Option Investor
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  Jeff Bailey   5/16/02,  7:30:54 PM
XM Satellite Radio (XMSR $9.30 +1.74% .... subscribers that have been with us awhile. Remember the "secondary" bulls actually played to their favor from 12/04/02? That run from $12-$20 was partially due to a short-squeeze from bears that had shorted prior to the secondary, but when the stock didn't "crater" they got squeezed a bit to $20. Remember?

  Jeff Bailey   5/16/02,  7:17:01 PM
MOVI taking some notes here.... according to Yahoo!, current short interest is 1.46 million shares, 12.7% of float, short ratio 3.72 based on avg. daily volume of 391,000.

This may become important.

I know some bears that all they do is look for secondary offerings (like this) and then try and short them. It's a pure supply/demand game.

Where it "blows up" in the face of a bear that shorts secondary offerings is when the MARKET likes the stock and the growth strategy and supports the stock and the bulls hunger for the pending robust growth from a successful implementation of the growth strategy.

What can happen is that bears continue to short and short on thought that surely the supply will cause the stock to crater. However, if bulls outnumber the bears and short interest builds too much, then a short squeeze can take place. All of a sudden, stock moves against the bears, growth strategy unfolds and revenues/earnings swell from successful implementation and bear gets hung out to dry.

The key for a technical analyst from here is to just monitor the stock. Take notes of short interest here, and take note of $18.25 stock offering. As time passes, look for VOLUME spikes and price action at those spikes (if they eventually take place). These will often "show the hand" of the MARKET as it makes a decision on the stock.

Also.... take note that Bear Stearns was the lead underwriter. If Bear Stearns issues an "upgrade" just understand who is upgrading the stock and where their interest may be.

If you're a Level II trader, keep an eye on Bear Stearns (BEST) and get a feel for them being a buyer or seller.

  Jeff Bailey   5/16/02,  6:56:57 PM
I don't believe this .... I went to MOVI news on Yahoo!.... MOVI just priced a 8.3 million secondary offering at $18.25 on Wednesday, through Bear Stearns. Prior to this offering, the company had 27.4 million shares outstanding.

OK... if this were a "convertible" I'd definately say "be careful."

I will say this now though. A bull probably doesn't want to own this stock on a break below $15. Remember, there's somebody that now owns 8.3 million shares at $18.25.

Now we have to go back to the mid-1990's and see how they financed things. For MOVI (the company) the secondary offering is "free money" as it is simply stock. However, for the shareholders, the secondary is "dilution" of earnings.

Your friend is giving you correct news and now we know what this secondary offering and raising of cash is going for. To build out their store base. In their filing the company said it plans to use the proceeds of the offering for repayment of debt and strategic acquisitions, among other uses.

  Jeff Bailey   5/16/02,  6:44:11 PM
Jeff could you take a look at MOVI (Movie Gallery),they own a chain of video rental stores. A good friend who works in commercial real estate says they are buying and building a lot of stores . They have a nice looking one year chart. I have looked at the p/f chart(learning)and wonder if this recent column of O's is just a healthy pullback

Don't want to talk anyone out of anything, but will share an experience with you and let you look into this too.

I'm familliar with MOVI. Lost money on it from the bullish side back in 1995 and then turned and made good money to the downside. Back then, MOVI was "growing" by leaps and bounds on similar growth strategy. What happened was they OVERLEVERAGED their growth strategy of "putting a store right next to Blockbuster" and debt became their downside and stock got hammered from the $20 to $1.50 level. Did they learn from the past, or are they headed down the same road again, but thinking "it will be different this time." This I don't know, but we can look into it.

Look at the weekly bar chart interval of MOVI and when you go back to 1994-1996, you'll see a massive reverse head/shoulder pattern, with shoulders at $15. Memory flashbacks had me buying at $14.50, then selling the gap lower at $10, then shorting (partially due to disgust, but more in part to make my branch manager angry as he was super bullish on the stock) at $10-$9 (he and his clients finaly capitulated at $5.

You can look back to 1994-1996 p/f chart of MOVI to know what to look for.

As it stands now, MOVI has given a "high pole warning" (column of O retracing more that 50% of X column), however the bullish vertical count of $29 still leaves some good upside. You can probably understand that a trade at $15 is "trouble" as that would be a Quad-bottom sell signal and may also tie in with a break below the 200-day MA.

Ask your friend how they are paying for their expansion. Is it with cash, debt, stock in the form of a secondary or is there a convertible offering in the works? This will take some work. Only reason I wonder some of this is past experience with the stock.Link

Other "growth strategies gone bad" that I've mentioned here before on similar note was Service Corp. (NYSE:SRV) $4.03 +1% .... they too were a huge growth story back in 1997-1998 as they were buying up "mom and pop" funeral homes like crazy. The too OVERLEVERAGED on the debt side and as the growth curtailed, due to aggressive acquisition and buildout, the amount of debt became a burden. Look at the weekly chart of that stock too. See how long it can take to get debt under control? Some NEVER are able to pay it off, and some aren't around today because of it.

Ick! All this fundamental stuff. But when I hear "growth" by aggressive buildout, especially by acquisition or costly fixed assets, I become curious.

Hey! The catalyst could be that they are getting some favorable low rates and depending on where they are buying up real estate, they may also be getting cheaper prices that a couple of years ago too, which may be benefit longer-term.

  Jim Brown   5/16/02,  6:40:09 PM
Pivot Trade Wrap - Update

The Book-to-Bill numbers were announced well after the close and the news was very good. The April number was 1.20 which was a +17% increase from the revised March number of 1.05. Orders are now above their level from a year ago for the first time in 15 months. This is real life evidence of an economic rebound and a smoking gun that cannot be dismissed. The futures jumped when the news came out and this will be much more important than the Dell news for Friday.
Why did I let you guys talk me into holding that SPX short overnight? (big grin)

  Jeff Bailey   5/16/02,  6:33:52 PM
Jeff could you take a look at MOVI (Movie Gallery),they own a chain of video rental stores. A good friend who works in commercial real estate says they are buying and building a lot of stores . They have a nice looking one year chart. I have looked at the p/f chart(learning)and wonder if this recent column of O's is just a healthy pullback

Don't want to talk anyone out of anything, but will share an experience with you and let you look into this too.

I'm familliar with MOVI. Lost money on it from the bullish side back in 1995 and then turned and made good money to the downside. Back then, MOVI was "growing" by leaps and bounds on similar growth strategy. What happened was they OVERLEVERAGED their growth strategy of "putting a store right next to Blockbuster" and debt became their downside and stock got hammered from the $20 to $1.50 level. Did they learn from the past, or are they headed down the same road again, but thinking "it will be different this time." This I don't know, but we can look into it.

Look at the weekly bar chart interval of MOVI and when you go back to 1994-1996, you'll see a massive reverse head/shoulder pattern, with shoulders at $15. Memory flashbacks had me buying at $14.50, then selling the gap lower at $10, then shorting (partially due to disgust, but more in part to make my branch manager angry as he was super bullish on the stock) at $10-$9 (he and his clients finaly capitulated at $5.

You can look back to 1994-1996 p/f chart of MOVI to know what to look for.

As it stands now, MOVI has given a "high pole warning" (column of O retracing more that 50% of X column), however the bullish vertical count of $29 still leaves some good upside. You can probably understand that a trade at $15 is "trouble" as that would be a Quad-bottom sell signal and may also tie in with a break below the 200-day MA.

Ask your friend how they are paying for their expansion. Is it with cash, debt, stock in the form of a secondary or is there a convertible offering in the works? This will take some work. Only reason I wonder some of this is past experience with the stock.Link

  Jeff Bailey   5/16/02,  5:37:33 PM
Options in IRA's lots of subscribers sending e-mails. So far.. OptionsXpress, Dreyfus and Fidelity allows option trading in an IRA.

Thanks to all who wrote in.

Now thinking I had to read all that dry ERISA stuff for little reason other than to battle with compliance director. (grin)

  Jeff Bailey   5/16/02,  5:19:17 PM
Sony Corp. (SNE) 56.48 +0.58% ... Jeff: Hi Jeff: since you wrote on Sony, I looked up the p&f on both the DorseyWsite and Stock Charts. Very different. The DW gave a buy at 56. How can they be so different?

Good catch! I don't look at both www.stockchart.com and Dorsey/Wright p/f charts. I went back and looked at the bar chart. Now, assuming q-charts is correct, the the current formation is a potential "bullish triangle" on a trade at $57. It looks like stockcharts.com might not have gotten the trade at $57.10 on 03/08/02, which would have the stockcharts.com p/f chart needing an extra X in the long column of X from $42 to $57? Link

I will notify stockcharts.com as they are good about trying to correct "bad data." Sometimes Dorsey has a wrong feed too. Ahhhh you've got to love computers!

  Jim Brown   5/16/02,  5:19:03 PM
Pivot Trade Wrap (What is this?) Link

Watching paint dry was the way one reader described the action today. I agree! Overhead resistance is like a cloud over every bounce as traders worried that buying here was an exercise in futility. I echo those thoughts and while the play I wanted today was a long on the broader market it just did not work out. We did go long on the morning bounce but closed the play for no gain at our entry point when a sell program hit the markets at 12:00. This selling spurt was brought about by the Phil Fed Survey, which was weaker than expected.

The indexes failed at resistance of 10300/1730/1100 several times and wandered most of the day. There was a slight upward bias but no conviction. Traders were not willing to take a position ahead of the Dell earnings. Those earnings beat the street due to a rise in market share for Dell while the HWP/CPQ merger was being fought. Also, the majority of earnings gains came from a reduction in expenses. This is not something investors typically reward. Dell guided analysts upward for the next quarter by a penny based on a pledge to cut expenses by $1 billion for this fiscal year. Still admirable but not something investors want to hear. They want to hear that business is booming and IT spending is growing. Dell would not say that and admitted that IT spending growth was marginal at best. Dell closed at $27.85 and traded on both sides of that in after hours on very heavy volume. At 4:45 it appeared to be settling around $28.05. No Cisco/AMAT bounce here!

The QQQ closed at $32.86 and was trading up to $32.93 in after hours. S&P futures were up +1.50 in early trading and Nasdaq futures were up +2.50. This does not paint a glowing picture for the open tomorrow. Agilent announced earnings that were weaker than expected and said they did not see any improvement in business conditions. They guided analysts lower for the 3Q.

Resistance remains 10300 for the Dow, 1100-1105 for the S&P and 1735 for the Nasdaq. The markets have posted excellent gains for the week and held their ground well today. The trick here will be to convince traders to hold these gains over the weekend. Profit taking pressures could keep the lid on since the Dell's news of no IT growth may not power us over resistance. Only time will tell.
See you at 9:15 !

  Jeff Bailey   5/16/02,  5:01:44 PM
Do any of you know of an online brokerage that allows option trading (beyond covered calls) in an IRA? Thank you for the suggestion(s).

No, I don't. There's a "rule" called the "prudent man rule" that is an ERISA guideline for options trading in a retirement account. Since there is the ability for an option to expire worthless, ERISA decided it best to not allow the opportunity for an investor to blow themselves up and risk the retirement net egg by allowing an investor to buy puts or calls. You can buy a put option, but only to hedge the underlying security the put option was purchased on. While ERISA is not overrider to the SEC, many broker/dealers will refer to the ERISA guidelines as a "reason" to not allow option trading in a retirement account.

In my broker days, I did extensive research on this topic, as I "battled" with my compliance officer regarding the trading of options as a risk management tool.

My research was extensively derived from the ERISA guidelines book that the compliance officer gave me to review.

But! For every rule, there's a loophole, and I'm pretty good at finding loopholes!

I had a rather "wealthy" client and he too was very good at loopholes. He also was very knowledgeable about options and risk management and didn't use options as a tool for speculation.

I am not recommending that you do this, but this particular client (who shall remain nameless) set up a business and incorporated that business under the laws of a Nevada corporation. The rules of incorporation in Nevada are somewhat less "stringent."

In the newly created company, the bylaws explicitly stated the the ownwer of the company and any employee (him, wife and children) that drew a paycheck and deposited a portion of their pay into a retirement account that was "sponsored" by the company, could buy or sell options in the account.

In the end... I battled with the compliance officer, he had the legal department review the documents of incorporation and the company's bylaws. That client was allowed to trade call and put options in the account.

Truth be told. An investment firm could still deny such an account from being held at the firm, because there will undoubtedly be the "issue of liability" if the owner of the account (you) blows themselves up and loses all of their retirement savings in an options trade.

  Jeff Bailey   5/16/02,  4:28:26 PM
DJ Us Home Construction Index (DJUSHB) 370.02 -2.6% ... Technically, it is "very early" to be shorting the homebuilder if looking at the DJUSHB. The longer-term trend (bullish support) is upward trending, and just prior to the terrorist attacks, the DJUSHB was briefly violating trend at $235. The terrorist attacks then had some "panic selling" in the sector (many stocks fell soon after). Link

The recent trade at 365 and double-bottom sell signal is an "early warning" of potential weakness and the vertical count is bearish to $330, and that would tie in with the bullish support trend.

A bear is "cautious" as an even "more bearish" sell signal was given at 355 back in March (after red 3) and the index still broke back to new highs. A bear that notes and understands that action, now understands that it is "very early" and trailing stops at "buy signal" levels should be used to help protect the trader.

If after all this, you get the 50/50 feeling of risk/reward, then act accordingly and limit trade size or don't trade at all. As it pertains to the point/figure chart, a bear is "fighting longer-term trend" (this is a negative). From $370 a bear is risking $20 to a stop at $390 for a potential reward of $40 to the bullish support trend and current bearish vertical count.

A quick look at relative strength of the DJUSHB versus the SPX shows that this group of stocks is still quite strong versus the "market" as it has been for the past 2.5 years! Link

  Jeff Bailey   5/16/02,  4:11:44 PM
Is it too late? This is a question often asked by every trader/investor. It is also a very general question.

Only you can answer it as it relates to your risk/reward profile and your trading discipline.

The day I profiled DYN as short/put for break below $20, a subscriber asked if it wasn't "too late" (see 04/25/02 03:37:14) Link to be shorting it after that day's sharp move lower at $21.

Interesting perhaps as we posed the question back.... "was it too late to in ADLAC/ADLAE or even Enron?"

As mentioned then... sometimes it is helpful to put yourself on the other side of the trade. This will often give you a very clear perception of risk/reward with the information you currently have on hand.

  Jeff Bailey   5/16/02,  4:01:17 PM
Hi Jeff, What you think about shorting the home builders? Viet.

How ironic. Brian Barger, Editor of premierinvestor.net and I were just discussing this. Current consensus is that it's OK to short the HB's, but by golly you'd better use a disciplined stop and "legging in" is better than "jumping in."

Two scenarios here. Yes, the higher YIELDS from the Treasury market are putting some higher mortgage rates out there, and this may "cool off" purchases.

The potentially bullish scenario is... why the heck would YIELD be headed higher, unless the MARKET is looking at a less favorable risk/reward trade in bonds versus stocks? If that's the case, if stocks are the better risk/reward trade, then that might be due to the MARKET's perception of a growing economy, which could trickle down to stronger consumer sentiment, and have new home buyers coming into the housing market, thus furthering demand for new homes.

In the end, it depends on the technicals and really looking for good risk/reward trades if you're a shorter-term trader. I don't think you can expect a lot of success trying to short break-downs in the hombe builders as there is probably just enought uncertainty that you'll get a bullish rebound pushed back in your face as the uncertainty of mortgage rates versus consumer sentiment plays into things.

  Jim Brown   5/16/02,  3:56:04 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX
After much soul searching and scanning of the internals I have decided to hold the OEX/DJX/SPX short over night again. Cautious traders might consider closing here for a minimal gain instead of risking a gap open on good Dell news. I gave this much thought and I think that any Dell good news is already priced in. Any bad news would be seriously detrimental to the market in this fragile stage.

My rationale for staying in boils down to the strong overhead resistance. Even if we get a good news bounce it should stop at the 1100-1105 range on the SPX and not create a serious gap open. This is of course just my humble opinion. The Pivot Trade model will hold the position but as prudent investors you need to follow your personal risk profile. It is a high-risk decision.

  Jeff Bailey   5/16/02,  3:52:18 PM
Jeff, Do you really think that 7 out of 11 is statistically significant? When a move is 11 out of the last 13, like the one you pointed out last week, that is very significant. But, to me 7 of 11 is still in the category of coin-flip. Thanks for the statistic, though -- one more item to add to my information overload. Interesting stuff.

(grin).... to be exact. A "coin flip" is 50/50. 7 of 11 is roughly 63%. I'm not saying it is "significant" but a trader perhaps holding a decent gain in a call option that is near resistance and he/she has 50 reasons to hold and 50 reasons to sell, may use the 63% chance as some guidance. ESPECIALLY if they're hold MAY expiration. My thoughts at least. I've seen some nice gains go "poof" due to option expiration activity.

  Leigh Stevens   5/16/02,  3:42:36 PM
Subscriber QUESTION: "Yesterday on Market Monitor you stated: 'If you have speculative shorts or put positions I suggest following the hourly oscillators - if they trend lower with both "lengths (5 & 21) getting oversold, this will be a confirming indicator, if OEX is also near the low end of its price channel.' ** "Do you mean that you should close them out at this level? Applying just to index's or individual stock options?

When you are approaching a buy point, which stochastic values should you look at and what is the best indicator. 21 3 3, 14 3 3, 10 3 3, 5 3 3 and what is the best time period in case the stock is in the over sold area 60 min or 30 and beginning to turn up?

RESPONSE: What you quote was written as a guideline to closing out short or put positions, as the market looks capable of another substantial move up, after completion of this consolidation. Applies to Indexes only.

Re stochastic values. Generally I use a fast moving hourly stochastic with LENGTH set to 5 and one slow moving hourly stochastic with LENGTH set to 21. I get very good short-term trading signals when both are extreme ends of the their (1-100) range; e.g., when both are at "overbought" (high - e.g., 65-70 or more) levels or oversold (low) levels; e.g., 25-30 or less. I always use hourly, but am not trying to trade within a 1-day time span (day trade). If you were, 30 min. would be ok. Mainly, you get used to an indicator and how it works and doesn't work. Experiment, experiment and remember the results.

  Jeff Bailey   5/16/02,  3:41:23 PM
Adephia Communications (ADLAE) $5.70 ... as has been noted recently. NASDAQ has halted trading in the stock. Earlier today, I talked with the CBOE regarding what a trader is supposed to do with any puts they still hold (grin). CBOE said the only thing that can be done during a "halt" is to exercise the option, and then be short the stock at stated option price.

Then if/when stock is opened for trading the position could be closed. My "advice" would be to simply hold the put. While it is starting to look that this was the "rat" we smelled at $19, you just never know what kind of "rabbit" could be pulled from the hat.

  Jeff Bailey   5/16/02,  3:34:30 PM
Looking down the road I see 4 "bull heads" for May 28th-May 31. On Monday, May 27th, the market is closed for Memorial Day. However, history has Memorial Day week up 14 out of last 18 years. You don't think some of this week's bullishness is market makers getting some inventory long so they can provide liquidity to the bulls from May 28-31 do you?

Looking forward still, I see "bull heads" for June 3 and 4th. June's first trading day (June 3) has been up 9 of last 11 years!

  Jim Brown   5/16/02,  3:33:25 PM
Pivot Trade Signals
It is about time for the shorts to start moving in to cover before Dell's earnings. They should be scared of another Cisco event although I doubt it could be that strong. Dell just does not carry the power it used to. I look for resistance to hold.

  Jeff Bailey   5/16/02,  3:30:58 PM
Historical note According to the Stock Traders Almanac. May option expiration has seen the market trade down in 7 of last 11 years. Tomorrow is option expiration. Trader that is 50/50 on an open position (call or put) may use history to help in a decision making process near-term.

For instance, if there's a stock like GNSS or even EMLX you are looking for bullish entry, then perhaps tomorrow might be a day to look for entry on potential weakness. Never know, but something to think about and perhaps use.

  Leigh Stevens   5/16/02,  3:21:12 PM
Index TRADING update: SPX put play suggestion I made yesterday with SPX at 1094 with suggested (revised today) stop out point at 1101. Used as an example, buying June 1175 (SPT RO) puts trading then at 84.. Now, last at 78. Would stop out with this put, or other strikes used, at 1 pt lower than current levels; e.g. SPT RO's at 77. Or, just reiterate my suggested exit being 1101 on SPX, basis the S&P 500, SPX. Same objective - to 1080. If 1090 gives way, that is. We'll all stay tuned here as we watch the battle of the titans it seems.

  Leigh Stevens   5/16/02,  3:08:04 PM
Index Update: LAST HOUR - So far, buying interest has not been strong enough to push OEX or DJX through the top end of their recent narrow trading range. On the other hand, selling pressure has not been heavy enough to take them down through the bottom. The bottom is more important, from trend persepective than the top. Since the indices are maintaining an uptrend -- series of higher relative upswing highs and downswing lows --bears have more to prove here. Standoff or tie goes to the bulls, for now.

  Jim Brown   5/16/02,  3:06:43 PM
Pivot Trade Entry Point Alert - OEX/SPX
The OEX/SPX/DJX short was triggered at 15:02 when the SPX traded below 1097. The stop loss on this play will be 1101.25 and we will adjust it downward as the play progresses

  Leigh Stevens   5/16/02,  2:57:04 PM
Index Update: DJX - The DJX is again near the top of its recent range - this is 4th time on rally to just under 103. Dow average may have enough leaders near term to take DJX thru 103. Due to lengthly sideways trend on the hourly chart, 5-bar stochastic is on a buy signal now coming up from an oversold level - first time since 5/7, when DJX went from 98 up to 101. Above 103, next upside target I see is 104. Near support continues to be 102.2.

  Leigh Stevens   5/16/02,  2:51:02 PM
Index Update: The S&P stocks have been coming on again to the upside - in the S&P 100(OEX) the index has moved up toward its hourly high again, made yesterday at 549.41. OEX is within a hair's breadth of piercing this level and moving to new highs for the move. If so, next resistacne looks like 555 at the top of its hourly uptrend channel.

  Jim Brown   5/16/02,  2:36:38 PM
Pivot Trade Signals
Here are some more suggestions - take any you like!

Best thing to do is to go for a looooong walk and forget about any gambles today. - Raman
How about stay flat and save your money and take off the afternoon and Friday for a 3 1/2 day weekend and come back next week - David
IMCL $12.50 put - Leon M.
DYN Short under $7.50 - R.C.V (from Amsterdam)
NVDA Calls - Joe
OEX May 545 put - Ron
PYX puts - John B.
PHSY long at $25 - Dan W.
VWKS long - target 9.18 - Jane
PHTN short below 43.20 - Ralph
ERTS long - Susie
QLGC long - Sam P.
BEAS $10 call BUCEB at $1.45 or lower - Gokal
CMVT put/short - VRNT IPO today, stock should go down tomorrow - Anon.
QQQ $32 May put at $.20 or less - Russ
PIR May $22.50 covered calls - John (now that is aggressive -Jim)
BAC calls - Kenneth
Short/Put housing stocks - Barbara
Short/Put MSFT before the close on profit taking - Jeff

There were many readers suggesting shorting the OEX/SPX/DJX at various levels before the close today. Evidently everyone has the same idea about resistance holding.

That is enough for today, my email is full and I probably will not even get through them all today. We will do this again!

  Jeff Bailey   5/16/02,  2:35:13 PM
Emulex Corp. (EMLX) $31.33 +3.87% ... may be a stock for short-term traders to monitor tomorrow. Stock's looking bullish near-term and some decent upside to the $33.50 level. Nice "inside day" developing. Retracement from $48.36 to $9.27 has 50% serving as near-term support at $28.81, which correlates nicely with a flatting out 200-day MA. May be some nervous bears in this one. MACD on daily has been trending higher and cross above zero could unleash some bullish momentum. Link

Point/figure chart Link also shaping up and hints demand starting to firm. Recent trade at $30 has vertical count turning bullish and breaking downward trend. Current count underway from this column of X is $42.

CBOE is pretty "proud" of the June $30's (UMQFF) at $4.00, so would prefer the stock.

  Jeff Bailey   5/16/02,  2:26:21 PM
Sony (SNE) $56.75 +1.06% ... stock continues to trade well and bulls from previous profile monitoring stock closely near-term. Trade at $57 would be triple-top buy signal and hints of further bullishness. Link

SNE was our "representative" stock for Japan exposure and correlated with some bullishness found in the AMEX:$JPN Link which has also held up rather well in recent months.

  Jim Brown   5/16/02,  2:22:25 PM
Pivot Trade Signals
Here is a hot one. A reader, Rick Keller, said AMZN has been selling off into the close and the intraday chart is proving this. His suggestion - short AMZN. The May-$20 put is $.70 cents, June $20 put $2.05. Good job Rick!

  Jim Brown   5/16/02,  2:15:38 PM
Pivot Trade Entry Point Alert - OEX/SPX
Because of the spike in the markets to resistance again I am raising the entry point for the OEX/SPX/DJX short to a trade below 1097 on the SPX. The Dow 10300, S&P 1100 resistance levels are critical. If they hold here the downdraft could be swift.

  Jim Brown   5/16/02,  2:12:30 PM
Pivot Trade Signals
Wow, that was exciting. I got deluged by suggestions. I will post them as time permits. This appears to be one of the best and it was actually on an index of sorts. This came from Jonathan Levinson. His suggestion was to short the SOX using the SMH holders at a break below $43.01. His reasoning:
Book-to-bill numbers to come out tonight, and there's been that price war in DRAM prices. Frankly, this chop looks too variable to trade effectively in either direction. If forced to trade, I'd go short the SMH, but other than that, with VIX et als. this low, selling premium is too risky, but with directionless oscillators contradicting themselves over multiple timeframes, I think the best trade is no trade at this time. That said, I'm holding some QQQ puts just in case, because I believe the larger bearish story. SMH should feel the dump strongly if it comes tonight

Because of the buy program that just hit the markets while I was writing this I would suggest the short be triggered by a trade below $43.50. Good job Jonathan!

  Jim Brown   5/16/02,  1:49:11 PM
Pivot Trade Signals
We have thousands of readers tuned in to the Market Monitor at various times during the day. Many of them are very astute traders who may have their eye on a very profitable trade that we are not aware of.

I will give a new 2002 Traders Almanac to the first person that emails me a suggested trade that we can profit on this afternoon. Since I will get numerous emails I will be the judge and will evaluate them and post what I think is the winner. I will post the best and you play the ones you like.

Ready, EMAIL now ! jim@OptionInvestor.com

  Jim Brown   5/16/02,  1:44:13 PM
Pivot Trade Signals
The SPX is taunting us. Slowly sneaking to the upside by a few ticks every few minutes. Little buying, little selling but trending ever so slowly to the upside. The Dow however appears stuck in the 10260-10275 range and trending lower. After the triple digit gains of late this day is totally boring. Maybe I should take a bike ride. (just kidding, inside joke) I can't imagine not being glued to the markets during the trading day unless I was completely flat.

To liven this day up a little I have come up with a gimmick that could make us all some money. So that everyone has an equal chance I will post it at 1:47 on the dot. Now, pay attention !

  Jim Brown   5/16/02,  1:16:28 PM
Pivot Trade Signals
Several readers have asked about a possible lottery play on the Dell earnings tonight. The Dell options are too expensive for a straddle/strangle and the strikes are too far apart to do any good with May options. The only suggestion I have would be to use the QQQs which have strikes at every $1. With the QQQ at 32.50 the May-$32 put/$33 call are both bid at $.25 cents. I would not want to try a strangle here with expiration tomorrow. If you want to play the lottery, pick a side and buy it for a quarter. That is pretty cheap but you might as well flip a coin because there are no odds on this strategy. Dell's news is not seen as earth shaking and pretty much already in the market. Investors could be relieved just to have it over and that could be bullish. Personally, I would just say no and wait for a better trade.

  Jim Brown   5/16/02,  12:51:37 PM
Pivot Trade Signals
I have considered issuing a new LONG signal for the OEX/SPX/DJX but the high of the day is 1098, which is exactly the beginning of strong resistance between 1098-1105. A breakout signal above our highs (1098) would be risky since the next 7 points could be tough to win. I realize many readers want to go long but the odds here do not favor it. Should we get a strong dip that would give us some upside potential I would not hesitate. I want to err on the side of caution given the lack of direction today. Don't shoot the messenger!

  Jeff Bailey   5/16/02,  12:47:28 PM
Duke Energy (DUK) $34.88 -3.6% ... per 12:31:48 ... I don't know what month/strike trader had. I also took a retracement from $39.18 to $32.10. This gives me 61.8% at $36.48 (level where put was purchased?), 50% at $35.64 and 38.2% at $34.80 (current levels of trading) which also criss-crosses lower end of downward regressing. Good point for current month expiration put to lock in a gain would be my "trader's" thought.

Note: I took my regression from the 04/10/02 day and drug it down to the right.

  Jeff Bailey   5/16/02,  12:42:43 PM
Bad fills we get notes from subscriber quite often about "bad fills" in their stock/option trades. If you put an order in at "market" and get a bad fill that looks to be rather far away from the market (outside the bid or ask), then I always suggest you IMMEDIATELY take some level II notes as to time/sales and bid/ask that is near the time you placed your order. Then CALL YOUR BROKER/DEALER that you ran the trade through and tell them of your problem. They will then be able to look at their time/sale, compare against the time stamp of your order, and perhaps make a trade correction. If you get the runaround or don't get some type of HELP from your broker/dealer (HELP doesn't mean ultimate satisfaction) then find another broker/dealer to run your trades through. Your broker/dealer is there to help you not only execute trades, but to service your trading needs too. They get a commission in return.

  Jim Brown   5/16/02,  12:38:37 PM
Pivot Trade Entry Point Alert - OEX/SPX
With the markets showing weakness I am going to put out a short signal on the OEX/SPX/DJX. If the SPX trades below support at 1088.75 (Wednesday's low was 1088.96) initiate a short play on the OEX/SPX/DJX. If the markets are going to breakdown then we could get a resumption of last weeks selling. I don't want to try and forecast longer-term direction (weeks) but a short-term dip is definitely possible. This is just a cautionary signal but represents a trend change in the market if triggered.

  Jeff Bailey   5/16/02,  12:31:48 PM
Jeff, could you take a look at the point and figure count for DUK. I went long July puts a couple days ago when they hit the top of their regression channel and now I wonder if I should take a quick profit, concidering that they have instantly charged to the bottom of that channel

Duke Energy (DUK) $34.87 -3.64% .... p/f chart is bearish with vertical count of $23 (column of O from $39-$32 with red B,C is count column). A trade at $31 is further trouble as that would be triple-bottom sell. Link

What was your plan for the trade? To trade the channel or the point/figure vertical count? Plan your trade, then trade your plan! So far so good.

  Jim Brown   5/16/02,  12:30:44 PM
Pivot Trade Signals
It appears the markets are more afraid of Dell's earnings after the close than they were IBM. This is probably just profit taking caution as we near the end of the week and options expiration. The options covering should have already been completed and several analysts felt that was instrumental in our big gains on Mon/Tue.

The advance/decline ratio is nearing the low of the day with 2552 advancers to 3565 decliners (0.71) on a combined basis. The TICKS are trending down but the TRIN is basically flat at 0.92. Ironically the VIX is shrinking at 21.87 even though the markets are trending down.

Patience here is the key. Attempting to force trades just to be trading is dangerous to your financial health.

  Jim Brown   5/16/02,  12:08:07 PM
Pivot Trade Exit Point Alert - OEX/SPX
What was that I said about a sell program? We got that stop raised just in time. We were stopped out at our entry point of 1094.50 at 12:00. We are now flat the broader market until conditions improve.

  Jeff Bailey   5/16/02,  12:05:08 PM
QQQ $32.51 -0.94% ..... note that Microsoft (MSFT) $55.79 +1.89% trades up today, but QQQ not following? That's because of the biotech exposure in the QQQ. Biotech Index (BTK.X) 407 -3.6% today.

Bear in QQQ understands and wants to see Biotech continue to weaken, then needs MSFT to find resistance again at its downward trend from regression.

Kind of like the QQQ is a rubberband. Being pulled at one end by MSFT and the other end by biotech. At some point, the rubber band will either break from DIVERGENCE of the two drivers, or like a shooting rubber band, whichever one loses its current directional action could dictate near-term outcome.

  Jim Brown   5/16/02,  11:57:55 AM
Pivot Trade Exit Point Alert - OEX/SPX
I don't like the way the markets are leaning on the Dow/S&P. Let's raise the current SPX/OEX stop loss to 1094.50, our entry point. All we need is a small sell program here and we are toast. Better safe than sorry.

  Jeff Bailey   5/16/02,  11:38:23 AM
Hi Jeff, GE looks interesting here.......trying to break above 31.70, looks to me like it could run to 34-35 (50 dma and upper bollinger band). Any comments?

I agree as this would go with my more bullish thoughts on the Dow from past two days and triple-top of 10,150 Link . I also like the trade setup from yesterday's action, and today's break above yesterday's high gives good trade setup for bullish at $31.71, with a nice tight stop just under $30.90, using the 50-day as your target. Link

Also... I've had retracement from $30.37 to $53.36 for what seems like "dog years" and this has 19.1% at $34.76, 38.2% at $39.15 and 50% at that $41.86 level which GE couldn't get above multilple times in the past year! 19.1% of $34.76 ties in nicely with the 50-day MA.

Point/figure is bearish as stock traded below trend and vertical count is bearish to $28, thus need for disciplined stops. Link

Risk/reward thinking from p/f has bears risking more that potential to target of $28 and GE may benefit near-term from short-covering. This is sometimes what a short-term bullish trader will play, but only trade it near-term.

  Jim Brown   5/16/02,  11:28:22 AM
Pivot Trade Signals - What To Trade
I am getting numerous emails asking about trading the SPX. Most are questions about the wide spreads and low volume. I AGREE. The SPX may experience much larger price swings than the other indexes but the price of entry is also higher. I have said several times that you should trade whatever index you want, SPX/OEX/DJX or even the SPY (SPDRS) based on the SPX entry points.

I personally think the OEX offers the best combination of bang for the buck and low cost of entry. The spreads on the June ATM options (545 calls) today are about $1.50 on the high side and the OTM options (560 calls) are only about $.50 cents. This is very reasonable in my opinion. The OEX options have high volume and getting instant fills on market orders is the rule.

The DJX has even narrower spreads with $.20 to $.25 cents common. The DJX trades like the QQQ and with the Dow making tripe digit gains/losses almost daily it can be easy to hit profitability in just a few minutes. You will not make homeruns of several dollars of gains a day but you can make $.50 cents or better on each move with minimum risk.

The SPY (SPDRS) are a basket of stocks that represent the S&P-500. They trade like stock and are currently in the $110 price range. They have no options and the range of movement is more suitable to long term holds, not trading. Still they can be traded in an IRA.

To eliminate the impression that you MUST trade the SPX, because my broad market calls are based on SPX triggers, I am going to refer to future signals as OEX Shorts/Longs even though I will still use the SPX level as the trigger. You are obviously welcome to trade any index/option/stock you like but the signals will say OEX.

  Jim Brown   5/16/02,  11:05:11 AM
Pivot Trade Exit Point Alert - OEX/SPX
Raise the stop loss on the OEX/SPX long signal to 1092.50. This is near the low from 10:35 am dip.

  Jim Brown   5/16/02,  10:57:27 AM
Pivot Trade Entry Point Alert - QQQ (corrected)
Go long the QQQ if the Nasdaq trades over 1735. This appears to be the resistance level which should cause shorts to cover if broken

  Jim Brown   5/16/02,  10:56:02 AM
Pivot Trade Signals
The Broader markets are leading the day and the Nasdaq is dragging. Just the opposite of yesterday. This actually reminds me of the action early in the week when the Nasdaq lagged but came on strong late in the day to boost all the averages. I am going to issue a QQQ call signal shortly based on an expected breakout of the Nasdaq later this morning.

  Leigh Stevens   5/16/02,  10:55:36 AM
Index Update: Well, they couldn't take em down, so they are trying to take them up now. The rally is pretty impressive if key index support levels do NOT give way; ie: SPX at 1090; OEX at 541; DJX at 102; COMP at 1700; NDX at 1288; QQQ at 32. Such price action is what makes a trend - path of least resistance is in the direction of the trend; after a good-sized move, there is a brief periof of sideways consolidation, then another move in the direction of the trend. Sound familier? Yes, only we are so used to the direction of the trend being DOWN. By the way, the price consolidations are taking place ABOVE the 21-day moving averages, which is the way it should be if the emerging uptrend has got some "legs" to it.

  Jeff Bailey   5/16/02,  10:48:04 AM
NPS Pharma (NPSP) $22.05 -29% .... taking retracement from 09/29/00 close of $56.56 to 03/21/01 close of $17.50. This gives a trader 38.2% at $32.42, 19.1% at $24.96, and 0% at $17.50. Note how other levels of retracement have traded very nicely in past.

Then.... do this... take another retracement and anchor top at relative highs of 11/26/01 close of $40.74, "fit" the 38.2% retracement at the recent relative lows of $26.36, which results in a very nice tie in with 50% retracement at current levels of $21.92, then 61.8% ties in with the $17.42 level noted above, then 80.9% below at $10.29, very close to current bearish vertical count of $9. This gives traders "current" and potentially "future" level to trade from.

I will show this chart in the 11:00 Update.

  Leigh Stevens   5/16/02,  10:37:29 AM
ON THIS DAY in 1770, Marie Antoinette married the future King Louis XVI of France. Marie of course, before she lost her head over Louie and to the French mob, had the idea that the starving masses could eat cake if they were hungry. Seems like a good idea to me, but the starving masses never even saw cake, sugar being a luxury affordable by the upper classes. However, in honor of Marie, have a piece of double chocolate mocha cake after lunch. Toward evening, work off the gazillion calories with some evening exercise!

  Jeff Bailey   5/16/02,  10:37:22 AM
About face! NPS Pharma (NPSP) $22.81 -27% ... Merrill downgraded earlier this morning, now comes out in defense after 30% plunge and "improving risk/reward." Merrill now notes that there are two scenarios with regards to Preos: either manufacturing problems get worked out in 6-7 weeks and stock is worth $39 over the next 12 months, or the Preos study has to be scrapped and restarted, in which case the sales potential is reduced by 1/3rd and launch is pushed out to 2008, in which case its worth $17.

Earlier this morning, both Merrill and Adams Harkness cited manufacturing concerns for Preos as NPSP was having trouble manufacturing sufficient quantities of drug to meet clinical trial requirements into Q3 due to a recent problem at its contract fill & finish manufacturer, thus believing this could ultimately delay the drug's launch.

Point/figure bearish and giving triple-bottom sell today at $26. Bearish vertical count is now $9. Link

Suspicious how stock just couldn't get above the bearish resistance, as if somebody knows/knew the potential damage of today's news.

Hmmm.... options are very expensive. November $25 puts (QKKWE) $7.00, so would rather short 1/2 position, take the $7.00/share heat to $29 and target $10. By limiting to 1/2 position right now, $7 of "heat" equivalent to $3.50 on full position.

  Jim Brown   5/16/02,  10:34:05 AM
Pivot Trade Entry Point Alert - SPX/OEX/DJX
We are now long the broader market (SPX/OEX/DJX) based on the SPX trading through our entry point of 1094.50 at 10:24:36. The Stop loss on this signal will be 1089.75, just below the last relative intraday low. We may have jumped into this one a little early considering the narrow trading range and weakness in the Nasdaq. Watch this one closely until we get some positive movement.

  Leigh Stevens   5/16/02,  10:28:59 AM
WSJ (Wall Street Journal) this morning, in a front page report not destined to gladden the hearts of would be company shareholders, has article titled: "SEC Broadens Investigation into Revenue-boosting 'tricks'." Report indicates that their inquiry is extending well beyond the disclsures by Dynergy, Reliant and CMS Energy Corp. that they engaged in illusory "swap" trades that boosted their apparent business. Now, the SEC probe is spreading to other industries. The WSJ report suggests that the inquiry raises questions about whether misleading practices contributed to the hyper-rise of stocks in the late-90's. What, like NOT accounting for company costs involved in granting lucrative stock options!?

  Jim Brown   5/16/02,  10:21:03 AM
Pivot Trade Exit Point Alert - DJX
That did not take long. The Dow hit 10275 at 10:18:40 closing the DJX short.

  Jim Brown   5/16/02,  10:18:41 AM
Pivot Trade Exit Point Alert - DJX
I am lowering the stop on the DJX short from yesterday to 10275 which would be the high of the day. IBM did not disappoint. Play over.

  Jim Brown   5/16/02,  10:16:41 AM
Pivot Trade Exit Point Alert - QQQ
I am going to close the QQQ put side of the strangle here with the bid at $.30 and the QQQ at 32.36. Repeat, I am closing the put side of the strangle.

  Leigh Stevens   5/16/02,  10:15:55 AM
Index Update: The support areas I mentioned in SPX at 1090, OEX at 541; NDX at 1289; COMP at 1700, are all quite key levels because thay are at prior hourly tops. If the trend is going to continue strong, would not expect anything more than a sideways consolidation at and just over these levels. Prior resistance would "become" new support in this situation. Also, a sideways move will put the hourly stochastic down close to oversold levels again, especially at the shorter 5 length.

  Jim Brown   5/16/02,  10:14:38 AM
Pivot Trade Signals
The real time $SPX data feed from Qcharts is running about 15-20 seconds behind today. I have tried every server with the same results. If anybody finds a server with "real time" data please let me know.

  Jeff Bailey   5/16/02,  10:12:23 AM
Genesis Micro (GNSS) $28.35 +2.12% ... discussed this one last night pertaining to reader e-mail. Noticing the stock is bucking the Semis today. Will take note and have some conviction toward bullishness if I get a pullback to $25-$24. Link

  Jim Brown   5/16/02,  10:05:54 AM
Pivot Trade Entry Point Alert - SPX/OEX
I am looking for a bounce here and want to go long the broader market with the OEX/SPX/DJX (choose your index) if the SPX trades above 1094.50 which is above the high of the day.

  Jim Brown   5/16/02,  10:03:04 AM
Pivot Trade Exit Point Alert - SPX/OEX
We were stopped out of the SPX/OEX short at 9:57 when the SPX traded at 1091.09 for one tick. Our entry point was 1099.75 for a +9.66 point move.

  Jeff Bailey   5/16/02,  9:58:52 AM
Aquila (ILA) $15.30 -1.6% ... Wholesaler of electricity and natural gas. This is one of the stocks listed in today's WSJ article. Looks very bearish doesn't it? Setting alert at $14. Link

remember our downside alert on DYN from 04/25/02 in "Houston, we may have a problem" Link at $20 and $19.50? Link I do!

  Jim Brown   5/16/02,  9:57:01 AM
Pivot Trade Exit Point Alert
Lower the stop loss on the SPX/OEX short to 1091. I am expecting a bounce so lets lock in some profit.

  Leigh Stevens   5/16/02,  9:50:31 AM
Index Update: All the Indices look like they could be building minor Head & Shoulder tops on the 30/60 minute charts. Key support levels or the "necklines" for these patterns are: SPX > 1090; OEX > 541; DJX > 102; COMP > 1700; NDX > 1288; QQQ > 32 . A decisive downside penetration of these levels, will set up some "minimum" downside objectives which I will look at if the necklines are pierced.

  Jeff Bailey   5/16/02,  9:45:54 AM

Largest share weighting AMGN (46), DNA (44), IMNX (42)

Breadth negative with 1 up and rest down. Up is QLTI $12.45 +0.32%.

Did you know? In q-charts, you can create mini portfolios. Just click the " icon at the top of your q-charts bar. This will open up a "Quote sheet and you can populate it with symbols of sectors, HOLDRS that you like to follow. You can then even go into the portfolio, and right click each position, then edit, position to set up a weighted portfolio as it is on the exchange it is traded/indexed.

  Leigh Stevens   5/16/02,  9:38:06 AM
Index TRADING Update: SPX - My Tuesday Index wrap up had SPX resistance coming in at 1105-1108. After getting up to 1104 yesterday, upside momentum begin to wane. I suggested a put play as the falling Index generated sell indications in its price and momentum pattern. SPX was trading 1094 at the time. Was not anticipating any huge decline, just a pullback to the gap areas I identified last night at Link In the S&P 500, I anticipate a buying opportunity if SPX drops back to the 1080-1075 area. However, there is a "line" of near support that has developed around 1090. If SPX doesn't pierce 1090, will be looking to exit puts. Suggest lowering stop-out or exit point to just over 1100, at 1101.

  Jim Brown   5/16/02,  9:31:15 AM
Pivot Trade Signals (What is this?) Link

What, no gap open? We won't know how to act. The economic news was neutral with jobless claims up only slightly. Housing activity was slightly weaker than expected but analysts feel it was a weather related problem. Continued SEC surprises with PFE announcing an investigation into drug pricing and Lucent reporting an investigation into vendor financing. IBM did not announce any new layoffs at the analyst meeting but the announcement could come at any time.

The IBM meeting was a non-event and traders expecting market moving news wll be disappointed today. The only movement we are likely to see from IBM is a drift based on profit taking from the +10% gain over the last two weeks.

Position update - We are short the SPX/OEX from an entry point of 1099.75 yesterday with a stop at 1095.50.
We are also short the DJX from an entry point of 10290 with a stop at 10330.
We are also long the put side of our QQQ strangle with a cost of $.05 cents. There is no stop.

Dell is the headliner today with earnings after the close. They are expected to announce lower earnings but inline with estimates. Michael Dell has been openly optimistic about his chances of gaining market share due to the HWP/CPQ merger so positive guidance is expected. This should also be a non-event unless something negative appears.

I will update the stops on the open signals once the market has been open for a few minutes.

  Leigh Stevens   5/16/02,  9:22:20 AM
The drug and biotech sectors are expected to be under some pressure today, after being up yesterday, after Pfizer (PFE) reported a pricing investigation. Also, IMClone Systems (IMCL) had bigger losses for the quarter than expected.

  Jeff Bailey   5/16/02,  9:20:56 AM
Potential cash crunch The Wall Street Journal is reporting that S&P has compiled a list of highly-rated company's that could face a cash crunch. S&P says company's on the list could face severe problems if certain clauses in their financial agreements are breached, for example due to debt downgrades or weakness in shares, forcing them to pay back millions in dollars of debt or take other painful steps. Company's on the list are. ILA Link , BKH Link , DNIR (Dominion Resources is now on bulletin board) , DYN Link , GP Link , HAL Link , MIR Link , PGO Link , PCG Link , RTN Link , RRI Link , SEN Link , TYC Link , WMB Link and V Link .

  Leigh Stevens   5/16/02,  9:17:05 AM
The Commerce Department estimated housing starts of new single-family homes fell 2 percent to 1.27 million from 1.30 million. Consensus estimates were for starts to be higher. Construction of new housing units fell in April also, off about 5% to an annual rate of 1.56 million from 1.64 million. The report suggests some slowing from a very high building rate from early in the year -- of course, weather was unusually mild then. Also, very low mortgage rates was a great push to take housing starts to record levels. What we are seeing now may be a fall off from a pace that would not be possible in "normal" winter conditions.

  Leigh Stevens   5/16/02,  9:08:28 AM
Good Morning -- it's SHOWTIME! Nas Futures are down 9-10 pts; S&P was up, now unchanged; DJ Futures +5


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