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  Jeff Bailey   5/15/02,  6:28:02 PM
Hi Jeff, Could you maybe post something on Prof Davis. I see you quote his studies from time to time, but have no idea who he is or any idea about his work.

Many years ago, Prof. Davis of Purdue University performed a study conerning the profitability associated with the different chart patterns found from point and figure charts. The study was first published as part of the manuscript Profit and Probability - Technical Analysis of the Price Fluctuations of Common Stocks Several books since have also used the study. Most mentioned at OptionInvestor.com is Tom Dorsey's Point & Figure Charting book.

 
 
  Jeff Bailey   5/15/02,  6:19:14 PM
Jeff: Can you please give some comments on CAH. I bought some calls from market monitor on may 5th or 6th. I have sep 70 calls. Should I take a loss, or hold or add some more?

CAH Sept. $70's (CAHIN) bid $3.30 here. On May 6, I see high trade at $5.60, so I'll work from there.

I'm not a "stop" trader on options. I usually make a decision to buy a call or put, only invest what I can afford to lose in that specific option and let the trade work from there.

I'm not sure, but I've been talking about CAH since April. A couple of times, stock traded back at $68 and finally I or you buy on May 6 as the bugger bounced again from $68, and all-be gosh darned that was a near-term high at $71.90 and the stock has "wet the bed" since then.

However, at $71.90, the very high that day, my/your risk in the stock to the point/figure sell signal was to $67, or roughly $4.90. A stock owner may have honored the $67 level and sold. Loss of $4.90.

Now, for you the option trader. You need to ask yourself this. Is the money left in the option worth saving or is there a better opportunity somewhere else?

You're perhaps "fortunate" that you're down $2.30, while the stock holder that bought the $71.90 high that day is down $4.50. The option has held its value rather well relative to the stock and may indeed be a selling opportunity here as the stock did break trend and a tiple-bottom.

I do have a hard time telling an options trader to sell an option for a loss, unless I knew of something materially wrong with the company that would change my original scenario. My training from options is that you make the decision to buy, risk only what you can afford to lose based on the risk/reward at hand and let the trade work its course going forward. I'm out of my "realm" when it comes to "stopping" out of options.

I would NOT buy more at this point. Not until the stock trades above trend or gives a buy signal.

Perhaps this helps you in your decision. If you or I would not buy more, based on trend and current sell signal, then perhaps moving to the sidelines is best. One of the "benefits" of buying time as you did in CAH Sept. is that the option premium has held in there, because it is TIME that leads to uncertainty of the future.

I would think a trader that does trade options like a stock, would be a seller of the CAH Sept. $70's as the stock did trade a triple-bottom at $67. Link

 
 
  Jeff Bailey   5/15/02,  5:32:38 PM
IBM $84.50 -1.14% .... Analyst meeting ended. Palmisano's presentation had nothing more to add on short-term prospects than what CFO discussed on latest earnings call. Palmisano noted that IBM has long-term goal of double-digit EPS growth.

In question/answer session, question asked about top-line growth concerns. Palmisano said he wouldn't use top-line growth as sole measure of company's success... to him, the real point is that shareholders want a company that is growing EPS double-digits on a sustainable basis.

Hmmmm (Jeff's thinking).... I remember when I first started working for Mobil Oil and sat through a dog and pony show from New York brass. Similar types of words from the top then. Over the next 7 years of my tenure, lots of geologists and engineers were looking for new jobs. Shareholders were happy as stock did well, but employees not so happy when we had to be in our offices at a particular time each quarter and were instructed... "if your phone rings, answer it." No kidding... true story!

 
 
  Jeff Bailey   5/15/02,  5:21:58 PM
Hi Jeff, Regarding your buy diamonds on break of 103.17 today: What time frame are we looking at for the Dow to go to 11000? Are you thinking Sept. calls or further out? We've all been right with the direction and target, but short of time a few times too often in our lives!

San-frantastic question. Glad you asked. Ahhhhh those point and figure charts. Let's see. Yesterday, the Dow Industrials (INDU) gave a triple-top buy signal at 10,150. Link

According to Professor Davis, the triple-top is profitable 87.9% of the time, average gain of 28.7% in a 6.8 month time span.

Now.... I will confess, I'm not looking for a 28% gain in the Dow Industrials and I don't know for sure, but I don't think Professor Davis' study was focused on sector patterns for a group of stocks, but more focused on individual stocks and their supply/demand characteristics. However, we can use as a guide to at least get a feel for time involved.

Interesting though. In February of this year (after red 2) the Dow Indu. gave a triple-top at 9,950. By March (after red 3) it reached a high of 10,650. So... about a 7% gain in just over 1-month.

If I take the triple-top at 10,150, multiply by 1.07 (this gives me a similar 7% gain from February observation) I come up with 10,860. Now, assume February was "best case" scenario. Is there anything you or I can tie it to see if there is anything similar taking place today?

Yep... how about the Dow Industrials Bullish Percent ($BPINDU) Link

If I'm comparing triple-tops from February (red 2) to today, May (red 5) then I may have a reason for bullishness today, and can correlate against potential overbullishness in the future.

I would think 3-4 months sufficient time for target.

 
 
  Jim Brown   5/15/02,  5:04:39 PM
Pivot Trade Wrap (What is this?) Link

Welcome to bungee trading! The markets sold off at the open on profit taking and stabilized near support of 10240/1090. Buyers slowly appeared and pushed the indexes back to resistance at 10300/1100 by 1:30. This surprised most analysts but the action over the next 45 min was even more incredible. Short covering powered the Dow to 10349 and the S&P to 1104 in a very short time frame. The S&P futures hit 1105 and a sell program triggered which knocked -100 points off the Dow and -14 points off the S&P in less than 30 minutes.

The Nasdaq and the QQQs appeared oblivious to the action in the broader markets after it rose from its 9:38 lows of 1694 to the high of the day at 1759 at 2:PM. It led the indexes higher and rescued them from early bouts of profit taking. The QQQs hit a high of $33.63 after gapping down to $31.85 at the open. You would have thought the tech bulls were back in force. Unfortunately the Nasdaq fell victim to the same selling that struck the Dow/S&P but it did manage to finish in positive territory.

The Pivot Trade model followed the Dow & S&P up with a short signal as the day progressed. The SPX/OEX short was triggered when it traded below 1099.50 at 2:31. The S&P closed at 1090.75 with our stop loss at 1095.50.

The DJX short was triggered at 2:36 when the Dow traded below 10290. The Dow closed on support at 10241 with our stop loss set at 10330. This signal was scripted to capture any Dow drop from a negative IBM analyst meeting after the close tonight. The May-102 put was "ask" at $.35 cents at the time of the trigger.

The key factor after the close today was the IBM analyst meeting. According to early reports company officials continue to parrot the "tough environment" mantra and warn that growth will be scarce going forward. They also talked about too much capacity and how it was hurting them. (translation = not enough sales for all the people/factories we have) There does not appear to be a new smoking gun but the nearly +10% gain in the IBM stock price in the last six days could see some pressure. Depending on the severity of that pressure we could see more weakness in the Dow on Thursday. Trading was very thin in after hours with no major change during the meeting.

With the major indexes closing right on support it may take more than a repeat of the IBM news from last week to cause a major drop. Lots of darkness before morning and plenty of time for investors to ponder the gains for the week. See you at 9:15 !

 
 
  Jeff Bailey   5/15/02,  4:52:51 PM
Jeff, any comments on GNSS? My thoughts, it is a better biotech Call play than BBH.

Yes.... near-term, I will perhaps agree, but disagree. Let me explain my thoughts.

Let's start with both p/f charts. And discuss sector attributes too. One thing I will correlate against as it relates to recent near-term history is the bullish %. Sticking in my mind is recent favorable experience from the QQQ Sep $30 calls from May 6th, when NASDAQ-100 bullish % was at 19%, but now at 42%.

GNSS $27.76 +0.5% ... wishing I were partially long from $25 and triple-top, but this stock may pull back a bit and give new entry right near that level. Good thing here is that trader has good potential probability of higher price longer-term. Bullish vertical count currently $46 and working off of a nice triple-top. Link

For sector bullish %, according to Dorsey/Wright, as of last night, semiconductor bullish % was "bull alert" at 49.2%, and very similar to the sudden jump higher from a lower level of 28% from Friday and Monday's close. Do you see the "connection" on how risk was experienced by the bears in the sector at an oversold reading of 28%?

Now.. Biotech HOLDRS (BBH) $99.20 +0.45% ... similar technicals to GNSS, with BBH coming off a "bottom" and now has bullish vertical count of $111.

I will admit, there's probaby a few "dead-weights" in the BBH. One thing I do like for option trader is that according to Dorsey/Wright and Assoc. the biotech bullish % is currently "bear confirmed" at 24.2%, but would go "bull alert" at 26%. In essence, biotech sector may be where the QQQ was last week, as it relates to "risk."

In all, I see some "identical" technicals in GNSS and the BBH as it relates to supply/demand chart. The only difference TODAY is that the BBH is at a lower level of risk as it relates to the bullish %.

If GNSS were trading $24-$25 right now, I'd perhaps be more bullish on GNSS. Check this out too! On GNSS, I've had retracement from $19.70 to $72.41, which marks the low close on 09/18/01 and the high close of 01/11/02. This has 19.1% retracement at $29.76. Today's high was $29.45.

Fair is fair... BBH retracement from the 03/22/01 low of $92.51 to 06/06/01 close $143.81. This has 19.1% retracement at $102.30. Very similar resistance between the two at 19.1% retracement isn't there? Both retracement "fit" nicely too with how things have been traded too.

It's unfair to even try and discuss risk when comparing any HOLDR to an individual stock. Let's face it, there's more risk in one specific stock than a basket of stocks.

My "play" in the biotechs is simply a play on the unraveling of risk from bears. No different than my play on the QQQ's from last week.

I won't argue that GNSS isn't an attractive call play. It think it is. Heck, we made some good money in AMAT from $22.99. But I'd like it better on a pullback near $25. Sept. $25's (QFEIE) at $3.00 would be attractive, no stop, target $41.

 
 
  Jim Brown   5/15/02,  4:00:14 PM
Pivot Trade Signals
A reader just pointed out that the IBM May-$80 puts are only $.15 cents and may not be a bad lottery play. Boy, that is a little risky for me. The stock would have to move nearly -$6 to see any profit there. Could happen I guess. Use your own judgment.

 
 
  Jeff Bailey   5/15/02,  3:57:04 PM
Jeff: Never fails. When markets try to break significant resistance, rumors start flying. Siebel pulled out of a conference British troops in Iraq Negative comments from a Federal Reserve governor Chavez of Venezuela being shot.

Yes.... funny how this will happen. It's been called "talking them down" or "talking them up" depending on what side of the trade the rumor is started from. You can just imagine some short in the June Crude Oil futures getting his/her head handed to them starts the rumor and eager to cover on weakness.

I've said before... "I hate rumor." So why do we report it? To give you, the trader/investor the information that could be impacting stocks (good or bad) so that you can then make an educated decision if you need to be doing something.

I've confessed before. I don't really read financials, listen to the media, etc. I look at charts and all that really matters to me is price action, and gains/losses.

Too many times I was long a stock and branch manage kept telling me that everyting was "OK." Bull! Everything isn't OK when the trade is going against you.

 
 
  Jim Brown   5/15/02,  3:53:19 PM
Pivot Trade Exit Point Alert - SPX/OEX
I am going to let the SPX/OEX short signal overnight. The current stop is 1095.50 and it appears to be showing weakness as we get closer to the end of trading. Just maybe we will get a gap in our direction in the morning

 
 
  Jeff Bailey   5/15/02,  3:42:30 PM
June Gold (gc02m) $309.10 a little sharp move higher on the 5-minute bar there too, with oil dropping. Nothing major, but interesting just how quickly market will respond to things.

 
 
  Jim Brown   5/15/02,  3:42:19 PM
Pivot Trade Signals
A reader asks: I still have Q's from this morning.. Should I hold them over night?
This is a judgment call. The bid right now on the May-32 is $.25 cents which would give most everyone a profit in the Strangle. If IBM says something negative tonight the QQQ could drop much further. If positive they could rebound again. If the $.25 cents is material to your account I would probably close them. If not then it may be worth .25 cents to hold overnight and see what happens. Remember, Dell announces tomorrow night as well but that is cutting expiration very close.

 
 
  Jeff Bailey   5/15/02,  3:32:25 PM
June Light, Sweet Crude futures (cl02m) $28.20 -3.9% on the session. Did see a sharp drop in oil futures just that took place with stocks. May be oil traders selling on rumor of Venezuelan President being shot too. Chavez closely adheres to OPEC oil export quotas, and if something were to happen to him, could also impact oil prices.

 
 
  Jim Brown   5/15/02,  3:31:56 PM
Pivot Trade Entry Point Alert - SPX/OEX
Lower the stop loss on the SPX/OEX short to 1095.50 on the SPX.

 
 
  Jeff Bailey   5/15/02,  3:27:57 PM
Hi Jeff, Do you know what caused the rapid pullback??? It was very fast and swift--looked to me like a news event but I haven't heard anything. Thank goodness for the "Liquidate All" feature in Cyber Trader!!

Only thing I'm hearing is that there was a trading floor rumor that Venezuelan President Chavez was shot. No confirmation.

 
 
  Jeff Bailey   5/15/02,  3:25:09 PM
Biotech HOLDRS (BBH) $99.00 ... should be stopped from long of $101.

That makes two stops today (one short and one long) and losing trades for me. That's enough to sit on the sidelines near-term. Looks like consolidation and choppy trading.

 
 
  Jim Brown   5/15/02,  3:23:37 PM
Pivot Trade Signals
The advance/decline ratio has gone negative as the decline continues. Several readers have asked if we are going to hold the short positions over the close. In the case of the DJX short, yes. That is a cheap play in case the IBM analyst meeting ends badly.

We will make a determination on the SPX/OEX short as we get closer to the end of trading.

 
 
  Jeff Bailey   5/15/02,  3:22:49 PM
I am watching IDPH puts but am concerned as it has blown thru 38 resistance. If this turns around I'm sure I'll wish I had jumped in, but I am hesitant that I may be jumping into a rally. Any thoughts.

Yes... need to be careful with shorting/putting right now. Feeling is that bears have been rather complacent and now starting to realize that things have gotten a little more bullish than they thought possible. What this can do is then inflict some panic from a bear. Market makers know this and will try and use to their advantage. Remember, when NASDAQ-100 bullish % was low, we thought market makers were going to be squaring their accounts. Don't think a couple of the recent gaps higher were not partially caused by market makers stepping away from offers. They're still trying to get square too.

I would short smaller positions and keep stops pretty tight right now. Especially if stock is component of NASDAQ-100. I'm seeing lots of "funky" trade action in some of the individual stocks and actually trying to avoid it and trade some of the indexes/HOLDRS to smooth out some of the noise that market makers can create.

 
 
  Jim Brown   5/15/02,  3:06:10 PM
Pivot Trade Signals
Welcome to the world of program trading. That was a monster sell program at 2:15 that was triggered by the SPX hitting 1105 at 2:13 pm. The selling in futures began at 2:14 and was reflected in the cash index a minute later. This sell program has painted the bullish sentiment very red as we head into the close.

 
 
  Jim Brown   5/15/02,  3:05:10 PM
Pivot Trade Signals
Several readers have asked where I am getting the TICK numbers. I am using Interquote which supplies a net change number for each 20 second period. I never trusted the TICK info on QCHarts because I thought it was wrong. It is showing a low TICK for the day of only -637. I am going to research this problem and try to decide who is right. I have used the IQ numbers for over five years and never had any problems with accuracy. I will let you know what I find out.

 
 
  Leigh Stevens   5/15/02,  2:45:54 PM
NYSE selling pressure has intensified as Arms Index (TRIN) goes above 1.40

 
 
  Jim Brown   5/15/02,  2:45:13 PM
Pivot Trade Entry Point Alert - SPX/OEX
Lower the stop loss on the SPX/OEX short to 1098.50 on the SPX. TICKS are now -1521 on the NYSE.

 
 
  Leigh Stevens   5/15/02,  2:42:56 PM
Index TRADING Update & Alert: Suggest buying SPX puts in this area, as the S&P 500 drops back from its recent high - SPX is is breaking below its hourly up trendline. Risk to 1109; objective: 1080.

 
 
  Jim Brown   5/15/02,  2:41:30 PM
Pivot Trade Entry Point Alert - DJX
The DJX short was triggered at 2:36 when the Dow traded below 10290. The stop loss on this signal will be 10330. The May-102 put was ASK at $.35 at the time.

 
 
  Jeff Bailey   5/15/02,  2:39:05 PM
QQQ $33.19 +1.84% ... losing a bit of steam here. MSFT did rally right to upper end of downward regression channel. This looks to have QQQ stalling out a bit just short of its upper end of downward regression channel of $34.20.

As such, would recommend those holding the Sep. $30 calls (QAVID) bid $4.80 take some gains in this trade from $2.50 profile. Can try and work in between bid-offer, but not looking to get greedy.

 
 
  Jim Brown   5/15/02,  2:38:42 PM
Pivot Trade Exit Point Alert - QQQ
The call side of the QQQ strangle was stopped out at 2:30 when the QQQ hit $33.25. The call was bid at $.75 at the time. This leaves our put side open with a cost of five cents.

 
 
  Jim Brown   5/15/02,  2:33:57 PM
Pivot Trade Entry Point Alert - SPX/OEX
The SPX/OEX short signal was triggered at 2:31 when the SPX traded below 1099.75. The stop loss for this trade is now 1104.50 which is just above the high of the day. We will adjust that down as we near the close.

 
 
  Jeff Bailey   5/15/02,  2:27:47 PM
Test... Current time is 14:26:45

 
 
  Jim Brown   5/15/02,  2:21:33 PM
Pivot Trade Entry Point Alert - SPX/OEX
I am raising the entry point on the SPX/OEX/DJX short to any trade under 1099.75. If we trade through this level as we near the close we need to be prepared.

 
 
  Jim Brown   5/15/02,  2:20:30 PM
Pivot Trade Entry Point Alert - SPX/OEX
I am changing the DJX short entry point to 10290. If we roll over here there is no reason to wait for the prior number to buy the May-102 puts for the IBM event. The May-102 put is now $.30 cents. Negative news from IBM could provoke a gap down on Thursday. Positive news could gap up resulting in a total loss. This is a lottery play and should only be done with total risk capital and on a minimum number of contracts.

 
 
  Jim Brown   5/15/02,  2:19:58 PM
Pivot Trade Exit Point Alert - QQQ
The QQQ straddle has now passed the profit point with the value of the trade at $.85 cents and more than the entry point of $.80 or less. Snug up a stop under the call side around 33.25 to prevent a loss in the case of a reversal. Above 33.50 the QQQ have room to run. Trail the stop up as you see fit.

 
 
  Jeff Bailey   5/15/02,  2:16:26 PM
Biotech HOLDRS (BBH) $101 ... sector bull can take the AMEX:BBH long here, stop $97.75 and target $109. Link

Point/figure has BBH back on a buy signal and identifiable target for short-covering to $110 Link

 
 
  Leigh Stevens   5/15/02,  2:14:41 PM
Index Update: DJX - no resistance now that I can measure before the 103.9-104 area. Holding above 103 is important. An hourly close below 102.3 would suggest a retreat.

 
 
  Leigh Stevens   5/15/02,  2:10:49 PM
Index Update: The Nasdaq Composite (COMP) is breaking out into a new upside acceleration - I can't measure resistance now before 1785 in COMP. SPX is spurting higher -- resistance comes in at the 1108-1110 area, I suggested previously as a sell/resistance area.

 
 
  Jeff Bailey   5/15/02,  2:06:51 PM
Microsoft (MSFT) $55.93 +1.92% ... bold move here above the $55 level. Has some upside to the 50-day MA and 50% retracement of $57.57. Link

 
 
  Jim Brown   5/15/02,  2:04:06 PM
Pivot Trade Signals
Ticks have suddenly turned very negative at -848.

 
 
  Leigh Stevens   5/15/02,  2:03:24 PM
Relative strength of the 2 markets: Nasdaq & NYSE showing more buying pressure in Nasdaq, as Nasdaq Arms Index ($TRINQ) is in low-20s right. NYSE TRIN ($TRIN) is hovering in the mid-.90 area - above 1.00, TRIN is indicating selling pressure predominates. At 1.5 and above selling pressure is intense. Obviously, readings under .25, as we have in Nasdaq right now, are showing that buying is intense.

 
 
  Jim Brown   5/15/02,  2:02:34 PM
Pivot Trade Entry Point Alert - SPX/OEX
I am raising the entry point on the SPX/OEX/DJX short to any trade under 1097. This was just below the very short term support before the buy program hit at 13:46. If we trade through this level as we near the close we need to be prepared.

 
 
  Leigh Stevens   5/15/02,  1:56:24 PM
Index Update: -Indices continue to move higher, altho at a slower rate of change or in terms of momentum.

DJX is following its up trend channel line higher. From this implied resistance area and given the overbought condition, would expect a deeper correction by tomorrow.

NDX is showing the best relative strength right now, breaking out above resistance and broadening out the boundaries of its uptrend channel, basis the hourly chart. I don't see any resistance before 1375.

Q's(QQQ)appear to be breaking out for another run again, now that the stock has cleared 33 resistance. I can't measure any resistance now before 34.

 
 
  Jeff Bailey   5/15/02,  1:55:38 PM
Macromedia (MACR) $32.87 +1.48% ... ready to challenge yesterday's high of $32.94. Bull from $22 ready to sell some strength at $27. Link

 
 
  Jim Brown   5/15/02,  1:52:30 PM
Pivot Trade Signals
The ticks just went positive and advancers are surging over decliners now 3573/2786 (combined). The TRIN dropped below 1.0 and is heading for overbought.

 
 
  Jeff Bailey   5/15/02,  1:49:44 PM
QQQ $33.33 +2.3% ... getting upside alert here at $33.33, which is 38.2% retracement (retr. from $43.26 to $27.20). This now has a bull in the Sep. $30 calls (QAVID) from $2.50 ready to sell some strength on entry into $34-$35 target zone.

 
 
  Jim Brown   5/15/02,  1:39:15 PM
Pivot Trade Signals
PUT up or shut up. Here we are again at resistance on the Dow/SPX. Do we take the PUT opportunity here or wait to see if a breakout is going to happen? The NYSE TICK is still negative at -370 and the TRIN is nearing 1.0 again. Advance/declines are positive again by several hundred issues. A breakout here could cause an entirely new wave of short covering, no kidding! 10300/1100-1108 is strong resistance and a break with the Nasdaq leading could be strong. Let's watch it for a few minutes and decide.

 
 
  Jeff Bailey   5/15/02,  1:38:57 PM
Dow Diamonds $103.17 ... bullish action point for Dow bulls. Stop $99.00, target $110.

 
 
  Jeff Bailey   5/15/02,  1:36:48 PM
Dow Breadth now about even. 16 up and 14 down. Bulls starting to grin and bear starting to frown.

 
 
  Jeff Bailey   5/15/02,  1:32:38 PM
Dow Diamonds (DIA) $103.10 (unch) Will take some AMEX:DIA bullish on break of today's high at $103.17 should it take place. Will hold regardless of IBM meeting if triggered. Stop $99, target $110. Link

 
 
  Jim Brown   5/15/02,  1:28:48 PM
Pivot Trade Signals
The Nasdaq and the QQQ are experiencing another wave of short covering in front of the IBM/Dell news. Options expiration week may also be a factor since options written over the last month probably had a negative bias. The positive move has created a need to cover those short positions. The QQQ has resistance at 33.25-33.50 and a move over that level could be explosive. Next resistance is not until 34.75 on my charts. Jeff posted some more specific levels based on retracement/regression earlier today as well. Either way we need to watch the 33.25-33.50 level for a breakout/breakdown.

 
 
  Jeff Bailey   5/15/02,  1:00:55 PM
QQQ $33.02 +1.4% ... firm break higher of the $33 level and now sets stage for test of $33.33 and 38.2% retracement (retracement from the Sept. lows to Dec. highs $27.20 to $43.26). If broken to upside, the futher risk for bears to the 50-day MA of $34.20 or upper-end of downward regression of $34.57. This would be right into $34-$35 range for our Sept. $30 calls from 05/06/02.

 
 
  Jim Brown   5/15/02,  12:55:51 PM
Pivot Trade Entry Point Alert - SPX/OEX
The SPX, OEX, DJX are all showing weakness while the Nasdaq is struggling to hold in the 1730 area. I applaud the Nasdaq strength but the broader markets could be a leading indicator for the end of the day. We are still significantly above this trigger point but I want to make it public early in case a quick drop occurs later. I would short the SPX/OEX/SPY/DJX (choose your preferred index) if the SPX trades below 1088.75. This is below the low of the day and would represent a breakdown in the markets.

I am also tempted to short the next breakdown at upper resistance if it occurs. My bias, and I am attempting to overcome it today, is that the markets have come too far too fast and they will not be able to break out of the upper range. (10300/1735/1100) If we hit those ranges again on the SPX/DOW I will probably raise the entry point on this signal.

 
 
  Jeff Bailey   5/15/02,  12:55:44 PM
Intl. Business Machines (IBM) $85.30 -0.21% ... tight range today ahead of this evening's 04:00 PM EST analyst meeting. Link

 
 
  Jeff Bailey   5/15/02,  12:49:09 PM
Dow Breadth is negative with 22 down and 8 up.

Losers are HPQ -5.6%, MRK -1.7%, XOM -1.6%, BA -1.3%, GE -1.3%, JNJ -1.3%, MO -1.3%

Gainers have CAT +2.96%, C +1.56%, EK +1.2% and INTC +1%.

 
 
  Jeff Bailey   5/15/02,  12:44:42 PM
Hewlett-Packard (HPQ) $19.35 -5.5% ... big loser in the Dow Industrials today and bulk of reason Dow Indu. trades down 50 points today. Last night, HWP missed earnings by a penny and today saying that corporate customers still not spending enough to get growth into HPQ business near-term. Link

 
 
  Jeff Bailey   5/15/02,  12:39:55 PM
Overture Services (OVER) $18.09 -0.33 ... stock once again lagging a NASDAQ advance somewhat. Some participants "rumbling" that OVER's deal with YHOO could cost OVER much more than anticipated due to high guaranteed payments disclosed in their 10-Q. Some making inference that today's released 10-Q discloses $125.0 million, last 10-K has $29.1 million). The $95.9 million difference is not explicitly listed as the 2002 cost of YHOO deal and that figure may include the impact of other deals, though no others are apparent.

 
 
  Jim Brown   5/15/02,  12:37:14 PM
Pivot Trade Signals
Decliners are now eating advancers 1485/1440 on the NYSE and the numbers are narrowing on the Nasdaq to A=1648/D=1613. The VIX is still very low at 21.85 despite the give and take today. The TRIN has risen to 1.35 which is a better sign than the .57 at the close tomorrow. The TICK has turned decidedly negative at -1033. Is reality returning to the markets?

 
 
  Leigh Stevens   5/15/02,  12:30:30 PM
Index Update: - DJX is retreating from resistance implied by the top end of its uptrend channel, as are NDX and QQQ, which are also still on hourly stochastic sell signals. DJX on the 30 min. chart looks like it could be building a minor Head & Shoulders (H&S) top, with a "neckline" at 102.3. There is a well-definded line of support around this level, so if DJX begins to retreat below 102.3, then 102, this may set up a retreat to 101.4 -101 ,the area of the hourly upside chart gap.

 
 
  Jim Brown   5/15/02,  12:30:07 PM
Pivot Trade Signals
Interesting little sell program we had. I had an intraday support line drawn on my Qcharts SPX at 1091.50 that was left over from yesterday and it stopped exactly on the line. (ok close at 1091.52) There is serious indecision in the markets and picking a direction here is just a guess. (ok, they are all guesses! (grin)) It does appear that the initial bullishness may be fading and our next signal may be down. Be patient, we only want to trade when the odds are in our favor.

 
 
  Leigh Stevens   5/15/02,  11:40:45 AM
Subscriber NOTE: "Leigh, the Stevens Call/Put number is 2.34. Bulls are salivating!"

RESPONSE: Of course, you may know this and looked at an intraday reading -- would note that my variation is to EXCLUDE Index options (to reduce the effects of hedging activity) in the end of the day figures. So, 5/14 "Stevens Call/Put" indicator went over 2, but it was 2.05 after the close.

"Overbought" or trend reversal "warning" on daily CBOE equities call to put volume begins in 2.4 area and above. Its necessary to keep in mind that extreme readings are typically ahead of a trend reversal by 1-5 days, so is a tip off well ahead of time to a possible reversal. 1-5 days is a lot - nevertheless, a real help in strategy, especially when extremes in my Call/Put ratio matches with price patterns, overbought/oversold measures, a drop in advance-decline line, etc.

 
 
  Jim Brown   5/15/02,  11:31:34 AM
Pivot Trade Signals
Positively amazing. The strength of the markets after two very strong days is amazing. They have all returned to resistance and are making a valiant effort to sneak through. The volume is not strong and the moves are steady. It is almost like a stealth rally from the past. This shows positive strength on the part of the bulls but a lack of conviction is keeping the lid on. 10300/1730/1100 appears to be the near term levels to break.

 
 
  Jeff Bailey   5/15/02,  11:29:39 AM
Treasury Watch YIELDS just edging fractionally lower today after yesterday's strong selling that had YIELDS jolting higher. For now, took a shot at a QQQ short, but wanted to keep risk to a minimum. Bears biggest concern a couple of days ago was short-covering and boy did we see that on Monday. Yesterday may indeed have had some bulls showing up to the party as Treasuries have seen some selling and cash freed up from there and obviously rotated into stocks.

Morgan Stanley Cyclical Index (CYC.X) 590 +0.39% extended yesterday's gains from 01:00 Update Link and are now back on the upward trend from the bar chart. A break above the 600 level could have all heck breaking loose to the upside as overhead supply is void.

Impact of that could then lead to further bullishness in the Dow Industrials (INDU) which is the technically strongest index. Short the Dow Link ? No thanks.

 
 
  Jeff Bailey   5/15/02,  11:16:28 AM
QQQ stopped from short at $32.70 (see 09:51:34.)

Thinking way too many shorts still looking to cover.

 
 
  Leigh Stevens   5/15/02,  10:58:44 AM
Subscriber QUESTION: "Leigh, yesterday you suggested selling indexes spx, oex & qqq if they reached 1105, 550 and 32.90, respectively. For these trades what will eb strikes you recommend to get maximum return? Do you suggrest may or june options fo rthese trade?"

RESPONSE: I generally will select an Out of The Money (OTM) option, but don't recommend a particular strike, as preferences vary; ideally, I will use an S&P index option with a strike 10 points from the current level; e.g., OEX is at 550 and put play is done in June 540's. I tend to stay away from the nearest expiration, especially when time to expiration is 2 weeks or less. As I try to ride a trend if one develops, may want to hold a position for some days, sometimes weeks, in the case of a very strong trend, where price movement stays ahead of premium (time) erosion.

 
 
  Jim Brown   5/15/02,  10:55:56 AM
Pivot Trade Entry Point Alert - DJX
After watching the indexes over the last 30 min it is evident the Dow is struggling with resistance at 10260 and should that be broken there is strong resistance at 10300. Because of this limited upside along with the IBM event after the close I am going to issue a signal to short the DJX (buy puts) should the Dow trade below the day's low. Buy the 102 DJX puts if the Dow trades below 10220. If the Nasdaq and SPX continue to be the stronger we might not see this happen but if a breakdown appears we will be ready. For reference only May-102 puts are currently $.50 and June-102 are $2.15.

 
 
  Jeff Bailey   5/15/02,  10:50:43 AM
Oracle (ORCL) $9.10 +3.29% ... stock turned sharply higher from session lows of $8.55 on trading floor rumor that ORCL had made their numbers for the quarter ending in two weeks; talk is that a sell-side analyst spoke with ORCL and the company appeared to be comfortable with estimates for the quarter, leading the analyst to make positive comments to clients.

 
 
  Jeff Bailey   5/15/02,  10:44:19 AM
Jeff: Just in case any bears in the QQQ are having problems with missing bars in q-charts today, tell them they can find today's bar on April 25th.

(grin) .... I like it! Bulls fighting back a bit. For those that missed it, a bearish QQQ trader on 05/10/02 at 11:26:55 gave us help with our q-charts missing bars. I did follow up with those thoughts at 11:33:34. Interesting battle going on and just goes to show how quickly things can change. Complacency is not an alternative. Link

 
 
  Jim Brown   5/15/02,  10:33:22 AM
Pivot Trade Signals
Lottery play anyone? With all the talk/worry over IBM it might make sense to play this event with the DJX options. Since IBM is a Dow component any change in the IBM stock price will be reflected by a change in the Dow. A significant change since the ratio of stock price to Dow points is about 1:7. This means a $1 move in IBM will equate to about a $7 move in the Dow. We will also get the "Dow effect" where other Dow stocks will react in the same direction as the leaders. This means if IBM drops -$5 most of the other Dow stocks will trend down in sympathy as well.

The DJX May-102 put is only $.55 cents and the May-101 put is only 25 cents. This might be a good chance for a lottery play with some DJX puts at the close. With the Nasdaq and S&P trending up right now the correct put strike to buy may change by the day's end. This is an aggressive play and should only be done with total risk capital. Guessing wrong will mean the option will be worthless almost immediately on Thursday and recovering any premiums would be almost impossible.

The definition of a lottery play is one where you spend a very small amount of money for large possible gains. For instance a 25 cent option could be worth $1 if the move went in your direction. It would also be worthless if the move went against you. Strong gain or total loss. For this reason lottery plays should only be done with limited numbers of contracts. 2-4 normally depending on your account size. Four contracts of a 25 cent option is $100 and offer the possibility of a $400 gain on the right move.

 
 
  Leigh Stevens   5/15/02,  10:31:10 AM
Subscriber NOTE: "Hi, Leigh:Great work in the Monitor, and on the Index Wraps; I've already ordered your book. I have one clarification to add to the subscriber question in yesterday Market Monitor (12:30:06 post). The SPX index options cease trading at the close on Thursday, but they do not expire until the open on Friday. This is an important distinction as you can get caught by a gap open.

The SPX also does not use the opening price on Friday to calculate the cash settlement. They assign a settlement price, (symbol: SET), based on where the SPX would have opened 'IF' all the stocks in the index had opened at 9:30 EST. Some of the stocks are traded in different exchanges which have delayed opens."

RESPONSE - Can't say it any better than this! Thanks for adding these points. Important to note the overnight risk regarding final settlement on SPX options held through the Thurs. night close.

 
 
  Jeff Bailey   5/15/02,  10:25:14 AM
Biotech Index (BTK.X) 428.90 +2% .... this is the sector creating the near-term bullish rebound in the QQQ's from morning lows. QQQ bear needs to see the biotechs calm down here, or will test the nerves of a bear. QQQ trading session high at $32.46 here.

 
 
  Jim Brown   5/15/02,  10:18:02 AM
Pivot Trade Signals
A Reader asks: IBM Company website has conference at 4 pm eastern what about overnight straddle or strangle play?

I checked the May options with IBM at $84.25 and the May-$85 put was $1.65 and the May-$85 call was $.95. This prices a May straddle on IBM at $2.60. This means IBM must move at least $2.60 away from the $85 strike price in order to break even on the May options. There is also a good chance the market makers, seeing heavy activity in ATM options today, could attempt to hold IBM at $85 through Friday.

The June $85 call is $3.40, the put $3.60. Obviously the price of entry into a June position would be much more expensive and would require IBM to move more than $7 from the $85 strike in order to be guaranteed a profit.

My thoughts on this would be, May is priced right but with only two days of time left it is very risky. The June straddle is too expensive. I would pass.

 
 
  Jeff Bailey   5/15/02,  10:09:18 AM
QQQ Short the QQQ here at $32.25.

 
 
  Jeff Bailey   5/15/02,  10:08:38 AM
QQQ these prints we're seeing near-term at $32.25, these are most likely some shorts that are covering from the $32 level, buying up the scale and getting printed at $32.25. Lots of shorts still looking for the door in here.

 
 
  Leigh Stevens   5/15/02,  10:06:33 AM
Index Update: downside momentum is being seen with bearish crossovers and a downward trend in the 5 & 21-hour slow stochastic indicators in COMP, NDX, QQQ, SPX, OEX and DJX. Keep in mind that even a sideways move for a few hours will tend to "throw off" the overbought readings and put the hourly stochastics down to the low/oversold area again. .

 
 
  Jeff Bailey   5/15/02,  10:06:21 AM
Microsoft (MSFT) $54.26 -1.2% ... once again, with QQQ, must at least monitor MSFT. 5-minute interval chart of MSFT shows a rolling 50-pd at $54.69 and need some rally in MSFT to get short the QQQ at $32.25.

For QQQ, 5-minute interval chart shows a rolling 50-pd at $32.30.

 
 
  Jim Brown   5/15/02,  10:05:33 AM
Pivot Trade Signals
After a significant drop at the open the Biotech Index (BTK.X) is back at 421 and threatening to breakout again. Remember we have an open trade signal on the BBH holders at 101.50. If we get a breakout of this index it could have some power. The biotechs have been beaten severely recently and shorts are seeing profits shrink as it moves higher. A break over 440 on the BTK would correspond to a break over 101 for the BBH. Put this in your chart program and watch it as the day progresses. Aggressive traders might do well to take a position now.

 
 
  Leigh Stevens   5/15/02,  10:00:30 AM
Index Update: Support & Resistance - COMP - Near support > begins at top end of the 1653.1- 1691.4 sizable upside chart gap from Mon-Tues.; lower support is low end of gap at 1653; resistance > 1722-1723 around yesterday's high; next resistance then looks to me like 1740, at top end of uptrend channel.

NDX - near support > 1281-1282, top end of chart gap; low end of gap is next, and likely better, support at 1244; resistance > 1309-1310; then, 1325.

QQQ - key near support > 32 area; next support at 31, where the upside chart gap would be "filled in"; resistance > 32.6, then, 33.

 
 
  Jim Brown   5/15/02,  9:58:40 AM
Pivot Trade Signals
The markets appear to have stabilized at the same levels we saw as support around 2:00 on Tuesday. No direction is apparent and I am sure many traders are waiting for news out of the IBM analyst conference. We are also going to wait patiently for a trade signal and not rush to judgment on every tick.

 
 
  Jim Brown   5/15/02,  9:52:54 AM
Pivot Trade Signals
Remember, the May SPX options cease trading at the close on Thursday while the OEX options trade through the close on Friday. If you are holding SPX options you should close those positions before Thursday's close.

 
 
  Jeff Bailey   5/15/02,  9:51:34 AM
QQQ $32.00 -1.75% ... I'll look to take some QQQ short at/or above $32.25, stop 32.70, target $31.10.

For those that took my QQQ Sept. $30 Call (QAVID) from 05/06/02 at $2.50, you have the upper-hand in shorting the QQQ as you would then hold a hedge in shorting the QQQ's at this higher level. For instance. A trader that bought 5 of those calls, may now short 500 shares of QQQ for hedge.

 
 
  Jim Brown   5/15/02,  9:49:22 AM
Pivot Trade Signals
Several readers have asked about an exit plan on the QQQ strangle. The QQQ traded under $32 already today and with any negative news from IBM we could see that drop accelerate. The lack of follow through to the upside has blunted the call prospect so far. I would still not recommend selling the call. We have seen the markets reverse on a dime several times lately. I would set a profit target on the QQQ put at a price that recovers the price paid for both options and a profit. If you paid $.80 for the strangle then you might target $1.25 or more as an exit price. One side of the strangle needs to trade in the money by over $1 in order to get that price. If you sell the profitable side I would leave the other side open just in case we see another major reversal.

 
 
  Leigh Stevens   5/15/02,  9:44:14 AM
Index Update: Support & Resistance - SPX - Near support, 1088, then at 1076 low of yesterday, which is also top end of 1074.8 - 1076.2 hourly chart gap from yesterday's opening jump; presumed resistance at 1098, yesterday's high, then 1105, at top end of hourly uptrend channel -- yes, we have, after many weeks, an emerging uptrend channel.

OEX - first potential support > 540-541, then in 535 area, around yesterday's low and top end of 533.8 - 534.7 hourly chart gap; Resistance at 545-546 at 5/14 high; next resistance looks like up in 550 area, at top end of hourly chart uptrend channel.

DJX - Support at 101.5, former breakout point, and at top of hourly chart gap; next support > 100.5; resistance > 103; then, 103.8-104, top of hourly chart uptrend channel.

 
 
  Jeff Bailey   5/15/02,  9:39:01 AM
NASDAQ-100 Bullish % ($BPNDX) yesterday's action saw a net gain of 14 stocks adding p/f buy signals to their charts. Status remains "bull alert," but no longer in "oversold" conditions below 30%. Link

 
 
  Jim Brown   5/15/02,  9:36:14 AM
Pivot Trade Signals
Several readers have asked about the market calls based on the SPX. Why not the OEX, DJX, etc. The S&P-500 (SPX) is the best indicator of the overall market. The Dow can be up or down when the broader market is moving in the opposite direction because the Dow is only based on 30 stocks. A major move by only one or two can distort the Dow.

The OEX is an index of the top 100 stocks and it is skewed by the "big cap" weighting. It is a much better indicator of true market direction than the Dow but the S&P-500 is even better since it contains the top 500 stocks.

Just because I am using the SPX as a market indicator does not mean you can only make trades in SPX options. This is far from the truth. I would strongly suggest you use the SPX signals to trade the options of your choice like the OEX or DJX. You can even trade the SPY (SPDRS) which are a basket of stocks that represent the S&P-500. These can be traded in an IRA when you may not have option authority.

To recap, just because I am using the SPX to determine market direction everyone should use the options/index of their choice to profit from the signals.

 
 
  Jeff Bailey   5/15/02,  9:34:51 AM
Oracle (ORCL) $8.61 -2.27% ... stock trading lower in ongoing dispute over ORCL's $95 million software contract with California, CNET reported last night that a state Assemblyman accused ORCL and it partner Logicon of being part and parcel of defrauding the state of California. This marks the first time that the blame for this much criticized deal has fallen on Oracle instead of state employees and politicians, though the emails that are basis of the legislator's clam are not that damning, indicating only the ORCL and Logicon did not want to volunteer details until asked by state employees.

 
 
  Jeff Bailey   5/15/02,  9:28:15 AM
Adolph Coors (RKY) $65.89 ... Thomas Weisel calls RKY their "top pick" in the beverage space and believes that investors are underestimating the turnaround in progress under way within Coors' North American beer business and the contribution that Carling Brewing will continue to have on the company's financial results. Link

 
 
  Jeff Bailey   5/15/02,  9:24:23 AM
Newmont Mining (NEM) $28.05 ... reported an earnings loss of $-0.08 a share, worse than consensus looking for a gain of $0.12. Link

 
 
  Leigh Stevens   5/15/02,  9:23:48 AM
Index TRADING Update: Yesterday, I suggested some sell points, areas to take profits on calls and to sell puts for those who think like I do that there will be two-sided trading swings in this market. Of course, Bears are quite distrustful of this rally. The recs were S&P 500 (SPX)- put buys at 1105, risking to 1110; downside objective to 1080; OEX - sell suggestion was at 550, risk to 555 - downside objective: 535; QQQ - suggested sell at 32.9-33.00, risking to 33.5 - trading objective to 31.25-31.00.

Now of course it looks like we will get some corrective action here before another rally sets up. Would rather wait for buying opportunities if I can't do a bearish play on a rally that puts prices up near the high end of the hourly uptrend channel that is emerging. We should get better definition of how the new trading ranges are shaping up with the action today/tomorrow.

 
 
  Jim Brown   5/15/02,  9:22:36 AM
Pivot Trade Signals (What is this?) Link

.The markets are showing a little weakness in the futures before the open. This is not surprising after the two days of gains. The futures are not down drastically indicating there is no conviction. AMAT has already received a downgrade based on price and lack of future growth. The analyst said the strong gain in new orders was already priced in and future gains would be harder to produce. (buy the rumor, sell the news)

With all the indexes at resistance a pull back is needed to get a running start at these levels. When standing with your toes touching a 3 foot step it is much harder to jump it than if you backed up several feet and got a running start. This is the same way with the markets. The lack of major market moving news at the open means we need to step away from these levels to get a running start.

Our challenge is the bullish sentiment. Bulls may not want to pull back far enough to make the jump and we could be forced to repeat the attempt several times before we are successful.

In the absence of a major gap up/down (finally) we will watch the opening action and wait for the morning volatility to ease before making a call.

 
 
  Jeff Bailey   5/15/02,  9:21:48 AM
Industrial Production/Capacity Utilization numbers look to be inline with expectations. Industrial Production rose 0.4% while Capacity Utilization came in at 75.5%.

The industrial production numbers still hint of a very modes/slow economic backdrop, while the 75.5% capacity number shows there is still a lot of idle production lines yet to be used. Levels closer to or just above 80% are considered "healthy production" levels.

 
 
  Jeff Bailey   5/15/02,  9:17:02 AM
Federated (FD) $42.98 ... reported earnings of $0.43 a share, $0.01 better than consensus. Link

 
 
  Jeff Bailey   5/15/02,  9:13:29 AM
Pep Boys (PBY) $18.70 ... reported earnings of $0.26 a share, $0.04 better than consensus of $0.22 a share. Link

 
 
  Leigh Stevens   5/15/02,  9:13:24 AM
Its Showtime! The Nasdaq/tech express, which put the Composite (COMP) up some 7% in two days, has paused here as COMP is due to come in lower - Nas (100) futures are off 17 currently. DJ futures are down about 50.

 
 

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