Option Investor
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  Jeff Bailey   8/16/02,  5:25:18 PM
Beetle's Balanced Fund saw the "safer" portions of the fund take a hit to the downside today. The shorter-term 1-3yr. basket is now showing a 0.12% gain since July 31st. Link

I talked about the 5-year YIELD ($FVX.X) today and its trade at 3.4% YIELD. While we don't really have a true "asset class" for the 5-year Treasury, thought might be that it is perhaps a "blend" between the SHY and IEF.

Now, if I'm an institution and monitoring a bunch of inventory in the various asset classes as depicted by the "Bailey's Balanced," next week I may have a decision to make as it relates to the 1-3yr (SHY) basket and lower YIELDing Treasuries.

Story time Do my 300 stock analysts and 20 different economists from around the globe feel there's some upside potential in stocks that should have me flushing some more short-term, lower YIELDing Treasuries, and shifting some of that cash to stocks (DIA, SPY, QQQ) which are now starting to "outperform" since July 31st? Or are the "risks" too high in equities that I shouldn't be adding further to this asset class?

The bullish % charts tell us that risk in equities is still not at overbought levels and we're seeing net gains in the point and figure buy signals. The recent "spread triple top" buy signals in PIXR Link and IBM Link have been pleasant for sure and have done well with money sold from the lower YIELDing Treasuries.

My head "market technician" tells me that the Cyclicals (CYC.X) are under accumulation, but personally, I'd really like to see some type of break above $495 or $510 to really have me getting more aggressive with the buying. I'd like some type of confirmation to this guy "Jeff Bailey's" thoughts that the cyclicals will lead in an economic recovery. I see the accumulation signs he's talking about, but want to see some type of "confirming" buy signal to really get me thinking bullish thoughts. Link

Well.... I've got some thinking to do over the weekend, but Monday morning, I'll be watching Treasury YIELDS closer and try to get a feel for what the competition is doing. If they flush Treasuries at the open, then I too need to be thinking of doing the same. The third-quarter ends September 30th and I don't want my clients leaving me for somebody elses mutual fund that performed better since July 31st.

  Jeff Bailey   8/16/02,  4:20:42 PM
Every ounce of energy but the QQQ's finally traded $25.00 and for the first time in quite some time, a column of X appears. It seems like it took every ounce of energy to get it done as today's QQQ high was $25.00 exactly. Link

NASDAQ-100 Bullish % ($BPNDX) Link currently "bull confirmed" at 39% after reversing up to "bull alert" at 14% on July 8th (QQQ close was $25.38 that day).

  Jim Brown   8/16/02,  4:12:45 PM
Guess the Dow Looks like we have a tie this week. The Dow has settled out at 8778.06 and two readers guessed 8777.77. We decided instead of awarding the 2 monitor card to the earliest entry we would give each a one monitor card. (grin) Just kidding. We are going to give each of them the dual monitor card. Congratulations guys!

bbgold2001@h...... 8777.77 entered at 9:57:16 pm on 8/11.
scott.deb@gt.... 8777.77 entered at 11:52:55 pm on 8/11.

Send me an email with your addresses and we will get those in the mail to you.

  Jim Brown   8/16/02,  3:52:56 PM
Swing Trade Signals
I don't want to bust John's balloon but my guess was 8775.80, (really, check the logs guys) so if anybody is going to pressure it....

  Jeff Bailey   8/16/02,  3:46:04 PM
Trader Talk on the floor of the NYSE is that John Seckinger, writer here in the market monitor is tyring to pressure the Dow Industrials (INDU) 8,771.55 -0.52% to his "guessing" close of 8,770 by sessions end. John needs a dual-monitor video card real bad.

  Jeff Bailey   8/16/02,  3:40:00 PM
The 3:15 PM intraday update has been posted. Link

  Jeff Bailey   8/16/02,  3:35:19 PM
The spread jeff, i have been holding some august 460 calls since jim gave his buy signal to go long oex468 yesterday. the oex just hit 472 but the calls were only bid at 11.00. if i put in a market order i would be filled at 11.00 when 12.00 should be the fair value. this is unfair, shouldn't the market maker pay me at least the amount in the money? which should be 12.00.

Aha! Now you'd better show some discipline, but also understand the "spread." While not sure, I'm willing a guess that when you bought those option, you got the "market" type price as it relates to this option if you bought the offer. Now to get the "market" price you've got to sell the offer. Somebody has to take the "risk" and you can bet the market maker isn't going to take it, thus the spread.

This is VERY IMPORTANT for traders to understand that are trading the index swing trades. Jim can't sit and quote bid/offers in the swing trade model, so quoting of the OEX is only way to really update trades and entry/exit points.

However, once you the trader get the "feel" of things and entry target points, you will be better able to understand what you "need" given the various spread of the strike/expiration you're trading. You also need to factor in volatility as it relates to the time your trading. Note: the VIX.X range today has been 34.80-32.07 versus yesterday's 36.57-33.07 range. In essence, volatility has come down and not as much premiums in options today either!

  Leigh Stevens   8/16/02,  3:21:15 PM
Subscriber QUESTION: "My QQQ 60 minute chart is in an up trend. Low trendline connects 21.9 - 22.5 Rightnow: $24.7 is the mid line, the up line point to $27. What do you think about a traget of QQQ $27 in this rally?"

RESPONSE: This kind of upside potential in QQQ is possible given the way the Composite is acting. Significant resistance comes in at 26.6 in the Q's if you look at the June-July daily highs.

  Jim Brown   8/16/02,  3:00:20 PM
Iraq A middle east newspaper reported today that Saddam Hussein has decided to take pre-emptive military action rather than wait for the US to gather up forces and launch the attack on him. At his August 8th military briefing Saddam reportedly revealed plans to use up to 40 nuclear devices ranging from dirty bombs to as many as 10 nuclear bombs to attack Israel and Jordan and possibly even a US port city. First, I strongly disbelieve this report although it is making the rounds in the US today. If the US believed this to be true they would accelerate the attack plans immediately. According to this news source the US has moved 8,000 to 12,000 troops into Jordan over the last two weeks to lay the groundwork for the coming attack. The truth about Iraq's capabilities is probably less than reported but more than most Americans believe. He has had 10 years to plot his revenge and his defense. He knows he can't win so inflicting the most damage on his way out are probably his highest priority. That damage will not be against military targets but against civilian targets.

My point in discussing this is that it is almost a certainty we will attack Iraq soon and probably with only one or two allies. This will be a very political move and will expose us to a potential oil fight with the rest of the Middle East. The fragile bullish scenario built over the last couple weeks could come crashing down at any time. With the increased administration comments against Iraq by everyone with a microphone it is evident the attack will be sooner than later. Add this to the 9/11 anniversary fears and I think the next four weeks could be rough in the markets.

  Jeff Bailey   8/16/02,  2:58:10 PM
5-year YIELD ($FVX.X) Trading 3.399 after brief trade at 3.409 tick, sure holding that 50-pd MA, but seller in Treasury seem a bit hesitant. Should I pull the trigger on the IP lottery? ..... Why not? Taking 10 Sep $40's here and lets see what happens. RISK capital only!

Benchmarking IP at $37.80

  Jeff Bailey   8/16/02,  2:54:59 PM
Buy/Sell Programs Hi Jeff, Do you think there is likely to be a major buy program late in the day today?? I've been watching bonds and all 3 (5, 10, & 30-YEAR) show yield gains > 2%; in fact, 5 & 10 year are > 3%! Do you think this is due to institutional selling of bonds? When institutions sell bonds, do they normally buy stocks the same day??

I've had very few, I think only one, program execuation alert today. However, question posed is good one as to buying at the end of the day. This is perhaps good "scenario" to at least follow and just puts the trade on alert for such an event.

As for stocks/bonds and immediate buying/selling of the two, I don't know for "sure," but sometimes it appears that buying is done up front in stocks on a sell move in treasuries, but then followed on next day or two on any pullbacks.

  Jim Brown   8/16/02,  2:35:42 PM
Swing Trade Signals
Sure glad I elected to pass on further plays today. The markets are continuing to wander sideways with no particular direction and are playing out the expiration Friday scenario perfectly. There seems to be an equal number of bullish indications to bearish and no conviction to either side. I think this will eventually favor the bears as August draws to a close. There was some disturbing news out of Iraq this morning, which I will elaborate on in my next post, and I think it means we will be pulling the trigger on an attack much sooner than expected. At this point I am happy to go into the weekend flat.

  John Seckinger   8/16/02,  2:33:05 PM
Remember, markets trade both inefficiently and efficiently. This is the latter taking form - range bound and hard to discern direction. If a trader is extremely aggressive, since the Dow (five minute chart) has not put in two consecutive red candles since near 8750, it could make sense to look for a move back above 8800 with a stop at 8737. The irony, of course, is the quietness occurring during Option Expiration.

  Jim Brown   8/16/02,  2:25:40 PM
Employee Benefits I have been working diligently on the employee benefits package since I heard we may not be up to par with the Grubman contract. Since our writers/analysts only put in about 70 hours a week (seriously) they are not eligible to receive the $19 million loans. That is reserved for only those that are really committed to the newsletter and work the full 100-hour workweek. Jeff is very close and has to be told to go home several times a week to avoid hitting that trigger point. Our loans have a few less digits on the left side of the decimal point however.

The current severance package involves issuance of a cake an embarrassing farewell party and a number of gag gifts. The severance package includes your choice of a case of cokes or case of moon pies and a 2x2 box for all your personal belongings. Finally, you become the recipient of the coveted scapegoat award and credit for everything done wrong in the building until the next person leaves. This alone qualifies you for Jack Grubman status as every busted play and broken site link will be attributed to you for months to come.

  Leigh Stevens   8/16/02,  2:18:43 PM
Subscriber QUESTION: "Is it appropriate to view the 944 neckline (S&P head/shoulders pattern) as possible resistance? Being short, I am predisposed to couple this bearish(?) outlook with your earlier comments on the ascending wedge. Of course, I am doing my utmost to 'trade what you see, not what you think'."

RESPONSE: I looked and did see possible Head & Shoulder's (H&S) bottom pattern on 60min. SPX chart - Left Shoulder (LS) at 914 high 8/9; (reverse) Head is 876 low and Right Shoulder (RS) at 993 hourly high 8/15 - neckline connects LS (914) and RS (933) and intersects at 944 as you say.

Breakout of neckline would give upside objective to 993 area, also near the top end of a broad hourly uptrend channel - so a move above 944 (or wherever trendline is over time) is the place to exit puts/shorts.

Do think of the "neckline" as resistance - which is why there is no "confirmed" upside breakout unless there is an upside penetration of the neckline.

More on the Head & Shoulder's pattern in my Trader's Corner article at Link

  Jonathan Levinson   8/16/02,  1:51:40 PM
This market has a face only a mother could love- reminds me of Mini-Me and Dr. Evil. The COMPX appears to me to be in a big distribution top, with the TRINQ pinned at .60 or lower and price going nowhere in either direction. QQV is down another 2, currently 41.48, and it's actually getting low enough to make me feel optimistically bearish on a sentiment-basis alone. The COMPX is hovering right above the magic 1355 s/r line, and what's keeping it pinned at this level is beyond me, particularly given that this is op ex day and QQQ contract holders stand to gain a little on the market makers if the price doesn't drop at least one point from here. In any event, this is turning into a slow grind nowhere, just above the area formerly known as resistance.

  Jeff Bailey   8/16/02,  1:41:52 PM
The 1:00 PM intraday update has been posted. Link

  Jeff Bailey   8/16/02,  1:31:33 PM

Intl. Paper (IP) $37.48 -4.48% ... Jeff, IP just printed 37 and puts PnF in 0 column. with that in mind do you still think IP is a good lottery play?

ONLY if my trigger of 5-year YIELD is achieved above 3.404% (today's high YIELD).

  Leigh Stevens   8/16/02,  1:09:00 PM
Subscriber QUESTION: "I believe you recently spoke about compression (or was it someone else at OIC?). Do you see this sort of a formation developing in Ebay (3-year daily bar charts), i.e. a multi-year triangle/wedge that is nearing its apex and a possible breakout? Are such patterns valid over such long time frames? If so, any thoughts on likely outcome given current market behaviour and high Ebay P/E?"

RESPONSE: I was the one that wrote about compression - Ebay Inc (EBAY) pattern you're seeing is a symmetrical triangle, which is a consoldation type pattern.

An upside breakout point is $61 currently and downside breakout at 54, on a closing basis.

After a long sideways trend, breakout could be either way - my guess would be to the upside based on big volume surge on late-july break to 53 area as possible capitulation bottom - but the key is really to follow the breakout, up or down.

  Jonathan Levinson   8/16/02,  1:06:54 PM
Obviously I've become very one track with my chart formations, but I see a big ascending wedge formation on the COMPX 30 minute chart.

  John Seckinger   8/16/02,  12:54:31 PM
With lower bond prices and lower equities, is there something going on here? Reasons fluctuate from concerns over corporate supply to profit-taking to curve traders buying 2 and 5 year notes and selling longer-maturity issues. Moreover, finance 201 tells us that when bond prices fall with equities, we should be concerned about either deflation or a credit crunch. My opinion is that traders are taking profits in 30-year bonds AND selling them as they feel more comfortable with shorter-dated Treasuries.

  Jeff Bailey   8/16/02,  12:50:25 PM
Amgen (AMGN) $47.25 -1.15% ... if you can, check out the 15-minute chart of AMGN. See how shorts got "squeezed" a bit when 5-year YIELD edged above 3.4%? Look how moving averages also come into play on this time frame. Just interesting stuff from very short-term perspective.

This type of action hints there's a lot of day-trade shorts trying to get a top in here, but quick to run on rebounds from short-term support combined with YIELD moves.

  Jeff Bailey   8/16/02,  12:45:55 PM
Day Trader's 5-year YIELD We've looked at the p/f 5-year YIELD chart. Day-trader's will aslo monitor YIELDS on short-term basis and correlate against stocks. We "know" resistance at 3.4% from p/f chart and 15-minute interval gives some interesting correlation against both 50 and 200-pd MA. Could expect YIELD pullback to the moving averages and day trade-bulls may close some bullish positions near-term, with thought they can always get back on board on YIELD break above 3.4%. Link

  Leigh Stevens   8/16/02,  12:42:37 PM
Subscriber QUESTION: "I drew a line through the last 3 lows (SPX 775, 834, 876) and another through the last 2 highs (SPX 911, 933 extending to 7/17/02 low of 895). Looks like a bearish rising wedge. "

RESPONSE: Yes, when I did the pattern, I also thought that it looks like a bearish rising wedge. I would say that chief reason I have not focused on this reversal type pattern is that "usually" it is seen at a possible top - in other words in a market that has been rising for some time, not one (like this) that has been falling - however, a wedge is a wedge and it is a bearish type rising wedge - key will be if there is a break of that lower trendline - at 900 currently.

Also, top trendline would suggest that SPX could get up to about 955 before hitting the top trendline of the wedge. The other near resistance is implied by 50-day moving average at 932 currently.

The CHART can be seen at Link

  John Seckinger   8/16/02,  12:34:10 PM
Your indication of Dow support levels this morning (8709) was just great. Why don't you give us such advise every morning just before 9:30 am which will help us greatly in planning trading strategies?

Response: I really do get nervous putting in support levels before or after market hours. I need a confirmation of psychology, which can only happen as the market trades. I could easily put in wider ranges (such as the 8687 level), but the 8709 level probably would not have made the cut (in hindsight, of course it would). I honestly expected a move closer to 8687 before the market would find bids. I think it is the CBOT mentality of "getting flat" at the end of every trading session that clouds my judgment. Moreover, every morning I read Jim's swing trade game plan and have yet to disagree with him. His analysis is well-thought out and extremely detailed.

  Jeff Bailey   8/16/02,  12:08:01 PM
Lottery call play potential in the Intl. Paper (NYSE:IP) $38.18 -2.7% Sept. $40 Calls (IPIH) $0.75. Should 5-year YIELD break above the 3.4% YIELD level, would take lottery calls in IP. IP sitting right on upward trend on bar chart. Link

Big volume on Wednesday, and stock holding that day's low. With volume drying up, may be "sold out" short-term. YIELD break higher in 5-year may have IP rally to 50-day MA at $40.87 and may correlate agains NYSE Comp. 50-day.

I don't think NYSE Comp. goes above 50-day without some serious help from the deeper cyclicals.

  Jeff Bailey   8/16/02,  11:58:52 AM
Hmmmm... check out the 50-day's in some of the major market averages.

Dow Industrials (INDU) Link

S&P 500 (SPX.X) Link

NASDAQ-Comp Link

NASDAQ-100 Link

and some DIVERGENCE/strength from the S&P 100 (OEX.X) Link

Will do some comparison, but need to figure out "weighting" of OEX, and find out what is having this a little technically stronger and above its 50-day MA.

  Leigh Stevens   8/16/02,  11:58:35 AM
Subscriber QUESTION: "Analyst I follow is telling me that the SOX has a big H&S top, with downside risk to 250 over coming weeks. Can you check this and see if it looks like that to you?"

RESPONSE: Well, I see a possible bottom in the Semiconducator index (SOX) as the recent bottom is at low end of its downtrend channel on weekly charts.

The SOX is quite strong today - now faces key test of its prior recent lows in 350 area - has gotten back above its Sept. low at 344 which is bullish - we'll see if it can close in this area - at or above 350 would be especially bullish for SOX - which might then signal move back up to 400 area

  John Seckinger   8/16/02,  11:55:50 AM
An interesting chart pattern is developing in the Networking Index (NWX.X). Managing to keep 113.91 the relative low, the index has gone on to form a nice "b" pattern - currently setting up for a breakout. Which way? Currently at 123.14, the index is above the pivot and could test an old relative low at 129.12 before sellers step in. Of course, the key is to keep the relative low of 113.91 in tact. Please see chart: Link

  Jeff Bailey   8/16/02,  11:49:56 AM
Verizon (VZ) $32.04 +5.22% ... crud... was a little late with afternoon post yesterday and not sure if it helped. With reversal up in the NYSE Bullish %, was more cautios late yesterday and thought bears should cut exposure to 1/2 position.

Making some notes here that VZ is "telecom" and TMX is "telecom" Both stocks technically weak and not on bullish trade lists, but note how a "rising tide" seems to be lifting a lot of boats.

  Jeff Bailey   8/16/02,  11:47:17 AM
Telefonon de Mex. (TMX) $30.15 +1.82% .... now, while I "agree" with OI pickers on IBM bullish, I'm not going to jump all over the TMX put play. Two things.... It's got 3-letters (NYSE:listed) and looks to be breaking above a reverse/head/shoulder neckline of $30, with head at $26.50, so stock might have some rally to $33.50? Link

Point/figure does look weak, bearish count is $22, so viable bearish candidate. Would at least limit exposure near-term to 1/2 positions. Link

Ineresting "correlation" againg perhaps with the 50-day MA as it relates to NYSE Composite. Link Still viable short candidate, but know where stop should be place (just above 50-day MA).

Quich check of relative strength versus NYSE Composite shows RS still hasn't given a sell signal and perhaps stock just drug down with past bearish market. Would read the RS chart as "buy signal, but column of O" For true weakness, would like to see reading of "sell signal, column of O" Link

  Jonathan Levinson   8/16/02,  11:43:41 AM
Not only will they buy anything, but they'll buy a lot of it. Out of 680M shares traded on the COMPX, 537M are advancing, 122M are declining, and 20M are unchanged. COMPX broke above the widely watched 1355 resistance, and QQQ is into its 24.70-25.25 confluence zone described by Leigh. The TRINQ flattened around .20, showing buying hysteria, and is now at .3, still an extreme reading.

  Jeff Bailey   8/16/02,  11:43:01 AM
The 11:00 AM intraday update has been posted. Link

  Steven Price   8/16/02,  11:31:52 AM
Expiration Strategy: If you are holding long out of the money options that are around the strike, you may have the ability to trade stock back and forth around the strike if those options go in the money. I profiled this strategy on Wednesday's Market Monitor. As soon as the options go in the money you can either short stock against calls or buy stock against puts. You can then sell the stock higher in the case of puts or buy the stock back lower in the case of calls. Many option holders will be employing this strategy today, so watch for stocks to trade within small ranges around the strikes. For an example of this strategy, use this link to Wednesday's Monitor and see my entry at 10:52:14 Link

  Leigh Stevens   8/16/02,  11:27:22 AM
INDEX Comments: QQQ breaking out above its prior high at 24.7 AND above the top end of its uptrend channel - last at 24.9 - next resistance looks like the 25-25.25 area.

COMPX also breaking out to the upside, above its current channel - which kicks in the the more bullish expectation for a next possible next move to 1380 area in the Composite.

  Jonathan Levinson   8/16/02,  11:27:20 AM
Good point, Steven. Let's look into that!

  Steven Price   8/16/02,  11:23:50 AM
Note to Jim Brown: I noticed that as part of his severance package, Salomon analyst Jack Grubman was forgiven a $19 million loan from his employer. I believe this was similar to the amount of the loan forgiven to Dennis Kozlowski of Tyco. Just wondering when OI's $19 million employee loan program will be kicking in.

  Steven Price   8/16/02,  11:19:38 AM
Nike (NKE): $44.00 (-1.30) Nike made up yesterday's early morning loss throughout the day on the strength of some positive market retail numbers, although they are still losing holiday orders from Footlocker. This morning the stock is giving back, and was once again turned away from its downward trendline beginning July 9. Those who speculated that Warren Buffet was taking profits from his sale of $32 million worth of the stock must be missing the fact that the stock has dropped from a high of $64.28 on March 20. Sounds to me like he was throwing in the towel.

  Leigh Stevens   8/16/02,  11:18:14 AM
Subscriber QUESTION: "For option expiration day the volume is not impressive even though the price action is good especially in the Comp. What's your read on this?"

RESPONSE - Nasdaq Composite (COMPX) has had another minor break out to upside above minor congestion or recent consolidation - looks a bit like one of these bullish flag consolidation patterns I've been talking about - and as you say - Composite, in a switch, acts/looks more bullish than the Nas 100.

But, also like QQQ COMPX is up near the top end of its uptrend channel and is overbought on short-term basis. While some aspects of COMPX 's chart pattern suggest upside potential to 1380 area (or even 1400) - its upper channel line suggests 1360 as a possible near-term top.

  John Seckinger   8/16/02,  11:17:30 AM
As the Dow remains range bound between 8821 to 8687, the September Bond (USU2) has recently come under significant selling pressure - currently down 1-12/32 at 108-22. This is clearly underneath my 109-08 level mentioned this morning. With the dollar relatively contained (therefore, not dollar-denominated related), equities should find a bid as cash leaves Treasuries and looks for better performing assets. If the correlation does in fact exist and equities rise, traders most likely will use looser stops as an underpinning bid becomes clear. Under 8687 will represent an even greater failure now.

  Jonathan Levinson   8/16/02,  11:13:44 AM
There was no Fed open market activity today, so yesterday's 8.75B add via overnight repo should be a net drain today. This tells me that any fuel for today's upmove is either coming from short sellers or from bond sellers.

  Leigh Stevens   8/16/02,  11:07:36 AM
Subscriber QUESTION: "Still looking at 24.70 as shorting point in QQQ? Vvolume seems very unconfirming of current strength."

RESPONSE: QQQ is finally nearing my target and expectation I've had for retest of prior high at 24.7. I favor shorting the Q's in this area - really in a zone from 24.7 to 25.25 but right now hourly chart resistance trendline intersects right at 24.7 in the current hour which is interesting - top of its channel AND prior high from 7/30.

Agree that volume levels have not been "confirming" for a move to new highs - suggestive of short-covering rather than a lot of conviction in tech land.

  Steven Price   8/16/02,  11:05:26 AM
Univ. of Mich preliminary Consumer Sentiment came in at 87.9 versus expectations of 88.8. This is slightly down from July.

  Steven Price   8/16/02,  11:02:15 AM
CBOT has halted trading due to technical difficulties - on expiration! Should be up and running in an hour.

  Jeff Bailey   8/16/02,  11:01:51 AM
QLogic (QLGC) $36.33 +2.92% ... profiled this one as bearish in recent past, but stock bidding with the Semiconductors. Would look to limit bearish exposure here, with upside now at $40 and 50-day MA.

Per other observations of bullishness with IBM and MU along with broader Semiconductor bullish % in "bull alert" need to limit exposure to QLGC is thinking. Past profile was 1/4 or 1/2 positions and would look to limit any losses near-term.

  Steven Price   8/16/02,  11:01:18 AM
Jeff , Great minds think alike!

  Jonathan Levinson   8/16/02,  10:56:40 AM
There are now 300M advancing shares to 169M declining shares on the COMPX, and the TRINQ is now down at .5. QQQ is hovering around 24.50, and the QQV is down .78 on the day.

  Jeff Bailey   8/16/02,  10:55:10 AM
Hey Steve! I didn't know IBM was an OI call play. I like that we're seeing same thing.

  Steven Price   8/16/02,  10:48:55 AM
IBM:$77.87 +1.37 New OI call play IBM continues skyward. Now out of its previous range between $66 and $74, the measuring objective of this rectangle ($82) seems reasonable short-term, PnF bullish count of $85 would put it just about half way between its breakout point of $74 and 200-dma of $95.46

  Jeff Bailey   8/16/02,  10:47:17 AM
Treasury Watch has selling in 5, 10 and 30-year, so some cash freeing up.

I've set alert on 5-year YIELD at 3.4% ... should it be triggered to upside, perhaps when NYSE Composite ($NYA.X) breaks above 50-day MA, will get feel for equity continues bullishness. Link

  John Seckinger   8/16/02,  10:42:49 AM
Looking at a five-minute chart of the Dow, surprisingly it was the Bollinger Bands and a previous relative low that managed to contain the explosive selling seen this morning. It will be interesting to see if we can get a decisive answer to the recent whipsawing in the marketplace. Please see chart: Link

  Jeff Bailey   8/16/02,  10:26:09 AM
Micron Technology (MU) $20.06 +0.35% ... interesting stock as it relates to NYSE and Semiconductor. Note it gave a double-top buy signal at $19.50 on Wednesday Link and "jives" perhaps with NYSE bullish % and Semiconductor bullish % turning "bull alert." Most likely has bears more defensive with the stock now and looking to cover.

Interesting too is position of the 50-day MA as it relates to NYSE 50-day and observations made in last night and 09:00 update this morning. Bears may be looking short here, but break above 50-day MA, with NYSE break above 50-day could have bullishness unraveling to the upside. Link

  Jim Brown   8/16/02,  10:21:35 AM
Swing Trade Signals
As I watch the internals deteriorate and considering the strong upward move this week I think a drop below OEX 463 could set the stage for a drop back to the 445 level. I am not going to make it an official signal but "IF" the OEX fell below 463 I would probably be looking to short the broader market. I would be very careful about attempting a long play today after the weakness at the open. We did not get any bullish follow through from the last two days and this could be telegraphing that overbought conditions are about to be corrected.

  Jeff Bailey   8/16/02,  10:19:45 AM
Semiconductor Index (SOX.X) 332 +1.41% ... showing some sector strength and bucking morning's broader market negativity. According to Dorsey/Wright and Assoc. "semiconductor sector bullish %" reversed up to "bull alert" at 15.78% just yesterday. This may make some sense with strength being seen in IBM, a computer stock, that certainly uses semiconductors in its computers.

  Leigh Stevens   8/16/02,  10:19:04 AM
ON THIS DAY in 1977 - 25 years ago - Elvis Presley died of a heart attack in the upstairs bedroom suite area of his Graceland Mansion in Memphis, Tennessee.

In honor of one of the pioneer kings of rock & roll, be kind & courteous today - especially don't be cruel to hound dogs wearing blue suede shoes.

  Jim Brown   8/16/02,  10:15:48 AM
Swing Trade Signals
With Ralph Acompora predicting a +1200 point rally here to Dow 10,060 on CNBC last night, we should not be surprised the markets are negative today. (grin) I poke fun at Ralph but he did admit he had been in a self imposed two year exile for in his terms, "unpopular market calls". He did not say they were unpopular because they were wrong. Despite Ralph's appearance and bullish prediction I am looking at the internals and indicators this morning and leaning to a negative call today. However with September options very expensive today the best move is probably watch patiently from the sidelines for the next high odds setup for next week. We can watch everybody else churn the market and pick our next entry point carefully.

  Jonathan Levinson   8/16/02,  10:12:08 AM
Down volume is leading up volume by a hair, 148M to 138M, 45 new lows to 12 new highs, and 1,062 advancers to 1,422 decliners on the COMPX.

  John Seckinger   8/16/02,  10:09:53 AM
As the Semiconductor Holders (SMH) buck the trend and head higher, is this index worth a look? Currently up fractionally at 26.25, the 22 DMA is just above at 26.32. However, the mid-Bollinger band is below at 25.75. Therefore, good risk/reward either way? Psychology still has to be in favor of bears, but the index did close above a bearish trend line yesterday and seems determined to keep the gains intact. July 17th did produce a "false breakout", but that should just reinforce the fact to keep tight stops. I expect the index to continue higher, but a close under the 25.75 level would be damaging.

  Jim Brown   8/16/02,  10:08:46 AM
Swing Trade Signals
Consumer sentiment dropped again but only slightly from 88.1 to 87.9. This could mean the consumer has reached a point where they see the light at the end of the tunnel. The pause in the speed of the drop was due to the pause in the market drop. However, the funds outflow I mentioned earlier is not confirming this. I think the 9/11 anniversary is also weighing on confidence but maybe the fear factor is already priced in to the current number. There was some worry that it would come in much lower and those rumors were proved false. Just another confusion factor today and traders do not know how to react to it.

  Jeff Bailey   8/16/02,  10:06:29 AM
IBM (NYSE:IBM) $77.40 +1.04% ... would be looking bullish with 1/2 position here. Stock looks as if that spread-triple might unfold and may risk that we don't get the pullback. Judgement call here, but if looking for some exposure to a NYSE listed stock and bellwether, can leg in with partial position here. Look 3-months out, then if pullback does take place can leg in further if support is tested and get a reversal up from support. Link

My observations over the years has been that the sector bellwether usually lead the group. Currently, Dorsey/Wright and Assoc. as "computer bullish %" still BEAR CONFIRMED at 18%, so only looking partial position at this time. Then, should sector reverse up to "bull alert" can then leg in further.

  Jeff Bailey   8/16/02,  9:57:59 AM
Subscriber Question Jeff: Do you ever use the breakeven # when you plan a trade? It helps me to get an idea how far the stock needs to go, and I wonder if you think it a good idea to include that info to make it , ah, e a s i e r.........and to help us figure where we are heading. I remember getting a call, but because of time decay, I had not realized the stock did finally get to where it was to go, but by then was too late, and the option diminished as the stock slowly went up, and my $ went away.....

Yes, I always think in terms of "breakeven" when trading options and why I feel the point and figure charts are so important and a valuable tool for option trading, especially Professor Davis' study, vertical counts and bullish %.

For instance, yesterday somebody asked if I thought the $9.80 I paid for 1 Forest Labs (FRX) $73.61 +0.5% January 70 call was too expensive. I can't answer this for everyone, but with a bullish pattern and vertical count hinting at a potential bullish objective of 96 (vertical count=$96, Bullish Triangle=$96) then my "break even" for this trade is $70 + 9.80 = $79.80. Is the upside potential ~$96, enough to have a Jan. $70 call makes sense?

Is it worth the risk of $9.80 to potentially make (96 target - 70 strike = $26; $26 - $9.80 = $16.20) on a partial position at this time?

The only bar chart pattern I know of that helps a trader project price is the reverse head and shoulders/ head and shoulders pattern, whereby the difference between the head and neckline can be used to project price from the neckline. However, the point and figure charts will alway allow for either a bullish or bearish type of projection (based on buy or sell signal) and can be weighed against the bullish % to help ascertain MARKET and/or SECTOR strength and risk.

  Steven Price   8/16/02,  9:55:22 AM
Home Depot (HD) $27.95 (-0.98) OI put play Home Depot has been range bound, however, I see this as bearish, considering the recent run through resistance for the rest of the retailers. The decline in housing starts hasn't helped the stock and it has broken back below $28.

  Jim Brown   8/16/02,  9:55:17 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I thought we were going to avoid being stopped out for a few a couple minutes but that last wave of selling blew right through the 8750 support level on the Dow. We were stopped out of the open SHORT signal at 9:45:24 when the OEX traded below 464. (SPX 919.31, DIA 87.45, SPY 92.45, DJX 87.31, NDX 966.62, Compx 1330.84, Emini 919.50) We are seeing some dip buying now that we are out but with the possibility of continued volatility today I will probably not reenter anytime soon. We are pressing the upper limits of the recent trading range and without any concentrated buying to maintain this level my bearish outlook is returning.

  Jonathan Levinson   8/16/02,  9:52:08 AM
Some very heavy heavy volatility on the COMPX- just saw a 40 cent range on QQQ on Island Level II in under 1 minute.

  Steven Price   8/16/02,  9:49:21 AM
Johnson and Johnson $55.70 (-0.27) Look for OI call play JNJ to establish new support around $55. The stock has been setting a pattern with higher levels of consolidation, and now that it has broken through $55 resistance, this level should provide support

  Jonathan Levinson   8/16/02,  9:47:38 AM
I don't mean to sound like that duck in the Aflac commercials, but the TRINQ and price levels are telling us a lot. The TRINQ is off its highs at 2.67, which is still indicating significant selling. Price has rebounded off its lows of the day. When the TRINQ stays in sell-pressure territory while price moves up, it's because the sellers have slacked off a bit as compared with the buyers. It does *not* indicate that a new upmove is under way as long as the TRINQ stays high- this looks to me like more distribution. Only a dip buyer or a falling knife catcher would be going long with the TRINQ above 2.

  Leigh Stevens   8/16/02,  9:47:18 AM
INDEX Comments: Charts in my last night's Index Trader column are the correct ones now and can be seen by clicking on Link

The S&P charts had possible bullish flag formations. The FLAG chart pattern was subject of my Trader's Corner column of yesterday - see this article at Link - I make the point that the "flag" type continuation pattern is not as reliable when you see them on the indexes, as opposed to individual stock daily/hourly charts. The key is to trade the breakout above or below the narrow consoldiation that forms the flag.

  John Seckinger   8/16/02,  9:46:17 AM
Despite Option Expiration, CPI, Housing Starts, and Consumer Sentiment figures to be released soon, I will maintain the 8687 level in the Dow as an area bulls should aggressively defend. The upside seems relatively easy, since the post-Phila high and yesterday's settlement both occurred near 8815-21 area. Also interesting is a series of relatively higher-highs (five-minute chart dating back 24 hours) at 8687, 8709, and 8718. There certainly looks to be more selling pressure from current levels (8750), but I hope bulls don't forget which battles they need to win.

  Jeff Bailey   8/16/02,  9:43:03 AM
The 9:00 AM intraday update has been posted. Link

  Jonathan Levinson   8/16/02,  9:38:02 AM
TRINQ at 4.32 shows that some sellers "really mean it" this morning. TICK.NQ is negative. QQQ is working with yesterday's support 24, and QQV is up 1.61 out of the open, currently 45.45.

  John Seckinger   8/16/02,  9:31:55 AM
With the September Bond currently up 5 ticks at 110-07 (low 110-00), I will continue to use 109-08 as the proverbial line in the sand. As mentioned a few days back, I would not be surprised to see a double-top near 112. The dollar is closer to a breakdown than bonds, currently at 106.68 and extremely close to support at 106.58. Further support is seen at 106.38. If both of these levels hold and the Dollar retraces back to 107.50, there could become a slight underpinning bid for equities.

  Jeff Bailey   8/16/02,  9:30:43 AM
I ran late with the 09:00 Update, but should be on its way shortly. I don't think there was any "big surprises" in the economic data. I went into more detail on what to be looking for in the NYSE Composite and also detailed a potential bullish trade in shares of IBM. Take some time, I don't think we should feel that we're in a hurry to implement anything, and most likely have the weekend to review and think things through.

  Jim Brown   8/16/02,  9:29:45 AM
Swing Trade Signals
What a difference a day makes. Analysts picked apart the earnings new from Dell and downgrades are flowing this morning. Not just Dell but most of the PC sector beginning with Intel. Maybe Dell should have warned instead so analysts could have said "its not that bad." The valuation question is coming back to the forefront and it could be spelling the end of the current bullish sentiment.

Fund outflows picked up speed again this week despite the market bounce. TrimTabs.com said -$5.4 billion flowed out this week compared to -$3.5 billion last week. If money is still flowing out when the market is in rally mode then this should be a warning that the real trend has not changed and is still down.

Housing starts fell -2.7% and analysts are blaming the accelerated stock market decline in July for dampening the home buying prospects by reducing the wealth effect.

If we are stopped out on the open as it appears we might, (OEX 464 stop) the odds of entering a new play on expiration Friday are slim. I want to avoid the same choppy conditions that cost us money yesterday.

  Leigh Stevens   8/16/02,  9:18:00 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > -8.10 at 922.40; Dow Industrials > -77.00 at 8730; Nasdaq > -14.50 at 974.50

S&P Futures "fair value" numbers: S&P ($SP02U) = +.46 -- Nasdaq 100 futures ($ND02U)= +1.90

Complete explanation of program trading & stock index futures arbitrage can be found in my Trader's Corner article at Link

  Steven Price   8/16/02,  9:11:21 AM
Housing Starts down 2.7%, CPI up 0.1% Core CPI (removes food and energy from the equation) up 0.2%

  Jonathan Levinson   8/16/02,  8:58:40 AM
The US Dollar Index is currently hovering just above 106.80, and equity futures are currently down, with some volatile swings in the NDX since about 6:30AM. Currently, NDX is -9, S&P -5.50.

Doing my nightly homework, I had a lot of trouble finding any discussions or technical analysis that wasn't quite bullish, although I encountered a fair bit of scepticism as well. The fact that this is op ex week has many doubting the bullish move this week, particularly because we've seen it happen several months in a row, only to have pullbacks the following week. While this rise has given us an ascending channel on the COMPX, which is bullish, it looks more like my beloved rising wedges on the SPX and INDU, which are bearish. The COMPX is nearing its upper bollinger band, and should coincide neatly with Leigh's 24.70 confluence area on the Qubes. QQQ could descend to 23 without violating its new up-channel, and is currently near its upper ascending trendline.

While I remain baffled as to the fundamental support for this week's move, particularly in the COMPX, my guesses include selling in bonds / reallocations and rebalancing between bond and equity holdings; short covering; op ex manipulation; bottom pickers/dip buyers; plunge protection team operations. Whether I believe it will last or not is immaterial. The COMPX looks like this upmove could run- it doesn't show me much in the way of bearish formations, certainly not as much as the SPX and INDU. So, I expect a pullback, but will be watching the bottom of the COMPX/QQQ upchannel for a failure. The purely technical play would be to go long at the bottom of the channel after a few confirming upticks of a bounce, coincident with bullish crosses on the stochastics. A breakdown of the channel, which would make more sense to me, is an invitation to play puts.

  Jim Brown   8/15/02,  11:33:18 PM
Swing Trade Game Plan - Click here: Link

  Jeff Bailey   8/15/02,  9:51:18 PM
Holy Correlation! Something I came across last night and perhaps ties into past observations that we wanted to look for as it relates to last fall's action in Wal-Mart (WMT), the NYSE Bullish %, and now the NYSE Composite ($NYA.X). I posted this late last night in the market monitor and something I feel important to monitor. Link

  Jeff Bailey   8/15/02,  9:48:35 PM
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