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  Jeff Bailey   7/15/02,  6:09:11 PM
Very Interesting e-mail ..... it starts... Jeff: Good Morning from Tokyo - The market breakdown is all over the news here and on every channel. It's no wonder the US$ was weak today huh?

  Jeff Bailey   7/15/02,  5:49:38 PM
Jeff: I am confused in here - a lot of talk of high valued S&P500 is from a PE prospect. But is this not looking at backward PE rather than forward or 12/2002 PE.

One can pick stocks at random from the components and see that the companies are actually guiding higher for 2002 as they had a bad 9/11 year in 2001.

IS this market forward looking and selling the S&P or backward looking ?

looking forward to learning your views.

Aha! It's this kind of stuff and excellent observation/question that turned me AWAY from fundamental analysis and TOWARD technical analysis.

Just remember, it's the ANALYSTS that we have all come to love and trust that help derive the FORWARD LOOKING earnings forecast. The ANALYSTS do this in part from information they derive from CEO's and CFO's that we have also come to LOVE and TRUST so much in recent months (grin).

How much faith do you think the MARKET currently has in the statement "One can pick stocks at random ..... companies are actually guiding higher for 2002 as they had a bad 09/11 year in 2001." The part that gets questioned here is "guiding higher" as it relates to what we as investors can or can't put much faith in.

Is the MARKET forward looking? Or backward looking?

Answer. The MARKET is never wrong and it is forward looking.

One could say the MARKET was wrong in December for a bull to be buying, but relative to the September lows, you couldn't say in December that a bull was wrong in September-Oct for buying at 945-1055 could you?

Now... one might say the MARKET "found out" about some of the "bad news" that has come to lite in recent months when the S&P 500 just couldn't break the 1,175 level or broke back below 1,055 level, in essence, the MARKET admitted its mistake and began selling long or shorting stocks after the rally from the September lows.

How did the MARKET know? Answer: I don't know how in the heck the market finds out, but it sure seems to get educated well ahead of the "good news" when stocks have then been bullish ahead of the news or bearish before the bad news finally hits.

About the BEST indicator I've ever found historically has been the bullish % charts and just how well they seem to depict "low levels" of risk and "high levels" of risk.

Everyone, and I mean EVERYONE wants to know "why" something happens. I learned a long time ago, that I and EVERYONE else for the most part only finds out "why" something happened after it happens.

This shouldn't frustrate a trader/investor. Heck! Remember Adelphia (ADLAC) clear back in March when we thought we "smelled a rat" when the stock was trading above $20? The technicals hinted that something was wrong and the stock was under distribution. It really wasn't until March 27th, during a conference call when management dropped the proverbial bombshell that got the stock crushed and had them filing for bankruptcy months later! We watched it all happen right here in the market monitor that day . It was amazing wasn't it?

As for the subscriber's views .... "I am confused here...." he shouldn't feel alone if relying on fundamentals. With what has happened with corporate accounting in recent months, EVERY fundamental analyst/investor (one who relies on the numbers) is a bit confused. As well they should be!

Are any of us currently relying 100%, or 75% or 50% or 25% or 0% on the fundamentals anymore? Hey.... for me, fundamentals are something to base a potential trading/investment scenario on, but I'll be darned sure to test them with the technicals, which the MARKET eventually determins by buying or selling the underlying security.

Now... why has MU's Link p/f chart given two buy signals ($21, $22)? Why has INTC's Link p/f chart given a buy signal ($19.50)? Why has NVDA's Link p/f chart given a buy signal ($21)? What's going on with AMAT's Link p/f chart? What's happening with the Semiconductor Index (SOX.X) 395 +4.76% p/f chart Link ? Not a whole heck of a lot if viewed on the $20 box scale used by Dorsey/Wright and Assoc., which most institutions view.

Funny though... the bullish % for the Semiconductors as a whole is "bull alert" at 17.9%, after recently being as low as 12%.

Hmmmmm.... not too different than the NASDAQ-100 Bullish % ($BPNDX) Link p/f chart that is also "bull alert."

The bullish % is kind of like a thermos. To describe a thermos "It keeps cold things cold and hot things hot. But how does it know?" I don't know, but the bullish % "It's very good at understanding sector/market risk" is very similar to the MARKET, it just knows.

Wow! That will keep you up at nights wondering won't it? Whatever you do... don't turn out the lights tonight and if your significant other asks you what your thinking about, reach over, turn on the light and begin explaining the bullish % and how it is like a thermos! Next think you know your spending $100 bucks an hour at a doctor's office while laying on the couch!

Well.... that's it for me today! See you tomorrow. I've got a doctor's appointment and at $100/hour, I can't afford to be late!

  Jim Brown   7/15/02,  5:17:44 PM
Pivot Trade Wrap
Is This The Bottom? -Give me a break! This is the predominate question in my email and on stock TV. Nobody knows the answer but on the surface I suspect it is simply a short covering rally based on the Dow dropping -436 points in one day after -694 points last week. That is -1130 points in six days with a bounce 10 points above the September closing low. This spells t-e-c-h-n-i-c-a-l bounce. It does not predict Dow 10,000 anytime soon. If you wanted a V bottom rocket to signal a BUY then today was your day. The +400 point bounce in 90 minutes is a very strong reversal even if it is only a temporary buy signal.

The morning news and commentary was completely and utterly bearish and I heard the term "end of the market as we know it" several times. This is a powerful contrarian indicator that everyone was throwing in the towel. It must have worked with the VIX spiking to 43.37 on the 2:15 PM dip. The TRIN hit 2.52 at the same time. Declining volume on the NYSE still ended with a 2:1 lead over advancing volume despite the major recovery. Total volume was 2.2 billion on the NYSE. Over 4.5 billion shares traded across all the markets. At one point downside volume was 10:1 over upside volume.

The Pivot Trade Model signaled a SHORT at OEX 450 this morning and closed that short signal at 436.19 at 3:39 PM. Pivot then went LONG the broader markets at the same time (OEX 436.19, SPX 877.01) That LONG signal is still open overnight with the OEX at 456 and SPX 917. Since I an skeptical on the rally having legs in front of the INTC, IBM, MSFT earnings this week, we will be looking to tighten up the stops when/if the OEX nears resistance around 465. If you think today was fun wait for tomorrow! Earnings in an expiration week. Life (trading) does not get any better than this! Want to see a real explosion? Let Intel or IBM say something positive! See you at 9:15!

  Jeff Bailey   7/15/02,  4:55:42 PM
Industrials Production ... Tomorrow's Industrial Production may get watched very, very close as it relates to today's trading and stocks trying to put together a rally into the close and what some investors may have "perceived" as a bearish business inventories reading of +0.2%.

As mentioned in the 10:40 market monitor, the thing an equity bear may need to be congnizant of is a sharp increase in production that may have in part lead to a rise in inventories. Never sure, but may partially explain today's comeback in stocks and extensive short-covering.

To explain further... imagine you're a large industrial manufacturer. You've seen drawdown in your inventories in recent months and perhaps industry trends 3-6 months out hint that prospects for your product look to be building from the demand side of things.

While orders show a gain (as depicted by the July 1 ISM purchasing reading of 56.2% and just above consensus of 55%) you increase your production by 10%. Yes, your inventories build in the latest report, but the building of inventory may be due to the increased production.

As such, today's inventory levels look to grow, some market participants "jump the gun" and think "economic slowing" and sell stocks early in session on such a thought.

Will see tomorrow morning at 09:15 AM EST won't we? Note: This would be a "fundamental" scenario, by witch a technical analyst would look for confirmation from his/her charts.

  Jim Brown   7/15/02,  4:48:24 PM
I had several emails asking how to contact Preferred Trade Live and get information on the AutoTrade program. Since I cannot reply to emails today here is the best info: www.preferredtradelive.com or call them at 888-281-9569.

Basically they can setup an account which follows the Pivot Trade model based on parameters you set. (number of contracts, favorite strike price if other than their recommendation, etc) Give them a call!

  Jeff Bailey   7/15/02,  4:29:21 PM
Expedia (EXPE) / USA Intl. (USAI) ... based on past commentary and tie between these two, shorts in EXPE need to exercise caution near-term if USAI breaks above $24. Looks to be near-term room in USAI to $26 (about +8.3%) and short-covering above $24 could drive stock of USAI, and have bullish impact on NVDA.

P/F chart of USAI Link

P/F chart of EXPE Link

Would set combined alerts on USAI at $24 coupled with EXPE at $62. As such, would tighten down a stop loss on EXPE at $62 if short.

Bullish play here would be USAI for bounce. Remember, EXPE, ROOM and TMCS are to be acqired by USAI. If deal were to "fall through" bull would be potentially better off in USAI.

  Jim Brown   7/15/02,  4:26:01 PM
Jim, as comparison what was your preferred strike for the OEX today? Regards, Bill T

I checked with Alan Knuckman at Preferred (alan.knuckman@preferredtrade.com) and he confirmed the Pivot AutoTrade strike was the OEX July 450 Put. They bought it at $9.10 this morning and sold it for $17.10 this afternoon. On the current LONG signal the AutoTrade strike is the OEX 440 July Call, which was purchased at $8.20 when the signal was issued. (Currently bid @ $19.10)

  Jeff Bailey   7/15/02,  4:17:40 PM
TOO Inc. (TOO) $25.04 .... Announces that it expects Q2 EPS of $0.14-$0.15, which would be better than consensus of $0.12. Company also expects comparable store sales for Q2 to be flat to slightly positive. TOO saying "Significantly higher merchandise margins, well-managed inventories and expense controls are driving the expected earnings improvement."

Stock still halted... last trade $25.04

  Jeff Bailey   7/15/02,  4:12:12 PM
TOO Inc. (TOO) $25.04 -5.15% ... stock halted in after-hours, news pending. Link

May be interesting to monitor this news and MARKET reaction. Stock looks bearish, but "positive news" met from bullish response may be hint of "non-discriminate" type of selling perhaps seen earlier today and may be a stock to judge other "bearish signal" reversed patterns if holding some positions short/put with this type of p/f chart pattern.

  Leigh Stevens   7/15/02,  4:08:04 PM
INDEX Comments: QQQ - I mentioned short while ago my expectation that QQQ would finally break out above its downtrend channel, whcih would be move above 25.00 - it finally did and is trading well above it - last at 25.52. My current "favorite" stock in the Nasdaq biggies, Oracle (ORCL) has broken out above its Head & Shoulder's neckline at 10.00 - stock has an upside projection to around 12.00 now. QCOM was, at close, starting to break out also.

  Leigh Stevens   7/15/02,  3:58:29 PM
Subscriber QUESTION: "I'm long the djx at 8250. Hold overnite or sell???? "

RESPONSE: There is decent upside momentum and DJX is still below resistance - if me, I would hold DJX position overnight.

  Jim Brown   7/15/02,  3:58:15 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Raise the stop loss on the current LONG signal to OEX 450. (SPX 903) This is +14 points above our entry point and represents a decent spot to hold overnight.

  Jim Brown   7/15/02,  3:56:53 PM
Jim: Some of my limits were too tight. Some orders got filled and some did not. It it too late to go long at these higher prices? Peter

Peter, what you experienced is a prime example of why I do not use limits when trading indexes and especially market reversals. With the current electronic execution limits, market orders for 25 contracts or less on any OEX/DJX/QQQ trade will be instant and at the current bid/ask. No cheating, raising, holding, etc. When you place a limit order it means an individual market maker has the "option" of taking it at that price. In a fast market they will normally just skip over it and take the "low hanging fruit." I have learned from missing hundreds of very profitable traders over the years to never use limit orders on these types of trades. What did it cost to not be in the current LONG trade from OEX 436? What would you have saved/made by getting an extra .25-.50 cents better on the fill? Peter, I am not picking on you but your email came at exactly the right time for me to make this point! Good luck next time.

  Jeff Bailey   7/15/02,  3:53:37 PM
NVIDIA (NVDA) $21.20 +6.54% ... making a break above Friday's high. Something a bull wanted to see happen, but who'd a thunk on such a day as today!

  Leigh Stevens   7/15/02,  3:53:20 PM
Subscriber QUESTION: "Hoping that OSIS (hold Aug 17.5 Puts) gives plenty of downside...any thoughts on that likelihood? "

RESPONSE: OSI systems (OSIS) has a bearish chart pattern - the stock is in its 2nd. down "leg" which I think could carry a bit further than first (leg), say to around $13.

  Jeff Bailey   7/15/02,  3:52:36 PM
In the green Semiconductor Index (SOX.X) +1.69%, Networking Index (NWX.X) +1.4%, Fiber Optic (FOP.X) +1.32%.

Wow! Even the Utility Index (UTY.X) +1.12% reversed earlier 8% loss! Very much a sign of massive short-covering.

  Leigh Stevens   7/15/02,  3:46:59 PM
Subscriber QUESTION: " I went long the Qis at $23.94. Do I dare hold these over night?"

RESPONSE: I think QQQ has a chance to finally break out above the high end of its hourly downtrend channel - it hasn't yet, but the stock held up pretty well on the decline today as it stayed above its prior low. If I were holding long QQQ, I would be inclined to stay with it overnight - let me put it another way, after today and worst damage that they could do to Q's was take em briefly under 24 support, I don't rate the downside risk as huge - we do have some key earnings coming however - INTC (Tues), IBM (Wed.) & MSFT (Thurs) this week.

  Jeff Bailey   7/15/02,  3:44:04 PM
The 3:15 PM intraday update has been posted. Link

  Jeff Bailey   7/15/02,  3:38:32 PM
5-minute charts The Dow Industrials (INDU) 8,562, S&P 500 Index (SPX.X) 909 and NASDAQ Composite (COMPX) 1,358 all approach their 200-pd MA's on bar charts here. Hints that massive buy program of some sort triggered in last 30-minutes. Will monitor if these averages can get above this very short-term level.

  Jeff Bailey   7/15/02,  3:33:20 PM
NVIDIA Corp. (NVDA) $20.95 +5.22% ... at best levels of the session. While not a Dow components, strength noted Friday and hints that shorts may be looking to cover on current market weakness.

  Jeff Bailey   7/15/02,  3:32:10 PM
Dow Industrials (INDU) 8,538 -1.65%.... recouped about 1/2 of earlier losses. Traders taking note that the session low of 8,244 very close to the September 21st close of 8,235 and may have seen some buy programs kick in there.

  Jim Brown   7/15/02,  3:28:55 PM
Mondays have not been kind to me on a technical basis recently. Last Monday I lost my Internet connection and today I cannot reply to emails. I am receiving fine but cannot reply. I have received several hundred so far due to the nature of today's market but cannot reply.

  Leigh Stevens   7/15/02,  3:27:50 PM
INDEX Comments: ALL the indices & QQQ have achieved bullish breakouts above their hourly and half-hourly down trendlines.

  Leigh Stevens   7/15/02,  3:25:15 PM
INDEX Comments: NDX has rallied to ABOVE its down trendline on the 30 min. chart - so has OEX - the other indices, including QQQ, are at or nearing the similar trendlines on their intraday charts.

  Jim Brown   7/15/02,  3:20:10 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's raise the stop loss on the open LONG signal to OEX 440. (SPX 885) I still do not want to get too close to the current level of 446 and want to give the rebound room to work out any problems on the way back up. The first problem is our current 446 level which represent the bottom of the prior down trend channel which is now resistance instead of support.

  Jim Brown   7/15/02,  2:54:25 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The initial stop loss on the current LONG signal will be 435.50. This is just slightly under the low of the day at 435.83. It is significantly below the current level of 441 but after being severely oversold we want to give it room to run.

  Jonathan Levinson   7/15/02,  2:43:58 PM
Hi. Were u guys aware u were still bearish where Leigh recommended to cover this morning? How are we suppossed to view these conflicting views? Thx.

I track my own trades only, and if any one of us had a line on how to be consistently right, well, we wouldn't need the others. Each of us has his own particular style, as do each of you. Leigh's play made perfect sense to me, but I was following my own plan. All that we can provide is our own input, our own opinions and guesses and gut feelings, and our reasons at the time. Better than that, unfortunately, is beyond anyone's ability.

  Jonathan Levinson   7/15/02,  2:40:10 PM
That was fast! Let's move that stop down to COMPX 1325 and protect the profits on the way down.

  Jim Brown   7/15/02,  2:39:28 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Close the open SHORT signal now. OEX 436.19 (SPX 877.01)

Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go LONG the broader market now. The post 9/11 closing low of 8250 has been reached. OEX 436.19 (SPX 877.01)

  Jonathan Levinson   7/15/02,  2:32:57 PM
We have reached our short term target of 1325 on the COMPX for our QQQ put play. I am willing to take my profits if this bounce goes beyond 1330, although, frankly, I see no reason for a reversal in the COMPX from this level. If so, I expect 1350 to hold as resistance.

  Jim Brown   7/15/02,  2:29:18 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's lower the stop loss on the open SHORT signal to OEX 442. (SPX 888) We will start dropping this number a little faster given the size of the Dow drop and the chance of a bounce soon. Remember, should the Dow hit 8250 we will switch from SHORT to LONG regardless of the level of the OEX/SPX.

  Jim Brown   7/15/02,  2:26:39 PM
Pivot Trade Signals
The Nasdaq, which had been dropping less than the broader markets, has given up the fight and is accelerating to the downside. Currently at 1325 this is seen as critical support. Should this level fail it would be very detrimental to the broader markets. As you can see by the -377 point Dow drop, the broader markets don't need any more negative help.

  Jeff Bailey   7/15/02,  2:23:10 PM
Why is this 4-lettered stock bidding in a weak market?

This is a general question that covers several subscriber questions.

The only "explanation" that I can possible come up with is the bullish % for the NASDAQ-100 ($BPNDX) trying to show some internal improvements and is simply hinting that market makers are perhaps initiating some "risk managment" in their inventories and trying to square some short inventory toward a more "neutral" bias currently.

If we continue to see some improvement day-by-day in the more volatile and heavily shorted NASDAQ-100 type stocks, then we would look for "confirmation" in the narrower S&P 100 Bullish % ($BPOEX) and broader S&P 500 Bullish % ($BPSPX). You can almost bet the latter two are going to show futher weakening today can't you? What's most important is to "say" this now, then check it later tonight. BULLISH DIVERGENCE would be an improving bullish %, while the market averages (which are weighted) decline. What that type of action would hint at is that just a few stocks (with large weightings) are declining, while the broader unweighted bullish % actually improved. Again... will monitor day-by-day!

We will note here that we are seeing marginal selling in Treasuries, with YIELD edging up a bit. Maybe some technology bears taking some gains in their Treasuries (which they rotated to in December/Janaury and March at higher YIELDS) and taking some gains in their technology shorts (which they shorted when the bullish % charts were all at more "overbought" levels)?

Never know for sure, but I'm still a bit concerned with the Treasury action and the bid in gold futures and weaker U.S. Dollar today.

The Gold/Silver Index (XAU.X) 74.61 -1.97% isn't trading with the bid in December gold futures (gc02z) $322.20 +1.25%. Either gold stock investors have their heads in the sand, or equity traders are playing some other type of scenario that I'm unaware of.

I would have thought a weaker US$, combined with selling in Treasuries might be a "no confidence" vote by the market regarding the US economy or Government. This thought is really reflected today with the Dow Industrials down 350 points, S&P 500 down 35 points and NASDAQ Comp down 44.98.

Right now, my thinking is that MARKET is so bearish stocks, the bearishness isn't being discriminate as it relates to "gold stocks."

  Jim Brown   7/15/02,  2:17:58 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
This is an advance warning that if the Dow hits 8250 today we will be closing the SHORT position and implementing a LONG signal in its place. The lowest post 9/11 Dow close was 8235 and given the severe oversold conditions this would be an excellent point for a trading bounce. We are going to try and beat the crowd by going long the broader markets at Dow 8250.

  Leigh Stevens   7/15/02,  2:07:32 PM
Subscriber QUESTION: "Leigh, was your stop just under 24.3 on your qqq update? "

RESPONSE: IF you were long, I would be working with a tight stop, say at 24.20 or giving it a little more leeway, at just under 24.00; e.g., 23.85 stop. 24.30 was taken out on this last shot down - I have no "official" recommendation on being long, I just covered my QQQ short position this morning as Nasdaq 100 was "holding up" so well.

Prolonged weakness now in OEX is dragging down the Nasdaq - this market has held up quite well but there is a "limit" to how long this can go on considering that at the NYSE it appears to be the end of the world as we know it :-

  Leigh Stevens   7/15/02,  1:57:30 PM
Subscriber QUESTION: "Currentlty short QLGC a/c has high PE. What does the PnF chart currently show? Am enjoying yr book! "

RESPONSE: P&F (Point & Figure) charts don't tell me a lot on this one - not any more than bar chart price history - recent lows in the 34 area probably "defines" the low end of its multimonth trading range - recent 34.43 (7/2) closing low was under its late-Feb. closing low at 37.25 and early-May's 38.12 - however after this new low close, stock had a rapid rebound back to 40 area where it is now. I would consider that QLGC trading range is now 33-34 on low end, 51-52 area as upper end. Stock is probably "locked" in this range for a while.

  Jim Brown   7/15/02,  1:46:27 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Cautious traders may want to consider taking profits here (OEX 442) but I am going to leave the current 445.50 stop in place. If there is more downside I want to be along for the ride.

  Jonathan Levinson   7/15/02,  1:39:36 PM
The COMPX is printing new lows of the day on its way to 1325, currently at 1343. The US Dollar Index is sitting at the 104.5 level. Declining volume is still leading advancing volume on the COMPX better than 2:1.

  Leigh Stevens   7/15/02,  1:37:02 PM
Subscriber QUESTION: "Hi Leigh, Have often heard weak dollar suggests investors should buy Japan and other foreign stock funds, reason being weak dollar boosts value of foreign stocks, and foreign investors are more likely to buy their own countries stock, again boosting their value.......do you think this is true and enough of a "boost" for people to investigate further? "

RESPONSE: Well, Japanese market, as measured by the Nikkei 225 stood at 10,601 at the end of last week - 10,000 has been the low end of its trading range - Nikkei is down around 14% over the past 12-months - our market is down more of course.

Whether this indicates that the Japanese market is a buy given less "relative" weakness AND the strong Yen of recent weeks, is not something that I can make an informed comment on.

I would tend to look at the index separate from the currency consideration - currency considerations can give a particular market some boost, but it would not make investing in that market worthwhile in and of itself.

  Jim Brown   7/15/02,  1:31:55 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's lower the stop on the open SHORT signal to OEX 445.50. (SPX 895) I am going to slowly follow the market down because as I said before I want to maintain an open SHORT signal. We could see a bounce when the S&P futures hit support at 877 (currently 892) I am torn between taking profits here or just hanging back in anticipation of a continued weak market. Nothing goes down in a straight line but the Dow is trying to break that adage and is now down over -1000 points from last Monday's high. If ever there was an opportunity for an oversold bounce this is it. However, internals simply keep going from bad to worse and we are seeing a significant worsening of sentiment. This is a prime example of "trade what you see" instead of "trade what you believe." If it was not for the Nasdaq I shudder to think how fast the markets would be falling. Thank you SOX!

  Jeff Bailey   7/15/02,  1:29:26 PM
The 1:00 PM intraday update has been posted. Link

  Leigh Stevens   7/15/02,  1:18:22 PM
Subscriber QUESTION: " Hi, Where do you see this up move XAU taking us?"

RESPONSE: NO where. Gold & Silver sector ($XAU.X) rallied, then reversed, at resistance implied by its down trendline - if you want to see this chart go to my most recent Sector Trader Index at Link -- XAU needs to close above 78-78.35 to suggest that sector was reversing back to upside. Absent that, I continue to suggest selling rallies in XAU.

  Leigh Stevens   7/15/02,  1:10:06 PM
Subscriber QUESTION: "ny comments on GE since it has partially filled its gap up? "

RESPONSE: Not too much insight here - more action is needed: GE appears to be "basing" by going sideways - however, close under 27.00 would be bearish - close above 30-30.25 is needed to achieve a bullish breakout.

  Jonathan Levinson   7/15/02,  1:09:42 PM
On the question regarding the SOX's amazing stamina today, there has been talk of a report from the Pentagon discussing China's increasing military capabilities against Taiwan, a major chip producer. This spectre of possible military threats against chipmakers could be putting a bid under chips. I've heard as well that DRAM was pricier as of this morning, possibly for the same reason.


  Leigh Stevens   7/15/02,  12:57:07 PM
Subscriber QUESTION: "Leigh, If the Q's continue to hold the 24.3 level, would you go long in anticipation of a bounce due to oversold conditions? The Q's have been dipping into the 24.40's and moving right back up all morning but the sellers seem to be stronger when looking at the Level II screen. Do you anticipate issuing a long trade on the Q's today if this level holds? "

RESPONSE: QQQ could rally I think if pressure on SPX/OEX eases. At this juncture, think you have to look at what appears to be "holding down" the Nasdaq - with some fall off in selling going on in the NYSE stocks, Nasdaq looks like it could have a rebound - key resistance still looks like 25.00, so piercing this level would be a "confirming" type breakout move.

Am unsure about buying Q's yet - if they can't take em down, maybe they will take em up.

  Leigh Stevens   7/15/02,  12:51:02 PM
Subscriber QUESTION: " Just wanted to say I appreciate the work you guys do. Now... Could you please explain why the @$&^&&&& Sox is up today. Of all the sectors I could have played on the put side, I chose the Sox. Is this a techical bounce or is there specific news out there or is all the other money that is coming out of everything else being put to work here. "

RESPONSE: Action of the SOX is probably an example of maybe you might not want to play puts in such an "oversold" sector. I can't say why the Semiconductor Index it's up today - have not seen any specific news. Bounce is "Technical" so far, but if Intel and other big Chip makers were to report better than expected earnings - or just not have an negative "surprises" - then I think a further rally in SOX becomes more than a technical one, as the market is looking ahead to later this year and into next year.

  Leigh Stevens   7/15/02,  12:41:11 PM
Subscriber QUESTION: "Leigh, would give some commentary on the trin. Last I looked at it it was only at 1.11. Yet the dow is down over 300 points. The trin reading does not look that bearish. Thank you"

RESPONSE: Yes, I agree - TRIN (last: 1.10) is not that extreme and has fallen from its peak whioch was over 2.00 - as I mentioned earlier the SPX & OEX got to, and a bit under, the low end of their downtrend channels - this and the falling TRIN suggests to me that there is at least some short-covering going on, if not some bargain hunting type buying also.

  Jonathan Levinson   7/15/02,  12:34:24 PM
While the COMPX is very oversold, it looks like it aims to become more oversold. The US Dollar Index is now chopping along just above 104.5, and, with the COMPX breaking below 1350, breadth has worsened again, with 591M declining to 289M advancing shares. I'm still holding my QQQ puts from Friday, and am moving my mental stop down to COMPX 1370, just above today's high of the day.

  Jim Brown   7/15/02,  12:33:15 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's lower the stop on the open SHORT signal to OEX 447.60. (SPX 900) This may not seem like we are making much progress to the downside but we could see a decent bounce here from the -300 point level and I want to remain short. I do not want to set the stop too close only to get taken out and then sit and watch from the sidelines as the Dow continues to retrace to its Sept lows of 8063. The 447.60 stop is just above the 11:55 spike high. The OEX is already below the bottom of its down trend channel and cautious traders may want to exit here and not chance any oversold bounce. We are in uncharted territory and anything is possible.

  Leigh Stevens   7/15/02,  12:32:00 PM
Subscriber QUESTION: "Morning Leigh, IF we get a bounce in INTC soon, with the Dow coming back to the 8,500 level and INTC to $18.75, how do you feel about INTC dropping into earnings tomorrow? "

RESPONSE: Have no idea about the likelihood of "contingencies" you mention - stock looks like could go either way here - move above 18.90 would suggest potential up to 22 area - conversely, a drop under 17.00 would give me a next objective for the stock to retest its 16.26 low.

  Leigh Stevens   7/15/02,  12:24:20 PM
INDEX Comments: Nasdaq Composite broke below low end of its recent consolidation, by falling under 1350 - next support looks like around 1325. If QQQ fell below 24.30, then it would look like the stock could fall further.

  Leigh Stevens   7/15/02,  12:05:21 PM
INDEX Comments: Nasdaq -- help in keeping these indices steady in the face of extreme weakness in the S&P, has probably much to do with the Semiconductor Index ($SOX.X) - it continues to hold it recent gains and is actually up on the day by 6.7 points currently (at 383.87), +1.72%.

  Leigh Stevens   7/15/02,  11:48:29 AM
INDEXES: TRADE Recommendation - UPDATE: RE QQQ short at 24.90 - liquidate (buy) at current levels (last at 24.74) and cancel 25.15 stop - this is based more on OEX which is now fully oversold and is at the low end of its hourly downtrend channel. If this index rebounds, Q's will also.

  Leigh Stevens   7/15/02,  11:44:10 AM
Subscriber QUESTION: "Hi Leigh, re: oracle--you said "it looks like it is in a position to rally". Don't you think that the possibility is slim in view of the news today on sebl and psft and particularly if sebl's guidance is poor tomorrow. The article I read said that their outlook has worsened in just the last week. Could be oracle's outlook has worsened since they reported."

RESPONSE: Yes, the stock has a Head & Shoulder's type bottom pattern - a break below 8.78 would make it look less like this. Stock is holding up quite well (last at 9.77), just below $10 resistance. Somebody likes it!

  Jeff Bailey   7/15/02,  11:41:13 AM
Bailey's Basics Jeff, Last week you gave out a link to look at your column "Bailey's Basics". Those articles are very helpful. Thanks. Do you have a link to describe "Bullish %" and do you know the symbol on Qcharts for the Bullish % number?

Glad it helped! Yes... near the bottom of "Bailey's Basics" the article titled "Understanding risk is key" Link gives some education on the bullish percent and how institutions view/assess risk in the markets.

Symbols of Q-charts are $BPNDX, $BPOEX, $BPSPX, $BPNYA, $BPCOMPQ, $BPINDU.

This brings up another point. I'm trying to look for some comments I made not long ago (2-3 weeks) regarding a subscriber's question on what "market average" to be looking to put. I felt the SPX was the index (between the Dow, NASDAQ-100 and SPX) to be shorting/put at that time. Not necessarily because it had the MOST downside, but because it had the GREATEST degree of bullish % to fall and most likely wouldn't find the bearish trader getting crushed. So far, I think that has been an "accurate" assessment as the QQQ hangs right at $25 (its bearish vertical count) yet the SPX has been getting "whacked," but so has the Dow Industrials.

Let's face it. The NASDAQ-100 Bullish % will most likely turn "bull confirmed" before the S&P 500 Bullish % will (NASDAQ-100 usuall does as it is more volatile). Bear in the SPX could use a "bull confirmed" status from the NASDAQ-100 (if/when it happens) to begin instituting some risk management in their bearish positions.

  Jonathan Levinson   7/15/02,  11:40:23 AM
483M decling volume to 217M advancing on the COMPX as price chops along just above 1350 support. Not exactly the bounce many were calling for, though the day is far from over. Nevertheless, with the US Dollar staying low at the 104.60 level, with no subsequent bounce, gold and the XAU holding their gains, and the QQV still up only one point on the day, I see more downside possible for the day.

  Jim Brown   7/15/02,  11:33:44 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's lower the stop loss on the current SHORT signal to 451. This is just above our 450 entry point but should protect us from a patriotic bounce at the end of the speech. I want to allow us plenty of room for movement.

  Jeff Bailey   7/15/02,  11:32:07 AM
The 11:00 AM intraday update has been posted. Link

  Leigh Stevens   7/15/02,  11:28:15 AM
Subscriber QUESTION: "You wrote in the weekend summary that you would be inclined to buy 900 in SPX and 447 in OEX. So what gives? "

RESPONSE: Well, it's one thing to provide an outlook after the market closed last week and to see the action unfolding today. I would like to see signs of stabilization before looking to buy with SPX under 900 - my assumption on my weekly commentary was that we might see stability at and just under 900 on SPX, which has not happened - let's see where a next bottom develops, when it does.

The other thing that I look for intraday and its impossible to know at what price level that will develop, is to see my longer hourly stochastic reach a fully oversold reading again - we're close and SPX and OEX at recent lows are again at the low end of their downtrend channels. Stay tuned!

  Leigh Stevens   7/15/02,  11:18:21 AM
Subscriber QUESTION: "ORCL Up there - can you please tell me when they report? "

RESPONSE: Oracle reported already - they are one of those companies that report earlier than the "pack" - you can check on any earnings report date by clicking on "This Week's Earnings" on our Home page - you don't then have to click on every day of this week, as there is also an option to put any stock symbol in the box at the top of that page and click on "earnings date" - ORCL reported June 18. The stock is perhaps in a position to rally BECAUSE there is no possibility of an earnings "surprise" this week/next week.

  Leigh Stevens   7/15/02,  11:07:40 AM
INDEX Comments: COMP, NDX & QQQ rallied back to down trendlines on their 30/60min charts and then reversed at this technical resistance - the bulls are in real tug of war with the bears here. SPX, OEX & DJX all look like they are forming minor bear "flags" on the 30 min. charts, which would be minor consolidations ahead of further downswings. If so, it seems unlikely that Nasdaq would buck the tide of another decline in the S&P.

  Leigh Stevens   7/15/02,  10:55:39 AM
Subscriber QUESTION: "will you go long on the qqq at support? 24? or wait and short at resistence whatever that is? "

RESPONSE: Well, this segment of the market (Nasdaq 100), as reflected in QQQ is holding up pretty well. Near resistance now as implied by the down trendline on the 30min. chart intersects just above 24.90, the level at which I am short currently. (I want to give my short position a little more "room", allowing for a move back up to 25.00 area, so have stop set at 25.15.)

The outlook is uncertain as to what happens next - QQQ has retraced a little more than 50% of its last rally, and is acting like it wants to rally again. However, this may be just a little "fake out" move before it heads down to re-test the prior low at 23.5. I am waiting and watching. Still short, but not a completely convinced bear at this point - would like to cover shorts and go long if prices fell again to the low end of this recent trading range.

  Jim Brown   7/15/02,  10:52:08 AM
Pivot Trade Signals
The VIX soared this morning to 41 as the opening drop put come fear into traders. The presidents speech on the economy is expected to be some high profile cheerleading and should not be a market negative. The market has enough to worry about already with earnings, corporate accounting, rising inventories and falling production. If anything we could see some short covering ahead of the speech. Whether they "sell the news" like they did last week when he spoke remains to be seen.

  Jonathan Levinson   7/15/02,  10:50:20 AM
Currently 320M declining volume to 180M advancing on the COMPX as price prints at new highs of the day, currently 1367.

  Jonathan Levinson   7/15/02,  10:42:27 AM
I would expect some sort of bounce wouldn't you.

The only sort of bounce I'd expect would be a technical one. However, I would expect to see it, if at all, on the COMPX, and if it occurs here, I would expect it to be very limited. With the US Dollar Index still falling, currently below 104.60, I don't see significant demand for US dollar denominated assets. Perhaps short covering in the COMPX could cause a bounce, but beyond that, I don't see it here.

  Jeff Bailey   7/15/02,  10:40:16 AM
Business Inventories rose 0.2% in May, which was higher than the -0.2% forecasted decline. This may be a negative but will have to see what took place at the production level level with tomorrow's Industrial Production figures, which are expected to show a 0.5% rise.

BIG negative would be a decline in production, coupled with today's rise in inventory! Supply/demand being monitored here too!

  Jonathan Levinson   7/15/02,  10:36:39 AM
Interesting to see MSFT keeping the QQQ's down for a change. Currently down .83 on the day.

  Jim Brown   7/15/02,  10:27:18 AM
Pivot Trade Signals
The S&P futures bounced at 900 support and the NDX futures also found buyers at 987. This pause was likely helped by the "curbs in" status on the Dow. Program trading on the Dow is now restricted and the drop has slowed. I do not expect this to last.

  Jeff Bailey   7/15/02,  10:27:11 AM
Jeff -can the point and figure charts be used for trading options on the QQQs or DJX or other indices, or is it just for stocks? I don't recall any of the other Monitor authors mentioning P & F when discussing the indices though I haven't been here that long. Thanks!

You must be a "newbee!" Welcome! Yes... the p/f charts can be used for index option trading. Similar patterns develop in the indexes just like the stocks. While the patterns from Professor Davis' study and vertical counts more widely used for individual stock, they can also be used in part for index trading. Just remember though, it is much "easier" for supply/demand to impact an individual stock's price, while there may be 20,30,40...100..500 stocks in various indexes, market averages, thus "harder" to really impact a market average/index than an individual stock. However, still used to assess potential upside/downside risk!

QQQ option traders like to use the p/f chart of the QQQ along with the NASDAQ-100 Bullish %. How defensive the QQQ appeared at $38 in January (after red 1) when it generated a "sell signal" Link as the NASDAQ-100 Bullish % ($BPNDX) Link reversed back to "bear confirmed" status at the same time at 60%, then it too gave a "sell signal" to confirm QQQ weakness!

  Jonathan Levinson   7/15/02,  10:16:48 AM
Internals are weak on the COMPX too, 218M declining to 85M advancing (WCOME is down .006, adding 49M to the decliners). The COMPX is currently just below 1360, where it's been chopping for the past few minutes. The QQV is up just 1.28 today to just under 58. We've seen this volatility reading higher during the past weeks, which tells me that the QQQ's are still in a relatively complacent market this morning.

  Leigh Stevens   7/15/02,  10:09:09 AM
INDEX Comments: Wish I was short the Dow as the Nasdaq "resists" the NYSE market weakness - hope springs eternal for the tech darlins. With he Dow off 7% last week from its opening level, the S&P off 6.8% and the Nasdaq Composite off "only" 4%, how the worm has turned. Key Nasdaq stocks are holding at and above their prior lows - it will undoubtedly take some earnings disappointments to take em back to their lows or to new lows. Conversely, positive surprises from INTC, IBM or MSFT reporting this week, could set up a good-sized Nas rally on short-covering and bargain hunting.

  Jeff Bailey   7/15/02,  10:05:38 AM
Siebel Systems (SEBL) $11.25 -2.4% ... talked about this one late Friday in MM. Salomon Smith Barney downgrades to "neutral" from "buy" and cuts price target to $13 from $21.

  Jim Brown   7/15/02,  10:04:21 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The open SHORT signal was triggered at 9:56:08 when the OEX traded below 450. (SPX 906.80) The initial stop loss will be OEX 453. (SPX 910) This is not my preferred entry point after such a big opening loss and right at support but internals are still dropping and the news is far from bullish. Futures are seeing heavy selling by Merrill and Goldman as well as the local floor traders. There is a good chance this could be a major down day.

  Jeff Bailey   7/15/02,  10:02:25 AM
Business Inventories ... due out at 10:00 AM. Estimates are for a -0.2% decline. Economists want to see inventories continue to fall to show consumer still healthy and pulling product from inventory.

  Leigh Stevens   7/15/02,  9:59:50 AM
Wall Street Journal (WSJ) - This morning's WSJ has its biggest front page story on Pfizer's buy out offer for Pharmacia - with 2001 revenues of $32 billion, Pfizer dwarfs Pharmacia's $13.8 billion. Pfizer, of course, has such blockbuster drugs as Lipitor and Viagra - Pharmaca has Celebrex. The combination creates a monster compnay but the Journal speculates that there a few antitrust problems because the companies have few overlapping products.

Also, front WSJ front page story on chairman of FCC speculating on how his agency could allow a "baby Bell" to take over WorldCom - I suppose, if cheap enuf, this might be attractive to one of em, but good luck!

WorldCom notified Anderson, the company, over 2 years ago that the company was inflating profits - guess they didn't listen and old Arthur Anderson, the deceased founder with his reputation for integrity, would be turning over in his grave.

Coke (KO) will begin to treat stock options as, what they are, an expense - this may put pressure on other large companies to follow suit. Meanwhile, congress appears to be under no such pressure to follow suit with legislation to force this as new accounting policy.

Citigroup is proposing rules that would bar analysts from major roles in helping win investment-banking business.

Last, but not least, a story on how consumers are the "gloomiest" they have been since November, worried about weak enonomic growth and higher unemployment - those pink slips keep coming! - unemployment tending to lag economic recoveries.

  Jim Brown   7/15/02,  9:58:06 AM
Pivot Trade Signals
The current support on the OEX is between 447 (the current bottom of the down trend channel and 449 (the low from last week). Cautious traders may want to wait for these support levels to be broken before entering a short trade.

  Jim Brown   7/15/02,  9:52:31 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go SHORT the broader market if the OEX trades at 450. (SPX 906) I had hoped to enter at a higher level but that appears to be wishful thinking.

  Jonathan Levinson   7/15/02,  9:48:39 AM
The US Dollar Index is now below 104.80 after a brief pause below 105.

  Jim Brown   7/15/02,  9:44:56 AM
John Seckinger is on vacation all week and we will miss his contributions to the market monitor.

  Jonathan Levinson   7/15/02,  9:42:22 AM
Opening volume breadth on the COMPX is 60M declining to 37M advancing, with WCOME accounting for 17M of the advancing.

  Jim Brown   7/15/02,  9:40:43 AM
Pivot Trade Signals
Looks like we went straight into free fall and skipped any morning buying bounce completely. The first support point on the OEX is 450 and we are rapidly approaching that level.

  Leigh Stevens   7/15/02,  9:34:53 AM
INDEXES: TRADE Recommendation - UPDATE: Re QQQ short position from 24.90, held over the weekend - a reminder on the (buy) stop point - have it down to 25.15. The 24.15-24.25 area looks like the key near support. If the Q's sink below 24, it then sets up a possible re-test of the 23.50 prior low.

  Jeff Bailey   7/15/02,  9:33:47 AM
The 9:00 AM intraday update has been posted. Link

  Jim Brown   7/15/02,  9:26:25 AM
Pivot Trade Signals
The positive futures have weakened into the red and despite several bullish news events. The software sector was downgraded by SSB this morning just before major earnings begin this week. The chip sector is under pressure again after cautious comments by Merrill, again. The Dollar fell again against the Euro.

My outlook over the weekend was for a bounce at the open giving us a new entry point for the next short signal. With the futures falling back into negative territory that scenario appears less certain. The current ideal possibility would be an initial dip with an early morning bounce, even if it was just back to zero, and then begin the daily drop.

Now that the July-4th holiday has passed without a terrorist incident we are not starting to hear cautions about the one-year anniversary of 9/11 which is less than two months away. One analyst said institutions, who would normally be leery of going long over the summer, would definitely stay flat or short until after the anniversary. Since October usually produces a major market drop (and entry point for longs) the institutions would wait patiently for that entry point in larger numbers than ever before. This suggests that even a July earnings cycle that surprises to the upside will not be able to rally the market.

While my market view is down this morning and the futures are negative I plan on waiting for the opening volatility to pass before entering a new short signal. After last weeks huge losses there could be an oversold bounce hiding on the sidelines. We will try to be patient!

  Leigh Stevens   7/15/02,  9:16:36 AM
Pre-Opening INDEX Comments - The dollar, as noted already, may have fallen off a cliff, but stocks are not following it, at least not yet. Have long felt that more was made of dollar weakness than was warrented - however, in absence of positive stock fundamentals, weakness in the U.S. greenback was given a lot of play as a key negative for equities.

Sept. Euro futures now trading OVER the "magical" 1.00 level - last at 1.00190, up 1.4%. My Euro target has long been 1.01-1.02. I think the Euro will end up trading around "par" or parity - or at 1 euro to 1 dollar, which is about where it should be in my estimation.

  Leigh Stevens   7/15/02,  9:11:40 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES trading: S&P 500 > -1.20; Dow Industrials > -8.00; Nasdaq > -2.50

  Jonathan Levinson   7/15/02,  9:08:47 AM
August Gold is currently trading up 2.80, at $318.70/oz.

  Jim Brown   7/15/02,  9:03:58 AM
Option Investor writers, analysts, editors and staff cannot give you specific individual trading advice about any current or future position YOU may have. Please do not ask anyone on the Option Investor staff for this advice. We are prohibited by SEC rules from giving "individual" advice since we are not your broker and have no information about your personal financial condition. Please read the complete disclaimer at the bottom of the Market Monitor.

  Jim Brown   7/15/02,  9:03:32 AM
The Friday Market Monitor has been archived and can be read in its entirety here: Link

  Jonathan Levinson   7/15/02,  9:01:08 AM
The US Dollar Index has just fallen off a cliff after trading weakly all night, currently at 104.80.


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