Option Investor
Archive
HAVING TROUBLE PRINTING?
Printer friendly version
  Jim Brown   8/14/02,  8:26:20 PM
Swing Trade Game Plan - Click here: Link

 
 
  John Seckinger   8/14/02,  4:16:47 PM
I was prepared to explain how Wednesday's close was, if above 8745, the highest close since early-July; however, last second "settlement" trading put the index under 8745. Nevertheless, this close has something no other close has since May...a close above the intermediate bearish trend line. Please see chart: Link

 
 
  Jim Brown   8/14/02,  4:01:21 PM
Swing Trade Signals
Conspiracy theorists want to know if the Fed juiced the markets today to throw off any negative results from the certification deadline. I would not put it past them if they are expecting quite a few problems. Cautious traders may want to exit here and not hold the LONG overnight just in case

 
 
  Leigh Stevens   8/14/02,  3:57:58 PM
Subscriber QUESTION: "I am long OEX 480 calls will we get there or higher?"

RESPONSE: Well, 480 is my next upside technical objective on OEX - more tonight in my Index Wrap.

 
 
  Jim Brown   8/14/02,  3:51:24 PM
Swing Trade Signals
This rally is very bullish for tomorrow if we do not have a certification disaster tonight. We are above prior resistance levels and in blue sky territory! We will be holding overnight if not stopped out !

 
 
  Jim Brown   8/14/02,  3:49:12 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Raise the stop loss on the current LONG signal to OEX 460. (SPX 910) Let's give this room to run but keep our potential loss to a minimum if we get a sudden reversal.

 
 
  Leigh Stevens   8/14/02,  3:34:23 PM
Subscriber QUESTION: "If the QQQ's close over 23.8 would it then test 24.7? Or would you sell at 23.8? "

RESPONSE: QQQ will test 24.7 most likely now that its made a new high for the current move.

 
 
  John Seckinger   8/14/02,  3:30:43 PM
John, I just wanted to thank you for the lessons on b and P pattern formations... What a wonderful tool to add to my trading toolbelt. This technique alone just paid for my entire yearly subscription to OI....Thank you again.

Response: Clearly, that email just made my day. If curious about the "b" and "P" patterns, please read last night's Traders Corner article at Link

 
 
  Leigh Stevens   8/14/02,  3:30:38 PM
INDEX Comments: NAS 100 (NDX) now has moved above its prior swing high (959.5) - there is a trendline drawn through its 3 prior tops that intersects around 967, which is next potential technical resistance point. Some rally!

 
 
  Leigh Stevens   8/14/02,  3:26:11 PM
INDEX Comments: OEX now breaking out above the high end of the recent trading range it's been in - prior intraday peak was 462 - the index is close to taking that out with good upside momentum going and a bullish .51 TRIN

 
 
  Steven Price   8/14/02,  3:25:53 PM
Johnson and Johnson (JNJ) $55.10 +1.73 OI call play breaking new ground with a trade over $55. JNJ has seen resistance here the last 4 days, but has now cleared the hurdle. $55 also served as resistance in early July and late June. In June the stock traded as high as $55.30, so conservative traders may want to wait for a trade above this level to enter. Recent consolidation and support of $53 would provide a logical stop loss for new entries at this level.

 
 
  John Seckinger   8/14/02,  3:24:13 PM
Looking ahead, tomorrow's economic calendar has plenty to offer. At 9:15 there is both an Industrial Production and Capacity Utilization (CapU) report. Production in July is expected to be flat, following six months of gains. This production number is still tied to low inventories, which is slightly bothersome. CapU is expected to fall slightly to 76 percent from 76.1, but still remains near 20-year lows. The wildcard within the report? Utilities decline larger than expected given sharp decline in electric output. At noon, traders will digest a Philadelphia Fed report concerning conditions in August. The consensus estimates are for a rise to 7.8 from the 6.6 level. Highlighting the report should be the prices paid component, and volatility will remain high as the report only covers Southern NJ, Central/Eastern PA, and Northern DE. Remember, first Phila, then Chicago, then ISM. At 2 p.m., the June 26th FOMC minutes will be released.

 
 
  Jeff Bailey   8/14/02,  3:23:31 PM
The 3:15 PM intraday update has been posted. Link

 
 
  Jim Brown   8/14/02,  3:23:05 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broad market LONG at 15:17:28 when the OEX traded above 462. (SPX 913.75, DIA 87.24, SPY 92.00, DJX 86.85, NDX 50.67, Compx 1322.06, Emini 915.75) The initial stop loss is OEX 458. (SPX 906) We may have been a few cents early as it stopped dead at 462.47. The A/D line is still climbing despite the pause.

 
 
  Jonathan Levinson   8/14/02,  3:16:11 PM
Advancing volume is now almost 5 times declining volume on the COMPX, and the TRINQ is now at .31. This move has erased yesterday afternoon's slide, and has all my stochastics from daily to 1 minute buried in overbought. Another pat on the back for Jim who nailed this one perfectly. The QQV has dived 4.41 down to 44.85, VXN down 4.91 to 52.77, and MSFT is now above 49.25. There's no substitute for experience, though stops aren't a bad compromise. QQQ is touching 23.80 as I type. Unless volume picks up dramatically in the next hour, QQQ volume is going to be a fraction of its ADV. Of course, price is the only action, but a low volume move like this looks a lot less sustainable than if it was on a heavy volume day.

 
 
  Jim Brown   8/14/02,  3:14:49 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Could be a lot of short covering if we break through this resistance. Let's go LONG the broader market if we trade above OEX 462. SPX 914. This is a high risk trade and the initial stop loss will be OEX 458. The A/D line is going vertical.

 
 
  Jim Brown   8/14/02,  3:02:34 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the broad market short at 14:57:00 when the OEX traded below 457. (SPX 905.08, DIA 86.18, SPY 90.98, DJX 85.95, NDX 948.92, Compx 1312.31, Emini 905.00.)

 
 
  Jim Brown   8/14/02,  2:58:11 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go short the broader market with an OEX trade below 455. SPX 901

 
 
  Jim Brown   8/14/02,  2:56:09 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Raise the stop loss to OEX 457, SPX 904.

 
 
  Jim Brown   8/14/02,  2:47:06 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Remember the strong resistance at 459-460? I do! We are going to snug up the stops really tight on a trailing basis as we near those levels. We expect to be stopped out today and go flat over the close in case there is a certification event. Raise the current stop loss to OEX 455, SPX 901.50.

 
 
  Jeff Bailey   8/14/02,  2:42:22 PM
Pixar (PIXR) $46.30 +6.75% ... notable new 52-week high and challenge of 2001 high of $46.49. Today's trade at $45 is bullish. Stock rather thin and I kick myself for not buying yesterday's "dip" at $42. Link

Company handily beat earnings estimates earlier in the week and guided higher on future. Cited strong demand for new animated movies to be released.

 
 
  John Seckinger   8/14/02,  2:41:16 PM
According to research by The Conference Board, there is almost no chance of a double-dip recession and growth in the second half of 2002 will clearly point to recovery. "A double-dip recession in the U.S. is practically impossible without some unexpected external shock to consumer prices or national security," said Gail D. Fosler, senior vice president and chief economist at The Conference Board. Personally, I have mixed feelings. I still believe the Fed will be hiking rates 12 months from now; however, that doesn't mean I believe we avoided a possible double-dip recession altogether.

 
 
  Jim Brown   8/14/02,  2:36:18 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
This bullish spurt may soon run its course. Let's raise the stop loss to OEX 452.50 (SPX 897.50) As we near the 3:PM turn the odds are really good there could be a sell off. Let's be safe, not sorry.

 
 
  Jeff Bailey   8/14/02,  2:35:21 PM
Wal-Mart (NYSE:WMT) $51.69 +6.11% ... stock surging today. News in last 15-minutes has company announcing $5 billion stock buyback, will expense options in quarterly reports. Believes that expensing of options will impact EPS less that $0.01 in next fiscal year. Link

 
 
  Jeff Bailey   8/14/02,  2:33:00 PM
SEC Certifications cited as potential reason for stock's turn higher. Recent certifications SFE, HOT, FBF, DVN, DISH, PZB, GM, NI, CCR, FITB, ABC, AYE, GD, MPS, MLM, LLY.

Notable non-certifier is AOL $11.12 +3.14%, but many reports say that company will certify before deadline.

 
 
  Leigh Stevens   8/14/02,  2:24:46 PM
Subscriber QUESTION: "On the 60 and 30 min. OEX charts, 445-446 was broken Aug 1 AND YESTERDAY. Could this now be resistance? "

RESPONSE: Well, 450-451 was the low end of recent OEX intraday trading range and I think this became more important level of support - when it was pierced yesterday, 450-451 "became" resistance and the area to watch - 450, in turn, was exceeded on this recent rally - now we are back to looking at the high end of this range, around 460, as the key resistance.

 
 
  Jeff Bailey   8/14/02,  2:23:53 PM
Kohls (KSS) $67.41 +3.16% ... may be a stock for traders short the SPY to use as offsetting "hedge" near-term. Similar technicals found here as in SPY. Retailers strong today with Wal-Mart (WMT) $51.54 +5.89%. KSS upside resistance near-term is $67.69 and break there has similar SPY resistance at $68.62. Volume in KSS spiked last 5-minutes and hints others may be thinking the same.

 
 
  Jim Brown   8/14/02,  2:22:48 PM
Klez Worm - I hope whoever wrote the Klez Worm suffers from some very painful condition in the future. For those of you who do not understand how this works let me explain. The worm comes into your computer by email. Unlike previous worms you do not have to click anything to become infected. Just opening the email or viewing it in a "preview pane" is enough. Previous worms would take everyone in your address book or sent items file and send itself to them with a return address from YOU. When your friends got it they knew where it came from because it had your return address. The Klez worm takes your address book and sent items and send itself to each of them but uses somebody else in your address book or sent items as the from address. The recipient receives the email virus and complains violently to the sender only the sender did not really send it.

My beef is that because OIN receives emails from thousands of readers a day we are listed in thousands of address books and sent items folders. We literally get over 1,000 copies of the Klez worm virus a day. We also get hundreds of complaints a day from readers who think we sent it to them. We have THREE virus scan programs that function at the domain and individual PC level. We do not send out viruses. I would really like to find the guy who unleashed this thing!!

 
 
  Jonathan Levinson   8/14/02,  2:22:40 PM
Advancing volume is tripling declining volume on the COMPX. The TRINQ got very low at .33, but the buying is continuing with the TRINQ currently at .41. Volume on QQQ is very light so far, a fraction of its average, but price is the only action. All intraday 5(3) stochastics are overbought, but can become moreso.

 
 
  Jeff Bailey   8/14/02,  2:20:21 PM
Buy Program on Premium at $2.02.

Dow +80 points, S&P 500 +15.9 points and NASDAQ Comp +33.6 points

 
 
  Leigh Stevens   8/14/02,  2:17:11 PM
Subscriber QUESTION: "Why is oex @444 when the market is down 100 points? Seems that OEX should be down more. Is this bullish? "

RESPONSE: You have to look at the occasional distortions in a "narrow" index like the Dow ($INDU) - only 30 stocks and price weighted to boot; i.e., big cap stocks don't count more in the Dow average (higher priced stocks, WILL move the Dow average more on a given percent move, versus low-priced Dow stocks). So, today's declines in Boeing, United Technology, Alcoa, and Int'l Paper were really pushing the Dow, whereas gains in Intel, GE, Microsoft, GM, etc will move the OEX more.

This is why portfolio managers use the S&P to guage the market and judge their relative performance in the market.

 
 
  John Seckinger   8/14/02,  2:13:32 PM
Looking at a 60-minute chart of the Dow; the 22, 50, and 200 pma's are between 8508 and 8546. Today's high is 8544, no coincidence. Above 8546, 8575 might give bulls just an ounce of trouble. A close above 8575 would be a welcomed sight for bullish traders. Note: The descending trend line which began in May can now be seen just below 8700. This sub-8700 level should have the same significance as the relative high yesterday and the test near 8800 just a few sessions ago.

 
 
  Steven Price   8/14/02,  2:06:16 PM
Reader Question:Hi! What (if anything) do you make of the triangle pattern in the daily UPS chart? Do you think that it looks like a consolidation to 64.00 followed by a breakout/down in the future? ... thanks!!

Response: UPS (63.69 +0.28) The pattern definitely shows some consolidation on declining volume. It also appears to be riding its 50-dma higher with a series of higher highs and higher lows, so my impression is that this is a bullish triangle. I would expect a break to the upside with a trade above $64.75 breaking the pattern. One note is that triangles are usually shorter term patterns and this pattern has formed over almost a month, so it is not a textbook triangle. A trade over $65.00 however looks bullish for long entry

 
 
  Leigh Stevens   8/14/02,  2:05:57 PM
Subscriber QUESTION: "Do the hangman/hammer patterns apply to hourly/30min etc charts and if so how reliable are they for intrady trading?"

RESPONSE: Yes they do have relavance, but they may only be "valid" for the time frame you're looking at - mostly, candle patterns are applied to end-of-day charts.

I consider ANY pattern to have some validity in all time frames - however the further out in the time frame you are looking at, the more significant; e.g., a hammer bottom on a weekly chart should be more significant for a major bottom than on a daily chart and a hanging man top on a daily chart more significant than on an hourly, etc.

 
 
  Jim Brown   8/14/02,  2:00:21 PM
Swing Trade Signals
I am sure quite a few shorts had their lunch rudely interrupted by alarm triggers during that last spike. With the tendency to pile on at the close yesterday a spike of this magnitude has got to be putting doubts into many minds about the wisdom of that decision. Glad we closed that short when we did. Now if a few thousand other traders will do the same right now we will be in great shape!

 
 
  Leigh Stevens   8/14/02,  1:58:49 PM
INDEX Comments: Chart patterns change - the bearish COMPX rising wedge that was being traced out on the 30 min. chart is no longer apparent given this last rally. COMPX resistance is 1300. Support - 1282-1284.

 
 
  Steven Price   8/14/02,  1:55:46 PM
NOC Northrop Grumman (111.35 -0.21) OI call play NOC found support today at $109.60 just above its 200-dma of $109.35. Look for this stock to make back some recent losses, as it repeats its pattern from the beginning of August. Look to initiate new long positions with a trade over $112 and a rebound in the Dow. OI's current stop loss is $110, which we will respect. However, the 200-dma could also serve as a secondary stop loss for those initiating positions from this level.

 
 
  Jonathan Levinson   8/14/02,  1:51:02 PM
The TRINQ is currently .33 as we pat Jim on the back. QQQ is 23.20, TICK.NQ +165, QQV -2.3. COMPX has just printed a high at 1294.

 
 
  Jeff Bailey   8/14/02,  1:50:10 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Leigh Stevens   8/14/02,  1:49:46 PM
Subscriber QUESTION: "Would you please tell me how do you see the COMPX in the long and short-term support and resistance?"

RESPONSE: Longer-term outlook - I think the Nasdaq Composite ($COMPX) is bottoming - it could be called a "rolling bottom". This process could go on for some weeks more, even into Oct. Meaning - up & down price swings in a sideway direction and within a trading range between 1387 area (Sept low) maybe as high as 1425, on the upside and 1200 on downside.

Short-term outlook - Looks to me like another downswing ahead, possibly back to 1220-1225 area. Resistance is 1300, then 1320-1325 area - closes above this zone suggests that 1350-1355 area could be retested. 1354 is a pivotal point - with close above this prior peak, suggesting COMPX was back in an uptrend for a while, with objectives up toward upper end of the trading range I mention in longer-term outlook.

 
 
  Steven Price   8/14/02,  1:49:21 PM
Note on OI Put Plays. The Dow and COMP are currently on upswings, so I would wait for a rollover to initiate shorts. The bounce may give us better entry points.

 
 
  Jim Brown   8/14/02,  1:47:40 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broader market LONG signal at 13:39:46 when the OEX traded above 448.00. SPX 888.22, DIA 84.71, SPY 89.43, DJX 84.41, NDX 928.97, Compx 1288.85, Emini 931.00. That was a pretty strong buy program that was triggered at 13:35 but the real test will be to see if the markets can hold on to their gains. I would have much rather been triggered by a nice steady upward buying trend instead of a buy program spike but this is the risk we take in picking entry levels for auto execution in advance. The initial stop loss is OEX 443, (SPX 879)

 
 
  Steven Price   8/14/02,  1:46:57 PM
Reader Question: Hi Steven, Thanks you all for those good trades. I had three winners in a row. Thanks. Thanks. Thanks. Looks like I missed the boat on BA & QLGC. What would be a good entry NOW! Thanks Krish

Response: I still like QLogic (QLGC) ($32.00 -0.15) on a failed rally below $33. Watch for the stock to break back below $32 for confirmation of its rollover from today's bounce off its lows. Also keep an eye on the Nasdaq Composite ($COMPX) for a rollover below 1300. The COMP is on a rebound so look for a reversal before initiating a new short entry on QLGC. Boeing (BA) ($34.58 -2.48) also still looks like it's got some downside. New entries on Boeing may want to use a stop loss of $37, which is just above today's high.

 
 
  Jeff Bailey   8/14/02,  1:45:06 PM
5-year YIELD 3.14% ... seeing a reversal here to session high. May be on the alert near-term for potential allocation program. 5-year YIELD bounced off my retracement level this morning at/near the 3.03% YIELD level. Link

Bear's watching 10 and 30-year YIELDS closely here. Equity bears DON'T want to see longer-end Treasuries sell off and jump higher. Want 10 and 30-year YIELD to stay steady, and give some indication that 5-year action is simply technical oriented and profit taking in that bond and not a MASSIVE move out of Treasuries.

 
 
  Jeff Bailey   8/14/02,  1:43:33 PM
Buy Program at $2.02

Dow Industrials -21 points, S&P 500 +6.00 and NASDAQ Comp. +20

 
 
  John Seckinger   8/14/02,  1:41:33 PM
I still need 8353 to be penetrated in the Dow before expectations of strong selling takes form. Moreover, a rise back above 8400 would take sentiment to more neutral levels. Ancillary evidence? The U.S. Dollar, currently down 0.62 percent at 106.44 and approaching strong support at 106. With the 22 DMA at 106.98, weakness under 106 should take the dollar to 105.30 with little trouble. The upside objective, if the dollar can get back above the 22 DMA, is a descending trend line at 107.91 and slowly falling. Note: With Dow now at 8436, 8400 should still remain the pivot.

 
 
  Leigh Stevens   8/14/02,  1:24:56 PM
INDEX Comments: COMPX - per Jonathan's take on it, I see that COMPX is tracing out a bearish rising wedge on the intraday charts - 5 min to 30min. time frames. Looks like its just a matter of time before the other shoe drops on the COMP.

 
 
  Leigh Stevens   8/14/02,  1:16:11 PM
INDEX Comments: OEX - OEX low was 441.4 right at its hourly up trendline (drawn from 385 & 418 hourly lows) - since then lows are "walking up" this trendline. As with the Nasdaq hourly charts, the pattern made by the 3 hourly "bars" (with slighly higher highs) after 1st. hour, could be a bearish flag - that is, a consoldiation prior to another downswing. The other possibility is that OEX is holding its up trend very well. The "pivotal" points become 450 on the upside - hourly closes over this level are bullish - and 441 on the downside - a decisive downside penetration of this level says "look out below!" Stay tuned - no doubt the S&P 100 will resolve this mixed technical picture for us.

 
 
  Jonathan Levinson   8/14/02,  1:14:41 PM
Every day the number of lows greatly exceeds the highs. Isn't this an omen that the rally has no future? Thanks John

Breadth is always subject to interpretation, but it tells me that the rally is being built not on a broad demand for the entire COMPX, but rather on a narrower demand for the leaders. Of course, new highs and lows represent only the upper and lower fringes of the market, with the bulk of stocks staying with the herd, as it were. I don't think that this single indicator is sufficient to permit the drawing of firm conclusions, but perhaps it jibes with Jeff's "inchworm" analogy- With a larger number of losers edging downward compared with a smaller number of winners edging forward, the indicator certainly isn't reporting good news. Nevertheless, it's best taken in context with the other breadth indicators.

 
 
  Jeff Bailey   8/14/02,  1:13:36 PM
Cryolife (CRY) $5.62 -40% ... halted, news pending.

 
 
  Steven Price   8/14/02,  1:13:03 PM
Reader Question: Steven: You mentioned that SEC has a website of the companies required for certification. Could you place a link on your website so that everybody could check who the dominos will be? Currently OI lists companies without checkmark of who signed. thanks, jean

Response: Here you go. Link

 
 
  John Seckinger   8/14/02,  1:12:07 PM
Looking at a chart of the September Bond (USU2) with the intention of trying to figure out when assets will leave bonds and enter stocks is not easy. Least Resistance is clearly higher for prices within the 30-year, with no resistance in sight. Therefore, we will need to wait for significant weakness out of the fixed income arena before getting overly excited over equities. Remember, this is for longer term traders only. Please see chart: Link

 
 
  Jeff Bailey   8/14/02,  1:02:09 PM
Verizon (VZ) $29.01 -1.32% ... stock dropping quickly, no news I can see. BIG looking short looks to be coming in here at $29.01 looking for an up-tick, with small 100 bid.

 
 
  Steven Price   8/14/02,  1:00:07 PM
Reader Question: Steve - Do you see Nicor (GAS) as a short/put play opportunity? Thanks

Response: Nicor $25.93 (-0.23) has been so beat up, it seems to have found a bottom, at least temporarily. I would look for a trade below the recent low of $24.50 before going short.

 
 
  Jim Brown   8/14/02,  12:56:21 PM
Swing Trade Signals
Since I issued the long signal we have been trending up nicely but there is still the occasional bout of selling. The last comments by the reporter on CNBC that the fireworks would be after the close today on the certification process, took the steam out of the last bounce. I agree that is when it will happen but there is a growing consensus that there will be nothing of any magnitude. The majority of the largest companies have already certified. I feel good about this signal if we can get over that OEX 448 resistance.

 
 
  Leigh Stevens   8/14/02,  12:55:39 PM
Wall Street Journal (WSJ) - This morning's WSJ has a story in the "Money & Investing" section titled: "'Spiders' catch Nervous Investors In Their Web" - the story of course being about the huge growth in trading volume in the S&P Depository Reciepts or SPDR's (symbol: SPY) - popularly (affectionately?) known as spiders and not named after the movie - maybe the comic! Nothing comical about the daily volume, at 48.5 million yesterday. The Journal notes that this is nearly 80% above its average daily traded volume at the Amex this year.

Since shortly after the SEC announced in early-July that corporate CEO's would have to swear to the financial figures being put out, SPY trading has averaged almost 60 million contracts a day, about triple the average daily volume for the year.

You may recall the high point of 107 million contracts on July 24th. This is attributed to the fact that pension funds are getting in the act - hedging and or speculating on the market without having to take the chance on a individual stock wreck cause the finance gang was cooking the books or - god forbid - the company missed earnings targets by 2 cents or some such. My two cents on this article is that we must be near the bottom now that the Journal could now "encourage" individual investors to "hedge" their further downside.

 
 
  Jonathan Levinson   8/14/02,  12:40:47 PM
Advancing volume is leading declining volume on the COMPX 362M to 274M, with 139 new lows to 13 new highs. The TRINQ is near its low of the day at .54, and other than yesterday afternoon, has racked up many consecutive days of low readings. The QQV is down 1.61, QQQ hanging on to 22.80, and COMPX just below 1280 with the shorter intraday 5(3) stochs looking toppy. It looks like distribution to me, and other than the 60 minute stochastic working off its oversold reading, I smell downside in the air.

 
 
  Leigh Stevens   8/14/02,  12:39:50 PM
INDEX Comments: QQQ - on the bullish side for QQQ on a short-term basis, I would also note that my longer hourly stochastic model (length:21) is on an upside "crossover" type buy "signal" - this is contrary to what is happening on the daily stochastic model - but could suggest a short-term rally, then another downswing later that will put QQQ down toward the 22 area. So, only if 22.50 is pierced would I look for another 1/2 point move or so lower.

QQQ key resistance is 23.00 - an hourly close above 23 would be bullish for a bit more upside - perhaps, at that point, to 22.50, where I would be tempted to take that very short-term "lottery" play on the August puts that a reader wrote in about earlier.

 
 
  Jim Brown   8/14/02,  12:34:32 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
I was expecting to go long around the OEX 440 level on a bounce off support. That would still be my initial target but if we don't get back down to that level I want to be long on any breakout above intraday resistance. Let's go LONG the broader market on an OEX trade above 448. (SPX 889) This is above the 9:52, 10:54 peaks. The initial stop loss will be OEX 443, (SPX 879) Aggressive traders may want to enter now and not wait for the trigger. TICKS are improving, A/D is improving, futures are improving.

 
 
  Leigh Stevens   8/14/02,  12:31:29 PM
INDEX Comments: Nasdaq - as John pointed out earlier, quite a split between the NYSE related indices and the Nasdaq. This should not be too surprising given the divergence we've seen in the two markets over the summer and with the key Nasdaq stocks struggling to build "bases" - the fact that MSFT, CSCO, INTC appear to be into an area of buying interest is of course supportive to the Q's.

Looking at the hourly index charts directly I think what we're seeing a pause only as COMP, NDX and QQQ all have formed what looks like bearish flags - this narrow range, back & forth consolidation has the appearance of a "flag", on the end of a pole formed by the steep deline of the late yesterday.

A break of 22.50 in QQQ, 904.5 in NDX and 1265 in the COMPX would suggest that this anticipated second down "leg" was starting. If so, my expected objective would be 1234 in COMPX, around 880 in the Nas 100 (NDX) and 21.80-21.90 in QQQ, which is the area of a prior (down) swing low - actually 22, but allow "slippage".

 
 
  Jim Brown   8/14/02,  12:23:47 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's close the open SHORT signal here at 444.50 and prepare to go long. SPX 882.37, DIA 84.15, SPY 88.70, DJX 86.05, NDX 916.27, Compx 1276.89, Emini 882.00.

 
 
  John Seckinger   8/14/02,  12:20:26 PM
How did you get 22.62 as the pivot for the QQQ's?

Response: For an in-depth analysis, please see my Traders Corner article posted last night at Link

Looking at the QQQ's specificially, please see the following chart: Link

 
 
  Jim Brown   8/14/02,  12:20:19 PM
Swing Trade Signals
I am sitting here watching paint dry and wondering if the time is right to switch sides. The Nasdaq futures have flat lined over the last hour and are showing a solid bottom. The Dow came close to a new intraday low at 12:00 but the OEX/SPX did not follow. With no fireworks over the remaining 200 certifications I wonder if traders are not setting up for the rebound. I speculated last night that we would have a rebound this afternoon or tomorrow morning and this could be the leading indicators.

 
 
  Jonathan Levinson   8/14/02,  12:07:03 PM
Looking at the AUG 22 puts as a lotery play here. 20 cents for a strong likelyhood of revisiting 21.50 before Friday. Pretty good odds?

By characterizing it as a lottery play, I suspect you already have the answer. Generally, you get what you pay for with options, and $0.20 is pretty cheap. As a lottery play, you'd be placing a small amount of "mad money" on the position, prepared to lose it but if you win, good for a slammer. That's how I view this play for August expiration in 2.5 days. I'm bearish enough here to see it happening, but I wouldn't risk much money on it and would be prepared to lose out. Of course, I expect downside here, and you have a chance of seeing action in these contracts, but the safer bet is to go out to September and not chew your nails too much over it.

 
 
  Jim Brown   8/14/02,  12:05:55 PM
Swing Trade Signals
The Nasdaq only has three stocks up more than $1.00, COST, MSFT, NTAP. There are just a lot of stocks with fractional gains of less than 40 cents. Considering the Dow is down -110 points this is amazing. I must have missed the bullish signal for the Nasdaq but dip buyers are nibbling at tech stocks despite the market conditions.

 
 
  Jonathan Levinson   8/14/02,  12:01:38 PM
I currently hold QQQ puts and may want to roll the Aug options into Sep depending on how things go. From other readings, I am somewhat aware this should be done with due consideration of subtleties related to premium fluctuations near expiration. I also recall that this doesn't impact QQQ as much as others, but still this is something I should understand better. Can you elucidate?

Steve, it sounds like you're all over it already. The Qubes have relatively high OI and volume, and the liquidity helps to keep the premiums and spreads under control, making them some of the cheaper options you can trade. What it means is that there's less of a bid/ask spread for you to eat when you sell your Augusts and buy the Septembers. In choosing your Septembers, you should be considering your ultimate target for the QQQ on this trade, and where the breakeven is for the contracts you're pricing out. Obviously, the higher the breakeven (for a put play), then better the buy. But, on the other hand, you have to consider that the QQQ swings a shorter distance than other tracking stocks, and so you want to keep the number of contracts up there as well. This is the balance I try to strike, and, while it's not a rule, I've noticed that I'm usually buying the contracts that are priced between $2 and $3. Again, no rule here, just an observation of my trades this year. I generally try to buy as little premium as I can afford to do with ITM contracts. Above all, respect the account size and don't overleverage on the position.

 
 
  Jeff Bailey   8/14/02,  11:54:38 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Jeff Bailey   8/14/02,  11:54:28 AM
Beetle's Benchmark is "break-even" since July 31. This is non-strategically balance "fund" that was benchmarked from July 31 close. Shows various asset classes. Link

Note slight "disparity" between SPY compared to DIA. In past, DIA has been slightly better performer on a relative basis versus SPY. Might have the SPY a little "overpriced" but slight DIVERGENCE worth noting. Most likely, today's strength in "healthcare" stock that Dow doesn't have exposure to creates the more bullish nature of broader S&P 500.

Treasury observation has the longer-term basket of Treasuries as depicted by the TLT, vastly outpacing the less risky IEF and SHY. In my book, the MARKET'S willingness to aggressively buy the longer-end and riskier 30-year is statement near-term on downside risk to stocks.

Trader's looking for an "asset allocation" might keep an eye on the 30-year YIELD ($TYX.X) 4.831%. As Jim mentioned a couple of days ago, an "asset allocation" is simply and adjustment to a portfolio weighting that would "systematically" have an institution selling some 30-year (taking a profit) and then allocating some of the proceeds back among the various asset classes. For instance, the TLT is "up" about $60.83 from July 31. A rebalance would have an institution perhaps selling $60.83 worth of TLT then spreading in toward equities portion (DIA, SPY, QQQ), kind of like a systematic "sell high in longer-term Treasury" and "buy low" in stocks. Now, $60.83 isn't much on a $1,000 investment, but think in terms of millions or 10's of millions of dollars.

 
 
  John Seckinger   8/14/02,  11:44:55 AM
An interesting bifurcation today, as the Dow is under 8400 while the Nasdaq posts a net gain. It is my opinion that a move below 22.62 in the QQQ's should turn things decidedly negative. Even though the September bond is 16 ticks underneath its intra-day high, the trend (10-minute) still looks higher (defensive towards equities). Finding a catalyst does seem harder than normal; however, that should mean that the prevailing trend will hold form.

 
 
  Jeff Bailey   8/14/02,  11:42:30 AM
Verizon (VZ) per 11:00 intraday, trader may be noting slight "slip" below trend on 60-minute chart. Past bearish observations being tested here, but bear likes what is starting to develop near-term. Link

Notice similar trend to the SPY and even DIA (though not a Dow component), but different moving average positions. That's some DIVERGENCE from the different charts that hints of VZ weakness.

 
 
  Jim Brown   8/14/02,  11:32:56 AM
Swing Trade Signals
I was beginning to be concerned there for a minute after the dueling programs ran their course. It now appears the internals are weakening again and this drop could be the real thing. I have not lowered the stop loss because I was afraid we would get a bounce that could take us out of the position. The strength in the Nasdaq is amazing considering the continued tech revisions. I think this is keeping us from rolling over completely.

 
 
  Jonathan Levinson   8/14/02,  11:16:24 AM
Well, more strength that I thought. QQQ is up to 22.80 and the TRINQ down to .61, .1 above it's low of the day set right at the open. The TICK.NQ is still negative, and QQV is down 1.75 on the day to 47.58. The COMPX is a point and change below its high of the day of 1281. My bias remains down, but I'm surprised it's taken this long today. The shorter intraday 5(3) stochastics are getting toppy, though the 60 minute is just starting to run up from oversold. I'd be shocked to see it make it all the way to overbought, but this has been a month of surprises.

 
 
  John Seckinger   8/14/02,  11:10:03 AM
When the dollar weakens, what does this mean to U.S. corporations?

Response: A decline in the U.S. Dollar allows U.S. companies to increase international sales without raising prices or cutting costs, allowing them to become competitive abroad. In the U.S., these companies can raise prices without the fear that foreign rivals with undercut them. Of course, this is the theory.

 
 
  Steven Price   8/14/02,  11:05:53 AM
Nicor (GAS) $25.62 (-0.54): Nicor has announced they will not be able to certify 2002 results. The dominoes are falling.

 
 
  Steven Price   8/14/02,  10:52:40 AM
Reader Question: Steven, Just a reminder, Did you find any stock for the expiration week? thanks

Response: The short answer to this is to check our Play List (GRIN). However, I think you're looking more for strategy than a particular pick. The things we want to look at are the at the money options and the way they trade on expiration. As the stock crosses the strike, the options move one-to-one with the stock. This means that if you are long ten $50 calls on stock XYZ, that is trading $49.50, as soon as the stock hits $50, you can take advantage of the "scalping" opportunity. Here's how it works:

1) You can short 100 shares per option (1000 shares against 10 long calls), knowing that the call will protect you if the stock goes up, and you can buy the stock back at $50 by exercising the call.

2) If the stock drops you get to buy the short back for a profit, and continue the same trade over and over, making a profit on the short sale and buyback, always keeping the call for protection.

3) You can short 1/2 of the position (50 shares per call) and then take advantage if the stock continues upward and sell the other 1/2 of the position higher, then wait for it to come back and buy it lower again. If it doesn't go up, and drops, you still get to buy back the short 1/2 position with the stock lower. This also can be repeated over and over again. The thing you must keep in mind is to never commit more shares than your options can cover. Less shares is fine.

4) For long puts, the strategy is the same, just reverse it (i.e. if you are long the 50 put and the stock drops below the strike, buy the stock and then sell the rebound).

As expiration approaches, stocks tend to trade within a range around strikes, if they are already close and their is no major news. The reason for this is that other option holders are employing this same strategy, which provides sellers over the strike, and buyers underneath. On the other side of the coin, large institutional option sellers will "manipulate" a stock toward its strike by selling it above and buying it below (you need to be able to trade very large amounts of stock to do this and I do not recommend this strategy if you are not a large bank). This is contrary to the way individual traders protect short positions, however if you have enough short option premium to collect (millions of dolars worth), the strategy can work. This simply adds to the tendency for stocks to "pin" around option strikes. Microsoft appeared to do this last expiration, although there were enough sellers to drive the stock below $49 to $48.81, before the shorts bought it back up and it closed over $49.50 by the end of the day.

 
 
  Steven Price   8/14/02,  10:28:01 AM
Household Intl. (HI): $34.16 - 3.64 Household Intl restated earnings since 1994 on the same day as the CEO certified accounting statements for 2002. The restatements total $386 million because of a change in the way it accounts for its credit card business. This restatement affected 2002 earnings. It said the restatement would reduce its 2002 second-quarter earnings by 0.01 per share and earnings for the 1st half by 0.06 per share. We can expect other companies to reveal restatements as well on the deadline day.

 
 
  John Seckinger   8/14/02,  10:23:31 AM
Can you please explain why the September bond (US02U) goes up and the 10-year and 30-year yields (tnx and tyx, respectively) go down in relation to stocks?

Response: The September Bond (USU2) is quoted in price, while the TNX and TYX is quoted in yield. Remember, when interest rates rise, the prices of fixed income securities fall. Moreover, bonds with longer maturities fall or rise more than bonds with shorter maturities. Also, bonds with lower coupon rates will also move more in price than bonds with higher coupon rates. Ok, I digressed. The relationship to equities is not simplistic, having many caveats. Usually, periods of rising interest rates occur in parallel with rising stock prices (say, prior to mid-1997). Under normal conditions, rising bond prices are a net positive to the stock market. Complex reason: The present value of a company's future cash flow becomes less as interest rates rise. When the bond market and stocks move in opposite directions, usually we are in (a)deflation, or (b) credit bubble.

 
 
  Jeff Bailey   8/14/02,  10:20:00 AM
Sell Program at S&P Premium $-1.78

Dow -128 , S&P 500 -7.9 and NASDAQ Comp -3.8 points.

 
 
  Jeff Bailey   8/14/02,  10:17:12 AM
Sell program at S&P premium $-1.72

Dow -108 points, S&P 500 -6.52 points, NASDAQ Comp -3.07 points.

 
 
  Jonathan Levinson   8/14/02,  10:16:28 AM
The COMPX is reminding me again of Wile E. Coyote hanging suspended on a puff of dust over the Grand Canyon. Price is hanging in space, not advancing despite the slight lead that advancing volume has on declining volume, 135M to 121M, with the TRINQ at .64. This looks like buyers spinning their wheels, but who can doubt that the bulls are going to run out of buyers before the bears run out of sellers? The QQV is down .45 on the day, and the QQQ is still levitating above 22.50, though that looks like it's about to change shortly.

 
 
  Leigh Stevens   8/14/02,  10:15:41 AM
Subscriber QUESTION: "Why can't you draw the up trendline on the SPX chart from the 776 low to the 833 low as you do with the corresponding lows on the OEX chart of 385 and 418? These charts are virtually identical. You have me perplexed here!"

RESPONSE: I could have drawn it differently as I could have connected 776 & 833 in a straight line on SPX and made it the trendline in same way I constructed OEX trendline (see charts at Link ) - then the charts would have been consistent in that way. It was a matter of me trying different trendline "fits" -- I will work more with these trendlines today - I needed another day of price action anyway, and today should allow me to make further definitions with the charts.

 
 
  Jeff Bailey   8/14/02,  10:10:06 AM
Airline Index (XAL.X) 45.54 -1.27% ... new 52-week low here. Oooo... per past bearish commentary, Boeing (BA) $35.50 -4.2%. (Thinking... I wish I hadn't taken earlier profit in the August $40's! Then thinking, better to sell a target and lock in a gain than potentially risk expiration.)

 
 
  Leigh Stevens   8/14/02,  10:05:00 AM
Subscriber QUESTION: "FNIS has backed up a bit here is this profit taking on the initial move up?"

RESPONSE: I don't know where the selling is coming from, but the overall market is under pressure of course. Fidelity Nat'l Info Solutions (FNIS) has reversed lower after retracing around 2/3rds of its advance from Feb. into May, from $11 area up to 34 - quite a run!

FNIS looking unable to hold above its 50-day moving average at 22. Looks like there is a lot of supply (stock for sale) from 22 on up to 32. There may be some back & forth price swings in a 18-22 range in coming month as basing action, with possibility of retest of 15.65 low.

 
 
  Jim Brown   8/14/02,  9:53:08 AM
Swing Trade Signals
A very listless morning as the face off between the bulls and bears continue. Neither dropping or gaining with most indicators flat. With 5:PM today the deadline for the remaining 344 companies that have not certified it is surprising there is not more weakness. The VIX is flat at 39.87 and the TRIN neutral at 1.28. Advance/decline ratio is positive at 1.4:1. Somebody needs to blink soon.

 
 
  Steven Price   8/14/02,  9:48:22 AM
Boeing (BA) $35.91 (-1.15) New OI Put Play BA is continuing its drop from yesterday. Bad news from American Airlines, along with U.S. Air filing bankruptcy is making things ugly for BA. Today's trade of $37 established a triple bottom PnF breakdown, and the trade of $36 got us through the bear trap.

 
 
  Steven Price   8/14/02,  9:44:14 AM
QLogic (QLGC) $31.61 (-0.53) New OI put play QLGC is now trading below yesterday's low of the day (31.75). The stock looks to have fallen off a cliff and this should be a good entry point for shorts. Dell is releasing earnings tomorrow, which will effect the entire tech sector, however after AMAT's and IBM's remarks it is hard to believe Dell will have anything extremely positive for the overall tech outlook.

 
 
  Jonathan Levinson   8/14/02,  9:43:11 AM
The QQQ has retraced its opening gains as the COMPX begins to print lows just above yesterday's close. The TRINQ at .85, having opened around .60, has blown off yesterday's oversold reading of 3.41 at the close, and leaves bears plenty of downside latitude for today. TICK.NQ is showing -316, and QQV is down .20 at 49.06, amazingly still below 50 even after yesterday's selloff.

 
 
  John Seckinger   8/14/02,  9:42:56 AM
It is important to recognize that yields on five- and 10-year notes are at historic lows, while the 30-year bond is getting near yields not seen since the financial crisis of 1998. With the September Bond (USU2) continuing its vertical move higher (+1-09, or 41 ticks, at 111-17), I would not be surprised to see fixed income traders start to take profits in five-year notes and buy riskier, longer-maturing issues. Note: It would take a close below 110-08 before I begin thinking about a relative high (high in price, low in yield).

 
 
  Jeff Bailey   8/14/02,  9:41:55 AM
SPY bear may be looking at 60-minute chart of SPY and break of 50-pd MA as action point. Link

 
 
  Jeff Bailey   8/14/02,  9:38:24 AM
The 9:00 AM intraday update has been posted. Link

 
 
  John Seckinger   8/14/02,  9:35:40 AM
There is talk from currency traders that the U.S. dollar will not be aggressively supported by foreigners. This is nothing new. The Euro remains under parity (1:1) to the Dollar, while the yen moved above 118.65 and could be generating significant interest. Going forward, the range in the yen could be as wide as 121 to just underneath 116. It will be interesting to see if the dollar-denominated selling is weakening confidence ahead of the certification by U.S. companies.

 
 
  Jeff Bailey   8/14/02,  9:32:24 AM
My grandmother and I used to chat about the stock markets. Now any investment conversation is about "I've got to watch what I spend as CD rates and monthly income from my money markets just aren't what they used to be." 13-week YIELD ($IRX.X) 1.577% well below current Fed funds rate of 1.75%, but looks like a 1/4-point is baked in the cake at next FOMC meeting.

 
 
  John Seckinger   8/14/02,  9:28:24 AM
June business inventories rose 0.2%, equalling May's growth. The slight rise in May was followed by 15 consecutive months of decline. Business sales rose 0.3% to leave an unchanged 1.36 inventory to sales ratio. This is slightly higher than the 1.35 record low of April.

 
 
  Jeff Bailey   8/14/02,  9:28:22 AM
Treasury Watch I'm a bit surprised that stock futures rebounded like they did. Treasury YIELDS lower across the board and I'm not sure where any cash is coming from to prop stocks up and have futures actually reverseing from the lows. If not for a rising S&P 500 Bullish % (see 09:00 intraday update) would be rather aggressive with a short at the open in the S&P's. Still, may be some HUGE short positions above S&P 1,100 looking to get square, but can't see a bullish equity day with cash going into Treasuries.

Will be alert for any type of asset allocation from Treasuries after the open as 10-year YILED falls below the November lows after achieving its bearish YIELD objective yesterday.

 
 
  Jim Brown   8/14/02,  9:18:21 AM
Swing Trade Signals
Nothing earth shaking this morning with futures slightly positive after pulling back from negative territory. AMAT was cut after warnings that orders would be flat for the 3Q. Business Inventories came in as expected at +0.2% and should not be a factor in the open.

We have an open SHORT signal from OEX 449 with a stop loss at OEX 452.50. The initial target is 440 but if we get a strong morning dip the secondary target of 430 would not be out of reach.

I expect any opening bounce to fail and anyone not in the current signal could use this bounce as a new entry point.

 
 
  Leigh Stevens   8/14/02,  9:15:45 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > +.70 at 886.00; Dow Industrials > unch. at 8480; Nasdaq > +4.00 at 915.00

"Fair Value" numbers: S&P 500 futures ($SP02U): .50 -- Nasdaq 100 futures ($ND02U): 2.00

 
 
  Leigh Stevens   8/14/02,  9:02:41 AM
Pre-Opening INDEX Comments - It's show & tell for CEO's today - deadline is 5 p.m. for them to sign off on their company's financials.

European stocks were off as Credit Swiss revealed a larger than expected loss for Q2.

Applied Materials (AMAT) indicated a quite negative outlook for a 5-15% decline in orders in the current quarter. The stock traded down .36 to just above $13. UBS Warburg cut its estimates for AMAT to below the company's guidance. As they said - offering a dismal view of things: "This is a function of our increasing concern with consumer spending, a saturated electronics end-market, an uneven economic recovery and reduced access to capital in a capital intensive industry" - who said that economics was the dismal science? - they should be a securities analyst these days! JP Morgan however kept its long-term buy rating on AMAT.

 
 
  Jonathan Levinson   8/14/02,  8:31:26 AM
COMPX has support at 1260-65, 1245, and 1205, with resistance at 1290, 1315-20 and 1355.

 
 
  Jonathan Levinson   8/14/02,  7:58:08 AM
The US Dollar Index got croaked last night, and is now hovering around 106.40. NDX futures are trading down 5.0, S&P down 2.8. QQQs are trading at 22.50, down .1 from yesterday's close.

 
 
  Jim Brown   8/13/02,  9:38:47 PM
Swing Trade Game Plan - Click here: Link

 
 
  Jim Brown   8/13/02,  9:38:37 PM
The Market Monitor for Tuesday August 13th has been archived. Click here to view it: Link

 
 

Market Monitor Archives