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  John Seckinger   7/31/02,  4:12:13 PM
With cash 30-year bonds closing with a neutral bias, equity traders seeing the Dow close on its highs will most likely imagine demand was not satisfied and Thursday morning will feature a higher opening. I am not necessarily in that camp. A five minute chart of the Dow (profiled earlier) shows the right shoulder completed and stocks could very well head back down to 8530; however, 8761 cannot be cleared during trading on Thursday. Also noteworthy is the bifurcation within the tech-laden Nasdaq. Note: September bonds did in fact close exactly at 105-30 (see previous post).

  Jim Brown   7/31/02,  4:07:19 PM
Pivot Trade Wrap - Frustration Building -
I am thinking about taking a long walk and not coming back. We were stopped out of our third short position in a row by only a few cents . The market has a mind of its own and it appears it is afflicted with a personality disorder. Up on bad news, down on good news and no shortage of news is causing multiple triple digit swings every day. You need a seatbelt, a pot of coffee to keep you awake for 5 of the 7 hours and Prozac to calm you during the other two.

The economic reports were severely negative but in good Salomon fashion they put lipstick on the pigs, dressed them in their Sunday finest and paraded them on every TV program they could find. They carefully pointed out their positive points and ignored the obvious flaws. In the end they will still be pigs and as the days progress the smell will increase until they are sent back to the barn.

The good news for the day was the strong ramp at the close. Every point of unsupported gain makes the market just that much more over bought. We need to get to the extreme overbought conditions that are as extreme as the oversold we saw last week. Trading this indecisive chop in the middle is murder. See you at the open!

  Steven Price   7/31/02,  3:59:57 PM
Baxter BAX $39.98 (+1.74) OI call play BAX , originally picked at $35.89 has reached its target range, and conservative investors may want to take profits. It has, however, broken $40.00 intraday, which was prior resistance , and new entries may want to eye a trade of $40.50 for a decisive move through this level with a possible target of $44.63, its 50-dma.

  Jeff Bailey   7/31/02,  3:53:23 PM
NVIDIA (NVDA) $11.07 -31.8% ... Jeff how low do you think the NVDA would go? would please give me the support and resistance?

Stock I profiled as bullish 1/2 position at $21, stop $17.50. Stock did trade $17.50 and began bearish vertical count column (O's from $22-$15.50) and has vertical count as bearish to $7. As such, this becomes initial risk assessment level. Resistance now looks to be building at the $15.00 level. Link

  Jim Brown   7/31/02,  3:48:17 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the open broader market SHORT signal at 15:42:02 when the OEX traded above 456.50. (SPX 907.88, Emini 907.00, DIA 87.05, SPY 91.11, DJX 86.99, NDX 959.52, Compx 1327.71) Very frustrating since the buying in the last 15 min was obviously program related and just barely broke over our stop before running out of steam. This would be a good spot to be short again but we will wait until tomorrow morning before issuing another signal.

  Jeff Bailey   7/31/02,  3:36:09 PM
The 3:15 PM intraday update has been posted. Link

  Leigh Stevens   7/31/02,  3:27:45 PM
INDEX Comments: SPX/OEX/DJX - they couldn't take em down, now they're taking em up. So far, there's been no decisive downside penetration of the Head & Shoulder's "necklines" so there is no "confimation" of the top patterns yet - instead last rally in last 30min. time period has broken out above the down trendlines off the highest high. Looks like they could run them up higher in the final hour here.

  John Seckinger   7/31/02,  3:19:08 PM
Economic releases scheduled for tomorrow are as follows: July ISM Index at 10:00 am (55.0 consensus versus 56.2 prior month), while the morning report (8:30 a.m.) covering Initial Claims could give an indication for Friday's Non-farm payroll report. Estimates for July employment numbers are for a 60k rise versus a 36k increase the month prior. A steady 5.9% unemployment rate is also predicted. Moreover, wage-push inflation is expected to be contained with only a 0.2% rise in hourly earnings. This compares to a 0.4% increase in June.

  Jonathan Levinson   7/31/02,  3:18:23 PM
COMPX internals have firmed a little, with 4.3 declining shares for each advancing. For the past 2 days, since yesterday's peak, we've been seeing lower highs and lower lows, easily seen on the 10 and 15 minute COMPX charts. A bear's concern right now would be whether we're looking at a descending or falling wedge, which tend to break north. Bulkowski's Encyclopedia of Chart Patterns notes that when they do break south, it can be the result of contributing factors such as a head and shoulders topping pattern. Readers are asking what to do with puts going into the close. Well, of course, it depends. Jim's analysis at 15:05:17 applies here, and my feeling is the same as his. We could get a pop going into the close, but for my own account, I'm staying with my position.

  Steven Price   7/31/02,  3:16:05 PM
Reader Question: IBM $69.25 (-2.54) Steve, after IBM's recent announcement of buying PwC and today's' weakness in IBM price, where do you think it is going? Is it vertical bear count of $61 still applicable? Thanks. A

Response: Most of the time when a company announces a large purchase, in this case a $3.5 billion expenditure, the stock drops. There will always be an analyst out there who says they are paying too much. While these bounces are tradeable, they do not necessarily foreshadow a long term trend. The vertical bear count on IBM was negated with a new buy signal when the stock last traded $71 on the PnF. Looking at the daily chart, however, this stock is mired in a range from the middle of June. I discussed a long butterfly spread on IBM on yesterday's Monitor, which benefits from the stock staying around $70, as I would not take long-term direction in IBM until it breaks its consolidation. The current range between $67 and $74, however, can provide short-term opportunities.

  Jim Brown   7/31/02,  3:05:17 PM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I am agonizing over lowering the stop loss on the open SHORT signal to OEX 453 to reduce losses if we get an afternoon rally or leaving it at the current 456.50. Leaving at 456.50 allows for another 2.50 of risk but that number is above yesterday's high and above strong resistance at 455. While I can't imagine why traders are buying this market we could see that markup scenario into the close and get one last bounce before they sell the same stocks tomorrow. As traders you need to set your stop loss where you are comfortable with the risk. We often say "trade what you see not what you believe." This goes against that adage. We see an underlying bid that is preventing the markets from falling, at least as of 3:PM, and could mean there is another bounce in our future. We (I) believe the markets are going to fall despite any afternoon bounce. I am going with my belief today and sticking with the 456.50 stop. What you do is up to you.

  Jeff Bailey   7/31/02,  3:05:17 PM
Autozone (AZO) $72.99 -1.19% ... Hi Jeff, AutoZone (AZO) hit bearish resistance at $75 and turned down. Do you think this 3 box reversal is a buying opportunity or do you like it better at $70-71? It's not a good candidate for a short/put since it's on a buy signal, right?

"It's not a good short candidate since it's on a buy signal" may not be correct. Old p/f saying is "first test of bearish resistance can be painful for the bulls."

Now.... yesterday, I profiled AMGN (yes it a biotech, while AZO is auto parts), but similar technicals. Got stopped on AMGN underlying as profiled as demand too strong, but will note today's similar 3-box reversal in AMGN Link to AZO Link

I like you're "thinking" at least to be looking long AZO. Last time auto-makers had 0% financing incentives (like we're starting to see again) these auto parts guys did well. On p/f basis, I'd only look long on a "buy signal" back above $76 right now, or look for bullish entry closer to $70, right at the old "triple-top." On the right track though as the 60-minute interval chart does show AZO DIVERGEING from the 10-year YIELD chart and may well be a stock that is attracting bulk of cash from bulls.

  Steven Price   7/31/02,  3:01:55 PM
Reader Question: Providian Financial (PVN) $4.92 (+1.17) :Hi Steve,how would you play PVN after such a strong move today?? Thanks for your comments....

Response: A look at the 10 minute chart shows an inability to get over the $5 mark. The 200-dma at $5.27 could also provide resistance. I would probably wait until it got beyond these levels before playing.

  Jeff Bailey   7/31/02,  2:55:39 PM
Beige Book Jeff: Do you know where I can read the Beige Book report immediately upon its release?

Yes. Have posted this Link each time it is released. Click on it, then save it in your favorites. It's at the Federal Reserve site. Good bed time reading for sure!

  Jim Brown   7/31/02,  2:37:03 PM
Beige Book - The bottom line was "not much bad news but very little good news." The lack of any upward momentum in the economy is real and several fed districts expressed concern about the future. The bulls will have to look hard to find support in this report in light of the GDP and PMI today. By itself it would have been a non-event but with the other two reports to color our perception it will probably be seen as negative.

  Jeff Bailey   7/31/02,  2:36:41 PM
Combined Alerts! ... per 01:00 Update, getting an alert at the 10-year YIELD of 4.496% (50-pd MA) and Wal-Mart (WMT) $47.61 -3.07% at its 50-pd MA of $47.30. On the alert here at what could be some important intra-day levels.

Nothing confirmed here, but on the alert for weakness nonetheless.

  Jeff Bailey   7/31/02,  2:29:41 PM
jeff anythought on currency markets understand that Uruguay has declared bank holiday can we stand another latin america problem?

Hmmm... this may help put a bid in the US $. I'm not sure if "we" can stand another Latin America problem. Question might be... "can Citigroup (NYSE:C) $32.62 -3.91%" stand another problem, as it may have some exposure to Latin American.

  Jim Brown   7/31/02,  2:27:40 PM
Text of the Beige Book release: Link

  John Seckinger   7/31/02,  2:27:12 PM
30-year objective of 53.05 easily reached as the TYX.X index is currently at 52.98. With 40 minutes left until the bond market closes, a settlement underneath 52.92 should keep the pressure on blue chip investors as we enter the last hour of trading. A close underneath 52.81 would be dramatic; however, seems to optimistic.

  Leigh Stevens   7/31/02,  2:26:59 PM
INDEX Comments: OEX & QQQ - per my 13:38 & 13:47 comments, both indices are starting to dip under the "neckline" type trendlines that I mentioned. Not much follow through yet - the indexes are giving ground slowly - however, you know how it is - at some point they pick up some momentum.

No penetration yet on DJX, but it appears heading that way - that chart with notations re the H&S top can be seen at Link

  Jonathan Levinson   7/31/02,  2:11:34 PM
A better analogy just occurred to me, dear to my heart though Wile E. Coyote is. It feels like a luxury oceanliner, the SS COMPX, perhaps, stuck an iceberg, came to a dead stop, is taking on some water, but has not yet begun to tank. Or, again, perhaps we're heading up from here, though I don't think so.

  Leigh Stevens   7/31/02,  2:08:48 PM
INDEX Comments: DJX - re the Head & Shoulder's (H&S) top patterns shaping up on the indices, DJX has the most "well formed" or classic H&S pattern - per the chart I've marked up at Link

This pattern suggests that if the "neckline" at 85.4 was pierced, a "minimum" further downside objective to DJX 83.2 (Dow 8320) is suggested.

  Jeff Bailey   7/31/02,  2:07:22 PM
Oxford Health (OHP) $42.60 +6.76% ... crud! Stock traded target of $43 from past bullish profile near $40 Link (see 11:59:01) and I missed this update at $43 today. Shorter-term bull can trade for some profits here.

  Jim Brown   7/31/02,  2:06:07 PM
Pivot Trade Signals
I am back! Doctor said the sudden growth of body hair at my age was due to external reasons. He called it bearitis. Recommended a successful retest of last weeks lows and a resounding bounce to put that sparkle back on my horns.

I leave you guys alone for a couple hours and I see you stuffed that bounce attempt successfully. We are right back where we were when I left. Congratulations. If I leave again do you think you could manage to push the Dow to a new low for the day? The Nasdaq appears stuck at 1310 and could be setting up with a double bottom intraday as long as it does not fail here on the second try. I still do not see any reason to move higher but the Fed plunge protection team must be active today. With the spin doctors trying to "put some lipstick on the GDP pig" the markets are holding up very well. The Beige Book was just released and I will update that in a few minutes.

  Jonathan Levinson   7/31/02,  2:03:14 PM
Breadth is weakening on the COMPX along with price, currently 4.8 declining shares for each advancing as the COMPX just printed a fresh low of the day at 1312. QQQ is hovering at 23.50.

  John Seckinger   7/31/02,  2:00:08 PM
Slightly surprised the VIX.X is higher (+1.4% at 36.55) as the Dow still gravitates near 8600. In other notes, Utilities (NNA.X) currently higher as better bids within corporate bonds this morning lead shares higher; however, this is most likely short covering and the 228-230 range should provide solid resistance (NNA currently at 224). Also, the Goldman Sachs Precious Metal Index (GPX) looks poised to test the 200 DMA of 396 as the index is currently lower by 1.23 at 407.41. Another interesting sector to watch is the Cyclical Index (CYC.X), lower by 6.6 points or 1.32%. This sector might make another approach to the 22 DMA (500.71) in the near term.

  Steven Price   7/31/02,  1:56:41 PM
Maxtor (MXO) $4.12 (-0.01)

Reader Question: How does MXO look to you on the long side? Thanks...

Response: This stock traded in my pit on the CBOE, and I always stayed away because it moved so slow. The premium on the calls on the 5 strike are offered at 0.30 in October, and 0.45 in January. The stock looks as though its heading upward at a snail's pace, so if you want to take a shot, I would go all the way out to January. However, don't expect sudden movement.

  Jeff Bailey   7/31/02,  1:55:53 PM
The 1:00 PM intraday update has been posted. Link

  Jeff Bailey   7/31/02,  1:54:34 PM
Cool! just got an e-mail from the AMEX. Advertisement for some Ishares in various types of bonds.

Lehman 1-3 year Treasury Bond Fund (AMEX:SHY) $81.21 +0.27%

Lehman 7-10 year Treasury Bond Fund (AMEX:IEF) $82.44 +0.81%

Lehman 20+ year Treasury Bond Fund (AMEX:TLT) $82.46 +1.15%

Goldman $ InvesTop Corporate Bond Fund (AMEX:LQD) $102.05.

Began trading July 26th. Link

May become a day-trader's dream if following treasury YIELDS.

  Leigh Stevens   7/31/02,  1:47:46 PM
INDEX Comments: QQQ - has the same Head & Shoulder's top pattern that has formed on the 30/60 min. charts, with a "neckline" at 23.50 - a break of this level would suggest further downside potential in the Q's to 22.30. The upside chart gap is "filled in" at 22.56, which is another downside possibility.

  Leigh Stevens   7/31/02,  1:38:09 PM
INDEX Comments: OEX - its recent rebound climbed back along the up 30min. up trendline - that I mentioned earlier. Now, further weakness is taking prices back under this support trendline. Pattern on the intraday chart starting to look like a Head & Shoulder's Top - break of where "neckline" intersects currently - at 448 - sets up a "minimum" OEX downside objective to 437.

  Steven Price   7/31/02,  1:21:32 PM
Reader Question: CHKP $16.84 (-0.63) Steven, OI's POD, CHKP, is down on early morning market weakness. Would you buy a call here, or wait for bounce? Michael

Response: A look at the 15 min. chart shows resistance at $17.00 right now, I'd like to see a break through that level before jumping in.

  Jonathan Levinson   7/31/02,  1:21:11 PM
The COMPX is back below 1320 as the QQV and TRINQ begin to edge up. QQV is up 2.15 and the TRINQ is at 2.50. The 5(3) stochastic on the 30 minute COMPX made it to the midpoint of its range before crossing back down. This is still a confusing day- to me it feels like those scenes of Wile E. Coyote as he finally reaches the Roadrunner, and as the dust clears he looks down, sees he's standing on nothing but clear air and has the time to realize it before falling, momentarily suspended in space. Of course, the markets could bounce from here, but it just doesn't feel that way to me. Volume breadth is currently 3.75 declining shares for each advancing.

  Steven Price   7/31/02,  1:08:31 PM
Coincidence? Noticing that the GDP revision downward from 1st quarter of 1.1% (6.1% to 5.0%) happens to be equal to 2nd Q growth. If the same revision happens to this 2nd Q...

  John Seckinger   7/31/02,  1:01:21 PM
With September bonds up almost a full point (31 out of 32 ticks), the current 105-21 level is getting back towards the psychologically important 105-30 area. If bonds settle above 105-30, I would look for a move to 106-13. This does imply weakness in equities. Speaking of equities, does it make sense to take a position with the Dow near 8600? Not really; however, near 8600 would provide a perfect opportunity to exit, book profits, and increase probability of less-than-normal slippage. Using Jeff's football field analogy, on an intra-day basis it feels as if we are on the 50-yard line, 1st and 10 (1st down since we are above 8600). Odds are slightly in our favor for an increase in valuations, but there are even greater odds 8600 will enter the picture once again. 8700 has to be the first objective on the upside.

  Steven Price   7/31/02,  12:58:09 PM
Jeff's strategy of not hedging options is certainly one way to trade them - get comfortable with the probability at which you are getting in, and let the stock or index do the work. I have found other ways of trading profitable as well. I believe a stop loss can be effective on options, as can spreading strategies which reduce overall cost. The most successful traders let their winners run and stop the losers early. Time decay and direction can both hurt long option positions, and knowing what you can risk is key in this game. Stop losses can be very effective for these purposes.

  Steven Price   7/31/02,  12:53:10 PM
Goldman Sachs announced that they have raised their global equity weighting to 65%, at the top of their range, saying global equities are cheap relative to bonds. They have lowered their bond holdings to 20%, from 23%, right at the bottom of its 20-40% range. It has also lowered its cash holdings from 7% to 5%.

  Jeff Bailey   7/31/02,  12:52:53 PM
Tyco (TYC) $13.18 -4.36% ... How would you manage the TYC Sept put from one of your Monday comments?

Right now, I'm not looking to do any "managing." Target was/is $9.50. I have retracement on TYC from $35.82 to $6.07. This has 80.9% retracement at $11.76. If I get a break below that level, then might begin moving down some type of profit stop. As you're aware, I don't trade stops in options and suggest other traders that don't OVERLEVERAGE in options (can be BIG mistake) also not trade with stops in their options.

  Jeff Bailey   7/31/02,  12:12:16 PM
S&P 100 observation 451 -0.41% ... Jeff, Thanks for all of your great insight, I have noticed a possible head and shoulders on the 15 min chart on the OEX with left shoulder at aprox. 451 head at 455 and right shoulder at 453 and the neck line to be broken on the down side is at 446. Am I just seeing things or is this a possible set up if it breaks 446 to target 435 ? your insight would be greatly appriciated.

I see what you're looking at.

However, do you see the reverse head/shoulder with neckline at 425, head 390 and shoulders at 405?

Now, maybe more "neutral" bias right here, but you make good observation. If your head/shoulder pans out, the from neckline say 445 to head 455, gives you about 10-points. Subtract that from neckline and you get 425.

Hmmm.... 425 may tie in with neckline of old "reverse" head shoulder.

Has a bear staying disciplined here right now and looking for some type of break doesn't it?

  John Seckinger   7/31/02,  12:09:05 PM
Does the Biotech index usually move contrary to the overall market?


Well, the BTK.X index has fallen from 549.85 to 363.83 in just eight months; however, the index did lag the downdraft in equity prices. Looking to post its best week since last October, I would trade the BTK.X separately from both the Dow and Nasdaq. It is important to maintain a technical perspective while only changing the underlying fundamentals if there is a shock to biotechs that become reflected in price action. With that said, I predict a move to 385 unless the index settles underneath 348. A weekly chart even allows bulls to think of a move to 500 while still maintaining a neutral to only slightly bullish reading. I would like to say that Biotechs are immune to interest rates, Fed movements, and investor psychology; however, I cannot.

  John Seckinger   7/31/02,  11:53:08 AM
I can begin to visualize the Dow form a Head & Shoulders formation on a five-minute chart. It seems to be working its way up the right shoulder, currently at 8605. There does seem to be resistance at 8655. A move underneath 8537 would nullify the pattern, but fortunately get the same overall result. Regarding possible allocation patterns, bonds seem poised to break below 53.30 (TYX.X) and keep the pressure on blue chip investors. A move above 53.55 would begin to neutralize the bullish near term sentiment. The objective in the Dow is only 8500 in the near term, while 53.05 is the 30-year target.

  Jonathan Levinson   7/31/02,  11:43:54 AM
Volume breadth is improving on this COMPX runup, with 494M declining shares to 119M advancing. The COMPX is now hovering around the 1320 level, which is acting as resistance on the move. The QQV is up 1.83 on the day, telling me that option traders aren't convinced that we've seen the day low. The TRINQ is at 2.46. The sellers are still in control today, but they've relaxed a bit.

  Steven Price   7/31/02,  11:24:10 AM
Reader Question: TYC $13.33 (-0.42) What is your opinion about shorting TYC? Thanks

Response: I see resistance in TYC around $14.60, which also happens to coincide with its 50-dma, and support around $10.00. If I were to short it, I would place a stop at $14.75, and look for a downside target of $10. Keep in mind, however, that TYC has recently broken its downward trendline on the PnF chart with its trade of $13.50 and is currently on a buy signal. I don't think the sell signals are strong here, however the recent surge in the overall market and hiring of a new leader may have pumped this stock up a bit the last week.

  Jonathan Levinson   7/31/02,  11:18:29 AM
The market may not be correct but shouldn't we just go with the current trend of buying the dips?

That really depends on your own bias. I personally try to trade with the longer trend, which, on the daily COMPX chart, is still down. The answer to your question depends on the time frame you're using for your trades. Personally, I find it impossible to trade without some kind of opinion as to market direction, ie bias, and I find that aligning myself with the longer trend works best. Bottom line: Today's news appears to be very bad, and the markets appear to be under-reacting to it. If you are short term bullish, then today is a dip-buying opportunity. If you are short-term bearish, the reverse is true. What remains is that this is a choppy, unpredictable market, and as Jesse Livermore put it, one important element of expert traders is knowing that they don't have to trade every day, and that insisting on always being in the market is a sucker's game. If in doubt, preserve your capital. Cash *is* a position.

  Jeff Bailey   7/31/02,  11:14:28 AM
The 11:00 AM intraday update has been posted. Link

  Jonathan Levinson   7/31/02,  11:11:43 AM
Thanks for all your intraday updates and commentary, they really help me keep the markets in perspective. Can you tell me a bit more about what the QQV is? Is there a symbol to pull it up in Qcharts?

The QQV is the equivalent of the VIX, but for the QQQ, which is the NDX tracking stock. It is commonly used as the "fear gauge" for option traders. The symbol on Qcharts is QQV.X.

  Leigh Stevens   7/31/02,  11:10:30 AM
Subscriber QUESTION: "Do you think AMGN a good short here after the gap down today?"

RESPONSE: Not sure that we are both looking at the same chart - Amgen (AMGN) opened lower today, but only had a recent chart gap from its sharply higher opening 7/25 when it began trading above 40 (low was 40.29) versus the prior day's high down at 37.30; creating a "gap" (space) between the 7/24 high & 7/25 low. Per my earlier Market Monitor post (10:49), not all gaps get "filled in" - which is in this case would mean a move back down to the 37 area. The tendency for "unfilled" gaps is more common in the early stages of a move.

The question becomes whether AMGN will fall back to at least 40.30 at the top of its chart gap. Potential to fall from here is suggested by fact that yesterday's high stopped in an area of significant technical resistance, as implied by May lows in the 45.50 area - yesterdays high got a bit above this, but the close was right AT this "line" of resistance, then the stock is lower today.

On balance, a short play may work here for a move back to 40 area - at least you know where to EXIT - set a stop point above 46.65; e.g., 46.85.

  Steven Price   7/31/02,  11:10:17 AM
Reader Question: Does the $BP change during a session or is it calculated on closing?

Response: The bullish percentage for an index is calculated at the end of the day for the group. This takes into account what percentage of the stocks in the index are currently on a buy signal. You could hand chart each of them during the day to come up with an intraday number, however the services I have used calculate this at the end of the day.

  Jonathan Levinson   7/31/02,  11:06:42 AM
This is a stunningly resilient market today in light of the economic and political news making headlines. It's amazing that so many traders find current prices to be a compelling buy. Nonetheless, there are a lot of sellers on the COMPX, with 5.5 declining shares for every advancing share. There are now 77 new lows and 18 new highs. The QQQ is down somewhat, up just 1.77 on the day. The TRINQ continues to trade in its range, currently 2.58.

  John Seckinger   7/31/02,  11:05:01 AM
The Biotech Index (BTK.X, -5.95 at 355.55) could soften back towards the 50 DMA (currently at 351) or 348 without nullifying yesterday's impressive gains. I would not be surprised to see near term consolidation around current levels before the next wave higher; objective of 385.

  Steven Price   7/31/02,  11:04:35 AM
Baxter (BAX) $39.03 +0.79 OI call play Baxter continues to buck the trend, up on the day. Most of the sector has given up some of its recent gains today, as the pharmaceutical Index ($DRG.X) is down 5.78 to 286.73

  Leigh Stevens   7/31/02,  10:49:13 AM
Subscriber QUESTION: "leigh, you can bet that we will see that gap filled on the qqq's down to 22.75. i don't see many gaps not filled on the 60 min charts.gaps fascinate me, i think I'll write a book about them.

Per your 7/30 market wrap, it was interesting to read your comments on how this gap will exert a downward pull on the q's. Who is the guru on gaps? They are great to play when the indices or stock bucks the bigger trend. Is volume important to look at ? Any other confirming info to look for to determine if they will get filled? "

RESPONSE: Yes, there is a tendency for gaps to get "filled", per an old trader's saying about them. Any good introductory book on technical analysis goes into chart gaps in some detail; e.g., my own, "Essential Technical Analysis". I'm not sure that the topic will fill out a whole book, but a full chapter, yes. There is no "guru" on gaps but maybe you will become one!

Volume on an upside or downside gap will tend to increase - often sharply - as its very common to see some particular "event" driving the move and this new factor will often mark some change in perception about the stock or index. The biggest number of gaps occurs when earnings come out after regular trading and those earnings are a surprise in some way, with a result of a sharp move in prices on the next day's opening - either up or down.

The main determinant as to whether a gap will get filled in the days ahead, is whether the chart gap occurs at the beginning of a move or in the "middle". Gaps that "set off" a trend, so to speak, often do NOT get filled - or not for a long time. This is the so-called "breakaway" type gap. Gaps that occur down from a high, up from a low, are the ones that do tend to get "filled in".

  John Seckinger   7/31/02,  10:46:43 AM
The Brazilian Real made headlines on Tuesday while Uruguay takes the globabl spotlight today. Uraguay's Central Bank extended their halt of bank operations, which could continue through Friday in a move designed to stop the run on banks. On Tuesday alone the peso lost over 14 percent of its value. During the first half of the year Uraguain banks have lost 33 percent of deposits while international reserves fell 79 percent.

  Jim Brown   7/31/02,  10:46:38 AM
Pivot Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I have a doctors appointment this morning and can't stick around to watch the fun. I am going to leave the stop loss at OEX 456.50 (SPX 911) because I will not be able to manage it as the markets drop. PLEASE do not let any profits evaporate should the market rally before I get back this afternoon. Use your own judgment and take profits instead of give them back. My market view is still down but that and $3.00 will get you a coffee at Starbucks. I should be back around 2:PM. I would not be disappointed to see a -400 points drop so keep the pressure on! (grin)

  Jim Brown   7/31/02,  10:39:11 AM
Pivot Trade Signals
I am still amazed by the underlying strength in this market. We should be diving for the bottom but the bears are having to fight for every point. The OEX is currently at 447 with intraday support at 444-445. Below that the last ditch rally support would be around 440. After that we could free fall to fill the gap up at 426 with a possible stop around 435 for the 5 DMA. We need to watch the markets for continued signs of window dressing as the day draws to a close.

  Leigh Stevens   7/31/02,  10:33:46 AM
INDEX Comments: OEX will break its 30/60 min. up trendline on a move below 446 currently - if so, a downside target looks like 426-428, the upside gap from the higher opening on Monday.

Per my commentary last night ( at Link ) a downside objective on QQQ is also very much back to its chart "gap" between 23.12 and 22.75.

  Jonathan Levinson   7/31/02,  10:33:45 AM
Declining volume is beating advancing volume 300M to 57M. The TRINQ remains between 2.5 and 3, currently 2.81. The Nasdaq TICKs are negative, and QQV is up 2.27 as the QQQ trades below 23.60.

  Steven Price   7/31/02,  10:22:12 AM
Reader Question: BBBY $31.00 (-1.66) I did not sell my bbby puts last week and am watching the price action. Seems to have resistance at 31. Do you see this as a breakdown point? Thanks.

Response: The stock has some congestion between $31 and $28, suggesting it will have to fight through several levels put into place during the last week.

  Steven Price   7/31/02,  10:13:22 AM
Black Box: $33.65 (-1.14) OI put play BBOX is continuing downward and appears on its way to PnF bearish count of $30.

  Jonathan Levinson   7/31/02,  10:12:59 AM
The TRINQ is at 2.94 now, and the QQV is up 1.89 to 50.35. QQQ is now trading around 23.70, as the COMPX prints lows of the day below 1320, currently 1318.

  Jim Brown   7/31/02,  10:12:01 AM
Pivot Trade Signals
That was ugly! The bottom fell out of the PMI report with a 51.5% when estimates were for 56.8%. This is only 1.5% above recession levels below 50%. Below 50% represents a contraction in the economy instead of expansion. Considering this is a backward indicator we could already be in the second dip. The Beige Book will not be released until 2:PM this afternoon and that will be the next confirmation of our economic status.

  John Seckinger   7/31/02,  10:10:31 AM
The low yield (higher prices, defensive for equities) in the 10-year is even more remarkable given talk of traders buying two years and selling ten years; steepening the yield curve and creating a greater spread between the two issues. Of course, this is also defensive for stocks. Note: Unbelievable that Dow is back at the 8600 pivot. I guess traders needed a liquid area before the Chicago release. Short notes: Semiconductor Sector down 3.6% and well underneath the 343 pivot at 333 (intra day high was 346).

  Steven Price   7/31/02,  10:08:02 AM
Chicago PMI came in at 51.5%, below expectations, but still in positive territory.

  Steven Price   7/31/02,  10:06:49 AM
Bullish Percent Changes: Bullish percents have shown quite a reversal. The NDX has risen from a recent low of 24% to 30%, which places it on the cusp of breaking out of oversold territory. SPX is up to 24% from 14%. Dow is up to 22% from 6%.

  Jonathan Levinson   7/31/02,  10:06:12 AM
I don't have the data yet, but from the market's reaction the NAPM numbers might have been napalm.

  Jeff Bailey   7/31/02,  10:03:46 AM
YIELD Alert! in the 10-year YIELD here at 4.516% and breaking YIELD low from yesterday. "Heads up" for weakness in stocks.

Benchmarking Dow Indu -75, S&P 500 -6.15 and NASDAQ Comp -20 points.

  Leigh Stevens   7/31/02,  10:00:43 AM
ON THIS DAY in 1882 - the "legendary" Belle Starr, was charged with horse stealing in the Indian territory. She was a fiesty one and very colorful - the charges seem to have stemmed from some people that didn't like a 20th. century type woman back in the 19th. century, instead of the quiet types that stayed on the farm.

Also, ON THIS DAY in 1971, the Apollo 15 astronauts took a drive on the moon in their "land rover" - this was really a kind of modified "golf cart" but what a ride! Nice view of that nearby planet. In the same spirit of adverture take a ride to a new exciting place this weekend.

  Jim Brown   7/31/02,  9:57:55 AM
Pivot Trade Signals
I am amazed by the resiliency of the market. There are simply a lot of traders who think it is going up and they are buying every dip. If this bullishness lasts this morning I may have to switch sides. Numerous readers have asked if this bullishness was due to month end mark up by mutual funds. Initially I replied with doubt after a +1200 point Dow gain in the last week. Now I am not so sure. If this is the case then tomorrow will be the down day as those same stocks are sold to move back into cash. This is definitely an interesting time in the markets.

  Jonathan Levinson   7/31/02,  9:57:35 AM
That said, the 5(3) stochastics are giving the first suggestion of a bearish cross from overbought on the daily chart. Given how "twitchy" the 5(3) setting is, it would be early for bears to crack out the champagne. Clearly this 1320-30 level is a key area.

  Steven Price   7/31/02,  9:57:00 AM
KLA-Tencor: $39.26 (-1.08) KLAC enjoyed a run-up ahead of last night's earnings. While the company posted earnings that beat the street by 0.03, revenue was down sharply, and the stock is back under $40.

  Jonathan Levinson   7/31/02,  9:55:50 AM
There appears to be an interesting disconnect between price and internals on the COMPX. Price is proving resilient around 1330, and QQQ above 24. However, declining volume is between 2 and 3 times advancing volume so far, with the TRINQ currently at 1.85. There are 48 new lows to 14 new highs, and 1,346 declining stocks to 971 advancers.

  Jeff Bailey   7/31/02,  9:51:17 AM
Chicago PMI due out at 10:00 AM EST. Economists looking for a reading of 56.8% for July, which would be down from 58.2% in June. This would mark a second straight decline in this Chicago-area manufacturing indicator, but any reading in the high 50's still indicative of some healthy growth (50% is considered a water line).

  Steven Price   7/31/02,  9:50:54 AM
Lilly (LLY) $56.90 (-1.35): Originally picked at $53.70, OI call play Eli Lilly is taking a hit this morning after a downgrade by Merrill Lynch based on the stock reaching Merrill's $57 price objective. OI raised its stop on this stock to $55 last night, in order to ensure profits on this play. Merrill cited manufacturing problems that could hold up approval of some new drugs in the pipeline, however, this is old news, as the stock has rallied since those problems arose. The stock has rebounded from its low of the day.

  John Seckinger   7/31/02,  9:47:44 AM
As expected, a settlement underneath 5.4 percent in the 30-year bond (TYX.X) did pressure traders to at least maintain a healthy bond to equity portfolio (defensive to stocks). On Wednesday, bonds have already tested the February 28 low of 5.366 percent (day prior to dramatic sell off which sent bond yields to 5.86% in 15 trading sessions) and the 22 DMA (5.381 percent) without much luck. A settlement above 5.4% would be noteworthy; however, I would need to see 5.42% eclipsed by day's end in order to warrant strong talk of further asset allocation from bonds to stocks. On the downside, a settlement below 5.366 should be the catalyst for a move to 5.3 as prices increase at the expense of more risky assets, equities.

  Leigh Stevens   7/31/02,  9:42:32 AM
Wall Street Journal (WSJ) - This morning's WSJ has front page story on of course the IBM acquistion of the consulting arm of PricewaterhouseCoopers for $3.5 billion in cash and stock - story is about how an increasing amount of Big Blue's revenue is now in computer services. I was surprised to learn that - at $34.9 billion - computer services are the BIGGEST portion of IBM's revenues. I'll bet the profit margins are a LOT better than manufacturing "big iron" as they used to call the big mainframes that were their bread & butter.

An inside article on how the Dems feel that GOP is vulnerable in the Fall election - the story talks about whether the Republicans will in fact be perceived as the best new corporate watchdog for their former corporate buddies.

NO Wonder! that the Oil index ($OIX.X) has been sliding so much - ChevronTexaco net earnings plunged 81% in refining and on a $631 million write downs realted to Dynergy - Dynergy of course posting a BIG loss and sharply cutting its full-year estimages. Also, BP, reported that its profit fell 44%.

Last but not least, a Marketplace story on "Identity Theft as an 'Inside Job' is Increasing" - this cites Sisters, husbands, other relatives - people otherwise close to you - as being the culprits in an growing number of cases. "Identity theft" is the country's fastest growing crime. My goodness, and I so trusted dear Aunt Betty!

  Jim Brown   7/31/02,  9:38:45 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The broader market SHORT signal was opened at 09:33:30 with the OEX at 451.50 (SPX 900.81, Emini 899.75, DIA 86.54, SPY 90.30, DJX 8666.46, NDX 965.11, Compx 1330.21) The initial stop loss will be OEX 456.50 (SPX 911) We are seeing a bounce after the initial dip which proves the bulls are in denial about the economic conditions. This should be an interesting day.

  Jonathan Levinson   7/31/02,  9:36:31 AM
The TRINQ opened around 1.70, and is climbing, currently at 2.31 as the COMPX begins a slow descent. 1320 is the fist support to watch for, with current price at 1328. The QQV is 2 to 49.88 and QQQ is slightly below its 24 support.

  Jeff Bailey   7/31/02,  9:30:57 AM
10-year YIELD 4.56% .... YIELD did edge below the lowest level shown in the 09:00 update. Today, I'll set a DOWNSIDE YIELD ALERT just under yesterday's YIELD low of 4.520%, to alert me to some type of meaningful flow of cash back into bonds on a near-term basis.

  John Seckinger   7/31/02,  9:30:39 AM
While GDP did show a rise in business investment for equipment and software products, final sales falling 0.1 percent certainly extinguished the short lived enthusiasm. Shorter maturities (2 and 5 year bonds) saw nice bids as the spread between the 2 and 10 year note came close to levels not seen since 1993. In the corporate arena, AOL bonds continue to trade lower while there is talk of value players bidding at beaten down utility names. These corporate bonds should be a good leading indicator for share prices.

  Jeff Bailey   7/31/02,  9:29:54 AM
The 9:00 AM intraday update has been posted. Link

  Jim Brown   7/31/02,  9:28:42 AM
Pivot Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Normally I would not enter at the open but I feel the possibilities for an extended drop are good and the futures are not that negative. Go SHORT the broader market at the open.

  Jim Brown   7/31/02,  9:26:37 AM
Pivot Trade Signals
Pretty ugly. Suddenly the bulls are not so sure about their decision and bears are drooling over the possibilities. However, the futures are not down as much as I would expect with a GDP that was only half of expectations. It could be denial. This is a problem that will last for weeks and calls into question all the assumptions that the bulls have made about the rally. The market commentators this morning have fallen back to the mantra about the market discounts everything and looks six months in advance. This may be but the next six weeks are going to be the challenge for the markets.

I would not normally recommend buying/shorting the open but today may be an exception. This could be the trend change we have been looking for the last two days. The profits accumulated over the last week are suddenly in danger and traders are likely to take those off the table quickly.

  Leigh Stevens   7/31/02,  9:14:23 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > -6.10 at 899.40; Dow Industrials > -54.00 at 8640; Nasdaq > -18.50 at 962.00

"Fair Value" numbers: S&P 500 futures ($SP02U): .78 -- Nasdaq 100 futures ($ND02U): 2.80

  Leigh Stevens   7/31/02,  9:10:36 AM
Pre-Opening INDEX Comments - - Surprise! - GDP at an annualized +1.1% rate was one and this throws a bit of a monkey wrench in the expectations that we would be in full-blown recovery mode by the end of the year.

The recovery may not be in overdrive by year end at all. Since the market tends to look OUT about 6 months, this news is bringing pause to the bulls. The S&P, Dow and Nasdaq were into technical resistance, so a correction was increasingly likely. So far, futures are not reacting as negatively as they could have. I've been commenting on the tendency for the market to shrug off bad news to some extent when its ready to - how deep of a correction develops should become better known after the opening.

  Jonathan Levinson   7/31/02,  8:48:50 AM
The futures have reacted negatively to the GDP data, but not as negatively as one might otherwise have thought. Perhaps this is due to speculation that these results could push the fed toward another rate cut.

  Jonathan Levinson   7/31/02,  8:13:51 AM
The US Dollar Index launced at approximately midnight and has reached 107.40, up from 106.80. S&P Futures are 3.8 and NDX futures are down 7.5 after being slightly in the green around 7AM.

  Jeff Bailey   7/30/02,  8:00:16 PM
The market monitor has been archived. To view Tuesday's commentary, simply click this Link


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