Option Investor
Printer friendly version
  Austin Passamonte   3/28/02,  9:42:17 PM
Before I forget, please take note that I will be on vacation next week. Feel free to direct trading questions to Jeff or Eric and index questions to Leigh. Best Trading Wishes, Austin P.

  Jeff Bailey   3/28/02,  7:19:46 PM
Hanover Compressor (HC) $17.99 +5.82% ... natural gas bulls may want to add this one to their watch list for next week. Company's business is outsourcer of natural gas compression services.

Tonight, reported earnings of $0.24 a share, much better than consensus looking for $0.20 a share.

I like the stock for 1/2 bullish on trade at $18.50. Longer-term bullish vertical count of $33.50. Link

I like the HC September $17.50 calls (HCIW) offered $3.40 for those traders/investors looking to simply take 1/2 position longer-term.

or option trader looking to buy 1/2 then add another 1/2 to full on break of downward trend could buy 1/2 position of the September $20 calls (HCID) for $2.10 then on break of downward trend (should it happen) would then round out with another 1/2 position in the (HCID) again, thus having a full position.

While stock trades below trend, will only consider partial position. However, we note that relative strength vs. S&P 500 is strong and would read "buy signal, and column of X." Can perhaps see how a trade at triple-top buy signal of $18.50 could give another "buy signal" on the relative strength chart. Check it out! Link

  Leigh Stevens   3/28/02,  2:29:59 PM
Stock idea: Sun Microsystems (SUNW): SUNW is 2nd. most active today and has favorable chart pattern for a longer-term buy, with the formation of a double bottom on the weekly & daily chart, along with a rounding bottom pattern as well. With placement of stop under 7.5, risk is about 1.30 relative to an initial reward potential of $3-5, as an initial upside objective is back up to the 13.50-14.50 area. There is big resistance in that area, as supply (stock for sale in that area) should be substantial. Eventual upside could be to $20 area however. Repeating -- this is a longer-term outlook.

  Jeff Bailey   3/28/02,  2:10:53 PM
Check Point Software (CHKP) $30.69 -1% ... bears may want to take a look at this one as a short/put near the close.

Last night I was looking over our play list at PI and was thinking this software stock might get "painted higher" (profiled as short from $33.28) into the close of trading to make a fund manager's position look better for the quarter.

Isn't happening is it? With sector and the GSTI Software Index (GSO.X) 166 +2.4% showing gains, seeing some divergence here.

Very similar technicals here to what I see in the QQQ with the 50-day acting like resistance. There's some "air" to the recent lows of $26.80. Watch for a near-term break below $30 for decent short-term trade.

Bearish trader can also trade short here as yesterday was "inside day" and today's trading did break yesterday's low of $30.65. Stop for trader playing the "inside day" setup would be just above yesterday's high of $32.05. Link

  Leigh Stevens   3/28/02,  1:54:29 PM
Market Update: QQQ The Q's look like they could be consolidating for another minor upswing, but overhead resistance implied by the hourly down trendline is stopping rallies. However, move above 36 would be a breakout -- if achieved, next upside resistance is 37.

Meanwhile, QQQ most active options are puts, with Apr. 34, 33 and Sept. (long-term hedging?) 37 puts being most active. A QQQ move above 36.8, especially on a closing basis, would then have a bullish objective back to prior high in 39 area. Near and intermediate-term momentum oscillators on hourly & daily charts have turned up from oversold area, so probabilities favor upside in next 2-3 sessions.

  Jeff Bailey   3/28/02,  1:43:40 PM
Check it out and bookmark it! Synthetic Lease Link

Special thanks to subscriber AKA "Walking-encyclopedia" that sent me this.

  Jeff Bailey   3/28/02,  1:38:43 PM

Hey! That's the way to get some confidence back and get some gains to the bottom line. Some of these "boring" stocks aren't quite as volatile and a little "easier" to perhaps trade. Nothing wrong with a 46% gain in a rather short amount of time. Good trade!

  Eric Utley   3/28/02,  1:38:38 PM
For the QCharts subscribers among you, I ran across a listing Link of the sector symbols that the platform supports. I noticed a few sectors on the list that no longer trade, such as the Chemical, Health Care, and Insurance.

  Leigh Stevens   3/28/02,  1:14:20 PM
Market Update: Dow Jones (INDU) individual stocks: With the Dow tending to still lead the averages, here is a selected technical snapshot: Breaking out or renewing an uptrend > BA, & GM; rebounding from chart support > IP; DJIA stocks that are consolidating, but look to renew uptrends > JNJ, C, AXP, JPM & PB; Continued strong momentum or "strong mo" > KO; Breaking down > MMM

  Jeff Bailey   3/28/02,  1:02:17 PM
Ameren (AEE) $42.54 +0.73 Jeff... I don't get it... short ADLAC on the convertible, but you like AEE a couple days ago at $41.60 despite convertible... why is this?"

We addressed this in past. AEE has rather nice dividend of 9.75% compared to lower divedend from ADLAC's. Main thing was that AEE convertible has stock trading "above water" or benchmarked to placement date of February 27th when common stock was brought down at $40. This convertible is convertible into common at $46.61, but stock at $42.55 doesn't have convertible holder nervous. Besides... AEE has positive earings.

We could also simply look at the "technical superiority" of AEE. Bullish vertical count is $52, stock trades above trend and Utility Sector (UTY.X) finding some bidders recently. Link

Compare that to what we were looking at in ADLAC Link which traded below trend and had a bearish count of $5 and picture looks a little different doesn't it?

  Jeff Bailey   3/28/02,  12:52:27 PM
Jeff, Thanks for that ADLAC trade. I just jumped out of my APR 20Ps. Is there any more juice left on this trade to squeeze it again.

I think so, but best thing to do is "pretend" you're sitting on about $10 million of that convertible from $26. Are they going to pay you back your principal plus the dividend promised? Only way to hedge that convertible has been to short the underlying stock.

This has me thinking that rallies will get shorted. For potential levels to monitor see 09:55 market monitor.

  Jeff Bailey   3/28/02,  12:42:05 PM
If you get an opportunity, would you explain what a synthetic lease is and how it would effect earnings?

(GRIN)... I'm a technical analysis guy, but I've forwarded this question to a "real estate tycoon" in Manhattan with code name of "P-squared." He's pretty busy trying to sublease all that dot.com space in New York that is sitting idle, but if anyone knows, he will know.

Question comes from Cypress Semiconductor (CY) $22.96 +1.54% disclosing "synthetic leases" in today's 10-K filing, which were not previously described in such filings.

First thought with stock trading up 1.54% is that it may not be that big of a deal, but just never know. Good question.

  Jeff Bailey   3/28/02,  12:29:44 PM
Question Do you think it is a good time to get long here in EMLX and BRCD following Merril Lynch's bullish comments yesterday on storage sector?

Believe it or not, I thought about profiling each of these as potential bullish candidates, but I'm still having some trouble with these right now. While BRCD Link did achieve a bearish count of $22 as mentioned sometime ago, I just don't want to get traders hopes up for tech rebound right now. Stock is consoldidating on p/f chart right now.

Emulex (EMLX) did hold bullish support and this is "best" of the two for a bullish candidate. Trade at $34 would be a double-top buy signal and still trades above bullish support. Easy to see the downward trend on this one isn't it? Link

I do think that these are two stocks that are still more in "favor" and near the top of a bullish tech institution list. My "fear" right now is that these two stocks may indeed be seeing some recent upside by institutions that are/were "painting the tape" into the quarter. Funds have some bigger positions in these stocks and recent runs off relative lows may indeed have come from funds putting some money to work into the end of the quarter to make things in the tech fund look a little better by end of March.

I'm willing to wait until early next week and see if buyers are still around.

For now, EMLX on my list, but I would want to see some type of a "buy signal" as current vertical count is bearish to $17. If bull still wants to get long and just can't wait, then $26 would be suggested stop.

  Jeff Bailey   3/28/02,  12:15:37 PM
Treasuries continue to see selling with the 10-year YIELD rising to 5.415%. MACD is rolling from a high level and one would think there is YIELD resistance at the 5.45% YIELD level. I have a regression channel placed on this YIELD from the November lows, but I've "fit" it a bit so that lower regression ties in with the 4.8% YIELD level found on 02/22/02. This has YIELD hovering near mid-regression last couple of weeks.

What this may help me understand or at least think for future, is that if MACD does roll over and trend back near zero level, then I could see 10-year YIELD dip back near lower end of upward regression at 5.0%. Link

If a trader has been shorting some QQQ's then might be trying to correlate a bearish target or cover point with future action in 10-year YIELD. QQQ trader may be using the 50-day Link as his/her leverage for lower prices. QQQ short doesn't want to see 10-year YIELD much above the 5.5% YIELD level though. Thinking being too much cash would then be coming out of bonds that might find its way into weaker technology stocks.

  Jeff Bailey   3/28/02,  12:04:43 PM
EMC Corp. (EMC) $11.62 +4.21% ... stock may be benefiting from research note from investment firm Fechtor Detwiler today indicating that EMC's manufacturing floors were filled with complete cabinets sitting around in the last few weeks, but those floors are now nearly empty, suggesting perhaps that EMC's quarter may have ended with a bang and achieved the internal goal of Q1 system shipments matching Q4.

For any type of bullish trade, only setup I can come up with is "inside day" for aggressive bull. Yesterday was inside day, so bullish trades could be implemented on break of yesterday's high of $11.18 and stop would follow under yesterday's low of $10.86, then move up with each day. Link

60-minute interval shows stock is trading just under 200-pd MA on this time interval, if hurdle is cleared, then stock could pop to $12 near-term, with ultimate goal being the 50-day MA from daily chart at $13. Here's the 60-min chart. Link

This type of trade would be for aggressive bulls only, that have some gains to play with and are disciplined with their stops!!!!

  Jeff Bailey   3/28/02,  11:56:20 AM
Retail Index (RLX.X) 956 -0.25% ... last night was commenting in my market wrap on PI that I wanted to see this sector get above the 960 level for bullishness to conintue in one of our bullish plays in Kohl's (KSS) $71.38 -0.86%. While KSS did close at an all-time high yesterday, felt I needed sector help to create the "tidal wave" of enthusiasm to get a good move out of KSS today. Hasn't happened yet.

Why 960 on the RLX.X? I have retracement from 1,022.76 to 696.85. See how that 80.9% retracement level of 960.51 has been resistance past couple of sessions?

My thinking has been that KSS is "head of the snake" and a leader in the retailing group. The RLX.X could be thought of as the entire snake. While the "head" KSS wants to go higher, seems to be held back by the rest of the body. KSS bull wants the sector to move higher to help. Not getting it right now.

So how does a trader use this. By goodness... if you are desparate for a profit in your account, you snug up a tight stop under gains in KSS. KSS has found sellers at/near the $72 level in the past and has drifted back to the $65 level. If a trader is desparate for a gain to get the confidence back, then you're raising a tight stop to profitability and not "hoping" for a 15% gain. Too often a "younger" trader just doesn't realize how important sector sponsorship can be. Yes, KSS looks to be a leader, but if you haven't got any followers, then your chances of becoming a target for the canibals increases.

Thinking of short/put a leader or stong stock in a strong sector? Think again. You've seen the movies where the troubled soldier is pinned down by a bunch of canibals and it looks like they're closing in, then all of a sudden the reserves show up and save the soldier and the canibals either get slaughtered or all run away. Same type of thing can happen if you start trying to short/put the strong stocks.

  Jeff Bailey   3/28/02,  11:36:55 AM
Compaq (CPQ) $10.30 -2.73% ... not a bad little bearish trade underway for a shorter-term trader. Could use the 60-minute interval chart and 200-pd MA as some conviction for earlier thoughts of where stop could/should be placed. Link

  Jeff Bailey   3/28/02,  10:44:36 AM
Compaq (CPQ) $10.46 -1.32% ... might be a trade here for shorts/bears with tight stop just above yesterday's high. Link and target the $9-$10 area.

My thoughts regarding HP/CPQ merger is if it were to ever "fall through" then CPQ is most likely much lower. Companys in current situation like CPQ don't agree to be acquired at low price levels if their outlook for the future is that they can compete on their own. HP is their savior and if deal falls through, me thinks CPQ in big trouble.

  Jeff Bailey   3/28/02,  10:41:40 AM
Hewlett-Packard (HWP) $17.99 +1.23% ... Walter Hewlett files suit in Deleware regarding issues concerning the process by which Hewlett-Packard solicited votes for approval of the proposed Compaq (CPQ) $10.52 -0.94% merger -- particularly from large institutional holders including Deutsche Bank. News is causing spread to widen again.

  Jeff Bailey   3/28/02,  10:34:40 AM
Adelphia (ADLAC) $14.43 -13.59% ... something for a longer-term put holder to think about that may be holding the Jan $20 puts and showing a decent gain here.

May not be for everyone, but since you have the right to sell at $20, nothing says you can't sell some puts from time to time and perhaps bring in some premium.

For instance, if we're trading the technicals and see some potential support near-term at lower end of regression channel that we've been noting, then may think about selling the April $12.50 puts (ADUPV) for $0.90. This would OBLIGATE YOU to buy the stock at $12.50, but with your January $20 put, you also hold the RIGHT to sell at $20.

Just an idea

You could go further out too and further out the money with this strategy. Could go to same month of January, sell the Jan $10 puts (OFYMB) for $1.75 and be done with it. Look at some various options you now have.

  Jeff Bailey   3/28/02,  10:29:18 AM
Intl. Paper (IP) $43.35 +1.14% ... was bullish this deeper cyclical on Tuesday and looking good here. Liked the little pullback into support and stock continues to trend higher from that recent pullback into upward trend on bar chart. Want to see slow progression, with primary focus on getting that MACD turned around, then looking for same type of action found from the mid-January pullback and similar MACD setup. Link

With longer-term bullish vertical count of $65, thought it worth the risk of $2 for bulls that there will be buyers near the $42-$43 level. Pretty close to that spread-quad-top buy signal of $43 from early February (red 2) Link

  Jeff Bailey   3/28/02,  10:22:21 AM
Market is closed tomorrow but I have Personal Income and Personal Spending due out tomorrow. Not sure if they will delay those numbers until Monday as most government agency offices will be closed tomorrow.

  Jeff Bailey   3/28/02,  10:17:24 AM
Chicago PMI rose to 55.7% in March, better than the 54% consensus. This indicates that the manufacturing sectors are recoverying at a pretty good clip. The question remains "is this inventory re-building, or sustainable longer-term trend?"

Treasury market seems to think sustainable as 10-year sees selling and bond YIELD jumps higher to 5.385% here.

  Jeff Bailey   3/28/02,  10:12:07 AM
Good question from subscriber regarding this being last day of quarter and window dressing action by some institutions.

I have seen in past that a mutual fund/institution will be a bit "underwater" in a position that they own say at $30, that's trading $20. They can come in and try to buy up the stock to the $25 level with some cash on hand. What this does is lower their cost basis near-term, but also has the "impact" of adding a near-term gain to all the stock they held prior to the last day of quarterly buying.

For instance... if I own 5 million shares of a stock with average cost basis of $30 in the fund, I might come in and buy an additional 1 million shares today, try and drive that stock up a couple of bucks. Even if I can get the price up $2, I've gained about $10 million in the holding today and that makes things look a little better for my end of quarter report. If the buying at the lower level also lowers my cost basis to say $29, then all the better.

Only problem is what do I do next quarter if stock gives another sell signal on the p/f chart. Do I hold and hope for the best or start selling as things just aren't turning for the better?

Point here is if you're going to trade long some weak stocks because they are getting a pop, it may be this type of "saving of position" or "painting the tape into the quarter" that is causing the bullish action. Be willing to trade it, but don't get roped into believing you've bought the bottom.

  Leigh Stevens   3/28/02,  10:11:28 AM
Support & resistance: QQQ - Gap up on hourly chart is near-term bullish; Near resistance > 36.8, at 21-day and 50-day moving avgs; next resistance is 38.25. Near support > 35.80, then, 35.5. COMP (Nasdaq Composite) Near resistance > 1851-1853 (1853.7 is 50-day mov. avg); 1856 is next area to watch, then 1863-1869 zone.

  Leigh Stevens   3/28/02,  9:58:10 AM
S&P 500 (SPX) note: The spurt to the upside here looks like some technical buying as well as continued buying of the stronger sectors for Q1 window dressing by fund managers, as there have been bullish upside crossovers of the short-term hourly oscillators like MACD and of the longer-term 14-day stochastic model. If near resistance at 1150-1153 is taken out, next resistance looks like it comes in at 1156, then 1160.

  Jeff Bailey   3/28/02,  9:55:49 AM
Adelphia (ADLAC) $14.44 -13% .... last night I "rolled down" retracment and now have retracement from $32.71 to $13.91. I wanted to "honor" the $25.50 level, which was near the price level that the convertible offering from 01/16/02 was done at. Current levels of trading are at the lower end of regression and also at my 100% retracement level. May look for some support at current levels.

If your playing the p/f chart and that bearish vertical count to $5, then take a retracement from $32.94 to $5. Be sitting down when you do it though. Check out that nice tie in with the 50% at $18.98, thats where she held tough Feb 15-20, but gave it up yesterday. Good stop on this retracemennt is just above 61.8% of $15.69. Lower target becomes 80.9% at $10.36. Amazing how well this retracement seems to "fit" past trading isn't it?

  Leigh Stevens   3/28/02,  9:50:30 AM
Support & Resistance levels: DOW (INDU): Near support > 10,300-10,310, at the 38% retracement level; next support - 10,200. Near resistance > 10,480 - 10,500, which I think will be a tough area to overcome. S&P 500 (SPX) Near resistance > 1150-1152; Near support > 1132-1134 - note that S&P has rebounded to close back above it's 200-day moving avg. at 1141.5. Interestingly, there was only 1 close below the key 200-day average, which brings to mind the rule of thumb to look for 2 consecutive days of closes above or below key areas of potential support or resistance.

  Jeff Bailey   3/28/02,  9:45:57 AM
Michigan Consumer Sentiment wasn't to be released until 10:00 AM EST, but seeing a number of 95.7, which is higher than the estimate for 94.3.

  Jeff Bailey   3/28/02,  9:44:07 AM
Cardinal Health (CAH) $71 +0.56% ... stock is on my "bullish list" still and like the stock here as long. Near-term target of $73.50 and $75 for swing traders over next couple of weeks. Link

I'm using the Morgan Stanley Health Provider Index (RXH.X) as the representative sector chart to correlate against/with CAH. Link

  Jeff Bailey   3/28/02,  9:37:48 AM
Anglogold (AU) $25.76 ... last week thought this one might be decent "call, run, write" (buy the stock, let it run a bit, then write the covered call). Stock is now in upper end of retracement and either looking to sell stock for gain, or go ahead and write the April $25 call (AUDE) bid $1.40.

For those maybe learning, you might have gone long at/near $23.50, by selling the $25 call for $1.40, you are basically willing to sell for strike of $25 plus the $1.40, or $26.40. If stock closes on expiration day (April 19) below $25, then you keep the premium of $1.40, reduce your cost basis in stock from $23.50 by the $1.40, so cost basis becomes $22.10.

  Leigh Stevens   3/28/02,  9:35:26 AM
ON THIS DAY in 1834, the U.S. Senate voted to censure President Jackson for the removal of federal deposits from the Bank of the United States. Ever wish that you could stop by this bank and make a little withdrawal?!

Speaking of moving averages, OEX has traded down to its 50-day moving average (571.88) for the past two days. Near resistance is 580, then 583. Support looks like 570-571 in the S&P 100. Doubt that we will see this range exceeded today.

  Leigh Stevens   3/28/02,  9:24:20 AM
Good Morning -- it's Showtime! One of the talking heads on CNBC quoted an analyst who follows the small cap S&P stocks as saying that 77% of these stocks are trading above their 50-day moving average. This kind of extention has often been a precursor to a fall in this group. It's certainly a two-tiered market or a 5 or 10-tiered market. Meanwhile we are looking higher on the opening, but expect a slow trade as Street people head out early in the big apple and the windy city.


Market Monitor Archives