Option Investor
Archive
HAVING TROUBLE PRINTING?
Printer friendly version
  Steven Price   8/12/02,  5:05:40 PM
Reader Question: I did not get the relevance of the reader's question re implied volitility Isn't high implied volitility supposed to translate into high premiums? i.e., high costs for the time component I got a Sept 30 put today for $4.00 at a $26.90 stock price isn't $.90 a faily cheap time premium for a Sept option today, or do I have the wrong perspective \ Thanks for any insights

Response: You paid $0.90 in premium for the $30 strike. A way to examine this is to ask whether the $30 call seems expensive for $0.90, since the premium is about the same for the call as the put. When calculating how expensive an option is, look at the out of the money option at the strike you are considering, and figure out what it would take for that option to be profitable. Option volatility is based on percentages, so premium is less expensive on lower priced stocks. The percentage move from $26.90 to the break even point of $30.90 (on the call) would require a 15% move in the stock in 5 weeks. That is just to break even. Implied volatility measures how much a stock would have to move in a year to justify the current price level of an option. At a lower volatility level, the $30 strike may only have 0.60 in premium. This is a way to figure out whether the options are expensive relative to the stock movement. Calculate the volatility of the stock and compare it to the implied volatility of the options. If you use options as an alternative to getting short or long, an extra 0.30 in premium may not matter that much. I think the earlier reader was attempting to take direction and at the same time capture some added time decay from high volatility.

 
 
  Jeff Bailey   8/12/02,  4:39:47 PM
Question: Jeff: I'm in the middle of reading Dorsey's PnF book right now. He uses two short term indicators with the Bullish %, the "percent of 10" and the "high-lows". Do you know where to find the "percent of 10" data? Or, are there other short term indicators you've found useful to correlate timing with the Bullish %?

Tom Dorsey, the author of the book you're reading as a web site at www.dorseywright.com and you can find this shorter-term p/f bullish percent indicator under the symbol TWNYSE, which stands for 10-Week NYSE, and simply charts as a bullish %, the percentage of stocks listed on the NYSE that are above their 10-week, or 50-day moving average.

I'm trying to figure out how I can also use www.stockcharts.com screening tool and perhaps simply create a scan which will quickly list the number of stocks that are trading above their 50-day MA, then just hand chart that % every day. Wouldn't take much effort if I can figure out how to "verbally" set up the stock scan at stockcharts.com.

 
 
  Jim Brown   8/12/02,  3:50:54 PM
Editors Plays - The three stocks I wrote about this weekend TSM, ASH and INVN have had mixed results. INVN and ASH have been up on a down day which indicates to me the relative strength and validity of my outlook. TSM is down -.28 cents but after all the chip equipment downgrades this morning I am not surprised. This is a long term play and several readers have asked if I was still bullish in light of the drop. The answer is yes, as the entire drop came at the open on the downgrades. We are looking at the January $10 call option and I would continue to be bullish on it as long as it held $7.75. There will be further bad news in the chip sector but TSM will be a winner WHEN the recovery comes. If we did get a drop back below $8.00 I would look at it as an opportunity to buy the Jan-$7.50 call instead. This is not a short term trade but a long term hold.

 
 
  Jeff Bailey   8/12/02,  3:50:06 PM
The 3:15 PM intraday update has been posted. Link

 
 
  Jeff Bailey   8/12/02,  3:37:38 PM
Tyco Intl (TYC) $12.83 +4.9% ... re your curretn Sept 12.50 short my 60 min chart shows tyc coming up to a down trendline from the end of July (two praks) at maybe 12.80, my 14,5 stochastic is way overbought is this a good time to consider adding to this position?

No.... I wouldn't be looking to add to positions in stocks I currently hold puts on. Reason being is that Dorsey/Wright and Associates' NYSE bullish % (BPNYSE) reversed up into "bull alert" status with Friday's action. Thus, thinking becomes is that 1,2 and 3-lettered stocks starting to find some demand.

Since profiling TYC, stock has really traded rather sideways and seems to want to hold retracement support at $11.76, with 50-day MA (currently $13.02) serving as past resistance.

Personal feeling is to hold partial positions into FOMC meeting, but not looking to add to position.

 
 
  John Seckinger   8/12/02,  3:33:35 PM
The September Bond (USU2) remained outside the Bollinger Bands during the entire session on Monday. These "parabolic prices" should keep volatility high, and traders looking for confirmation following the FOMC announcement should look no further than the USU2. If the Dow rallies, bond prices should be falling (and vice versa). Please see chart: Link

 
 
  Jonathan Levinson   8/12/02,  3:31:59 PM
The COMPX has succeeded in filling the opening gap and then some, having just hit 1310 as the QQQ breaks 23.40. The TRINQ touched .70 before coming back up to .75 but looks to be headed lower. QQV is up .69 on the day- could be that options traders passed out cold and have missed the move thus far. The TICK.NQ is +301.

 
 
  Jonathan Levinson   8/12/02,  3:25:35 PM
"Not guilty" is defendant's way of telling the prosecution to prove their case. Innocence is never at issue- it's merely guilt or the absence of guilt with respect to the crime allegedly committed. I guess that in the grander scheme, "no one is innocent." (grin)

 
 
  Steven Price   8/12/02,  3:18:32 PM
Just a note on former ImClone CEO Sam Waksal's case. CNBC reports his plea of "Not Guilty" as though it were Waksal's statement of his innocence. ALL defendants initially plea "Not Guilty," unless they already have a plea bargain in place. In fact, a criminal court judge will enter a "Not Guilty" plea for a defendant if he doesn't do so himself.

 
 
  Steven Price   8/12/02,  3:13:04 PM
Reader Question: Steven, HD is a put play selection, but I see the implied volatility on HD as being close to its 52-week high. Would a better play be a bear call (credit) spread rather than an outright put purchase? The Sept. 27.5 / 32.5 bear call spread is about a $1.25 credit now. This caps potential profits over the put purchase. Your comments would be appreciated. Keep up the great work. Brian

Response: Home Depot (HD) $26.70 -1.57 You're point is well taken. While this play is in our Puts section, it is a bearish play and selling a call credit spread is another way of accomplishing the same objective. In fact the sale of a call spread is the synthetic equivalent of the purchase of the same put spread (i.e. Selling the Sept 27.5/32.5 call spread for $1.25 accomplishes the same P&L objectives as buying the Sept 27.5/32.5 put spread for $3.75) In this particular case, I'm not sure I like the cost/benefit analysis of the possible gain of $1.25 vs. possible loss of $3.75. If I were looking at a call credit spread vs the outright purchase of a put I would most likely look for a deeper in the money spread that had at the very least a 50% cost/benefit ratio, preferrably more than 50% in my favor.

One other theory applies here as well, which I call the theory of compression. It is hard to get an individual option, or vertical spread, to trade for much less than a dollar. Often sellers don't like the risk invoved in selling cheap options unless they are already long. This doesn't mean it won't trade under a dollar, it just means that the movement slows considerably when it gets cheap. therefore your credit spread for $1.25 will take some time to lose all of its value.

 
 
  Leigh Stevens   8/12/02,  3:05:57 PM
Subscriber QUESTION: "What is your opinion on anfi also had a nice move back up here."

RESPONSE - American Nat'l Fund (ANFI) looks on the chart like it might be headed back up toward recent spike high in 16-17 area - last at 14.4 with strong rebound from recent low in $11 area. However, volume is NOT confirming this move, so rally looks suspect to me.

 
 
  John Seckinger   8/12/02,  3:04:43 PM
Note: 8680 is a 61.8 retracement level of the entire day's range. Underneath 8680, 8661 defines a half way mark.

 
 
  Leigh Stevens   8/12/02,  3:00:28 PM
Subscriber QUESTION: "Do you have a target (short term) for DHR? Looks very weak today. I am short 20 of the 60 August puts with an entry price of $1.00 and $1.25."

RESPONSE: Well, the top of Danaher Corp (DHR) downtrend channel is 61.25 - so move ABOVE here would be a bullish breakout and possible upside reversal.

Conversely, move down from 61-6.125 would suggest possible decline back to as far as low end of its channel around 52 - however, there has been a higher downswing low (55.6) at recent bottom relative to prior low at 54 - so, risk to shorts is that downside is not more than recent lows. Key I think is whether downtrend line "deflects" this recent rally. Should happen soon if its going to break, but by Friday? who knows.

 
 
  Jim Brown   8/12/02,  2:53:51 PM
Great Advice on the "Just Relax" comments. It also goes hand in hand with the "overtrading the account" advice of about a month ago. Wait for the confirmation. This is a great day to clean out the desk and wash the windows. Our money will be there tomorrow ready to work for us. Brian D.

Jim, Thanks, I was thinking the same thing, so.... I'm going to play golf. John Beyer

Just to let you know that someone out there thinks you are right on today, you came downs to 452 which was exactly where I'd decided to bail, and watching the sideways movement today I agree is the thing to do like the idea of fading a morning rally also. Robert M.

Thanks for the refreshing post. I sold my DIA puts this morning for a nice profit and then just got caught up with my "real" job. When you say you are moving to the sidelines you really moved! Relaxing in NC : ) David M.

Thanks for your support!

 
 
  Jonathan Levinson   8/12/02,  2:48:52 PM
Nothing has happened in at least an hour that I can discern. 284M advancing shares to 460M declining on the COMPX, with the TRINQ sitting above 1, COMPX below 1300, QQQ below 13.20 until a few moments ago. The TICK.NQ has recently gone positive, and it looks like a move up in the making, but if today's action so far is any indication, it should be small and short-lived. Volume is very low today.

 
 
  John Seckinger   8/12/02,  2:45:25 PM
The range-bound activity continues within the Dow. It looks as though the pivot is at current levels (8638), but I still would not get excited unless the Dow trades under 8562. Traders seem to be squaring positions ahead of the FOMC announcement, and as a trader it does make sense to wait until price action gives us better probabilities for success. If the market doesn't want to force any action, probably makes sense for us not to either.

 
 
  Jim Brown   8/12/02,  2:44:54 PM
If more major companies (minor as well) end up in bankruptcy, will this not eventually have very bearish implications for the market? Just observing all the debt owed to companies by US Air, Worldcom and others, what can keep this market up? I suppose tomorrow will be telling for the consumer. ARe all the dominos preparing to collapse? I guess we are supposed to just trade what we see, but it is very hard to do this for me looking at all the chaos everywhere. Thanks, Suzanne

I agree with you Suzanne. There was an article on Friday about debt exposure by several insurance companies as an indicator for the impact to the economy by the massive debt problems of bankrupt companies. Companies with exposure to WCOM alone included AIG $1.8B, MET Life $1.4B, PRU $1.3B, Aegon $1.4B. These were just the leaders and only the debt from one company, WCOM. Add in GLBX, ENE, WMB, Q, U, etc and you have hundreds of companies exposed to billions in debt. This is a economic hit that will not go away anytime soon. The odds of more airlines going bankrupt are nearly 100%. The odds of Brazil going under are near 100%. The odds of the market ignoring this in the long term are nearly zero. As I type this the A/D line is steadily climbing as traders are still buying rate cut hopes for tomorrow. Quite a few investors have their head in the sand and they don't see the oncoming traffic.

 
 
  Jim Brown   8/12/02,  2:25:47 PM
Swing Trade Signals
Definitely a boring day! I have been using the time to catch up on some work and answer emails. You guys, at least a couple dozen of you, really need to relax. I keep getting suggestions on where to go long. I just don't see it today. We have topped at 455 twice and bottomed at 452 all afternoon. This is a very narrow range and with the FOMC meeting tomorrow I am surprised it wasn't a little wider. Every time we see a couple green candles heading toward the top of the range I have been getting a couple emails wanting to know if this is it, are we going long. I have been watching it bounce off 452 and thinking when it breaks 450 we should go short. Remember the market has priced in a rate cut. If it does not happen we could see an immediate negative reaction.

In summary I think there is no reason to go long on any rally but look at it as an entry point for a short signal before the FOMC meeting. Since the markets tend to move up slightly on the morning of meetings I think we should avoid any further shorts this afternoon as well. Relax!

 
 
  Steven Price   8/12/02,  2:20:54 PM
Trimeris (TRMS) $48.35 (+0.17)OI bullish Watch List candidate Trimeris continuing its upward trend. I'd still like to see trade of $50 before going long, which would be above last Friday's high of $49.85. Today, however, the stock encountered reisstance at $48.80 on several occasions and will need to clear this hurdle first.

 
 
  Leigh Stevens   8/12/02,  2:08:08 PM
Subscriber QUESTION: " One question if you please. What is the correlation between the Dow Jones Avg and the DJX and QQQ? What is the ratio of movement? I hope I am asking the question correctly. If the Dow moves 100 points how much does the DJX and QQQ move. Approximately. Thanks again. "

RESPONSE: The DJX index is equal to 1/100 of the Dow Industrial average - if Dow moves from 8600 to 8700, DJX goes from 86.0 to 87.0.

Re the movement of Dow relative to QQQ - (the Nasdaq 100 tracking stock, QQQ is 1/40th of the Nasdaq 100 index) - you can get rough idea of "equivalent" moves by dividing the larger average by the other; e.g., Dow by the QQQ.

For example, if Dow is at 8000 and QQQ is at 40 - 8000 divided by 40 = 200. This implies that a $1 move in QQQ in this example, is the equivalent of 200 points in the Dow industrials.

However, this is a little like comparing apples to oranges. Better would be to compare the Dow to the S&P 100 or 500; or, the Nasdaq Composite to the Nasdaq 100. The markets (Nasdaq & NYSE) move too independently to say for example, that if the Dow moves 200 points, QQQ "should" move a dollar.

 
 
  Steven Price   8/12/02,  1:54:24 PM
Home Depot (HD) $26.96 -1.33 OI put play HD has rolled over once again from the top of its descending channel, from the middle of May, which was approached on Friday. The trade below $27 continues to look bearish for this stock. Bank of America Securities initiated coverage of HD this morning at Market Perform, hardly a ringing endorsement. The trade of $27 established a triple bottom breakdown on the PnF chart,as well.

 
 
  Jeff Bailey   8/12/02,  1:53:15 PM
The 1:00 PM intraday update has been posted. Link

 
 
  John Seckinger   8/12/02,  1:38:04 PM
If the Federal Reserve leaves rates unchanged tomorrow, how do you see the Ten-year interest rate (TNX) being affected?

Response: It is my opinion that even if the Fed leaves rates unchanged, there could be something in their statement that "controls potential damage". Looking at the bond market, is this a "Buy the rumor, sell the fact" scenario? If I was long bonds (short yields), the ten year bond could easily make one more wave higher in price and lower in yields. That is what the chart tells us; however, is the chart pattern so obvious that buyers are now hard to find? Moreover, I have learned in the past that trading the FOMC announcement becomes extremely difficult. If I was long bonds here, most likely I would take 1/2 the position off the table on today's close. Then, if bonds do rally tomorrow after the announcement, I would sell into the most likely spike in volatility. This trade scenario is like holding a position into earnings.

 
 
  Jonathan Levinson   8/12/02,  1:34:07 PM
Volume breadth has firmed a bit on the COMPX, by which I mean that declining volume is ahead of advancing volume 388M to 204M. Note how light the volume is- obviously traders are going to sit it out until the Fed meeting. Price made some new highs during the past hour, the COMPX touching 1301 before settling back down below 1295. The TRINQ is at 1.39, and the QQV is up .53. The stochastic continues to chop around in the different time frames, but the daily 5(3) is still showing that bearish overbought cross. Overall, an excellent day to catch up on your reading. The real action so far happened at 9:30 AM EST (grin).

 
 
  John Seckinger   8/12/02,  1:22:23 PM
What would you see that would confirm a down move?

Response: A close under 8562 for the Dow. That is really it. The bond close on Friday (September Bonds) portended this morning’s move, but now it is up to blue chip holders. Could it be a bear trap once under 8562? Of course, but the weak settlement should take the Dow to 8250 in the near term - not a bad objective. Upside risk is 8750, a point on a downward sloping trend line which will obviously decrease continuously.

 
 
  John Seckinger   8/12/02,  1:12:03 PM
Currently up 22 ticks at 109-10 (intra-day high of 109-15 and 17 ticks under the 110 short term objective), the September Bond continues to be resilient despite a small rebound in equities. This makes me somewhat nervous owning blue-chips. Sure, the FOMC meeting takes precedent and there could be other factors at work heading into Tuesday's annoucement; nevertheless, asset allocation from one capital market to another should not be overlooked. Therefore, stocks should remain neutral to slightly bearish until September bonds trade underneath 109-04. Yes, finally, I believe bonds will lead equities on Monday. Well, ok, the dollar is most likely leading both.

 
 
  John Seckinger   8/12/02,  1:06:02 PM
Sector Search: My favorite to watch on Monday is the Networking Index (NWX.X). Why? Pattern Recognition. The NWX.X index is currently at a pivot between 113 and 131, currently 0.24 higher at 120.56. The bias is slightly bullish, but it seems like buying volatility would make the most sense. Remember, companies such at CSCO, COMS, and CIEN should be affected, with a strong likelihood that the move begins with CSCO.

 
 
  Leigh Stevens   8/12/02,  1:03:25 PM
Subscriber QUESTION: "wanted to know what you thought of Amgen (amgn) on the short. It seems like its primed for a downturn from its current high down to mid to lower 40's."

RESPONSE: I think the strong recovery rally underway may continue, at least until Amgen (AMGN) gets back up to test its 200-day moving average - at 53.11 currently. Currently, stock looks like its consolidating in a bullish flag pattern - a run up above Friday's high at 48.55 would suggest a further run up to the 53 area also.

$53 looks like it will offer substantial overhead resistance - this was the low end of the trading range from most of last year and into Q1 - the break of 53 started this current downswing - one rally back to this level reversed promptly - assume that there is a good deal of supply (stock for sale) at and above 53 0 - from this area, if reached, its possible the stock may then work its way back down to the $40 area, the top end of the recent upside gap.

 
 
  John Seckinger   8/12/02,  12:58:03 PM
Holding Pattern: No, not the Dow in a "holding pattern", but the 22 period average is holding as a pretty solid pattern. Currently at 8645, the Dow did break above this five minute chart pattern and has used the same line as support on one occasion.

 
 
  Jeff Bailey   8/12/02,  12:48:31 PM
CEO & CFO Certifications today PHSY $24.55 +1.32%Link and MOT $11.49 -4.25% Link

 
 
  John Seckinger   8/12/02,  12:17:10 PM
Per 11:41:39 Post, the Dow continues to remain underneath the 22 period moving average (now at 8637) on a closing basis (closes every five minutes). This average, if penetrated, most likely will become solid support.

 
 
  Jonathan Levinson   8/12/02,  12:13:21 PM
Looking at QQQ on LiveCharts (my tools aren't so great), every now then I've noticed an extra-low bid flash by (not executed of course), but I have seen an extra-high bid yet. Do you think it is valid to conclude just from this that the bids are pretty thin and like short term direction is down? Why else would the extra-low bids make it to the top? Hope this is a worthy question. Thanks for reading it.

Hey, they're all worthy questions. I don't follow the bid/ask on livecharts, but watch it on Island level II and have developed a "feel" for their feed. This morning, there's been average bidding and asking from what I've seen. You can view Island's book for free in realtime at island.com. I don't read too much into the exact levels of the bid/ask, but look more at the sizes of the orders. Big volume on either side of the book is a great indicator of what's happening at any instant, and a string of big orders is a good indication of where price is likely to go next.

 
 
  Leigh Stevens   8/12/02,  12:06:24 PM
Subscriber QUESTION: "Do you think $INDU on 5 minutes charts forms reversed flag? Pole length between 8600 to 8700"

RESPONSE: Yes - The Dow ($INDU) has a bearish flag or pennant on the 30 min. chart I follow, suggesting that a break of 8620-8600 would then imply downside potential to 8500-8480

 
 
  Jonathan Levinson   8/12/02,  12:05:47 PM
There are 2.5 declining shares for each advacing on the COMPX. A sell program drilled the COMPX below 1290, and price is now being slowly brought back up. The TRINQ is at 1.41 and the TICK.NQ is -113, and the sellers are doing a good job of not overly impacting price. The morning action has chopped up the 5(3) stochastics considerably, though zooming out a bit, there's a bearish cross in overbought on the daily bars.

 
 
  Jeff Bailey   8/12/02,  11:54:04 AM
Fiber trading strategy .... Per Friday's 11:00 Update, I bought 3 BRCD Sep $15 puts at the open this morning ahead of Wednesday's earnings. After initiating position, I begin to question premium paid $2.25 compared to current bearish count of $12.50. Link

However, with Emulex (ELX) $13.85 -9%, getting "whacked" again today and following through lower Link , vertical count here now grows further bearish and may give BRCD some further downside than just $12.50, but I'm going to look to lock in gains on BRCD Sep. expiration if $12.50 achieved on BRCD. Then, after BRCD earnings and MARKET response, may then roll puts to QLogic (QLGC) $35.14 -2.1% Link puts , but looking at October expiration, noting QLGC is expected to report earnings on October 17th after the close.

Fed meeting is Tuesday, and I'm just not "certain" of what Fed is going to do and market response to Fed meeting. Thus, not looking at getting overly put on the Fiber stocks here as I we might get a rally Tuesday/Wednesday to then put. However, smaller position in BRCD give some near-term downside exposure ahead of earnings per Emulex (ELX) MARKET response.

 
 
  Steven Price   8/12/02,  11:51:55 AM
Reader Question: Hi Steve,after analyzing the IMF rescue package to Brazil, anybody can agree that it seems to me used as a cover up to slow down speculation on the region at this delicate point,as the package itself is not going to Brazil in the near future,and the obbligations to meet in order to get the second part of the package seems impossible to achieve at all.....Would you buy some leap put on C and Jpm?Is this crazy?

Response:You are preaching to the choir! Both graphs have begun to rollover from recent bull run. These stocks have exposure in Latin America, the U.S., and corporate scandal problems. JPM also has large derivatives exposure. From a technical standpoint for short term trade, neither has quite reached the point of shorting, however the long term picture for these stocks looks weak. One thing that does make me a little nervous in shorting these stocks is the recent series of higher bottoms. This is obviously a result of the big drop when the Enron news broke, however, it is something to keep an eye on. A third higher bottom would probably make me close a short position.

 
 
  Jeff Bailey   8/12/02,  11:44:34 AM
The 11:00 AM intraday update has been posted. Link

 
 
  John Seckinger   8/12/02,  11:41:39 AM
Now looking at a five-minute chart of the Dow, it is interesting how the 22 period average is providing resistance (closing basis) and Bollinger Bands are starting to converge. Please see chart: Link

 
 
  Steven Price   8/12/02,  11:34:00 AM
Chiron (CHIR): $38.29 (+0.39) OI call play Chiron showing good relative strength on a down day for both the Biotech Index (BTK.X) and Pharmaceutical Index (DRG.X), as well as the broader markets.

 
 
  Jonathan Levinson   8/12/02,  11:12:01 AM
The COMPX is chopping around below 1300, currently 1291, and I'm getting flashbacks to the action from Friday morning. The TRINQ is up above 1.40 now, and after a brief optimistic spurt of buying, there are now almost 3 declining shares for each advancing. QQQ is trying to hold 23, and, other than some chop, we've seen little of interest since the opening gap down.

 
 
  John Seckinger   8/12/02,  11:11:13 AM
Before turning to a five-minute chart of the Dow, I have decided to explore patterns within the 60-minute. There was a nice pivot at 8562 which might have raised the risk/reward ratio for shorts and allowed for a rally back towards 8660. The Question is, will this pivot be tested in the near term? Please see chart: Link

 
 
  Leigh Stevens   8/12/02,  10:59:16 AM
Subscriber QUESTION: "What is your opinion on FNIS? It has made a nice move up will it continue?"

RESPONSE - Fidelity Nat'l Info Solutions (FNIS) has made a nice move from $16 area - last at 22.97 - FNIS had a technical recovery after completing a 75% retracement of its Feb. to May advance and coming down to its 200-day moving average and rebounding.

Stock hardly phased today by market weakness and is now also trading above its 50-day moving average and is consolidating near the high end of Friday's run up - looks like a flag type pattern suggesting that this rally can keep going in the near-term. Next resistance is in 25 - 25.75 area - if it can get above this area, looks like stock could retest its highs in the 31 - 34 area.

 
 
  Jeff Bailey   8/12/02,  10:56:24 AM
Horizontal Count Hi Jeff, I recently read the PNF chart by Thomas Dorsey and have been fascinated by the types of predictions based on vertical counts. I was wondering if you have ever used the Horizontal Count that is covered. It is just 1 or 2 pages in the book and he states he uses it only as guide. What I am trying to do is figure of the vertical and horizontal counts for FDRY since it is currently on a bullish catapult breakout and I want to sure of target because of the high odds associated with this chart formation. Any help would be appreciated.

I'm glad you are finding Tom's book and p/f charts interesting and hope they are also helping with account profitability. Yes, I've used the horizontal counts on occassion, but only when a prior vertical count has been achieved, and the stock's chart hints of higher/lower price than the vertical count. As Tom's book explains, the vertical and horizontal count is perhaps thought of as the powder keg that when ignited, launches the projectile, which in our case is a stock's price.

The vertical count for Foundry Networks (NASDAQ:FDRY) $9.03 +0.45% is $12.50 (column of O from $6.50 to $8) Link (equation is $6.50 + ((4*3)*0.5)

Could also use Professor Davis' study of the triple-top buy signal at $8, to also look for profitablility 87.9% of the time, for an average gain of 28.7% in 6.8 months. From $8, that would be a target near $10.29.

As Tom's book stresses. MARKET and SECTOR bullishness needed for patterns to play out accordingly. According to Dorysey/Wright, FDRY is classified as "computers" which is bear confirmed at 18%, so can't be relying too much right now on the bullish pattern of FDRY, but does hint the stock is trying to lead a very weak and "oversold" group.

Relative strength chart of FDRY verus tech-heavy QQQ is bullish and went on buy signal back in early to mid-May (after red 5). Link

 
 
  Steven Price   8/12/02,  10:55:08 AM
Wal-Mart (WMT): $48.27 (-0.93) after its downgrade this morning, WMT appears to be rolling over within its recent range between $45-$50. I like this stock short, with a stop loss above recent high of $49.58

 
 
  Steven Price   8/12/02,  10:50:51 AM
Johnson and Johnson : JNJ $54.36 (-0.15) Interesting that OI Call Play JNJ found support at $53.40 once again. This was its exact support number on Friday. The stock appears to be working on a new base above its last consolidation between $50 and $52.

 
 
  Steven Price   8/12/02,  10:46:20 AM
Nike (NKE) $42.90 (-1.02) Have to go back to last September to find support for OI put play NKE at $40.75. Below $40 there is some congestion between $35 and $40.

 
 
  Steven Price   8/12/02,  10:41:30 AM
Reader Question: Good morning Steven: Qualcomm (QCOM) 25:60, your analysis 8/09/02 possible short, over weekend Barrons downgraded QCOM, today stock is still strong despite market weakness, should we wait for further action until after FOMC meeting tomorrow, should Feds not lower rate, would assume stock is going to continue its down trend. Your comments are appreciated. Michael

Response: QCOM $25.48 (-0.42) QCOM is following its repeated rollover pattern from the middle of May. However, I think new entries should wait for a break below $25. The strength is impressive after the downgrade. The stock traded as low as $23.21 last week, and then followed the market rebound back over $26. I would expect to see the stock (and broader market) give back some gains after tomorrow's FOMC meeting. I am bearish, but will not fight the stock and "wish and hope" it goes my way. Wait for a break back below $25 to go short.

 
 
  Jonathan Levinson   8/12/02,  10:35:27 AM
Saw oex daily support brokern several times, only to float back up above daily support can't tell if this is a great short entry or beginning of a long!

Well Denise, it's at times like these that it helps to have a bias regarding fundamentals. Of course, the prime directives continue to be 1. Remember to breathe; 2. Preserve capital; 3. Make a profit. If you're unsure, then stick to cash, which is an excellent position. At times like these, I will either stay in cash or trade based on my understanding of the news affecting the markets, if the indicators confirm what I think "should" be happening. I see selling today, which correlates to what I think should be happening. But then, the selling is less extensive than I expected. So, I'd be taking short positions or none at all, and given the lighter-than-expected selling, I'd be using a tighter stop or adding extra time to my contracts- ie. avoid white lightning August contracts and back up to Septembers. This is all a matter of personal style- whatever's been working for you is best.

 
 
  Leigh Stevens   8/12/02,  10:33:56 AM
Subscriber QUESTION: "what's your opinion on QQQ for the week?"

RESPONSE: Well, QQQ is looking like it's having trouble maintaining it's recent move above the hourly downtrend channel its been in for some weeks now.

Today's gap down suggests that Q's could bounce back up to 23.25, but it looks like it going to have a tough time getting, and staying, above 23.40 or back above its resistance trendline it had before the Friday run up. However, after a correction here and relief of overbought short-term condition, think that Q's can challange resistance above 24, especially 24.7-25.

Am looking for a place to buy the stock - near support looks like 22.80-22.60. If this near support holds, QQQ may be a buy in this area.

 
 
  Jeff Bailey   8/12/02,  10:29:45 AM
SpeedFam-IPEC (SFAM) $4.67 +63% ... Novellus Systems (NVLS) $26.21 -2.85% Link agrees to buy SFAM 0.1818 shares of NVLS stock for each SFAM share, or $4.91 at Friday's closing price for NVLS. Acquisition will mark Novellus' entry into the chemical mechanical planarization business.

Soundview says that Lam Research's (NASDAQ:LRCX) $12.31 -3.90% Link business may be questioned now that Novellus will be a competitor via its acquisition of SFAM. Soundview also notes that this acquisition should make NVLS more competitive with AMAT.

 
 
  Jonathan Levinson   8/12/02,  10:25:33 AM
There continue to be 2 declining shares for each advancing share on the COMPX. Wondering if that gap will get filled. Well, the TRINQ made a low around .77 on the first runup, on the second runup it stayed above .87, is now above 1. Each move up is being met with more sellers. On the QQQ's, the higher volume has been on the downticks- when the sellers slack off, the price moves up a little. It looks to me as if the buying is being done by a smaller number of bulls, while everyone else is selling patiently to them.

 
 
  Leigh Stevens   8/12/02,  10:21:44 AM
Subscriber QUESTION: "Hi Leigh Have your book and liking it. Can you explain the diff between the spy's and the index? Today its about 4 points."

RESPONSE - SPY of course is the symbol for the SPDR's, the Standard & Poor's depositary receipts representing ownership in the "SPDR" - a unit investment trust holding a portfolio of the stocks making up the S&P 500 Composite Index.

The Amex will tell you that while SPY seeks to correspond to the price & yield performance of the SPX, they can't match the index exactly. And, may get out of phase with the index - am assuming that this occurs after adds & deletes of S&P 500 stocks.

Normally, a Unit Investment Trust (UIT) does not add and delete securities - a UIT not being the same as an actively managed fund. The American Stock Exchange states that "there is no assurance that the price and yield performance of the S&P 500 Index can be fully matched".

 
 
  Jeff Bailey   8/12/02,  10:19:25 AM
UAL Corp. (UAL) $4.08 -21.5% ... stock suffering from Wall Street Journal speculation that UAL may follow US Airways (U) into bankruptcy. According to article, UAL's quest for a $1.8 billion federal loan guarantee is encountering resistance both from federal regulators and competitors. Link

Traders will note bearish vertical count of UAL's p/f chart is $1 (column of O from $17 to $9.50).

 
 
  John Seckinger   8/12/02,  10:18:15 AM
A survey of 193 business economists (National Association for Business Economics) found that 69 percent believe the odds of a so-called double-dip recession were under 50-50. 77 percent of the economists believe the current stance of monetary policy is about where it should be.

 
 
  John Seckinger   8/12/02,  10:11:14 AM
With the Dow back in neutral territory (8600), I have decided to look towards a chart of the Dollar for guidance. The dollar traded somewhat similar to the Dow, now underneath its intermediate term pivot and trending down towards the 22 DMA. Please see chart: Link

 
 
  Jim Brown   8/12/02,  10:10:05 AM
Swing Trade Signals
In the game plan for today I suggested we might go long one time on a bullish move above the trigger points in order to capture a last pre-fed bounce. I am canceling that signal now. The magnitude of the drop this morning has taken us out of range for any successful move above those levels. I could see another attempt to break 460 only to fail again. I want to remain flat until the FOMC meeting tomorrow and avoid trading the choppy market in front of it.

 
 
  Jeff Bailey   8/12/02,  10:09:49 AM
Dynegy (DYN) $1.59 -10% ... In 8-K filing, company discloses that its board of directors has elected not to pay a dividend on Dynegy's Class A or Class B common stock for Q3. Dynegy does not foresee reinstating the dividend near term. Link

 
 
  Jim Brown   8/12/02,  10:06:08 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the open SHORT signal at 9:58:40 when the OEX traded above 452.00 (SPX 894.84, DIA 86.30, SPY 90.00, DJX 86.07, NDX 930.56, Compx 1295.52. There is not a huge bounce underway but I wanted to not risk giving back the gains just because my market view is down for tomorrow. We could see a choppy day today and I would rather watch from the sidelines. Of course our early exit from this signal may indicate a record down day in front of us. (grin). A/D line was improving slightly until we stopped out and is now beginning to trend down again.

 
 
  Steven Price   8/12/02,  10:05:28 AM
NKE's current bearish vertical count on the PnF is $35

 
 
  Steven Price   8/12/02,  9:59:47 AM
Nike (NKE): $43.19 (-0.73) New OI put play Nike has broken its recent support low of $43.25 on Aug 7. I like this level as a short entry.

 
 
  Jonathan Levinson   8/12/02,  9:59:32 AM
The COMPX pulled back off its initial bounce and has returned, printing a high of the day at 1296 before falling back, currently 1294. The TRINQ didn't make it as low on that move, only to .87, telling me that there were more sellers on this second attempt. The TICK.NQ remained negative through the entire move, though I suspect I'm watching a little too closely. Declining volume is currently doubling advancing volume, with 53 new lows to 9 new highs.

 
 
  Jim Brown   8/12/02,  9:56:09 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Looks like 450 may hold. Let's lower the stop loss to OEX 452, (SPX 896) now.

 
 
  Jonathan Levinson   8/12/02,  9:48:03 AM
The COMPX has taken a bounce off the lows that was strong enough to bring the TRINQ down to .77. However, the gap resistance held, and price could not exceed the high of the day just below 1294.

 
 
  Jim Brown   8/12/02,  9:47:33 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The OEX hit my initial target of 450 (450.20 low) and we are seeing a little bounce at that point. I am not convinced it will stop here but cautious traders may want to lower the stop to OEX 452 (SPX 896) and stop out profitably on any bounce. With the negative news out this morning conflicting with the bullish sentiment from last week, we could see underlying strength to any dip. I am willing to hold with an OEX 456 stop for a few more minutes to see if the 450 level fails.

 
 
  John Seckinger   8/12/02,  9:43:04 AM
Looking at a chart of 30-year bond (TYX.X), there should be a pause at the 50.45 level. Currently at 50.80, yields continue to free fall as equities race lower towards 8600. It will be interesting to see if this level in Treasury prices coincides with the Dow falling to the 22 DMA at 8553.

 
 
  Jonathan Levinson   8/12/02,  9:39:21 AM
COMPX 1290 and QQQ 23.00 have just given way as the TRINQ has begun a slow rise, currently at 1.3. QQV is already up 1.92 to 51.07.

 
 
  Jim Brown   8/12/02,  9:36:31 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's lower the stop loss to OEX 456, SPX 904. The initial target for this signal was OEX 450 and we are nearing that level now. I do not want to get too close and get jerked out on a bounce.

 
 
  Jeff Bailey   8/12/02,  9:33:54 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Jeff Bailey   8/12/02,  9:33:23 AM
NYSE Bullish % ... According to Dorsey/Wright & Assoc., their NYSE Bullish % (BPNYSE) reversed up into "bull alert" status at 30%, after turning "bear alert" back in June at 62%.

The "same" NYSE Bullish % ($BPNYA) from www.stockcharts.com currently reads 31.65% (probably due to adjusting for dividends on their p/f charts, which Dorsey does not do) and would take a reading of 32% to achieve "bull alert" status. Link

This action should have traders less aggressive with shorting 1,2 and 3-lettered stocks, while bulls can begin looking for bullish entry on stocks with good relative strength, preferably trading ABOVE trend or breaking out of 2-month or more consolidation bases.

 
 
  John Seckinger   8/12/02,  9:29:09 AM
September Bonds (USU2) are in fact continuing along the "parabolic predication" given on Friday; however, being up 14 ticks at 109-02 is still much lower than the 110-00 projection. Bond futures most likely should stay above 108-20 to keep assets rolling into Treasuries and out of equities.

 
 
  Jim Brown   8/12/02,  9:27:47 AM
Swing Trade Signals
We are currently short the market from OEX 458 with an initial stop loss of 462. If the open goes according to plan I will be lowering that very soon. The futures are down significantly on the US Air bankruptcy, the Prudential downgrade of AMAT, CSFB cut the chip equipment makers and Salomon cut INTC. Several retailers were cut as well after Barrons led the weekend edition with a "buyer beware" on Kohls being expensive with saturation and credit problems in its future.

Looks like we closed Friday in different era with bullishness breaking out all over. It is amazing what 48 hours can do to investor sentiment. Surprisingly the Nasdaq futures are only barely negative while the broader market is down substantially. With multiple downgrades on chip companies this could be a turning point. If they fail to fall on bad news it could be implying a bottom.

 
 
  John Seckinger   8/12/02,  9:24:56 AM
In the issue of Barrons this weekend, these are the tech stocks that were given a sell recommendation: INTC, NOK, TXN, MOT, AMAT, QCOM, EMC, SUNW, MU

 
 
  Leigh Stevens   8/12/02,  9:20:24 AM
Pre-Opening INDEX Comments - Just when I thought that the airlines couldn't go much lower, bombs away with U.S.Airways. U.S. stocks were down in Europe as tech stocks weakened also.

US Airways Group (U) said Sunday it filed for Chapter 11 bankruptcy protection. This is the one where they get court protection, while they figure out how to pay the bills - the news put the stock down to only 50 cents a share, down 80% from its Friday close at $2.45.

It was only a matter of time, after the HUGE runup, before there was a correction but we've seen this before last week and the market came back later in the day - but now the market is quite overbought on a short-term basis.

 
 
  Leigh Stevens   8/12/02,  9:13:07 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > -13.80 at 894.00; Dow Industrials > -125.00 at 8600; Nasdaq > -11.00 at 928.00

"Fair Value" numbers: S&P 500 futures ($SP02U): .58 -- Nasdaq 100 futures ($ND02U): 2.20

 
 
  Steven Price   8/12/02,  9:12:24 AM
Applied Materials (AMAT) $13.31 (-0.55) AMAT is down this morning after Prudential cut their price target from $27 to $21.

 
 
  Jonathan Levinson   8/12/02,  8:51:22 AM
Look for COMPX support at 1297, 1285, 1260-65 and 1245-50. It looks from here that we're going to gap below 1297 at the open, as futures have continued to slide, NDX down 12 and S&P down 13.30, as gold breaks $318 and the US Dollar Index trades below 107.50.

 
 
  Jonathan Levinson   8/12/02,  8:12:42 AM
The news of US Airways' filing for Chapter 11 protection appears to have taken the wind out of the US Dollar Index, currently down to 107.60, and the equity futures, S&P down 10.80, NDX down 5.50. Gold had a big night and is currently trading above $317/oz.

 
 
  Jim Brown   8/10/02,  4:03:26 AM
Swing Trade Game Plan - Click here: Link

 
 
  Jim Brown   8/10/02,  4:01:40 AM
The Market Monitor for Friday August 9th has been archived. Click here to view it: Link

 
 

Market Monitor Archives