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  Jim Brown   7/26/02,  5:30:37 PM
Pivot Trade Wrap
Never Short A Dull Market! -
The adage was never truer than Friday. We amused ourselves with trivia and trading jokes as the markets traded in a very narrow range. At the close the patience paid off with a nice setup for Monday. The war between the bulls/bears was fought on much weaker volume but the NYSE still eked out another 2B share day. From the Dow low of 7532 on Wednesday we saw a +727 point gain at Friday's close. Considering the -1191 drop from the July-17th high of 8723 this put the Dow right at the 61.8% fib retracement of 8268 at the close. If you run the same retracement from the July-8th high you get a 38.2% retracement at 8249. Obviously some serious resistance for this nice bounce to overcome. See those charts here: Link

IBM held back the Dow with a -2.95 loss, the only component to lose more than $1, on worries that they had some accounting problems and could not sign the CEO certification. (remember how many times we shorted that puppy at $73 this month!!) Right at the close IBM issued a press release saying they had no problems and the CEO would be signing the statements. This should help IBM on Monday. There is also a rumor that Barrons is running an article on them this weekend critical of their accounting. Should be an interesting day for IBM.

We are LONG the broader market in the pivot model from OEX 421.25. Considering most traders do not want to go long over the weekend there could be a lot of pent up demand at the open on Monday baring any unfortunate events. The VIX is back down to 40.44 and the internals finished positive for the second day in a row. I definitely don't want to look a gift horse in the mouth but +727 points from the Wednesday lows is a lot of profit for somebody. If we get a positive open on Monday the markets have their work cut out for them to keep it going. First resistance is 8300, only 41 points away but after than we could see a +300 point romp to 8600 before the sellers return. I know this sounds bullish but I am just reporting what it appears may happen on Monday/Tuesday. My long-term outlook is still a lower low in our future so like I said last week, date this rally, don't marry it! See you Monday!

 
 
  Steven Price   7/26/02,  5:30:31 PM
Reader Question: Dear Steve:

I want to follow up on your discussion of GE at 14:43:12 on the market monitor. In my case I recently purchased Jan 03 leaps and wanted to sell calls in case of a market drop next week. I sold the 27.5 August calls at 1.2 before the run up in the last hour of trading. Could you please elaborate on your trick regarding "ask yourself if you are willing to sell it naked" referring to the put at the same strike price. Do you mean in other words, is the premium for the put about equal or higher than the call? If this is the case I see what you are getting at. It is all about sentiment at the time isn't it? Thankyou Sincerely, Jim

Response: If you are long stock and short a call, you have the equivalent position of being short a put. If the stock goes down, then at expiration, you lose on your long position, minus the premium that you received for the sale of the call. If you sell a put naked, and the stock goes down, at expiration you lose on the put gaining value, minus what you gain from the premium over parity you sold the put for.

Example:

1) Long stock xyz at $50. Sell $50 call for $2.00. Stock goes down to $47.00. You lose $3.00 on the stock, but get $2.00 from the call, for a total loss of $1.00.

2) Short $50 put at $2, no stock involved. Stock goes down to $47.00. You sold put for $2.00, now worth $3.00, you lose $1.00

 
 
  Jeff Bailey   7/26/02,  4:09:52 PM
Into the close.... bull's were able to push Wal-Mart (WMT) $48.18 +2.10% to the $48 level and get a 3-box reversal on the p/f chart. Is stage set for a September reenactment? Will have to wait until next week and look for any type of fireworks with a trade at $49. Link

Relative strength of WMT versus Dow Industrials remains strong Link . Need a RS reading of 58 (stock price divided by S&P 500 close) for RS versus S&P 500 chart to get back in a column of X Link while a RS reading of 65 is needed to get RS chart of WMT versus Retail HOLDRS (AMEX:RTH) 76.50 +1.72% back in a column of X. Link

 
 
  John Seckinger   7/26/02,  4:05:11 PM
Events Scheduled next week includes: Honeywell Shareholder Meeting (HON) on Monday, Motorola Analyst Day and Boston Soundview Technology Storage Conference on Tuesday, Adobe MidQ Business Update (ADBE) and Beige Book on Wednesday, and European Central Bank Meeting on Thursday.

 
 
  John Seckinger   7/26/02,  3:59:29 PM
Interesting Note Heading into the close: The September five-year bonds closed up 9 ticks while the ten-year issue finished higher by only 6.5. That is called a "steepener" and indicates traders are still more comfortable with shorter maturities, averting risk.

 
 
  Jim Brown   7/26/02,  3:57:38 PM
Pivot Trade Signals
That was some serious resistance at OEX 425. It just couldn't seem to break out but look at it go now! S&P futures are rocking! Monday could be fun.

 
 
  Jim Brown   7/26/02,  3:54:40 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lots of stock being sold into the rally with multiple sell programs. Raise the stop loss on the current LONG signal to OEX 422 (SPX 844.00) If it rolls over we will bail out but it looks right now like we will be holding over the weekend. If you are not personally comfortable with that concept I suggest you move to the exit now.

 
 
  Jeff Bailey   7/26/02,  3:43:02 PM
The 3:15 PM intraday update has been posted. Link

 
 
  John Seckinger   7/26/02,  3:25:43 PM
Confirming Confidence: With the futures market closed and Treasury Bonds (TYX.X) at 5.30%, neither the aforementioned yields have been penetrated on a settlement basis (5.292 and 5.281). Yes, Treasury bond futures look to settle at 105-29/30, just underneath the 105-30/31 pivot and should confirm cash price action (higher yields and higher equities). What is unbelievable is that the Dow is now back exactly at the 8200 pivot mentioned hours ago. No coincidences.

 
 
  Jonathan Levinson   7/26/02,  3:25:24 PM
Looks like August 14th looms large for IBM, which seems to stay in the red regardless of market direction.

 
 
  Steven Price   7/26/02,  3:22:29 PM
XL Capital $68.56 (+3.56) Former OI put play XL looks to be making an effort to close its gap of July 18th. A big day like today could see a pullback, so I wouldn't run for the call on a Friday afternoon, but definitely something to note. A trade of $69 would trigger a PnF buy signal.

 
 
  Jim Brown   7/26/02,  3:20:06 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Housekeeping update - The morning's SHORT signal was stopped out at 15:01:14 when the OEX traded above 421.25 which also triggered our current LONG. (SPX 842.34, Emini 842.50, DIA 81.86, SPY 84.68, DJX 81.78, NDX 900.46, Compx 1247.12)

 
 
  Jim Brown   7/26/02,  3:17:25 PM
Pivot Trade Signals
Looks like the dueling program trades blunted the optimism. The big sell program at 3:06 was timed to give eager bulls a bloody nose and try to push the market down again. It almost worked as the internals took a step back before regaining their momentum.

 
 
  Jim Brown   7/26/02,  3:10:19 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The LONG was triggered at 15:01:14 when the OEX traded above 421.25. (SPX 842.34, Emini 842.50, DIA 81.86, SPY 84.68, DJX 81.78, NDX 900.46, Compx 1247.12) It appears they want to drive them higher since they could not sell them off and the strength looks good. The initial stop loss will be OEX 419, very tight, since we have a short fuse on the rest of the day. This bounce could fizzle at any moment due to the overhead resistance at 425-430. We need to be over OEX 425 at the close in order to keep us in the trade over the weekend. Being positive at lease four points should allow us out of the trade at the open on Monday without a serious loss. Loss yes, if there is an event over the weekend but not a 100% loss.

 
 
  Steven Price   7/26/02,  3:07:27 PM
Reader Question: MMM $119.64 (-0.31)

Hi Steven, MMM has a large amount of put activity at the Aug 105 and 115 strikes. Can I make any assumptions from this? Thanks, ML

Response: My sources tell me that Merrill Lynch just traded the Aug 115-105 put spread 1000 times. There have also been many sell orders in the Aug 115 puts all day on the CBOE.

 
 
  Jim Brown   7/26/02,  2:58:42 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
let's lower that entry point to 421.25 and close the short at the same time. We are coming up on the 3:PM turn and internals are still improving

 
 
  Steven Price   7/26/02,  2:56:16 PM
Reader Question: Hi, Steve, you commented earlier today on an entry to BAX call at 36.30, what do you think about it now? Considering the time value erosion during the weekend for the August calls, is Monday a better time to enter? thanks.

Response: You are correct to consider premium erosion on a Friday afternoon. In addition, BAX seems to have stalled at this level, rather than continuing its momentum. I have always avoided getting long front month premium on Friday afternoons. While this has led t0 several forehead slapping Monday mornings, when the stock makes a big move, I have found it prudent most of the time.

 
 
  Jonathan Levinson   7/26/02,  2:49:52 PM
Today the volume on certain call options are much higher than the puts - does it mean the market could move in up direction just because a large blocks of calls are being purchased ?

It could mean that there's call buying to hedge short position, or it could mean that there's call selling to hedge longs. Tough to know. If the OI is increasing on those contracts, then someone thinks calls are a good sell here. You get the idea. The put/call ratio is worth looking at. Generally, a low p/c ratio looks like a bearish indicator to me- shows complacency. The ratio is updated every 30 minutes at Link

 
 
  Jim Brown   7/26/02,  2:48:15 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
I can't stand it anymore The SPX/OEX are trending up slightly and adv/dcl line is improving. If we get an afternoon explosion let's go long the broader market at an OEX trade over 423.00 (SPX 847) and close the SHORT position at that time. This is just a speculative play based on the underlying bullish tone. It is HIGH RISK and if triggered and not up more than +5 points at the close we will go flat over the weekend. If the close is bullish we will risk holding over but only those traders that agree with the risk should do the same. Repeat - there is no clear trend at this time and this is pure speculation that an afternoon bounce may occur.

 
 
  Jonathan Levinson   7/26/02,  2:46:51 PM
He's still The King, though.

 
 
  Jim Brown   7/26/02,  2:45:51 PM
Okay, I will close my losing puts but only if I get a piece of your profits. It would be worth it!

Ahhh the real traders appear!!! Sorry, but as hard as I fought for these I am not sharing with anybody!

 
 
  Jonathan Levinson   7/26/02,  2:45:23 PM
In all seriousness, the scraps I leave on the table are bigger than the pieces I actually keep, which reminds me of the Friar Tuck character at the beginning of Rocket Robin Hood a few decades ago, taking one bite from the chicken leg and throwing the rest away. I always sell too soon. But I digress...

This excruciatingly slow fade on the COMPX seems to want to find support around 1230. The TRINQ has at no time indicated strong selling, staying around 1.10-1.15 through most of the lows of the day. The QQV up .54 is near its high of the day. Lastly, 22 seems to be acting as support for QQQ. There could be a big blast down, given the tame TRINQ and QQV readings, and of course, because I'm flat and out of my put position. Overall, an exhausting week, and other than Arch Crawford predicting the low anytime near here and a tradable rally by next week, I'm still betting on the trend which is ... you guessed it.

 
 
  Steven Price   7/26/02,  2:43:12 PM
Reader Question: I'm long GE going back years with a nice LTCG. I wouldn't mind losing the stock to a covered call but would prefer not to. As I read the PnF chart there seems to be a lot of resistent in the 29-30 area but am wondering if there's anything short of that to risk selling the august 27.5 call. Also, since GE is in a row of Xs am I correct that there's a possible upside to 38? thanks for all your good work. rb

Response: I'm not sure exactly which risk you are referring to, but let me try to address the strategy. On the PnF chart, you are correct about the bearish resistance, although my chart shows the resistance at $39. That being said, GE does not reach an actual buy signal until $34. it is currently on bull alert with a 3 box reversal up, however its current bearish vertical count is $18.

I see alot of resistance around $30 on my daily chart. I also see the $27 range with resistance, but even a trade of $27.75 can result in your stock being called away. If you are long GE and wish to stay that way, I'm not sure the $27.50 call is the best option, since we are right at the strike and there is a good chance of having the stock called away. If you want to hang on to the stock, the $30 call or higher is probably a better bet, although with reduced premiums, it doesn't give you much downside protection if the stock drops. If you are looking for downside protection by collecting some premium, then the $27.50 strike will do more for you. But if you don't want to get called away on the stock, and you are bullish, I would look at higher strikes.

Here is one trick: When you are long a stock and want to sell a call, you are performing the mathematical equivalent of going into the market and selling a naked put. Look at the price of the put for the strike you wish to sell and ask yourself if you are willing to sell it naked. Your profit and loss will be the same.

 
 
  Jim Brown   7/26/02,  2:42:38 PM
Did you know that it has been 25 years this August since Elvis died. Can you believe how long ago that was?

Yes, unfortunately. In 1977 I had been married 10 years and had three kids. Still married to the same woman and now I have four kids all grown. It may have been a long 25 years for you but I look back and wonder where all the time went. It is amazing how your perception changes if you are looking forward at old age from youth or looking back from old age to youth! Sorry to digress today but they say experience comes from making bad decisions and I am here to tell you, in the last 35 years of marriage/kids I have become very experienced in many things and Elvis is not one of them.

 
 
  John Seckinger   7/26/02,  2:38:33 PM
Semiconductor Holders (SMH) did use 25 as a pivotal area and for the first time in 20 minutes this level is being tested as shorts cover and interest begins to dry up. Could this be a leading indicator for other equity indices? Possibly. Above 25 could be the catalyst for hitting stops and moving the SMH to 25.20 without changing bearish sentiment; therefore, I would wait until a move back above 25.40 before looking at a long position. On the downside, there is now a triple bottom near 24.75 and weakness to 24.60 should invite more shorts and accelerate the selling pressure.

 
 
  Jonathan Levinson   7/26/02,  2:37:20 PM
LOL!

Actually, Jim, I got out just before the whoooshhh down, 25 mins ago. Was worried for Denise and Russ and Lowell and Linda, and some of our other bears. Good call Linda- beatcha to it!

 
 
  Jim Brown   7/26/02,  2:33:16 PM
I was going to suggest that you have Jonathan sell his puts (if he holds any) or buy calls. That usually seems to work. Linda P

Come on Jonathan, come out of the closet. Are you holding puts?

 
 
  Jim Brown   7/26/02,  2:31:37 PM
Pivot Trade Signals
Here is a snapshot of that chart with moving averages I mentioned earlier. Link

 
 
  Jim Brown   7/26/02,  2:27:30 PM
Pivot Trade Signals
I found the key. Rumor has it somebody bet their last $2000 on OEX puts and the market makers are waiting for them to capitulate before letting the bottom fall out. Would whoever it is please close them now and take your losses so the rest of us can profit. (grin)

 
 
  Jim Brown   7/26/02,  2:00:35 PM
Pivot Trade Signals
One of the charts I watch during the day is the OEX on a 15 min period. I have a moving average for 130 periods (avg high/low, expotential) (5 days) and 52 periods (close, simple)(2) days. I have found these tend to be pretty good indicators of support and resistance on an intraday basis. The action today has come down to rest on those two averages where they are meeting each other today at OEX 418. If these averages fail we could stay under them for several days as that has been the recent trend. Just an idle observation while that fuse burns.

 
 
  Jeff Bailey   7/26/02,  2:00:14 PM
The 1:00 PM intraday update has been posted. Link

 
 
  John Seckinger   7/26/02,  1:58:24 PM
Technically Psychological: Technical analysis seems to be controlling investors' psychology once again, captured nicely in the Oil Index (OIX.X) as the 439 low equals the high set just three sessions ago. The "inside day" with a higher settlement should mean for a test of Thursday's intra day high of 448. Looking at the SMH, 25.39 did act pivotal and it looks like 25 (currently at 25.10) will be tested soon, most likely acting technically pivotal as well.

 
 
  Steven Price   7/26/02,  1:53:08 PM
Reader Question: looking at the old adage "buy the rumor and sell the news.." what is your take on HSY after the huge gap up yesterday?

thanks Gary

Hershey Foods: $77.50 (-0.80) After yesterday's meteoric rise, I'm going to sit and watch this one. If we get some consolidation and then a breakdown, it may be a short. However, after announcing they are up for sale, I'd like to see where the bids start coming in before shorting it. If you're long, congratulations! You are in a much better position to sell the news!

 
 
  Jonathan Levinson   7/26/02,  1:50:35 PM
The US Dollar Index is off its highs, now trading between 106.20 and 106.40. The COMPX is exploring the 1240-1250 range now, as the indicators continue to show ambivalent readings. My only conclusion is that we either go up from here, or down. TRINQ .90, QQV 60.09, COMPX 1245, MSFT 44.83. Both bulls and bears frustrated today, which means that the market is doing a good job today.

 
 
  Steven Price   7/26/02,  1:47:09 PM
Reader Question: General Electric (GE) $27.07(+0.42) with your comment of ge banging up against the 27.70...a possible short on a reversal?? thanks sb

Response: The $27 range also has a ceiling from a trendline on the daily chart dating back to the beginning of April. Normally I would love this as a short. My concern is both the relative slowness with which this stock moves, and a continued market rally on Monday. If the market begins to pick up steam again after the last two day's consolidation, GE is sure to run with it.

 
 
  John Seckinger   7/26/02,  1:45:39 PM
Something to consider if keeping positions over the weekend: The 30-year cash bond (TYX.X) is currently trading at 5.296, just higher than the 5.292 close on Monday and also above the 5.281 settlement seen on Tuesday. If Friday ends with yields BELOW these settlements, it could be a precuser for lower equity prices. Moreover, the aforementioned 5.4% short term objective is also an intermediate pivotal area and should be used for more longer term holdings. If Yields get above 5.4%, there is a better possibility of assets rolling out of bonds into stocks.

 
 
  Jim Brown   7/26/02,  1:45:30 PM
It seems like you are getting bullish today, with no economic news until next Thursday and August 14th dead line for corporates to report their signed financials by CEO's and Dow making double or triple tops around 8220-8250 in the last couple of days and closing lower, believe there is no reason to be long at all. August being the worst month of the year followed by October the disastrous month of the year short is the only way.

I agree with everything you said but there appears to be a desire to move the markets upward. All I can do is report what I see even if it is contrary to what I believe. I never said it was a new bull market, just an oversold relief rally with a possible continuation over Mon/Tue.

 
 
  Steven Price   7/26/02,  1:41:19 PM
Reader Question: Steven: On my daily candle stick chart MSFT seems to develop a second inside day in a row, and a bearish flag! Could we see a drop down on monday to the 40-41 region? What is your risk assessment to get into a put today?

Thanks, jean

Response: This is a very interesting observation. I also see a bearish flag formation. However, the large green candle on the 24th after a downtrend, followed an inside day suggests consolidation. A breakdown from a flag would indicate a $40 target, but the other thing to look at is volume. There hasn't been a contraction of volume during the formation of this pattern, which is important to the formation of a flag or triangle.

 
 
  Jim Brown   7/26/02,  1:30:36 PM
Pivot Trade Signals
The markets are fighting to hold on to every point. You can almost see one of those cliff hanging scenes in an action movie where some scraggly little bush is all that is preventing the hero from falling over the cliff to sure destruction. The internals are slowly bleeding but we have not seen the strong declines from earlier in the week. The monitor is very quiet today as everybody sits around and tries to find the hidden key to the overall picture with no clues. You can almost hear the fuse burning somewhere that will set off the end of day fireworks but it is very frustrating because you can't find it

 
 
  Steven Price   7/26/02,  1:26:02 PM
Reader Question: Boeing (BA) $40.66 (-2.28) would you please evaluate boeing support and resistance. i am long from 39.

thanks.

Response: BA looks to have support around $37, having tested this level twice this month. I also see some supply resistance at $43, with trendline resistance at $42.50.

PnF shows bearish resistance at $45 and some support at $38, which would have been $37 had BA made it under $37.20 or $37.10 on this months lows. Basically, it is experiencing continued consolidation. It is right in the middle of the current range. I see resistance at $43, however a trade of $44 would create a PnF buy signal, with $46 a break of bearish resistance a strong buy signal.

Taking all of this into consideration, a lot has to happen to make me bullish on this stock.

 
 
  John Seckinger   7/26/02,  1:19:02 PM
Hedge Fund assets rose to $563 billion last year from $408 billion. Reasons for profits during 2002 included a lower dollar, higher bonds, and lower equity futures. I bring this up only to emphasize how important fixed income, futures, and currency markets are when trying to put "the pieces together" before and after entering a trade (regardless what sector, index, etc.). Sometimes these markets lag the Dow or trade out of sync with equity markets; nevertheless, when it is obvious they lead equities it can be very profitable.

 
 
  Jim Brown   7/26/02,  1:02:37 PM
Pivot Trade Signals
The dip to 417 may be all we are going to get out of this lunch time lull. I would advise anyone not willing to risk an afternoon rally to bail out of the SHORT position now.

Internals have not reversed suddenly but they are not going lower at this time. The anticipation of a rally continuation on Monday is holding up the market and I am almost willing to go long here at the 420 level due to the lack of selling. It would be a high risk play to hold over the weekend and not one I would recommend for readers to hold. They say never short a dull market and this is pretty dull. Could be an explosion in our future

 
 
  Jonathan Levinson   7/26/02,  12:44:42 PM
The US Dollar Index seems to have topped out for the moment at 106.60, while COMPX declining has pulled slightly ahead of advancing volume on this last decline. Price found support at 1240 and is currently at 1246. The TRINQ broke 1 briefly and is now at .87 on the bounce. QQV is still negative at 55.92, down 1.06 on the day.

 
 
  John Seckinger   7/26/02,  12:44:01 PM
All about Execution: The Dow did fall 76 points from the 8200 pivot area, while Treasury Bonds not only failed 5.310 but fell underneath 5.3 percent. The big question, how is risk managed going forward? A rise above 5.316% should neutralize the recent allocation out of equities and into bonds; however, there is a possible Head & Shoulders formation in the TYX.X index that will need to be monitored. This H&S formation has a downside objective of 5.24 percent.

 
 
  Jim Brown   7/26/02,  12:40:46 PM
Pivot Trade Signals
The advance/decline ratio just went negative on that last dip. The VIX is still falling at 42.50 and declining volume has spiked significantly. Of the top ten stocks I watch as leading indicators seven have now gone negative for the day. There was only one earlier this morning. IBM has broken to a new low ($66.30) as reality returns to spin city.

 
 
  Leigh Stevens   7/26/02,  12:35:56 PM
INDEX Comments: S&P/DJ - Obviously, there was NO breakout above the "flag" type consolidation after first run up from today's lows - instead we got "break" to the downside, suggesting the indices will retrace some or all of the last up move.

 
 
  Steven Price   7/26/02,  12:22:10 PM
Reader Question: Hi Steven, For a new entry in to JNJ & BAX what would be proper approach. What levels should I be looking for?

Thanks for your answer Krish

Response: In JNJ, I probably wouldn't be looking at a new long entry at this level. We haved raised our stop on this play to $48, to lock in some profits from the original play at $41.85. On Baxter (BAX)$36.00 (+0.11), I like an entry above today's high of $36.30.

 
 
  Jeff Bailey   7/26/02,  12:20:42 PM
Wow! December Gold futures (gc02z) $303 -2.79% really got "whacked" from that $309.60 level. Pretty big move lower in such brief amount of time.

Would expect some futures traders to sit some bids and lock up some gains near-term. Now look for 309-310 to start finding resistance as bears become more aggressive in the futures.

 
 
  Leigh Stevens   7/26/02,  12:19:06 PM
Subscriber QUESTION: "Dear Leigh, One day will you write an article and explain what an inside day vs outside day means? How it relates to candles and charts?"

RESPONSE: I consider inside/outside days, in and of themselves, it to be a minor consideration when looking at a chart pattern - some make a bigger deal about "inside" or "outside" days.

Inside day = H & L was WITHIN the High & Low of the prior "bar" or trading period; e.g., hour, day, week, etc.

Outside day = H and/or Low was NOT contained WITHIN the range of the prior trading period as measured by a OHLC (open, high, low, Close) chart or "bar" chart - OR a candle depiction of the OHLC.

Outside days are when changes (to chart pattern) happen - for example, a continued move above prior high indicating an uptrend. Inside day is often a "rest" or consolidation day.

 
 
  Jonathan Levinson   7/26/02,  12:09:21 PM
106.60 for the US Dollar Index now. While that looks good for equities, and readers are seeing bullish things for the COMPX in the near future, the intraday stochastics look toppy and ready to rollover, as does the price chart. That's what I see, but this week has been a roller coaster.

 
 
  John Seckinger   7/26/02,  12:07:53 PM
Per 10:51:42 Posting: Still waiting for the expected asset allocation out of equities and into bonds. The 30-year (TYX.X) index has only slightly failed the up trending wedge (Index currently at 5.319, while technical resistance should be found at 5.325). I will need to see a 5.310 print before thoughts of allocation materializes. The 8200 pivot proved to be just that, as the Dow is up 15.36 at 8201. It has been one hour and neither the 5.341 or 8275 level has been hit, proving me wrong.

 
 
  Leigh Stevens   7/26/02,  11:58:33 AM
Subscriber QUESTION: "Where are you connecting your lines to forecast these points?"

RESPONSE: See chart with my notations at Link - - Keep in mind that the prediction of a further upswing is based on a breakout move ABOVE the downsloping line of that little triangular formation or a "pennant" - when the pattern is a rectangle, its most often called just a "flag" rather than the type of flag called a pennant.

 
 
  Jim Brown   7/26/02,  11:55:42 AM
Jim, Based on your last comments, would you lower your stop? Maybe to 424? Leigh's last comments about a Bull Flag consolidation looks very possible.

That would be a reasonable move. I considered it after his post but there is strong resistance at 425. If I was planning on going long I would lower to 424 and go long at 424 but the SPX/OEX have a definite top at 827/423 and rather than subject the readers to the current losing spread I have elected to wait and take the slightly higher risk and bigger hit if we get to 426. I see the chart pictures but my bias to a lunch time sell off is preventing me from changing the plan. Please use your own judgment and take whatever action you deem reasonable. There is a high risk of being stopped out here if conditions continue to improve and the charts continue to pinch tighter. If you want to get out two points earlier based on the current risk I definitely understand.

 
 
  Leigh Stevens   7/26/02,  11:46:01 AM
Subscriber QUESTION: "Do you have any writeup on TICK? I want to fully understand how TICK is calculated and how to interprete it."

RESPONSE - TICK ($TICK) is the number of NYSE stocks advancing MINUS declining stocks on their most recent trade (for Nasdaq the symbol is $TIKQ & on the Dow stocks only - $TIKI). If there are 1000 stocks advancing and 500 declining on their last trades, then TICK is 500. If it was the reverse situation of 1000 declining and 500 advancing, TICK is -500.

I consider 1000 to be an important "threshold" number -a TICK of plus 1000 indicates broad buying, a TICK of -1000 or more is an indication of strong bearish selling pressures both intraday; and especially if this is the closing reading.

Another primary consideration when looking at TICK is the trend of the numbers. If we go from a TICK of -300 to 300 to 600 to 1000, this trend is a reflection of a strong buying shift. If, in this example, TICK then stays at a high plus number for the balance of the day, it demonstrates that buying interest remains high.

 
 
  John Seckinger   7/26/02,  11:44:40 AM
Side Notes: As I peruse the news while keeping one eye on the Dow and Bonds, a headline report comes out regarding President Bush signing into law a compromise legislation overhauling the nation's bankruptcy laws, making it harder to avoid paying debts. Lawmakers have been involved with the legislation since 1997. Will this affect the dollar?

 
 
  Jonathan Levinson   7/26/02,  11:38:49 AM
Internals have softened on the COMPX, with advancing volume now beating declining volume 486M to 229M. COMPX 1260 seems to be the resistance level to beat for the moment. The US Dollar Index continues its run currently just below 106.40.

 
 
  Steven Price   7/26/02,  11:35:00 AM
KLAC-Tencor (KLAC) $37.92 (-0.53) Yesterday morning's Sep 40-30 debit long put spread for $3.50 now $4.10 bid.

 
 
  Leigh Stevens   7/26/02,  11:33:56 AM
INDEX Comments: OEX, SPX & DJX = have been consolidating in bull flag patterns on their 30min. charts, suggesting a further rally ahead IF the indices break out about above: 848 in SPX, 424 in OEX and 82.7 in DJX - if so, further upside potential then looks like 865 area in SPX, around 435 in OEX and to 84.5 in DJX.

 
 
  Jeff Bailey   7/26/02,  11:30:41 AM
Cisco Systems (CSCO) $11.97 ... day-traders may want to monitor stock intra-day for move above $12.11. Seeing a "bad tick" to $12.91, which might be some type of "buy program." In recent weeks, have seen some of these "bad ticks" find the stock reaching that level before session's end. Key is if break comes, don't target the $12.91 level, but perhaps $12.75.

 
 
  Jim Brown   7/26/02,  11:28:52 AM
Pivot Trade Signals
The Nasdaq is definitely holding up the markets today as another spike in the NDX futures just pushed the Nasdaq to the high of the day. The Dow, OEX and SPX have not followed suit but they are not dropping either. The likelihood of a lunchtime sell off on profit taking is becoming weaker as the markets show amazing resilience ahead of the weekend. The VIX is falling and currently at 42.71 as the advance/decline ratio is rising. This is a picture of improving market internals which could give us a bullish afternoon. If we are stopped out of the current SHORT signal I will not be going long as there is significant overhead resistance which SHOULD weigh on the markets going into the weekend. I do not want to be long at these levels going into the afternoon. After the wild gyrations earlier in the week the almost dormant markets today are boring to watch and could lull bulls into a false sense of security. The afternoon could be interesting.

 
 
  Steven Price   7/26/02,  11:24:28 AM
Amgen (AMGN) $41.63 -0.31 I received lots of emails yesterday from readers wanting to short Amgen, which had gapped up and was up over $5 at one point. Interestingly, this stock actually gapped to its 50-dma of $41.38, and has done a good job this morning of holding most of those gains. I still see upside reistance around $43.

 
 
  Jeff Bailey   7/26/02,  11:22:05 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Steven Price   7/26/02,  11:09:30 AM
General Electric (GE)$27.25 GE has rebounded from its Wednesday morning low of $23.02, however it is up against its 21-dma of $27.70. the 21-dma has kept a lid on this stock since the beginning of June

 
 
  Jonathan Levinson   7/26/02,  11:01:33 AM
Volume breadth is still positive on the COMPX, which is still fighting between 1250 and 1260. Advancing volume is just under twice declining volume. The TRINQ remains below .60, and the QQV is down 1.42 to 59.56.

 
 
  John Seckinger   7/26/02,  10:51:42 AM
There are two technical pattern (five minute chart) beginning to pique my interest. One is in the Dow and the other in Cash Treasuries. Beginning with the Dow, the recent pattern forms a "P" formation - to me a sign of short covering. The apex appears to be at 8200 and the market just attempted to rally and now underneath the pivot, a bearish sign. The Cash Treasury bonds forms a bullish wedge to 5.330% and it just looks too good to be true. I have seen these patterns fail more often than not, another bearish sign for equities. When am I wrong? 5.341 in yields and 8275 within the Dow.

 
 
  Jim Brown   7/26/02,  10:49:23 AM
Pivot Trade Signals
I wrote the initial entry point signal four times this morning and never posted it due to changing conditions. The conditions are so erratic that determining market direction is more like flipping a coin. If you don't like the answer just flip again. You saw the ranges yesterday where any one of the triple digit Dow moves would have been a great day several weeks ago. The volatility is still very high and the news events are very conflicting. TSM warns and Goldman upgrades the sector. Traders don't know which way to go. While I am writing this a buy program in NDX futures just spiked the Nasdaq back to positive territory and boosted the broader indexes. Yesterday you could not give away tech stocks.

My target for the current SHORT signal is OEX 410. My market view is for a lunch time sell off on profit taking and a rally into the close. If this comes to pass then I would expect for a continuation rebound Mon/Tue. Of course this could all change before the day is out. If we near the 410 level I will be lowering the stop to take us out on a rebound.

 
 
  Steven Price   7/26/02,  10:47:27 AM
Looks like the Sentiment numbers gave retailers a boost across the board, with Walmart (WMT), Lowe's (LOW), Home Depot (HD), Target (TGT) all in the green. The Retail Index ($RLX.X), is looking at recent resistance at the 280 level. Currently at 274.69, it will look bullish for the sector if the index can get above that level.

 
 
  Leigh Stevens   7/26/02,  10:40:00 AM
Subscriber QUESTION: "Yesterday was inside day for QQQ. R your daily indicators such that a break above yesterday's high would be a good entry point for long QQQ trade?"

RESPONSE: For possible QQQ entry on long side, suggest buying a "breakout" above near technical resistance. Normally, I like to buy the dips, but here want Nasdaq to take out resistance and "prove" an advance.

Minor trendline resistance on QQQ is at 22.8 - a breakout above this level would be bullish, at least for a possible further up move to test tougher overhead technical resistance in the 24 area. The bullish case for the Q's currently is that the stock could be "basing" by this sideways move around the 22 area roughly. A break below prior 21.6 low would be bearish, suggesting the possibility of a decline to the $20 area.

 
 
  Jeff Bailey   7/26/02,  10:36:25 AM
Excellent review of "what happened" by subscriber here ... Good morning Jeff!......you were right on the money at the 32.50 stop you suggested!....unfortunately I got called away from my monitor and when I got back the price was above 33 when I got to read the monitor. Just wanted you to know I appreciated your time!......When I said I wished I had gotten out the previous day, the price of that aug32p was at $3...and I paid 1.2!....(deer in the headlight syndrome).....I entered the trade looking for your first target at $28.90(still my plan).....But, yesterday the market action wasn't as extreme as the previous day, and the price wasn't nearly as good on the option....I think around 2.4 was the high(yea, I know thats still 100%).....but, greed wanted to see 3 again!......So, I think what I am learning, is if that price gets close to your first target, and I am in the front month....and prices are extreme.....grab the money for a quick scalp...and wait for the bounce to re-enter!...easy to say...HARD to do!!......Thanks again...and all your hard work is greatly appreciated by us trader wannabee's!!!

This type of thinking and review will help a trader in the "future" when it comes to trade management and the need to have a plan BUT MORE IMPORTANTLY the need to FOLLOW the plan as you may have outlined. Yes! It's hard to follow a plan sometimes, especially when the trade is really working in your favor so early in the trade. What can happen with "younger" traders is the thought then becomes "you know what, I'm so right on this trade, it's going lower than my original plan so I'm not going to take my profit here at the target, because it's going lower, much lower!"

What happens? The stock trades your target, maybe a little lower, then rebounds right back to your entry point! Oh, my!

Only with time and frequent observations of "Darn, I knew I should have traded my target" when a gain erodes, does one become more disciplined in trading their targets. At least this trader has reviewed and perhaps drives home the importance of disciplined trading. Plan your trade, then trade your plan. Doesn't matter if its a day, week, month, or yearly plan.

 
 
  Jonathan Levinson   7/26/02,  10:35:57 AM
The US Dollar Index just fired off the afterburners and launced all the way to above 106.20, frying the price of gold and the XAU in its wake. Meanwhile, the COMPX is chopping along, presenting me with short opportunities for quick scalps so far, no real trades that I've yet seen.

 
 
  John Seckinger   7/26/02,  10:34:16 AM
Sector Search: Both Networking (NWX.X) and Semiconductor (SMH) issues are of interest on Friday as the NWX.X failed a possible double-bottom formation (five minute chart) and the SMH index fell below key shorter term moving averages (25.7). Looking ahead, Networking issues need to recover back above 119 to gather buying interest (downside objective at 114.5) while the SMH (currently at 25.59) will have to hold 25.39 and then 25 in order to appeal to value players. SMH, if back above 25.85, would have an objective of 26.50; however, stops must be tight.

 
 
  Steven Price   7/26/02,  10:20:59 AM
IBM $68.81 (-0.54):Hi Steven...wondering what you attribute IBM's weakness to. Thanks for all your insights. Jane

Response: Goldman Sach's upgrade this morning of chip equipment sector was very cautious. Although it has picked up some tech stocks, it will probably take something bigger than that to force big blue out of its current consolidation range. IBM has been in a range between approx. $66 and $73 since the end of June. When it does break it could be significant, as this has been one of its longest recent consolidations.

 
 
  Jim Brown   7/26/02,  10:18:58 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The SHORT signal was triggered at 10:11:50 when the OEX traded below 420.00. (SPX 841.69, Emini 840.50, DIA 81.90, SPY 84.68, DJX 81.89, NDX 900.72, Nasdaq 1252.46) I really wanted to enter this higher but the internals were weakening and the higher the entry the less chance of a stronger bounce. The stop loss will be generous at 426 (SPX 856) to get us over yesterday's high. (Note, readers are definitely encouraged to set stop losses wherever they are comfortable. You do not have to follow this model exactly.)

 
 
  Leigh Stevens   7/26/02,  10:17:48 AM
Subscriber QUESTION: " What happened to the BTK? Where did all this buying come from? Jim says a big buy program? I am short IDPH at about $40. It appears that $42ish is about a wall on the upside. I noticed you mentioned $38 or so short term? You still think so?"

RESPONSE: An upgrade/positive comments on AMGN was bullish fundamental news yesterday impacting the Biotech sector. Biotech Index ($BTK.X) got right up to its resistance trendline this morning - a decisive upside penetration above its high today so far at 328 is needed to suggest that BTK could have a further up "leg" here - if there is such a technical "breakout", upside potential is to 395 area, or higher.

IDPH (Idec Pharmaceuticals Corp.) is tracking the BTK index. A move above its yesterday high in 42 area - last at 39.2 - is needed to suggest that the stock can keep moving higher - a close above 42 suggests a next upside target to perhaps 52-54.

 
 
  Jeff Bailey   7/26/02,  10:14:08 AM
ESS Technology (ESST) $13.05 +2.74% ... Hi Jeff, What do you think of a short play on ESST ? I would prefer a breakdown from filling the GAP under 15$. Or even a failure if it goes to 14$. Short under yesterday's low of 12$(looks more realistic?) Target 6$ (P&F=4$). Please ,if possible comment on Mk-Mn.

Good thinking and thought process by subscriber here. Looking for a rally to overhead supply as shorting opportunity. Link

Today most likely and "inside day" and could simply imagine that if you're short-term trader short at $15.50, probably taking some trading gains here and assessing a rally right back near your short-point and most likely looking to book small gains here, then hit again afte a rally back to resistance again. I'd continue to monitor and perhaps look for another "inside day" in a few day's and may provide good trade setup if it gives some consolidation up near resistance of $15.50 on potential gap fill. Then if you get break lower, take it short, then target $12 once again. Link

Also... take retracement from $24.95 to $6.64. See how various levels have been traded? Thinking market makers need to be doing some shorting on any rally near 50% retracement of $15.80 and lower 61.8% of $13.64 has been violated.

 
 
  Steven Price   7/26/02,  10:11:51 AM
Microsoft (MSFT) $44.65 (+1.82) Miscrosoft enjoying quite a rebound, forming a nice, neat triangle pattern. Will be interesting to see which way a breakout can take it.

 
 
  Jim Brown   7/26/02,  10:11:24 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
I would like to setup a trigger for the downside in case the sentiment fails to hold the market in this positive territory. Let's go SHORT the broader market if the OEX trades below 420. (SPX 841) If the bounce continues we will put one out to cover a higher entry as well.

 
 
  Jonathan Levinson   7/26/02,  10:10:38 AM
The COMPX is gasping and wheezing its way up, struggling to stay above 1260. If we get a breakdown and bearish cross on the 30 and 60 minute 5(3) stochastics, my trigger finger will become very itchy indeed.

 
 
  John Seckinger   7/26/02,  10:07:38 AM
The news on Household (HI) was that it will buy the majority of the credit card accounts owned by Saks Holdings Inc. (SKS) and outstanding balances associated with the accounts. Household reportedly paid more than $300 million in cash, with the two companies forming a 10-year alliance.

 
 
  Jeff Bailey   7/26/02,  10:01:16 AM
Kohls (KSS) $64.80 +0.44% ... was a stock mentioned along with WMT the other night in Market Monitor as it relates to retailers Link at 05:29:57 that might be expected to show some institutional sponshorship. Can see some "similarity" here as it relates to WMT and potential "buy signal" in the making at $65. However, if long from $58, not a bad little gain here and decent covered call in the August $65's (KSSHM) bid $3.20. Link

 
 
  John Seckinger   7/26/02,  9:53:15 AM
Corporates: Sometimes acting as a leading indicator, a look at corporate bonds shows Financial issues widening (should mean a weaker sector) while Citibank (c) is holding up relatively well. GE paper is weaker slightly, while Tyco (TYC) bonds continue to narrow (a bullish sign). The interesting issue is Household (HI), trading extremely weak yesterday and today as it relates to their bonds on no real news.

 
 
  Jeff Bailey   7/26/02,  9:51:46 AM
Michigan Consumer Sentiment comes in at 88.1, so a little better than the 87.0 expected. Retail HOLDRS (AMEX:RTH) 75.59 +0.51% now in the green after marginal red prior to the number. Heavy weight Wal-Mart (WMT) $47.05 +0.10 fractionally green here.

 
 
  Jim Brown   7/26/02,  9:50:23 AM
Pivot Trade Signals
The sentiment was just posted at 88.2 for the final June reading and this was up slightly from the 87 analysts expected. Not a market mover but enough to bring us back from the cliff one more time.

 
 
  Jonathan Levinson   7/26/02,  9:47:21 AM
My quote screen just went nuts- looks like a positive report to me.

 
 
  Jonathan Levinson   7/26/02,  9:45:47 AM
COMPX up volume is more than double down volume so far today.

 
 
  Jeff Bailey   7/26/02,  9:44:09 AM
Final July Sentiment is due out at 10:00 AM EST. Previous reported was 86.5 and consensus is for modest revision higher at 87.0. Could impact retailers as that group is consumer driven.

Wal-Mart bull is thinking sentiment factored in and looking to the future. Need some "buy signals" in the group to get some confirmation that MARKET is thinking same thing.

 
 
  Jonathan Levinson   7/26/02,  9:42:20 AM
MSFT is running the ball, currently above 44. The COMPX is struggling with that 1250 area, but the 60 minute 5(3) stochastics, with which you are all now familiar thanks to Leigh's excellent article last night, are in a bull run upward, which supports the guess that we'll see 1260 before we see 1235.

 
 
  Jim Brown   7/26/02,  9:38:55 AM
Pivot Trade Signals
The overhead resistance for the OEX is at 425, 430, 440. If we get a positive sentiment report this is where we will be looking to enter a short position on any weakness. If the markets break down from here it will be a little more difficult since the erratic day we had yesterday proved difficult to short a breakdown. About 8 minutes to go before the Sentiment report.

 
 
  Steven Price   7/26/02,  9:37:41 AM
KLAC-Tencor (KLAC) $39.15 only making back 0.70 of yesterday's losses

 
 
  Steven Price   7/26/02,  9:36:21 AM
Johnson and Johnson (JNJ) :$49.15 (+0.45)

Baxter (BAX): $36.29 (+0.45)

OI call plays JNJ and BAX showing small gains on the open, as the Dow begins to slip negative. Consumer sentiment should give us some direction at 9:45

 
 
  Jonathan Levinson   7/26/02,  9:34:41 AM
This is a very choppy open on the COMPX, with a fight erupting between bulls and bears at 1250. The TRINQ is on the low side, but could go lower if the bulls start to show some conviction.

 
 
  Jeff Bailey   7/26/02,  9:31:50 AM
Wal-Mart $47.00 ... Jeff, Your comments are very helpful and easy to follow! I really appreciate all your hard work and value your opinions a great deal! On your WMT trade: What's your target?

I've got my retracement bracket from $63.78 to $43.58. This has 80.9% at $47.43, 61.8% at $51.29 and 50% at $53.68.

Under current market conditions, near-term target is $51.29. If achieved in the next week, would look to sell some covered calls on the underlying stock. Get that cost basis of $45.01 worked down immediately and perhaps get a cushion built. Lots of work to be done, but still very good similarity to September's action starting to show. Link Let's get a trade at $49 first and get the stock back on a buy signal!

Only 1 stock in the Dow Industrials currently showing a "buy signal" on its point and figure chart. That's Intel (INTC) Link and its tentative right now. Traders/investors can perhaps understand just 30 stocks in the Dow, but make some ties/understanding to the Dow Bullish % ($BPINDU) Link at 3.33%.

 
 
  John Seckinger   7/26/02,  9:31:01 AM
Treasury Cash Bonds: It was noted yesterday that the 30-year cash index (TYX.X) needed to settle underneath either the 5.292 or 5.281 level set on Monday and Tuesday for assets to shift back into bonds; however, the 5.298 Thursday settlement evidently was not enough to get traders' attention. Currently at 5.32%, short term objective remains at 5.4% (note: higher yields, lower prices, in theory higher equity values). Also noteworthy was September futures unable to settle underneath the 105-30/31 level. Currently at 105-22, this index will be watched carefully.

 
 
  Jim Brown   7/26/02,  9:23:14 AM
Pivot Trade Signals
A dramatic reversal overnight in the futures is now predicting a positive open. Goldman upgraded the semiconductor sector for aggressive traders. They don't think the fundaments will improve near term but they feel the sell off was overdone and created value in the sector. Qualcomm is giving a lift to the telecom sector this morning after raising guidance after the close yesterday.

TrimTabs.com reported that -$18.5 billion in cash flowed out of equity funds in the week ended on Wednesday. This was the largest week in recent memory.

The positive futures could be signaling a continuation of the rebound and could cause some more short covering at the open. The rebound from a -12 level at 7:15 this morning has been remarkable. This could give bulls some added confidence and cause bears to rethink shorting the rallies. It is still too early to pick a direction other than just the first few minutes of the open and the Consumer Sentiment report at 9:45 could change everything in a heartbeat. We will wait patiently for that report before planning an entry point for today.

 
 
  Jeff Bailey   7/26/02,  9:21:51 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Jeff Bailey   7/26/02,  9:19:08 AM
December Gold futures (gc02z) 309.50 -0.7% ... looking negative here. I've had retracement set at $331.20 to $274.80, which has retracement support right here at $309.60. This level held as support back in May, then again recently on Tuesday. Any move much below current levels has the $303.00 level in play or the 200-day MA at $299 as a bearish target. It has become evident that the gold equities have lead the decline and the futures are following. If you're a futures trader, this commodity looks short/put here on break below yesterday's "inside day." A tight stop could be placed just above yesterday's high of $314.

Short-term gold stock traders may want to look for some inside days too, where there's some downside to a retracement level or key MA.

 
 
  Jonathan Levinson   7/26/02,  9:17:18 AM
COMPX levels I'm watching are, for support, 1190, 1220, then 1230-35; for resistance, 1250, 1260, then strong resistance at 1290, and 1315.

 
 
  Leigh Stevens   7/26/02,  9:16:31 AM
Pre-Opening INDEX Comments - Seminconductor stocks have rebounded some, giving a boost to the Nasdaq this morning. Goldman had some positive comments on the Chip makers.

 
 
  Leigh Stevens   7/26/02,  9:13:31 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > +5.60 at 842.40; Dow Industrials > +45.00 at 8215; Nasdaq > +17 at 914.00

"Fair Value" numbers: S&P 500 futures ($SP02U): 0.85 -- Nasdaq 100 futures ($ND02U): 3.18

 
 
  Jonathan Levinson   7/26/02,  9:12:35 AM
Interesting day yesterday and as always you guys did a great job covering it. Maria B. (CNBC) just reviewed the outflows of money from funds... needless to say it was not good. I am wondering, could this information be a leading type indicator to be used with PNF charts since money (supply) is needed to prop or move stocks up. Is this thinking okay?

It is certainly worth watching, and market liquidity is an important component in predicting price direction. Without its source of fuel, the market can't get far. Funds can be forced to sell off holdings in order to meet their customers' redemptions. The more indicators you track the better, and this one is certainly a keeper.

 
 
  Jonathan Levinson   7/26/02,  9:01:20 AM
Goldman has upgraded the semiconductor sector. Nasdaq futures currently up 12.

 
 
  Jonathan Levinson   7/26/02,  8:01:12 AM
The US Dollar Index went below 104.80 last night before ramping back to above 105.20, and it's been in a range between 105.20 and 105.40 ever since. Gold is now trading below 310/oz. Nasdaq futures are currently up 5.

 
 
  Jeff Bailey   7/25/02,  10:21:17 PM
The Market Monitor has been archived. To view Thursday's comments, simply click this Link

 
 

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