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  Jim Brown   7/29/02,  4:30:04 PM
Pivot Trade Wrap
What Resistance? -
The markets just kept powering through one resistance level after another with steady buying but very few buy programs. Slow and steady wins the race they say and if anything it lulled the bears to sleep thinking that it was running out of steam all afternoon. The Dow closed just over 8700 with next resistance at 8840. The OEX closed at resistance of 450 with strong resistance to 460. The Nasdaq started out lagging the other indexes but ended up being a strong gainer and closing over 1335. Strength there came from the chip sector after the Goldman upgrade last week.

Short covering spurred institutions, which triggered retail buying, which powered the Dow to the 3rd biggest point gain ever. The trend has definitely changed. The afternoon sell offs have ceased and have been replaced by buying binges. The challenge as I see it is going long after a market that has +1100 points of gains in the last four days. Nothing goes straight up but until gravity returns the best course of action may be to sit out.

The rest of the week is littered with economic reports that could burst this balloon and trash the bullish hopes. Of course to be fair positive reports could give it additional fuel. Tune in early tomorrow and we will try to figure out the combination to this puzzle.

 
 
  Steven Price   7/29/02,  4:08:48 PM
EXPE $50.30 (+3.10)

Reader Question: Hi steve,would you short EXPE at this level???????Thanks for your comments.....

Response: Sorry for the late response, I had a flood of late emails asking about shorting the close. In this instance, EXPE closed above our stop loss of $49.50, so we are stopped out of the play. So the answer to your question is no.

 
 
  Jim Brown   7/29/02,  4:03:55 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the open SHORT signal at 15:58:52 when the OEX traded above 450.25. (SPX 898.16, Emini 899.25, DIA 87.17, SPY 90.25, DJX 87.07, NDX 967.18, Compx 1331.62) Resistance broken again. Positively amazing. We were stopped out by a quarter with the Dow breaking above 8700. Tomorrow is another day!

 
 
  Leigh Stevens   7/29/02,  4:01:32 PM
Subscriber QUESTION: "I was very interested in your comment that the first leg may be equaled by a second leg. It seems to me that the first leg in the SPX was 776 to 852 or 76. Does this mean the second leg may be 852 plus 76 or 938?

If you could suggest a book on waves I would appreciate it. Neeleys book has been recommended to me but the reviews on Amazon.com, indicate that it is a difficult read. I bought a book by Frost and Prechter. I put the book aside as ithe first chapter was incomprehensible to me. I intend to give it a second go. As you may surmise, I am looking for an introductory explanation of waves.

Thanks for your help. I am an avid reader of your comments "

RESPONSE: Best is "Major works of RN Elliott" EDITED by Bob

In OEX, I was talking about first upswing from 384 to 425 = 41 points + 425 = 466 as an objective for a second up "leg", which also happens to equal a prior high (7/12)

 
 
  Steven Price   7/29/02,  4:01:11 PM
Reader Question: Steve, I have been following the Puts that OI just put out over the week end and the two struggling are CBE and BBOX but CBE is up over a $1. now while BBOX is still weak. What are you feelings on CBE now? I have not purchase anything as of yet but would be looking at BBOX as it seems to be the weakest, any thoughts?

Thanks, William

I'll make this quick to try and beat the close. (Options close at 2 min. after the market). I think BBOX looks like a good short at this point, as it is down on such a big up day for the market.

 
 
  Steven Price   7/29/02,  3:57:44 PM
Reader Question : I am looking at going short on CBE into the close. In this kind of market is it just wiser to stay on the sidelines? I guess I am getting too wrapped up in the emotion of things today and just wanted to get an unbiased take on the move today. I keep wanting to short, but I have gotten burned several times today by trying to katch the knife on the way up. I basically wanted to get your opinion on the risk/reward for this play. BTW thanks for all of your insightful posts, I really appreciate your thoughts.

Response: This stock has approached $30 and failed several times. Most recently, last Wednesday (another 400+ point day in the DOW) it got as high as $29.99. I'd like to see it get a little closer and test the level again. On a rollover at that point I would like the short entry.

 
 
  Jim Brown   7/29/02,  3:52:17 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
If we are not stopped out we will be holding this SHORT position overnight. Big up days tend to open down the next day

 
 
  Steven Price   7/29/02,  3:51:39 PM
Reader Question: Would you share your thoughts on AMGN? Seems like it is pushing against some resistance at 43-44.

Many thanks, Shawn

Response: As you noted, there is some resistance just over $44. The stock was turned back at $44.20 and $44.13 on June 18th and 19th, respectively. Beyond that level to the upside, $50 certainly looks attainable. If I was shorting Amgen here, I would use a pretty tight stop, probably $45. To the downside, $37.30 would fill the gap, although it has held this level well recently.

 
 
  Jonathan Levinson   7/29/02,  3:47:02 PM
Volume breadth back to 13x advancing:declining. Today's upside breakaway gap open followed by volatility and the TRINQ crashing is a fine example of how powerfully that bullish bungee can snap.

 
 
  Jim Brown   7/29/02,  3:44:56 PM
Pivot Trade Signals
This bullishness is amazing considering the flurry of economic reports we have this week. Tomorrow is the BTM, Redbook and Consumer Confidence. The confidence is expected to fall from 106.4 to 101.1. A greater drop would be negative to the markets. Wednesday we have the GDP, PMI and Beige Book. The GDP could be a problem if it comes in much lower than expected at +2.4% growth for the 2Q. If it appears the economy is slowing again then the markets would react negatively. Thursday is ISM, Construction Spending, Auto Sales. The ISM is also expected to show slower growth. Friday has Non-farm payrolls, Personal Income and Spending and Factory Orders. This entire week is a minefield of potential economic problems which makes it even more unlikely that this rally holds. So why is it going up? Short covering is still my guess.

 
 
  Leigh Stevens   7/29/02,  3:37:16 PM
Subscriber QUESTION: "what are your thoughts on buying a aug.70 put on IBM now?"

RESPONSE: My thought is to lay off the put side as IBM is rallying from the low end of its recent 66-74 trading range. I would at least wait & see if the stock can get back to the high end of its recent range - in the 74 area.

 
 
  Jeff Bailey   7/29/02,  3:29:44 PM
The 3:15 PM intraday update has been posted. Link

 
 
  John Seckinger   7/29/02,  3:19:22 PM
Sector Search: Per earlier post regarding both the Biotech and Oil Index, the BTK.X index is currently higher by 17.64 points, or 5.38%, at 345. Projected resistance is from 345 to 348, while the 22 DMA remains at 351. Turning to XOI.X (469, +20.26), the 22 DMA still remains much higher at 484 while a trend line from relative highs on 7/12, 7/17, 7/18 points to resistance near 475. This index has most likely lagged as assets shift into more riskier investments; equities. Note: As the 30-year bond index (TYX.X) is seen at 5.403, fixed income traders will now look towards both the 50 and 200 DMA at 5.461 and 5.474, respectively. 5.4 percent will be critical tomorrow on settlement basis only.

 
 
  Leigh Stevens   7/29/02,  3:18:28 PM
Subscriber QUESTION: "Leigh, The OEX is in your short area, however, the markets look fairly strong. What levels should I be watching for a major breakout....8650? "

RESPONSE: Good point - TIME TO UPDATE!

OEX has just busted out above resistance implied by the low end of a trading range of mid-month in 446 area. My major shorting interest would be if OEX got back up to 470 area, at the top end of the broad hourly downtrend channel that the S&P 100 has been in for some time. There is resistance implied by the prior (up) swing highs at 458 and 466 however that I'm watching.

Dow close above 8635, at level of current 21-day moving average,is bullish - certainly also, as you say, 8650-8660 area.

 
 
  Jonathan Levinson   7/29/02,  3:08:40 PM
COMPX volume breadth has "weakened" a little more, now just over 10 advancing shares to every declining share. Volume is now 1.53B shares total as we move into the last hour of trading. Unless there's a massive selloff, today will finish as one very green day for the bulls. As Lowell pointed out, this is that bungee snap we've been waiting for. QQV is at 50.71, down 7.82 on the day, and the TRINQ is still in the cellar, .23.

 
 
  Leigh Stevens   7/29/02,  3:03:28 PM
Subscriber QUESTION: "Do have any opinion why ORCL is really not moving in the market? Has a great balance sheet and attractive PE. "

RESPONSE: What I have noticed is that Oracle (ORCL) almost moves contrary to the market- resists the declines, doesn't fully participate in the Nasdaq rallies sometimes. Currently, stock looks like its consolidating for a move higher. Would like to see volume pick up - its been low such as at bottom made the other day and rally today. The stock is overbought near-term and may need to come down again to "throw off" its short-term overbought.

Resistance is in the 10-10.50 zone. The key I think will be whether ORCL can get above 10.00, then 10.50. If it could churn through supply (stock for sale) in that area, stock might take off - it looks capable of a $12 objective.

 
 
  Steven Price   7/29/02,  2:50:19 PM
Reader Question : Steve,, What are your thoughts on CSCO...My thought is MSFT just pulling it along for the ride today....

Cisco Systems (CSCO) : $13.00 (+1.18) I can see CSCO reaching $14.00 resistance and then more resistance again at $15.00. While the stock may have some upside in it, it has a couple of significant ceilings above. Also support around $11.50. If you like watching paint dry, it's quite a range. If Microsoft continues its rise, it will pull quite a few techs with it, which is fine if you are long.

 
 
  Jim Brown   7/29/02,  2:49:05 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broad market SHORT signal at 14:42:50 when the OEX traded above 446. (SPX 890.58, Emini 891.00, DIA 86.33, SPY 89.45, DJX 86.21, NDX 963.69, Compx 1323.96) As stated in the signal the initial stop loss will be OEX 450.25 (SPX 900.50) The danger here is the Dow breaking out over 8650 and heading for blue sky and the next major resistance around 8800. Maybe we will be fortunate here and be repaid for the .10 cent stop out on the earlier short signal.

 
 
  John Seckinger   7/29/02,  2:44:09 PM
Afternoon Anecdotals: The 8600 pivot in the Dow seems to be the focus of attention, and bonds at 5.4 percent is a reflection of such an important fulcrum. With September 30-year bonds easily going to settle under 105-29, more weight will be placed on the Dow as the week progresses. Corporate bonds, dollar, Treasuries, etc.. will most likely trade in step with the blue-chips over the next few days. Remember: Non-farm is scheduled for this Friday while Beige Book and European Central Bank are to be released on Wednesday and Thursday, respectively. July Consumer Confidence is tomorrow, with analysts expecting a 101.5 reading versus a June report of 106.4.

 
 
  Steven Price   7/29/02,  2:41:55 PM
Ross Stores (ROST) $41.15 (+1.88) OI Watch List candidate ROST currently sitting right on its bearish resistance line. It is currently working on a bullish vertical count of $54. A 3 box reversal down, however would be needed to solidify the count.

 
 
  Steven Price   7/29/02,  2:31:42 PM
Reader Question: Hi Steve Been following your job and i like your insights your comments on GE looks toppy at 30

thanks Ernesto

General Electric: GE $29.93 (+2.13) GE looks heavy here, however it has broken a trendline started back in April, and traded above $30. No doubt last Friday's announcement about splitting GE Capital into four parts, thus making accounting more transparent, has helped, along with the entire market being up. I was asked on Friday about shorting the stock and held back for this very reason. I felt a run-up in the market would surely take GE with it. I'd like to see a roll over in the stock, possibly back below $29, AND in the broader market before going short GE.

 
 
  Jim Brown   7/29/02,  2:23:34 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Based on my 14:18 post let's SHORT the broader market if the OEX touches 446. (SPX 889.50) The stop loss on this signal will be OEX 451.25 (SPX 902.50) This is an aggressive signal an represents an attempt to buy resistance and pick a cycle top between 445-450. Conservative traders should wait for the breakdown signal at 440.

 
 
  Jonathan Levinson   7/29/02,  2:19:28 PM
COMPX volume breadth is back to slightly better than 12x in favor of advancing volume. The total volume on the COMPX at 1.36B looks a little light so far, but anyway you slice it, this is a big day for the bulls. The QQV is somehow below 50 (49.99), and the TRINQ is below .20. Not too long ago, it took Worldcom trading record volumes at below .10 per share to drill the TRINQ to these levels. The COMPX is currently seeing some selling, driving it off its highs of the day, to just over 1320. 1315 support is the number to watch in the short term, but any close above 1300 will look pretty good for the bulls today.

 
 
  Jim Brown   7/29/02,  2:18:34 PM
Pivot Trade Signals
The Dow is outpacing the other broader indexes. The Dow has significant resistance at 8620 which was just hit but the equivalent level on the OEX is 454 which is 10 points above us. Ten OEX points roughly equates to 200 Dow points so we have some serious divergence here. Since markets tend to overreact on extreme upside and downside moves it appears the Dow is in that overreaction move. Based on the Dow resistance I would be willing to short the market at OEX 445 if we hit it again. I am going to issue the signal now.

 
 
  Steven Price   7/29/02,  2:17:25 PM
WalMart (WMT) : OI call play WMT established a new buy signal at $49 on the PnF chart. Bearish resistance at $54.

 
 
  Steven Price   7/29/02,  2:15:08 PM
Reader Question : Does CBE still look like an attractive short now that it has broken Fridays high?

Response: Cooper Industries (CBE) $29.01 (+1.06) This stock is finally starting to play catch up, getting over last Friday's high. I still like it as a short, though, and this could provide another entry point under $30, but with a tight stop loss of $30, as we iterated in our play.Link .

 
 
  Jeff Bailey   7/29/02,  1:59:15 PM
According to Stock Trader's Almanac September is worst month for Dow and S&P 500. Only two decent midterm election years in last 10.

August has been second worst for Dow and S&P 500, rotten on NASDAQ too.

Subscriber question: I thought September was the worst month, not August or October. Please Verify

 
 
  John Seckinger   7/29/02,  1:59:01 PM
While watching the Dow move above 8600, it is hard not to think back to last week's analysis of the cash 30-year while yields were at 5.332 (11:30:00 on July 26th, five-minute chart). Above 8600 looks too good to be true. Even the 22 DMA is at 8601. Nevertheless, now we have a "pivot" to deal with. The Dow has gotten retail traders' attention above 8600 and it will take a move back underneath 8600 before longs are forced to liquidate and re-evaluate this move. If 8600 holds, traders' confidence will begin to rise. 30-year bond is now at 5.4%.

 
 
  Jeff Bailey   7/29/02,  1:50:31 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Jeff Bailey   7/29/02,  1:44:03 PM
Tyco Intl. (TYC) $12.48 +3.82% .... light volume today 20.1 million. Decent looking put play here in the Sept. $12.50 (TYCUQ) $1.90 x $2.05. Target $9.50 before expiration.

 
 
  Jonathan Levinson   7/29/02,  1:39:33 PM
1315 COMPX is now acting as support. Advancing volume is now 11x declining volume, and QQV is now down 7.69 on the day, off its lows. The TRINQ is still very low at .21. This has been a good day to stay out of the way of the bulls, and am glad I only ventured risk capital on my ill-timed put play. Many lessons, but the main one is to stick to the plan. Secondary lesson is that stochastics can stay buried as the market trends. Tertiary lesson is to respect s/r lines, and not to enter in "no-man's land" between them.

 
 
  Jim Brown   7/29/02,  1:39:19 PM
Pivot Trade Signals
The internals are finally weakening and we may be looking at the start of the afternoon direction change. We have seen a couple of sell programs come through recently which could signal the hedge funds coming back into the market on the short side or simply liquidating their long positions from last week. I really wanted to see the Dow hit 8600 so the last trigger on Sunday's editors play would be hit. Still, we only missed it by .82 cents and that means 6 of the 7 triggers were hit and with a roll over from here they could be very successful.

 
 
  Steven Price   7/29/02,  1:33:08 PM
KLAC-Tencor (KLAC) $37.96 (+0.67) Looking at last week's long debit Sep 40-30 put spread, originally bought for $3.50. This spread is now offered at $4.15, bid $3.80. With earnings tomorrow, conservative traders may be looking to close the spread for a small profit as the stock has found support around this level. The chart still looks weak, however decent earnings can move this stock several dollars at a crack.

 
 
  Steven Price   7/29/02,  1:25:39 PM
IBM: $70.06 (+3.66) IBM is sure to follow a rising market. A move up of more than $3 seems bullish, however the stock is still caught up in congestion between $74 and $66. An $8 range provides some decent in between swings, but the stock is dead center right now and hard to pick a direction

 
 
  Steven Price   7/29/02,  1:21:19 PM
Cooper Industries $28.55 (+0.60) OI put play Cooper so far unable to get past Friday's high - not a good sign with the Dow up 307 points. I like this level as a short entry.

 
 
  Leigh Stevens   7/29/02,  1:19:50 PM
Subscriber QUESTION: "Leigh - on a recent index wrap you showed the daily chart of the QQQ to point out the bullish price/RSI divergence. I noticed that the divergence was even more significant from the early may low to the early June low, although I don't recall you highlighting that one. If you didn't is there a reason I am not getting? "

RESPONSE: Good observation, but I was looking at this MOST RECENT bullish Price/RSI "divergence" (Prices fell to new low - RSI did not fall to a new low for ITS move) in the context of a couple of other technical aspects to the QQQ outlook.

1. This second RSI divergence occurred at the low end of its daily chart downtrend channel

2. The divergence occurred on an apparent bullish "selling climax" per the chart you can see at Link

I always look at multiple indicators or aspects - the more of these that "line up" or point to the same possibility of a trend reversal, the more trust I have in the overall outlook that it points to.

 
 
  Steven Price   7/29/02,  1:14:29 PM
Market Volatility Index (VIX.X) A look at the VIX shows a gap down this morning, now trading 34.61. Sustained upward movement has certainly reduced some of the fear which led to the VIX spike up to 56.74 last week. A weekend of time decay from a high premium level (high VIX) no doubt has long premium traders looking to dump some options.

 
 
  Jonathan Levinson   7/29/02,  1:05:12 PM
Next COMPX resistance looks to be in the 1330-35 area.

 
 
  John Seckinger   7/29/02,  1:01:21 PM
When does the allocation end?: Clearly 8600 in the Dow is a highly watched resistance area, while activity in the 30-year issue may reinforce this significant level. Looking at a chart of the 30-year bond (TYX.X), the 22 DMA (exponential) is at 53.866 while the bond currently trades at 53.76. The short term objective (last week) was for a move to 54; however, traders might want to revise that yield projection slightly lower. There are always stops in the marketplace that can at times "stretch the envelope of projections"; nevertheless, as a trader it is important to play the probabilities and manage risk effectively while not letting emotions get out of control. Even if 8600 and 53.866 do not act as highs, they should at least act as a powerful pivot and generate enough liquidity in order for a trader to step to the sidelines, re-evaluate, then re-enter as the next wave begins.

 
 
  Leigh Stevens   7/29/02,  12:52:38 PM
Subscriber QUESTION: "Holding long Q's from last week.I notice we have a 50% retrace from 26.44 and 21.64 of 24.04. Would that be your exit, now tha we passed 23.47(38.2%)? This is looking like a freight train, not a rocket, so it seems one should let this winner ride."

RESPONSE: As you say, 24 is a 50% retracement of the last downswing from the 26.44 high to 21.64 low. But, also as you note, the trend is strong, so I would not just automatically take profits on long positions at that level.

A "bottoms up" analysis of the key Nasdaq stocks, per my last market wrap, is necessary to see that there is more room for the Q's on the upside - I would not take some mechanical approach like selling rallies as sort of an automatic "reflex" reaction - a habit hard to break given the long bear market.

We need to recognize that this rally may have "legs" - this is not to say that recent bottom is "THE" bottom or anything like that - but, a likely tradable bottom where we could assume an overall bullish trading bias for this week.

 
 
  Jonathan Levinson   7/29/02,  12:46:03 PM
COMPX advancing volume is now 12 times declining volume, somewhat weaker than we saw earlier today. However, price has broken 1315 resistance,currently printing a new high at 1317. The QQV is down 8.14 on the day at 50.39- a volatility crash. Risk capital indeed.

 
 
  Jeff Bailey   7/29/02,  12:45:27 PM
YIELD Alert! 5-year YIELD 3.518% edging above Thursday's 3.517% YIELD high. This may be thought of as "YIELD high after potential asset allocation shift from Wednesday." A 5-year Treasury YIELD close above 3.517%, could set stage for further near-term selling in this bond to the 3.744% YIELD level. If that happens, then enough cash perhaps frees up to have S&P 100 (OEX.X) easily trading the 460 level or challenging its falling 50-day MA of 488.

 
 
  Jonathan Levinson   7/29/02,  12:40:59 PM
The COMPX continues to close in on 1315 resistance, as the QQV falls further still, now 50.83, down 7.7 on the day. The US Dollar Index has moved higher, currrently hovering around 105.25.

 
 
  John Seckinger   7/29/02,  12:38:36 PM
It is being reported that eighty-nine companies defaulted on $64 billion of bonds in the first half of this year, including a record $42.6 billion in the second quarter. Telecommunications and non-U.S. companies are the likely culprits. The pace of corporate defaults is running about 16 percent above last year's record total of $110.2 billion. The question now is If the Dow finds legs would junk bonds be a solid investment?

 
 
  Steven Price   7/29/02,  12:31:10 PM
The Dow has now retraced more than 50% of its losses since July 5th, when it began its latest precipitous drop. A 61.8% retracement would put the Dow at 8693

 
 
  Jeff Bailey   7/29/02,  12:28:57 PM
Hotels.com (ROOM) $42.10 +5.51% ... Jeff, The short stop of 42.01 on ROOM (shich is now passed) , should it be considered intra-day or more on a closing basis. Thanks and great work.

Trader will note break ABOVE after Friday's "inside day," Link so probably getting some short-covering here.

Also, and more importantly, USAI (which is trying to buy ROOM, TMCS and EXPE) also breaking ABOVE two consecutive "inside days." Link

If subscriber is short-term trader, then looking to stop out here. However, if more "swing-trader" then look for resistance in USAI at/near $22.50 level.

For swing-trade type short, also have an "option" of selling an in-the money put and selling some premium still. For instance, if short ROOM at $35, could sell the Aug. $45 put (URDTI) for $4.10 bid. Will raise your short entry to $39.10 and perhaps take some "heat" off trader near-term.

 
 
  Jim Brown   7/29/02,  12:22:25 PM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Let's try this SHORT again. The markets are very overbought here and unsupported. Let's SHORT the broader market with an OEX traded under 440. (440.09 was the last relative intraday low) SPX 878. The stop loss on this signal will be OEX 444.50, just above the high of the day again. (SPX 887) To hit this entry point the markets will have to weaken significantly. With advances still gaining on declines I would rather look for a breakdown instead of try to target shoot a top.

 
 
  Jonathan Levinson   7/29/02,  12:19:59 PM
Advancing volume is now 15 times declining volume on the COMPX, trading just below 1315 resistance and currently up 50 points today. The QQV is buried at 51.29, as the intraday stochastics are buried in overbought.

 
 
  Jeff Bailey   7/29/02,  12:19:51 PM
Network Appliance (NTAP) $8.42 -10.3% ... stock weak in otherwise strong market environment. Trading floor rumors speculate that company will preannounce, restate earnings, layoff workers, etc. Rumor also circulating that company has cancelled an appearance tomorrow at the Soundview storage conference, howevel Soundview says that NTAP did not inf fact cancel, but the company will not do one-on-ones because they are in their quiet period. Link

 
 
  John Seckinger   7/29/02,  12:06:55 PM
Sector Search: Semiconductor, Networking, and Disk Drive Sectors have recently performed a Bullish Divergence with reference to the RSI; nevertheless, the Biotech and Oil Index grab my attention. Beginning with the BTK.X (338, +10), the 22 DMA (326) should be the downside pivot while the 50 DMA (351) can easily be viewed as a long objective. I would actually be slightly surprised if the 50 DMA is reached; therefore, expect a reversal near the 345-348 area. Turning to XOI.X (467, +17.75), the 22 DMA still remains much higher at 485 while a trend line from relative highs on 7/12, 7/17, 7/18 points to resistance near 475. Interesting, same type of pattern as with the BTK.X - longs should get very excited; however, there is a good chance these indices will only offer so much. Support is seen in XOI.X at 445.

 
 
  Jim Brown   7/29/02,  12:00:35 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the open SHORT signal at 11:56:52 when the OEX traded above 444.00. (SPX 885.93, EMIni 886.50, DIA 85.99, SPY 89.09, DJX 85.90, NDX 950.43, Compx 1312.03) I would hate to think this was at the high of the day but only time will tell. I will reissue a new SHORT signal in a few moments.

 
 
  Steven Price   7/29/02,  11:52:36 AM
Reader Question: Steve, I enjoy reading your commentary. Can you please provide your thoughts/comments on short oppourtunity on Citibank (C:NYSE) and NVDA ?

Response: I would like to see how Citigroup (C) $32.91 (+2.17), reacts if it can reach close to the $35 level, which is its high ($35.05) from July 22, before the big drop. Right now, we're in no man's land on this stock, and I'd like to see it test a significant level before jumping on.

Nividia (NVDA) continues to look weak under $15, however it is tough to get a big move down in a stock this cheap. The options on the $15 line have about $1.50 of premium, and would require a move to $13.50 to break even. Looking at the chart, this price level certainly looks possible, but note that it's just the break even mark. I prefer to find opportunities with a little more potential.

 
 
  Jonathan Levinson   7/29/02,  11:52:04 AM
The QQV is now down 7.24 on the day to 51.29- they must be spiking that Hawaiian Punch with something strong.

 
 
  Jonathan Levinson   7/29/02,  11:45:09 AM
The COMPX has settled above 1300, and while it hasn't made it to 1315 resistance, it hasn't collapsed either. All of the intraday 5(3) stochastics are overbought, and the daily is well on its way. Still, however, until the 30 and 60 minute oscillators cross back downward, we don't have a sell signal. The QQV is now down an even more astounding 6.55 on the day to 51.98- the bulls must be passing around the Hawaiian Punch and suntan lotion.

 
 
  Jeff Bailey   7/29/02,  11:28:29 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Jim Brown   7/29/02,  11:22:07 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the open LONG signal from Friday when the OEX traded below 441. (SPX 879.62, Emini 879.75, DIA 85.47, SPY 88.25, DJX 85.31, NDX 940.10, Compx 1301.12) This entry for this signal was triggered at OEX 421.25.

 
 
  Jim Brown   7/29/02,  11:19:41 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broader market SHORT at 11:15:10 when the OEX traded below 441.00 (SPX 879.62, Emini 879.75, DIA 85.47, SPY 88.25, DJX 85.31, NDX 940.10, Compx 1301.12) The initial stop loss will be OEX 444, just over the high of the day. (SPX 884)

 
 
  John Seckinger   7/29/02,  11:13:00 AM
Regarding option price decay over the weekend: Why can't they count the number of market open days and spread option price decay over that period of time?

Response

Dating back to 1901 when Frenchman Louis Bachelier first published an outline of the very first option "valuation model", questions surfaced. Why is there a "premium burn" over the weekend? Turning to the greeks, "Rho", by definition, is the sensitivity of an option's fair value to changes in interest rates. Since the bond market is open seven days a week, exchanges need to account for this daily accrued interest. For volatility purposes in order to assess the "speed" of the market, only trading days are used. This "weekend effect" is further highlighted at the following: Link

 
 
  Jonathan Levinson   7/29/02,  11:05:14 AM
Up volume is almost 11 times down volume on the COMPX, on total volume of 672M so far today. 2,203 advancers to 781 decliners, with 15 new highs and 59 new lows.

 
 
  Steven Price   7/29/02,  11:05:07 AM
Black Box (BBOX) $37.00 (+0.08):Current OI put play BBOX looking weak, as the rising tide could not lift this boat very high. The stock had a high today of $37.75, and now looks weak. This level should provide a good short entry.

 
 
  Jonathan Levinson   7/29/02,  11:02:15 AM
The QQV is down an astounding 5.53 on the day. The TRINQ remains low at .26. The COMPX made it to 1307 on that last move. This has been a very big up day for the COMPX so far.

 
 
  Steven Price   7/29/02,  10:58:04 AM
WalMart (WMT) $48.92 (+0.74) WalMart may experience a pullback with the broader market, however it has now crossed its 21-dma of $48.90. The stock, which has traded as high as $49.41 looks bullish, however $50 could give some resistance, although it did not provide much support on the way down.

 
 
  Leigh Stevens   7/29/02,  10:54:10 AM
INDEX Comments: Re Dollar & Bond influences on equities - I show a chart very relevant to the dollar, the EURO, in my Sunday commentary at Link -- with my forecast or projection that it's next leg is down, meaning dollar going up some from here. This is a backdrop to the equities market only. Normally, there is not a "preoccupation" with dollar strength or weakness as far as equities outlook unless it's a real EXTREME - which we do NOT have with the recent Euro/Yen rebound. These currencies have merely recovered some of their lost "value", relative to the U.S. dollar.

However, in a bear market investors & traders - and, especially the talking heads on the media - have pointed to dollar weakness as one of the "reasons" for the weakness in stocks. This is somewhat suspect as sound inter-market analysis.

2. U.S. Bonds are a "competing" asset class to equities and form the other "half" of our capital markets. The Euro or Yen or other currencies are not competing assets to stocks. Their relative levels might be an influence in decisions about investing in their capital markets (bonds or stocks) however.

 
 
  Jim Brown   7/29/02,  10:54:05 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Change the entry point on the SHORT signal to OEX 441 (SPX 880) This is the same as the exit point on the LONG signal.

 
 
  Jim Brown   7/29/02,  10:46:32 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Let's go short the broader market with an OEX trade below 439 (SPX 876) This is an AGGRESSIVE signal.

 
 
  Jonathan Levinson   7/29/02,  10:43:27 AM
The QQV is now down 2.46 on the day, the TRINQ is at. 26 and the COMPX is at 1303. My 60 minute 5(3) stochastics might have touched 100% overbought briefly, and aggressive bears could enter a partial position here. I just don't see 1315 becoming reality on a day showing +40 points on the COMPX already. This is a high risk entry, being between two s/r lines, and I'd use risk capital only if taking it at all.

 
 
  Jim Brown   7/29/02,  10:42:59 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Dow 8600 is serious resistance and could spell the doom for this bounce. Time to squeeze the stop loss and get ready to go short! Let's close this signal with an OEX trade below 441. (SPX 880)

 
 
  Jeff Bailey   7/29/02,  10:39:04 AM
Orbital Sciences (ORB) $4.45 +11.25% .... Announces that its Technical Services Division has been selected for an 8-year, $57 million contract by Lockheed Martin. Link

Decent little "inside day" for aggressive bull to trade with some "good news" today. Bullish above Friday's high of $4.43, stop under Friday's low of $3.96, technical target of 200-day MA $5.06 or rounding 50-day MA up at $6.60. Link

 
 
  Leigh Stevens   7/29/02,  10:38:56 AM
Subscriber NOTE: "I read your recent Trader's Corner piece on oscillators and got a ton of info. from it. I thought I knew how to stochastics but I didn't. I tried it today your way on e-mini s&p's. Although they were in a rather tight range I was able to pick out a few winning trades but, mostly I avoided several reversals that would have lost. "

RESPONSE: There was one statement that I would modify however - the common or "typical" Stochastics "smoothing" defaults are 3 for percent K ( %K ) and 3 for percent D ( %D ), so I would go ahead and use "3", not "1" as I mention for percent K ( %K ) in my Trader's Corner article at Link

So, how I have my Stochastics formula set when I label my Stochastic in my wrap charts as "14-day Stochastic" -- is (14,3,3) - - or, when I label my charts as 5 or 21-hour Stochastics, complete formula is "(5,3,3)" and "(21,3,3)", respectively - this is settings numbers you will see in your charting application such as Q-Charts. I don't bother showing the smoothing factors because I don't want to emphasize these numbers - the application makers should just show "length" in my estimation. Those that can "tweak" a stochastic in a meaningful way by changing the "smoothing" factor are few and far between.

George Lane, who came up with the Stochastics indicator never went into more than trying different settings for length depending on kind of trading you did - people I knew who worked with him came back with techniques in USING the indicator in trading (trading momentum, trading "divergences" etc.), NOT in changing the formula inputs.

 
 
  John Seckinger   7/29/02,  10:34:54 AM
Understanding the dollar and bond relationship to the equity markets can at times be puzzling, any thoughts?

Response

Unfortunately, dollar-denominated assets can not be understood as a science. Every book on bonds I read dealt either with simple theory or extreme mathematical equations, neither extremely helpful. Attaining an MBA in finance only gave for more variables that add to the "artwork" of trading. My advice is to follow bonds, dollar, oil, CRB index, equities, currencies, etc.. every day until you can recognize flows from one sector to the next. Then break it down some more...if 2-years are weak, is the selling coming from China? If so, how does that affect stocks? Then do the same analysis for stocks; which sectors are weak and where are the funds going to? Remember: It is nice to come up with an answer that fits (2-years weak, Yen rises while dollar weakens); however, you will learn more when everything is out of whack. I just hope both days are profitable.

 
 
  Leigh Stevens   7/29/02,  10:30:18 AM
Subscriber NOTE: "Hello Leigh, Enjoy and learn from your commentaries. Notice that $tickq does not work with Q-charts. I use tick.ny for the NYSE tick but unsure of the NASDAQ tick symbol. Your help is appreciated. "

RESPONSE: Sorry, I gave TradeStation symbol for Nasdaq TICK indicator - for Q-charts it is "TICK.NY" for NYSE as you point out, and "TICK.NQ" for Nasdaq

 
 
  Jonathan Levinson   7/29/02,  10:29:40 AM
The COMPX stopped at 1300.33 on this last surge, with the TRINQ at .29. QQV is down 1.85 on the day. Resistance at 1315 seems a long way away, but so far this bounce has managed to stay above the opening gap up. Stochastics are overbought but not crossing down yet.

 
 
  Jim Brown   7/29/02,  10:29:40 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's raise the stop loss to OEX 439. (SPX 876) If we hit these will begin looking for a new entry point to the down side. The rate of gain is decreasing as we move higher.

 
 
  Leigh Stevens   7/29/02,  10:24:38 AM
Subscriber QUESTION: "I don't understand exactly your explaination of filling the OEX chart gap (n your Sunday commentary). Was it just filled or does it need to hit the official close? "

RESPONSE: Yes, filled. The OEX daily chart gap was "filled" by the index trading up to 440 - a close at or above 440 is not relevant in this.

To "fill in" a prior chart gap - an open space between one day's low and next day's high in this case - means to trade "through" the price area of the prior price gap - by any trading that occurs during the regular session

 
 
  Jim Brown   7/29/02,  10:19:56 AM
Pivot Trade Signals
Now this is exciting! The rally is soaring through minor resistance levels and appears it "could" be headed for the next major resistance in the 450 area. (Let's hope) Because a rally like this tends to feed on itself but will have dips I do not want to move the stop loss too quickly. Please fell free to take profits whenever you want. My ideal target would be something in the 446-450 range and I will close the play if we are lucky enough to hit those levels. 450 would be my target to go short BUT ONLY IF CONDITIONS BEGIN WEAKENING.

 
 
  John Seckinger   7/29/02,  10:17:24 AM
I have a question regarding your yield curve multiplication. With the 5- and 10-year bond, why use a multiple of 6 and 4, respectively? I would think you would multiply the 5 yr times 6 and the 10 yr times 3 in order to convert both to 30 yr for comparison?

Response

Good Question. There could be cheapest-to-deliver, coupon, or even calendar concerns; nevertheless, all pit traders and almost all institutions use the 6 and 4 multiplier (lowest case denominator 3:2, but my mind works well with 6:4). Therefore, with the entire CBOT pulling up a chart of the curve with a 6:4 multiplier, it made sense for me to do the same. Trading the yield curve at the CBOT can have its advantages, one of them lowering margin requirements. The yield curve can at times predict Fed movement, currency concerns, and patriation due to global meltdowns. It has become an invaluable tool.

 
 
  Jonathan Levinson   7/29/02,  10:12:20 AM
The COMPX is printing new highs of the day at 1297, with the QQV down 1.12 to 57.41 and the TRINQ less extreme at .27.

 
 
  Steven Price   7/29/02,  10:10:33 AM
(MMM) $123.44 (+2.14) 3M is approaching its 50-dma of 123.82. A trade above this level would put it above its 10, 21, 50 and 200-dmas

 
 
  Leigh Stevens   7/29/02,  10:09:59 AM
INDEX Comments: S&P/DJX - thought I would update the chart I featured on Friday when 30/60min. chart patterns looked like bullish "flag" type consolidations that were suggesting a second upswing to come - my comment was -

"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.".

These projections worked out pretty well as next upside objectives - these targets were not to suggest that these objectives were the "maximum" or only rally potential, as that remains to be seen.

And, my upside targets were reached AFTER there was a price dip that made it look like the rally might fall apart but support was not taken out at the LOW end of the "flags". Updating the chart pattern, the outcome on SPX's chart re the flag pattern & its upside projection looks like this - Link

 
 
  Steven Price   7/29/02,  10:06:48 AM
Walmart $48.43 (+0.25) OI call play WMT was one of the few Dow componenets to not open higher this morning. It found support, however, and is now up on the day. Also the Retail Index ($RLX.X) has finally broken through the 280 level, after 3 failed attempts last week, to trade 281.60 this morning.

 
 
  Jonathan Levinson   7/29/02,  10:05:39 AM
Still waiting for that 5(3) stochastic cross on the 30 and 60 minute COMPX chart. The TRINQ is off its lows, but so's the price, currently 1294 COMPX. There's an underlying bid here, making me glad to have stayed out when the COMPX went below 1290 just now.

 
 
  Steven Price   7/29/02,  9:56:53 AM
3M (MMM) $122.89 (+2.04) 3M made OI's call play list this weekend after showing good strength and having no problem with its $120 resistance.

 
 
  Jim Brown   7/29/02,  9:55:30 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's raise the stop loss on the open LONG signal to OEX 435. (SPX 865) I really don't want to close the play if the markets are going to recover from this post spike dip but we need to protect the current gains in case it doesn't.

 
 
  John Seckinger   7/29/02,  9:53:15 AM
Morning Anecdotals: Dollar nicely higher while oil comes under a light round of profit taking. Bonds weak across all maturities. CRB Index down slightly despite a small incline in Gold prices. With a dollar/yen spread of 115 barely on the radar screen, equities traders seem to be looking for bonds as a short term leading indicator. Currently down 23 at 105-06, if fixed income traders believe bonds will settle under 105-30 I would not be surprised to see an even more pronounced sell off late in the day (higher yields).

 
 
  Jim Brown   7/29/02,  9:51:40 AM
Pivot Trade Signals
Advance/declines are running 4:1 in favor of advances and the VIX has fallen to 36.92. It is a very bullish open but all the indexes appear to have hit the ceiling. at 8440/1295/872/438.

 
 
  Steven Price   7/29/02,  9:48:52 AM
Microsoft (MSFT): $46.87 (+1.52) OI call play MSFT is continuing its rebound this morning with the rest of the market. Look for strength here to lead the Nasdaq higher.

 
 
  Jonathan Levinson   7/29/02,  9:48:24 AM
That was close. I almost jumped in when it looked like the COMPX was keeling over. I think that price is going to try to reach for 1300. So far, it's taking a lot of buying to keep the COMPX above 1290, with the TRINQ so low at .20. But it hasn't failed yet, so staying patient.

 
 
  Jim Brown   7/29/02,  9:45:03 AM
Dow Contest We had some great participation in our Guess the Dow contest and the ending numbers looked like this. The high guess was 9999 and the low guess was 6754 nearly a 2300 point range. The average of all the guesses was 8266.67. The reader closest to the Dow's close this coming Friday will win a very high end dual monitor video card. If you have not entered a guess yet I am going to close the entries at exactly 10:AM ET. Go here and enter your guess now. Link

 
 
  John Seckinger   7/29/02,  9:41:53 AM
Asset Allocation: When investigating the magnitude of assets that shift from bonds to stocks, I always go to the yield curve first. What I expect to see is relative weakness in the five-year versus ten-year; thus confirming the rally might have legs. Monday's fixed income report has five years down 15 while 10-years are off 19.5. This is called a "flattener" of the yield curve and is 12 ticks (15 times 6 is 90; 19.5 times 4 is 78; 90-78 is 12) flat. Note: 16 is a strong number, while over 32 is very significant.

 
 
  Jeff Bailey   7/29/02,  9:41:22 AM
Goldman Sachs (GS) $72.01 +3.49% ... Hi Jeff, I'd like to ask your opinion on GS as a short. I am holding some aug 65 puts with a sustainable loss, as price is stuck at the $69 resistance while decreasing volatiltity is draining premium. Your comments are most educative.

You've identified part of the "problem." Buying near-month options when market volatility is high is not necessarily a good option strategy, especially if trade doesn't work immediately in trader's favor. Even "worse" is buying out-the-money if stock doesn't immediately go trader's direction. When buying out-the-money, trader is paying ALL time premium!!!!! When volatility is higher (like we've been it) your trading a very sharp knife with very sharp blade on two side (price and premium).

Personal experience has even had me "right" on the call side of things when volatility is high. When stock jumps higher on a rebound, gains in call option aren't very good when the volatility falls as market/stock rally. I've "learned" not to buy near-month options when volatility is high. Link

In last Thursday's "market monitor" at 11:36:54 Link I talked some about "jacked up" premiums in options and how option trader needs to buy time under high volatility conditions that we've been in.

As it relates to "time" and GS. GS chart still bearish. Thinking "if I'd bought" September or October puts, even under currently little rally, could actually SELL August premiums in the naken puts near-term for a trade.

Not much you can do right here, but perhaps take some notes and "learn" for future. We learn more from mistakes. Key is to NOT duplicate in the future or at least understand the "risk" of buying near-term options when premiums are high. Time erosion can really work against a trader.

 
 
  Jonathan Levinson   7/29/02,  9:36:30 AM
We have a very low opening TRINQ of .16 in the initial chop, QQV up .15 to 58.68. COMPX sitting right at 1290 resistance.

 
 
  Jeff Bailey   7/29/02,  9:30:37 AM
DSP Group (DSPG) $16.18 ... Hey Jeff, If you would, take a look at DSPG. It's made a bearish triangle breakdown, and looks generally weak to me. Would you play this one short/put? If so, what would your plan be?

Dorsey/Wright and Assoc. has this stock classified as "telephone." As such, sector is "bear confirmed" at 12%. Yes, stock gave "bearish triangle" at $16.50. Current bearish vertical count is to $14.

Current plan would be ideally to get a rally to the $17.50 level, then look short/put, initial target of $14. Then should some type of "good fortune" take place for bear and get some "bad news" or gap down type of situation, could use Professor Davis' "bearish triangle" study for 33.3% decline over 2.5 months. If taken from the $16.50 level, target would be $11.00.

So, look for rally to $17.50, short, stop $19.50, target range $14-$11. Link

 
 
  Jim Brown   7/29/02,  9:26:39 AM
Pivot Trade Signals
The bullishness continues! The positive sentiment appears to be carrying over from Friday but it remains to be seen how much further it will go. If the strong futures follow through into a strong opening then any existing shorts could be in desperate need of some antacid.

The Dow has resistance at 8300 but that should be exceeded at the open. The next level of resistance is 8400 which continues weakly through 8600. The stage is set for a strong short squeeze which "could" run for +300 points. This would be a very optimistic viewpoint. The S&P has resistance from 863-870 with strong resistance at 900. This will keep a lid on any bounce.

The problem with the big declines we have seen is that they leave strong overhead resistance in their wake. For the S&P every 5-10 points presents another challenge to the bulls in the form of an increased number of sellers. Let's have fun on the upside for as long as it lasts but we need to be prepared for the next dip.

The stop loss on the current LONG signal is 421.25 but I will raise it once the opening bounce is underway. We need to watch out for the gap and crap in case the bears come out in force.

 
 
  Jeff Bailey   7/29/02,  9:21:25 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Leigh Stevens   7/29/02,  9:17:20 AM
Pre-Opening, Stock INDEXES - Good Morning - It's Showtime!

Index FUTURES snapshot: S&P 500 > +14.50 at 868.30; Dow Industrials > +123.00 at 8390; Nasdaq > +19.50 at 932.00

"Fair Value" numbers: S&P 500 futures ($SP02U): 0.82 -- Nasdaq 100 futures ($ND02U): 3.12

 
 
  Jeff Bailey   7/29/02,  9:15:49 AM
Teva Pharmaceuticals (TEVA) $60.96 ... reports EPS of $0.68 a share, which beat estimates by $0.06 a share. Revenues rose 11.4% year/year to $572 million versus consensus of $566.6 million. Reuters is reporting that company's CEO expects Q3 to at least match the profit posted in Q2, and sees a good chance of upside (consensus $0.64). Link

 
 
  Jonathan Levinson   7/29/02,  9:03:43 AM
My strategy remains the same- short every rally. I will watch for a rollover, but won't enter puts until there's a rollover on the longer intraday 5(3) stochastics. The daily and weekly have turned up, so I want to make sure that the tide is in my direction before putting on a new position. There remains the possibility that this move up is *THE* reversal, but as the longer trend remains down, I remain sceptical.

 
 
  Jonathan Levinson   7/29/02,  8:27:20 AM
It looks like the COMPX will be gapping open. I see overhead resistance at 1290-95, then 1315. Support below is at 1250, then 1240, then 1220-25.

 
 
  Jonathan Levinson   7/29/02,  8:07:48 AM
The US Dollar Index has made it all the way to 107, where it's currently hovering, with equity futures strongly up this morning.

 
 
  Jeff Bailey   7/26/02,  6:15:15 PM
The Market Monitor has been archived. To view Friday's comments, simply click this Link

Enjoy the weekend!

 
 

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