someone covered their 500 call purchase/sale, and if so, should I be looking to cover my short??? Ain't this fun? Thanks for the heads up on a good short/put play.

Probably, but makes us wonder doesn't it? Considering that comment I made the other night about that obscure 500 call option trade in the March $22.50's as a potential sell to open.

Could be that comment I made at 03:58:30 wasn't so outlandish after all. Phone rings, trader gets the call for a big sell order, places part of it off in the account in the form of a naked March $22.50. Now the stock's trading $22.51. Hmmmm....

It's probably a coincidence. After all, 50,000 shares is chicken feed from the institutional perspective.

For a short-term trader, nice gain so far. Not sure how big of a position subscriber has short, but if a little edgy and needing a gain, then maybe snug a stop on 1/2 just above that 200-pd MA we talked about on the 60-minute chart Link or even use the 200-pd from the 30-minute chart as it seemed to try and support the stock yesterday, but when she was broken today, then whack! Link

  Jeff Bailey   3/14/02,  10:11:21 PM
Adelphia (ADLAC) $22.51 -2.5% ... Jeff...I'm looking at 200% profit on mar25p....thinking should sell mar puts....and roll into apr20 here....good idea or not?...I know the apr20 is still $2.50 otm...but, it would be a free trade from here.....

Gulp! Sell the Mar $25's and lock in that gain. Don't want to risk on some type of weird action that may come from triple-witch tomorrow. I've seen some terrible things happen to open positions so close to expiration.

Don't go "bonkers" and then blow everything on an out the money April $20 (AIEPD) offered $1, but think about journaling some profit to the rainy day fund, then pay about $1 more for an out-the-money July $20 put (AIESD) for $2 and get yorself 3 more months time.

Again... no stop would be used at this point on such a trade in the July $20's. Risking $2 on the option and that's about what a trader might risk in the underlying stock at $22.51, with a stop just above the recent relative high of $25.75.

Let's be cognizant of the facts at hand and the stock stopped dead in its tracks at $21.42 retracement. Lots of work to be done yet, so don't get greedy or complacent. Bears that do that, usually end up in the form of a rug on somebody's den floor.

  Jeff Bailey   3/14/02,  3:58:30 PM
Adelphia (ADLAC) What may all this mean?

Let's review past commentary. Lite volume up at $25 hinted that there was very little interest in the stock at that level. We were looking short, but wanted to see a level broken. Pulled up retracement and used it like a market maker might have and set alert for break lower of $24.08. Got that break on Tuesday so short/put there.

Market maker's phone rings... Customer says, "I've got 1-million ADLAC to sell, are you a buyer?"

Market maker checks inventory and he's a little long or not short enough so he says "Nope, but can take some at $22 and give you liquidity.

Customer: "I'll take it, call me when she's done."

Today market maker calling customer back with his/her fill after working the order for a couple of days.

All we can really draw from this is that there may not be much interest in the stock at levels much above the $24 level. If there was, then most likely the stock wouldn't have dropped to retracement support of $21.42. There may well be some interest in the stock at that level. We never know for sure what the market maker's order flow is like, but we get the feeling there isn't a lot of interest above $24.

  Jeff Bailey   3/14/02,  3:49:31 PM
Dirty rotten trick Wouldn't it be a dirty rotten trick if that 500 contract we pointed out on Tuesday in the ADLAC March $22.50 calls (ADUCX) was an institution selling a $2.00 call option, then dumping a couple million shares since that time? Then just sitting on the $22.50 level to make sure he/she gets to keep that $2.00, while at the same time selling a position?

Makes you wonder doesn't it? Will have to wait until tomorrow to find out.

Even more "rotten" would be if they bought Mar $22.50 or Mar $20 puts. Let alone the Jan03 $20 puts.

  Eric Utley   3/14/02,  3:44:15 PM
We've seen the relative performance gap between Mckesson (NYSE:MCK) and Cerner (NASDAQ:CERN) narrow by quite a bit in the last hour. CERN is higher by more than $1 since my initial posting. Some of its move, I think, came from the rebound in the market. But its also displaying some relative strength here in the final hour. Kind of interesting...

  Jeff Bailey   3/14/02,  3:40:47 PM
Adelphia (ADLAC) In 03:00 Update (just getting done) will show a "blow up" chart of ADLAC on 60-minute time frame. Right now I'm looking at the stock "rallying" back to the rolling 200-pd on the 60-minute. Market maker probably checking some order flow and gettng feel for any buyer interest. If he/she doesn't get it, then will get more defensive. Link

Do you think the market maker bought 1,000,000 shares long in his/her inventory at $21.42? Or do you think he/she was short (maybe just above $24) from a couple of days ago?

  Leigh Stevens   3/14/02,  3:03:34 PM
last hour Several hourly lows have formed at the 1151 level on the hourly chart in S&P 500 (SPX) trading. As the formation that lies overhead looks top heavy, I assume this 1150 area will give way. A next objective then would look to be 1135, just because it's the 38% retracement, but chart support doesn't begin to look solid until around 1125. There is a little gap showing on the hourly chart at 1131, so that will be a target also. If GE breaks $40, this is bellwether for the Dow and the S&P, so a key stock to watch. On that note, next support in GE looks like 38.00.

  Jeff Bailey   3/14/02,  2:58:37 PM
Adelphia (ADLAC) $22.14 -4.11% ... not sure if that was a bad tick at $21.42 or not. If not, then that is 80.9% retracement level and may see some bears locking in short-term gains there.

Looks like trades took place there, but not too worried about any powerful rally.

  Eric Utley   3/14/02,  2:16:25 PM
I'm taking a look at this Cerner (NASDAQ:CERN) at its triple bottom today Link . I have a retracement level at $42.50 area, reinforcing the signifigance of $43. Finally, the first sell signal from the top gave a bearish price objective of $43.

I find CERN's weakness peculiar. The company provides IT services and products to healthcare organizations. Bailey's observations in Oxford (NYSE:OHP) today tell you how that group has been trading. Because of its link to healthcare, I'm nervous shorting this stock on a triple bottom breakdown. So nervous, in fact, that I'm anticipating a bear trap. That is, the stock gives the triple bottom sell signal only to reverse and trap those shorts who jumped on the breakdown.

If we see the HMOs (HMO.X) breakout to a new high, then I'd expect the earnings growth from those big healthcare players to eventually trickle down to companies like Cerner and McKesson (NYSE:MCK) -- those companies that supply IT services to the care providers. What's interesting is the divergence between MCK and CERN. MCK has a drug distribution business, but the company also is the big player in the IT healthcare business. If the move is for real in the HMOs, which MCK is confirming, then CERN should play catch-up with the recent rally in MCK. In that case, buying CERN and shorting MCK may be a smart way to play the narrowing of the spread between those two stocks.

  Mark Phillips   3/14/02,  1:58:50 PM
Another interesting point is the number of individual stocks I'm watching that seem to be gravitating toward the strike prices with the highest open interest of open March options as we approach expriration tomorrow. GE is gravitating towards $40, and VRSN is orbiting the $30 level to name a couple. And then we have BRCM, trading just a smidge below the $40 level, the stike that has the highest number of outstanding calls (although puts are heaviest at the $30 strike).

Of course there are others, as this is just a sampling. It does however make a powerful case that we need to pay attention to where those heavy Open Interest values are the heaviest, particularly during expiration week.

  Mark Phillips   3/14/02,  1:57:29 PM
I would have to agree with Leigh...all signs are pointing to more downward action ahead. (Welcome aboard, by the way!) Have you noticed the ADVDECV indicators over the past couple days. We've had numerous attempts by the bulls to prop up price action, but there isn't any conviction in the breadth indicators, which have been starting out the day weak and then deteriorating from there. Internals on the NAZ looking a bit stronger than the broader market, but not enough so to get any bullish juices flowing.

And with the VIX continuing to lurk below 22, I'm of the mind that we could see a decent decline in the broad market over the longer term. Like Ausin, I'm in the process of accumulating back-month puts on each failed rally.

  Jeff Bailey   3/14/02,  1:44:33 PM
Neogen Corporation (NEOG) $17.10 +3.57% ... mentioned this one as bullish yesterday in market monitor on break at $15.71 retracement. Next retracement that might serve as resistance is $17.86.

Subscriber changed his scale on p/f chart to $0.25 box to bring more "noise" into chart and this is what he saw. Link

We still see $18.50 as probable challenge.

  Leigh Stevens   3/14/02,  1:34:07 PM
Hourly chart updates ; SPX - looks like next swing from here (last at 1154.28)will be down - SPX trading quite near to it's 200-day moving average (1147.56) & when this level gives way, especially on a closing basis, this will generate more bearishness; NASDAQ Composite (at 1862.59) -- same as SPX picture in terms of next short-term move likely to be down; DOW Industrials (at 10,528.80) - rounding top pattern;

  Jeff Bailey   3/14/02,  12:59:41 PM
Oxford Health (OHP) now getting the feeling that longer-term bullishness starting to present itself more evident and getting some conviction from observations made back in mid-January of $36.

Feeling/observation is that that HUGE volume spike and gap higher was "initial position" by institutions. Recent little pullback and BIG VOLUME was a round-out of some longer-term positions. Now looking for what takes place should stock break to new 52-weeker. Who's going to sell? Are there "huge" profits from $36 to be taken? Or do they have a much higher target in mind? Where's the supply going to come from after recent volume spike on the pullback? Is supply evaporating?

Me thinks so in a big way.

  Eric Utley   3/14/02,  12:58:44 PM
Either Bailey or I (or maybe both of us) recently pointed out the potential for a bullish triangle in retailer Kohl's (NYSE:KSS). That bullish triangle came to be Link not too long ago. The bullish triangle that KSS completed is the type that I really like: it's a strong stock in a strong sector, trading near its highs.

There's some decent short interest in this stock, which I can only assume is based on the valuation thesis. Those shorts should be getting nervous in here with the bullish triangle now complete. In a decent market environment, I think the stock could pop up to $71.50ish very soon on short covering. Beyond that, the stock could breakout from its recent 3 1/2 month consolidation. The vertical count for KSS is 85. I'm playing this one with time extra time.

  Jeff Bailey   3/14/02,  12:54:40 PM
Oxford Health (OHP) $40.77 +2.69%... "Can't be happening" says the bear.

"It is says the bull and MACD now crossing above signal and just above zero. Link

  Jeff Bailey   3/14/02,  12:49:23 PM
Adelphia Communications (ADLAC) $22.80 -1.29% ... a couple of nights ago in market monitor I noted an "obscure" options trade in the March $22.50 calls and thought may be an institutions hedging a position or ready to sell some stock and used the option market to do so. Interesting that stock has gravitated toward that level with option expiration tomorrow. Either that, or somebody found out about a potential "big seller" in the stock, and sold the calls naked?

  Jeff Bailey   3/14/02,  12:45:13 PM
Raytheon (RTN) $40.32 +3.65% ... stock breaking to new highs. Rumor circulating that Lockheed Martin (LMT) $57.01 +0.05% may be bidder.

  Jeff Bailey   3/14/02,  12:00:25 PM
Nortel Networks (NT) $5.02 -3.64% ... have alert set on this one at $4.75, which would be break to all-time low. As it relates to network equipment, LU and NT are the "big guns." Both look to be at the tail of the snake with NT about 1 inch up from the tip of the tail occupied by Lucent (LU).

  Jeff Bailey   3/14/02,  11:39:40 AM
No stop on CLS puts? is reader question.

Why would I use a stop on a June expiration put that cost me just $3.40? If I would normally short 200 shares of CLS at $38 and have a stop at $41, I'd be risking $3/share or $600 to my stop right?

Get over it and concede the loss with the put price of $3.20, forget about it and set an alert at your bearish target.

Do you see how you are properly assessing and UNDERSTANDING your risk with this type of strategy, BEFORE you ever made the trade? Problems occurr when you make a trade, and suddenly realize that you overleveraged and were wrong.

The less experienced options trader OVERLEVERAGES and buys 20 puts contracts, which would be control of 2,000 shares, which he/she would never have shorted in their account to begin with. That is a strategy for failure when trading options.

Then he/she uses a stop, gets stopped out in an hour, and never was allowed the opportunity for the trade to work until June expiration.

I get so many e-mails from subscribers that complain about getting stopped out and then the trade worked in their favor.

Do your research. Assess risk/reward, set some targets, initiate the trade. When a target is achieved or something takes place that impacts your original scenario (news/new information) then either take your profit, or reassess things with the new information.

If I'm profitable in an option trade and I find any type of news that has my scenario at risk and I become uncertain about things, then I close the trade.

  Jeff Bailey   3/14/02,  11:12:20 AM
e-mail problems "Techies" are in the process of switching over our e-mail servers at OI and this is finding some problems.

This didn't just start today. They've been working to try and fix since yesterday.

  Leigh Stevens   3/14/02,  10:51:42 AM
Technical Comments on Most Actives list this morning - Lucent Technology (LU) continues to trade down below $5, the low end of its multimonth trading range. On 3 occassions when stock has traded down into 5.50-5.00 area, it has rebounded $2-3 dollars. Stock is getting oversold on an intermediate-term basis; K-Mart (KM) - rebounding a bit, but chart looks like a pattern that only suggests a temporary rally; SUN Micro (SUNW) has rallied from $8 area, which is a double bottom low. Stock looks like a potential buy on pullbacks, with initial upside potential to 13.50-14.00 area, which is a major resistance overhang; WorldCom (WCOM) - rebounding recently from area of '94-95 lows, but stock has major resistance (anticipated supply) in 13.00-13.50 area; Cisco Systems (CSCO) is up a bit from recent hourly lows in 16.30 area, but better support looks to be $16. Overhead resistance at 18, then 19-20.

  Jeff Bailey   3/14/02,  10:46:23 AM
Triple-Witching is tomorrow, so understand there will be some near-term volatility as institutions shuffle some positions around and roll some positions to June expiration.

  Jeff Bailey   3/14/02,  10:38:21 AM
There is no 50-day or 200-day support for CLS Link or ADLAC Link .

You get the picture.

  Jeff Bailey   3/14/02,  10:32:46 AM
Intl. Paper $43.48 +0.34% ... was downgraded yesterday by Prudential, what do we do?

Stock could easily pullback to $40 and first sign of trouble is $37. Must assess risk/reward, review your account in scheme of things. Longer-term vertical count is bullish to $65, so right now, risking $9 to a sell signal, with about $22 reward. Not the greatest for new bull entry, so thinking stock may pull back and then look more attractive. Link

Relative strength is strong, so not on my list as short/put.

Also noting that the 200-day MA is down at $39, and that would tie in nicely with a little pullback on the point/figure chart.

Just trying to use some of the tools in the toolbox to look for some nice support levels. Could also see some support at the still trending higher 50-day MA.

  Jeff Bailey   3/14/02,  10:19:17 AM
Charles Schwab (SCH) $14.25 -3.7% ... stock breaking back below the 200-day and should have any bulls taking defensive action here.

  Jeff Bailey   3/14/02,  10:15:07 AM
Adelphia Communications (ADLAC) $22.92 -0.7% ... highlighted this one on Tuesday as short/put at $23.99. Goal today would be to get a trade at $22 and get chart back in column of O's. Link

The axe falls on a trade at $18.50, which would be a spread-triple-bottom.

Lots of work to be done, but both stocks (ADLAC, CLS) have that "telecom" exposure that I'm looking for.

  Jeff Bailey   3/14/02,  10:09:55 AM
Celestica (CLS) $38 +0.02% ... I like the June $35 puts (CLSRG) $3.40.

If a trader would normally short 200 shares here, then risk to stop is about $3. So, just buy 2 puts, and no stop (also risking about $3 in the put). Then strategy might be to take profit on 1 if stock delines to $32-$33 and hold the other. Will want one if that triple-bottom at $31 gets broken. Link

  Jeff Bailey   3/14/02,  10:00:28 AM
Lucent Tech (LU) $4.79 -2.84% ... Link not getting a rebound after breakiing the $5 level and fresh all-time low yesterday. Not a good sign at all. Since stock so beaten down, looking for stocks like CLS that are OEM's for company's like LU, CSCO and others, with thinking it will eventually catch up with CLS business to greater degree. Domino theory type stuff.

  Jeff Bailey   3/14/02,  9:57:13 AM
Celestica (CLS) $38.09 +0.28% ... I'm thinking bears should be looking for upticks on this one this morning. I have retracement from $48.02 to $23.02, which has 19.1% at $43.24 (resistance 5 sessions ago), 38.2% is $38.47 (broke this level yesterday), 50% at $35.52 (first target) and 61.8% at $32.57 (served as support in late February decline from $40).

  Leigh Stevens   3/14/02,  9:55:57 AM
Anticipated support and Resistance levels: 1. SPX - Near support: 1145, then 1135; 1120-1125 area seen as major support zone; Resistance: 1170-1175 2. OEX - Near support: 581-582, then 576; Best support seen in 570 area; Resistance: 592-594 3.DOW Industrials - Near support: 10,245, then 10,000; More major support at 9,700 - 9620; Resistance: 10,600; then 10,700; 4.NASDAQ Composite - Near support 1850, then 1825-1820; Resistance: 1900, at low end of hourly price gap, then 1935-1950 area; 5. QQQ - Near support: 35.30, then 33.40-33.00; Near Resistance: 39 area, then 42-43

  Jeff Bailey   3/14/02,  9:51:29 AM
Metro Goldwyn (MGN) earlier chart link from 09:39 comment was $0.50 box as I forgot to change scale back after looking at Treasury YIELDS. Here is correct chart on conventional scale. Link

  Jeff Bailey   3/14/02,  9:45:53 AM
ViroPharma (VPHM) $15.27 -12% ... Fulcrum initiates with sell rating. Firm believes that March 19 Antiviral Drugs Advisory Committee meeting for Picovir will result in a recommendation against approval to the FDA, Which could prompt a selloff of the shares down to as low as $7.50; firm also concerned about what it views as a very weak co-promotion partnership as well as a director's recent stock sales and hedging arrangement. Link

Current vertical count on VPHM p/f Chart is bearish to $9, so pretty close match with what Fulcrum thinking.

Good short/put here, stop $18. Stock hasn't given a "buy signal" in a long time.

  Jeff Bailey   3/14/02,  9:39:51 AM
Metro Goldwyn (MGM) $18.16 ... will most likely open lower this morning near $16.50 after company said it will price $10.5 million follow-on offering at $16.50. Link

  Jeff Bailey   3/14/02,  9:37:38 AM
Treasury bonds seeing selling this morning as 10-year YIELD edges ever so slightly higher at 5.35% and nearing a 5-session YIELD high. Link

A lot of corporate paper has come to the market recently and yesterday's $11 billion bond offering from GE Capital was a big one. Should expect some of the money coming out of Treasury's lately going toward the corporate bond market. The GE deal was in various traunches ranging from $4 billion of 3-year floating rate notes YIELDING 0.125 percentage points more than 3-month Libor; $2 billion of 5-year YIELDING 5.395% (compare to 5-year Treasury YIELD of 4.66%) and $5 billion of 30-year bonds YIELDING 6.844% (compare to 30-year Treasury YIELD of 5.775%).

  Jeff Bailey   3/14/02,  9:30:42 AM
Drillers Downgraded Salomon Smith Barney cuts 2002-03 estimates for drillers RIG, DO, NE, and GSF due to lower day rate and utilization assumptions; downgrades RIG Link and DO Link to "neutral" from "outperform" on valuation and shaky fundamentals, yet raises NE's Link price target to $46 from $41 and reiterates "buy" rating.

Interesting that "Solly" is not as bullish on the stocks trading below bearish resistance and more bullish on NE, which broke above bearish resistance (downward trend).

  Jeff Bailey   3/14/02,  9:23:20 AM
Bull Confirmed! The NYSE Composite Bullish % ($BPNYA) reached the 62% bullish level with yesterday's action and now has this market in bull confirmed status Link

A comparison would be the NASDAQ Composite Bullish % ($BPCOMPQ), which is still in bear correction at 53.2% and would take a reading of 58% to get into "bull confirmed" status. Link

  Austin Passamonte   3/14/02,  8:21:40 AM
Great Morning!

We see pre-market futures up a tad here 90 minutes before the bell. One thing's for sure about recent market action: neither bulls or bears can muster a real directional push right now. The next break of recent highs or lows could see the Dow squirt off 200+ index points in that direction. The way W/D chart signals look right now, don't be surprised if a significant pullback occurs in the next 13 live market hours.


Market Monitor Archives