Option Investor
Printer friendly version
  Jeff Bailey   8/15/02,  9:41:37 PM
Late night post!!!! Two charts that have my attention if trading bearish!

Per past commentary on Wal-Mart (WMT) and looking for similar upside leadership base on correlation to October. Well, we obviously got that and I simply didn't stick with WMT like I should have from $49. Link

Now we see the NYSE Bullish % $BPNYA reversing up, lagging WMT's move just like past fall (compare red A's) and now (red 8's) in WMT's chart and the $BPNYA Link

Now, using a bar chart of the NYSE Composite ($NYA.X), note what took place last fall (October/November) and perhaps understand 50-day MA implications on a close ABOVE the 50-day MA, then eventual two-month rally to the 200-day MA. Link

Thinking might become, in October, we'll get current quarter GDP data (June-Sept) and if NYSE Composite is trading 200-day MA, not surprised if GDP data shows no "double-dip." Conversely, if NYSE Composite trades differnet and DIVERGES from past, the economic data may reveal "double-dip." Right now, bullishness in WMT, similar to last fall may be the wild card for bullish thoughts.

  Jim Brown   8/15/02,  8:41:35 PM
Swing Trade Game Plan - Click here: Link

  Jeff Bailey   8/15/02,  5:16:49 PM
Per Jim's last comment at 16:05:37 ... better yet, grab some "Celexa" or "Lexapro." Help out the bulls in FRX!

  Jeff Bailey   8/15/02,  5:14:15 PM
Verizon (VZ) $30.38 -1.74% .... Jeff: If you thought VZ would be $20 by OCT., what would be the optimal strike/ entry point this week- Oct 30, 35, wait for short term techs to rollover,other? Wait until next week due to premium cost? Thanks

I'm going to get a little more "cautious" on past bearish commentary here as market internals improve on broader basis. Trader holding full position in the puts may want to scale back some to 1/2 position on current weakness.

Still... would not have this one, nor many telecom/telecom related stocks on my "buy list" and still some downside risk is present.

As for new entry points, stock did break below short-term upward trend yesterday, but darned thing rebounded with the MARKET (rising tide lifts all boats). Would like to see a close BELOW trend, say $29.50.

I may have "said" $20 by October, but will note that stock did achieve its bearish vertical count of $29. I believe www.stockcharts.com p/f chart is incorrect as I see what should have been a triple-bottom sell signal at $38 back in June. Link

Current "risk" to a buy signal on the p/f chart is to $34, so from current levels, wouldn't want to risk more than $4 in the put option. As such, one can begin pricing some options. If you'd normally consider $5,000 in the stock a "full position," then $2,500 would be 1/2 position. Under such math, a trader might only be looking 1 or 2 puts in the October $30's (VZVF) $2.85. As it relates to the "buy signal" at $34, then put options "less risky" than shorting the stock as long as trader does NOT over leverage.

  Jim Brown   8/15/02,  5:12:21 PM
The ground hog is coming out of his burrow. Ralph Acompora will be on CNBC later tonight. It will be interesting to see if he is calling a bottom and thereby dooming us to six more weeks of selling or if he is still bearish and therefore our rally can continue. Ralph has been very absent from the media since making a really bad string of calls making him the number one contrarian indicator over the last couple of years.

  Jim Brown   8/15/02,  4:17:39 PM
Dell hit estimates, no surprise since they pre-announced, but they also beat the revenue estimates of $8.28 billion with $8.46 billion. As long as they don't step on their tounge on the conference call this could help tomorrow's outlook.

  Jim Brown   8/15/02,  4:14:08 PM
Is it a coincidence that most of the slaughterhouses and the futures exchanges are in the same City ? -Ross M

  Jim Brown   8/15/02,  4:05:37 PM
Some recent comments:

Sometimes you are the windshield, sometimes you are the bug. Today you were the bug! - Jane.

Jim, with all due respect calm down you're doing fine. With patience we'll be at 490 and if we're wrong we'll double up at 445! (grin) Rob

Yes Jim, this market is really driving everybody insane, as does not follow any pattern, not technical and not rational at all......but VERY EXITING.......Valter

I have a much better, and emotional, understanding why you are supposed to draw a box around this type of action and label it "cash in the box"! Robert M.

Valter, if you think this is exciting, grab some Prozac and stick around until the real rally starts!!

  Jim Brown   8/15/02,  3:59:48 PM
Swing Trade Signals
Looks like we will be holding over tonight. With all the bearish news about chips and computers being ignored recently, all Dell has to do is hint that things are ok and tomorrow could see a continuation of this run. Unless of course Consumer Sentiment has fallen out of sight. If you are worried about holding over Dell's earnings or the morning reports then now would be a good time to bail as we near the highs of the day.

  Jim Brown   8/15/02,  3:57:05 PM
This looks exactly like last months economic news cycle. It took three straight days of negative economic reports to finally push the market down. There is obviously BIG money that wants to play bull. My guess is that "Wall Street" wants/needs J.Q.Public to invest and not to run away, run away,... That said unless there is substantial negative news the "reality lid" should pop. Chris

Good point! There is definitely a bullish bid lingering under the market.

  Jeff Bailey   8/15/02,  3:56:17 PM
The 3:15 PM intraday update has been posted. Link

  Jim Brown   8/15/02,  3:20:49 PM
Swing Trade Signals
If we get stopped out here the bright side is that we will be flat for tomorrows economic reports. The CPI, Housing Starts and Consumer Sentiment could blunt any end of day carry over rally. Of course since investors are ignoring bad news there is no telling what will happen if the news is good. If we close here without giving back a substantial part of yesterday's gains that would also be considered bullish. Several readers responded to my 15:03 post with their address. They would also like to make an appointment for ending their misery. Signed: Holding my breath.

  John Seckinger   8/15/02,  3:16:00 PM
Looking at a five minute chart of the Dow, I have decided to make things relatively simple. Restating Post 2:30:13, only weakness under 8670 or strength above 8850 will get me looking for a follow-through move. Also, as said previously, the 8800 pivot was "moved" to 8815. Please see chart: Link

  Jim Brown   8/15/02,  3:03:24 PM
Swing Trade Signals
Somebody please shoot me and put me out of my misery! This day is driving me crazy. Now that we are at the 3:PM turn maybe we will go directional but I hope that last sell program is not an indication of the post 3:PM direction.

  Jeff Bailey   8/15/02,  2:42:27 PM
Aquila (ILA) $3.15 -36% ... Hi Jeff: We cashed in today. Good call. Was this a 5-star play at the time? Now, we wish we had bought 100 puts---oh well, some day.

Wow! Some subscribers still holding this one? Amazing! I don't know if I rated this one a 5-star, but it did get the "I smell a rat" rating near $15. I guess this is one of the stocks hitting new lows on the NYSE today huh? Link

  Steven Price   8/15/02,  2:42:20 PM
Reader Question: Can you provide some kind of support levels on NOC? Thanks!!!

Response: NOC bounced yesterday just above its 200-dma of $109.44, trading down to 109.60. $115.60 is the 50-dma and looks to be providing some resistance right now. The stock traded above this level briefly today, but was turned back yesterday from this level. $111.00 has also provided recent support.

  Jonathan Levinson   8/15/02,  2:41:41 PM
There's an ugly and confusing pattern on my screen- just the COMPX five minute chart. Not much direction from just eyeballing it, but the internals tell a cautiously bullish story, with advancing volume 1.5 times declining volume. The TRINQ is at .75. The TICK.NQ is +1, and QQV is down 1.48. I have so little conviction in the direction of the market that a coin flip would be good enough. It feels like it wants to go up, but it should be going down, and, naturally, it's not really doing either. The only thing that really makes sense to me here is that XAU, HUI and the price of gold are positive.

  John Seckinger   8/15/02,  2:30:13 PM
As I look at a five-minute chart of the Dow, there are a few interesting notes. Since the Phila Fed report, it was then not until 13:55 before the Dow put in two consecutive green candles. This seemed to give bulls more hope and could have been the precuser for the move above 8800. Also noteworthy, per earlier post, I decided to use the 8815 level (high pullback after Phila) instead of 8800 as a psychological level. This proved helpful during the last ten minutes; nevertheless, I truly do not have much conviction until the Dow trades either below 8687 or above 8850.

  Leigh Stevens   8/15/02,  2:25:29 PM
Subscriber QUESTION: "What is your opinion on NVDA?"

RESPONSE: Nvidia (NVDA) Corp today was starting to break out above an internal down trendline dating back to its May high - this trendline "cuts through" a couple of spike highs that appears to be breakouts, but went nowhere. So, there is this tendency for "false" breakouts.

I don't know what to think of this stock. It might get back up to the low end of its downside gap at 12 - this gap is from $15 down to 12 and occurred on very HEAVY volume - lately the stock has been drifting sideways in a very narrow range on very low volume.

I'd be afraid that this minor rebound is a dead cat bounce, so myself would be reluctant to buy the stock. Last at 10.25. Maybe it’s a play for a $2 objective, but my guess is it would take a really good overall market to lift NVDA - in a bull market, the rising tide lifts all boats as they say. Conversely, a short in the 12-15 gap area may be a play if the stock gets back up into this area.

  Steven Price   8/15/02,  2:21:11 PM
Reader Question: Re: FOMC minutes Hi Steven--do you think that they will have much of an effect and anymore numbers due today?Thank you

Response: When reviewing minutes, I try to remember my Constitutional Law professor's 1st rule when reviewing court decisions - look at what they do, not what they say. What they did, in this case, was leave rates unchanged and throw us a bone with the easing bias. I'm sure many analysts will be reviewing the minutes for a hint of future action, but there won't be anything in there that hasn't already been assumed from their actions. We are done with economic data today, however, we have CPI, Building permits, Housing Starts and Preliminary Consumer Sentiment tomorrow.

  Jim Brown   8/15/02,  2:17:17 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the LONG entry at 14:10:30 when the OEX traded above 468. SPX 926.09, DIA 87.91, SPY 93.02, DJX 87.72, NDX 974.71, Compx 1339.28., Emini 925.50. As evidenced by the choppy upward movement the bears are still here only with far less conviction. Hopefully by entering a long at this level we can be a little more comfortable on the stop loss. The initial stop loss will be OEX 464, which is below the afternoon low. (SPX 919)

  Jim Brown   8/15/02,  2:11:01 PM
Swing Trade Signals
After being the most effective contrarian indicator you could have today I believe the trend has definitely changed to overall bullish. Not specifically bullish right at this moment. I think this consolidation of yesterday's gains will eventually result in another bullish move. Like Jonathan said earlier, they are buying anything now. Bad news seems to have no impact. If I am willing to be long at 472 based on longer term indications then I should be willing to be long at 468.

  Jim Brown   8/15/02,  2:04:58 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the entry point for the LONG signal to OEX 468.

  Jim Brown   8/15/02,  2:01:37 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Let's close the current SHORt signal here at 467.00. The internals are improving and the Dow has finally made it back over 8750 again. SPX 924.41, DIA 87.89, SPY 93.00, DJX 87.59, NDX 969.11, Compx 1333.79, Emini 925.50.

  Jeff Bailey   8/15/02,  1:47:04 PM
www.stockcharts.com Jeff: I'm a new subscriber to OI. In this morning's 09:00 news letter you said members could visit www.stockcharts.com. I doubt that I'm the only one that can't get any further than the home page without a logon or password. Perhaps you could give a little more detail on exactly how to access the point and figure charts in a later newsletter.

You can get free p/f charts by simply going to their site Link . But you don't need to be a subscriber and log in (if you do subscriber for minimal cost, you can do lots of other things and customize your charts). To get a point/figure chart, simply select the type of chart you would like to see (step 1) from the scroll down, then enter the ticker symbol (step 2) then press "go" (step 3). Some might say its as easy as 1,2,3!

  Jeff Bailey   8/15/02,  1:43:51 PM
The 1:00 PM intraday update has been posted. Link

  Steven Price   8/15/02,  1:40:37 PM
Reader Question: Steve, Are we calling this a double bottom in NKE. Is the reason for the bounce? Lee

Response: I think Nike still has some downside. A double bottom usually shows the second dip higher than the first on declining volume. In this case, we have a lower second dip and increasing volume, which is bearish. Nike's bearish vertical count still remains $35 and we would need a trade over $45.50 for NKE to get past resistance.

  Leigh Stevens   8/15/02,  1:37:05 PM
Subscriber QUESTION: "Would you be buying "qqq" calls below 24...say the sept. 20?"

RESPONSE: I would want to see if QQQ how closely the stock can hold the 24 level. Given the overbought condition on both my longer hourly stochastic and the 14-day model, I think the Nas 100 is vulnerable to coming down again - or, at least, moving sideways for a while.

So, I don't think there's a hurry to get long on a dip here. Moreover, would suggest to wait and see how they act once this week's options expiration is out the way. Near support is 23.90-24. But we could retreat back to 23-23.25.

Getting back to your question, I favor buying a dip, but am unsure what level that will end up being.

  Jonathan Levinson   8/15/02,  1:20:12 PM
The TRINQ at 1.54 is reflecting the reversal of fortune on the COMPX this afternoon, and there are now 655B declining shares against 365B advancing. QQQ is currently trading at 23.85 and the COMPX has broken support at 1325, but it's hardly a nosedive at this point. The Fed has added 8.75B via overnight repo, in addition to 4B in a 28 day repo, which tells me, from my limited understanding of the process, that there's plenty of fuel to support the bid if need be. Bears should be cautious here and not trade without stops. Don't forget yesterday.

  Steven Price   8/15/02,  1:14:17 PM
Reader Question: steven, any parameters on ge...looking to short, if the dow will roll over...so goes the dow..so goes ge?? thanks steve..

Response: General Electric (GE) $31.74 -0.16 GE has exposure to movement in the Dow, as well as the airline industry. A recent drop in demand for airline engines prompted GE's aircraft engine division to send letters to employees warning of job cuts. Not a good sign for future profits. I like the stock as a short, but right now it is experiencing a lot of sideways movement. I don't see a specific trend to jump on. It does appear to be rolling over from $32.50, but has also experienced a series of 3 higher highs and higher lows. I would wait for a more decisive break one way or the other before initiating a position.

  John Seckinger   8/15/02,  1:11:19 PM
More than 600 relatives of victims of the September 11 attacks filed a trillion dollar lawsuit today aimed at international banks and other groups accused of bankrolling al Qaeda.

  Leigh Stevens   8/15/02,  1:11:10 PM
INDEX Comments: QQQ at 23.84 now trading back down in the area of the prior (up) swing high and under its resistance trendline - sell signal on the 21-hour stochastic suggesting that momentum is waning, as the Dow fades from 8800 resistance.

  John Seckinger   8/15/02,  12:56:11 PM
Note: The key for shorts to gain momentum is to have the Dow fall underneath 8687. Important for longs would be a move back above 8800, but the 8815 high after the Phila report may have merit.

  John Seckinger   8/15/02,  12:48:38 PM
It should not be a coincidence that the Dow, during the five minute span of 12:30:00, had a high of 8800.17. This should give shorts more confidence.

  Jonathan Levinson   8/15/02,  12:38:23 PM
They'll really buy anything, won't they? (grin- grimace) That Philly Fed news took a lot of the oomph out of the bids, but there's still buying going on with the TRINQ at .69 and the TICK.NQ barely negative at -62. 40 more declining issues than advancers, with advancing volume beating declining volume 549M to 333M. I think that Leigh's analysis of the Qs is excellent, and 24 is clearly the support to watch here. Above QQQ 24, this looks like consolidation, and below it's going to look like payback.

  Jim Brown   8/15/02,  12:30:15 PM
It's the economy stupid!
Sorry, could not resist! Ross M.

  Jim Brown   8/15/02,  12:27:35 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the SHORT signal at 12:20:54 when the OEX traded below 466. (SPX 922.59, DIA 87.66, SPY 92.75, DJX 87.45, NDX 971.29, Compx 1336.43, Emini 923.00) It will be interesting to see if the trend reverses here or we finally get some follow through. The initial stop loss will be OEX 470 (SPX 930)

  Jeff Bailey   8/15/02,  12:21:40 PM
Brocade Communications (BRCD) $16.25 +7.97% ... Jeff: After BRCD earnings report, do you still have the target to short BRCD around $17?

I'm monitoring BRCD Link , and yes, would still be eyeballing that, but also monitor ELX Link along with Treasury YIELDS, specifically 5-year YIELD Link . If 5-year YIELD gives the "buy signal" at 34.00 or 3.4%, then very cautious toward short/put BRCD and $17.50 potential "buy signal."

Perhaps "better" stock in group to be looking to short/put is QLGC Link , with earnings in October. Closer to downward trend and bearish count still at $27.

Would continue to stress that any short/put trading be done with partial positions and buy some time. While technology weaker, NASDAQ-100 Bullish % ($BPNDX) is back in "bull confirmed" status. Link

  John Seckinger   8/15/02,  12:21:28 PM
Well, I am relieved that my "false breakout" report did have some merit. I have done an illustration regarding my thoughts since the first "2-red candles" this morning, followed by the 8800 pivot and then "failed rally." Please see chart: Link

  Jim Brown   8/15/02,  12:15:35 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The Phily Fed came in at -3.1 instead of +7.6% expected. This could change the climate quickly. Remembering the comments from earlier let's put a short signal in place in case the sentiment changes. Let's go SHORT on an OEX trade below 466. (SPX 922) This could bring the bears back in force.

  John Seckinger   8/15/02,  12:13:16 PM
The August Philly Fed index came in at -3.1 (6.6 in July). The new orders index fell to -2.7 from 6.6. Following this announcement, it took me by surprise that the 8800 pivot failed to hold at all. Currently at 8796, I am glad the market is near 8800 but will have to give the market time to digest the information.

  Jonathan Levinson   8/15/02,  12:08:24 PM
Looks like that sneeze was a bad reading from the Philly Fed.

  Jeff Bailey   8/15/02,  12:05:25 PM
Dow Industrials (INDU) Today's trade at 8,800 was "triple-top." While not part of Professor Davis' study as it relates to indexes, shows demand outstripping supply in the Dow Components. Link

Wal-mart (NYSE:WMT) $54.19 +3% continues to charge Link and handily exceeding my previous trader's target. I'm "amazed," but not necessarily surprised.

Eyes turning to General Motors (NYSE:GM) $45.65 +2.26%. I bought 1/2 position bullish in this one yesterday (underlying stock), but sold an Aug $45 call today thinking stock would peg $45 on Friday's expiration, then "launch" higher next week. Link

  John Seckinger   8/15/02,  12:05:22 PM
Ok, now it is time to look at a "false breakout". Now underneath the 8800 pivot, there should be longs immediately selling and shorts putting on positions. Still use 8800 as the pivot, but the market should now have a hard time getting back there.

  Jim Brown   8/15/02,  12:04:31 PM
Swing Trade Signals
Who sneezed?

  Jonathan Levinson   8/15/02,  12:04:19 PM
Something's just happened. Either a huge sell program or a big event.

  John Seckinger   8/15/02,  12:02:41 PM
Looking at the Dow as a "P" formation, it seems like the pivot is now at 8798 and the relative low is 8687. The nice thing is, there has not been two red candles on a five minute chart since the rise above 8800.

  Jim Brown   8/15/02,  11:58:38 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The Dow has broken out to a new high and the A/D line has improved substantially on that last buy program. If the OEX can break to a new high from this formation the targets from last night 476/485 should apply. Let's go LONG the broader market with an OEX trade above 472.

  Jeff Bailey   8/15/02,  11:56:16 AM
Oxford Health (OHP) $38.70 +1.22% ... Hey Jeff, recently you mentioned OHP had a buy signal with a target of $52, does this still hold since it pulled back to $35 after its earnings a few weeks ago? What is its short term outlook? Thanks again!

I profiled OHP as bullish in mid/late July when stock was trading above trend. One thought at that time was to sell naked the August $40 puts and take in premium of approx. $2. With option expiration on Friday, currently would expect assignment, so thinking cost basis about $38 ($40-$2=$38). I also profiled longer-term calls.

However, to answer your question, NO. Stock has slipped below trend and currently trades on a "sell signal" with bearish count of $26. As such, need to be very cautious as bull near-term. Link

I must say, the volume SPIKE on 08/01/02 after better than expected earnings, but stock reversing lower sharply is also concern.

From a naked $40 put perspective, not in trouble here, but I'd take a more defensive posture near-term with the stock. Premiums still relatively high and if assigned the stock from naked $40's, would turn and write a covered call in the Sept. $40's (OHPIH) $2.50, and buy some protection in the Sep $35 puts (OHPUG) $1.75. This would have trader keeping more "neutral" position in stock, but note the "collar" created from the option strategy ($42.50 to $33.25) which is perhaps defined by the p/f chart currently. Sell signal again at $34, or buy signal $44.

  Jeff Bailey   8/15/02,  11:54:27 AM
The 11:00 AM intraday update has been posted. Link

  Jim Brown   8/15/02,  11:36:25 AM
Swing Trade Signals
I am watching the slow bleed of points and the shrinking A/D line and have a gut feel that the next signal may be for a SHORT instead of a LONG. The charts are looking toppy. (obscure technical term) but it could be just a consolidation in place of the big gains from yesterday. The VIX is diving, currently 34.39 and the TRIN is .58. I am thinking about a short signal at OEX 466 if the weakness continues. This would be aggressive and caution might indicate that we wait for OEX 463 and just under the low of the day. At 466 we would be attempting to anticipate a trend change which could be just consolidation instead of a change. At 463 we give up 3 points of movement but have more of a downtrend conviction. Still trying to read the tea leaves for a clue. (grin)

  Jonathan Levinson   8/15/02,  11:24:28 AM
I'm seeing a sudden move up in the price of gold and the XAU. Could it be that some of the selling in bonds is rotating into metals?

  Steven Price   8/15/02,  11:23:07 AM
Boeing (BA): $37.13 +1.31 BA filled yesterday's gap with it's trade over $37.10. With more bad news coming out of the Airline sector and BA relying on regular payments from UAL, my outlook here is still short. I would wait for the Dow to roll over before initiating new entries, as a strong rising tide can lift all boats.

  Jim Brown   8/15/02,  11:21:38 AM
I wanted to point out the weakness in the bios today in comparison to the upswings of volatility we have been having today. Not much movement to the upside on these swings. I have played a lottery play in the bbh aug 90's. nice opportunity if a short is called. thanks, Jason

I think you may be on to something the BBH has rolled over at June resistance of 90 and it is possible the recent rally is due for some profit taking. Thanks for pointing this out for our readers.

  Jim Brown   8/15/02,  11:17:54 AM
Swing Trade Signals
We now have a lower high pattern on all the major indexes. A break below the 10:40 lows will confirm this with a lower low as well. With the negative news on JPM, MWD and MER it is possible this rally has run its course. We cannot predict that with any certainty until the lows of the day have been broken. On the Dow that would be 8687, Nasdaq 1326, SPX 918, OEX 463. The A/D line is dropping and oscillators are beginning to roll over. The bulls are still fighting for every point and it could still go either way.

  Steven Price   8/15/02,  11:09:23 AM
The trade of 8800 in the Dow established a new buy signal on the PnF chart (using a 50 point box size), with a triple top breakout. This signal seems strong, given the buy signal in the S&P 500 triggered yesterday with the trade of 920 (10 point box).

  Jonathan Levinson   8/15/02,  11:03:27 AM
Advancing volume is almost triple declining volume, with the TRINQ at .48. This TRINQ reading shows strong buying pressure, but not "panic" buying the way we saw yesterday at levels like .30. It's a good sign for bulls. COMPX price is just below its lows of the day, with daily and intraday 5(3) stochastics overbought.

  John Seckinger   8/15/02,  11:02:40 AM
Evidently, 8800 has become a nice battleground for bullish and bearish traders. Therefore, it does make sense to watch from the sidelines and then jump in when one appears to have a commanding lead. Looking at a five minute chart of the Dow, there were two red candles soon after the opening, the second having a low of 8758. Well, that low has not been re-tested. The last pullback came only to 8760; therefore, I will give bulls a slight lead as we approach mid-morning trading. Also noteworthy is the psychological importance of 8787. These are levels I will be watching during the next few hours.

  Steven Price   8/15/02,  10:56:50 AM
Johnson and Johnson (JNJ) $56.03 +0.53 OI call play JNJ trading over $56, which is its bearish resistance line on the PnF. The stock continues to look strong after closing on its high yesterday

  Leigh Stevens   8/15/02,  10:54:50 AM
Subscriber QUESTION: "If you could comment on tomorrow's MM. Looking at the daily charts of the OEX and DJX, the 14 day stochastics are nearing extreme overbought. They last did this in mid May at which time the bottom fell in. Do you see this happening again this time??? "

RESPONSE: A high stochastic (or other oscillator like RSI) reading definitely signals that there is an increasing risk of a pullback. However, this correction can be 1.)a sharp and a steep retracement; 2.) a relatively shallow correction and the market also works sideways (sideways to lower); 3.) the market simply goes sideways for some time.

All of the above outcomes will, over time, "throw off" the overbought condition ; i.e., the stochastic or other oscillator falls and comes back to a neutral (midrange) reading or, more likely, eventually reaches an oversold or low reading again.

What we don't know about an extreme high in the 14-day stochastic for example, is what type of correction will ensue. We KNOW that such a correction is INCREAINGLY likely, but that's all we know. In a bear market trend we can expect a sharp decline. In a trading range market, the correction will tend to be back toward the low end of the range. In a bullish trend, the correction will not be as great and the retracement will be more shallow. IF currently we are transitioning to a bullish market trend, then the next correcton will be a decline less steep and more gradual.

Think of how a rally develops in a bear market - its slow and gradual, as there is scale up selling all the way up. The reverse is true of a decline in a bullish trend - there is buying on dips which supports the index.

  Jim Brown   8/15/02,  10:54:38 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the LONG signal at 10:45:54 when the OEX traded below 467.00, SPX 924.08, DIA 87.87, SPY 92.92, DJX 87.60, NDX 973.80, Compx 1340.61, Emini 924.75. Might not be my day. Triggered by a couple ticks on the entry and now stopped by a couple ticks on the exit. Each trigger point signaled a reversal. I do not want to miss any rebound that turns into a real rally but I am obviously gun shy about buying another breakout. I plan on staying on the sidelines now until a true direction appears and the volatility eases

  Leigh Stevens   8/15/02,  10:35:51 AM
Subscriber QUESTION: "I'm confused. You're saying the OEX is forming a "bull flag" yet my understanding is that any flag formed against the prevailing previous trend is a hint of a coming continuation of that trend. And OEX and SPX both appear to have formed a pennant that rises against the prior down trend - which would be a "bear flag". Doesn't this raise caution of a another leg down? Where am I going wrong here??"

RESPONSE: A "bull flag" is a common continuation pattern after an initial run up - as seen in the daily chart of OEX , this is simply where, after an initial spurt up (the "pole"), there is a relatively narrow back & forth trade (making the "flag" pattern) near the top end of the first advance - a breakout above the highs traced out in this narrow trading range then suggests that there will be another spurt higher, about equal to the first run up.

No pennants rising "against" the trend are apparent to me.

  John Seckinger   8/15/02,  10:35:08 AM
With the bullish triangle breakout taking form within the Dow, the key should be to stay above the last relative daily high of 8796. Nevertheless, it is my impression that most breakouts do come back to test the breakout level. This should not be too worrysome. The upside objective? I would be pleased to see 9134 tested (high on July 10th); however, let us take this one day at a time. Note: Just above is the 50 DMA at 8869, while the 200 DMA remains in the stratosphere at 9734. Note: Under 8744 and I would become slightly concerned.

  Jim Brown   8/15/02,  10:32:14 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
looks like we are off to the races again. We were triggered on the broad market LONG at 10:24:14 when the Dow traded above 8825. (OEX 470.90, SPX 931.25, DIA 88.50, SPY 93.63, DJX 88.25, NDX 982.36, Compx 1348.98, Emini 932.25) The initial stop loss will be OEX 467 (SPX 924 est) Don't you just love it when the markets pause one tick above the trigger points?

  Leigh Stevens   8/15/02,  10:23:18 AM
INDEX Comments: Nasdaq - Morning rally in QQQ broke out above up trendline that connected its 3 prior hourly highs - at 24.00. Predictably enough, the Q's then came back down to, and under, this trendline as a retest - a "successful" retest so far, as buying took QQQ back above 24.00. 24.00 is a "pivotal" level in the Q's - trade above keeps bullish chart picture, below it, looking bearish.

I continue to look for a retest of the previous 24.7 price peak. For those looking to take profits and/or short, 24.7-25.25 area is my preferred sell zone.

  Jim Brown   8/15/02,  10:17:58 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
If the markets can get past their intraday resistance levels (highs) set in the first 20 min of trading then we want to go LONG again. Internals have reversed to the upside but we want to see a breakout first. The level we need to see broken is the 8810 level on the Dow. Go LONG the broader market only on a Dow print at 8825 or above. I will set the stop loss if we get triggered. There is a good chance we will see another failure below these levels and we do not want to be long until we have confirmation we are out of the chop.

  Jonathan Levinson   8/15/02,  10:17:16 AM
Up volume has come roaring back on the COMPX after price found support at 1325, with advancing volume now almost doubling declining volume. The TRINQ is back into buy territory at .62 and the TICKs are postive, currently +173.

  Steven Price   8/15/02,  10:13:31 AM
Nike (NKE) ($41.20 -3.05) any thoughts on the nice gap down on NKE this morning? saw your post just after I emailed you...great minds think alike?? lol. any target price?

Response Warren Warren Warren, you can quit hiding behind phony emails. Nike's 10-Q discussed growth slowing down as well for the company. Footlocker holiday orders are down from last year. Our initial target of $40-$41 would be the first place for conservatives to take profits (possibly just above the round number) PnF objective of $35 would be the next target.

  John Seckinger   8/15/02,  10:10:42 AM
With the Dow turned negative, sectors managing to hold onto gains include: Biotech, Securities Broker, and Oil Issues. The Oil, or XOI.X, Index seems most interesting, since the current 493 level places it just fractionally above a significant pivot set on July 18th at 492.26 (using 60-minute charts). The intra-day high is 495.67, but the longer the index stays above 492.26, the stronger probability levels near 500 are tested in the near term.

  Leigh Stevens   8/15/02,  10:08:26 AM
INDEX Comments: DJX - Unable to get through its prior highs at 87.6-87.9 or Dow 8800 area, which is going to be a signal to take profits after the recent run up and bring in some shorting.

In the S&P, the rally of course carried above the prior highs or line of resistance - 460 area in OEX and 912-914 area in SPX; it would be pretty typical action for the indices to come back down and re-test this area and establish if it now an area of buying interest or support. A drop below these levels whould suggest a short-term top. Conversely, successful re-test of these levels by holding them tends to "confirm" the new highs.

  Steven Price   8/15/02,  10:03:01 AM
Note on Leigh's earlier arbitrage comments. The same activity goes on all day with respect to traders arbing options against the underlying stock. Traders will combine synthetic option positions (long call+ short put = long stock & long put + short call= short stock) by buying on their bid and selling on their offer to replicate the purchase or sale of stock at a better price than where the stock is trading, and then trade the stock in the opposite direction, in order to remain hedged. This combination is the basis of all equity option pricing.

  Jonathan Levinson   8/15/02,  10:01:19 AM
Declining volume has pulled ahead of advancing volume on the COMPX, though there are slightly more advancing issues than declining issues. The TRINQ has pulled above 1 to 1.32, confirming light selling pressure. QQQ is working on its 24 support now, the COMPX and QQQ having filled their opening gaps.

  Jim Brown   8/15/02,  10:01:03 AM
Swing Trade Signals
The reason I jumped out of that signal was a breakdown in the trend channel on the OEX and the rapidly decreasing A/D ratio. Here is a screenshot of those events. Charts: Link

  Steven Price   8/15/02,  9:57:27 AM
Nike (NKE): $41.11 (-3.14) It didn't take long for OI put play NKE to give back yesterday's gains and more. Apparently Warren Buffet has been turning to OI for advice recently, as he dumped $32 million worth of NKE.

  Jim Brown   8/15/02,  9:53:38 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Conditions are slipping fast. Let's bail out of the LONG position now at OEX 466 and look at reentering from a lower level. (SPX 922.55, DIA 87.41, SPY 92.72, DJX 87.27, NDX 967.61, Compx 1334.49, Emini 922.75)

  John Seckinger   8/15/02,  9:52:47 AM
Notes on 9:15 a.m. economic reports: Industrial production rose 0.2 percent, after a revised gain of 0.7 percent in June. But excluding output of motor vehicles and parts, overall production was weaker by 0.1 percent in July. Capacity Utilization rose to 76.1 percent from June's 76.0 percent, the highest level since August 2001. Analysts were expecting production to come in flat.

  Leigh Stevens   8/15/02,  9:51:29 AM
INDEX Comments: Futures related buy/sell programs - re my comments at 9:25 on buy/sell programs: buy programs come about when S&P stock index futures premiums are OVERVALUED and it makes it profitable to buy the "cheaper" stocks and SELL (short) the index futures, which is a buy program.

Unwinding or liquidating this arbitrage is to buy back the (short) futures and to sell the stocks; a "sell program". An arbitrage here is going long one type of security and shorting a related instrument because the "spread" or difference between the two are out of line

  Jonathan Levinson   8/15/02,  9:49:41 AM
There are 94M advancing shares to 57M declining shares on the COMPX so far, with the TRINQ at .91 and the TICK.NQ +268 and QQV down .98 to 44.2. No direction yet.

  Jim Brown   8/15/02,  9:49:28 AM
Swing Trade Signals
The Dow is extending the gap over 8750 but has reached another resistance point of 8788. This was the high on last weeks intraday spike. Resistance immediately above this level would 8810 or a 70% retrace of the gains from Sept lows to March highs. If we cannot break these levels and fall back below 8750 then the rally should fail. The A/D line has rolled over this morning after an impressive opening spike.

As we know, there is normally a pause regardless of direction after the first 15 min of trading on most days. Many times the initial direction reasserts itself but this is also the same period of weakness that results in reversals. Time will tell.

I am not going to change the stop loss from the current OEX 460 because I believe the chances of continuing the bullish move are good. I do not want to get stopped out here on a quick sell program only to see the next leg up begin shortly thereafter. I am willing to risk the 2 points at this time. If the conditions continue to worsen I will move it to our entry point of 462.

  Jeff Bailey   8/15/02,  9:45:53 AM
Forest Labs (FRX) $72.75 +4.67% ... stock gapping up at open on news of receiving FDA approval for depressive disorder treatment Lexapro. My brother works for FRX as specialty rep and has been talking about this drug for months. Sounds bullish and p/f chart looks strong. Link

Will take 1 January 2003 $70 call (FRXAN) $9.80

  Jonathan Levinson   8/15/02,  9:43:29 AM
The COMPX has opening gap support at 1339, and then at 1333.

  Jeff Bailey   8/15/02,  9:34:37 AM
The 9:00 AM intraday update has been posted. Link

  John Seckinger   8/15/02,  9:33:17 AM
From a glance, it appears that the allocation out of bonds and into equities will continue throughout today's session; however, as profiled yesterday, weakness back to 110 in the September Bond was not completely unexpected. Currently down one full point (32/32) at 110-05 (low at 109-31), I will use 109-08 as my "proverbial line in the sand". It is encouraging for bullish equity traders to see strong selling in five-years once again; however, either equities are realizing the move is simply profit and not totally scaring bears, or that Treasuries are a leading indicator and we will need to wait until after the opening. I am in favor of believing the latter.

  Jeff Bailey   8/15/02,  9:31:51 AM
Per yesterday morning's 09:00 Update Traders should be stopped out or at least hedged in the SPY on trade above $92. We will not that this is the first "buy signal" this security has given since April of 2001. Rally potential to bearish trend at $100 is current upside risk for bear. Support should be firm at $84. Vertical count now turns bullish to $116. Just as I wasn't "sure" the SPY would eventuall trade its bearish count, I'm not counting on the SPY trading $116, but gives hint that there is some upside to be had. Link

  Jonathan Levinson   8/15/02,  9:27:49 AM
Selling in bonds portends strength at the open. QQQ is currently trading 24.22, up almost .20 from yesterday's close.

  Jim Brown   8/15/02,  9:26:07 AM
Swing Trade Signals
With the futures only up slightly in pre-market the strength of the rally today is questionable. Jobless claims rose and computer hardware was downgraded again. The lack of bullish news to spur the rally could be a problem. If the buying last night was simply a one time event then the bearish case may reassert itself today.

In order for this rally to continue the Dow must trade over 8750 and hold for more than a few ticks. This is the key index today. The volume on Wednesday was minimal despite the strong move. This lack of conviction could have been due to caution about the certification event. If so then today the volume must pick up if the rally is going to stick.

  Leigh Stevens   8/15/02,  9:25:11 AM
Subscriber QUESTION: "I do not understand the portion of yesterday's Index Trader summary dealing with the relationship between the S & P futures and cash. One sentence is "With S&P Sept futures fair value at only +50 points over the SPX, buy programs were profitable to do when futures ran up to around 180 points over "cash"."

Also, Jeff Bailey sets out program buying and selling amounts every day in the 9.00 Intraday Market Update. I do not know what those amounts mean.

I would appreciate it if you would provide an explanation at some time of the both of these matters.Your chart on the S&P 500 Hourly chart and your comments on yesterday's rally were superb."

RESPONSE: I can refer you to one of my past Index Trader's Columns, where there is a comprehensive discussion of what futures "fair value" means and why futures premiums values substantially ABOVE this figure can make it profitable to buy the S&P stocks and sell (short) an equivalent number of the S&P 500 index futures.

An index-related "buy program" is buying a basket of the S&P 500 stocks, and selling the futures. To "unwind" or liquidate this transaction, the reverse trade is done - buying back the futures contracts and selling the stocks, which is a (futures index-related) "sell program". But there is of course more to this than that and you can find out more by going to this prior article I refer to and scrolling down to the bottom "mini Trader's Corner" section at Link

  Steven Price   8/15/02,  9:23:01 AM
IBM: OI Watch List candidate IBM $74.92 looks higher at $75.25 this morning. IBM had been in a rectangle consolidation pattern between $66 and $74 since the end of June. The eventual price objective on the move above $74 would be $82, based on the rectangle. Keep an eye on Big Blue as a long candidate.

Note: I discussed the purchase of a 65-70-75 butterfly a couple of weeks ago that will lose value as it moves away from $70. This spread was put on at a debit of .80-1.00 and still has until September expiration to see the stock trade toward $70 again. While I like IBM as a long candidate here in the short term, I am not ready to punt on this low investment spread. The beginning of September can still see a sell-off ahead of the 9/11 anniversary, and I will hold this position going forward.

  Jonathan Levinson   8/15/02,  9:16:12 AM
COMPX resistance is theoretically (grin) at 1355, with support below at 1325, 1285-90, and 1260-65.

  Steven Price   8/15/02,  9:15:41 AM
Jobless Claims up 6,000 to 388,000, versus expectations of 4,000 increase

  Leigh Stevens   8/15/02,  9:09:03 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > +5.80 at 923.80; Dow Industrials > +45.00 at 8765 Nasdaq > +8.00 at 975.00

"Fair Value" numbers: S&P 500 futures ($SP02U): .48 -- Nasdaq 100 futures ($ND02U): 1.95

  Jonathan Levinson   8/15/02,  8:53:00 AM
The US Dollar Index spent the night in a range between 107.10 and 107.40, and is currently just under 107.20. Futures are off their best levels but still positive, NDX +6.0, S&P +5.50.

  Jim Brown   8/14/02,  8:28:38 PM
Swing Trade Game Plan - Click here: Link

  Jim Brown   8/14/02,  8:28:19 PM
The Market Monitor for Wednesday August 14th has been archived. Click here to view it: Link


Market Monitor Archives