Option Investor
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  Jeff Bailey   6/20/02,  10:23:47 PM
LEAPS Option Traders! I'm getting a lot of questions regarding some "LEAPS candidates." One thing I'd suggest traders do is perhaps review commentary from 10/02/00 that I actually wrote during market hours. Later that month, at the OI seminar, we talked about this very stock. Here's the commentary (which is in "Bailey's Basics") Link and the techniques used there may be helpful in some LEAPS you're looking at.

Note: The upper-half of the commentary was specific to short-term trading... JDSU at $90? and the bottom-half long-term option trading IP at $28? Bull market or bear market.... you make the call.

  Jim Brown   6/20/02,  5:39:58 PM
Pivot Trade Wrap - Support Held - That is a misleading heading for sure! Every support level but one failed since the intraday OEX high of 518 on Tuesday. That one was OEX 500 and it came within a heartbeat of failing as well. The OEX closed at 500.02 and only +9 points away from its September closing low and less than 20 points away from the September intraday low of 480.07. Close enough in my book but I don't make the rules.

Even more important to technical bounce theorists was the Nasdaq close at 1464 which was almost identically the lows for the September trading range. The closing low on the day the markets reopened for trading was 1423 but the following day the Nasdaq rebounded to stay above 1460 for the balance of September. This could be seen as a successful retest of the September dip. The first day of trading after the attack was significantly lower but the balance of September trading is more relative to future support levels. We are at that support!

Unfortunately the Dow is nowhere near any support. The downtrend channel bottom is around 9310 but next support is 9075. Not a pretty picture if we have to rely on the Dow for direction. The S&P is not close either so the psychological support level of 1000 is all we have on which to pin our hopes.

Friday should be interesting. Expiration day with the second highest volatility in the last six months. The VIX closed at 32.50 according to the CBOE and at the high of the day. The put/call ratio was a bullish 1.04. The TRIN closed at 2.06 and at the highest close since June 6th. Everything is pointing to very oversold and a possible bounce but the last two Fridays have been heartbreakers at the open. Both gapped down on very negative news only to rally by days end and into the next week. With no seriously negative news is it possible we could just start with the rebound and not have to undergo the mandatory morning drop? (grin) Tune in tomorrow and see!

  Jeff Bailey   6/20/02,  4:27:25 PM
Micron Technology (MU) $18.40 -8.36% ... Jeff, Thanks for the MU short recommendation.

In your experience, when a stock like MU has had specific bad news, if it seems to be recovering because of option expiration or especially triple witching in tandem with the market in general, has it worked to buy next month's puts on the Thursday or Friday of expiration week, then benefiting from a continuing downslide in the next month?

Glad you liked it! Link The best "rule" to begin with is to simply try and trade bearish in weak stocks and bullish in strong stocks and stick with disciplined stops.

My "experience" has been somewhat as you describe. MU may indeed have tried to rally to the $22.50-$25 level due to option related activity as that is where bulk of option expiration on the call/put side was at (it still could too).

But in past, we have noted that some stocks while trading against the broader market or sector into expiration, has resumed trend once expiration has passed.

A good example had been Clestica (CLS), but dating back to April 19, and May 17 expiration. A subscriber actually commented on this back in April, ahead of expiration, when I profiled the stock for a put play. He noted that CLS tended to rally, then "hover" at the open interest level prior to expiration, then break to longer-term trend after expiration. Link

  Jonathan Levinson   6/20/02,  3:54:02 PM
Notice how the TRINQ is blowing off a head of steam, at 4.69 currently, but not really dropping significantly despite this COMPX rise off the lows. Some dip buying and an abatement of the selling pressure, but nothing significant. This feels like a deadcat bounce to me.

  Jonathan Levinson   6/20/02,  3:44:15 PM
This would appear to have been the sound of MSFT falling from its perch above 54. I see near term support for MSFT at 53.67.

  Jeff Bailey   6/20/02,  3:43:38 PM
Gold/Silver Index (XAU.X) 78.46 +4% ... combined with the 03:00 Update, we will once again want to revisit the $1 box chart of the XAU.X. Today's trade at 78, has the $1-box giving a "buy signal." As mentioned before, near-term bullish target would currently be the 82 level, where the spread-triple-bottom sell signal was previously generated. As mentioned before, obvious stop would be the 73 level, while challenged, was never broken. Link

From the 03:00 Update, do you see how a comparison may be drawn between BGO's 61.8% retracement level at $1.77 and the XAU.X at 82? My thinking at least.

  Jonathan Levinson   6/20/02,  3:41:49 PM
Massive TRINQ reading of 5.1. The sellers are very aggressive here. The QQV is up by 1.7, and there is currently 7 times more declining volume than advancing. The "capitulation" the media was discussing last week apparently wasn't.

  Leigh Stevens   6/20/02,  3:31:03 PM
INDEXES: TRADE Recommendation - UPDATE: OEX call rec stopped out at 502.50, for 3.00 point loss - on Buy at 506 or less, with stop at OEX 502.50 (Post 12:13 rec, OEX traded 505.5 to 502.52). Sold QQQ bought at 27.00, on 26.50 stop, for a .50 loss.

  Jim Brown   6/20/02,  3:17:34 PM
Pivot Trade Signals
Testing the lows of the day. A failure here would have serious negative implications for Friday. A rebound could launch a short covering rally instead. The SPX at 1010, OEX 502, DOW 9475, COMPX 1475 puts all of them right back on the edge of the cliff.

  Jonathan Levinson   6/20/02,  3:17:16 PM
We have a TRINQ reading of 4.44 during this sudden wave of selling on the COMPX.

  Leigh Stevens   6/20/02,  3:16:17 PM
INDEX Comments: ALL - it looks questionable to me that indexes will be able to hold their lows of today. Selling is not huge, but relentless. DJX just fell sharply -- QQQ just fell to new intraday low.

  Leigh Stevens   6/20/02,  3:13:21 PM

RESPONSE: I assume it does represent major support, as 350 was the area where the Semiconductor Sector Index ($SOX.X) bottomed in late-Sept./early-Oct. The SOX can, of course, turn around at any point higher than this level - it doesn't have to "retest" 350 as support. Retesting implies going to a prior low (or high) again and "passing" or "failing" the test by reversing again in this area or not. Proving that 350 is again a major area of buying interest or support in the chip stocks means bottoming again in this area, setting up a double bottom.

  Jim Brown   6/20/02,  3:08:36 PM
Russell I just reviewed the Russell additions and these are my favorites. The "O" means optionable. A "**" means I like it.

KFT - O ** Higher cap means more buying
PRU - O ** Higher cap means more buying
PFG - O ** Higher cap means more buying
ATH - O ** Higher cap means more buying
TSCO - **
IMH - **
JAS.A - **
INVN - O **
RGX - **
CCRD - O **
HGR - **
DKWD - O **

I stopped looking when the market cap fell under $200 million. Some of these stocks are already on fire. They should continue up until the first week in July unless the arbitragers over buy and have to dump with insufficient fund buying.

  Jonathan Levinson   6/20/02,  2:37:28 PM
The TRINQ is now above 4, and the QQV is up 1.71. COMPX declining volume is just under 4 times advancing volume. The intraday stochastics are mixed but pointed downward, and this narrow range for the past few hours is gathering energy for either a break above the 1490 resistance level, or below 1475 support. The extreme TRINQ reading and the persistent QQV reading, as well as bond yields heading north, make me guess at an upward break, while the stochastics and my gut seem to be pointing to a downward break.

  Jeff Bailey   6/20/02,  2:27:52 PM
Ameren (AEE) $42.20 +1.02% ... this stock was added to the "watch list" at PI last night per my request. It's a "utility" stock I've mentioned as bullish in the past, with the bullish profile for the underlying stock at current levels, then sell the covered $45 covered call on rallies above $44. Link

For an IRA investor, that likes to write covered calls, the stock currently YIELDS about 6% dividend. While you wait, the selling of covered calls works down the cost basis of the stock. Thinking .... "so what if the stock gets called away at $45 + option premium" if I'm buying $42.

Utility stocks pay higher dividends, and with Treasury YIELD on the 10-year at 4.8%, the 6% is attractive. Do your homework though, and stay away from the "energy traders" and California if possible. AEE operates in Illinois and part of the mid-west.

  Jonathan Levinson   6/20/02,  2:26:17 PM
Comments on Dell please.Falling off cliff in the last two days. Where is support for Dell?

DELL certainly has. I see nearterm support at $23.60 and $22.25.

  Jim Brown   6/20/02,  2:23:31 PM
Russell I just reviewed the Russell deletions and these are my favorites. The "O" means optionable.


These stocks could react negatively to the drop as fund managers leave them. Remember, most of the drop will occur in the last week of the month and the first couple days of July.

  Jeff Bailey   6/20/02,  2:19:21 PM
Jeff: Since couple months I was ignoring your short recommendations. Since last week I started following your shorts trades like ILA, & NVDA then I see some green in my account instead of Red. Do you any recommendation on shorts today? Thanks for your help

Glad you're seeing some results from the bearish side.

I don't like to profile a lot of bearish/bullish trades the week of option expiration, especially triple-witching. I've seen way too many crazy things happen over the years and just don't like exposing subscribers to that volatility, then getting hammered with e-mail when a stock jumps/falls 10% unexpectedly and panic begins to set in on some type of allocation or index shift.

  Leigh Stevens   6/20/02,  2:01:24 PM
INDEX Comments: ALL Indices are struggling to get a rally going, especially Nasdaq - either they are building small "bases" by going sideways or are building heck of "bear flags", especially in Nasdaq indexes and QQQ, prior to another downswing. Nasdaq TRIN ($TRINQ) is up SHARPLY (at 4.00) indicating a sell program(s) it looks like. And just plain selling.

Will maintain stop on QQQ at 26.5 - run the risk of being stopped out but want to keep risk "tight" on Nas.

  Jeff Bailey   6/20/02,  2:00:22 PM
Tyco Intl. (TYC) $16.14 +4.12% ... Jeff, This is fourth time I am sending this email regarding TYC. (I am very new to pnf analysis and want to know what is the risk/reward in TYC. I am long TYC at 14.5)

Sorry... I get about 200 e-mails per day and can't get back to all of them. However, using the techniques I constantly try and teach, this can be done on your own also.

What's the bullish vertical count? This helps assess a longer-term potential bullish target, thus potential longer-term reward. Answer right now as the count column is still under construction would be $31.50. Again, no guarantee that TYC will achieve that level, but a starting point. Vertical count is 15x's, so $9+((15*3)*0.5)=$31.50. Link

Now, what about risk? "Risk" to the first sell signal currently is $8.00.

Therefor, a trader/investor can assess longer-term risk/reward from $16.14 (current levels) as risking $8 to potentially make $15.50.

Now, if LONGER-TERM risk/reward is about 1:2, and you own the stock at $14.50, you can translate the above 1:2 risk/reward to your entry point. However, the stock is trading $16.14 here, so your current profit risk is about $1.50 on top of the already $14.50 entry point.

Question to subscriber... What was your target for the trade/investment? You did have a target didn't you? You'd better have as that's the only way you were able to measure risk/reward when you entered the trade.

  Jim Brown   6/20/02,  1:47:45 PM
Pinning expiration strikes With tomorrow expiration Friday I did some research on the most likely OEX/SPX strikes. It was very interesting. Historically the indexes tend to gravitate to the strike that allows the most options to expire worthless. That strike on the OEX is 515. I can see that happening. We are not that far away.

Obviously the market makers cannot COMPLETELY control the ending index level but they can get pretty close historically. Now the fun part! The SPX strike that would cause the most worthless options is 1100. Yes, 1100 ! Needless to say I don't think this will be anywhere close to an expiration strike. It does put a slightly bullish bias on the markets since every strike closer they can get is more money in their pockets. Unfortunately they only have two hours left to move the SPX. They had better hurry!

  Jim Brown   6/20/02,  1:30:16 PM
Russell Several people have commented about the links I provided this morning and there appears to be a lot of misunderstanding about the Russell. Here is a link to the R3K website which explains all about the index and how it is managed.
Russell Indexes Link

  Jim Brown   6/20/02,  1:21:58 PM
Envelopes Since Leigh started talking about his success with envelopes I have been running a 2% envelope on the 60 min OEX chart. It is amazing how accurate it is. It showed 502 and change as the expected bottom today. The bottom envelope was only pierced five time since May-1st and then and only once was for more than two periods. You should go back and read some of his comments on this tool.

  Jim Brown   6/20/02,  1:07:19 PM
Pivot Trade Signals
The indicators are ticking to the upside one by one. Not a rush of bullish sentiment but definitely a change in the trend. Steady buying, not a spike, Advancers increasing, TICKS increasing, Russell in positive territory. Dare we hope?

  Jim Brown   6/20/02,  12:56:37 PM
Pivot Trade Signals
All of the internals are struggling to change direction but improving. Advances are slightly ahead of decliners. The stochastics on the short term intraday charts are beginning to turn up. The one I like is the MACD on the 30 min chart and it is on the verge of turning positive. This has been negative since 3:30 on the 17th. The 5&10 period moving averages on the 30 min chart are also beginning to turn. We will get confirmation when the 5 crosses the 10 to the upside. Whatever you do please do not mention the "R" word out loud for the rest of the day. We don't want to wake up the bears again.

  Jim Brown   6/20/02,  12:40:55 PM
Pivot Trade Signals
The last dip is very bearish in my mind. We had a nice pop on the survey results but it died just as fast as it went up. There was only limited short covering and new shorts piled on at the top. If there was an underlying supply of buyers that pop should have called them into action. The following drop instead warned them off and may telegraph the afternoon direction. The volatility is increasing each time we hit 503 which means that is where equilibrium between buyers/sellers exists. If the buyers run out of cash like we have seen several times recently then the 503 level will be the first casualty. Cautious traders may want to go flat again here (502.94) and wait for better conditions.

  Leigh Stevens   6/20/02,  12:26:00 PM
INDEX Comments: re QQQ trading "hours" - got a note from the TradeStation people re what happens on getting the right prices on the Daily HIGH/LOWS:

"TS charts receive a Settlement Refresh sometime after the close of the market for the daily bar from the Amex. Any trading activity that comes in after that settlement refresh may not be reflected UNLESS it is another 'Refresh' from the Exchange. In QQQ's case, although it trades to 4:15 pm EST, it appears that the Refresh on Tues. came in shortly after 4:00 pm but prior to the high activity which occured around 4:09 EST.

The Daily chart should reflect the same trading hours/session times as the intra-day chart. For QQQ, we don't cut off the the bars on the chart at 4 pm as it trades till 4:15. The AMEX 'Settlement Refresh' can come in anytime after the close, late or early. In this case, it came in early so the daily chart ignored the late high activity (29.75) as there was not another Settlement Refresh sent. We always have an issue with this particular ETF (Exchange Traded Fund) as to why there is a difference with the daily bar vs. the intra-day bar.

In this case, the intra-day activity would support the final daily bar. Also, I have checked the other sources (MSN, Yahoo, Bigcharts, etc...) and they all have 29.15 as the high but that's because they stop at 4pm while QQQ really trades to 4:15."

  Jeff Bailey   6/20/02,  12:20:10 PM

"Right now" I'd avoid AOL from the bullish side, as the longer-term trend remains bearish and vertical count is bearish to $10.50. Link

Can short/put here, but would have to follow with tight stop at $17.55.

Note... AOL gave "bearish signal reversed" at $20 on 5/17/02, but see how the "reversal" actually took 5-days? Also note the rather light volume with the trade at $20. While a bearish signal reversed pattern was observed, the "quick move" wasn't really there.

Still, lets pretend a trader may have traded bullish at $20. Could have perhaps used the "inside day" from 05/20 (next trading session) to understand that the short-term pop wasn't likely, then stopped out on 05/21 on break of the 05/20 "inside day" at $19.29. (Just an example of how a trader can still try and combine p/f charts, with some bar chart trading techniques.)

  Jonathan Levinson   6/20/02,  12:19:59 PM
The QQV is up 2.74 on the day, fear remaining high, while the TRINQ is at 3.2 with declining volume between 3 and 4 times advancing volume. With volatility high, I'm not willing to jump off-balance into a position on hopes of a quick scalp- my profits have been very hard won this year, and I intend to protect them. The triggers I posted at 11:26 still look good to me, and I'm willing to wait for the price to enter my target zone at the possible risk of not getting in today at all.

  Leigh Stevens   6/20/02,  12:19:57 PM
INDEX Comments: Rally on Philly Fed report has not had major upside follow through but I like the risk to reward of taking a shot on the long side as risk is to just under intraday low, with decent upside potential on an oversold rally. If "line" of recent hourly lows is taken out then it seems likely that we're headed back to the lows of last week.

  Leigh Stevens   6/20/02,  12:13:45 PM
INDEXES: TRADE RECOMMENDATION: Buy OEX calls with OEX at 506 or less (last at 505.83), risking to just under today's lows to 502.50.

  Leigh Stevens   6/20/02,  12:07:48 PM
INDEXES: TRADE RECOMMENDATION: Buy QQQ at 27.00 or less, risking to 26.5.

  Jim Brown   6/20/02,  12:06:15 PM
Pivot Trade Exit Point Alert - updated - DJX/OEX/SPX
Since I am willing to go long again at 501 and risk another stop let's lower the stop loss on the current long to 499. There are many crossing support levels and indicators here in the 500 range that could stop these dips. We are betting that these levels will provide a bounce. As Leigh pointed out, if 503 is broken the next support target is 499. Tough catching these knives but the possible reward from this level is worth the risk to me. The S&P has support at 1009-1011, exactly where it stopped on the last dip. The Nasdaq has support at 1475-1480, again where it just stopped. The Dow however has risk to 9450. Hopefully the OEX/SPX/COMPX support levels will keep it from testing that support.

  Leigh Stevens   6/20/02,  12:05:15 PM
INDEX Comments: ALL Nasdaq indices reversing to the upside, setting up this potential of Head & Shoulder's bottoms. S&P is trying to follow suit. Tech is leading here a bit.

  Leigh Stevens   6/20/02,  11:56:22 AM
INDEX Comments: OEX if index goes below 503.2, next downside objective is to 499.

  Jim Brown   6/20/02,  11:55:03 AM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
Since I am willing to go long again at 501 and risk another stop let's lower the stop loss on the current long to 499

  Leigh Stevens   6/20/02,  11:49:26 AM
INDEX Comments: Nasdaq indices - while its tempting to think that they may be stablizing in here and could rally, what I don't like is minor bear flag patterns on the intraday charts and similar formations on SPX/OEX & DJX. Maybe one more shot down and maybe we get a bullish trade & place to want to cover short/exit puts - especially if we achieve double bottoms by sucessful re-test of the prior lows.

  Jeff Bailey   6/20/02,  11:46:08 AM
Bearish Signal Reversal Jeff: What are the implications of a Bearish Signal Reversal? I believe you wrote of this pattern before, but I can't recall when (INTC, I think). The pattern is appearing in TYC. Thanks for all your help.

You're correct, I did mention the POTENTIAL of the "bearish signal reversed" in INTC on a trade at $32 back in May, but that never took place.

You're correct in your analysis of the bearish signal reversal in TYC, which was given at $12. Link

The bearish signal reversal is a rather "rare" pattern that you don't find much, but when found, bulls like to play the pattern to the long side, and bears most often find the stock they're short/put moving strong against them. According to Professor Davis' study, the bearish signal reversed (under BULLISH market conditions) is profitable 92% of the time for an average gain of 23.2% in a 2.5 month time span. The pattern is established by a series (7 columns minimum) of lower lows (O's/supply) and lower highs (X's/demand) quickly reversing higher. The pattern is triggered to the bullish side once the "buy signal" is given (in TYC's case, $12.00). The "reasoning" behind the high probability has been discussed as bearish traders than had systematically been shorting the stock on rallys, due to the "predictability" that the stock would decline further, suddenly find themselves "trapped" on the sharp reversal higher.

Very Important! It takes a MINIMUM of 7 columns (X and O combined) for the bearish signal reversal. Another "key" component is a quick reversal, you want some bears to get trapped, and have them rush to cover short positions, thus creating the surge in demand (X) for the follow through higher.

TYC bulls that played the gap higher on TYC from 06/13 may now be targeting the $14.78 level as their bullish target. Yes, the stock is trading $15.90, but stocks can exceed the average probabilities study.

Have you been systematically been shorting stocks that could be showing a POTENTIAL bearish signal reversal?

  Leigh Stevens   6/20/02,  11:35:27 AM
Subscriber NOTE: "Leigh, with the Vix at 31.50 and the Vxn at 59 +, the Compx near support all amid a sea of negativity doesn’t there appear to be the likelihood for a strong bounce in the qqqs."

RESPONSE: It may be likely - if QQQ is NOT going to retest prior lows, this will be the area for it to dig in. VIX above 30 is associated with significant fear and significant bottoms in the past, so we should be alert also for the potential for a reversal.

  Leigh Stevens   6/20/02,  11:27:06 AM
Subscriber NOTE: "One thing i rarely hear mentioned is advice on strikes, but one thing you might like to pass along to your readers is...when the vix is above 30 try to stay as deep in the money as possible to offset the high premiums. Always remembering to check the volume and open interest. Thanks for the excellent work you do! "


  Jonathan Levinson   6/20/02,  11:26:26 AM
Breadth is continuing to improve. Let's watch the COMPX 1495 area formerly known as support for a clue as to what might happen next. I'm thinking to short any rollover between 1495 and 1500, on a break below 1491, while going long on any break of the day high at 1503. These are cautious ranges and could well lead to no trade getting put on at all. On the other hand, my capital is safe where it belongs, and I'm in no hurry to join the hoards of investors getting creamed in the markets this week.

  Leigh Stevens   6/20/02,  11:24:53 AM
INDEX Comments: SPX/OEX/DJX trying to make a stand in area of SPX support in 1015 area. 505 is a support are on OEX and 95 is significant on DJX.

  Jim Brown   6/20/02,  11:21:26 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
We were triggered on the OEX/SPX/DJX long at 11:17:16 when the OEX traded above 505. (SPX 1014.84, DJX 95.13) The initial stop loss will be OEX 503 (just below the day's low of 503.22) (SPX 1012)

  Jonathan Levinson   6/20/02,  11:18:37 AM
COMPX internals firming in this sideways-up phase, with declining volume just over 3 times advancing volume. The TRINQ at 2.55 and the QQV up 1.53 tells me that no one's rolled out the barrel just yet on the COMPX. 1475 looks like a good candidate for continued support, but we're not seeing much of a bounce in light of the extreme selling pressure that build up during this morning's decline. All of the intraday stochastics are in bullish crossovers, coming from buried in oversold, but this technical bounce looks weak, and might yet prove to be another one of the many dead cats we've been seeing on the COMPX chart.

  Jim Brown   6/20/02,  11:13:45 AM
Hey Jim, What was the target on those IBM puts? I'm sitting on just about a double now and thinking I should take the money or maybe roll down to a lower strike. What do you think? Michael

Odds are still good they will warn but any major market rebound could provide a temporary lift to IBM as well. I like to set a tight trailing stop and just ride it down when there is "event" risk. If I am stopped out then I can re-enter on the bounce for the next drop. They are setting new lows. You be the judge!

  Leigh Stevens   6/20/02,  11:06:04 AM
INDEX Comments: Nasdaq COMP, NDX and QQQ holding in here roughly in the area of the hourly lows PRIOR to the lowest low on the previous decline - this is 26.8 area in QQQ, 1475 in the COMP and 1079 area in NDX. If these areas turn out to be lows again, we set up the possibility for hourly Head & Shoulder's bottoms, so they are of technical interest. If these levels give way, then it would look like like the Nasdaq indices would re-test prior bottoms - 26.2 in QQQ, 1145 in COMP and 1056 in NDX.

  Jim Brown   6/20/02,  11:05:20 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
This is a cautionary entry signal. With the indexes nearing prior support levels they may not retrace completely this time around. I am issuing a LONG signal just above the recent intraday highs to cover any bounce. With the VIX over 31 it could come quickly and violently. (just wishing?)

Go LONG the OEX/SPX/DJX if the OEX trades above 505.

  Jim Brown   6/20/02,  10:55:21 AM
Pivot Trade Signals
I neglected to point out that the Nasdaq stopped its drop temporarily at 1475 which was the low for the day on the 12th and could be seen as intermediate support.

  Jonathan Levinson   6/20/02,  10:54:34 AM
The TRINQ is getting up there now, at 3.14 as I type, with the QQV up 1.89 on the day. MSFT has been holding on throughout this COMPX decline, and now is bidding down only slightly. COMPX continues to print lows of the day. Declining volume is just under 5 times advancing volume.

  Jim Brown   6/20/02,  10:52:37 AM
Pivot Trade Signals
Real fear coming into the market. The VIX is at 31.10. This indicates heavy put activity and could predict a strong bounce when it comes. The internals are still decreasing and the indexes are nearing critical support levels. The Dow is close to retracing the entire move from the gap open on the 17th. This filled gap point is be 9471. The Nasdaq has unfortunately surpassed its gap and appears headed for 1450 and a retest of the June-14th lows.

  Jim Brown   6/20/02,  10:45:10 AM
Russell-1000, 2000, 3000 rebalancing
Each year the Russell indexes are rebalanced at the end of June. This rebalancing is based on the market capitalization of each of the stocks as well as their price. Stocks trading under $1 are dropped and new stocks are added. For instance JBLU and KFT are new stocks that were not around last June. Stocks are weighted by market cap, which means the higher cap stocks will require funds to buy more shares to match the index results. When stocks are delisted, acquired, or for some other reason are dropped from the index during the year they are not replaced until the end of June. This means there are many more stocks added than dropped during the reshuffle.

The stocks involved in the Russell rebalancing are announced in mid-May with the changes taking place on June-30th. Stocks that are going to be dropped will see selling as the month draws to a close. Stocks being added will see heavy buying as the thousands of funds add them to their holdings. Since the funds attempt to match the index values exactly the majority of trading is done very close to the end of the month. However arbitragers will attempt to position themselves in these stocks beforehand to capitalize on the buying.

For your trading pleasure I have produced several lists of these new stocks. Just having the list of stocks is no real help without the market cap. This is the clue as to which will move the most. I have included that tidbit of information and sorted them by market cap. I created a separate Qcharts Quote file of the additions (in their entirety) and the deletions. I edited the deleted list to only show those stocks still trading near or over $5. Since stocks trading under $5 don't offer much shorting opportunities I dropped them. I also created two comma delimited files for those who don't use Qcharts. This allows you to import the lists into Excel or whatever quote system you use. We will be discussing these stocks for the next week or so. Note: These are the additions to the Russell-3000. The top one third of the 3000 stocks then make the Russell-1000 and the bottom two thirds become the Russell-2000.

Here are the links:

Russell 3000 Deletions (Quote sheet) Link
Russell 3000 Additions (Quote sheet) Link
Russell 3000 Deletions (text file) Link
Russell 3000 Additions (text file) Link

  Leigh Stevens   6/20/02,  10:37:27 AM
INDEX Comments: SPX has also reached what I pegged as a key support at 1015 - this marks a return to its previously broken down trendline. Below 1015, we would be looking at 1009-1010. However, if SPX sinks much below 1015, I doubt that 1010-1009 is going to be a brake for this downswing. 1000 area continues to the key level of psychological importance.

  Jonathan Levinson   6/20/02,  10:30:52 AM
Breadth has become bad indeed, declining volume over 3 times advancing volume on the COMPX, the QQV up 1.26 and the TRINQ at 2.35. The indicators are downplaying the damage that this COMPX drop implies, in my opinion, and the 9/11 lows are doubtless on evey participant's mind, or should be. Gold is rallying, as is the XAU, and bond yields are giving up their earlier gains.

  Jeff Bailey   6/20/02,  10:30:52 AM
Rambus (RMBS) $3.53 -15% ... new 52-week low here. Federal Trade Commission has filed anti-trust suit against RMBS, charging the company with improperly patenting a key computer chip technology. The FTC's five commissioners voted 5-0 to file the lawsuit against Rambus. Link

Traders will note and look for other "bearish triangles" like RMBS exhibited at $5.50.

  Leigh Stevens   6/20/02,  10:29:25 AM
INDEX Comments: QQQ trading down to where I thought support would be found - in the 27-26.8 area. If the Q's keep sinking, next area you can point to as potential support is the prior low in 26.2 area.

  Jim Brown   6/20/02,  10:28:34 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
There is still an open LONG signal at OEX 501. All the oscillators are now in oversold territory. We are not going to chase the markets and will wait for it to come to us on the down side or hit 508.50 again on the upside.

  Jim Brown   6/20/02,  10:23:34 AM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
We were stopped out of the QQQ LONG signal at 10:19:56 when the QQQ hit our stop at $26.95

  Jim Brown   6/20/02,  10:22:06 AM
Pivot Trade Exit Point Alert - DJX/OEX/SPX
We were stopped out of the OEX/SPX/DJX LONG signal when the OEX hit 506.50 at 10:15:12. (SPX 1021.28, DJX 9530)

  Jonathan Levinson   6/20/02,  10:12:00 AM
There goes COMPX 1490.

The QQV has now broken 50 as Nasdaq-100 investors have begun to cram into the exit doors, driving up volatility and option premiums. This makes contract buying riskier, both puts and calls, because their prices are "inflated" with relatively more volatility/premium.

  Jonathan Levinson   6/20/02,  10:08:05 AM
Declining volume is now 1.6 times advancing volume on the COMPX as a new LoD prints at 1492. TRINQ is at 1.93. Looks like the sellers are coming back out.

  Jeff Bailey   6/20/02,  9:58:36 AM
Andrx Group (ADRX) $34.55 -3.16% ... stock trading heavy ahead of tomorrow's Prilosec meeting. Link

  Jim Brown   6/20/02,  9:57:46 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
The LONG signal was triggered at 9:50:54 when the OEX traded above 508.50. (SPX 1020.33, DJX 95.67) The initial stop loss will be tight and just under the low of the day at OEX 506.50. (SPX 1019) The timing on this alert was very short with the OEX spiking just as I entered it. I doubt anybody was able to act on it. No problem. Since the OEX has fallen back below the trigger point you should wait for the next break above 508.50 to act on the signal.

  Jonathan Levinson   6/20/02,  9:55:20 AM
Breadth on the COMPX is mixed to negative today, expressing the uncertainty in the price as well. The fact that the COMPX is staying above the 1495 support level is no doubt causing bears to hesitate, while the morning's news is causing bulls to hesitate. Just another fine morning in the market. The TRINQ is down a bit more to 1.38 while the QQV is up .52 on the day. I am personally eyeing that COMPX 1490-95 support level dubiously, but will not put on any shorts until it's been broken. With the possibility of a ramp job going into options expiration, there's no need to gamble at this point.

  Jim Brown   6/20/02,  9:49:49 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
Go long the OEX/SPX/DJX with an OEX trade over 508.50. (SPX 1022)

  Leigh Stevens   6/20/02,  9:48:21 AM
Subscriber QUESTION: "Hi Leigh, given that the QQQ trades from 9:30-4:15, what time to options trade on the QQQ? Which leads to the question, what times do options trade on the SPX/OEX and DJX? My broker said all options exchanges are open from 9:30-4:00 and won't fill orders outside that time. I believe they are wrong "

RESPONSE: The options on QQQ also trade until 4:15 pm, Eastern - as do SPX, OEX and DJX index options on the CBOE, which matches the Chicago-traded index futures.

Discussion came about yesterday about fact that many Quote/charting services do NOT have correct (daily trading hours) END or "session" times set for QQQ.

Which is why we saw disconnect on Tues. -- spike up on the Q's to 29.75 between 4:04-4:10 pm WAS reflected on intraday charts like 5-min. etc., but NOT on the Daily High which showed 29.15 - write your chart service and tell em to correct this. QQQ should not have daily hours set same as Nasdaq hours for regular stock trading -- QQQ is an "ETF" - Exchange Traded Fund, so trading hours are different.

Anyway, keep in mind that STOPS and LIMIT orders you have in on QQQ can get filled if prices spike up or down in that period between 4:00 & 4:15!

  Jim Brown   6/20/02,  9:39:09 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX
Go long the OEX/SPX/DJX with an OEX trade at 501. (SPX 1006) This is in anticipation of a bounce off of support around the 500 level. This is a more aggressive trade since it involves "catching a falling knife" and should only be taken by aggressive traders. We will also be setting a signal for an upside breakout.

  Jonathan Levinson   6/20/02,  9:36:35 AM
I will be watching the COMPX 1490-1495 level for support. Today's flat open was surprising to me, given the poor economic news announced before the open. The open appears to be a continuation of yesterday's close, except that the TRINQ has blown off its massive closing reading and is now well below 2, and bond yields, which closed at the low of the day, are now up

  Jeff Bailey   6/20/02,  9:34:46 AM
Genzyme Corp. (GENZ) $19.93 -23% ... stock gapping lower after warning on FY02 earnings/revenue last night. Link

Would lock in gains if short/put as stock has now exceeded bearish count of $25 and risk/reward becomes more difficult to assess.

  Jim Brown   6/20/02,  9:27:51 AM
Pivot Trade Signals
No major gap open this morning and if the day runs true to form for recent expiration weeks this could be a boring day. Prices will start to gravitate toward the closest strikes with the highest open interest and sudden sharp moves away from those strikes will be discouraged.

Initial support for the OEX today is in the 496-501 range with resistance around 518-520. Should we get a dip at the open we will look to buy a bounce around the 501 area with a long signal. With no dip we will stay flat until a trend develops.

  Leigh Stevens   6/20/02,  9:16:14 AM
Pre-Opening INDEX Comments - Our Trade Gap ran up to a record $35.9 billion for April - a flood of red ink on the balance ledger. Well you try to find something that is NOT made in China, or elsewhere. This is of course what is driving the dollar lower, as trade imbalance tends to be (normally) the single biggest influence on relative currency values. (The euro rose to a two-year high of 96.13 cents after this report and the current account deficit number.)

Imports soared nearly 5 percent to $116 billion, led by oil, autos, computers and consumer goods. Must be those Sony and Panasonic laptops. PC's - isn't this like selling snow to Eskimos?

Meanwhile our exports only increased by 2.2%, mainly paced by chemicals, machinery, semiconductors and autos - that's a switch from a decade ago!

  Leigh Stevens   6/20/02,  9:06:51 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index Futures trading: S & P > -0.80 ; D J > -20.00 ; Nas > -1.50

Selling has slowed as Nasdaq indices especially get into an area of technical support.


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