Option Investor
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  Jeff Bailey   3/21/02,  6:58:39 PM
3Com Corp. (COMS) $5.44 +4% ... Company reports Q3 net loss of $0.12 per share, $0.02 better than consensus estimates. Q3 revenues were $356 million versus consensus estimates of $374.6 million. Company said it ended quarter with $1.37 billion in cash and short-term investments. Link

Stock trading higher at $5.73 in after-hours session.

  Jeff Bailey   3/21/02,  6:53:30 PM
Micron Technology (MU) $34.40 +6.18% ... reports earnings loss for Q2 of $-0.05 a share, which was better than consensus looking for a loss of $-0.07 a share. Q2 revenues came in at $646 million versus consensus estimate of $691.3 million. Company saying it ended its second quarter of fiscal 2002 with approximately $1.5 billion in cash and liquid investments.

  Jeff Bailey   3/21/02,  6:48:24 PM
Applied Materials (AMAT) $52.02 +2% ... Company announced that its Board of Directors has approved a two-for-one stock split of its common stock in the form of a 100% stock dividend. New shares resulting from this split are expected to be distributed on our about April 15, 2002 to stockholders of record as of April 1, 2001. Stock trading higher at $53.10 in after hours trading.

  Jeff Bailey   3/21/02,  6:45:38 PM
General Electric (GE) $37.45 -3.47% ... Company reaffirms guidance for Y02 (December); sees full year earnings in the $1.65-$1.67 per share range. Current consensus is for $1.65 per share. Edging up in after-hours at $37.65.

  Jeff Bailey   3/21/02,  5:45:54 PM
Solectron (SLR) $8.25 -1.43% ... electronic contract manufacturer reported Q2 earnings of $0.01 a share, which was penny below consensus looking for $0.02 a share. Revenues for quarter were $2.97 billion versis estimates of $2.96 billion. Guides Q3 lower with revenue in range of $2.7-$3.1 billion versus consensus estimate of $3.37 billion, sees a Q3 net loss in the range of $0.06-$0.04 per share versus current consensus estimate for earnings of $0.06 per share. Stock traded some size (50K and 38K) at $8.20, and currently trades $8.11 in after hours. Link

Taking some notes here as Celestica (CLS) $35.85 unchanged, is similar type of business.

  Jeff Bailey   3/21/02,  4:01:36 PM
Utility Index (UTY.X) 339.57 +2.29% ... interesting option trade in the April 355 calls (UTYDK) at $1.10, with 350 traded. Usually doesn't get much action.

reason I mention this is that as discussed earlier, I have retracement from $387.81 to $301.06, which has 61.8% right at 354.67. Somebody may have that as target.

The option was traded in one trade of 350 contracts.

  Austin Passamonte   3/21/02,  3:56:58 PM
Looks like I missed out on intraday trades both ways today... short the S&P from break below open at 1152 down to 1142 and then long from higher low near 1145 until 1155+ right now. Pretty lucrative session for traders who took one or both of these very basic trades, and hopefully that describes you! Painful to think what I missed out on but after many sessions like this we get semi-jaded to dollars flowing all around us. Still, why do the easy sessions always happen when I'm away? Has that ever happened to you? [wry grin]

I spent the session working on some projects with Leigh Stevens, one heck of a nice guy and author of a book on technical analysis due out in the stores real soon. Bet OI readers have a chance at autographed copies first? Looking forward to reading his work, for sure!

  Jeff Bailey   3/21/02,  3:48:41 PM
Micron Tech (MU) $34.12 +4.98% ... semiconductor bulls may want to put this one on the watch list for a bullish trade at $35. Trade at $32 may well be a "bear trap." Relatively good risk/reward trade and stock has been known to be susceptible to "short squeeze" type action. Link

Note the test of bullish support trend. Trade at $35 gets chart back into column of X and has bar chart trading back above a now rounding 50-day MA. Trade would then unfold more bullish at $40, a spread-triple-top and get vertical count bullish. Trend is still bullish here, with stop at $31.

  Jeff Bailey   3/21/02,  3:42:53 PM
Protein Desing Labs (PDLI) $18.20 +21% ... Hi Jeff, Any idea why PDLI is running like it is? I'm wondering why this stock is commanding so much buying and selling when the news seems to be contradicting the current direction and supports a bearish view.

Not sure, but maybe today's "bad news" regarding poor Phase II trials (see this morning's 09:00 intraday update) was what "smart money" had been waiting for and now covering/locking in gains on the bad news.

Point/figure chart has bearish vertical count of $11.50, which would only be negated with a trade at $18.50. Link

Will note the "first" bearish count from the December break lower was $16, so may be a risk/reward close out by bears, with thinking that there was more to lose now than potentially gain further. Bulk of damage may have been done.

  Jeff Bailey   3/21/02,  3:00:45 PM
Technology-related stocks finding too much of a bid today. May well be short-covering related, but not willing to sit around and let a decent gain evaporate right now.

  Eric Utley   3/21/02,  3:00:31 PM
Six days until month- and quarter-end. I'm wondering if some of this ramapage among the Nasdaq names isn't the beginning of an end-of-the-month mark-up rally...

  Jeff Bailey   3/21/02,  2:59:40 PM
Adelphia Comm (ADLAC) $21.42 -1.15% ... stock getting a bid here. If short/put, lets look to take some profits off the table from $23.99 and lock in some gains.

  Jeff Bailey   3/21/02,  1:53:33 PM
Staples (SPLS) $19.30 -2.57% ... same thing we do in ADLAC and COX, Utilities, we will do with IKN, ODP and SPLS.

I have retracement on SPLS from $27-$11.06. This has 50% at $19.03, which correlates rather well with a rising 50-day MA of $18.77. If looking to trade IKN long (tail) then would want SPLS to firm up at/near $19. Note how MACD just crossing below signal here and looks like pullback should be expected. Link

P/F chart is bullish for SPLS and normal looking pullback underway. Link

Aren't these short/put candidates? May be for very short-term traders, but when we've had some nice trade setups like we've had in ADLAC and CLS, why try and short strong stocks?

  Jeff Bailey   3/21/02,  1:45:41 PM
Reliant Energy (REI) $25.65 +1.38% ... this one looks much like that of Calpine (CPN). I see what Eric has done. He's covered the full anatomy of the "head" "mid-body" and "tail" of the snake with three different stocks, in the Utility sector.

Now... for extreme bullishness, the tail will move higher should the head continue to progress higher. Over time, what will normally happen in a longer-term sector bull move is these stock will move somewhat like an inchworm.

Imagine an inchworm moving across your desk. To move forward, the inchworm "moves his tail portion forward," anchors it, then pushes the head and body portion forward. Then anchors his head, pulls the tail forward and the process repeats itself.

Now, unlike an inchworm, the lead stock "head" will pull back somewhat after a move forward. It's when the head pulls back a bit, but the tail is anchoring or moving forward that we get some confirmation or belief that there's just a little profit taking underway at the head, which then eventually makes for an attractive entry point on the pullback to support.

  Jeff Bailey   3/21/02,  1:38:52 PM
Amer. Elec Power (AEP) $46.00 +1.54% ... technicals here very similar to that of the UTY.X itself. Daily chart here looks like it too giving the "cup and handle" today. Bullish vertical count of $59 ties in well with the vertical count from UTY.X, so I'd rate this one as "indicative of sector." Link

  Jeff Bailey   3/21/02,  1:35:50 PM
Per Eric's 01:00 update TXU $53.53 +0.6% ... first thing I note is powerful p/f chart, but today's gains just 0.6%. First thought is buy on potential pullback at/near $51 and rising 50-day MA, which correlates well with Quad-top breakout. Resistance broken becomes support.

  Jeff Bailey   3/21/02,  1:29:56 PM
Ikon Office (IKN) $10.80 +2.17% ... Jeff, Premier Investing had a bullish call on this stock a few days ago but was closed. Its now bounced off its 200day moving average. Could you comment on this as a possible play?

Sure!.... stock is approaching the 200-day MA. Last night I took a look at her, but was thinking that we should wait and see if we can't get some type of "inside day" or some consolidation. Give that MACD time to round out a bit. Link

Why the recent selling? I'm thinking that the first buy signal off the bottom gave a bullish vertical count of $10.75 ((11*3)*.25)+$2.50 and stock may have gotten a little ahead of itself. Link

I also used a "fitted" retracement whereby I anchored base at $2, then "fit" the 61.8% at the 9/19 lows near $6.82 and 38.2% at that little peak on 06/29/01 of $9.79 (MARKET sold that level the next day for some reason). If I can get stock to cooperate and consolidate right on the rising 200-day MA of $9.98 and right on this retracement of $9.79, get MACD to round out, and get some type of good bar chart "inside day" or tight action point where I can control downside risk, then will consider long.

Just as we perhaps use COX and ADLAC association, I too can look to association with IKN, SPLS and ODP in the office supply area. To trade bullish in IKN from a pullback, I need to see some upside moves or strength in SPLS and ODP. Kind of like the head of the snake pulling the tail (IKN) higher.

  Jeff Bailey   3/21/02,  1:15:22 PM
Cox Comm. (COX) $37.47 -2% ... yesterday we thought this one might act like a "sledge hammer" and any bearish action here might help "drive" Adelphia (ADLAC) like a nail into a coufin. Noting that COX tested 50-day MA and got bit of a bid there. ADLAC bear wants further weakness in COX as it is best that "like stocks" trade in unison. If we begin to see any DIVERGENCE, then we are alert to potentially lock in some growing bearish gains from ADLAC.

Perhaps we can see impact that past breaks of the 50-day MA has had on COX. MACD isn't looking too bullish here either. Link

  Jeff Bailey   3/21/02,  1:10:05 PM
Celestica (CLS) $35.30 -1.6% ... slipping below 50% retracement and looking weak. Next test for bears is short-term upward trend from daily intervals anchored at 09/21/01 low and attached to 02/22/02 low. This would be considered "young" upward trend as it is 19-days old.

  Jeff Bailey   3/21/02,  11:56:49 AM
Bullish % According to Dorsey Wright and Associate, the Electric Utilities is "bull confirmed" at 56% and turned "bull confirmed" on March 5th.

Gas Utilities is "bull confirmed" at 54% and turned "bull confirmed" on March 20th. (Hey, that was yesterday!)

  Jeff Bailey   3/21/02,  11:53:38 AM
Eric Utley is working on some bullish candidates in the Utility sector. Will be shown in today's 01:00 Update. I can't wait to see what Eric has for us!

  Jeff Bailey   3/21/02,  11:50:20 AM
Adelphia Comm. (ADLAC) $20.98 -3% ... nice, very nice. Now sets the stage for potential test of $18.76 or near-that level. In intraday commentary I showed a regression channel on ADLAC on daily interval chart taken from the Jan. 8th high down. Mid-point of that regression channel crosses nicely now with 100% retracement at $18.76. Would be a point to lock in partial gains for bears, but if she break there, then that longer-term bearish vertical count of $4 could be in play.

Would now move stop down to just above today's high of $21.86, say just above $22. Don't be complacent or get over confident.

  Jeff Bailey   3/21/02,  11:43:02 AM
Fannie Mae (FNM) $78.96 -0.10% ... Launched $10 billion of new 5-year and 10-year notes, still yet to be priced, so you and I have little info on what YIELD (which is more important) these will carry.

subscriber pointed this out to me and had question as to what "impact" this offering may have on stock?

This I can't answer, because I just don't know. It seems to me that this offering would be very common in order to raise capital to lend money for new mortgages.

What becomes most important is how FNM will potentially "hedge" these notes. Eventually we will get pricing (most likely above Treasury YIELD in 5-year and 10-year).

Well, I could try and analyze just what impact this offering might have and lord knows I'd have a 50/50 shot at that.

But!... if I trade an observation or scenario like we are doing, control our risk with a stop, and set a target for profit that makes sense as outlined in our trading discipline, then we should be OK.

To tell the truth, I don't think this $10 billion offering is that big of a deal as it relates to FNM. There would be "risk" if Treasury YIELDS were to drop considerably and leave FNM having just issued $10 billion at too high of an YIELD rate that they are obligated to pay bond holders.

However.... that risk could always be hedged by FNM shoudl they decide to buy Treasuries to help offset the debt offering.

In closing... it's not really what you or I think about this offering that matters. What is important is what the MARKET thinks. The MARKET is smarter than I am. It's your and my job to interpret the charts to try and figure out what the market is thinking "good or bad" and try to profit from it "bull or bear."

The break of $79.00 is my action point to be more bearish.

  Jeff Bailey   3/21/02,  10:55:55 AM
Fannie Mae (FNM) $79.20 +0.2% ... on my "short/put" list here as 10-year YIELD moves higher. Look for action to short/put on break of yesterday's low of $79 and target $75.50 for a trade. Link

If she breaks the March 8th low of $78.85, then might expect quick move to $77.53 by Friday's close.

  Jeff Bailey   3/21/02,  10:47:39 AM
Adelphia Communications (ADLAC) $21.36 -1.34% ...getting downside alert here at $21.42. This is what I feel is important near-term support a bears wants to see broken.

market maker may be getting a "feel" for order flow here, see what kind of selling he/she gets at the bid. Now playing some defense to the lows of $18.76.

For bearish trader still short/put, feeling a little better, but not complacent. Always expect the unexpected, this may be a "trick" to suck in some shorts. MACD is rolling and below zero so looking good for us bears.

  Jeff Bailey   3/21/02,  10:44:21 AM
Calpine (CPN) $13.65 +5% ... p/f obsevations made in past was that bullish vertical count was $19.50 and may get there over time and eventually challenge downward trend as stock works columns of X's and O's longer-term. Link

Relative strength vs. SPX very weak, so AGGRESSIVE BULLS ONLY and those that consider themselves "bottom feeders." Link

Relative strength vs. its sector "Utility" is strengthening near-term and would read "buy signal and column of X" Link

  Jeff Bailey   3/21/02,  10:39:21 AM
Calpine (CPN) $13.58 +4.14% ... sector action in the Utility Index (UTY.X) should help things further here. Subscriber has been e-mailing me from time to time, and we've talked a little about CPN in mentioning.

similar type of "cup and handle" presents itself here too. Good sector correlation I think. Link

  Jeff Bailey   3/21/02,  10:36:47 AM
Utility Sector Index (UTY.X) 336.68 +1.42% .... this is something not seen in sometime. UTY.X leading sector gains. Nice move underway here as index breaks above 200-day MA. Link

Looks like a nice little "cup and handle" pattern break out to me.

  Jeff Bailey   3/21/02,  10:31:33 AM
Coca Cola (KO) an option trader should be trying to do a preliminary vertical count should stock trade $51. I come up with early vertical count of $66. That observation made, what would be a reasonable strike/expiration date?

Professor Davis' study indicated the spread-triple-top is profitable for a bullish trade 85.7% of the time, for an average gain of 22.9% in 7.7 months. Since the potential bullish count exceeds a 22.9% gain from the $51 level ($62.67), then a November $50 call (KOKJ) currently offered $3.50 might make some sense if a trade at $51 were to take place.

If I would normally trade 100 shares of KO and risk no more than 10% as outlined in my trading discipline, then this trade would make sense for 1 contract and no stop would be used. I'd be risking roughly $500 in the underlying stock to a stop of 10%, so get it over with in an option, set an early alert at $55 and keep a closer eye on some of our more active and volitile technology-related shorts. (grin)

  Jeff Bailey   3/21/02,  10:23:07 AM
Coca Cola (KO) $50.13 +1.45% ... just mentioned on CNBC as Dow component nearing a 52-week high. Will set an alert at $51, which would be spread-triple-top buy signal. Link

quick check of relative strength vs. SPX is still rather weak and would read (sell signal, but column of X), so thinking 1/2 position only at $51 and buying time. Link

Relative strength vs. Dow Indu is weak and would read "sell signal, column of O". Very early if longer-term move is beginning. Link

  Jeff Bailey   3/21/02,  10:17:10 AM
General Electric (GE) $37.35 -3.7% ... I have retracement on bar chart from $53.36 to $30.37. This has 50% at $41.86 (has been serving as resistance) 38.2% at $39.15 (broken to downside yesterday) and 19.1% at $34.76 (served as support on 01/30 and 02/04) which would be bearish trader's target.

  Jeff Bailey   3/21/02,  10:13:14 AM
General Elec (GE) $37.41 -3.5% ... stock getting hit today on some fallout from PIMCO's Bill Gross comments we mentioned yesterday. Not good for Dow Industrials or S&P 500. May also weigh on some investor/market psychology. Link

Yesterday my thoughts turned from "bullish GE at $42" to "bearish GE and stop at $42".... bearish side getting the observation today and this is negative in my book.

Vertical count remains bearish to $28. Thus our previously wanting to wait for a trade at $42 to break downward trend and get the count bullish. Didn't happen so we were willing to be more negative on Bill Gross' comments. I do tend to listen to him closer than most.

  Jeff Bailey   3/21/02,  10:08:54 AM
Brocade Comm. (BRCD) $24.13 +4.4% ... getting upside alert I set yesterday on stock as it had achieved a bearish vertical count and don't want subscribers to get caught "too short." I watch the bearish counts very closely, especially when YIELD is rising and cash is bein freed up from bond market. Link

  Jeff Bailey   3/21/02,  10:04:53 AM
Celestica (CLS) $35.95 +0.27% ... stock just sitting near unchanged. I have retracement from $48.02 to $23.02, which has 50% retracement right underneath at $35.52. Stock hasn't traded ABOVE a previous day's high for several days and short-term trader could snug a stop down just above yesterday's high of $37.20 to be safe. MACD is rolling and below zero and we're looking for a break lower. Link

  Jeff Bailey   3/21/02,  9:59:32 AM
5-year Note ($FVX.X) has YIELD breaking to new relative high. Further sign here that market looking for Fed tightening in not-to-distant future. Link

  Jeff Bailey   3/21/02,  9:50:49 AM
Cross Country (CCRN) $27.30 +1.86% ... announces spot secondary of 9 million shares priced at $26.75. Link

CCRN is the largest provider of healthcare staffing services in the U.S. May be a stock to monitor near-term for "healthcare bulls" to see just how "hungry" the MARKET may be for healthcare-related stocks. We've been more bullish the healthcare group in recent months and secondary's can be good test. If the MARKET is hungry, they'll buy a secondary, and take more in market. If the market doesn't like, will still take, but dump if it begins to discount.

  Jeff Bailey   3/21/02,  9:46:26 AM
Apple Computer (AAPL) $23.75 -4.6% ... JP Morgan believes that profitability on the new iMacs may have come close to "evaporating" in the current quarter, after the company announced weak Jan/Feb volume levels and that component prices were so high as to force them to raise prices by $100. JP cuts Q2 rev/EPS ests to $1.35 billion/$0.06 from $1.45 billion/$0.11 and Q3 to $1.49 bln/$0.12 from $1.56 bln/$0.16, but maintains "mkt perform" rating and $25 price target. Link

In February, I tended to "shy" away from AAPL despite the triple-top buy signal at $25. The current bullish vertical count of $27.50 just wasn't enough to interest me. First sign of trouble would be trade at $20.

  Jeff Bailey   3/21/02,  9:39:53 AM
Selectica (SLTC) $4.70 +18% ... Enters independent software vendor agreement with IBM to market Selectica's (SLTC) Selling System on IBM platforms. Link

  Jeff Bailey   3/21/02,  9:34:36 AM
KB Home (KBH) $41.45 ... reports earnings of $0.95 a share, which is well above analysts estimates of $0.80 a share. Revenues rose 11.5% to $915.7 million versus the $858.4 million consensus. The company's overall cancellation rate remained above year-earlier levels in the first quarter, but showed sequential improvement during each month of the quarter. Link

Last night I did some "historical" work between Centex (NYSE:CTX) and the 10-year YIELD. Home builders have been in a strong bull market for the past 18-24 months. What I did is look at some weekly interval charts and slap some regression channels on YIELD and the stock of CTX. Right now, I'm taking a more "neutral" to cautious stance on the home builders.

The recent rise in Treasury YIELDS does have mortgage rates ticking higher. Not alarming as a $200K mortgage at current 30-year fixed rates would cost you about $50 a month more than it did back on October 4th, but the homebuilders have shown a tendency to trade in a gradual downtrend once YIELDS start edging higher.

  Austin Passamonte   3/21/02,  9:22:37 AM
CNBC non-trader anchors are grousing about Bill Gross' statements of GE debt paper yesterday. Ol' Mark Haynes got pretty upset and called this analysis of Gross "stupid". If that isn't the pot calling kettle black I don't know what is.

When Mark quits his desk job for a cushy salary and runs $25 billion successfully for years, his opinion on the subject of trading will matter. Until then he can merely entertain us by spouting wry sarcasm and not much more of trading value than that.

  Austin Passamonte   3/21/02,  9:17:38 AM
In last night's Wrap I mistakenly said my choice of DJX May puts were 103 strike price when in actuality I'm playing the May 104s.

The 103 strike was March contracts I played a half-dozen times or so and that number stuck in my head. So many symbols, so few brain cells dedicated to keeping all those letters & numbers straight off the cuff!

  Austin Passamonte   3/21/02,  8:50:53 AM
Great Morning!

With jobless claims down -12,000 in this morning's report, why aren't pre-market futures flying? A week and three ago this exact-same data would have spiked index futures to the moon. What is different two weeks later? Not a single, rational thing... proof that logic & reason have no part of successful trading. Those who try that approach are constantly changing their opinion of rational, and sound daftly silly to those of us arm's length from micro-assessment trying to logic their way thru market analysis.

On a technical front, intraday charts are all buried in oversold extreme but I would not be trading call options while weekly and daily chart signals are bearish as currently seen. Like it or not, shorting every failed pop for index trades is once again the modus operandi to follow for now.


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