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  Jim Brown   7/25/02,  5:47:31 PM
Pivot Trade Wrap
Volatility Reigns! - The Dow opened with a -126 point drop followed by a wild ride of +210, -131, +157, -364, +287 point swings. Needless to say this was a highly volatile session. However the VIX actually fell on the day to 44.65. The anticipated profit taking from the huge Wednesday bounce came right on schedule but contrary to traders expectations rallied in the face of negative news late in the afternoon. This bounce was helped by two huge buy programs that pushed the Dow back into positive territory just before the close. At one point the Nasdaq futures were limit down after a -5% intraday move to 895. After the limit expired they dropped to a low of 880 and -72 points before buyers started nibbling on semiconductors again.

I hope your sitting down because I saw some bullish events happen today. (obviously a sign of capitulation on my part - grin) There was a rumor that Tyco was going to file bankruptcy which was hotly denied by Tyco. There was a news report that the SEC was investigating Citigroup and JPM. AOL announced the SEC was investigating them. Taiwan Semiconductor, the biggest foundry, said sales would be down for the 3Q and capex spending was dropping. Durable goods dropped -3.8% instead of a +0.4% gain. Existing home sales dropped -12%. Moody's lowered its rating on JPM to negative. Still, even after all these negatives the Dow rebounded +287 points off its lows to close flat and retain all the gains from Wednesday. This was very surprising and could indicate a trend change and this event will not be lost on the bears.

My outlook for Friday has changed. It still depends on the Consumer Sentiment report in the morning so don't rush out and place orders yet. My outlook now is for a continued bounce at the open with a sell off on profit taking around lunch time and another rally into the close. I realize this is a step of faith but the action on the Dow today was definitely different than the trend from the recent weeks.

The wild card is still the Sentiment report and the Nasdaq. If the semiconductor sell off continues the drag on the Nasdaq could drag on the Dow as well despite the divergence on Thursday. The Sentiment report is due out at 9:45 ET. See you in the morning!

 
 
  Jeff Bailey   7/25/02,  4:33:43 PM
jeff could you look at WIRE i see the bearish triangle on P&F. looks like the market makers are bound and determined to take to 80.9 % retrace at 9.50. this is a great company i think im long if they do this. reminds me of a profile you did on TDSC some time ago

Yep, that's a bearish triangle allright, with past trade at $12.50. Bearish vertical count is $10 and Professor Davis' study of bearish triangle is probability for 33.3% decline from $12.50, so another target perhaps to $8.33. Link

I took a simple retracement from $16.75 to $8.00 (gives us 61.8% at $11.34, 80.9% at $9.67), which marks the relative high and low closes and levels probably very similar to yours (which also look to really reflect market maker levels where stock's been traded in past). Not a good sign that stock traded lower yesterday on such bullish broader market action. Tried to hold the $11.34 retracement level, but all heck broke loose today. $10.50 -11.01%.

I won't argue "its a great company," but right now, this global Internet business and consumer services company's chart looks "terrible."

 
 
  Jeff Bailey   7/25/02,  4:04:24 PM
Hi jeff,what are your thoughts on a long position on NVDA?????Thanks for your comments...

Stock treated me wrong and sell signal at $17.50 has vertical count at $7.00 leaves me with little bullish interest, so no longer on my list for bullish consideration. Link

Should give credit to Morgan Stanley's "bearish" call on the stock at $21 from 07/17/02. If interesting in the stock from bullish standpoint, may want to monitor further comments from MS. Analyst seems to have some pull, or he/she is on top of things.

 
 
  Leigh Stevens   7/25/02,  3:56:30 PM
Subscriber QUESTION: "What is your opinion on the QQQ's here. It looks like freefall to me. Where might the next level of support be? "

RESPONSE: I think QQQ action today with an afternoon rally attempt and partial "disconnect" from extreme weakness in Semi's, suggest that Nasdaq could be putting in a bottom in this area for a while. One more day is needed to see however. We are not likely to see a "dramatic" rally without this area of recent lows being testing more than once as it was doing today - this may continue tomorrow. Support is 22.00 - 21.80 as we say today.

 
 
  Steven Price   7/25/02,  3:49:55 PM
Johnson and Johnson $49.90 (+2.20) OI call play JNJ has closed last week's gap and is approaching $50. This looks like a good place to take some profits on a play from $41.85. The 21-dma, just over 50 could give some resistance. Raising stops to $48 is also an alternative.

 
 
  Leigh Stevens   7/25/02,  3:47:49 PM
Subscriber QUESTION: " EXPE keeps dropping like a rock.Is it too late to short?"

RESPONSE: Expedia (EXPE) has potential downside to 30 in my estimation, based on a "measured move" - assume that the second downswing will be at least as long as the first - it often is more - often about one and a half times that

 
 
  Jim Brown   7/25/02,  3:42:51 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out on the broader market SHORT signal at 15:34:38 when the OEX traded above 421. (SPX 844.47, E-Mini 845.25, DIA 82.55, SPY 84.94, DJX 82.28, NDX 913.62, Nasdaq 1259.02) Fifty cents! This really ticks me off. I obviously should have left the stop at the 423 level as that huge buy program spiked the markets to stop us out by 50 cents. Some days you can't buy a winning trade and today is a good example. At one point this signal was +11 points in the green before the two buy programs at 3:14 and 3:30 took us back to near the highs of the day before rolling over

 
 
  Leigh Stevens   7/25/02,  3:41:46 PM
My TRADER'S Update: for tonight is on Stochastics - how you calculate them and use them. Everything, and probably a lot more, that you ever wanted to know about the Stochastics Study or Indicator. The Stochastics, RSI and MACD (MacDee) Indicators are all in a group - think of them as a "sector" - known as "oscillators".

 
 
  Leigh Stevens   7/25/02,  3:37:17 PM
INDEX Comments: ALL having turnaround rallies from technical support areas - maybe this rally from yesterday has "legs" after all. Expected length of a consolidaiton would be about half a day give or take a couple of hours.

 
 
  Jonathan Levinson   7/25/02,  3:33:59 PM
That said, next COMPX resistance implied by the 60 minute 5(3) stochastic would be near today's high of the day, in the 1285-90 area. It looks like my last rsistance level has just been exceeded.

 
 
  Jeff Bailey   7/25/02,  3:30:40 PM
The 3:15 PM intraday update has been posted. Link

 
 
  Jonathan Levinson   7/25/02,  3:30:23 PM
Advancing volume is 1/3 declining volume on the COMPX, which has levitated itself to 1242. The QQV up 4.48 shows continuing fear, while the TRINQ is near the upper end of its range today, currently 3.62. We saw this this morning too, where the COMPX was rising despite a relatively high TRINQ. This tells me that the buying is concentrated, but as price is the only action for an options trader, QQQ bears need to be careful. The SMH is off its lows of the day, currently 25.50, but this is far from the rocket ride we'd expect following such a huge move down. This is a very weak COMPX, and I don't expect this up move to get beyond the 1250-55 resistance area from earlier today.

 
 
  John Seckinger   7/25/02,  3:15:43 PM
Time to compare the pattern seen in Biotechs with Semiconductor Holders (SMH). The Semi's are currently down 3.39, or 11.90%, to 25.05 and are now in the process of forming an apex at the end of a bearish wedge (signal of long liquidation). The apex is not yet formed, but looks like 25.15 will be the pivot. Same theory: If 25.15 is penetrated to the downside, look for a move to 24.50 while putting a stop near 24.75 once achieved. If bids develop from 25.15 and shorts start covering, look for 25.85 while putting a stop underneath 25.15. If the stop(s) are triggered, do not be afraid to take the opposite position.

 
 
  Jim Brown   7/25/02,  3:02:33 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I have not forgotten about the stop loss on the current SHORT signal, now at 423.50. While I expect the markets to move down further they are still very volatile and could continue to jump all over the map before the close. I want to avoid being taken out by this volatility. However, to avoid a major loss on an unexpected rebound I am lowering it now to OEX 421. (SPX 845) Cautious traders may want to set it lower to protect against the wide spreads and high option prices the current markets are experiencing. If the drop continues after 3:PM cautious traders may also want to take some profits once we penetrate the lows of the day at 405.99. As I stated earlier my initial target is the 400 range but I am not planning on closing the trade at this time.

 
 
  Jeff Bailey   7/25/02,  2:59:31 PM
Wal-Mart (WMT) $45.80 -4.58% ... stock traded $45.00, so long 1/2 bullish position (see 09:41). Next test for bullishness is a trade at $49 as $45 is 3-box reversal. Stop just below $43 to try and prevent a "shake-out." Link

 
 
  Steven Price   7/25/02,  2:57:16 PM
Reader Question: I expected to see KLAC break down with the maket, but it seems to be holding around 37. Where is the strength coming from???

Response: The sector took quite a beating this morning, and the rest of the market has caught up. This stock still looks pretty weak, however a $5.00 move is significant and may require a breather.

 
 
  Steven Price   7/25/02,  2:50:27 PM
Reader Comment:Steven, Anyone who's serious about understanding option values will read Sheldon Natenberg's "Option Volatility & Pricing". It would be a good suggestion to give anyone interested. We all need any edge we can get to profit in this game. And to me the first step is understanding option values in relation to the underlying contract. Doesn't make sense to trade options otherwise,and educated subscribers will make for a much better intra-day commentary. Although we are all allowed as many stupid questions as we need to understand what we're doing. To a point that is.

May most of your trade be profitable, Greg

Response: This futures based book was one of my first reads when I began trading. May I also point out that I asked many, many, many questions before truly understanding option pricing. Hopefully that's what we can help our readers with. The book is available through our website under the Bookstore link.

 
 
  Jonathan Levinson   7/25/02,  2:48:59 PM
I want to give you my personal thanks for selling your puts this morning, to give the markets the current downthrust. (I've got puts on the OEX.)

My pleasure, Linda.

 
 
  Jeff Bailey   7/25/02,  2:44:33 PM
Merrill Lynch (MER) $32.01 -9.21% ... Good afternoon Jeff!....I'm looking at the p/f chart on mer and it signaled a low pole reversal...I am holding aug 32ps and realize time is not on my side(and wishing I had bailed at the low yest)...my entry pt was @ 35.23....and I see alot of resistance just above that....my thinking here is if mer trades above 36, it will trigger a buy signal on the p/f charts?(please correct if wrong).....and wondering if that would be a conservative spot to throw in the towel....(am figuring on trades in general, not my particular trade).......keep up your excellent, profitable work...it is greatly appreciated!!!!

Any time I "wish" I'd done something and didn't do it, if given a "second chance" I'm grateful. Here's this subscriber's second chance. Will he pull the plug and take a nice profit? If in his shoes, would at least now put a stop (based on his wishes) at $32.55 and see what happens. I'd rather be put than call on this one though.

 
 
  Steven Price   7/25/02,  2:43:37 PM
Reader Question: Steve,

I usually trade OTM options, so I'm familiar with how they move in accordance with the underlying's move, but is it ever possible there's some funny business going on, too? I bought an OTM OEX put this morning, and have watched OEX drop 5 points since then, with the VIX now back just about exactly where it was when I bought the put. The far-OTM options price was 5.50 x 6.00 when I bought the option, and I've watched it stay the same price or less as OEX dropped. Admittedly, VIX dropped for a while, too, but even when it came back up, it took a drop through 414 for the options price to change to 6.00 x 6.50.

Thanks, Linda

Response: The VIX is an average of the OEX volatility and activity in one option versus another can affect how much they move. If there were more sellers of that option, or a large sell order, it may have held the price down. Usually, the options don't change quite so quickly where the offer becomes the bid without a sudden move. Your quote may have been delayed on this change. Also, the OEX is a pretty liquid issue and it would be hard to get away with any "funny business" since there are a lot of players who would get in the way.

 
 
  John Seckinger   7/25/02,  2:43:00 PM
Per 1:51:13 Posting: The waiting game is over. The Biotech Index used the 330 level as the pivotal juncture, now free-falling to 321.79 and still showing weakness. Support can be found at the 320.90 opening, while a short covering rally back to 326 should be met with selling pressure. If short at 330, use a tight stop. The downside objective until the close is 318.50.

 
 
  Jonathan Levinson   7/25/02,  2:41:36 PM
Oh the humanity! The COMPX has just turned into a bloodbath with the semiconductors leading the way south, the COMPX down 70 points to 1220 as I type.

 
 
  Jeff Bailey   7/25/02,  2:40:56 PM
10-year YIELD Alert! 4.365% ... breaking back below the 19.1% retracement level (retracement from 55.07 to 40.96) and rather defensive yet again for stocks.

 
 
  Jeff Bailey   7/25/02,  2:37:44 PM
Treasury Watch YIELDS now reversing red, and with some conviction. Once again, short-term defensive here and stocks a bit suspect.

 
 
  Jeff Bailey   7/25/02,  2:36:48 PM
IDEC Pharma (IDPH) $40.13 +0.35% ... per today's 01:00 commentary, bear getting a bit of a break here. Subscribers could perhaps help out with a short here, stop $42.55 target $35-$37 near-term.

 
 
  Steven Price   7/25/02,  2:34:43 PM
Reader Question: Steve,

I find the area of chart interpretation fascinating. When you review charts with point and figure targets how do you integrate that information with areas of support and resistance accessed on bar charts or other interpretations that you make. What are your personal preferences and priorities? What do you think about the chart pattern on TDS and its p & f targets?

Thank you, Mark

Response: I try to combine all of these methods, along with observations of the broader market, to get the big picture. The $59 level looks like there is a lot of activity on TDS on the candlestick chart, and how the stock reacts to this level could be important. On the PnF, the bearish vertical count is $39. A trade of $53 would negate that count however. The current upward reversal on the PnF is getting to an area of congestion, and a breakdown could be a good short entry point.

 
 
  Jonathan Levinson   7/25/02,  2:31:08 PM
All the indicators are telling me that a bounce is immiment on the COMPX, yet with the SMH down a whopping 11.30% as I type, it's tough to see it actually materializing. The QQQs are going anywhere without the semis. I'm watching the QQV peaking at over +5 on the day, and with the TRINQ spiking around 3.54. The QQQ's are showing support at 22, but with the SMH selloff, it's tough to believe that there's any spring in the COMPX's step. Sure wish I'd set that morning stop higher.

 
 
  John Seckinger   7/25/02,  2:27:00 PM
Afternoon Anecdotals: The key is lack of strength within 30-year bonds, currently at 5.32% but not underneath either Tuesday's close of 5.281 or 5.292%. With the Dow down 121 points, I would expect more weakness in the long end of the curve, especially since weaker equities should mean buying of fixed-income securities. Of course, five-year futures are up 3 ticks while ten year notes and 30-year bonds remain unchanged and down fractionally, respectively. Therefore, yield curve traders evidently continue to dominate.

 
 
  Jeff Bailey   7/25/02,  2:24:27 PM
Dow Industrials (INDU) -128 at 8,061. This was September lows and break back lower here is defensive. May see some bears come in short with target of 7,720.

 
 
  Steven Price   7/25/02,  2:15:40 PM
Smart guy, that Jeff Bailey!

 
 
  Steven Price   7/25/02,  2:15:13 PM
Reader Question: Hello. Enjoy the newsletter, keep up the good work. Believe it or not, last night i was getting ready to make a trade in AMGN, then i saw the opening bell and the stock was up $4+ for the day...any thoughts on doing an AMGN trade...

thanks... jc

Response: Amgen (AMGN) $41.70 (+4.61) Case of bad timing, huh? AMGN had an impressive day. Right now I see some resistance between $42.50 and $43. While my first inclination is to short this stock, I'd like to see how it handles those levels before getting in. A sector rally, along with upgrades could keep it up there.

 
 
  Jeff Bailey   7/25/02,  2:13:40 PM
Goldman Sachs (GS) $69.09 -2.48% ... Like this one short/put here, stop underlying at $72.25 which would be just above both 50 and 200-pd MA's on 60-minute chart. P/F shows rally into overhead supply. Link

 
 
  Jim Brown   7/25/02,  2:10:09 PM
Pivot Trade Signals
Finally momentum is increasing to the downside. I thought I was going to be doomed to the twilight zone of trading with the NDX futures limit down and the Dow trying to remain positive. My initial target on the current SHORT signal is around 400, which would be the 12:30 to 1:30 intraday support from yesterday afternoon. It would also be a -61% retracement of yesterday's gains. For a chart of this click here: Link

 
 
  Steven Price   7/25/02,  2:08:16 PM
Goldman Sachs (GS): $69.02 (-1.83) We were stopped out on this play in yesterday's rally at $70. PnF chart still signaled triple bottom breakdown at $69. A trade of $68 is required to bring about a 3 box reversal downward.

 
 
  Jonathan Levinson   7/25/02,  2:08:13 PM
The COMPX is now printing lows of the day as the QQV prints highs of the day with the TRINQ at 3.54. This looks bottomy to me, but, like yesterday, I prefer to wait for a crossover on the stochastic before putting on a new position. I would not consider going long on this side of the 1240-50 alligator-filled moat, but will watch for a potential setup for a call play on a reversal. I don't think this will setup well enough to play, but that's what I'm watching for here.

 
 
  Jim Brown   7/25/02,  1:54:22 PM
What does nasdaq futures trading limit down mean? Thank you for your answer.

The Nasdaq futures hit the first limit down (-5%) at 895. The CME has established four trading halts/restrictions if the futures drop below yesterday's close by -5%, -10%, -15%, -20%. The first limit is the 5% (895 today) Once hit the trading can only occur at or above this limit for 10 minutes or until 2:30 PM. Trading will halt for two minutes if the futures are still at 895 at the end of the 10 min period. Trading will then resume with the next limit (-10%) as the next restriction. For more information click here: Link

 
 
  Jeff Bailey   7/25/02,  1:53:03 PM
Treasury Watch Still marginal selling with YIELDS higher across the maturities. Even the very short term 13-week ($IRX.X), which many money market rates are tied to back at 1.662% after yesterday morning's sharp decline to 1.572%. Can't wait to get my "interest earned" statement from the bank and my savings acount this month! Wooo-wee! After I pay taxes on it, even more fun!

 
 
  John Seckinger   7/25/02,  1:51:13 PM
The Waiting Game: Looking at a five-minute chart of the Biotech Index, there has been a downward trend with lower relative highs and a tighter trading range (wedge). 330 is now the apex of the triangle, most likely used by short and long traders as the proverbial line in sand. However, there are times this pattern does a "false" move in one direction. For example, a move to 332 and then back to 329. This would be extremely bearish, since then longs hoping the move is happening will have to rush out as shorts enter. Obviously the reverse can take place. In conclusion, watch for a wedge with a defined pivot, go with the initial move and keep a stop just below/above the pivot and actually reverse the position; should work well.

 
 
  Steven Price   7/25/02,  1:50:50 PM
Reader Question: Steve, I have been watching your comments on BBBY and the P&F chart. I can’t see where a breakdown below $28 can be seen. Am I missing something?

Bill

Response: Bill, according to the point and figure chart, I see a bearish vertical count of $18. The most recent 3 box reversal solidified the bearish count. You are correct about the bullish support at $28. I also see support at $25. Our stop of $32.50 is also just below former support at $33, which could now serve as resistance. Looking at the candlestick chart, I see the break below $31 as significant, and a break below bullish PnF support of $28 could see this stock in the low 20s.

One more note is the retail sector bullish %, which remains oversold at 20%, however its actual current number is 18.056, which is close to a double bottom breakdown of 18. Thanks for your observations.

 
 
  Jeff Bailey   7/25/02,  1:48:16 PM
Fiber Optic Index (FOP.X) 38.27 -8.57% ... new lows here with bearish vertical count of $28. Index components have ALA -10%, AMCC -6.6%, CDT -5.86%, (my favorite stock to short) CIEN -10.21%, CSCO -11.96%, EXFO -5%, HLIT -20.6%, JDSU -10.9%, JNPR -5.05%, NEWP -6.82%, SFA -7.9%, TLAB -5.66%, just to name a few.

 
 
  Jeff Bailey   7/25/02,  1:33:36 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Steven Price   7/25/02,  1:20:43 PM
Reader Question on Option Profits: 3 days ago I bought (3) 45 Aug Call contracts of Johnson and Johnson for the premium of $2. The underlying price at the time was $42. I have heard of intrinsic and extrinsic, and I realize I am $3 OTM. How do I calulate the breakeven and figure in the profits. The way I understand it is: I thought, the breakeven would be at the price of $44. (44-42 = $2 (premium). Once there is an increase, the premium is the first covered, then after that , profits appear. JNJ closed today at $47.70 today. The way I look at it is since purchased the option, the stock price has went up $5.70. I thought that would make my option now be $5.70 instead of $2.00, with a profit of $3.70. I looked at the yahoo option quotes (figure this is the way to see what the option sells at, and the asking price was only $3.90. This is a profit of only $1.90. Can you explain how the price is only $3.90. Thanks a lot for your help so far and look forward to see your explanation

Response: Options do not generally move at a rate of 100% to the price of the stock, unless they are very deep in the money. Options tend to move according to their chance of being in the money at expiration. A good rule of thumb is that if an option is right at the money (i.e. a $50 call with the stock trading at $50), it has an equal chance of the stock going up or down, so it has a %50 correlation to a move in the stock. Here is a link to an earlier article discussing the basics. Link .

Moving on, as the option becomes deeper in the money, it will move at a faster rate, since its probability of ending in the money is greater. When you bought the $45 call, with the stock at $42, its probability was lower, probably about 30% so it moved slower at first (0.30 per dollar move in the stock), and it is now moving faster since it is in the money. The $45 call is now $3.30 in the money so it will probably move about 0.80 for every dollar the stock moves on the way up. If the stock pulls back, and the option becomes less in the money, then the % move will be lower again.

 
 
  John Seckinger   7/25/02,  1:06:24 PM
Transports Hammering out a bottom?: A weekly chart of the TRAN index shows this to be a possible scenario as the index is currently higher by 1.92% at 2225. The 2090 low set yesterday is now the critical relative low which can be used to draw a trendline from the 1942 low set on September 21st. Yes, an upward sloping channel for a change. The key now is to penetrate the 2261 high set a few sessions back, most likely being the catalyst for a move to 2400. Further resistance can be seen at 2600. Remember, wait until 2261 is cleared.

 
 
  Jonathan Levinson   7/25/02,  1:03:46 PM
What are your thoughts about going long the qqq's at the end of the day. Wouldn't you think any bad news that msft could share is already built in and therefore an up surge is a strong possibility?

I think that we're in a very difficult stage of a declining market. If MSFT's shareholders want out, many of them with very substantial positions will be selling carefully to avoid killing the market. I do not believe that we have seen the bottom in MSFT, and I would prefer to go long only when the charts signal a turn from a support level. Whether that comes at the end of the day or some other time is not important to me. Note that various pundits have been calling a bottom for months now- I believe Mr. Joseph's was around April. Best to wait for the trend to firm up than to try to bottom fish. I'd be going long on MSFT, if at all, only on a strong setup and I'd be ready to exit aggressively if the move slowed too much.

 
 
  Jonathan Levinson   7/25/02,  12:58:58 PM
That congestion area at 1240-50 COMPX held in the end, no doubt frustrating tech bears everywhere who were saying "whooosshh" just as I was. With the QQV staying up near its highs, currently up 3.46, we can see that the market is not yet convinced of the bulls' case either. The 60 minute 5(3) stoch stopped its descent but did not cross back up, telling me that this upsurge is likely just a pause in the decline.

 
 
  Jim Brown   7/25/02,  12:56:57 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Raise the stop loss on the current short signal to OEX 423.50

 
 
  John Seckinger   7/25/02,  12:56:33 PM
Bill Gates reportedly gave his company a "C" grade for stumbling in its delivery of a set of Internet communications products (.NET). Shares of Microsoft (MSFT) are currently lower by 2.44 points, or 5.27%, at 43.79.

 
 
  Leigh Stevens   7/25/02,  12:55:05 PM
INDEX Comments: QQQ - Key Nas 100 stocks that are under pressure include Cisco Systems (CSCO), falling further from the minor double bottom low it put in in recent weeks in 12.30 area - last at 12.12.

Intel (INTC) at 17.5 is holding up above its prior lows at 16.3-16.5, but weakness in other Chip makers may pressure the stock ahead.

Microsoft (MSFT) is still at risk for a further dip to around 40 from 43.7 currently.

Qualcomm (QCOM) continues to retreat from trendline resistance in 30 area, now trading 25.7. If these stocks ARE bottoming, it may take a while longer.

Oracle (ORCL) looks like it is basing around the $9 area, but it can't rally in isolation.

As Art Cashin just said on CNBC, the Nasdaq is acting like an 800-pound Albatross around the "neck" of the S&P and Dow indices. And Nasdaq used to be the "800 pound guerilla" of the market!

 
 
  Steven Price   7/25/02,  12:54:37 PM
Reader Question: KLAC-Tencor (KLAC) $37.26 (-5.07) I have been watching KLAC and it seems to have some downside potential left. Is it foolhardy to short this stock at this point (after a 5 point drop already)

Response: I liked KLAC as a short earlier this morning. The put spread (long debit Sept 40-30 put)discussed earlier has increased from $3.50 to $4.70. The breakdown below $40 looks bearish. There could certainly be a bounce after a $5-plus down day, but I still like it as a short, with a stop loss of $39.80, just above its recent support of $39.75.

 
 
  Steven Price   7/25/02,  12:42:45 PM
Reader Question:Steve, Do you still think to early to be buying the BBBY Puts?

Thanks, William

Response: BBBY $30.86 (-0.53) I think BBBY's inability to break above out stop of $32.50 could provide a new entry point here. The other retailers are giving back as well. Respect the $32.50 stop on another rally.

 
 
  Leigh Stevens   7/25/02,  12:40:26 PM
Subscriber QUESTION: "Could you clarify the "consolidation" process. It seems everyone has a different opinion. The rally should follow through 2 or 3 days in a row, others say what matters is not so much the following day or 2 but the 5 to 10 days following as long as gap, once filled if ever, is not broken, etc... Thanks."

RESPONSE: Just as beauty is in the "eye of the beholder", there is no clear cut definition about how long a "consolidation" should be. A guideline is to look for a consolidation that is in relationship to the prior price swing. Yesterday was a 1-day rally. A "typical" consolidation for a 1-day rally would also be relatively short in terms of its time duration; e.g., 1-2 days.

However, we are getting into another area here - if a market has made a significant low, how long might it be before a sustained rally might develop? This can be anywhere from 1-2 days to 1-2 weeks if the index then drifts sideways. The LONGER that an index trades sideways, at or above a bottom we think important, the more significant is such a lateral move as potential "basing" or bottoming type action. By "significant" I mean that rally potential is greater from a "widder" or longer sideways move.

 
 
  Jim Brown   7/25/02,  12:37:07 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broader market SHORT signal at 12:33:50 when the OEX traded below 417. (SPX 837.47, E-Mini 836.50, DIA 81.90, SPY 84.00, DJX 81.75, NDX 894.66, Nasdaq 1242.55) The initial stop loss with be tight at OEX 420 (SPX 843)

 
 
  Jonathan Levinson   7/25/02,  12:36:58 PM
Whooshhhh goes the COMPX. I hope that Mr. Gates didn't spent too long practicing today's speech.

 
 
  John Seckinger   7/25/02,  12:31:10 PM
Commodity Concerns?: The August CRB index currently trades at 211.50, exactly the relative high set on April 2nd. Recently this index rallied from 201.25 to 216, set just four sessions ago. This 211.50 level must hold on a settlement basis for long commodity traders, but weakness in oil and gold may make things difficult. Of course, lower commodity prices could reduce inflationary concerns and allow for more productivity without wage-push inflation. Theory, but something to think about.

 
 
  Jonathan Levinson   7/25/02,  12:29:45 PM
The COMPX is printing a sea of new lows below 1250. The congestion area seems to be clearing up before our eyes, though there are currently 3 points to go. MSFT has let go, and is now at 43.28. The TRINQ is still in mellow to increasing sell territory at 2.25. If there's a bounce in the COMPX, I'd expect it here. If not, well, I'd be watching yesterday's lows. The QQV shows that many already are, currently up 3.33 to 58.58.

 
 
  Jim Brown   7/25/02,  12:27:05 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
With the Nasdaq leading the markets down it is hard for me to be patient. Let's try that SHORT again but let's wait for a trade at OEX 417. This is under the 11:00 lows.

 
 
  Leigh Stevens   7/25/02,  12:23:57 PM
Subscriber QUESTION: "SMH has gotten below yesterday's low, not a very bullish sign. If it CLOSES below yesterday's low today, how big a negative is that for the overall market?"

RESPONSE: A significant negative if the Semiconductor HOLDR's (SMH) closes under yesterday's low - yesterday (Wed.) was an important turnaround as the stock, like the Index, had fallen under its Sept. bottom - it then rebounded above 27 which is a key support.

Now, today, SMH is retreating further from this level, so it looks like it's starting a new down "leg". SOX weakness is important for the overall market, but will act as more of DRAG on Nasdaq. Tech stocks are still quite fragile in terms of being able to mount any sustained rally anyway.

 
 
  Leigh Stevens   7/25/02,  12:08:47 PM
Subscriber QUESTION: "What is the Point and figure on the Sox, since it seems to be having a major breakdown? Thanks! "

SECTOR Update: SOX - Today's low in the Semiconductor Index moves the SOX further below the low end of the trading range (at 342-345) that it has had for months. I don't rely on Point & Figure work the way Jeff does, but looking at some other technical aspects, I see a possible next downside target for SOX to the 290 area, which would put the Index back down to the low end of the well-defined downtrend channel that SOX has been trading in.

Based on the weekly chart history, the 270 to 275 area should be the next area of major support. I would be a buyer on a first dip to 290, figuring there will be another rebound from the low end of its channel - of course, this channel line falls over time so its also important as to WHEN it hits that lower trendline.

You can see the SOX chart with my notations at Link

 
 
  Jeff Bailey   7/25/02,  11:57:59 AM
Electronic Arts (ERTS) $56.93 -0.43% ... Jeff: I'm short some ERTS at $55.41 and a little jittery here. Any help or ideas of what to be looking for would be appreciated

I've said before I just don't like trying to trade this stock as it is "sloppy" technically and has some wierd moves from time to time. However, lets look at the p/f chart and take some "noise" out of the chart and look at the supply/demand picture.

Where were we at $60 at the triple-bottom?!!! Link Right now, that $60-$61 is overhead supply level and resistance. Good thing working for trader right now is that bearish vertical count is $64-((12*2)*1) = $40, so will keep a bull jittery too!

Right now, I'd do NOTHING, but have a plan in place near-term should the stock break above it 200-day MA of $58.61. Might then look to simply sell a naked put. Link

Heck... if you're a little "jittery" here, could even sell the Aug. $50 put (EZQTJ) bid $2.05 right now. This OBLIGATES you to buy the stock at $50, but not a bad problem if short at $55.41 + the premium of $2.05 and puts you short at $57.46 basis. If the stock does plummet below $50, yes you may get exercised and have to buy the stock back at $50, but still a 12.9% gain from $57.46 and not bad for a "jittery" trade! If the stock rallies up to overhead supply, then you've raised your short basis higher and removed some risk from the trade.

ERTS was recently added to the S&P 500, so can check some relative strength here. I'd say you may be a short a rather strong stock right now, and I kind of like the selling of the out-the-money put right now. Link

 
 
  John Seckinger   7/25/02,  11:56:34 AM
Cash 30-year bonds (TYX.X) on Wednesday took out relative lows in yield (meaning higher prices) before settling above the last 2 trading sessions. Settling above the prior day's session is somewhat significant after relative lows are initially penetrated, but two is unusual and noteworthy. Yields are currently higher at 5.351 and should trade to 5.4 before resting. The upward objective is for a move to 5.5, while a move back underneath 5.281 should have traders rushing back into Treasuries at the expense of equity holdings.

 
 
  Jim Brown   7/25/02,  11:49:51 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the SHORT signal at 11:45:12 when the OEX traded above 423. (SPX 849.00, E-mini 848.75, DIA 82.80, SPY 85.22, DJX 82.75, NDX 917.74, Nasdaq 1266.21) Close resistance is at 425-428 and we will be very patient before entering again. At this point I am willing to give up much of the next move to get a confirmation of the signal before entering a new play.

 
 
  Jim Brown   7/25/02,  11:44:24 AM
Pivot Trade Signals
It is amazing to me that the Nasdaq is not doing worse than it is. With the SOX setting a new 52-week low on the news from Taiwan Semiconductor you would think the sell off would be greater than -25 points. Two buy programs at 11:15 and 11:34 gave the markets a little boost but the adv/dcl line is not making any upward progress. Traders are still undecided which way to go and oscillators are beginning to make their turn. It is still too early to tell the afternoon direction but it appears I entered the SHORT a little too soon. We could retest the highs of the day here soon despite the flat A/D

 
 
  Steven Price   7/25/02,  11:39:16 AM
Johnson and Johnson (JNJ) : $48.32 +0.62: OI call play JNJ back over 10-dma, looks headed toward 21-dma of $50.09 Trade of $50 would be good profit target.

 
 
  Jeff Bailey   7/25/02,  11:36:54 AM
Jeff, Your valuable input always helped me and made me few bucks! Thanks. Is it too late to enter a short /long term call play in OHP? What would be a good/acceptable entry?

No. Not "too late" for a longer-term investor to be looking at OHP. Remember that "HUGE" volume spike back on January 9th, 10th at $32-$35 and gap higher from big base? Institutions committed to the stock should still be here if they think longer-term still bullish. Link

Institutions looking to round out some positions will monitor the bullish support trends on the p/f charts for entry points. Link

For the options trader, I still like the selling of naked puts, equivalent to the "size" of position you would normall buy in the underlying stock. The August $40's (PHPTH) are bid $1.80 now, and August $42.50's (OHPTV) bid $2.80. Yes, if stock closes above the strikes you won't get the stock, but not bad options type trade for technically strong stock, in a group that has been showing strong EPS numbers and Volatility being high, has some "jack" in the option premiums.

As it relates to a "call" play, I just don't like paying the jacked up premiums, but with longer-term trend still bullish, I'd buy time if doing so. I was talking with a fellow trader yesterday and he was watching the performance of various options. His observations that despite the strong rally yesterday, near-month call option performance was terrible as VIX fell, while longer-term calls performed much better. As such, would look to buy as much time and in-the-money is preferred when volatility is high!

 
 
  John Seckinger   7/25/02,  11:35:30 AM
Sector Search: The Biotech Index surpassed our objective to the upside (currently at 332), while both the Semiconductor and Networking Index failed to confirm the bullish divergence seen within the RSI indicator yesterday. The Disk Drive Index (DDX.X) should remain within a range near term before continuing to the downside, while the Securities Broker Dealer (XBD.X) most likely will remain volatile. Looking at the Semiconductor Holders (SMH), expect the 27 to 27.50 area to be pivotal with a downward objective of 18. If the SMH index rises back above 27.50, 30 should be a short term objective with 33 a long range goal.

 
 
  Jeff Bailey   7/25/02,  11:33:13 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Jonathan Levinson   7/25/02,  11:29:50 AM
Dusting off the COMPX breadth tables, an interesting picture unfolds: down volume is twice up volume, with 4 new highs to 285 new lows, but 1,517 advancers to 1,531 decliners. In other words, the COMPX is off its lows of the day (duh), but todays lows were caused by a broad base of stocks, and the buying is focused in relatively fewer stocks. This paints a veyr negative picture for the COMPX going forward. That said, 1240-50 looks like a substantial congestion area, and should put at least a short term floor under this decline.

 
 
  Leigh Stevens   7/25/02,  11:11:07 AM
INDEX Comments: Nasdaq has faltered first, with QQQ retracing half of the rally yesterday - the Q's have retraced to near support in the 22.50-22.70 area. A break of 22.30 suggests some likelihood of stock retesting its 21.65 low.

Bullish case for Nasdaq would be a consolidation at/above support over next 1-2 days - this would put hourly stochastics back to oversold and could lead to more sustained rally next week.

 
 
  Jim Brown   7/25/02,  11:04:21 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broad market short at 10:59:06 when the OEX traded below 419. (SPX 840.89, Emini 841.25, DIA 81.70, SPY 84.44, DJX 81.62, NDX 913.18, Nasdaq 1263.03) The initial stop loss will be OEX 423. (SPX 849) The volatility may not yet be over so this is a high risk trade. The NDX futures are trading at the low of the day and approaching the afternoon lows from yesterday. Looks like the Nasdaq will be our leading indicator today.

 
 
  Jonathan Levinson   7/25/02,  10:58:48 AM
Naturally, my sell order on my puts made the COMPX tank, or at least head lower (grin). The COMPX is painting red on my quote screen, currently at 1264. The TRINQ at 2.11 has me baffled, as it seems to have been disconnected from the relative highs and lows so far today.

 
 
  Jim Brown   7/25/02,  10:58:39 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Looks like the morning bullishness could be over. Let's go short the broader market with an OEX trade below 419. I would like to be as close to 420 as possible.

 
 
  Steven Price   7/25/02,  10:54:32 AM
Reader Question: In last night's "Market Wrap" you talked about how these new futures could "...drastically alter option prices on equities". I don't quite understand. Would this tend to makes equity option prices more expensive or less expensive? Thanks for your help.

Barbara

Response: The listing of single stock futures would alter the relationship between calls and puts. Right now one of the pricing factors in a call is the alternative to owning stock. It costs more to own stock, thus when you buy a call you save the interest on the money you would have used to buy stock. If you short stock against a position, you get a bunch of money in your account to earn interest on. Right now calls generally trade at more premium over parity than puts because of these factors. However, the interest component would be changed if there is no stock involved. On LEAPS the interest component is VERY large. Dividends you receive when you own stock, or have to pay if you short stock, are also a major factor in option pricing, which will also not be a factor with futures. Options can be combined to represent the equivalent of owning or shorting stock, as well, but this combination is very finely tuned in its price, because if it didn't represent the ownership of stock exactly, you could arbitrage one against the other, which is what market makers attempt to do every day. The bid/ask spreads are usually kept wide in order to allow this. So the width of the bid/ask spread may also be affected. My next Trader's Corner article will delve more deeply into these issues, so keep an eye out.

 
 
  Jeff Bailey   7/25/02,  10:48:34 AM
Per John's 10:43:24 John is 10-times the bond trader I am, but interesting and logical comments. My thinking is that YIELD low in Government Treasury may have the "fixed income" traders rolling to some of the higher YIELDING corporates. This is perhaps "logical" next step by fixed income investors. From the higher grade corporates, final step would be "junk," but that would have to be some type of strong statement with the economy and eventual firming or upgrades from "junk" status type of play.

Note... above comments are as it relates to "fixed income" investors. There are also those that trade anything and everything from bonds to stocks and make similiar risk/reward types of observations as it relates to YIELDS vs. potential stock price appreciation.

 
 
  Jonathan Levinson   7/25/02,  10:44:11 AM
It looks like that persistent, underlying bid in the QQQs is coming from the biotechs. On a day like today, I'm very glad to escape with my commissions (substantial commissions with TD Waterhouse) covered. The COMPX may well dump from here, but there are some large bids coming through on the QQQ's, 20 and 30 thousand share bids, and it's awfully risky to try to short a market that wants to go up. The TRINQ has stayed above 1 through the morning, peaking near 3, and the QQV is well up over 2, currently at 57.43. The bond yields are all green, which is no doubt lending fuel to the buying in equities.

 
 
  John Seckinger   7/25/02,  10:43:24 AM
Corporates outperforming Treasuries during mid-morning activity, tightening 0.02 to 0.04 percentage points. The strength in corporates is interesting given weakness in AOL, Telecommunication, and cancellations from Casella Waste Systems ($150 million 10-year subordinate).

 
 
  Jeff Bailey   7/25/02,  10:40:58 AM
Jeff, Excellent call on OHP - tell me, would you use Inside Day once again to screen stocks in a short covering rally?

Yes! Especially with Treasuries seeing some selling. Look at the p/f charts and look for those in upward trends with good patterns as best bullish candidates. But near-term, "inside day" can work well as shorts question some things at such oversold bullish % levels. Many will be "quick to cover" on breaks above inside days and trader can get some decent "pops" from this technique. Link

Review ... what got me "interested" in OHP wasn't the "inside day." Just the YIELD alert issued from the 5-year yesterday. However, I recently profiled a "naked put" in OHP at $42.50 level in the Aug. $40's and have had eye on the stock. Yesterday's p/f action on sharp reversal up hinted of potential "bear trap" pattern from point/figure. What was "bullish" was pattern came right near upward trend. Link

The "bear trap" is characterized by a stock giving a "triple-bottom" sell signal, but violation is only 1-box. Then quick reversal higher. Is thought to indicate final selling of weak hands, but strong hands prevail as demand takes control.

 
 
  Steven Price   7/25/02,  10:40:34 AM
KLAC Tencor (KLAC) $39.08 (-3.25) Now below recent support of $39.75. This stock could see a small rebound after such a drop, but comments from Novellus saying "It was a reasonable quarter, but there is a long way to go before I would classify this as a recovery," have weighed on the sector, leaving me bearish here on KLAC. Right now puts are pretty pumped , but some spreading may be possible. Possibly long Sep 40-30 debit put at $3.50.

 
 
  Jonathan Levinson   7/25/02,  10:39:21 AM
I will be closing this QQQ put position if we break the high of the day. I don't want to risk getting pulled north into a gap fill.

 
 
  Leigh Stevens   7/25/02,  10:37:53 AM
Subscriber QUESTION: "My DJX entry was bad, while QQQ entry was okay. However I am still alive with a small profit. What would be a good level to watch/close? "

RESPONSE: I usually review key support/resistance levels in my evening (Index Trader) wrap up commentary such as last night's at Link - - it happened that I didn't go into QQQ support areas as much as resistance: QQQ support is 22.50-22.30; then 22.00-21.80. Break of 22.30 would be a first bearish indication.

DJX chart support looks like 79.00, then at 78. Falling under 79 would be significant technically, suggesting a resumption of downtrend. Actually, if rally is going to keep going, would anticipate DJX staying above 80.

 
 
  Jim Brown   7/25/02,  10:32:25 AM
Pivot Trade Signals
The markets are continuing to ease up slightly on the better than expected home sales report. We are going to remain flat and let them wander around until the morning volatility passes. All the indexes are at resistance but showing surprising strength after a +480 point gain.

 
 
  Jim Brown   7/25/02,  10:29:51 AM
Jim, It seems Softee’s relative strength is weak indicating the market’s next move as south. Do you know the time and place of their analysts meeting today?

The analyst meeting today will last from 8:AM-6:PM (pacific). They will discuss the results for 2002 and expectations for 2003. Check here for more info: Link

 
 
  Steven Price   7/25/02,  10:29:44 AM
J.P. Morgan (JPM) $25.00 +1.70, Citigroup (C) $31.00 (+1.41) both continuing their gains from yesterday. JPM has made back Tuesday's losses, although C has another dollar to go before reaching that point. Goldman Sachs (GS) $71.40 + 0.55 also holding up well above $70. This sector seems to be holding its gains from what was an oversold condition after watching Citigroup and J.P. Morgan defend their dealings with Enron.

 
 
  Jeff Bailey   7/25/02,  10:17:03 AM
YIELD Alert! sudden selling in Treasuries. May be related to something in this morning's economic reports. Will look for any news.

 
 
  Jeff Bailey   7/25/02,  10:14:46 AM
New Home Sales were up 0.5% to 1M, stronger than the expected 986K. Dow Jones US Home Construction Index (DJUSHB) 314.13 +1.36%.

 
 
  John Seckinger   7/25/02,  10:08:07 AM
Morning Anecdotals: Dollar and oil lower, bonds firming but still impressive bids in the short-end of the curve (2 and 5 year bonds), corporates in general are weak, and gold continues to come under pressure. Note: I was using 105-30 as the key level in September 30-year bonds; however, the 75% retracement level of the November-March decline comes in at 105-31. Please note.

 
 
  Jim Brown   7/25/02,  10:02:57 AM
VIX - Updated - I have posted a new chart showing the comparison of the VIX and the Dow over the last 25 years. You can clearly see the relationship during normal cycles.

Link

My thanks to Rick Riley for the TradeStation chart as my chart systems only go back five years.

 
 
  Jeff Bailey   7/25/02,  10:02:15 AM
New Home Sales were up 0.5% to 1M, stronger than the expected 986K. Dow Jones US Home Construction Index (DJUSHB) 314.13 +1.36%.

 
 
  Jeff Bailey   7/25/02,  10:00:23 AM
New Home Sales due out at 10:00. Economists looking for 986K

 
 
  Jim Brown   7/25/02,  9:59:17 AM
VIX - Updated - I have posted a new chart showing the comparison of the VIX and the Dow over the last 25 years. You can clearly see the relationship during normal cycles.

Link

My thanks to Rick Riley for the TradeStation chart as my chart systems only go back five years.

 
 
  Jonathan Levinson   7/25/02,  9:58:39 AM
I will be closing this QQQ put position if we break the high of the day. I don't want to risk getting pulled north into a gap fill.

 
 
  Jonathan Levinson   7/25/02,  9:58:31 AM
I will be closing this QQQ put position if we break the high of the day. I don't want to risk getting pulled north into a gap fill.

 
 
  Jim Brown   7/25/02,  9:56:46 AM
VIX - Updated - I have posted a new chart showing the comparison of the VIX and the Dow over the last 25 years. You can clearly see the relationship during normal cycles.

Link

My thanks to Rick Riley for the TradeStation chart as my chart systems only go back five years.

 
 
  Jeff Bailey   7/25/02,  9:52:24 AM
Hershey Foods (HSY) $75.84 +21.4% ... Stock up BIG after Wall Street Journal reports that Hershey's controlling shareholders are exploring sale of the candy maker in an auction that could fetch about $11 billion. Link

If so, then at stated $11 billion, prices HSY at about $80.59/share.

If long, would probably have to pull the plug and consider "good fortune". If short, would look for any test of 200-day at $67 a good reason to get cover.

 
 
  Jim Brown   7/25/02,  9:46:53 AM
Pivot Trade Signals
Sure wish we had that SHORT back that was stopped out by a point at the close. Hindsight is 20:20 but the day ahead of us is cloudy. The home sales reports could be detrimental to the markets if they are much weaker than expected. Those are still 14 min away. The -108 points on the Dow is to be expected after yesterday's gains and it is moving into the range where the bulls will start buying the pull back again. This tug of war is likely to continue most of the morning before a new trend is found.

 
 
  Steven Price   7/25/02,  9:46:53 AM
Johnson and Johnson JNJ $47.35 (-0.35) OI call play JNJ had an impressive day, up over $3.50 yesterday. It has dropped back some, however is trading just below its 10-dma of $47.40. It traded as high as $48.80, and closed above this level yesterday. It current 21-dma is $50.04, which could also see round number resistance, and could be the next significant number ahead. Note we raised our stop loss to $46.50 last night.

 
 
  Jonathan Levinson   7/25/02,  9:41:39 AM
This looks like our breakdown as the COMPX prints lows of the day at 1269. The TRINQ is above 1. Aggressive bears can short the QQQ now, but use tight stops- there seems to be some buying out there, and we don't want to risk losing money on the trade.

 
 
  Jeff Bailey   7/25/02,  9:41:37 AM
Wal-Mart (WMT) $47.30 -1.37% .... I'm going to stick a bid in for $45.01 for 1/2 bullish position this morning, stop 42.80. I "like" the better than expected Jobless Claims data as it relates to WMT being a discount retailer and am warming up to the technicals as talked about in recent commentary. Link

Relative strength checks show good RS from WMT vs. Dow Indu and S&P 500. Here's the RS chart of WMT vs. SPX Link

 
 
  Steven Price   7/25/02,  9:40:43 AM
We were stopped out on some of our put plays yesterday, as the rising tide lifted almost all boats. A 500 point day has a tendency to do that. We'll be looking to see if yesterday's trend continues before re-initiating.

 
 
  John Seckinger   7/25/02,  9:39:13 AM
Deflated Dollar: Since the Euro did manage to rally back over parity, it makes sense that the recent trade-off from $1.0210 down to $0.9860 was only profit taking and not a change in long term views. Not surprised.

 
 
  Leigh Stevens   7/25/02,  9:35:15 AM
Subscriber NOTE: "Leigh, I may be missing something here but with this type of an up move backed by the volume we're seeing, my gut's telling me we're seeing a pretty nice reversal. If we get a volume backed rally between 4-10 days of yesterday's rally (say next Tuesday - Friday), we could be in for a new uptrend that could last a few weeks. Long positions would be in order. "

RESPONSE: It could be the type bottom you are speculating about - there is a lot of skepticism about it, as many see "bear market" rally on this thing. One key will be how the market absorbs selling today. We got right up to resistance on the OEX 100 yesterday per my hourly chart analysis you can see at Link - - The Nasdaq looked like it was being "dragged" along on the rally yesterday. I'm not convinced yet that what we saw yesterday leads to a new uptrend of greater than the "usual" 2-3 days that has been norm for the bear market rallies of past weeks.

Spike up in VIX yesterday and fall from there was perhaps a sign of a big turn, but fundamentally the biggest worry now will be a "double dip" recession, especially after Durable Goods came in this morning at a negative 3.8% drop - Jim mentioned that expectations were for a +0.7% gain - quite a difference!

 
 
  Jonathan Levinson   7/25/02,  9:31:59 AM
My desire to short the rise yesterday, based on a plethora of factors we were watching yesterday, has vaporized for the time being, for the inexplicable reason that this doesn't feel right. Bond yields should be more negative on today's news, as should futures. Gold should be higher and the dollar should be lower. The stochastics are going to give us our long awaited bearish cross on the opening gap, but as we all know, the stochs can turn on a dime. I will watch and wait for a good setup to present itself, and only then, deploy.

 
 
  John Seckinger   7/25/02,  9:31:33 AM
Checking Corporates: AOL bonds set to mature in 2012 are currently priced at $79/$81 and getting cheaper as we speak. This means a widening from Treasuries and is not good news for shares of AOL. Speaking of Treasuries, September 10-yr bonds did close back inside their recent bullish channel which began in early May. A blow off top? I will not make that prediction until the 30-year closes underneath the 105-30 level on solid volume.

 
 
  Jeff Bailey   7/25/02,  9:25:43 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Jim Brown   7/25/02,  9:20:38 AM
Pivot Trade Signals
What goes up may come down. Suddenly the +480 points from yesterday seems like it was over done and traders are rethinking those gains. The Durable Goods report this morning came in at a negative -3.8% drop instead of a +0.7% gain. The possibility of a second recessionary dip continues to grow. Jobless claims fell more than expected to only 362,000 for the last week. AOL is was trading down after they said the SEC was investigating their accounting practices.

The gains from yesterday will be tested this morning as traders reevaluate their reasons for buying stocks and take profits. As with any major gain the markets are expected to give back at least half of the gains before a true direction appears. Trading will be a challenge today since volatility will still be extreme. I do not anticipate any signals during the first hour until the market decides a direction and the volatility eases. We will watch from the sidelines until after the housing starts and new home sales at 10:AM.

 
 
  Leigh Stevens   7/25/02,  9:14:53 AM
Pre-Opening INDEX Comments - - Program Trading update - In the last hour of trading Wednesday, the S&P futures premium got up to near 300 points late in the day andd buy programs lifted the Dow from 8040 area to 8188.00, a move up of over 140 pts. directly attributed to six minutes of heavy program buying.

For the past 4 weeks program trading has accounted for approximately 40% of the volume on the NYSE. During that time buy programs have been the majority of trades, averaging 52% of that volume with sell programs averaging 47%. This according to HL Camp & Co., that does program trading research.

 
 
  Leigh Stevens   7/25/02,  9:12:09 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > -9.00 at 835.00; Dow Industrials > -85.00 at 8120; Nasdaq > -16 at 936.00

"Fair Value" numbers: S&P 500 futures ($SP02U): 0.86 -- Nasdaq 100 futures ($ND02U): 3.24

 
 
  Jonathan Levinson   7/25/02,  8:36:48 AM
The US Dollar Index has returned to earth, currently hovering at 105.20. June durable goods orders fell 3.8% against an expected gain. Employment costs were up 1% in 2Q, higher than expected. Equity futures seem to be taking it badly, and bond yields are back in the red.

 
 
  Jim Brown   7/24/02,  11:54:44 PM
VIX - I got numerous emails about the extreme high levels of the VIX yesterday and why were we not listing a dozen calls in the newsletter. Unfortunately the TRIN and P/C ratio were not confirming. Also, the VIX over 50 is very high but when dealing with external crash scenarios it can get higher. How high you ask? Check out this chart of the VIX dating back to the 1987 crash. How does 172 grab you?

Link

Things can always get worse and nothing goes up or down exactly as scheduled. If the VIX at 50 was always good for a +500 point gain then back up the truck when you see it coming. However, the VIX will hit 50 before it hits 60, 70, 100 or even 172. This means 50 may mean a 500 point move but it may not be up. Always look at ALL the indicators before backing your truck over the cliff.

 
 
  Leigh Stevens   7/24/02,  8:26:05 PM
The action-packed Market Monitor from Wed., July 24th., can be viewed by clicking on this CORRECTED Link

 
 

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