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  Jim Brown   7/19/02,  4:30:37 PM
Pivot Trade Wrap
Too Close to the Forest - The markets do not get much uglier than this. Had I stayed with the original game plan we would have been much more successful today. I remember saying we would stay short to Dow 8075, switch to long and then short the roll over going into the close. Something happened between 9:30 and 3:00. I feel like a string puppet controlled by a spastic master. At the first sign of a bounce the plan evaporated and the rest as they say is history. Too close to the forest today to see the trees? Sounds good to me.

The horrible day in the markets should have led to some massive short covering at the close but it never happened. That leads me to believe that we are in serious trouble. A confirmation of that fact is the Dow close under the post 9/11 low of 8063. It did not even slow and by trading under 8000 briefly it has triggered another wave of selling situations for next week. Redemptions are rocketing again with $11.4 billion leaving this week according to AMG Data. Margin calls are also rocketing and investors are closing accounts in droves.

The markets are setting up for another major move next week and I doubt it will be up. All sectors were dumped, not just the favorites. The only positive event was the holding of 950 support by the NDX. This could lead an investor to believe the Nasdaq could again be the place to look for leadership next week. I am really glad this week is over!

  Steven Price   7/19/02,  4:24:17 PM
A reader asked the other day why we recommended a put on a stock which was upgraded. My response was that many different analysts conflict with one another regularly. Just noticed Automatic Data Processing (ADP) as a prime example, which was upgraded by Robert W. Baird from Mkt Outperform to Strong Buy. Also downgraded by Banc of America Sec from Buy to Mkt Perform.

  Jim Brown   7/19/02,  4:00:36 PM
Pivot Trade Signals
I want to buy this dip so bad I can taste it but my intuition says Monday morning could see a continued drop in the S&P and set us up for a monster rebound again.

  Jeff Bailey   7/19/02,  3:58:35 PM
Market Volatility Index (VIX.X) 43.79 +9.6% ... new relative highs here and looks to be headed for similar levels found in September. Link

Check your bearish puts, assess room to bearish counts and if you've got some "big winners" may want to take some partial profits and see what Monday morning brings.

  Jim Brown   7/19/02,  3:58:21 PM
Pivot Trade Signals
The good news here is the NDX. It has held support at 950 all week and is poised to close somewhere in the 960 range. This is very bullish for tech stocks next week as long as this holds. If you are a gambler I would be looking at some QQQ calls here at the close.

  Jonathan Levinson   7/19/02,  3:57:25 PM
MSFT has just dipped below 49, and is bouncing weakly.

  Jim Brown   7/19/02,  3:55:37 PM
Pivot Trade Signals
It will be interesting to see what the S&P drag at the open on Monday will do to an already crashed market.

  Jim Brown   7/19/02,  3:53:35 PM
Pivot Trade Signals
Can you say capitulation? Art Cashin wanted a washout and this is getting very close. Dow 7800 could be the next stop.

  Jeff Bailey   7/19/02,  3:40:39 PM
Dow Industrials (INDU) 8,055 -4.2% ... new 52-week lows here and may be "psychological" play by bears to really have sentiment negative next week. Very defensive action here.

  Leigh Stevens   7/19/02,  3:38:52 PM
INDEXES: TRADE Recommendation - UPDATE: Am holding the QQQ long position I recommended at 24.30, with the same stop - at 23.50.

Per the nature of my recommendations generally, you can assume that I am holding the position after the close, unless I otherwise specify or am stopped out of course.

  Leigh Stevens   7/19/02,  3:34:58 PM
Subscriber QUESTION: "Hello Leigh. Will the premiums on the BTk Hldrs & other tracking funds depreciate through early next week as we anticipate to be the case with individual options. I have a couple of Aug options, including BBH, that were purchased on the 18th and am considering closing them out (to reenter later next week). "

RESPONSE: The HOLDR's and iShares, for the most part, don't have a "premium" structure the way options do. They are like the QQQ, Nasdaq 100 tracking stock in that regard. These "trust" stocks hold the actual stocks - so, the index, like the stocks, do not have a "premium" price built in to them.

These stocks, when "sentiment" on the sector or the market is particularly bearish or bullish, can and do start to trade "ahead" of where the actual index is, anticipating a further move in the that direction.

  Steven Price   7/19/02,  3:31:58 PM
Microsoft: (MSFT) $49.96 -1.14

Expiration Strategy Note: Here is an explanation as to why a stock like Microsoft seems to be "pinned" around $50. A stock as heavily traded as Microsoft usually carries large option positions at the at-the-money strike price. In this case, the CBOE is showing open interest at the July 50 strike of 33,852 calls and 56,564 puts. These options basically control about 9 million shares of stock. On expiration an option position trades just like it were stock. So every time the stock goes above 50, optionholders are getting long about 9 million shares of stock. It doesn't matter whether it's the put or call, because someone is getting long and someone is getting short. But either way, the call holders, or those who have hedged put positions, get long.

Therefore a primary strategy which is used on expiration is to sell the stock when it crosses the strike price (50 in this case), and the calls go in the money, and then buy it back on the downside, because if it keeps going up after it is sold, the call holder simply exercises the call and buys it back. If the stock drops after the sale, the holder gets to buy it back lower and repeat the process if it goes up again. The same applies to put holders who get short below $50 and buy the stock hoping to sell it higher and then buy it back lower.

This activity of selling over 50 and buying under 50 en masse on expiration is one reason Microsoft may be "pinned."

  Leigh Stevens   7/19/02,  3:29:00 PM
Subscriber QUESTION: "I would appreciate your opinion on pdco, phsy, and pfe"

RESPONSE: 1.) - Patterson Dental (PSCO) has rebounded off recent low in 42 area at its 200-day mov. avg. However, rally failure & reversal in 46 area looks like beginning of a next down "leg" in the stock that will take it to new lows for the move - 37 maybe.

2.) Pacificare Health Systems (PHSY) trading sideways - recent rally attempt failed to get above resistance implied by 50-day moving average (26.7 currently) - stock looks vulnerable to further drop, maybe to 20-21 area from current 24.9. Close above 26.7 would help turn the picture to a more bullish one however.

3. Pfizer (PFE) has a bearish chart picture with recent gap down below 30 - stock needs to regain 30, then 32 to regain recent support. Could see 30 being key resistance and an area of significant overhead supply (selling interest) for some time to come, based on downside price gap on very heavy volume.

  Jonathan Levinson   7/19/02,  3:13:40 PM
The indicators are virtually unchanged since the last update, and no clear short term direction is present. This has degenerated to a slug fest between the bulls and the bears, and I'm getting equal numbers of bullish and bearish emails. The long term trend remains down, of course, but we're looking bottomy here. I have no shame about sitting this session out on the sidelines- just the proximity is enough to have me on edge, as I've been all day.

  Jim Brown   7/19/02,  3:05:34 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The official exit points for the last LONG signal were OEX 427.77, SPX 857.56, DIA 81.28, SPY 86.10, DJX 81.19, E-Mini 856.75. We are flat going into the weekend.

  Leigh Stevens   7/19/02,  3:03:59 PM
Re question on Buy Stop order versus Buy Stop Limit - A stop is a "suspended" market (buy at best available price or offer) order that is "elected" or goes into effect as soon as there is a trade at the stop price.

A buy stop limit order also gets elected or activated when there is trade at the stop price - only at that moment the buy stop limit order becomes a limit order to buy at the stop limit price or less, but it cannot be for more than the price. So, in a fast-moving market you have risk that you will not get filled if price trades "through" your stop limit and keep going. This because the offering price keeps going up.

Reverse is true in case of Sell stop and Sell Stop Limit orders - one is "suspended" market order to sell, other is "suspended" Limit order that goes into effect with first trade at the stop price. Sell stops are placed UNDER the current traded ("market") price, Buy stops are placed ABOVE the current traded or market price.

  Jim Brown   7/19/02,  3:02:33 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Close the current LONG signal now. The rebound failed and the chances of a rally into the close are dropping. OEX 428, SPX 858.29

  Leigh Stevens   7/19/02,  2:57:34 PM
INDEX Comments: Dow - Recent low at 8072 is now getting very near prior intraday low at 8062 - the Dow is now at the low end of its hourly downtrend channel.

  Leigh Stevens   7/19/02,  2:51:43 PM
INDEX Comments: Nasdaq - Weakness in Cisco (CSCO), Microsoft (MSFT) and to some extent, Sun Micro (SUNW) weighing on the Nasdaq Composite and Nas 100 (NDX).

QQQ has technical support in 24 area, then at 23.75. Am long QQQ at 24.30 where entry is still possible (last: 24.26) with stop at 23.50 - have considered that better placement may be 23.30, under lowest swing low of last 4 times Q's have bottomed, but don't want to risk much given the sell pressures of today.

  Jeff Bailey   7/19/02,  2:42:14 PM
Dow Industrials (INDU) 8,095 -3.7% ... new session lows here.

  Jim Brown   7/19/02,  2:30:29 PM
Pivot Trade Signals
I was becoming a little more comfortable with the current long since the Dow had resisted falling any further but it appears the drop has just begun. We still have the S&P wildcard, which will turn into a trump at 3:PM. It could get rocky here at any minute.

  Steven Price   7/19/02,  2:20:19 PM
Verizon (VZ): $32.86 (-1.20) One more note on our original target price of VZ of $32. The PnF chart shows a bearish objective of $29. The stock has fallen through the bottem of the downward channel referred to in last night's update. Link

  Steven Price   7/19/02,  2:14:54 PM
Reader Question: How to place a buy stop order? It has order:buy order type: stop limit limit price: stop price:

What does the limit price and stop price mean? qqq at $24.3 rightnow and I want to place a buy stop order at $24.7.,

Response: A stop limit is an order which only goes into effect after a specified price has been reached. For instance, if I buy XYZ at $50, but I want to sell XYZ if it trades below $48, I can put in a sell stop order at $48. I'm not sure what brokerage system you are using, so you'll want to clarify how their terminology applies, but those are the basics. A limit refers to the specific price at which you want to trigger your order. This is different than a market order which simply puts in a buy or sell wherever the current market is. If you are short the QQQ at $24.3, and you place a buy stop at $24.7, then when the QQQ trades up to $24.7, it will trigger the buy order.

  Jonathan Levinson   7/19/02,  2:11:33 PM
Tapping my screen, the QQV continues to indicate that it's down 2.75 on the day to 52.51, as the COMPX gets drilled to below 1330. The TRINQ continue to indicate moderate selling at 1.85 as we remain locked in this little range.

  Jim Brown   7/19/02,  1:58:10 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broad market LONG signal at 13:44:12 when the OEX traded above 430. This could be a weak signal as it now appears the bounce was triggered by a buy program at Dow 8100. We are going to put a wide stop on this signal of Dow 8050. I am using the Dow as that is the determining factor for any possible afternoon bounce. Since it did not hit my target of 8075 before bouncing I want to still allow for that possibility before closing this long. A trade below Dow 8050 would tell me the hope has faded and the double bottom has failed. It looks like volatility is returning so fasten your seatbelt! (SPX 861.94, DIA 81.88, SPY 86.62, DJX 81.62, E-mini 863.25)

  Jim Brown   7/19/02,  1:48:29 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the SHORT signal at 13:44.12 when the OEX traded above 430. (SPX 861.94, DIA 81.88, SPY 86.62, DJX 81.62, E-mini 863.25)

  Jim Brown   7/19/02,  1:44:18 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Dow 8075 may not be hit. Go LONG the broader market with an OEX trade over 430.

  Leigh Stevens   7/19/02,  1:39:44 PM
INDEXES: TRADE RECOMMENDATION: Buy QQQ at current levels (last: 24.3), risking to 23.5

The Q's have come back down to its technical support area in low-24 area and has been holding its ground. On a risk to reward, basis and with OEX at or near technical support and with all indexes oversold, risk to reward on tech looks favorable, as Nasdaq has been holding up well in a real switch

  Jeff Bailey   7/19/02,  1:37:14 PM
The 1:00 PM intraday update has been posted. Link

  Steven Price   7/19/02,  1:30:36 PM
Reader Question: VZ $33.14 -0.91

Good morning, do you have a target in mind for VZ. Maybe $32 area, some sort of measured move ? Thanks for any help on this.

Response: Our original target was $32.

  Jonathan Levinson   7/19/02,  1:23:35 PM
The CBOE put to call ratio is staying persistently high above 1.2 all day except for its 10:30AM reading. This adds additional risk for bears, as, like the TRINQ, high p/c readings usually don't last for very long. The question is on its way to becoming one between whether we bounce or crash. I've learned not to put on positions in anticipation of rare events, because they don't tend to occur. I'd much prefer to enter from a relative high, even if only intraday. The top of a gap fill this morning would have been peachy, but woulda coulda shoulda.

  Jonathan Levinson   7/19/02,  1:14:26 PM
The TRINQ at 1.81 and the QQV down .69 on the day isn't telling us much, although volume breadth has improved a touch, with declining volume exceeding advancing by a factor of 4.5. I think this will break south, but it's very risky here, as it was yesterday, so I'm continuing to sit on my hands. Another Attack of the Program Trades.

  Leigh Stevens   7/19/02,  1:13:37 PM
Subscriber QUESTION: "Double bottom on the Dow 5/15 min chart - Hi Leigh, Is that a double bottom formation?? "

RESPONSE: Well, anytime an index bounces from a prior low you can say it’s a "double" bottom for this time duration and until and unless it takes out that low. Its important to then look at larger intraday timeframe like 30/60 min charts - recent consolidation on 30 min chart could be a bear flag - another downswing would be "confirmed" on move below the today's low at 81.16 in DJX, 8116 in the Dow -

speaking of time frames - its also important to note that Sept low in the Dow was 8062 - the talking heads say we are AT the low, but of course since they know NOTHING about technical analysis they think only thing worth noting is the prior close. You can bet the floor traders know where the prior intraday low was.

  Jim Brown   7/19/02,  1:08:58 PM
Pivot Trade Signals
Every index has come to a screeching halt on the down side but the relative highs just keep getting lower. There is some real indecision out there. It appears the shorts can't push it lower and the longs can't push it higher. We are currently at a stalemate. The Dow at 8075 and the S&P reshuffle has clouded the options for traders. We should be going lower but everybody is afraid to be the leader. Interesting problem. It could mean any bounce would have more strength than previously expected if the shorts simply get out of the way. Still too early to tell but it is fun to watch it unfold even if we are not making any money.

  Leigh Stevens   7/19/02,  1:02:42 PM
Subscriber QUESTION: "Wal-Mart - What do you think about playing WMT long? "

RESPONSE: Since Wal-Mart (WMT) is approaching prior Sept lows in the 44 area - I would wait to see if the stock gets down to this area again from 46.3 low of today. Close above 48 would take WMT back above resistance implied by its steep down trendline. Stock would need to then climb above 53 to suggest there was a more long-term turnaround going on.

I wonder if Sam thinks that the recent steep sell off is un-American! WMT has become like Mom and apple pie.

  Jim Brown   7/19/02,  12:55:03 PM
Dear Jim, I took your on line course on selling naked puts some time back and I remember that you like to sell deep in the money puts pretty far out. Do you think with today's volatility on JNJ it would be a decent play? DS

I think it would be an excellent play. With the investigation likely to lead to a slap on the wrist if anything the downside from here should be minimal. The Jan-2003 $70 put is bid at $27.20. JNJ high for the year is $65.89. Any rebound in the market in the fall should see money going into the "safer" stocks like JNJ. I would sell the Jan-$70 put naked and buy the August $40 put for insurance at $2.25. As always, remember that you CAN be put the stock at any time. This is not bad as long as you sell the stock at the open and resell the naked put. The loss is limited to the bid/ask spread at the time and the position is still in place.

The reason for the August put instead of one farther out is simple. If the play is going to move in your favor it will do so in the first 30 days. If it is not moving in your favor by August Expiration then close both puts for a breakeven less the $2 insurance premium. (theory - it could be a few cents either way) Hope this helps.

  Steven Price   7/19/02,  12:51:57 PM
Reader Question: Steve, I am looking at maybe a straddle on AWE. I have no opion on a sharp move ether way. But, think there is a possibility here as I see a nice wedge formation on the 30 and 60 Minute charts – with a $1.00 channel on the daily. Any thoughts on the possibilities in this play ?? If the play has potential, should I be looking at this as a short term (1 Month) Or would you go out 2/3 months ??

Response:The straddles I see at the $5 strike are offered at $2 in Aug ($1 over current intrinsic) and at $2.85 in Oct($1.85 over intrinsic). I don't have a strong opinion on AWE, although the chart looks bullish. Keep in mind the Aug straddle requires a 16% move up or 33% move down by next expiration before breaking even. The Oct straddle requires a 31% move up or a 64% move down to break even by October expiration. You could benefit from a short term move in a stock this cheap if it continues up on a breakout from the wedge, but if you don't have an opinion either way, the downside breakeven is quite a big percentage requirement.

  Leigh Stevens   7/19/02,  12:48:19 PM
Subscriber QUESTION: " I have a strategy based question. Because of the uncertainties for next week - the S&P reshuffling and its effects, general fears etc. AND because of how tough this week's been in general, would it be better to play Jul Exp QQQ options for the rest of the day OR switch to Aug's and then CLOSE the AUG's TODAY? "

RESPONSE: I would not play either July or August QQQ calls today, but buy the stock if it holds recent lows.Aug. premiums will tend to be more reasonably priced next week.

Also, July options are a crapshoot - as a day trade - I rate potential for large move today to be small I don't think there are going to be willing buyers until we're past options expiration today and after the weekend

  Jim Brown   7/19/02,  12:42:32 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the stop loss on the current SHORT signal to OEX 430 (SPX 862) as we near Dow 8075.

  Jonathan Levinson   7/19/02,  12:41:44 PM
Correction for my last post: QQV was up instead of at 1.52.

The QQV is now down .79 with the COMPX sitting on the 1330 level. The TRINQ is now at 2.0 and volume breadth firmed a little bit. If we were fishing instead of trading, well, at least we'd be getting a tan.

  Leigh Stevens   7/19/02,  12:38:08 PM
Subscriber QUESTION: "How does IBM look like technically at this point? With another down day is it likely to break down to support? Or do you think the earnings news will hold? "

RESPONSE: Stock looks like it may be "basing" - which is the sideways trend that its in between 66.6 on the downside and 73.90-74 on the upside. A daily close above 74 is needed to suggest that IBM was breaking out to the upside - next resistance is then in 76 area, at its 50-day moving average.

Conversely, decisive downside penetration of 66.5-66, especially on a daily closing basis, would suggest that the stock might have one more down "leg" - -perhaps to 60 where there is some major support. I think there is more likelihood for a breakout to the upside - longer it goes "sideways" in the aforementioned range, the more upside potential it should have later by the way.

  Jim Brown   7/19/02,  12:37:00 PM
Pivot Trade Signals
The Dow tried to firm just above Dow 8100 which could indicate a larger number of traders trying to beat the crowd to the 8063 low. Some of the leading indicators started to turn up but from these oversold levels it could just be a momentary blip before the next leg down. These kinds of days are nerve wracking because you know there is a major move lurking in the background but picking the right direction and entry point is next to impossible in advance. The S&P remains our wildcard and is still expected to lead us down into the close.

  Steven Price   7/19/02,  12:24:16 PM
Reader Comment:Closed the BAC AUG70/65 Bear Put Spread for a 48% return in 3 days. Good call. Seemed best to close now rather than wait another month for a possible 100%. A bird in the hand... as they say!

Response: Makes you feel warm and fuzzy all over, doesn't it? I think closing it here is ideal. Premiums must go to zero before the spread can max at $5.00, and even then you won't be able to sell it to a market maker for $5.00. The spread on options over $5.00 is $0.40, so in order to sell the bid and by the offer, you would probably max at $4.20, if the stock continues to tank. The only way to really max at $5.00 is to hold until expiration, and a month is a long time. Why risk a rebound.

  Steven Price   7/19/02,  12:14:26 PM
Peoplesoft: Jeff, thanks for the info on PSFT's PnF signal. We'll keep an eye out for the $17.00 mark.

  Leigh Stevens   7/19/02,  12:13:38 PM
INDEX Comments: DJIA - in case you haven't noted, Dow Jones Industrial Average is approaching its prior Sept. low at 8062 or 80.6 on DJX. I get a target on DJX, on a move to low end of its hourly downtrend channel, somewhere between 80 and 81 - interesting that midpoint is approximate area of post 9/11 low.

Now, that we're this close to prior bottom, its seems a better than even chance that the Dow will retest that 8062 low. Since everyone focuses - at least public - so much attention on DJIA, it makes some sense that market may rise or fall based on what Dow does in terms of its Sept. low.

  Jonathan Levinson   7/19/02,  12:12:28 PM
The TRINQ is at 1.93 and the QQV is at 1.52. Breadth has deteriorated and declining volume is now over 5 times advancing volume. Despite this, price is now between 1330-35. Still flat. I never did get my desired entry point, and again, with my forehead sore from beating it on the desk, I'm being patient and waiting for a great trade to come to me. Particularly with QQQ options, a move between s/r lines can often equal only 30 or 40 cents. I can let that go in favor of locking in gains and protecting capital, particularly during a week and on a day as difficult as this.

  Steven Price   7/19/02,  12:11:59 PM
Lowe's (LOW) $36.55 -$1.30: An astute reader has brought it to my attention that LOW was left out of yesterday's update. This put play is still active.

  Leigh Stevens   7/19/02,  12:05:56 PM
INDEX Comments: Nasdaq update - QQQ is again approaching its intraday low around 24 - which is also area of intersection of its support trendline. A successful test and bounce from the 24 area may offer a buying opportunity - stay tuned.

In terms of the Nas 100 stocks, ORCL & QCOM are holding up very well - they seem to have good buying interest. On the other hand these two have not broken out above their resistance down trendlines at 10 and 31 respectively. But they are consoldiating just under resistance, suggesting that when we do get an oversold rally in Nasdaq, these two could have a nice pop.

  Jim Brown   7/19/02,  12:04:03 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
For those not in the current SHORT signal we are looking to go LONG at Dow 8075 IF WE GET A BOUNCE from that level. See the 12:02 post for details.

  Jim Brown   7/19/02,  12:02:11 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Remember my initial bounce point was Dow 8075. The post 9/11 low was 8063 and I anticipate buyers will jump the gun slightly. This is a psychological level which could generate a bounce like we got on Monday but if broken could produce the mother of all down days. With market internals getting worse and the potential for the S&P to lead us down near the close I am doubtful a bounce will be that strong but we will play it just in case. Since today is expiration day I will lower the stop to just above the then current level when/if the Dow hits 8075. If we get a bounce we will go LONG at the same stop loss level. These are VERY HIGH RISK TRADES and should not be taken by those with low capital or a conservative mindset. This is an afternoon for gunslingers only!

  Steven Price   7/19/02,  11:59:06 AM
Bank of America (BAC) $61.05 -$1.56 Our long BAC Aug 70-65 put spread (debit) from Tuesday has performed well. I recommended closing part of the position yesterday. This is an opportunity to close out any remaining position still held.

  Jeff Bailey   7/19/02,  11:57:33 AM
PeopleSoft (PSFT) $15.97 +10.09% ... per Steve's comments earlier. P/F chart trying to put in a base, but would need to trade $17.00 to NEGATE its current bearish vertical count of $10. Link

According to Dorsey/Wright & Assoc., the software bullish % is "bear confirmed" at 18.4%.

  Leigh Stevens   7/19/02,  11:56:47 AM
INDEX Comments: S&P/DJX - speculating on some downside levels here: OEX is a bit under my 430 target - I thought that unwinding activity on July options would keep OEX around 430, but the low end its hourly downtrend channel intersects at 425 currently

SPX low end of its channel comes out at about 856-855

DJX has taken out prior low at 82.5 - which I thought it might hold - the low end of its hourly downtrend channel intersects around 81 - depending on how the trendline is drawn, this could come out at 80 - Dow 8,000, wow, that'll make some headlines if it happens.

  Jeff Bailey   7/19/02,  11:49:45 AM
The 11:00 AM intraday update has been posted. Link

  Jeff Bailey   7/19/02,  11:47:46 AM
Johnson & Johnson (JNJ) $42.05 -15% ... Jeff: What is vertical count of jnj is it $17?

NO! The bearish vertical count is to $39. Link

The first sell signal off the top (column of O that exceeds a previous column of O) that has NOT been NEGATED by a "buy signal" (column of X exceeding a previous column of X) shows a column of O from $61 to $51. That's 11 O's!

Once that column was reversed 3-boxes, the bearish vertical count column was built. From there, you take the 11 O's, ALWAYS multiply by 2, the, check the "scale" (to the right) and we see the stock was being charted in $1 box increments. You then take the sum of (11*2)=22 and multiply by $1 (the box increment) and get 22.

Then go right back to the "top" of the column of O you just counted, which is $61 and subtract the 22 to get $39. It's really that easy! $62-((11*2)*1)=$39.

Only when a "buy signal" is eventually generated does it NEGATE the current bearish vertical count! As it CURRENTLY relates to JNJ's chart, it would take a trade at $53 to generate a "buy signal" (where an X column would EXCEED a previous column of X).

Now think risk/reward as it relates to the bearish count of $39 versus the first "buy signal" where a stop would be placed. At $42, risking $11 to potentially make $3 to bearish count.

Yesterday, at $50, bearish trader was risking $3 to potentially make $11 to bearish count of $39.

  Steven Price   7/19/02,  11:45:06 AM
Microsoft (MSFT) $50.10 (-1.01) Microsoft is approaching the $50 mark. while this may be a significant support level, there is additional support just below around $49.25 and $48.50.

  Steven Price   7/19/02,  11:39:29 AM
Daimler Chrysler $45.20 (-2.35): Daimler Chrysler confirmed there is a Justice Department probe into price fixing allegations. The stock has been hit, but when it comes to Justice Department investigations, certainly price fixing allegations sound better than accounting irregularities.

  Jonathan Levinson   7/19/02,  11:33:53 AM
COMPX price has returned to 1335, which we saw acting as weak resistance earlier in the day, and which I now expect to see act as weak support. The TRINQ is up moderately to 1.66 and the QQV is up to 1.21. This is not yet intense selling pressure, telling me not to expect a big whoosh down right away.

  Steven Price   7/19/02,  11:33:32 AM
Reader Question re: PSFT Don't you think that PSFT needs to fill the gap it made first before going back up? Maybe to at least about $15? Chris

Response: Good question Chris. This is one of the reasons I said I wanted to see this stock hold its levels. While there was a gap, not all gaps are always filled. However, it is definitely something to look for. Note that this stock did fill its last gap following July 3. Also note that Wednesday's high overlaps today's price, so while we do have a gap, there is some overlapping this week. As I write, the stock has pulled back as the market is dropping, so we may get a chance to see whether the 21 dma provides support.

  Jim Brown   7/19/02,  11:28:15 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broad market SHORT signal at 11:22:28 when the OEX traded below 430. (SPX 862.75, DIA 81.86, SPY 86.62, DJX 81.74, E-Mini 863.25) The initial stop loss will be OEX 433.50. (SPX 868.50)

  Jonathan Levinson   7/19/02,  11:26:11 AM
In light of the comments at OI about the rapid decay of premium on August puts between now and Tuesday, what month puts are you looking at for your new short position when you enter it?

I'm looking at August and September contracts. The premium decay is less substantial in QQQ puts, which tend to be "cheaper" than OEX and SPX contracts. I'm just trying to be choosier today about entering and am trying to wait for a rollover at a higher level. Volatility will increase on the next decline, and I expect that to cover the decay if I enter the position well.

  Leigh Stevens   7/19/02,  11:05:49 AM
Subscriber QUESTION: "Looks like XAU is poised to retest 80 level what is your opinion?"

RESPONSE: Not likely - XAU gapped up today, but is back down near its intraday low currently at 72. Its down trendline is at 76 - you can see the way I have it on my Sector Trader wrap last night at Link -- I doubt that we will see a "breakout" above resistance trendline.

I have been saying for awhile, that I thought that the Gold sector index will remain under pressure - I continue to suggest selling rallies in XAU and am looking for an eventual move to 65 area, maybe to 60.

  Jonathan Levinson   7/19/02,  10:57:30 AM
Very little action following the open. The TRINQ has settled around 1.5, as has the QQV around 55.61, up .95 on the day. COMPX price has been coiling below 1350. The put to call ratio at 10:30 was 1.08, well off its opening spike.

  Jim Brown   7/19/02,  10:57:04 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The official exit on the LONG signal is OEX 431.91 (SPX 865.92, DIA 82.30, SPY 86.95, DJX 82.21, E-Mini 866.00) When the trade is not going your way there is no reason to wait for the stop.

  Jim Brown   7/19/02,  10:51:42 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Close the current LONG signal here at 431.91. (SPX 865.87) We are not getting a bounce. Let's cut the loss.

  Jim Brown   7/19/02,  10:50:36 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go SHORT the broader market with an OEX trade below 430. (SPX 862) Internals were weakening again and the S&P futures were threatening to break to a new low. The Dow is also near a new low. This is a cautionary signal in case the initial bounce fails to hold and allow us to re-enter the SHORT at a higher level. My feeling are the S&P will eventually weaken and lead the markets lower. I just don't know if it will be lower from here or from a higher level. I am going to close the current LONG signal now and if we get a bounce we will just watch for a new SHORT entry point.

  Steven Price   7/19/02,  10:48:01 AM
SBC Communications $27.28 (SBC) This current put play has rebounded from its morning lows, but still looks weak with a daily high of $27.84, just below its previous recent low of $27.85. This stock has earnings on Tuesday, so we will be closing the play before then.

  Steven Price   7/19/02,  10:42:24 AM
PeopleSoft PSFT $16.25 (+1.73) PeopleSoft looking strong after last night's earnings, which beat estimates by a penny, on reduced profits. This stock is up a significant percentage and I wouldn't jump on until we see it hold this level. It has found support around $14 and has broken above its 21 dma, which had been resistance since the middle of May. I'd keep on eye on this one as it appears to have satiisfied analysts that its shelf life is more than many others in its sector.

  Leigh Stevens   7/19/02,  10:30:19 AM
Subscriber QUESTION: " Are you long qqq calls now? It looks good from here"

RESPONSE: Well, the Q's have filled in the gap now by move back up to 24.7 - however, after this type rebound (which "fills in a downside gap) the Q's have potential to drift lower again. I tend to wait to see how trading shapes up in these kind of situations - but down near the lows - this was pretty low risk entry or a reasonably good trade on risk to reward basis. Anyway, what often happens is that there is a retest of first low - or the index comes back down to this area again.

Often, second low is a bit above the first one - meanwhile my longer stochastic comes down to fully oversold - I tend to wait for everything to line up then go in with confidence. Of course, I can miss some trades this way - but, on balance, this approach works quite well.

  Jim Brown   7/19/02,  10:29:54 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the open LONG signal at 10:13:06 when the OEX traded above 433.50 (SPX 868.16, DIA 82.55, SPY 87.23, E-mini 869.25, DJX 82.62) The initial stop loss on this signal will be OEX 430, just below the low of the day. (SPX 862)

This is not expected to be a major move and we still expect to short any failed bounce to higher levels. The internals are very oversold and need to equalize before we move lower. This signal is an attempt to capture that equalization bounce. It does not have as much strength as it first appeared but the JNJ loss is a significant weight on the Dow, and that must be factored in. Still touch and go and we will watch it carefully.

  Leigh Stevens   7/19/02,  10:21:25 AM
Subscriber QUESTION: "Thanks for your good commentary in the newsletter and throughout the day. I just finished reading your article on "Fair Value" (Trader's Corner - at Link ). I use Real Tick to trade from and pay extra $ monthly to receive the CME Futures. I also get the Sprem which as you know is the premium of the cash over the futures or vice versa. Since i'm paying good money for it i watch it and i've found the Sprem to be a lagging indicator to big moves in the s&p. Maybe Real Tick is just slow in reporting it, i don't know. I do know that there is value in watching the S&P futures premium throughout the day to see if it is holding a positive bias or negative one(closer to buy value or sell value).

My question to you is: As the cash and futures change throughout the day, do the values remain the same? Meaning the buy/sell/fair value given out before the market opens.

If the cash drops 10 points say to 890.00 and Fair Value =.95 - Then if the futures were trading at 889.05 - Would this be fair value? "

RESPONSE: "Fair Value" (FV) remains the same during the day. It is a figure that is slow to change - the FV "spread" slowly moves down over time as the S&P stocks pay dividends. In example you cite, Sept. S&P futures at 889.05 (with cash at 889.00), would be trading at that point UNDER Fair Value by 95 points or -0.95. Remember that .95 is a positive number and futures should be trading above the actual SPX index by that amount.

  Jonathan Levinson   7/19/02,  10:19:49 AM
As I think it through, we could expect to see the COMPX make it to the 1360 level and hold it, coinciding with the QQQ at approximately 25. With option expiration today, the QQQ 25 level, with its very high open interest, should act as a price magnet, as we've seen on previous op ex days. Note that the opening opening put to call ratio, released at 10AM EST, at 1.31 supports this, implying short term upside.

  Jim Brown   7/19/02,  10:19:35 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the defensive SHORT signal at 10:13:06 when the OEX traded above 433.50 (SPX 868.16, DIA 82.55, SPY 87.23, Emini 869.25, DJX 82.62) If the bounce has legs we will be glad to give up a couple points for this downside protection this morning.

  Jeff Bailey   7/19/02,  10:14:58 AM
GSTI Software Index (GSO.X) 97.79 +0.23% Link

Semiconductor Index (GSO.X) 374.78 +1.64%

S&P Insurance Index (IUX.X) 249.68 +0.29%

Gold/Silver Index (XAU.X) $72.79 +3.22% Link

  Jonathan Levinson   7/19/02,  10:12:50 AM
With the QQV dropping its morning gains in a hurry, now up just .91, and the TRINQ falling off to 1.69 on this move upward, I expect to see the stochastics looking awfully toppy if the COMPX can make it to the top of the opening gap, yesterday's close just below 1360. I'm targeting a rollover from that level for a put entry on the COMPX, but I'll be sure to wait for a rollover before entering. No need to try to catch a falling knife in reverse. Note that we should be stopped out of any tight stops set on the entry made at the open, as price is clearly getting away to the upside. Again, I do not expect this rise to continue very far, and will wait for it to top out. Trades with wider stops will still be open, and in the unlikely event that this upmove continues past 1360, I'd be seriously considering closing it out. Note that stops are a question of individual account management and risk tolerance- to each his/her own.

  Jim Brown   7/19/02,  10:10:58 AM
Pivot Trade Signals
The futures may have firmed at 862 but they still have a solid top at 868 and that is keeping the lid on the bounce attempt. The markets are still very undecided and could still go either direction by several hundred points. The Nasdaq is probably the index that will determine direction as it has rebounded better than the rest on the back of the semiconductor sector. The reason for the dead stop on the Dow is we have hit the "closing" post 9/11 low of 8235 and it is struggling to bounce from there. Should that level fail and we move down I would look to close the current SHORT position and go LONG at Dow 8075. That would be my next target for an oversold bounce.

  Leigh Stevens   7/19/02,  10:07:26 AM
Subscriber NOTE: "Just a note about your 865 support calculation for the SPX. 865 is the exact 61.8% retracement from the 4th quarter of 1994 when the whole ramp began to the 1st quarter high in 2000. "

RESPONSE: Well, I didn't peg 865 as "support", only that 866 was a "minimum" downside objective based on H&S top pattern on the Index.

Interesting on the retracement - find these 62% retracement levels to be worth watching. Thanks for note.

  Steven Price   7/19/02,  10:05:47 AM
Recommendations One more thought on our recommendations. Look for OI's comment on what we see as a trigger point on the trade, which is the point we see that reinforces the trend

  Jonathan Levinson   7/19/02,  10:04:42 AM
Volume breadth is negative on the COMPX, with declining volume over 4:1 advancing volume. The TRINQ is now at 2, reflecting this little surge upward. Not a lot of strength evident yet, but given that this is the third Friday of the month, strange things can happen quickly.

  Steven Price   7/19/02,  10:03:27 AM
Reader Question:How about some guidance on the use of your recommendations - e.g. do we buy all recommendations for a given ticker? Do we buy at the open? what is the significance of OI = xxxx, or SL = yy provided with each recommendation?, etc. etc.

Response: Our picks respresent our observations of opportunites we identify in the market. The options we choose are alternatives we see as reasonably priced to acheive our long or short objectives. "SL" represents our stop-loss, or the point at which the stock has moved in the opposite direction of the trade, and which we feel signals a change in the trend we originally identified. This is the point at which we close the trade, rather than be left "wishing and hoping" that it comes back. As experienced traders know, not all predictions go your way and the best traders are those that cut their losses and let the winners run.

  Jim Brown   7/19/02,  10:00:14 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The Futures are firming and the Dow appears ready to bounce. If we are stopped out of the SHORT play I want to go LONG at the same 433.50 level. Repeat, GO LONG the broader market at OEX 433.50 if we are stopped out on the current SHORT signal.

  Jeff Bailey   7/19/02,  9:59:56 AM
Semiconductor Index (SOX.X) 369.30 +0.16% .... edging green here. Key resistance near-term is 405 as depicted by the $5 box scale. Link

The $20-box is the conventional p/f viewed by institutions. Link

  Jonathan Levinson   7/19/02,  9:58:59 AM
Looks like my battered machine is hanging in for the moment. Can't wait for the new one to arrive today. The QQV has spiked 2.16 today, now at 56.73, but well off its highs in the 60s from last week. The TRINQ is persistently above 3, showing serious selling pressure. But, there are a serious of low TRINQ days to work off, and this could persist for the day quite easily. The XAU/Metals Index is up 2.6 on the day. Options expiration is looming, and prices could stay pinned for the day. This is more a question for Steven, but I could see serious downside on Monday if participants who get put the underlying securities decide to unload those positions.

COMPX price is trying to bounce as I type. Please watch and respect your stops if the market tries to run up from here. We'll get other entries- that I can promise.

  Leigh Stevens   7/19/02,  9:56:47 AM
INDEX Comments: Nasdaq continuing to hold up better than the S&P with low on QQQ holding its up trendline so far.

COMP & NDX got down to the lower envelope lines I use on hourly charts so are pretty extended for current timeframe. With sizable downside price gaps, am starting to look toward rebound potential back up into the gap areas.

  Jonathan Levinson   7/19/02,  9:52:14 AM
This looks like our entry. Bears who have not yet entered can short the COMPX now, with a stop just above the high of the day at COMPX 1337.

  Steven Price   7/19/02,  9:50:20 AM
Omnicom (OMC) $49.28 (-0.71) After touting this stocks efforts over $54, we removed it from our play list last night. This looks like a good place to close for even on the trade, as it appears to have run out of steam.

  Jeff Bailey   7/19/02,  9:49:06 AM
Cisco Systems (CSCO) $14.07 -1.7% ... I am curious of your thoughts on CSCO at this point? I bought some aug calls at the end of the day on the 15th when it was heading to close above 14.5 which seemed to be some short term resistence and was looking positive on a closing basis. It is looking weak today, but I can't seem to find any "real" strong support as to where I should sell if it breaks today, or if I should hold.

To be honest, I would not be advising the buying of shorter-term calls in stocks that trade below trend with overhead supply so close by, especially with higher option premiums currently. Link

Not sure what strike was bought or price paid, but would look to move longer-term options if still willing to pay the higher option premiums.

  Leigh Stevens   7/19/02,  9:48:41 AM
INDEX Comments: SPX fulfilled my "minimum" downside objective by its move to below 866; OEX reached my downside 435-430 target zone; DJX target I had was to re-test prior low only at 82.5 which it has done with move to 82.08, which sets up potential double bottom.

  Jim Brown   7/19/02,  9:45:06 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The S&P futures broke support at 865 and appear to be headed lower. I hate going short this far down but if the bottom is going to fall out we do not want to be waiting on the sidelines. The initial stop loss on the SHORT signal will be OEX 433.50 (very tight) No SPX equivalent. If the markets bounce here we want to close this position quickly and re-short any failed rally.

  Jim Brown   7/19/02,  9:40:37 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go SHORT the broader market now. SPX 872.78, OEX 431.12.

  Steven Price   7/19/02,  9:38:56 AM
Johnson&Johnson (JNJ): Possibly opening down about $8. Looks like the long put spread in JNJ we talked about yesterday morning will be maxing out today. Very good time to take a profit. They confirmed a federal probe this morning. We recommended this stock as a put pick yesterday, but our entry point is under $50. I wouldn't be rushing to get short on the open. For those who got short yesterday, congratulations.

  Jonathan Levinson   7/19/02,  9:35:35 AM
Rather than beating my head against my desk, I'm remembering your mantra. 1. Breathe. 2. Protect capital. Instead of your number 3, I'm repeating to myself, "It was just too risky yesterday. Anything could have happened."

Thanks, Linda. Like Jim, I am watching the open. Will jump in intelligently, or not at all.

We have a big opening TRINQ at 3.24, on a 20 point COMPX gap down. Printing new lows as I type.

  Jeff Bailey   7/19/02,  9:31:50 AM
Bema Gold (BGO) $1.32 ... aggressive "gold bugs" looking for some exposure to gold stocks this morning. May look at BGO from "inside day" setup. Buy above yesterday's high of $1.35, stop below yesterday's low of $1.30, near-term target $1.47. Link

  Jim Brown   7/19/02,  9:30:46 AM
Pivot Trade Signals
While I said I want to go short below 875 I want to wait a few minutes after the open to see if we bounce first. NO SIGNAL YET.

  Jeff Bailey   7/19/02,  9:25:58 AM
The 9:00 AM intraday update has been posted. Link

  Jim Brown   7/19/02,  9:24:49 AM
Pivot Trade Signals
Shaping up to be another big day. The leader to the downside today is JNJ which as a Dow stock is impacting the Dow futures. It is down almost -$8 in the pre-market. IBM is bid at $70.95 from its $72.11 close. MSFT is bid at $50.40 from its 51.11 close. Not going to start off as a good day.

The key points we need to watch this morning is the S&P 877 level and the 865 level. 877 (876.46) was the Monday low. This could be the first bounce attempt, if we are going to get one at all. Should that level break I see a bad couple days for the market. With 7 stocks leaving the S&P today we will see some downward pressure on that index. On Monday, when the new stocks have been added, we will see more downward pressure as the pre-addition gains in those stocks bleed off.

While I am looking for a technical bounce in the 877 range I don't have any faith it will stick. I am torn between going short at the open and hoping for a breakdown below the opening levels or waiting for 877 to see what happens. Since I am not sure a bounce from 877 will hold I don't really want to be long the bounce. I feel like all plays have the odds stacked against them at the open.

So, after considering the facts, I plan on waiting on the opening volatility to pass, hope for a bounce at 877 and then short the bounce if it fails. The fall back plan is to short a breakdown below 877. (actually an 875 trigger) If the market goes into freefall then we are covered on the downside as well

  Jeff Bailey   7/19/02,  9:24:23 AM
Applied Materials (AMAT) $17.15 ... indicating $16.86 in pre-market. Thanks for your great commentary and work. Any thoughts on AMAT?

I'd remains "cautious" on the stock below trend. With bearish count of $10, can short/put 1/2 positions here. If short/put 1/2 above $19, can round to full position. Link

According to Dorsey/Wright & Assoc. the semiconductor bullish % is "bull alert" at 25.78%. From here it would take a reading of 54% to reach "bull confirmed" status, while a reversal lower in the bullish % chart to 18% would have the group back in "bear confirmed" status. AMAT is NOT one of the stocks contributing positively to the bullish %, thus still viewed as a laggard as it relates to the bullish %.

  Leigh Stevens   7/19/02,  9:20:49 AM
Pre-Opening INDEX Comments - Sept. Euro futures (EC02U) trading over 1.01 (1.0123) currently, +0.49%

U.S. Trade Deficit for May was record and up 4% - trade figures are one of the "basic" fundamentals affecting relative exchange rates

Meanwhile CPI also released this morning - up a scant 0.1%

If SPX opens consistent with futures, it will take out its prior low at 876 - a next downside objective then is 10 points lower, based on a "minimum" downside objective per Head & Shoulder's top pattern on the 30/60min. charts - per my Index Trader commentary last night at Link

  Leigh Stevens   7/19/02,  9:09:47 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES trading: S&P 500 > -10.30 at 865.20 Dow Industrials > -120 at 8245 Nasdaq > -19 at 979.00

"Fair Value" numbers: S&P 500 futures ($SP02U): 0.92 -- Nasdaq 100 futures ($ND02U): 3.38

  Jonathan Levinson   7/19/02,  8:51:54 AM
The US Dollar got hammered again last night, this time trading almost as low as 103.50. It bounced off that low, but 104.00 is now acting as resistance. The QQQ is currently bidding at 24.21, and gold has broken 320/oz. Still flat except for my precious metals longs, and trying not to beat my head against the desk for the puts I didn't buy yesterday.

  Leigh Stevens   7/18/02,  8:41:27 PM
The Market Monitor for Thursday is archived and can be viewed by clicking on Link


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