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  Jim Brown   8/2/02,  10:40:09 PM
Swing Trade Wrap - Finally Logic Returns -
The markets struggled to put a bullish spin on the nonfarm payrolls at the open and held in minor negative territory until 10:AM. After that it was all over until the plump person sang. The market drifted steadily lower until hitting last Friday's close at 8264 and that triggered some massive buy programs. The big money did not want the Dow to close down for the week. This also corresponds to a filled gap from the Monday open and a natural buying signal. The Dow recovered over +100 points off its lows to close at 8313. The Nasdaq tried to imitate it but failed to rally past 1250.

The new game plan process went off without a hitch and the first scripted play was a SHORT opened at OEX 440 and closed at OEX 430, just 1.63 off the low of the day. Not bad considering we came within 14 cents of stopping out again. This was a tough week for stops. The new game plan product was met with mixed reviews and we will improve it as time progresses. I will post the game plan for Monday as the first item on Monday's Monitor around midnight Friday night. Next week should be really exciting! See you Monday!

  Jeff Bailey   8/2/02,  6:40:40 PM
Adjustable Rate Mortgages (ARM) Interesting comments made today by JMP Securities regarding adjustable rate mortgages. Firm believes that breach of 2% by the 2-year Treasury (for first time in history) indicates that the bond market is factoring in a Fed rate cut. With mortgage products at historic lows, firm expects hybrid ARMs to prepay very fast. Believes America First Mortgage (MFA) $8.90 -0.55% is particularly at risk and that Annaly Mortgage (NLY) $18.68 -1.78% also has some risk, but has been a seler of these securities over the last two quarters.

Neither stock trades options, but might be some short plays for stock traders, with stops just above this week's highs.

  Jim Brown   8/2/02,  4:10:00 PM
Guess the Dow The winner in the Guess the Dow contest was tommillion@ea..... with his guess of 8311.10. He only missed it by 2.03 points. While you are thinking about it go and place your vote for next weeks contest! Link

  Jim Brown   8/2/02,  3:58:03 PM
Swing Trade Signals
We may have closed that SHORT signal few minutes early but it turned out to be the right move. The markets are setting up for a bounce at the open on Monday and several readers have asked about going long a few lottery calls. Knock yourself out as long as you know in advance that it is a lottery play. I will be posting the game plan later tonight for Monday (very late) but we are going into the weekend flat

  Leigh Stevens   8/2/02,  3:48:53 PM
INDEX Comments: QQQ - as Jim noted, they've got the Q's in (upward) motion - NDX & QQQ held their prior lows and did some "basing" - enough so that it looks like the shorts are doing some profit-taking buying ahead of the weekend now that the Nasdaq is going its own way. Cisco and INTC action is none too good, but let's see what Monday brings.

  Leigh Stevens   8/2/02,  3:45:07 PM
Mark Phillips sent me an interesting observation on the VIX , as there seems to be this interest out there re the prior highs made by the CBOE Volatility Index prior to the two peaks this year/last year

- "I was aware that the VIX had hit levels in excess of 100 back in ’87, but I had assumed that those comparisons were invalid due to the fact that we now have the curbs/circuit breakers in place at the NYSE... Also, do you have any thoughts on the validity of the VIX calculation from ’87 vs. now due to the broader participation in the options markets? My gut feel is that it’s a bit like comparing apples to oranges....."

Now that I think on Mark's point - AFTER 1987, when they put the NYSE program trading "circuit breakers" in effect, VIX never hit those levels way above 100 again. Its peaks since then, as I noted earlier have been in the 50-60 range only - not higher.

  Jim Brown   8/2/02,  3:43:00 PM
Swing Trade Signals
Looks like they circled the wagons and have managed to get back into winning territory for the week. The QQQ time and sales are flying by as shorts race to cover and bulls race to buy the dip again.

  Jeff Bailey   8/2/02,  3:28:11 PM
The 3:15 PM intraday update has been posted. Link

  Jim Brown   8/2/02,  3:28:00 PM
Guess the Dow -The Guess the Dow contest for next week is now open. You can vote now and win a dual monitor video card for your trading PC. This is a very high-end card and well worth the effort to pick a number and vote.

Vote here: Link

  Jim Brown   8/2/02,  3:23:54 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the market SHORT at 15:14:34 when the OEX traded above 430 (SPX 856.84, Emini 857.60, DIA 82.48, SPY 86.14, DJX 82.38, NDX 882.65, Compx 1238.58) I probably jumped the gun on this stop but the magnitude of the buys coming into the QQQs, a rise in the advancing volume and a spike up in the TICKS was telegraphing to me that maybe the oversold conditions had reached their pressure point and an expected short covering bounce before the close would be beginning. Just after I pulled the trigger there was a 1.2 million QQQ trade at bid and a flurry of smaller ones. We may go lower from here but our risk is over and we are flat going into the weekend after a nice move.

  Jim Brown   8/2/02,  3:14:41 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the stop loss on the open SHORT signal to OEX 430. (SPX 859) As we near the close I am going to start squeezing the stop to take us out before the close.

  Jonathan Levinson   8/2/02,  3:14:17 PM
We have fresh lows printing on the COMPX at 1236, as the QQQ dives below 44. The only green on my quote screen is on level II for QQQ and MSFT, the QQV, VIX, XAU and HUI . The TRINQ is negative, surprisingly, just 2.68, which means that this decline is less of a wave of selling, more of a retreat of buyers.

  Jim Brown   8/2/02,  3:12:10 PM
Swing Trade Signals
The big money is trying to hold it. The QQQ just saw 2 million shares at ask in a total of 10 trades.

  Jonathan Levinson   8/2/02,  3:10:24 PM
Your thoughts/comments on gold recent climb back to the resistance level of 309 please.


Other than that, my thought is that gold will trade within a range between $290 and $330 until something comes along to change it. By "something", I am thinking of a currency collapse, derivatives meltdown or meltup, war, deflation, or other major financial event. The decline in gold this month coincided with JPM and C coming under public scrutiny following a significant runup in price over the past year, as well as what appeared at the time to be a breakdown in the major US equity indices. The external factors credited with gold's climb were not eliminated or reduced during the price decline- if anything, they were exacerbated. However, a number of late-comers to the gold party no doubt either got stopped out or took profit, and while I have not reviewed the commitment of traders reports for those weeks, it would not surprise me if there was an increase in short interest for commercials coinciding with those memorable down days. It is my feeling, looking at long term gold charts, that above 290/oz gold continues to be in a bull market. Others will doubtless disagree, but I remained long my Royal Precious Metals and AGF Precious Metals Funds throughout this past month. Time frame is everything, and my only long term core positions are those funds and a smaller position in CEF. Traders and option investors need to be more nimble through these declines when they occur, and respect their stops.

  John Seckinger   8/2/02,  3:07:04 PM
Bond market closed and I am showing September Bonds (USU2) at 107-19. This can used with the 14:31:25 Post. Note: I was not surprised to see the Dow attempt to test 8300 (8297 high) at 14:35:00 after using that level as a pivot for 30 minutes straight during late-morning trading.

  Jim Brown   8/2/02,  3:02:36 PM
Swing Trade Signals
They are struggling and fighting hard to hold that 8264 Friday close. We had a nice bounce off it the first time but the battle is far from over. Coming into the 3:PM turn and the recent trend is indicating a possible downdraft. The next 5 min will be critical.

  Leigh Stevens   8/2/02,  3:00:26 PM
INDEX Comments: SPX - re the possible Head & Shoulder's bottom that some traders noticed on the 5 min. charts, it was not to be, but SPX did set up a possible double bottom in the 859 area - this is in danger of being taken out - time will tell!

  Jonathan Levinson   8/2/02,  2:50:26 PM
My review of the morning Fed announcement concerning its daily open market operations indicated that not enough money was added to refund the amounts expiring today, leading to a net liquidity drain for today. On the basis of this fact in isolation, I would expect no show of strength from the magic hand today, but again, no single indicator is enough to trade by. The Federal Reserve press releases for this week tell the story, and confirm my own math regarding today's net drain at Link

  Jim Brown   8/2/02,  2:36:01 PM
Swing Trade Signals
RE my 14:33 post. Now would be a good time for those big money market supporters to appear and try an prevent a loss for the week. If you are going to draw a line in the sand this is it. If the Fed PPT really exists this has got to be a battle they are in.

  Jim Brown   8/2/02,  2:33:25 PM
Swing Trade Signals
The Dow is now negative for the week and below last Friday's 8264 close. This fact will not be lost on traders and a close here could increase the pressure on the markets and increase withdrawals from the funds.

  John Seckinger   8/2/02,  2:31:25 PM
Could you please tell us about the bond market close regarding their impact on equities? It was most helpful yesterday, allowing me to stay short and profitable. Thanks!

Response: Congratulations on a nice trade. The 30 year definitely has a different look today, with September bonds (USU2) higher by 1-10 (one point and 10/32 ticks) at 107-18. The 107-22 high is very close to the 107-26 high set on July 24th. I do expect that high to be retested, and a close above should send stocks spiraling during the last hour. Even so, it would more of a risk (read: speculating) taking a long bond position over the weekend than it was holding one last night after the close above 105-30/31. If bonds close above 107-03, still bearish for stocks. Below 107-03, probably a chance to head to the sidelines and wait for a likely explosive Monday.

  Jim Brown   8/2/02,  2:29:04 PM
Swing Trade Signals
The markets are setting up for the end of day run. Down volume is picking up and the VIX just broke 47. The Russell-2000 is down -11.32, which would indicate the selling is broad based. With the indexes sitting at an intraday double bottom they are poised to bounce off these lows or crash through them. Thousands of hedgies are poised with their finger on the trigger and waiting for a sign to double down or cover. Should be an interesting next 30 min.

  Jonathan Levinson   8/2/02,  2:27:10 PM
COMPX breadth looks just terrible today. 7.5 declining shares for each advancing, with 180 new lows to 13 new highs, 2,282 decliners to 909 advancers.

  Jonathan Levinson   8/2/02,  2:20:17 PM
A thoroughly uneventful lunchtime lull. Other than the QQV edging up higher still, currently up 3.92 to 54.64, everything else looks like my computer's frozen. TRINQ at 3, TICK.NQ negative, -449, MSFT trading water just above 44, QQQ just above 22. The COMPX is nearing the lower end of its congestion range, currently 1243. While I'm hoping for a deadcat bounce, hopefully supported by some helium, many traders are expecting one, which to me indicates that we might not get it. Nevertheless, after an exhausting week, it's not surprising to see the action slowing into Friday afternoon. Remember that today is the first Friday of August, and third Friday is just 10 trading days away.

  Leigh Stevens   8/2/02,  2:14:46 PM
Subscriber QUESTION: "Am I suffering monitor-blindness, or are the S&P futures and the SPX forming an inverted H&S on the 5 min charts?"

RESPONSE: Possible its forming a "Head & Shoulder's bottom"('inverted' H&S) - IF SPX trends up from here - from 861

  Leigh Stevens   8/2/02,  2:07:55 PM
Subscriber QUESTION: "My son sent me an E-mail and said he heard on the news that that the VIX had hit 120 before and that, according to this "spokesman" it would have to hit 90 to indicate a real bottom.

I told him that I thought the guy was wrong. My Q-charts only go back to 1997 and in that time frame I cannot find the VIX over 60 but a couple of times. Who's right?"

RESPONSE: The CBOE Volatility Index (VIX) has rallied sharply yesterday and today - it's CHART is very interesting - who says you can't apply technical analysis to indicators and the like! Check it out at - Link

On your question of historical VIX levels - my charts go back to the 1980's and the highest reading I show was the week of the 1987 crash - on that Monday - I remember it well - I was at the CBOE that day - VIX shot up to a peak of 152 - the next day, it briefly went higher to 172 - at the end of the week VIX was 98 and the following week closed at 61. Since 1987, the highest VIX peaks have been around 50, not higher than about 55/57 - once in 89, ' 97 and 2-3 weeks in ' 98; 1 week in 2001; then again recently.

So, this "spokesperson" is grabbing for the "sensational" by saying that VIX "had" to hit 90 to suggest a market bottom - a journalist "talking head" perhaps!

  John Seckinger   8/2/02,  2:03:02 PM
Just thinking outloud: The yield curve still points towards a rebound in equities, and the longer the Dow stays above 8300 the more I tend to agree. I can't imagine curve traders will miss the boat if the Dow drifts substantially lower from here. I am just sharing my thoughts.

  Steven Price   8/2/02,  1:50:41 PM
Texas Instruments (TXN) $19.79 (-1.32) TXN has now taken out its September low of $20.10. Now back to Dec. 1998 levels. The SOX has found some support at 295, however, the long term trend looks decidedly down.

  Jeff Bailey   8/2/02,  1:46:28 PM
Treasury Watch ... while the 5-year YIELD breaks to new YIELD lows, not seeing it in the 10-year and 30-year at this point. Attentention turns to 10-year YIELD ($TNX.X), with an alert set at 4.2%, which would be YIELD sell signal, but remembering too, that bearish count on this YIELD has yet to be acheived at 4.15%. As such, a bearish equity trader still shows a lot of discipline and doesn't get too overleveraged on the bearish side of things. Link

Can "step out" to 30-year YIELD ($TYX.X) and see similar technicals right now, but much "tighter" YIELD range to set some alerts near-term. Upside YIELD alert at 5.450% and downside alert at 5.150%. Bearish YIELD count here at 4.9%. Link

  Jim Brown   8/2/02,  1:41:46 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We came very close to being stopped out on that last bounce and I considered raising the stop. I decided not to because I want to go into the weekend flat in anticipation of another attempt by the bulls to rescue the market at the open on Monday. I really don't want to be flat now as we approach 2:pm but we will play what the market gives us.

  Jeff Bailey   8/2/02,  1:38:55 PM
The 1:00 PM intraday update has been posted. Link

  Jeff Bailey   8/2/02,  1:35:39 PM
Citigroup (C) $30.85 -4.48% ... shorter-term traders may take note here of today's low of $30.07 and rather quick recovery from the $30.00 level as it relates to yesterday's 11:00 intraday and trade setup there. Link

May become important observation for those trading GE bearish and looking for similar type of "gap fill" to the downside. May have to adjust bearish target on GE from $28 to $28.10. Will monitor C over time, but taking some notes here. Especially those that still opt for August expiration.

  Steven Price   8/2/02,  1:32:31 PM
Reader Question: Hi Steve,currently very short on Jpm,and thinking on shorting C as well....do you think this is wise???????I'm considering C because not only of USA scandal, but also a possible real problem emerging out of Brazil and Uruguay....Thanks for your comments...

Response: I like your theory as a long term play. However, if you are going to play a news event, I would be careful how much capital you commit, in case this does not pan out. Some possible low-cost strategies for long-term bears:

1) Long downside put time spreads (i.e. long the farther out month and short the nearer month). This can be Jan-Dec, Jan-Oct, etc. As a stock moves toward a strike, time spreads gain value as they are worth the most at the strike. They are cheaper to get into if they are out of the money. Note, however, that they will not be as profitable as simply buying a put and having it go your way, but cost far less.

2) Long downside put vertical spreads. Cost less, but max out at distance between strikes

3) Short the call spread which correlates to the long put spread, as this is the equivalent of the long put spread (i.e. Shorting a 30-25 call spread for $3.50 has the same profit /loss potential as buying the 30-25 put spread for $1.50)

4) Backspread - buy more of a cheaper put than you sell of a more expensive put (i.e. buy 2 Dec 25 put @ $1.50, sell 1 Dec $27.5 put at $2.15. If stock slowly goes to 25, you lose, but if it really bottoms out, you have extra puts on the way down and it only costs you $0.85 to get into). Note this is riskier because your exposure is greater on the move between strikes.

  Leigh Stevens   8/2/02,  1:32:16 PM
Subscriber QUESTION: " Are still a buyer of Q's at 22.00?"

RESPONSE: Well, this area,-22 in QQQ, is where I was anticipating a test of "key" technial support, especially on a closing basis. But its also an "open" question. I suggest seeing if this area does in fact see some buying interest (at and under 22.00), before I step up to the plate.

I don't think that, if there is buying interest in this area, the Q's will just rebound suddenly and make a "V" bottom or the like. I think we'll have time to get into the long side if its warranted. If not, a buying opportunity may shape up lower, such as around 20. I didn't mention, the other focus in the intraday low at 21.6 - this should hold INTRAday.

  Jim Brown   8/2/02,  1:24:19 PM
VIX History - I get a lot of questions about the extreme levels of the VIX and as we approach 50 again (46.21) there are many readers drooling at the possibilities of another buying opportunity. Just be sure you are aware of what your buying. A reading of 50 may be extreme and it has only happened about 10 times ever but the all time high was over 160 during the 1987 crash. Chart: Link

  John Seckinger   8/2/02,  1:23:26 PM
A pit traders' mentality: There is no question in my mind that index traders took out July 29th's low of 8267 by one tick during trading today as a psychological ploy. Even if the odds are small that stops (protecting long positions) are there, why not try to trigger them? Print the new low, try to trigger stops, buy back the short and most likely even go long to hopefully allow prices the change to get back to the area right before stops were triggered. There are enough traders out there that will purposely sell the market to get retail traders nervous and sell; however, the pro's real intention is to go cover and go long (using retail funds to provide liquidity). I think that is what they were trying to do with the one tick new low today. Something to think about.

  Leigh Stevens   8/2/02,  1:19:41 PM
Subscriber NOTE: "I called Quote.com and they said the LiveCharts subscribers are getting the real-time (Mini S&P & Mini Nasdaq 100) quotes for free -- but it's an error. They expect to have it resolved at some point. He also said the Q-Charts subscribers should still be paying $10. Hmmm, this doesn't seem right."

RESPONSE: No, it seems that they don't quite have their act together on them putting out the Mini S&P and Mini Nadaq FUTURES quotes for free - and saying that subscribers are supposed to be paying for them even though they just show up on our screens! They probably mean those that signed up for them.

Anyway, this counters my thought that the Chicago Mercantile Exchance (CME) was putting them out for free - NOT! Now that I think about it, the CME was never known for giving out freebes. Looks like we should make use of them while we still have them. It's Q-charts responsibility to sort this out.

  Jim Brown   8/2/02,  1:11:04 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I have been reluctant to lower the stop loss as I do not want to be stopped out by a few cents on a surprise bounce as we were several times this week. At the same time I don't want to see the gains evaporate. I think it may be safe to lower the stop now to OEX 436 (SPX 870). The oscillators are now starting to bottom in an oversold condition but they "can" remain there for the rest of the day based on the deteriorating internals. So, lower the stop now to 436/870 but feel free to close at any time to capture a larger profit. There is the possibility of traders who shorted the early week bounce to cover later this afternoon and go into the weekend flat. Be aware!

  Steven Price   8/2/02,  1:00:48 PM
Reader Question: Re: BBOX $33.22 (-0.98) Seeing a flatish chart. Forming a rectangle. What does this rectangle mean? Thanks for a great job.

Response: This can be viewed 2 ways. BBOX may be forming a rectangle, or it may be forming a flag, which is flying half mast on the way down. This small flag, begun at approx. $34.50, would have a downside objective of $32.50. Right now the trend is still down. We have already lowered our stop to $36.50, however consevative traders concerned with a rebound may want to lower their stop further. Note yesterday's high of $34.75 may be a good level to look at for signs of a rebound. A new stop of $35 would lock in some gains, as well as save some money on TUMS, if you are concerned.

  Jeff Bailey   8/2/02,  12:52:05 PM
5-year YIELD ($FVX.X) 3.178% ... puts a bear's mind to rest near-term that an asset allocation isn't being triggered from the bond market. I was just very suspicious of 3.201% YIELD.

  Jeff Bailey   8/2/02,  12:44:25 PM
Treasury Watch 5-year YIELD ($FVX.X) 3.214% ... YIELD firmly breaking to new 52-week lows. Very defensive move from the bond market today. YIELDS lower across the board and now looking for another Fed interest rate cut.Link

Low YIELD trade today has been 3.201% and a bit suspicious as if a seller is perhaps sitting some offers in this bond's price. Will monitor and have alert set at 32.00 or 3.2% to alert to another sell signal on the p/f chart.

  Jonathan Levinson   8/2/02,  12:43:51 PM
COMPX price made it into the 1240-50 congestion area which, for the moment, has brought a pause to the decline. The TRINQ and QQV are staying near their day highs, showing that no one's in any hurry to buy this "dip". With MSFT hovering around 44.50 and CSCO below 12, the market looks very different from yesterday at this time. I expect the COMPX to chop around between 1255 and 1240. A break below 1240 will spell more trouble to come for COMPX bulls.

  John Seckinger   8/2/02,  12:43:12 PM
Mixed signals. Yield curve is now trading in favor of a rebound in equities; however, the dollar is weaker and shorts certainly have not been afraid to sell every attempted rally. The TYX.X is beginning to become hard to read as well, since this new relative low in yield is being compared to the 51.78 low (53 close) set on July 24th. Currently at 52.25, the index could make a relative low anytime or simply try to retest 52.10 and then 51.78 that corresponds with the opening on November 16th. I do like to remind myself: Trade with least resistance, and least resistance is convincingly lower across the board.

  Steven Price   8/2/02,  12:22:04 PM
Semiconductor Index (SOX.X): The Semiconductor Index has fallen through support at 300, now trading 296. On the daily chart, the downward channel begininning in the middle of May shows possible bounce around 245 off bottom of channel, when combined with down trend line of last three days. This trendline is awfully steep, so a few more days input may raise this number.

  Leigh Stevens   8/2/02,  12:21:35 PM
Subscriber QUESTION: "Check out Lycos finance for free real-time futures quote under the symbol ( ES02U)"

RESPONSE: Oh yes, the E-mini Sept. futures - I've noticed that the Mini Nasdaq 100 futures also appears as a REAL-TIME quote; e.g., current contract - NQ02U.

I assume the exchange does this to attract "retail" trading as individuals tend to use this contract heavily versus institutions.

  Leigh Stevens   8/2/02,  12:21:23 PM
Subscriber QUESTION: "Check out Lycos finance for free real-time futures quote under the symbol ( ES02U)"

RESPONSE: Oh yes, the E-mini Sept. futures - I've noticed that the Mini Nasdaq 100 futures also appears as a REAL-TIME quote; e.g., current contract - NQ02U.

I assume the exchange does this to attract "retail" trading as individuals tend to use this contract heavily versus institutions.

  Jim Brown   8/2/02,  12:21:20 PM
Swing Trade Signals
Interesting formation. Between 12:10-12:16 on the 1 min chart the indexes went flat. There was a huge amount of volume that just roared through on the buy side but it was sucked up instantly by the sellers. This was an amazing display of an attempt to buy a bounce and the bears just squashed it.

  Jonathan Levinson   8/2/02,  12:18:07 PM
The put to call ratio data, updated every 30 minutes, can be seen at Link

  Jim Brown   8/2/02,  12:15:28 PM
Guess the Dow - The average guess for the guess the Dow contest for this week was 8291, with 9999 the high and 6750 the low. It is amazing how the Dow appears to be gravitating to the average and back to the 8259 we closed at last week. If this is the case all the gains and hopes for the week by the bulls will have evaporated. They say bear markets are built on the "slope of hope" and this week would be a prime example. Don't forget to make your guess for next week's Dow close after 4:PM today.

  Jonathan Levinson   8/2/02,  12:15:05 PM
There are now 8.5 declining shares for each advancing on the COMPX. All of the lines I drew on my charts have been violated to the south. The steadily rising TRINQ has given no obvious spikes to signal a stop or pause to the decline. At this rate it could just drift on up to 4 or 4.5 over the next few hours as price gets demolished. The QQV, on the other hand, up 3.69, shows option traders saying "Show me the money" as the rush for the exits picks up speed.

  Leigh Stevens   8/2/02,  12:11:32 PM
Subscriber QUESTION: Re the Put/Call ratio -could you please share what to watch on the above if we just have Qcharts? "

RESPONSE: You know, I'm not sure if Q-Charts carries the daily CBOE Put/Call ratio - it probably does and I'm not aware of the symbol - I have it on TradeStation as "PCRATIO" but this symbol does not work on Q-Charts. I suppose I'll hear from someone with the symbol, assuming Q-charts has this ratio.

Anyway, I've found that when the 10-day moving average of the Put-call ratio gets to above .86 - indicating 10-days of heavy put volume relative to total daily call volume on the CBOE - it is bullish number and may signal a substantial rally ahead. This worked pretty well when the 10-day average hit .88 last week on 7/24. A substantial rally followed of course.

However, the 10-day put-call during mid-June to early-July was well above the bullish number I suggest (.86) during the time of a steady and accelerating downtrend. Then, back in Feb. high 10-day levels prefaced a substantial 3 week market rally.

I have not found as good of a correlation for bearish "signals" for the put-call, but 10-day readings under .65 have worked in the past to signal further market declines ahead, but this also seems to be about 2 out of 3.

Study of put-call readings, as a contrary indicator, "works" best in conjunction with other elements of technical and fundamental analysis - for example, an index rally that breaks out above a significant down trendline just after a bullish reading in the call-put ratio, especially on a 10-day basis, reinforces such the trade potential in such a trend reversal.

  John Seckinger   8/2/02,  12:07:28 PM
Is the yield curve asleep? Five year notes are only fractionally outperforming ten years as the Dow continues to trade lower in mid-morning activity. Regardless if institutions are extending duration, foreign central banks or funds selling equities usually maintain or add to their short dated Treasuries. If only repatriation was taking place, I would expect a much weaker dollar. What does this all mean? Curve traders better start raising cash to buy five year notes via equity market.

  Jeff Bailey   8/2/02,  12:05:13 PM
Wal-Mart (WMT) $45.50 -3.69% ... will still monitor stock despite recent disappointments from $45.01 profile. Will monitor to see if buyers still at the $45 level. If not, then get feeling for other strength/weakness in group and perhaps market. Link

Note: I bid the underlying stock yesterday at $48.02 for 200 shares (at rounding higher 50-pd MA on 60-minute chart) and was cut like hot knife through butter and stopped at $47.95 for loss.

Made/"understood" observation of potential dow component weakness, tied into Boeing (BA) also breaking similar 50-pd MA at 60-minute chart and initiated August $40 puts (BATH) at $1.20 to create "synthetic" hedge. Goal now becomes to get back that $220 loss in WMT underlying from BA puts.

  Jim Brown   8/2/02,  12:02:01 PM
Swing Trade Signals
This looks like a true summer Friday. There is no big drop, just a slow drifting down on light volume but with a steady pressure. No panic, no crisis selling and no capitulation.

As I was typing the above paragraph the phone rang and in the space of a 5 min call the situation changed dramatically as the first major sell program of the day hit. The VIX has now spiked to 43.61 and the adv/dcl ratio has dropped to a very negative .38. The QQQ has dropped to near $22 and still falling. Almost all the big QQQ trades are now going at bid as it appears the trend has changed and big money is giving up on holding the line. The initial target on the open SHORT signal is OEX 423 (SPX 850) and the prospects are looking good.

  John Seckinger   8/2/02,  11:53:42 AM
The weakening Dow continues, in my mind, to trade rational, organized, and lower. 30-year bond (TYX.X) at 52.55 with yields in free fall mode. I got an email from a reader who saw the "b" pattern in the OEX with the apex at 441.77. I would strongly advice subsribers looking for an exit to follow Jim's entries in the Monitor. Remember: the "b" pattern is great for entries, but other tools must be used when taking profits. Risk (read: stops) is controlled just on the other side of the pivot.

  Jeff Bailey   8/2/02,  11:47:54 AM
Dow Industrials (INDU) 8,396 -1.3% ... on 60-minute chart, sitting right on a rounding higher 50-pd MA. Look for break below session low of 8,375 to see potential test of 8,000. Above, the 200-pd MA provides resistance at 8,712.

MACD on this time interval trending lower and just crossing below zero level.

Looks lower here.

  Jonathan Levinson   8/2/02,  11:46:30 AM
CSCO's just broken below 12, and MSFT is below 45, and QQQ 23.20 let go, within seconds of each other.

  Jonathan Levinson   8/2/02,  11:38:11 AM
This is a bad day for COMPX bulls. There are currently 6 declining shares for each advancing. The TRINQ is edging up, now 2.68, and QQV is up 1.52 so far. The Nasdaq TICK is currently -324, and price is off its lows, currently 1256. With next week's bond auction, we can expect a liquidity vacuum to impact stocks, and I'd guess that it will be the more liquid stocks that will lose demand/attact sellers. MSFT at 45.13 is resting on support, as is QQQ. It's difficult to enter on the short side near the lows of the day, and so I'm going to stay patient. Congrats to the bears who emailed me yesterday and held over the close.

  Jeff Bailey   8/2/02,  11:36:48 AM
The 11:00 AM intraday update has been posted. Link

  Leigh Stevens   8/2/02,  11:32:19 AM
Subscriber QUESTION: "Lycos finance gives PREM.X, under hot list which I believe is the difference between SPX Cash and futures. THIS INFO MAY BE USEFUL TO SUBSCRIBERS, IF MY INTREPRETATION IS CORRECT.


RESPONSE: Re the question of what "PREM.X" is on Q-charts and on the Lycos site - it's simply the numerical difference between the nearest futures contract in the S&P 500 futures (currently: SP02U) and the actual SPX index.

However, UNLESS you are paying Q-charts for real-time futures quotes, the futures side of this equation is on a 10-minute delay, which can be an "eternity" in the SPX futures contract. So, you have a quote of futures (delayed) relative to the cash index (real-time) so you are in effect looking at a rear view mirror - at the what the premium is IF the futures quote from 10 minutes ago was the quote NOW.

Its really kind of silly I think to even quote this thing, but that's what it is. The symbol (PREM.X) is only going to give you something of real trading value IF you have real-time futures quotes.

It is a sizable topic as to how "fair value" relates to where, for example, "buy programs" would be done by Index Arbitrage program traders; i.e., they would buy stocks and short futures because S&P futures premiums are at a "trigger point" that is far enough ABOVE the S&P futures fair value to lock in a "riskless" profit.

I wrote an explanation of how and why this works in the bottom "Mini Trader's Corner" section of one of my Index Trader daily commentaries (6/20) at Link

  Jim Brown   8/2/02,  11:28:28 AM
Chart setups - I have had several questions about the chart setups I used last night. I explained last week the 2/5 DMA averages I use on the 15 min charts and many people have written that theirs do not look the same. Here is the setup instructions. This is for the 15 min chart. Set the 5 day average to 130 periods (130x15min = 5 days) Use the average of High/Low NOT THE CLOSE that most charts systems default to. Also, we want to smooth this by using an exponential not a simple average. In Qcharts the setup looks like this: Link

On the 2 day (52 period) I use the simple average with a default to "close". I will refer to these often in future game plans since they tend to provide intraday support/resistance. If you have it setup correctly you will see the 130 period providing a solid bottom on July-26th and the 52 period providing resistance on August 1st.

  Steven Price   8/2/02,  11:19:44 AM
Baxter (BAX) $38.97 (+0.79): OI call play BAX back in the $39 range. This is our original target area for this play. The stock broke trough $40 resistance on Wednesday, trading up tp $40.18. We recommended new entries if the stock traded $40.50, which it has not done yet. The stock is showing good strength on another down day for the broader markets, having traded as high as $39.15 this morning. Consevative traders may want to use this opportunity to lock in partial profits from initial entry at $35.89.

  John Seckinger   8/2/02,  11:16:57 AM
Pattern Recognition: Beginning with the Dow, the somewhat aggressive bearish channel on a five-minute chart has an orderly, relatively rational feeling to it. Should work well for bearish traders. The Nasdaq, since 15:20:00 yesterday did produce the "b" formation but failed to consolidate to an apex (aggressively selling off at 1270 before pattern was fully established). Bearish as well.

  Jim Brown   8/2/02,  11:14:46 AM
Swing Trade Signals
I would like to remind everyone I am not going to answer emails during market hours. With the 300-500 I get daily I cannot spare the time during the market to reply. Feel free to send them and I will get to them when I can. I love to read them as many of you have some great insight but it distracts from my market focus to attempt to answer during market hours. Thanks in advance!

  Steven Price   8/2/02,  11:11:15 AM
Danaher (DHR): $58.73 (-1.39) OI new put play DHR now below its 10-dma of $59.51. Next support looks to be around $56.

  Steven Price   8/2/02,  11:04:34 AM
Black Box (BBOX) $33.48 (-0.73) OI put play BBOX, originally picked at $36.92, took a breather yesterday, with a 0.43 gain, however it is now back below yesterday's low of $33.81.

  Jonathan Levinson   8/2/02,  10:57:02 AM
Good call, Jim. The 22.50 QQQ level broke, and the COMPX is headed for its 1240-50 congestion area about which I can remember typing so many times. The TRINQ is now back above 2, currently 2.14, and QQV is at 51.78, up 1.06 on the day. Remember when it was above 60? Others do, which means that this decline could have a ways to go before it tires itself out. However, note that we're not alone in eye 1240-50 as potential support.

  Steven Price   8/2/02,  10:55:34 AM
Correction: In last night's new put plays the CCMP SEP 35 puts should be AUG 35, and the DHR SEP 55 puts should be AUG 55. Thanks to our astute reader who brought this to our attention.

  Jim Brown   8/2/02,  10:52:39 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The market SHORT was triggered at 10:46:10 when the OEX traded below 439.96 (SPX 874.84, Emini 874.25, DIA 84.37, SPY 87.75, DJX 84.15, NDX 900.70, Compx 1263.08) The support at 440 was strong and it is still holding on to the line by a thread. The initial stop loss will be OEX 445 (SPX 886) as spelled out in last night's game plan.

  John Seckinger   8/2/02,  10:49:42 AM
Side Notes: Diversified stock funds lost 9.4% last month (19.9% for the year), S&P 500 lost 7.9 in July and 20.6 percent for 2002, while specialty diversified equity funds (only 4.3 billion in combined assets) posted a flat month but higher by 12.2 percent the first 7 months of the year. In other action, Fed funds are pricing in a 50% chance of a 25 bp ease by the end of the year. Also, last week I talked of a rumor involving a Midwest fund selling Treasuries (1.5 billion worth) to buy stocks. Today, it is somewhat certain that the fund was Berkshire Hathaway.

  Jim Brown   8/2/02,  10:43:29 AM
Swing Trade Signals
That is the third lower high for the major indexes today. The pressure is on and range between high and low is shrinking. We should have a break one way or another very soon and I would be very surprised if it was not down.

  Steven Price   8/2/02,  10:41:58 AM
The bulls appear to be making their best effort at holding the market up (or less down in this case), but now that we've fallen below 885 and 8500 recent support in S&P and Dow, these levels should provide resistance for any surge.

  Steven Price   8/2/02,  10:26:19 AM
DuPont (DD) $40.95 (-0.58): OI put play DD has broken support at $41, which was the opening print on its gap day of 7/25.

  Jim Brown   8/2/02,  10:22:08 AM
Swing Trade Signals
Huge orders crossing on the QQQ. On this time/sales chart the green lines are trades at ask and blue lines at bid. A 1,000,000 share block crossed at ask on that last dip with a 150K, 500K, 100K following shortly thereafter. Big money trying to hold this market up. Link

  Steven Price   8/2/02,  10:18:00 AM
J.P. Morgan: (JPM) $24.76 (-0.76) Possibly more bad news for OI put play JPM. Enron apparently used federally regulated pipeline subsidiaries to obtain loans from JPM and Citi shortly before bankruptcy filing. The Federal Energy Regulatory Commission last night requested an explanation for the transactions from the pipelines. Theory is that Enron milked the subsidiaries and shifted cash to the parent company.

  Jeff Bailey   8/2/02,  10:17:55 AM
Dow Industrials (INDU) 8427 -0.92% ... getting retracement alert here at 8,430, which is 61.8% retracement. (retracement from the Spring highs of 10,663 to old bearish vertical count of 7,050.) Has downside risk technically for bulls at 7,740. May see some psychological support at 8,000.

  John Seckinger   8/2/02,  10:17:39 AM
To Recap: 8500 (and then 8530) should be important resistance for the Dow, bonds are trading neutral, but the final variable might just be the dollar. A delayed quote of DX00Y shows prices at 106.70 and above the 22 DMA of 106.49. On July 25th, the dollar rallied substantially to close at 106.71. Already the dollar has rejected levels underneath the 22 DMA, but will need to close above both 106.71 and the 22 DMA for investors to continue an appetite towards dollar denominated assets, which include equities.

  Jonathan Levinson   8/2/02,  10:14:56 AM
The bulls seem determined to shake off all bad news on the COMPX, as the QQQ flirts with 22.70. 22.50 looks like support based on an upsloping support line connecting the lows starting on July 23rd. Of course, the environment looks worse now than it did then, but price is the final arbiter. I'm personally hoping for a nice bounce here to reload some puts, but QQQ 22.70 looks like a ceiling for the time being.

  Jeff Bailey   8/2/02,  10:14:08 AM
Micron Technology (MU) $17.83 -3.62% ... supply getting the upper hand with today's trade at $18 triggering triple-bottom. Link

Will Intel (INTC) $17.84 -3.56% be next "key" semi to give sell signal at $17.00 and sector internals deteriorating further? Link

  Jeff Bailey   8/2/02,  10:10:36 AM
Semiconductor Index (SOX.X) 303.25 -2.76% ... new 52-week low for this index today. $10 box of p/f chart has supply building at $350. On $10 box, bearish count is $210. Link

Most institution view the $20 box. Bearish count here $260. Link

As such, bear's targeting a range of $210-$260.

  Leigh Stevens   8/2/02,  10:08:36 AM
Subscriber QUESTION: "The SMH's broke a triple bottom and are putting in new lows. All the Semi charts i look at look horrible. wouldnt this be a good short here?

RESPONSE: It does look pretty negative. As to shorting it, myself would prefer shorting a bounce back up to the "breakdown" point at 25 on the Semi's HOLDR's (SMH), if that developed. Downside maybe is to 20 at this point - right now the low end of its downtrend channel intersects around 23, but extends down over time of course. By the end of this month for example, its lower trendline extends down to 20.

  John Seckinger   8/2/02,  10:08:05 AM
30 minutes into trading and there does seem to be a slight change in sentiment towards the bullish camp. Five year notes are slightly underperforming ten year bonds; however, I would still like to see the Dow stabilize above 8500 and then 8530 for confirmation.

  Steven Price   8/2/02,  10:05:29 AM
Eli Lilly (LLY): $56.10 (+1.10) OI was stopped out on this call play on yesterday's close of $55. This stock was hit as the entire market was down yesterday. It was also downgraded Wednesday based on old news. We have exited the play for a profit, after getting in at $53.70. The stock traded as high as $59.24 on Tuesday and rallied back after Wednesday's downgrade to close at $58.42, but yesterday's overall market pressure was too much for it.

  Jim Brown   8/2/02,  10:03:54 AM
Swing Trade Signals
Bulls are coming back again and it appears they are going to shake off the negative jobs report and try to rally the troops for another run. The QQQs are showing amazing strength with multiple trades for multiple hundred thousand share blocks going through at ASK. Big money is trying to keep a floor under the market for reasons unknown. The Dow came to an abrupt stop at 8450 and is trying to consolidate and move higher. The TRIN has collapsed to 1.12 from the close over 2.0 last night. The VIX is 41.47 after dropping to 33.35 early in the week. Investors might want to go back and review previous VIX extremes and almost always there is a double top where the VIX goes back up to the previous high or higher before the markets recover. With the move back over 41 it appears that move is underway and the next high could come next week.

  Jeff Bailey   8/2/02,  10:03:06 AM
June Factory Orders were down -2.4% versus consensus for +0.5% gain.

  Leigh Stevens   8/2/02,  9:59:56 AM
Subscriber QUESTION: "Hi Leigh, do you know of any public sites that would give me the S&P and Nasdaq futures in real time. I guess you probably pay the extra $50+ monthly to get this through your real time charting system?"

RESPONSE: Have not found a source of futures real-time quotes that is on a "free" site - this is governed by the futures exchanges - if a site put them up in real time without collecting the user fees they would be in trouble and quickly get their quote feed cut off I believe. I know the quote vendors would take this quite seriously.

Yes, if I wanted futures real-time I would pay the $60 for the Chicago Mercantile Exchange and get the S&P, etc. However, I have not felt compelled to get real-time stock index futures in order to trade stock index options.

  Jonathan Levinson   8/2/02,  9:58:14 AM
The COMPX almost filled its Monday gap, printing as low as 1267, 6 points shy of 1260 support. The TRINQ remains very tame at 1.11 and the QQV now up .85. The sellers appear to be taking a wait and see approach so far. I see some large bids sitting at 22.50 QQQ, which appears to be the bears' next hurdle.

  Steven Price   8/2/02,  9:54:18 AM
KLA - Tencor (KLAC) : $36.86 (-0.42) OI put play KLAC continues downward after getting a bump last week before earnings, which were better than expected but showed large declines in earnings and revenue. National Semiconductor (NSM) warned last night that revenues would remain flat. This was attributed to a weak personal computer environment. This is just more bad news for this sector. The Semiconductor Index (SOX.X) closed last night at a new 52-week (311) low and is now right at support of 300.

  Jeff Bailey   8/2/02,  9:51:39 AM
Wal-Mart (WMT) $46.72 -1.49% ... would protect any gains from $45.01 here on break of yesterday's low. Seeing DIVERGENCE from Sept-October technicals and more defensive with account management here. Link

Longer-term investor that wants to hold underlying stock might look to write covered calls.

  Leigh Stevens   8/2/02,  9:51:06 AM
INDEX Comments: QQQ has now of course completely "filled in" its upside gap from Monday, so it has done a complete round trip. 22.00 is the key support. If the Q's hold this area, there is the possibility of setting up a trading range - a break of 22 on close would suggest a new down leg and sets up a target to around 20.

Nas 100 (NDX) potential support looks like 887, extending down to 880.

  John Seckinger   8/2/02,  9:45:46 AM
It is interesting to see the Biotech Index higher by 1.00 at 350, just below the 50 DMA of 352. Turning towards Treasuries, the gap lower in yield within the 30-year bond still has us focusing on the following levels (in order of importance): 52.81, 52.92,and 52.94. If the TYX.X index can settle above 52.94 by session's end, this would be the most bullish scenario for stocks - implying higher yields, lower bond prices, and a solid allocation back into equities.

  Leigh Stevens   8/2/02,  9:45:30 AM
INDEX Comments: OEX - hourly chart now looking more and more like a "rounding top", with an downside objective that looks like the 430 to 426 zone.

  Jonathan Levinson   8/2/02,  9:44:13 AM
53M declining shares to 32M advancing on the COMPX, as the TRINQ blows off its high reading from yesterday, currently at 1.17. QQV is up .62. Price is trying to stay at its opening level but is printing fresh lows as I type, currently 1269.

  Jim Brown   8/2/02,  9:39:44 AM
Swing Trade Signals
Pretty tame opening for a very negative jobs report! This was really the best scenario for the first game plan from last night. The SHORT entry at OEX 440 (SPX 876) should be hit shortly and there appears to be no bounce in our near future.

  Jeff Bailey   8/2/02,  9:35:36 AM
The 9:00 AM intraday update has been posted. Link

  John Seckinger   8/2/02,  9:25:50 AM
Relatively quiet, with five year and ten year notes up four ticks (4/11). Yes, this is a steepener and defensive towards equities; however, it is only taking the yield curve 8 ticks wider (4 times 6 is 24 for five year notes, and 4 times 4 is 16 for ten year notes...24-16 is 8. Note: if negative, then it is called a flattener and bullish for stocks). If it was 16 ticks or more it would be more significant.

  Jeff Bailey   8/2/02,  9:25:08 AM
5-year YIELD alert! The 5-year Treasury YIELD ($FVX.X) 3.314%, did trade a morning low of 3.271%, which is right where we saw some "asset allocation" shift on 07/24/02. Has seen marginal selling here and edging back higher. Would be careful in "chasing" any gaps lower in stocks right at the open and may be patient and look for rally back if considering some put option entries. Link

YIELD trade at 3.3% (33.00) on the 5-year could be a negative as this would put YIELD back on a "sell signal" and give hint that money flows to "safer" Treasury picking up and more defensive.

  Leigh Stevens   8/2/02,  9:14:28 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > -3.40 at 880.60; Dow Industrials > -23.00 at 8455; Nasdaq > -3.40 at 913.00

"Fair Value" numbers: S&P 500 futures ($SP02U): .75 -- Nasdaq 100 futures ($ND02U): 2.55

  Jonathan Levinson   8/2/02,  8:58:57 AM
Personal income rose 0.6 percent (better than forecast of 0.5 percent) in June after rising a revised 0.4 percent in May, and personal spending rose 0.5 percent (worse than forecast of 0.6 percent) after falling 0.1 percent in May.

  Jonathan Levinson   8/2/02,  8:46:16 AM
Unemployment held at 5.9 in July, matching expectations. There were 6,000 new jobs, below forecasts of 60,000. The price of gold has just bounced slightly on the news, and the US Dollar Index fell slightly to 106.60, as futures drift slightly lower. Jim might get his wish for some strength at the open to short into, but it doesn't look like it'll be substantial so far.

  Jonathan Levinson   8/2/02,  8:32:56 AM
The US Dollar Index got whacked yesterday, falling from basecamp 3 at 107.80 to 107, and then sputtered through the night and slid to 106.30 before recovering to resistance at 106.70, where it currently hovers. Futures are slightly down. Bonds have just opened and yields are down across the board.

  Jim Brown   8/1/02,  9:06:12 PM
Swing Trade Game Plan
The first thing you will notice is that we are changing the name back to Swing Trade to avoid a constant confusion with a type of trading for calculating pivots based on mathematical formulas. I got a couple questions a day concerning this.

I am going to lay out several charts showing my market setup and then how I plan to play it. The first chart shows my support and resistance lines and my targets for the next trade. The first chart shows support at OEX 443 (5DMA) and 440, the top of the initial gap up on Monday. Once broken the next level of support is in the 418-423 range. Upper support is in the 455-456 range which is the longer term down trend from May-15th with stronger support in the 460 range from mid July.

Market View Chart 1: Link

There are two play possibilities for Friday. The first play is a SHORT of the broader market on a breakdown of support below 440. This could happen at the open depending on the nonfarm payroll report. Actually the best scenario would be a weak report but not a disaster and the bulls would get one more chance to move the markets. This would give us a better entry price well after the open and not subject us to a gap down reversal. The worst case is a disaster that causes a gap down below our entry. If this occurs you can take the opening print or wait for something in the 435 range as evidence that the dip is real. This is up to you. I will call it for myself in the monitor before the open.

The profit target on the signal is 418-423 and the stop loss will be 445. Feel free to change to fit your risk profile. I will be giving guidance on the signal as the day progresses and we will close it as conditions warrant.

Game Plan Chart 1: Link

The second play assumes we get some kind of bounce off support or rally from a positive surprise in the nonfarm payroll report. We are not going to play in the middle of the trading range. Resistance is in the 455-456 range with stronger resistance at 460. This is a SHORT signal and the trigger will be an OEX trade at 455 or above. The stop loss will be 461, just slightly above the stronger resistance. The initial target will be the 5 DMA (130 period) line on the chart. If we get the bounce it should be somewhere in the 443-445 range as the OEX starts back down. We will look for a pause at that level and depending on conditions tighten the stops to take us out on a bounce or leave them wide to allow some volatility before moving farther down. Ideally we get a breakdown of that support and support at 440 and an extended drop to the secondary target of 418-423.

Game Plan Chart 2: Link

We are ONLY going to take THESE trades on Friday. If they do not hit our triggers we will not play. (of course you are free to do as you like)

There is no LONG play. My market view is still down and this is my game. (grin)

I realize this is rough considering it is the first one prepared this way and hopefully they will get better. I appreciate your comments and will do my best to answer them in non-market hours. See you on Friday.

  Jeff Bailey   8/1/02,  8:32:39 PM
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