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  Jim Brown   7/5/02,  2:40:22 PM
Pivot Trade Wrap
Surprise, Surprise! - Those traders that took today off as an extended holiday will be very surprised when they turn on the TV/PC to see the results. The +324 Dow gain was the largest day for the year. The strength of the rally amazed everyone. Nobody expected a 300 point gain today or even a 200 point gain. The market continues to overshoot to both extremes. Oversold to overbought and back again on a daily basis. The Dow closed with a gain for the week for the first time in the last six weeks. However the Nasdaq still lost ground and the SPX/OEX were flat with last week.

The strength of the short covering rally today will likely produce a strong bounce at the open on Monday. Traders coming back from the weekend will suffer the "Ouch!" syndrome when they see the state of their current shorts. I have looked at about 200 stock charts this afternoon and all are right back to resistance and will require significant buying to propel them higher. Whether the bounce at the open on Monday can do it remains to be seen.

There are still some earnings warnings ahead and there will undoubtedly be some more accounting concerns erupt next week. Fundamentals did not change overnight, just the terrorist threat diminished. See you Monday!

  Jim Brown   7/5/02,  1:13:32 PM
Jim, Is there not a play that you could have recommended today with the move that the markets have seen? Obviously you saw this coming even if it is simply short-covering with light volume. It still would have put $$$ in people's pockets. I don't mean to be critical but this is one hell of a move to not recommend a play either long or short...

With the gap up this morning at the open to 480 the option premiums would have exploded and made any entry a possible loser from the start due to premium bleed. Nobody expected this strong of a move today. +100 points yes, +300 points no way. Short covering rallies tend to take on a life of their own and tend to surprise everyone. While the earliest entry point around OEX 480 to the close at 492 could have been a decent trade I think everyone will agree there was no basis for entry after the initial gap. It is very easy to look back at a strong move and see a profitable opportunity but sometimes very difficult to predict those "event" driven moves in advance. I would rather trade from the extremes instead of try to trade the chop in the middle of the ranges. Obviously the chop today turned into a tidal wave but predicting that at 480 requires hindsight. We will profit from this move next week as it peaks out at the overbought extremes.

  Jeff Bailey   7/5/02,  1:02:10 PM
Market's Closed for trade-shortened Friday.

NYSE Composite (NYA.X) +16 at 529.45 (+3.15%)

NASDAQ Composite (COMPX) +68 at 1,448 (+4.93%)

S&P 500 Index (SPX.X) +35 at 989.05 (+3.6%)

Sector gainer was Semiconductor Index (SOX.X) +32 at 395 (+8.99%)

Sector loser was Gold/Silver Index (XAU.X) -0.95 at 69.62 (-1.34%)

  John Seckinger   7/5/02,  12:59:47 PM
Treasury Bonds have traded within the predicted range of 102-28 to 104. The high was 103-31 earlier in the week, while the low of 102-27 was set today. Currently down 25 ticks at 102-30, the allocation shift does not appear to have shifted sentiment drastically. Underneath 102-28, support seems to be much lower at 102. If prices find a bid on Monday (usually meaning at the expense of equities), traders can look for an extended move towards 105 and set a double-top. Remember: Higher bond prices mean lower yields, which usually means lower equity prices. In a perfect world, bond prices lead equities. But that is just my opinion.

  Jeff Bailey   7/5/02,  12:55:47 PM
10-year YIELD ($TNX.X) 4.874% gives some confirmation to the idea of a gap higher for equities Monday morning (at least in my mind) as pretty strong round of selling in the benchmark on trade-shortened Friday. MACD on daily chart rounding out and YIELD looks higher and possible test of the 200-day technically next week. Link

MASSIVE reverse head and shoulders potential in 10-year (weekly interval) may have equity bears jittery (shoulders at 4.75%, head 4.25% and neckline at 5.5%) Link

  Jeff Bailey   7/5/02,  12:50:49 PM
MARKET looks aggressively bullish into the close. See some NYSE listed stocks that had some rather large offers being taking out. Looks like investors may be anticipating a "gap higher" situation Monday morning.

  Jim Brown   7/5/02,  12:49:59 PM
The close is seeing the final "denial" covering by shorts that just could not believe their eyes earlier in the day. This could stretch the already amazing gains to the breaking point for Monday and every point gained today will detract from Monday's upside possibilities.

  Jim Brown   7/5/02,  12:46:08 PM
Hi Jim! What do you think about shorting GS. Got nice run and is close to upper BB line. MACD is still on sale signal. Stoch does not look strong. Thanks for your opinion. Martin

I agree GS looks ripe for a put play. With resistance just below $75 it appears to be top heavy. With the accounting concerns impacting many companies and with many more yet to be discovered the chances for weakness in financial stocks is good. Of course any sustained rally would find bargain hunters for these stocks since they are significantly off their highs already. GS was near $100 earlier in the year. If you decide to do this I would wait for a bump on Monday for a better entry point.

  John Seckinger   7/5/02,  12:46:05 PM
Dollar Futures showing the possibility of an island reversal, in this case bullish as next week approaches. Currently up 0.55 at 108-10, resistance remains higher at 109, 110.50 and then at 111. Therefore, for equities to find legs these levels need to be cleared.

  John Seckinger   7/5/02,  12:24:55 PM
N.Y. Times Article mentions A draft U.S. military plan for an invasion of Iraq is said to envision a multi-pronged attack with tens of thousands of Marines and soldiers probably invading from Kuwait

  Jim Brown   7/5/02,  12:21:58 PM
Almost every indicator I watch is pointing to a roll over on Monday. The TRIN is .27 and a level only seen four times this year. On May-8th and Apr-16th the following days produced sharp drops. On March-8th and 15th the markets were topped but did not sell off for a couple days. They did not advance but the drop still came a couple days later. The VIX has fallen back below 30 and is signaling a release of this weeks fear factor.

  Jeff Bailey   7/5/02,  12:19:26 PM
OSI Systems (OSIS) $18.16 +2.6% ... this is the kind of stock/technicals I would be looking to short/put today's strength. Lots of overhead supply just above. Notable is that NWX.X +6%, FOP.X +5.96%, but OSIS lagging at +2.6%. Link

  John Seckinger   7/5/02,  12:18:41 PM
Bargain Hunting? Value Investors stepping in to buy equities? Repatriation after a relatively calm Fourth of July? Nice Headlines, but the Dow will still post a lower low and lower high versus the previous week. The same goes for the tech-laden Nasdaq.

  Jim Brown   7/5/02,  12:10:12 PM
Volume in the S&P futures has literally died. There are almost no trades being made. This is a clear indicator that shorts are afraid of the Monday opening and longs are not convinced the bounce will hold. When neither longs nor shorts are willing to trade in the futures markets it should give us a clear indication of how we should be trading as well.

  Jim Brown   7/5/02,  12:04:37 PM
WCOME is nearly 35% of the Nasdaq volume at 285 million. Minus WCOME volume the Nasdaq just barely broke 500 million shares with the close less than one hours away. The NYSE has traded only 494 million shares. As Art Cashin would say, "it is tough to determine the outcome when only 25% of the votes are being counted."

  Jeff Bailey   7/5/02,  11:55:58 AM
Intel (INTC) $19.26 +8.5% .... today's high has been $19.45 (has had bad ticks higher than that). A trade at $19.50 is needed to get stock back on a "buy signal" and contribute to the NASDAQ-100 and Dorsey's semiconductor bullish %. Link

Some supply/demand signs of a bottom trying to be put in from longer-term oversold levels in the semiconductor group.

  John Seckinger   7/5/02,  11:50:01 AM
Dow Utility Index underneath the neckline in a Head & Shoulders formation (monthly chart)? Currently up 0.67 at 261, the objective is for a move to 118. Looking at a monthly chart, the 22 Monthly Moving Average is poised to cross underneath the 50; however, it is my opinion that any downdraft it contained at 232 if not earlier. A move back above 280 should squeeze shorts.

  Jim Brown   7/5/02,  11:49:14 AM
Everyone should be aware that the magnitude of the move today is going to take away from any strength on Monday. More shorts will cover but fewer bulls will take long positions after such a strong move. Bears will be drooling at such an exciting entry point with the lows for the year only two days before. I have had numerous emails today with clearly bullish sentiment. I would be careful about jumping in on the long side so quickly at these levels.

  Jeff Bailey   7/5/02,  11:40:53 AM
3M (MMM) $129 +2.29% ... perhaps strongest stock in the Dow Industrials (INDU) this year. Could lift bull's spirits should stock break to new highs. Trade at $130 would get stock back on a "buy signal" and triple-top. That could be key as it would negate recent sell signal at $120. A push higher may be first sign I've seen of some commitment from bulls to a stock. Link

On bar chart, stock has traded well on regression if taken from the September lows to current. A break at $130 most likely sets bulls near-term target to uppwer end of regression at $140. Right now, we're just under mid-regression (2 Std. Dev). MACD on daily interval rounding out and just edging above zero level. Looks bullish at $130. Link

  Jim Brown   7/5/02,  11:37:24 AM
Do you still think that there will be a big move Monday? Do you think that we will fill the gap on the NAS early next week? Thanks Frank

Without an incident over the weekend the markets are likely to bounce again on Monday. The Nasdaq at 1434 has strong resistance between 1475-1485, which has contained the prior two bounces which began at higher levels. I doubt those levels will be broken on Monday or Tuesday since that would represent a move of +135 points off the Wednesday's Nasdaq low of 1336. I could easily see the Nasdaq to filling its gap next week without something unseen changing the profit outlook for the 3rd and 4th quarters.

  Jeff Bailey   7/5/02,  11:33:21 AM
Jeff, You always have a good opinion on GE. Where do you see potential upside if it can break 30?

I don't know about the "always," but I'd look for some resistance to come in at the 50-day MA at $30.69 near-term. Link

Not that Goldman Sachs is "all that" when it comes to analysis, but firm did make some cautious notes on GE this morning regarding weak demand and downward pressure on second half EPS forecasts, and estimates for 2003 that may not fully account for quality of earnings issues.

  John Seckinger   7/5/02,  11:28:33 AM
Treasury Bonds off their session lows as the short-end (5-year bonds) finally succumbs to selling pressure. Commodities also witnessing profit-taking as the almost two dollar loss in Gold futures pave the way lower.

  Jim Brown   7/5/02,  11:28:01 AM
Jim, My understanding is that in this type of market short covering needs to be the first phase of a "rally". Isn't it dangerous to short now since there have been so many successful retests of the 9000 level and that some major company could come out with a positive outlook?

I would agree with the "short now" being dangerous. I feel a short at Dow 9363 or somewhere in that area would be much more reasonable. Should a large company say something positive that would/may change the picture. Until that happens the outlook is still down. Companies like IBM and INTC are not likely to say positive things and should guide lower. There have been several tests of 9000 but it is far from certain that it has been successful.

  Jeff Bailey   7/5/02,  11:27:15 AM
The 11:00 AM intraday update has been posted. Link

  Jim Brown   7/5/02,  11:20:21 AM
The OEX came to a dead stop at 488 resistance and the SPX failed just below the 984 resistance level. The Nasdaq also stopped at 1434 resistance. Internals are beginning to decline slightly and the TRIN is buried in overbought at .32. I am not inclined to take a short position here because of the chances for a positive open on Monday. I am also not inclined to go long since we are at or just below major resistance. I view today as a sideline event and a promising setup for a major entry point on Monday. Oscillators are starting to project that entry and this strong move on light volume could produce an equally strong reverse move once volume returns.

  Jim Brown   7/5/02,  11:05:05 AM
A reader just sent me an article about FLEX that was posted on Wednesday. I had not seen this when I made my previous comments on FLEX. Anyone interested in buying puts should read this first. I am not as negative on it as I was earlier. Thanks Clarke! Read the article here: Link

  John Seckinger   7/5/02,  11:04:24 AM
I recognize the strength that is showing up today on relatively low volume. How does one play this to figure out when and where to go short in the market. I don't necessary like bucking the trend but is this really a trend?


The old adage "Don't sell a Quiet Market" immediately comes to mind; however, execution is critical and there sometimes can be solid opportunities once the "house of cards" begins to lose its foundation. The most important thing is managing risk. Please remember that trades should not be forced. The "when and where" is covered nicely by Jim Brown and Jeff Bailey in prior posts and within their Market Wraps.

  Jim Brown   7/5/02,  10:59:32 AM
Jim, Does this look like a good Put entry for IBM AUG 70. thanks, ams

IBM has spiked right up to strong resistance at 73.50 and will have a tough time moving higher on weak volume. We have been expecting an earnings warning from IBM but it has not occurred. With earnings on the 17th they are moving into their quiet period where they cannot warn. Regardless of the warning possibilities the odds are VERY good they will guide lower on the 17th. I still like the possibilities at this level but I would probably wait until Monday to see if we get another bounce. That bounce would be my entry point.

  Jim Brown   7/5/02,  10:53:05 AM
Time to short the qqq's again?Lack of volumn has me not convinced here.I am looking at the Aug 26 puts on thee qqq's,ask is $1.75. Rob

Looks good to me, they have not responded as strongly as the major markets and could be telegraphing the real underlying strength. With only 19 million in volume they already dwarf anything but WCOME. The stronger volume and lack of a major bounce is very telling. INTC and MSFT appear to be running out of steam and have been rolling over the last few minutes. They could be our leading indicators.

  John Seckinger   7/5/02,  10:50:14 AM
Just Thinking (as I look at the parabolic rise in most sectors on a five-minute chart): Even this unwinding of short positions (not a believer yet this is new longs entering) in a quiet market can inflict "pain" on institutional players. However, will some hedge fund managers short equities remain dormant and let investors believe this rally will continue on Monday? The theory is to get a spike of new longs (liquidity) and then place new shorts at their expense.

  Jim Brown   7/5/02,  10:39:16 AM
The short covering is starting to feed on itself as each tick upward produces even more covering. There are not enough bears in the market today to provide balance. We are roaring into overbought and although the Dow has broken significant intraday resistance at 9250 the Nasdaq, S&P and OEX are now closing on their significant resistance points. Due to the broader issues in each they might have a little more trouble than the Dow. A couple sell signals starting to appear but still too early to give them much credibility. It boils down to a nice rally on thin volume.

  John Seckinger   7/5/02,  10:30:52 AM
Treasuries on their lows for the session. Clearly there is an asset allocation shift out of Treasuries and into equities. With low volume it is hard to discern if bonds are leading equities, or vice versa. Only interesting thing is that shorter maturities issues (cash market only, not futures) are relatively strong when compared to 10-year note. Therefore, there are institutions out there still slightly concerned over either event risk or a weakening stock market.

  Jim Brown   7/5/02,  10:26:18 AM
FLEX, an editors play from last Sunday, has spiked back up to resistance on short covering and the semiconductor rally today. They have already warned and I doubt business got better over the holiday. Could be a good entry point for another put.

  Jeff Bailey   7/5/02,  10:26:11 AM
Treasury Watch YIELDS up across the board. 10-year YIELD ($TNX.X) at 4.287% and above my 50% retracement. Thus a little more eager to take small profits in puts and VERY eager to take large profits in puts.

US Dollar Index (dx00y) 107.55 +0.19% also showing gains. Thus today's thinking is cash coming out of bonds, staying in U.S. and going to stocks.

  Jeff Bailey   7/5/02,  10:21:17 AM
Affymetrix (AFFX) $19.20 +5.03% ... Link I'm going to suggest that July Put holders close out here. On Wednesday, the NASDAQ-100 Bullish % ($BPNDX) fell to just 8% and not a lot of downside risk left near-term. Link

  John Seckinger   7/5/02,  10:18:35 AM
There are no scheduled Analyst Meetings for Friday, as well as no scheduled conferences that could provide a shock to the market(s). Dollar/Yen is back above 120 at 120.45, noted because it is believed the Bank of Japan considers the Yen strong under the 120 level.

  Jeff Bailey   7/5/02,  10:14:44 AM
Taiwan Semi (TSM) $13.31 +9.46% .... another DRAM semi getting a boost this morning. No "buy signals" yet, but today's trade at $13 is "low pole warning." First sign of strength would be trade at $15.50. Link

The Jan $12.50 calls (TSMAV) at $1.85 don't look too bad. No stop, target $16.

  Jim Brown   7/5/02,  10:08:29 AM
The major indexes slowed for a couple minutes as it appeared the number of buyers wanting to place bets at this level was diminishing but the Dow and Nasdaq are still climbing higher. With the very low volume this could be mostly short covering instead of bulls buying the dip. According to one source the futures pits are only 35% full today indicating most traders stayed home. The internals are very positive with the adv/dcl ratio very positive at 2.28 !! The TRIN has collapsed to only .38 and the VIX to 31.28 and each indicates the markets moving quickly into oversold. I am not eager to rush into the market on this shortened trading day. Let's watch the indexes and see if the Dow fails at the 9250 level I mentioned earlier.

  Jeff Bailey   7/5/02,  9:56:23 AM
Micron Technology (MU) $22.89 +11.7% ... stock up after Goldman Sachs Asia upgrades the Asian DRAM sector to "overweight" and believes sector may be poised for a 12-18 month bull run, citing initial signs of pick-up in PC/motherboard space. Upgrading Asian DRAM sector and Taiwanese firms Winbond and Powerchip to "trading buy" from "market perform."

Micron's P/F chart Link shaping up a bit near-term after giving "buy signal" at $21. Vertical count currently bullish to $31.50. Today's trade at $22 is second buy signal and hints demand now in control on short and intermediate-term basis. Longer-term trend still bearish, with resistance at $30.

  John Seckinger   7/5/02,  9:53:49 AM
Semiconductor Sector displaying an urgency to trade higher this morning, currently up 19 points and at its intra-day high.

  John Seckinger   7/5/02,  9:49:41 AM
Call it the pre-holiday safe haven premium being unwound so far this morning.

  Jeff Bailey   7/5/02,  9:47:18 AM
The 9:00 AM intraday update has been posted. Link

  Jim Brown   7/5/02,  9:37:08 AM
Pivot Trade Signals
The Dow and Nasdaq both exploded past their first levels of resistance with the S&P now nearing first resistance at 968. This would be the first strength test of the morning.

  John Seckinger   7/5/02,  9:36:54 AM
Corporate Spreads narrowing overnight following an article on the SEC cracking down on corporate executives and their financial statements. Morning Recap: Stronger dollar, narrowing corporate spreads, weaker Treasury Bonds....all reinforce reasons for an underpinning bid in equities.

  John Seckinger   7/5/02,  9:32:30 AM
Japanese officials stressed last night their concerns about a strong Yen. Therefore, expect an underpinning bid in the dollar - especially with rumors most likely to surface about another Bank of Japan Interaction.

  Jeff Bailey   7/5/02,  9:30:58 AM
JDA Software (JDAS) $27.00 ... stock getting hit lower at $19.00 (-30% from close) after warning on upcoming Q2. Company sees Q2 revenues of $57 million and EPS of $0.17-$0.18 versus Multex consensus estimates of $61.3 million and $0.21. Company cites timing of several large contracts for shortfall. Link

  John Seckinger   7/5/02,  9:29:26 AM
10-year Treasury Bonds currently weaker by 13 ticks at 107-13. The daily range is from 107-09 to 107-20; thereby, current prices seem to be in a holding pattern until equities open. Overseas events: European shares rose following a strong rise in the U.S. Dollar. The dollar is trading near its session's lows but still enjoys a healthy gain following a gap higher open.

  Jeff Bailey   7/5/02,  9:29:08 AM
Market Trading Hours today are 09:30 AM EST to 01:00 PM EST.

  Jim Brown   7/5/02,  9:23:23 AM
Pivot Trade Signals
Futures are strong as the oversold conditions and lack of an attack both combine to spur buying at the open. The S&P futures are up +10 and Dow futures +74. The jobs report was not as favorable as many had hoped and there was a flurry of warnings from tech stocks again this morning. These factors could slow the bounce.

Resistance levels for the Dow are 9100, 9250, 9363, S&P 968, 984, 1001, OEX 479, 488, 496, Nasdaq 1400, 1434, 1485. These levels indicate we could get a moderate bounce since a decent open should get us over the first level on each index and the second level would require a +200 point Dow move to be reached. With low volume and more holiday weekend ahead of us I doubt the 9250 level can be broken. The Nasdaq was the strongest index on Friday and the corresponding resistance level there would be 1434 and allow a 54 point gain.

The first impulse would be to go long at the open but we need to see exactly where the opening volatility takes us first. This could be a good morning for a gap and crap so we will be patient and see how the script plays out.

  John Seckinger   7/5/02,  9:20:23 AM
June Payrolls grew a less-than-expected 36k while the May figure was revised lower to 24k from 41k. The unemployment rate came in at 5.9%. Nice to see the Corporate layoff report earlier in the week was a better precurser than the weekly initial claims number.

  Leigh Stevens   7/3/02,  5:17:53 PM
The Market Monitor for Wed, 7/3 is now archived and can be seen by clicking on Link


PPS - I'll be out of the office on Friday, July 5th.


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