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  Jim Brown   5/23/02,  9:18:46 PM
Pivot Trade Wrap (What is this?) Link

Mystery Solved The mysterious bounce that began at 2:10 was related to the Biogen FDA drug approval process. When regulators prepared to vote at 2:PM it became clear that the vote would be in favor of Biogen and the news exploded across the biotech sector. At 2:10 the biotech index began soaring, gaining nearly +30 points going into the close. The BBH holders as Jeff has already were seen as the vehicle of choice for those wanting to play the bounce but not wanting to pick stocks. The rapid gains accelerated as the news spread.

What happened to the broader market however was not so clear at first. There was no general news announcement until about 15 min before the close. Market watchers and traders were faced with a suddenly rising Russell-2000 and Nasdaq without any apparent explanation. When faced with a rapidly rising market and no immediate explanation the first impulse is to cover short positions quickly. As we know, sudden short covering produces more sudden short covering until resistance levels are hit. New sellers then slow the advance and balance comes back into the market. The mystery of the unexplained 2:10 bounce is now common knowledge.

What will happen to the markets on Friday depends on three things. The reaction to SunMicro's comments after the close, the reaction to the GDP numbers and any continued reaction to the Biogen news. SUNW said order flow was not as smooth now as it was in the first quarter and computer spending was still constrained. SUNW was down in after hours. The GDP numbers were higher than expected in the last release and many analysts expect them to be revised even higher tomorrow. Any drop or even a flat announcement could be seen as a negative to the markets. The Biogen news was clearly fed in part by traders reacting to the bounce not necessarily the news. Since the drug will not benefit all the biotechs that gained ground in a news vacuum today there may be some selling. Others that were short covering in a beaten down sector could reinstate their positions now that the news is out.

Depending on the GDP news in the morning this could be a really good shorting opportunity. I doubt the SUNW news will create a buying frenzy in tech and nobody can predict the results of the BGEN news now that it is known. Tune in at 9:15 on Friday and we will play what the market gives us.

 
 
  Jeff Bailey   5/23/02,  8:17:18 PM
Biogen (BGEN) This makes me a bit "sick." Yesterday at 10:34:29 in the market monitor Link a subscriber asked about setting up a BGEN strangle ahead of today's drug decision. I'd be interested to know how he made out when the stock opens for trading.

What makes me a little "sick" is that I didn't study the point/figure chart Link . The bearish vertical count was $40 and the stock had recently traded $39 and the MARKET may have already discounted any "bad news." Now that the news is good, you can almost imagine the pain a bear is going to experience when the stock opens for trading.

I've said before that I don't like to short biotech stocks as any "cure for what ails you." Buy puts on them, but shorting the underlying stock can be painful.

Did you see the "BIG" volume in the Biotech HOLDRS (AMEX:BBH) $102.25 +7.5% today at 3.7 million shares? That was most likely created by institutions short BGEN into today's drug review. With BGEN halted, the BBH gave them some needed exposure to BGEN which is a component.

Now, the BBH buying then found its way to 12 components of the QQQ (AMGN, IMNX, GENZ, IDPH, BGEN, CHIR, MEDI, SEPR, MLNM, HGSI, GILD, ICOS), thus the surge in the QQQ near the close of trading today on "rumor" that the drug review went well.

While this is "good fortune" for my earlier profile today of bullish the QQQ, I don't know what impact tomorrow trading in BGEN will have on things.

It will take awhile to figure out too. Traders short BGEN that turned to the BBH for a partial hedge, will they wait until they get their BGEN position under control before selling their BBH position?

One level we may want to identify as a level to watch/monitor for resistance is the BBH at around $114. This is very "rough" right now, but I notice two equal volume spikes of 3.5 million shares. Today's volume (say an average of $100) and 01/04/02 volume spike (say an average of $127).

I won't "bet" on the $114 level as resistance, but these two volume spikes are almost like book ends where we see some major supply/demand disagreement take place. Perhaps just as that volume spike on 01/04/02 ends up being smart money being bearish, today's volume spike will end up being smart money being bullish. Split the difference and you come close to $114. Another level to watch from this retracement in the BBH is $108 and this ties is nicely with the 50-day MA. Link

Wierd? Now take a retracement from the November highs of 140 and lows of $90. 50% is just about $114.

Will take some notes and may use this for an exit point in our QQQ bullish trade from today.

 
 
  Jeff Bailey   5/23/02,  5:19:47 PM
AMAT or INTC? Hmmm... in today's market monitor, I wrote that I'd be looking for a pullback under $23 as bullish entry for AMAT.

I'm going to re-think things a bit here. There is "rumor" that INTC may cut its cap-ex spending and this could impact equipment stocks should it take place.

Conversely, if INTC were to cut spending, then while that may be a negative, not nearly as negative on INTC as perhaps AMAT.

With that type of thinking, near-term I would think it best to opt for an INTC bullish trade (both AMAT and INTC have the potential reverse head/shoulder).

By trading bullish in INTC, we at least try and "remove" a potential cloud that could weigh on a bullish trade in AMAT.

Both AMAT and INTC p/f charts are longer-term bullish as both trade above trend. Interesting though.... if INTC were to trade $32, this would be the "bearish signal reversed" pattern. This is a pattern not often seen, but when it is found, traders should pay attention.

The bearish signal reversed would come at $32. This pattern is signified by at least 7 columns (X's and O's) and each column of X must be lower than the previous and same with the O's. What can make this such a powerfully bullish pattern is that bears can get complacent, and begin systematically shorting the rally's as the lower lows become "predictable." The pattern unleashes itself to the upside on the break at $32, when a sudden "realization" that something has gone wrong and bears rush to cover. Link

According to Professor Davis' study, the "bearish signal reversed" is perhaps the most powerful bullish chart formation as his study shows it is profitable 92% of the time, for an average gain of 23.2% in a 2.5 month time frame.

Let's see..... if the stock trades $32, then a 23.2% gain would be approx. $32*1.232= $39.42 target.

Hmmmmm, reverse head/shoulder pattern with head at $26, neckline at $31.50, gives difference of $5.50. Then add $5.50 to neckline of $31.50 and come up with $37.

Is it worth risking $2 to potentially make $8 or $10?

 
 
  Jeff Bailey   5/23/02,  4:48:08 PM
Reverse head and shoulders? Hmmmmm.... trying to figure out these Semiconductors (SOX.X). What's it going to take to get the "head" of the inchworm to move higher?

"Key stocks" for me are AMAT and INTC, the two giants in the group.

Interesting potential for some reverse head/shoulder patterns in these two stocks. Both could be in the process of building their right shoulders today.

Intel's (INTC) is more conventional at the lows. See the left shoulder at $28, head $26, today's $28.44 pretty close to a right shoulder? Neckline is $31.50. Link

Applied Materials (AMAT) reverse head/shoulder would have today's low pegging the 04/10/02 and 04/12/02 lows, which might be viewed as left shoulders, with today's low being a right shoulder. Neckline is the $28 level, with head being 05/03/02. Link

 
 
  Jeff Bailey   5/23/02,  4:12:42 PM
QQQ $32.05 +2.07% .... very interesting close here at $32.05. 60-minute chart interval shows both the 50-pd and 200-pd right here at this level. MAJOR near-term "pivot" so to speak. Tomorrow could be quite interesting... interesting indeed.

 
 
  Jeff Bailey   5/23/02,  3:58:13 PM
QQQ $32.07 +2.1%.... building gains. NASDAQ-100 heatmap shows biotech bunched together as sector/index gainers. Link

Breadth positive with 70 gainers, 30 decliners.

 
 
  Leigh Stevens   5/23/02,  3:54:27 PM
Index Update: NDX broke out above key near resistance at 1281-1282 and now QQQ is following suit with move above 31.9-32.

 
 
  Jeff Bailey   5/23/02,  3:53:49 PM
Biotech HOLDRS (BBH) $102 +7.3% ... oh my! Breaking above the $101 level with some conviction. The inchworm isn't just inching along here!

 
 
  Jeff Bailey   5/23/02,  3:52:45 PM
QQQ $31.85 +1.4% ... bull with 1/2 position long will stand pat over night. Don't "worry" that you've got just 1/2 position long.

Microsoft (MSFT) $54.50 +1.49% is you're "ace in the hole" for potential bullish trade tomorrow. You get the feeling you know what may be in store there to upside if that 50-day MA were broken to upside. Can act on that if things continue to unfold. Link

 
 
  Jim Brown   5/23/02,  3:50:59 PM
Pivot Trade Signals
The markets are setting up for a major shorting opportunity if the GDP disappoints an any way tomorrow. With all the major indexes right at resistance 10200/1690/1095/546 any disappointment will be clearly reflected in a strong drop. You can see that the buying slowed significantly at these resistance levels indicating their strength.

Jim; I've just noticed a lot of put buying in the s&p500 1050 puts. Any thoughts?

I think put buying here is an excellent idea if you knew in advance what the GDP report was going to say. (not specifically the 1050) Remember the last release when it was revised upward. I am very allergic to holding a position overnight in the Market Monitor with such a big unknown tomorrow morning. Otherwise I would be recommending a short entry here. Time will tell and there will always be another opportunity.

 
 
  Leigh Stevens   5/23/02,  3:47:46 PM
Index Update: Strength in the S&P indexes is being led or "signaled" by S&P market bellwether GE, which is again (slightly) penetrating its down trendline, which intersects currently at 32.75, unless you have a THICK trendline applied:-

 
 
  Jeff Bailey   5/23/02,  3:46:23 PM
CNF Transport (CNF) $35.43 +3.85% ... Link bulls in CNF. What I'd be doing is also monitoring the Dow Transports (TRAN) Link

You/I observe that CNF is "more bullish" than the TRAN as it relates to technicals versus the 50-day MA. What a CNF bull needs is for the TRAN to break above its relative high at 2,810 and get some sector action to act like a "tidal wave" that will enable sellers (supply) in CNF to back off that $36 level.

 
 
  Leigh Stevens   5/23/02,  3:31:25 PM
Index Update: S&P indices, both the 100 (OEX) & 500 (SPX) have broken out above their first line of resistance at 541 and 1090 respectively. DXJ has to get above 102.2 to achieve the equivalent resistance level. COMP has key resistance at 1694-1695, NDX at 1281-1282 and QQQ, at 31.9-32.

 
 
  Jeff Bailey   5/23/02,  3:31:08 PM
Biotechnology Index (BTK.X) 417.28 +3.93% .... Ok, here's some observations. If you take regression trend from the 11/27/01 high and drag down to the right on your charts, you get very nice downward channel. From this you will see mid-point of regression just above at 418.

Now... on 05/15/02 in market monitor, I profiled a short-term bullish trade in the Biotech HOLDRS right at the session high that correlates with the BTK.X having just edged above this mid-point of regression.

You can perhaps really see how bears have been shorting off this mid-point. Do bulls have what it takes, or does the MARKET for that matter, to have the demand shift to get a break higher? Time will tell, but good technicals and some reaching back to past unsuccsessful trade to understand what is at play here.

I remember the good trades as well as the bad ones to keep my honest on things. Thought here is that there is still some work to be done for bullishness. Should the BBH get back above the $101 level of past trade, then I make the observation that maybe we were "right," but just a little too early. At the same time, until that happens, then the inchworm is trying to move forward, but still a little uncertain.

 
 
  Jeff Bailey   5/23/02,  3:21:05 PM
Interesting that you should mention Bema. I've held this stock for quite some time now say from late '97 I think. I bot 100 shares @ 4.50 or so from a recommendation from XXXXXX here in Palm Beach, FL. I sat on it forever not really even thinking about it until a few months ago when I bot 1900 shares around .20 (twenty cents) so I guess my basis is around .40 (cents). I was thinking when I purchased the most recent shares that the stock could possibly make another run like it did in mid 96. It's hard to get a feel for the stock & of course like you say it is a PENNY STOCK without doubt. My question is how do I manage risk in this stock. Currently I have no stop loss in place nor do I know where to place one. Any suggestions?

Hmmmm.... Bema Gold (AMEX:BGO) $1.73 -3.8% ... you were "late" at $4.50 and "early" at $0.20. Yep, cost basis looks to be about $0.41. I'd use the retracement as outlined earier and place a stop just under the $1.47 level on 1/2 position. That allows you to take all you initial capital risk out of the stock if it hits there. Then place another 1/4 position stop under 38.2% retracement of $1.16. I'm thinking you're a longer-term investor in the stock.

As they say... a little bit of gold can come in handy from time to time. The above strategy allow you to still keep some exposure to the stock, but the stock has to prove itself to you. It will, as long as it doesn't trigger your stops from retracement.

 
 
  Jim Brown   5/23/02,  3:16:10 PM
Pivot Trade Signals
The Russell is now up +4.96 points and is nearing 500 again. This amazing burst of buying pressure has got to be short covering and buy program related. You do not get across the board buying in 2000 stocks over a 45 min time frame with retail investors. The GPD numbers out tomorrow could be causing this short covering bounce. If traders think the numbers will surprise to the upside they may not want to be short at the open.

 
 
  Jim Brown   5/23/02,  3:09:17 PM
Pivot Trade Signals
The advance/decline ratio has risen to a positive 1.27 with advancers beating decliners 3536 to 2778. The VIX is sliding into the danger zone at 20.67 and the TRIN has fallen to .69. Obviously the overbought conditions are increasing as we head into the last hour.

 
 
  Jim Brown   5/23/02,  3:01:23 PM
Pivot Trade Signals
That last little spurt of buying put the SPX/OEX over their highs of the day and over short term resistance of 1089/543. For the SPX the next intraday resistance level is around 1096-1100. The next OEX resistance is around 547-548. Expect a slowdown when those levels are reached. Interesting note, while the OEX/SPX and Nasdaq have broken out to the highs of the day the Dow is lagging at 10160 and about -25 points below its high. The Russell-2000 is on fire with a +3.75 gain after trading negative most of the day.

 
 
  Jeff Bailey   5/23/02,  2:58:40 PM
Noticed CNF up about $1.00 today. It keeps trying to come back but just can't seem to do it. Anything currently on your charts that show anything?

Yep... I see a stock that is rebounding rather sharp from a downward trend taken from the 01/04/02 high, attached to the 03/07/02 high and extension of that trend, broken by upward gap on 05/14 has recently been tested as support. Looks like some bears may be calling it quits and you might just get what you're looking for in those June calls. Hang in there, it's getting interesting.

I've ranked the "Transports" as stronger than the semiconductors, so I think you're still in a good group under current economic conditions.

 
 
  Jeff Bailey   5/23/02,  2:55:07 PM
QQQ $31.76 +1.1% .... trying to "break out of the cacoon" and at a new session high. Lots of work to be done, but good sign for shorter-term bulls.

 
 
  Jeff Bailey   5/23/02,  2:42:28 PM
Hey Jeff, Great job, your insight is invaluable! What do you think of GNSS where it is trading today?

yes! talked about this last week or earlier this week. Wanted to get a pullback to $25 for bullish entry. Would take 1/2 position here. $25.90.

Perhaps fits into the inchworm too. It's a semiconductor and the way things playing out in the BTK.X and GSO.X, then one might expect SOX.x to rebound soon.

GNSS recently gave "triple top" at $25, and has pulled back to that signal. Since below trend, only looking 1/2 position. Bullish count is $46, so p/f risk/reward from $26 is 6/20 and that might keep some institutions interested from bullish side. Link

Bar chartist might tie in support with the rounding 50-day ma. Link

 
 
  Jeff Bailey   5/23/02,  2:37:30 PM
Getting some more green on the screen, kind of like an inchworm's color.

Lookout here.... YIELDS look to be finishing green today (selling in Treasury) and ending with a sell bias could be an equity bulls liking. Bull's scenario from earlier starting to play out here.

 
 
  Jeff Bailey   5/23/02,  2:30:22 PM
QQQ $31.38 -0.03% ... "the inchworm" itself showing some gains from bullish profile at $31.07 (see 12:43:08) and bulls seeing some results from their hard work. Looking at the market in 3-dimensions.

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

 
 
  Jeff Bailey   5/23/02,  2:28:28 PM
Semiconductor Index (SOX.X) 508 -2% ... has inched back from earlier -3% losses. "head" starting to respond a bit, maybe not as worried about the tail?

 
 
  Leigh Stevens   5/23/02,  2:27:01 PM
Index Update: ALL - Well, on a low volume day, if they can't take em down, they'll try taking them up. Indexes, including the Q's were all trending slightly higher along emerging hourly up trendlines, which has been a bullish plus. Now, a minor upswing here has taken the indices right to their hourly chart down trendlines, with SPX & OEX starting to poke above these trendlines. Doubt that were going to see much upside today, but the indexes are holding up pretty well after the gap filling exercise of yesterday.

Meanwhile, this more of less sideways action is what I have been looking for to continue to bring down the daily stochastic reading from the overbought area to a more neutral mid-range reading or down into oversold.

 
 
  Jeff Bailey   5/23/02,  2:27:00 PM
Biotech Index (BTK.X) 409 +1.97% ... starting to come alive a bit. "Tail of the snake" actually moving forward. Software (GSO.X) 125 +1.08% doing the same.

The power of the inchworm!

 
 
  Jim Brown   5/23/02,  2:23:29 PM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
The short on the OEX/SPX/DJX was stopped out at 14:16:24 when the OEX traded above 542. (SPX 1086 approx)
Because of overhead resistance at 10185/1089/543 it is surprising to see this afternoon rebound. It looks like it is buy program driven since the Russell is showing a big spike as well. One reader suggested it was short covering going into the weekend since NO attack or negative news could give the markets a boost on Monday.

 
 
  Jeff Bailey   5/23/02,  2:10:57 PM
Semiconductor Index (SOX.X) 501.70 -3.42% ..... QQQ bulls want to see sector continue to try and hold the $500 level like it has past 3-hours. "Tail" is trying to dig in, now needs the "head" to firm up. (see 01:00 Update). Link

 
 
  Jeff Bailey   5/23/02,  2:07:03 PM
Crazy! ... Bema Gold (AMEX:BGO) $1.81 +0.55% ... was biggest loser in market earlier today, but has reversed losses to show gain.

Earlier today, I took a retracement bracket from the April 2001 lows of $0.19 and attached to the $2.75 level, which marks the highs of 1998 from the p/f chart.

This has a very nice "fit" with past trading at 19.1% of $0.67, 38.2% at $1.16, 50% at $1.47 (today's low!) and 61.8% at $1.77 (stock may try and hover around here for awhile?).

Again... I'm not interested in trading the stock, but can be used as a temperature guage for aggressiveness in the sector.

 
 
  Jim Brown   5/23/02,  1:33:46 PM
Pivot Trade Signals
The markets are still trading sideways as the afternoon trading struggles to find both buyers and sellers. Volume is extremely light as traders try to decide if they want to buy or hold over the holiday weekend. Terrorist attacks for this weekend will probably not come to pass with the increased protection around critical sites. Still, traders are faced with that possibility and it appears to be translating into a lack of interest in the markets in general. The Dow appears to be holding the 10100 level where it spent a lot of time on Wednesday. The Nasdaq has resisted any drop below 1660 but has not as yet been able to gain any ground above that level. It does appear the Russell-2000 has found some strength as it is rebounding off the lows and is now over 493 again. The advance/decline ratio has improved to a still negative .84 but it is significantly off the earlier lows. Could there be some underlying bullishness building here?

 
 
  Jeff Bailey   5/23/02,  12:43:08 PM
QQQ $31.07 -1% .... would look to ease in here with 1/2 Bullish position, stop $29.95, target $33.25. GSTI Software Index (GSO.X) inching green.

Disclosure.... I currently hold a bullish position in the QQQ.

 
 
  Leigh Stevens   5/23/02,  12:40:06 PM
Sector Update: Having best upside today is Gold & Silver sector index ($XAU.X) - up another 2.5% today. Will it ever stop going up, at least without me in it! I featured XAU last night in the Sector Highlight section of Sector Trader - you can see it at Link .Also higher again today is the Utility sector ($UTY.X) as it has been having an oversold rebound in recent days; up about .6% right now. The most Sector red ink today has been with the Semiconductor index ($SOX.X) off 2.9% right now. Also, the Networking sector ($NWX.X) is off about 2%.

Speaking of Sectors, am in process of revising the Sector section I labor over. My new Sector Trader section will have a Sector Highlight of the day, and each major sector will be reviewed daily and are listed in alphabetical order. The commentary won't necessarily change everyday, as commentary is longer term oriented, but I will review each sector chart daily so I can spot trend reversals and so on. Plus, I am listing the stocks in each sector, so you can look at some of the represenative stocks. Check it out tonight!

 
 
  Jeff Bailey   5/23/02,  12:25:38 PM
5-year YIELD ($FVX.X) 4.365% ... Jeff: This YIELD stuff is great. This morning's "pop" in stocks was almost identical to the 5-year YIELD filling its gap from yesterday, but then found buying on the gap and stocks went south. Thanks for turning me on to YIELDS! Link

Hmmmm.... I wish I had seen that! Great observation. Will watch YIELD into tomorrow and see if it firms up at recent lower YIELDS. If so, then it too may try and "anchor." Then next week, we can monitor for any type of confirmation of bullishness toward stocks or not per market history.

 
 
  Leigh Stevens   5/23/02,  12:18:13 PM
Index Update - Buyers strike continues, as there is lack of interest in getting into new positions ahead of long weekend - especially given the scary situation on the Indian subcontinent. This plus the everpresent theat of terrorism according to our goverment officials, has led to low volume day. Should be even lower tomorrow (Fri).

So far, the indices on an hourly basis are holding at (and further defining) minor up trendlines. If there is renewed selling push, potential buyers will likely step aside. NYSE Arms Index (TRIN) is under 1.00, at .83, Nasdaq TRIN is showing a bit more sell pressure, but not extreme right now at the noontime lull - last at 1.02.

 
 
  Jeff Bailey   5/23/02,  12:17:01 PM
Applied Materials (AMAT) $24.90 -4.7% ... stock is on my bullish watch list for a short-term trade for next week. Would like to get the stock once again back below the $23 level, like we did back on 05/02. If the GSO.X and BTK.X will continue to "anchor" and I can trade bullish in the stronger semiconductor, then all the better. Then if the inchworm goes "boing" higher on a historically bullish week, may provide some fruit. Link

 
 
  Jim Brown   5/23/02,  12:10:11 PM
Pivot Trade Signals
The Russell-2000 is nearing yesterday's low of 490.23. The adv/dcl ratio is negative at .71 and falling. (2494/3474) The VIX has been relatively stable all day in the 21.50 range and is not showing any increase in fear due to the market drop. Ironically the Nasdaq has firmed somewhat in the 1650 range, which again is the fill level for the retracement gap from last week. It appears to want to stabilize there despite the accelerated drop by the Dow. Definitely a struggle in progress as the day drags on.

 
 
  Jeff Bailey   5/23/02,  12:06:11 PM
Market history As mentioned last week, traders may want to be aware that next week (Memorial Day week) has historically been bullish, trading higher 14 of last 18 years.

Technicals I prefer are those that have a stock pulling back into a base, that has recently had a bullish chart formation associate with it. Yesterday I profiled Renal Care (RCI) $31.84 +0.28% as bullish and still like it today. Link

Disclosure .... I currently have a bullish position in RCI

Last year, RCI (then trading NASDAQ RCGI) opened on 05/29 at $27.99 and finished the week 06/01 at $28.50.

 
 
  Jim Brown   5/23/02,  11:58:22 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
The OEX/SPX/DJX short was triggered at 11:47:34 when the OEX traded below the 540 trigger point. (SPX 1083 approx)
The initial stop loss on this trade will be 542 (SPX 1086.50 approx)

 
 
  Jeff Bailey   5/23/02,  11:57:15 AM
Tech traders two sectors I'm monitoring pretty close right now is software (GSO.X) and Semiconductor (SOX.X).

Per my often described "snake" analogy, I'd classify GSO.X as the tail and SOX.X as the head. Today's action looks like the "tail" is trying to anchor or stabilize a bit, while the "head" is still turning back and violates yesterday's low.

I've also used the "inchworm" analogy to try and describe how a market moves like an inchworm and what to be looking for. For an inchworm to move forward (in market terms... higher) then the "tail" of the inchworm has to anchor itself and provide some type of traction. If the "tail" anchors, and the inchworm coils a bit --^-- , we look for the head to stabilize. The upward move would come from the "inchworm" then uncoiling as the tail anchors and provides the traction for the head to then expand.

Think of the NASDAQ-100 Bullish % ($BPNDX) Link as being similar. Right now the "inchorm" is slipping back and looking for some traction, most likely, from the tail.

We could also put the Biotech's (BTK.X) 397 -1% in the tail section of things.

For tech bears, you want to see the head pull back so far, that the tail just can't "grip" and continues to slip lower. A bear wants to see weakness in the tail as much as possible.

A quick look at some relative strength charts hints that the Biotech (BTK.X) have been a little stronger than the Software (GSO.X) since the beginning of this year, January (red 1). Link

With that observation made, then we can compare the SOX.X to the BTK.X to perhaps understand how strong the SOX.X has been relative to these other two sectors, thus our analogy of strength and the SOX.X being at the head of the "technology snake" Link Do you kind of see how these "red O's" show the head of the snake slipping back?

 
 
  Jim Brown   5/23/02,  11:41:09 AM
Pivot Trade Signals
Hey, Jim, The frequent triggers provide helpful backup for those of us out here thinking about taking a position. We get reinforcement that our ideas are sound. The warnings, such as this morning's warning that the pop could be a head fake, are even more helpful, as they help us evaluate whether a trade fits our parameters. Because of your warning and because my own parameters weren't met for trading in my small account (ad/dec vols going the right direction, vix and vxn showing appropriate reactions, ten-year yields looking right, support/resistance levels, and stochastics going the direction of the trade), I didn't act on today's trigger, and I bet a lot of other readers didn't either. For all you know, your warning could have carried more weight with readers than did the triggers. You'll probably hear from the readers who jumped on the trade and are disgruntled at losing money, and I wanted you to hear from one who heeded your warning instead. Linda P.

Thank you for your comments. It appears you have the right idea about trading. Establish your risk profile, monitor the indicators that match your trading style and provide positive results. Skip any trade setups that are questionable in your own view and act promptly on those that fit. This probably allows you to sleep comfortably at night as well. Keep up the good work!

 
 
  Jeff Bailey   5/23/02,  11:35:44 AM
Jeff, For RIMM, where would you place the Stop and why? In addition, what are your reasons for recommending Dec Puts, instead Sept's? Would you start with 1/2 or full position?

Will further discuss in 11:00 Update (just sent out). I would start with 1/2 as good strategy, then if triple-bottom is triggered at $15, round to full.

The "reason" I profiled December instead of September is that for about $0.50/contract extra, trader gets 3 extra months and may perhaps benefit further for some tax-loss selling near end of year. Never know for sure, but trade can weigh the cost against other potential scenarios. Funny to be thinking about tax loss selling, but boy this year has gone by pretty fast hasn't it?

As far as stops go, I'm not a stop trader with options. For stock, would begin with a stop just above $19.

 
 
  Leigh Stevens   5/23/02,  11:25:52 AM
Index Update: QQQ - fallback from intraday high getting close to yesterday's low at 30.65. Break of this level, especially on a closing hourly basis, suggests a further downswing - if so, next significant chart point is at 29.5, at low from 5/10.

 
 
  Jim Brown   5/23/02,  11:06:57 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
Let's try this again. The Dow stopped right at resistance of 10185 this morning. The S&P stopped right at resistance of 1089. The Dow & S&P have been trending higher while the Nasdaq is trending lower. The Dow & S&P both appear "heavy" despite their struggle to higher ground. Tuesday's trading pattern was similar and resulted in a sell off as the day continued. That could be triggered by the Nasdaq falling below 1660 today. I am going to issue a signal to go short just under the OEX lows of the day of 540.23. If we get a breakdown we will be ready.
Go short the OEX/SPX/DJX if the OEX trades below 540. (SPX 1083 approx)

 
 
  Jim Brown   5/23/02,  10:54:22 AM
Pivot Trade Signals
Snake Bit!Total frustration is what I am feeling right now. Sound familiar? Ever felt this way? The long signal this morning was prompted on a break above resistance from Tuesday afternoon at 543.22. My entry of 543.25 was triggered when the OEX traded at the high of the day at 543.39. It traded 14 cents above the trigger before rolling over! The stop loss was set just below the last 15 min low for Wednesday of 540.54. My exit stop of 540.50 was triggered when the OEX traded at the low of the day at 540.23 and broke the stop by a whopping 27 cents. Since that time the OEX has traded sideways and well within those prior levels. All of that occurred within the first 30 min of trading and provides yet another confirmation of why conservative traders should not initiate trades during the opening period of volatility. The fear of course is that the market will run away from you and you will miss a huge profit. More often than that it will turn into a loss as we saw today. Just venting some frustration here while we wait for confirmation of the next market direction!

 
 
  Jeff Bailey   5/23/02,  10:38:59 AM
Research in Motion (RIMM) $16.58 -1% ... I like a bearish play in the December $15 puts (RULXC) $2.60. P/F chart is bearish with vertical count of $8.00. Link

Stock "looks expensive" and BlackBerry may get some competition from Handspring's (NASDAQ:HAND) $2.00 -0.49% Link new Treo (released 10 days ago).

HAND's p/f chart not much better and it too bearish. Vertical count is $0.00 or N/A. See some similarity in the p/f charts, and RIMM looks to be lagging the HAND move. My observation at least.

 
 
  Jeff Bailey   5/23/02,  10:38:44 AM
9:00 Intraday Update
The 9:AM intraday update has been posted. Read it here: Link

 
 
  Jeff Bailey   5/23/02,  10:13:15 AM
Qualcomm (QCOM) $31.01 -1.1% .... trader talk is that Soundview is lowering their price target from $48 to $38 due to reduced visibility into future WCDMA and CDMA2000 royalty streams; firm questioning the company's calculation of the amount of 1X chip inventory that appears to be continuing to build worldwide, and thinks the excess chip units will be hard to work through and will be a drag on numbers until US operators begin to deploy 1X aggressively. Without immediate catalyst, firm believes stock more attractive in mid-20's. Link

P/F chart of QCOM remains bearish. Vertical count is bearish to $25, which stock traded on May 7th. Bearish trader can ease in here with 1/2 position, stop just above downward trend from the 12/05/01 relative high, or just above the $34. Target the $25 level.

 
 
  Leigh Stevens   5/23/02,  10:10:54 AM
Wall Street Journal (WSJ) stories this am include a lead story on the rise of investor complaints and the failures of complience (at the broker firms) to deal with fraud and abuse. Highlights one stockbroker that managed to drain client accounts of $125 million over 15 years. What did he do with 125 mil?! Take some clients to lunch, buy a mansion, a dozen new cars? - so WSJ is asking where was their complience officer? Having worked for Merrill Lynch and Morgan Stanley, can say that the Big Producers (high commission earners) are treated like minor gods. Sales people drive the big commission houses.

The WSJ also has front page story on charges made against one current and one former FBI agents, who tipped off a west coast trader, Anthony Elgindy, on companies under investigation in various criminal matters. Tony then shorted the stocks and spread rumors about them on the net - not unfounded ones as it turned out. Is there no one we can trust?! Not even the FBI - a great group of individuals but under some fire for bad apples here and there.

 
 
  Jim Brown   5/23/02,  9:58:41 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX
The short on the OEX/SPX/DJX was stopped out at 9:53:22 when the OEX traded below 540.50. (SPX 1084.25 approximate)
The advance/decline ratio just went negative and is dropping fast. I am going to give it another 10-15 minutes for the opening volatility to settle before issuing a new signal.

 
 
  Leigh Stevens   5/23/02,  9:57:21 AM
ON THIS DAY in 1430, a group from the Burgundy area, captured Joan of Arc and sold her to the English, showing the practical nature of the French; they sure love her now! Also, ON THIS DAY in 1934, Bonnie Parker and Clyde Barrow were killed by Texas Rangers. Seems that you get in trouble by being a trouble maker, whether you're a criminal or not. Bonnie & Clyde were local heros by folks that didn't like banks for some reason. To make up for these past slights, take a banker to lunch, but don't grab the check right away and see what happens.

 
 
  Leigh Stevens   5/23/02,  9:50:32 AM
Index Update: SPX has gotten to key resistance in the 1089 area, the "line" of prior support or the low end of recent trading range - support (once broken) tends to "become" resistance. Ability to climb through 1089-1090, then hold this level on subsequent trading, is important. First pass at this level, caused downward deflection.

 
 
  Jeff Bailey   5/23/02,  9:50:08 AM
Bema Gold (AMEX:BGO) $1.50 -15% ... biggest loser in the market today. I consider this a "penny stock" and this is the type of "gold" stock a bull should avoid at all costs. Often times, these smaller "gold" stocks find the last bit of euphoric buying, but are the first to get "flushed" once a bull market in the sector dissipates.

Would treat any investment in such stocks as an option, only risk what you can afford to lose. Link

These "penny stocks" in the gold sector can be very good for the institutional or more "serious" bulls in the sector to monitor. Can give the trader/investor a good feel for level of "bullishness/aggressiveness" of the market for gold stocks.

A rising tide lifts all boats, but when the waters get choppy, the little boats usually sink to the bottom first

 
 
  Jim Brown   5/23/02,  9:50:04 AM
Pivot Trade Signals
The Nasdaq is turning into the anchor again today. The CIEN earnings and the downgrade of Qwest debt to junk status has soured the tech sector. Traders who covered short positions on the Bin Laden rumor yesterday appear to be selling into the morning bounce.

 
 
  Jim Brown   5/23/02,  9:44:58 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
We were triggered on the OEX/SPX/DJX long signal at 9:36:06 when the OEX traded above 543.25. (SPX 1089.20 approx) The follow through on the premarket futures is disappointing and while I would like to put the stop under the low of the day at 541.50 I am afraid we could be taken out during this indecision period. Let's make the stop 540.50 (SPX 1084 approx) This could be a short trade if buyers do not show up soon.

 
 
  Jeff Bailey   5/23/02,  9:41:16 AM
Qwest Communications (Q) $4.70 -6.5% .... Link down after S&P cut its debt to "junk" status. In yesterday's market monitor at 12:53:51, mentioned stocks sharp decline during trading on "rumor" of potential downgrade of debt. Looks like that "rumor" came to fruition. Not expecting them to be buying a lot of optical networking equipment near-term, maybe CIEN isn't either, thus their lower guidance.

 
 
  Jeff Bailey   5/23/02,  9:35:18 AM
CIENA (CIEN) $5.99 -8% ... getting downside alert here at fresh 52-week low. Point/figure chart remains bearish and vertical count is $0.50. Link

The January $5 puts (EUQMA) $0.90 now in play. Had previously profiled the $7.5's.

 
 
  Leigh Stevens   5/23/02,  9:27:13 AM
Index Update - Resistance areas: COMP - resistance >1698-1700, then 1715; QQQ near resistance > 32 area, then 33.

Anyone who bought the 31 area in QQQ per my suggestion that this was good support and could be the low for a while, I would risk to 30.5 and see what happens at near resistance. Looks like Q's can climb through this area, so would take 33 as a short-term objective. Risk to 30.3.

Microsoft's closing action was bullish and this was a major influence in the Q's. MSFT has key resistance at 55.5, key support at 52. Keep one eye on Microsoft trade for direction on the Q's.

 
 
  Jeff Bailey   5/23/02,  9:25:31 AM
Market internals Yesterday's action has the NASDAQ-100 Bullish % ($BPNDX) Link reversing back into "bull correction" status, with 42% of the stocks currently showing a "buy signal" on their point/figure chart. This is a sign that the recent bull market for this group, which began on May 15th, is taking a rest. Bulls should become less aggressive with their buying and more selective. Opting for stocks in upward trend, where relative strength versus the broader S&P 500 remains strong.

The S&P 500 Bullish % ($BPSPX) Link remains in "bull confirmed" status at 64.2%, after recently reversing from "bear alert." Bulls can remain active in this area of the market, but look to avoid stocks that appear over-extended on their charts. Instead, look for stocks breaking from consolidation, or giving high probability bullish patterns from Professor Davis' study.

 
 
  Jim Brown   5/23/02,  9:22:26 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
There is a strong possibility of a bounce that "could" be strong. Because any move here could be similar to last weeks bounce we want to abandon our cautious stance and go long at the open. Initial resistance is 543 and that could be passed on the opening tick. Still the signal will be:
Go LONG the OEX/SPX/DJX on any trade above 543.25 (SPX 1088.50 approx). I will set the stop loss after we see where the market opens.
Be aware this could be just a head fake and it is entirely possible we could see the markets roll over in a bearish swan dive after the opening spike. For this reason we will set a tight stop as soon as our entry is known.

 
 
  Leigh Stevens   5/23/02,  9:20:30 AM
Index Update - Resistance areas: SPX > near-term resistance is 1090, then at 1103-1105. More major resistance is at 1115; OEX - near resistance > 540-541, then 551, with more major resistance at hourly (up) trendline at 560; DJX - near resistance is at l02.2, then 103.3-103.5, with major resistance at the top of the channel at 104.6

Re buying index calls, I most favor DJX. 100.7 is nearby hourly trendline support, so stops would be well placed at 100.3. The Dow held up quite well on the recent pullback, bouncing right from its 21-day moving average as highlighted last night in my report at Link

 
 
  Jeff Bailey   5/23/02,  9:16:42 AM
CIENA Corp. (CEIN) $6.44 ... stock trading lower after reporting GAAP earnings loss of $1.86 a share. Revenues fell 79.5% to $87.1 million, well below consensus of $95.21. Link

Bears looking for a short, look no further than CIEN Link . Look for anything above $6.50.

Disclosure... I currently hold a bearish position in CIEN.

 
 
  Leigh Stevens   5/23/02,  9:11:09 AM
Good Morning - It's Showtime! The market is due higher based on the futures: DJ + 47; S&P up 5.70; Nas 15 higher. You were expecting the market to give back its gains based on a false rumor? Of course, there is the positive influence of the higher than expected Durable Goods figures (+1.1%). I've seen this before over the years - when the market is ready to rally, the spark that starts it doesn't matter so much if traders are ready to buy.

 
 
  Jim Brown   5/23/02,  9:06:23 AM
Pivot Trade Signals
Durable Goods orders jumped +1.1% which was way ahead of the +0.5% estimates. Without transportation they were up +2.9%. This provided a bounce in the premarket futures as the bulls have one more piece of data showing consumer spending is still strong and the recession is over.

The closest overhead resistance (light) is at 10185 followed closely by stronger resistance at 10265. With the strong short covering at Wednesday's close and the strong Durable Goods numbers likely to promote more we will be issuing a long signal for the open. The bounce off the retracement support yesterday could provide a base for a nice bounce today.

 
 
  Jeff Bailey   5/22/02,  11:58:04 PM
Market Monitor has been archived. See today's comments by clicking this Link

See you tomorrow!

 
 

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