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  Jeff Bailey   5/22/02,  5:04:13 PM
Gold Bugs as a follow up to today's 03:00 EST Upate.

Companies that usually do NOT hedge production can be found as components of the AMEX Gold Bugs Index $HUI 138.63 +2.46% Link . Components are GG, NEM, FCX, BGO, HL, KGC, GLG, ASA, AEM, ECO, CDE and FCX.

In the 03:00 Update, I did list Newmont (NYSE:NEM) as a "hedger" only because a recent acquisition of Australia's Normandy Mining earlier this year had Normandy holding hedged position.

The $HUI gave the "bullish triangle" at $102 and boy has that bugger been on a run. The bullish vertical count of $153 has not yet been achieved.

I will note that Dorsey/Wright and Associates displays the chart on a constant $1-box interval. Here we find a bullish vertical count of $156. Link

A trader might look for a pullback near-term for any bullish entry points. Using a sell signal at $111 as an assessment of risk to the bullish vertical count of $156, current risk/reward from $138 is unfavorable at $27 risk/ $18 reward.

 
 
  Jeff Bailey   5/22/02,  4:34:18 PM
Tenet Healthcare (THC) $70.56 ... halted for Instinet trading. Announces its Board of Directors has approved a 3-for-2 stock split. The additional shares will be distributed on June 28th, to holders of record at the close of business on June 12th.

This is what the chart of THC would look like adjusted for a 3-for-2 stock split. All I do is take 3, divide by 2, to get a scale factor of 1.5. Then change the box-size on the p/f chart for 1.5 box scale. Link

 
 
  Jim Brown   5/22/02,  4:32:33 PM
Pivot Trade Wrap (What is this?) Link

The closing numbers hardly reflect the market action during the day. The Dow was down almost from the opening bell and held on by its fingernails to the critical 10075-10100 level. The index only catapulted to its +52 point gain to close right at 10150 resistance in the last few minutes of trading. The Nasdaq did exactly the same thing with a heart stopping high wire act at 1650. After a brief dip under that critical level at 3:PM it rocketed back to trade in positive territory for only the second time for the day at the close.

Was it renewed buying by retail investors? Not hardly. This was another short covering rally when critical support held. Traders who were short simply decided that after two big days of losses the markets may not continue down without a bounce and closed their positions. A rumor just before the close that Bin Laden had been captured contributed to this short covering. The bounce was not strong internally as it was on the surface. For the first time in quite a while the new highs barely beat the new lows across all the exchanges. The Naz new lows swamped new highs at 106/65 but the NYSE saved the day with highs beating lows 91/30. The combined high/lows 156/136 was much closer than has been the norm recently. Also, the Russell-2000 finished negative again by -1.55 after dipping to a 3 mo low of 490.23 at 3:PM. The combined advance/declines still finished negative with 3446 advances to 3036 declines.

Based on the internals I would not predict an exploding market on Thursday. There was no positive economic news to speak of on Wednesday and the Goldman Sachs IT survey revealed continued caution and tight budgets for IT spending. They downgraded over 20 companies on reduced earnings expectations. Not an environment to be bullish. The consensus still appears to be caution and the afternoon spike erased most of the remaining oversold conditions from Mon/Tue. Thursday could be pivotal to the markets. See you at 9:15 !

 
 
  Jeff Bailey   5/22/02,  4:20:23 PM
I ran very late with today's 03:00 Update, and I beg forgiveness. However, some awesome dynamics took place in the last hour of trading.

I'm not kidding.... while I was writing about gold stocks and hedged versus unhedged, I saw some rather "impressive" selling take place in Goldcorp (GG) $21.41 -2.46% into the close. Actually, when you look at a 30-minute chart of the stock, it sure looks like there was selling from the open on the spike in the stock. Interesting perhaps in that this is a producer of gold that doesn't hedge.

One day doesn't make a trend, just as one point on a chart doesn't allow a trend, but taking note and tieing in to 01:00 some thoughts on things as it relates to the U.S. $, gold, Treasuries, deeper cyclicals, etc.....

Gulp! Microsoft (MSFT) $53.67 +2.8% surged higher into the close. Rather glad we closed out that QQQ short when we did. Yes, there was some downside left on the table, but QQQ ends up closing at $31.40.

Very interesting close on MSFT. I have retracement from $73.69 to $41.37, which has 38.2% at $53.70. A break above that level tomorrow morning could fuel some bullishness in the QQQ's, with the "swing vote" being the Biotech's BTK.X 401.49 +1% and they traded fairly strong all session.

 
 
  Jim Brown   5/22/02,  3:47:31 PM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
We were stopped out of the OEX/SPX/DJX short at 15:39:08 when the OEX traded above 539.50. (SPX 1082.20 approx) The indexes appear to have held critical support when the bears tried to take them down again at 2:PM. The Dow traded briefly under 10075, the Nasdaq under 1650 and the OEX bottomed near 536. This may have bullish implications going into Thursday's trading. More after the close. We are going into the close flat with no open signals.

 
 
  Leigh Stevens   5/22/02,  3:22:15 PM
Subscriber QUESTION: "i like GM fundamentally but am scared to death technically because it looks like a double top on the weekly candlesticks. nay or ya?"

RESPONSE: Think you are right to be cautious. Whether you use a bar or candlestick chart, it looks like a fairly major double top in the 67 area. On the last run up, GM's new high was a bit suspect according to the Relative Strength Index (RSI) - as the last high occurred on less relative strength than was the case at a lower level. If GM breaks its 50-day moving average at 63.1, this would suggest that it could fall further, perhaps another 10 bucks -- at least that is where the 200-day moving average is currently (53.2). Even if we go into a bull market in the months ahead, there is a tendency for "rotational" corrections and (stock) groups that were going up while most others were declining, may correct while other groups go up.

 
 
  Leigh Stevens   5/22/02,  3:08:40 PM
Index Update: S&P - The SPX, OEX and DJX are following suit somewhat in their technical price action, as they drop below their minor price consolidations they had maintained for 3 hours. It looks like SPX will at least hit 1075 and OEX 535. Then, we'll see if they can manage any recovery move from these areas. S&P and DXJ looking weak right now and the influence of the weakness in RUT (Russell 2000) is being felt. The small/mid cap drum beat I listened to from talking head analysts on CNBC for weeks now -- "what bear market, you should be in small caps!" -- however, get enough people on ANY band wagon and it will collapse eventually.

 
 
  Jeff Bailey   5/22/02,  2:56:50 PM
Conagra Food (CAG) $24.77 +1.26% ... may be getting a bid today on "food" being a hedge for weaker dollar. Nice break from consolidation today as 50-day provides emphasis for bullishness. BIG volume today also hints that the MARKET is interested. I like that rounding MACD on the daily chart, right near the zero level too. Link

 
 
  Jeff Bailey   5/22/02,  2:49:40 PM
liked ur thoughts on RCI looked at opts Dec 35c around 1.45 looked good and then looked at chart ,, WHAT are u seeing that I don't. I do not know enough aboy P&F but what dose ur bullish 51 mean , I see the 35 ur talking about but can't see whwer 51 comes from.

Good question too! To be honest, I see the same thing in RCI Link not long ago at $23-$23.

A stock pulling back into a base of support, right at the bullish support trend after recently giving a triple-top buy signal, which is a higher probability bullish point/figure chart formation.

 
 
  Jeff Bailey   5/22/02,  2:44:50 PM
Hi, Please explain "1/2 position" comment you use or if in the "basics" direct me.

Refer to YOUR business and trading plan. What $ amount does your stated business/trading plan say that you can invest in any one trade? If you're trading at $50K account, then perhaps your discipline only allows you to trade no more than 10% in any one security. If so, then $10K would be a full position, $5K would be 1/2 position.

For options trader then, with RCI trading $31.85, a 1/2 position based on the hypothetical outline above would allow you to trade 156 shares bullish. This would equate to either 1 or 2 contracts. 2 at the most as 2 contracts represents 200 shares and slightly above your stated discipline.

OVERLEVERAGING against your discipline would be to buy 5 contracts. Is 500 shares of a $32 stock reasonable for your account? Would you have too much exposure to the investment based on a $50K account?

Good question and ties in with today's 10:34:29 question from a subscriber.

 
 
  Leigh Stevens   5/22/02,  2:40:50 PM
Subscriber QUESTION: "Re your mention of an "ABC Correction" (on Market Monitor) - Would it be possible to elaborate on your last posting about this wave pattern? I am not familiar with this "5th wave" completion and what it implies relating to wave 1. How does this translate into numbers?"

RESPONSE: It doesn't really translate to numbers, only that one "wave" pattern interpretation on QQQ on its hourly chart, suggests that a correction may be completing itself. If so, it would suggest an upcoming buy point with an objective for new highs above the recent top. I made this comment for those who study chart patterns using wave pattern analysis, at least to some extent, like I do.

I go into basic wave analysis in my book, but only use the basics. The key thing is that major rallies break down into 3 moves, interspaced with 2 corrections, whereas downswings have a down-up-down pattern or an "A-B-C".

 
 
  Leigh Stevens   5/22/02,  2:29:07 PM
Index Update: Nasdaq indices are starting to break down below their minor consoldiation patterns of the past 3 hours. This is suggesting that we might be seeing a move down to prior lows, rather than just filling the chart gaps of last week.

 
 
  Leigh Stevens   5/22/02,  2:26:04 PM
Subscriber QUESTION: "first, thanks for your solid work. now a question, made hopefully general enough to be of use to others. Many of the individual stocks I watch have have failed breakouts recently and now have the potential to resolve as head and shoulders patterns. With prices at neckline support, with daily/60 oscillator reading both oversold, is buying at support BEFORE an upturn a reasonable trade or just asking for trouble buying into the teeth of possible support failure?"

RESPONSE: What you propose is a "reasonable" trade. According to Tom Bulkowski's work (Encyclopedia of Chart Patterns), the Head & Shoulders (H&S) pattern is reliable enough to buy as soon as second shoulder develops and not wait, necessarily, for a "confirming" H&S breakout above/below the neckline.

 
 
  Jeff Bailey   5/22/02,  2:24:56 PM
Seitel (SEI) $3.51 +49% ... biggest gainer in the market today. Looks like some short-covering in the shares. Will note stock recently achieved, then exceeded its bearish vertical count of $4.00. Stock has some near-term upside to the $5.00 level. Company is a provider of geophysical services to the petroleum industry. Link

I like the stock long , but for aggressive option-type traders. Stop would be below today's low. Target would be just below the 50-day MA and overhead supply of $6.50.

 
 
  Jeff Bailey   5/22/02,  2:15:58 PM
Renal Care Group (RCI) $31.69 +0.76% .... this is a stock we discussed and back on April 11th, felt a subscriber could be selling strength or writing covered calls on bullish position.

Since then, stock traded sideways and recent pullback to bullish support provides good entry point for bull.

I like 1/2 position long at the market, stop $28 and near-term target the recent highs near $35.75, with longer-term target of the bullish vertical count of $51.Link

Should stock reverse up 3-boxes to $34, could then round to full position.

 
 
  Leigh Stevens   5/22/02,  1:34:59 PM
Subscriber QUESTION: " Would you be a call buyer on Q's at 31? I have taken a small QQQ call position near the (5/21) close. I think we are going to get an ABC bounce to 32.64 area before heading down again to some kind of capitulation low."

RESPONSE: Re your call position or new positions -- I think risk to reward potential is favorable if exit (stop) point is set at 30.2

Looking at what I think the wave structure might be on the QQQ hourly chart - I was thinking that maybe - this last downswing on the Q's could be "C" of an A-B-C correction. If we get a rally next to above 33.5, this would suggest 5th. wave to complete larger up wave 1.

 
 
  Leigh Stevens   5/22/02,  1:18:09 PM
Subscriber NOTE: "Re possible Head & Shoulder (bottom) formation - I suspect the formation of the right shoulder of the intra-day charts are now complete. We`ll wait and see."

RESPONSE: Looks like low today could be a "return" to a Head & Shoulder's neckline on SPX. That would be IF - Left shoulder formed 4/29-4/30 in 1063 area; Head formed from lows in 1050 area on 5/7; Right shoulder - 5/10 low in 1054 area. This is what I see on SPX hourly chart. Sometimes there is a "double" shoulder but that usually is around same level

 
 
  Jim Brown   5/22/02,  1:08:15 PM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
In light of the very slight bounce over the last 45 min I am going to lower the stop loss on the OEX/SPX/DJX short to 539.50. (SPX 1081.75 approx). The Dow is still flirting with 10100 and could go either way. 10075 is the critical number on any new dip. If that level fails then we could see a new leg down. The Nasdaq needs to hold 1650 as Leigh pointed out earlier. Support below there is WAY below that level.

 
 
  Leigh Stevens   5/22/02,  12:46:10 PM
Index update: as if by "magic", all the indices are holding at or just above (and starting to pop up a bit) the low end of their upside chart gaps from last week - well, SPX & OEX didn't quite yet completely "fill in" their gaps; stay tuned! There could just be a little short-covering coming in here. NYSE TRIN is still over 1.00; Nasdaq TRIN has retreated to .68, so buying is predominating right now.

 
 
  Leigh Stevens   5/22/02,  12:38:41 PM
Index Update: COMP - the Nas Composite has now reached 1653, the low end of its upside chart gap from last week. If tech is going to make a stand, it should from this area. If not, and there is to be another down leg, next potential support identifiable on the chart, is well under today's low -- in 1560 area.

 
 
  Jeff Bailey   5/22/02,  12:27:56 PM
IGT correction I mistakenly posted the actual IGT point/figure chart in previous commentary/discussion of relative strength. Here is how this should read, with some modification to past comments.

Jeff, IGT is trading below it's 10-d and just bounced off around 50-d mav ... is it the right time do buy some puts?? please advice; rgds,

I don't use the 10-day MA, but lets try and use your observation of 10-day and 50-day to make a decision.

I see three (3) times when the 10-day has crossed above the 50-day MA on the chart. Link

Lets start to the left of the chart and study the October period where the 10-day crossed above the 50-day (similar to recent action). Observing that MACD was in very similar position. Stock tested the 50-day, then bounced higher. Observation #2 is that stock bounced and rocketed higher.

Moving to the right, we study the early March time period, where once again we see the 10-day moving above the 50-day (similar to recent action). Here too, we see IGT test the 50-day, bounce a bit, but the rally comes just under the rounding 10-day, then stock gets hammered lower and violates the 50-day MA. We note MACD at that time was very similar level as October and current action.

So... based on just the 10-day and 50-day, action has been 50/50. Is there anything else we can use to give us any insight? How about relative strength?

From above observations, we will tie in with the October (red A) and March (red 3) time periods. Was there anything in the Relative strength chart at that time that could have been the "deciding" vote as to what a trader should have been doing with IGT? Is there anything recently to give the trader any guidance?

The RS chart of IGT versus the SPX Link.

For a bear to be aggressive, I would want to see a 3-box reversal to RS 56. (take IGT stock price and divide by SPX close). If it ends up in a column of O then that would be a near-term negative.

A trader looking short/put IGT, can then tie in where a stop should be placed, even based on the RS chart. What was the May (red 5) stock price high for IGT? Answer is $64.78.

Hey! That retracement bracket we've had on the stock from $71.06 to $38.90 has the 80.9% retracement at $64.91. If memory serves me correct, that is where we placed our original stop on an IGT bearish play in recent weeks.

Hope this helps. As profiled before, I like a 1/2 position short/put in IGT.

Disclosure .... I currently hold a bearish trade in IGT.

 
 
  Leigh Stevens   5/22/02,  12:21:12 PM
Subscriber QUESTION: " Re small and mid cap stocks -Is there a liquid vehicle to play the small and mid caps which have seemed to outperform the major indexes in the last 12-18 months?"

RESPONSE: You can buy the iShares Russell 2000 Index (Symbol: IWM).There are others: iShares on the S&P SmallCap 600 Index Fund (IJR) are also liquid. They also break down the S&P Small Cap 600 into iShares on a "value" (IJS) and a "growth" (IJT) segment.

John Bollinger has made recommendations for the value segment (IJS) and Jim Cramer on CNBC has picked up on it and has touted the same. I figured that this was the "bell ringing" at the top and, sure enough, IJS has been correcting since John was on the program.

RE IJS: Using a weekly RSI (LENGTH at 8) on the weekly chart, overbought reading was seen at reading above 80 in mid-April. Oversold area for this iShare is around 36. (8-week RSI is now at 53.5.) The point is twofold: 1) sideways to lower move is "throwing" off the overbought reading and 2.) there is some downside momentum on IJS -- it's been a hot iShare, with weekly volume up over 1.5 million in recent weeks on the pullback. Seems there must have been some profit taking after a strong run from the 66 area in late-Sept. to the recent weekly closing high at 99.3, week ending 5/3.

CURRENT IJS QUOTE: 94.7. Looks like IJS will have strong support in 88 area.

 
 
  Jim Brown   5/22/02,  11:52:34 AM
Pivot Trade Signals Alert - Corrected
The RUT just broke below its May-10th low of 492.34 and is accelerating to the downside. This is a bad signal for the broader markets. At the same time the Wilshire-5000 has broken below its retracement level of 10185. If both of these indexes don't rebound within the next several minutes a new leg down could begin.

 
 
  Jeff Bailey   5/22/02,  11:52:18 AM
Jeff, IGT is trading below it's 10-d and just bounced off around 50-d mav ... is it the right time do buy some puts?? please advice; rgds,

I don't use the 10-day MA, but lets try and use your observation of 10-day and 50-day to make a decision.

I see three (3) times when the 10-day has crossed above the 50-day MA on the chart. Link

Lets start to the left of the chart and study the October period where the 10-day crossed above the 50-day (similar to recent action). Observing that MACD was in very similar position. Stock tested the 50-day, then bounced higher. Observation #2 is that stock bounced and rocketed higher.

Moving to the right, we study the early March time period, where once again we see the 10-day moving above the 50-day (similar to recent action). Here too, we see IGT test the 50-day, bounce a bit, but the rally comes just under the rounding 10-day, then stock gets hammered lower and violates the 50-day MA. We note MACD at that time was very similar level as October and current action.

So... based on just the 10-day and 50-day, action has been 50/50. Is there anything else we can use to give us any insight? How about relative strength?

From above observations, we will tie in with the October (red A) and March (red 3) time periods. Was there anything in the Relative strength chart at that time that could have been the "deciding" vote as to what a trader should have been doing with IGT? Is there anything recently to give the trader any guidance?

The RS chart of IGT versus the SPX Link has just turned into a column of O's with today's action. Note the October (red A) and March (red 3) points on the chart. Hmmmm..... in October (red A) RS was turning higher after getting drilled lower to the 36 level. In essence, IGT was showing some RS improvement. In March (red 3) IGT was near a high, but a 3-box reversal to a 67 reading was probably a good correlation with a short/put, tied in with your 10-day and 50-day.

Today's reversal lower will only hold true based on the close of trading when RS for the p/f chart will be calculated (take IGT stock price and divide by SPX close). If it ends up in a column of O then that would be a near-term negative.

A trader looking short/put IGT, can then tie in where a stop should be placed, even based on the RS chart. What was the May (red 5) stock price high for IGT? Answer is $64.78.

Hey! That retracement bracket we've had on the stock from $71.06 to $38.90 has the 80.9% retracement at $64.91. If memory serves me correct, that is where we placed our original stop on an IGT bearish play in recent weeks.

Hope this helps. As profiled before, I like a 1/2 position short/put in IGT.

Disclosure .... I currently hold a bearish trade in IGT.

 
 
  Jim Brown   5/22/02,  11:47:58 AM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
We were triggered on the OEX/SPX/DJX short at 11:44:40 when the OEX traded below 537. (SPX when triggered was 1077.25) The stop loss for this trade will be 541.50 (SPX 1085.50) which is slightly over the high of the day.
Remember 535 is the "gap filled" point on the OEX and could offer some support. We will be watching closely as that level is reached and will adjust the stop loss accordingly.

 
 
  Leigh Stevens   5/22/02,  11:47:43 AM
Subscriber QUESTION: "Can you elaborate? Where you indicated (on Market Monitor yesterday)" - 'Index Update: SPX, OEX, DJX, COMP, NDX & QQQ. All are on stochastic downside crossover 'sell signals' now, and all appear to be on target to reach my downside objectives at .....' " - Stoch signals appear to be overSOLD."

RESPONSE: Well, simply that the 5 and 21-hour stochastics, ones I use mostly on hourly charts, were moving down and were not yet at an oversold area, which begins around 20 on the stochastic study. When I say they are on oversold sell signal I mean they are still heading lower and are not yet in oversold area (20-15 or lower).

 
 
  Jim Brown   5/22/02,  11:43:35 AM
Pivot Trade Signals
Watching paint dry again? The internals are dropping slightly with the put/call ratio now at .79 after closing yesterday at .90. The advance/decline ratio is .73 and falling with 2475 advances to 3368 declines. The TRIN is hovering around 1.10 and the VIX is 22.69. What all this means is the oversold conditions at the open are easing as we trade sideways. While there is no rush to sell there is also no buying pressure. Sideways trading can end violently as buy/sell program triggers are narrowed as the day progresses. When the first is triggered by a break above or below the current range the sudden market movement can trigger others. Dow 10100 has been a price magnet for an hour but it appears to be weakening. Should the day's low of 10075 fail to support any drop then we could see a repeat of yesterday's afternoon drop.

 
 
  Leigh Stevens   5/22/02,  11:38:07 AM
Subscriber QUESTION: "Was looking at ERTS. Stock has once again hit and bounced off overhead resistance at 64.00. Was thinking that this may be a good short/put opportunity with sights set on support at 56.00 and with a break thru that level possible to 52.00. Any comments would be appreciated."

RESPONSE: Electronic Arts (ERTS) has made an apparent double or triple top just over 64 -- this relative to the Dec. peak - there was one closing high then at 66, but thereafter it continued to close below 64, so this looks like a key area.

ERTS now is retreating from this 64 area having made several intraday tops there. Also, retreating from a minor overbought reading on the daily Relative Strength Index (RSI). Volume action is bullihs as volume expands on rallies and definitely contracts on pullbacks. Would exit on a close in the stock above 64.00.

 
 
  Leigh Stevens   5/22/02,  11:22:09 AM
Index Update - RUT - Jim mentioned the Russell 2000 as an index to watch besides the usual suspects. As it happens, am beginning regular coverage tonight in Sector Trader of the Amex Composite and Russell 2000. These don't fit as industry sectors like the Semiconductors say, but the strength in small & mid cap stocks is a definite investment "theme" this year and they fit well in looking at market sectors - consider them as a market segment differentiated by "size", rather than by what business they are in.

 
 
  Jim Brown   5/22/02,  11:12:29 AM
Pivot Trade Signals
As we wander aimlessly this morning I was looking at some other indexes for wisdom. (sorry, did not find any) I did notice some key points we should keep in mind. The Wilshire-5000, the broadest market indicator (TMW.X), will have retraced its gap open from Last Tuesday when it hits 10185 or about -30 points lower than its current level. If that level fails then the May-7th closing low of 9979 could be the next support.

The Russell-2000 has already gone below its retracement level of 499.54 and is currently trading just below 494. This level is critical. It has held since March with the exception of a brief dip to 492 on May-10th. If traders think the economy is improving then the small caps (R2K) are the leading indicator. If they think the gloomy news out this morning will prevail then the Russell could break this critical low and that could be the deciding factor that tanks the other indexes.

We need to monitor both of these indexes for signs of strength and weakness as we move forward.

 
 
  Leigh Stevens   5/22/02,  11:05:06 AM
Index Update: SPX & OEX so far have reversed at trendline resistance at 1085 and 540.5-541, respectively. While these indices are oversold on short-term basis, the backdrop is the downside momentum showing on the daily oscillators. Looks like the indices may hold around current levels or a bit lower (1075 SPX & 535 in OEX) but that doesn't mean they are ready to rally. Sideways is a the choice when market is at an indicison point.

Also, key tech stocks (QCOM, INTC, MSFT, CSCO & ORCL) have been unable to break out above their resistance levels. Without tech participation, rallies have not gotten traction.

 
 
  Jeff Bailey   5/22/02,  10:43:33 AM
13-week Bill ($IRX.X) 1.702% ... interesting that we see some marginal selling in the very short-term Treasury bill after an earlier YIELD dip lower.

This triggered a thought. What if the Fed were to raise rates a bit near-term? Wouldn't this also help stem the U.S. Dollar decline? It might. With a higher rate of interest in Fed funds, then the U.S. $ becomes a more attractive currency. It may also signal that the Fed is seeing signs of continued economic strength and bring some foreign investors back to the U.S. that have taken some of their capital out in recent months.

The downside is that it may further stem any type of corporate spending that is needed to further stimulate the economy.

 
 
  Jeff Bailey   5/22/02,  10:34:29 AM
Am considering for tomorrow a 35 June put and a 45 call strangle on BGEN which will have an FDA meeting on Thursday. As a general trading strategy (not asking for specific advice): do you consider it wise to: a) buy the same amount of calls and puts? b) to buy the same amount of MONEY in calls and puts(let's say $5000 for each side of the strangle) to compensate for one side of the strangle being more expensive than the other (and thus closer to the money than the other)?

Excellent question and one that has been addressed multiple times in my commentary. ALWAYS trade $ amount, not contract amounts.

It does the account little good to find any type of hedge have one side of the trade becoming the winning side only to find out that you placed a $1,000 bet on the winning side in 10 contracts, but placed a $2,000 bet on the losing side in 10 contracts. Think bottom line and capital exposed when trading!

If you're a stock trader, this is also important. Review your business plan/trade discipline to see what your limits are for a full position. Your discipline should be stated in dollar amounts, not share/contract numbers. A 100 share investment in a $10 stock is entirely different that a 100 share investment in a $20 stock.

If you're focusing on contract/share size and not capital exposed, then go buy a case of dynamite, sit on it, and smoke a cigarrete while doing so.

Just as smoking a cigarette while sitting on a case of dynamite is risky and you could blow yourself up, so is only paying attention to contract/share amounts without regard to capital exposed.

 
 
  Jim Brown   5/22/02,  10:21:00 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
Nice little buy program that hit at 9:55 but it appears to have run its course. There was no follow through above 541 resistance as the bounce brought short sellers off the sidelines. We are holding to the current short signal on a trade below 537.

 
 
  Jeff Bailey   5/22/02,  10:20:39 AM
Good Morning So how does the activity by the Bank of Japan effect EWJ?

Hmmmm.... With the EWJ up 2.02% at $9.08, I'd have to think bullish. I'm not being a smarty here either. Evedently, the MARKET seems a bit determined on its view of things. I would have "thought" that it might be a short-term negative, but maybe the MARKET is saying something about Japan's prospects for growth and perhaps the MARKET hungers for exposure to that region of the world.

A wise trader once told me "forget what you believe and trade what you observe." Believe me, I've heard some very good arguments from traders to not try and trade bullish in Japan. So far, a bear in Sony (SNE) $58.79 +1.27% from first bullish profile at $53 and again near $51 isn't doing too well. Neither is a bear in the EWJ from recent profile. A bear that has traded either of these on "what he believes" is not doing as well as a bull trading "what he has observed."

Interventions are attempts to force a desired outcome, however, that doesn't always mean the outcome is realized.

Disclosure ... I currently hold a bullish position in Sony (SNE)

 
 
  Leigh Stevens   5/22/02,  10:12:57 AM
Index Update: OEX - Has come right to resistance at its its hourly down trendline at 541. This was also the "line" of support from the recent trading range --once broken, support becomes resistance. Clearing 541 and ability to hold above it on any subsequent pullbacks would suggest some further upside - hourly stochastics are now on crossover buy signals.

 
 
  Jeff Bailey   5/22/02,  10:06:05 AM
QQQ bearish trade review A quick review of the successful bearish trade in QQQ from yesterday. What did we do? We used the weakness in the GSO.X to lead us to our observation of weakness in MSFT and the beginning of what looked to be a filling of the gap by MSFT to the downside. With our knowledge of MSFT impact on QQQ as it is heaviest weighted, we were than able to "jump the gun" on the QQQ short with 1/2 positions short. Then, when we got technical weakness confirmation from the QQQ beginning to fill its gap to the downside, rolled to full position on the weakness. Then, when MSFT filled its gap, we then locked in gains on first 1/2 short position. As session went along, we pulled in observations of weakness in the biotechs and MSFT exceeding it filling of the gap, thus having us hold remaining 1/2 position short in QQQ overnight. Today we lowered profitability stop further. We then noted bullishness in MSFT and Biotech, and gave us conviction that our stop at $31.25 was indeed correct.

Some of your best success in trading will come from making observatition AROUND you pimary trade. It gives you a 3-dimensional view of things. Too many traders just trade an index and have no clue what the "key" internal components are doing or how they may impact. That can lead to what is called "blind trading" and something that should be avoided.

 
 
  Jim Brown   5/22/02,  10:03:10 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
Not yet! That was about as close as you can get. The OEX traded AT 537 but not below it as stated in the signal. With the Nasdaq improving we might even get out of this hole. 540 would be an aggressive entry point for going long but a bounce over that level could draw some shorts off the sidelines. We will wait despite the possibility of giving up six points between here and the 544 area.

 
 
  Leigh Stevens   5/22/02,  9:59:28 AM
Index Update: OEX - At 534 area (533.8), the S&P 100 will completely fill in its chart gap from last week and is an area to expect some technical buying interest. The short-term oversold condition also suggests some minor rally potential from the gap area.

 
 
  Jeff Bailey   5/22/02,  9:55:57 AM
QQQ $31.10 -0.7% .... did trade $31.25, but not seeing confirm as market was fast. A buy in order with "limit" restrictions may not have been filled.

As such, lets close out here at the market $31.15 if not filled at $31.25 and wait things out.

Disclosure .... I currently have bullish positions in the QQQ.

 
 
  Jeff Bailey   5/22/02,  9:55:03 AM
9:00 Intraday Update
The morning intraday update has been posted. Read it here: Link

 
 
  Jim Brown   5/22/02,  9:51:20 AM
Pivot Trade Signals
The OEX bounced at 537.09, just above our entry point for the short signal. The markets are returning to the flat line but internals are still weak. The only level where I am comfortable issuing a long signal is over yesterday afternoons relative highs around 544. If a rebound appears there is strong intraday resistance between here and that level. We will wait for the OEX to fight through that resistance before issuing a long signal.

 
 
  Leigh Stevens   5/22/02,  9:47:18 AM
Index Update: SPX - will completely fill in its chart gap at 1075, which is also at the low end of its hourly uptrend channel, construction of which is a "work" in progress. This 1075 area is the chart point to watch for potential buying interest showing up. Hourly stochastic models will turn up, from an oversold level, if SPX rallies from this general area.

 
 
  Jeff Bailey   5/22/02,  9:46:21 AM
QQQ trader short is watching both Microsoft (MSFT) $52.59 +0.8% and the Biotech Index (BTK.X) 400 +0.67% and understands the near-term bullish implications for the QQQ trade. Thus the tight stop in QQQ at $31.25. For bears to see success in QQQ, need to see weakness in MSFT and biotech as both have major impact on QQQ action.

 
 
  Jeff Bailey   5/22/02,  9:43:44 AM
QQQ $30.95 -1.18% .... trade at $30.98 "filled the gap" from 05/13-05/14. This was our near-term target from yesterday Link . Keeping tight stop at $31.25.

 
 
  Jim Brown   5/22/02,  9:38:30 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
The markets opened flat with the Nasdaq being the big loser. The Dow traded positive for a couple of minutes before turning negative. With all the negative news I am going to jump the gun here and recommend a short if the OEX trades below 537. (SPX 1078 approximate) Yesterday's low was 537.81.

 
 
  Jeff Bailey   5/22/02,  9:34:43 AM
MSCI Japan Ishares (AMEX:EWJ) $9.05 +1.68% ... getting upside alert here. Mentioned bullish on 05/17 for traders looking for bullish exposrue to Japan based on what we were seeing in the currency markets. I also liked the bullish reverse head and shoulders pattern. Link

Disclosure ... I currently have a bullish position in the EWJ.

 
 
  Jeff Bailey   5/22/02,  9:28:35 AM
QQQ Yesterday, I had profiled a full position short in the QQQ and by session's end, I felt a trader should be holding 1/2 position short and looking for some follow through to the downside.

A trader is going to get that this morning. What I'm going to do here is further lower profit stop to $31.35.

Disclosure... I currently have both bullish/bearish positions in the QQQ.

 
 
  Jeff Bailey   5/22/02,  9:24:00 AM
The overnight intervention by the Bank of Japan and its buying of U.S. $ and selling of Yen to stem the recent strength of the Yen has traders a little edgy this morning.

Treasuries are seeing buying across the board, with a greater extent of the buing coming in the shorter-maturities. This action hints that the market is a little more defensive as the shorter maturities are perceived as "less risky."

One area I'll be looking for some near-term bullishness is in the home builders and mortgage lenders with the thought that the result of lower Treasury YIELDS may have an impact on lower mortgage rates. The downside to this scenario is that the MARKET sees a slowing economy where the consumer just isn't looking to buy a new home.

 
 
  Jim Brown   5/22/02,  9:20:43 AM
Pivot Trade Signals
The futures are indicating a flat to down opening and market sentiment this morning is subdued. Brokerage comments this morning are reinforcing the idea that IT spending will not return until the 2nd half and that prospect it hopeful at best. Goldman Sachs downgraded 26 software companies on this continued spending freeze.

The Brooklyn Bridge was closed for about an hour after a suspicious package was found. While the package was nothing to worry about the fear of a continued terrorist threat weighed on the premarket sentiment.

With the markets expected to open lower the support levels on the S&P are 1075, 1065, 1055. The index closed at 1080 on Tuesday. Resistance is 1088, 1100.
We will wait for the opening volatility to pass before issuing a trade signal. The slightly oversold conditions from yesterday could worsen with any opening dip and lead to a technical bounce. On the flipside a break below the 1080 support level on the S&P and 10100 on the Dow could accelerate the drop. Despite the big software downgrade this morning the futures are barely negative. This portrays an underlying bid to the premarket which may or may not carry over into regular trading. Time is on our side.

 
 
  Leigh Stevens   5/22/02,  9:18:34 AM
NEWS this morning - Most encouraging is Pakistan saying that they would not allow attacks into India from their soil. Flight to supposed safe havens was seen in another move higher in gold yesterday.

The various talking heads from the Adminstrations seemed to have shut up for now about how somewhere, someday, the U.S. will get attacked again. Maybe if they stop rattling the public, investors will pay attention to some of the economic positives - however, the day is still young.

 
 
  Leigh Stevens   5/22/02,  9:13:53 AM
Index Update: Indices went out with some of the indices into minor support - DJX & QQQ and oversold on a short-term basis. The other indexes are only oversold, although not on a daily chart basis. I calculate near SPX support at 1075, OEX at 535, and COMP at 1660.

 
 
  Leigh Stevens   5/22/02,  9:07:22 AM
Good Morning - It's Showtime! The futures are reflecting some follow through selling from yesterday. S&P futures are down 2.50; DJ futures are off 23 pts. and Nasd furutres are -13.

 
 
  Jeff Bailey   5/21/02,  9:17:57 PM
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See you tomorrow!

 
 

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