Option Investor
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  Jim Brown   8/20/02,  10:06:01 PM
Swing Trade Game Plan - Click here: Link

  Jeff Bailey   8/20/02,  8:05:05 PM
Semiconductor Equipment Book-to-bill fell to 1.16 in July from a revised 1.26 in June. Deutsche Securities estimates were 1.19, Goldman was 1.15, so this report appears to be near consensus. Bookings fell to $1.15 billion from revised $1.17 billion in June (these are rolling 3-months averages).

Trader may want to note that SOX.X did find resistance yesterday at this index's 50-day MA, while the major market averages were able to push above this intermediate-term moving average and may signal some technical weakness. Of course, could very well have been hesitancy prior to this closely monitored industry report, but bears may press the issue with stop just above Monday's high of $367 and target $300 or current bearish count from p/f of $260. Caution advised to bears and partial positions only. According to Dorsey/Wright & Associates, sector is "bull confirmed" at 38.5%, up from early August lows of 8%.

  Jeff Bailey   8/20/02,  6:14:22 PM
Inside Days Traders will note a plethora of "inside days" in a number of stocks. KEEP IN MIND that this is a short-term traders type of pattern and a play on a very short-term type of shift in supply/demand.

It is rather important to look and try to understand where the NEAR-TERM supply or demand exists as to how "successful" the trader looks to become from the trade.

The "inside day" is a rather "neutral" trade setup, whereby the trader only takes action on the break above or below the "inside day."

One thing I'd look for tomorrow morning is what is happening in the bond market. If YIELDS are lower, then "how much lower" are they? Is it significant? or a rather modest move. Get a feel for cash flow.

Then, have a list of "bullish candidates" These should be stocks where you've either got some shorts sitting on a profit and may be eager to lock in a gain on the first signs of streng (perhaps a break above the previous day's high) or stocks where you've got some bears trapped, they're holding on in hopes that YIELDs move lower and they can get a pullback into support.

One "inside day" stock that a bull might have an eye on is eBay (NASDAQ:EBAY) $60.42 -2.32% Link on a break ABOVE today's high of $61.55, with early selling in Treasuries. Reason I'm not looking bearish is there's probably more than a few shorts below the 200-day and 50-day MA at $58.50 that are wondering what's up. Also, stock recently traded a "triple-top" at $60 and broke downward trend. Link

A bearish idea might be General Electric (GE) $32.25 -1.94%. Thinking here is that the stock just hasn't been able to generat a "buy signal" and trade that $33 level. Remember on August 1 at 12:04:33, I profiled this stock as bearish at $31.76, target $28 Link . Got a nice little move lower to $28.30 ($28.27 intraday, so missed target by $0.27) over next two days, but stock has rallied back with market. However, has a bear gotten crushed from a $31.76 short? Not unless $0.49/share is getting crushed in a $31 stock. 50-day MA at $29.45, say $29.50 serves as potential target. Look at the "inside day's" for GE recently, study the different "moves" from those inside days. (08/12/02 was inside day, 08/13/02 was lower), (08/16/02 was inside day, 08/19/02 was move higher and bull playing the inside day still long from $32.31, but stop now below today's low of $31.90) Link

Hint... the best "bullish trades" from an inside day may well be the ones that you can't answer... "Where's my upside target that might find resistance?" and the best "bearish trades" if you can't answer "where's my downside target that might find support?"

DON'T go gung ho, or "heck bent for election" and put on 10 inside day trades all at once. However, if you can build some bullish and bearish candidates, and at least monitor them over the next couple of days, the ones that work the best may lead you to other "like stocks" in the same sector/group, or similar technical setup, that pay reward in the days to come.

The bigger more liquid stocks are often "best" for inside day type of trading and less likely to get "jerked around" by market makers or specialist. There was a "beauty" inside day in IBM on 08/12/02, bullish 8/13/02 at $72.65 Link and bull that took action now has stop under today's low of $80.18. Boy when that triple-top buy signal at $75 was hit on 08/14, institutional bears may have done some covering eh? Maybe it all started on 08/13/02? We'll never know for sure, but sometimes these inside days can provide some pretty good moves.

  Jeff Bailey   8/20/02,  5:33:25 PM
H&R Block (HRB) $53.15 +3.5% ... Hello Jeff... Could you be so kind to take a look at HRB? Seems to be extremely toppy here? Looks like a run into earnings 8/27? Possible sell the news deal ? Thoughts on playing for such a move

Hmmmm... I remember premierinvestor.net did well from the bullish side with a profile of HRB as bullish in past and dropping bullish play on Feb. 27th ahead of earnings. Stock traded some "inside days" after 52-week highs and did pull back from $50-ish to $40-ish over next couple of months.

However, just as it is very difficult to "pick a bottom" in a stock, it can be equally tough to "pick a top" in a stock.

"True" HRB may seem "toppy," as it has rallied from $40 to $53 in the past month, which is about 32.5%. However, can we question that DEMAND is in control of the stock at this time or that the stock is out of favor as depicted by the bullish % chart versus S&P 500?

Old saying .... "the trend is your friend" , chart of HRB Link

Also check out how HRB hasn't given any type of "sell signal" on its relative strength chart versus S&P 500 in quite some time and would be considered a "strong stock" in the MARKET as depicted by the S&P 500. Link

Now, check out that RS chart "sell signal" at the 16.50 RS reading back in September of 1999 (after red 9). Take a look at the bar chart during that time. What happened "technically?" Stock broke below its 200-day MA at $24.20 on 09/02/99 and by June 2000 (red 6) reached its now known low of $13.47 on June 9, 2000.

Now test yourself. You and I would have liked to have "picked the bottom" or at least "known" of its potential bottom that day in June 2000. What was the bearish vertical count leading up to that trade at $13.47? I came up with $8, so stock didn't achieve the bearish count as the "buy signal" at $17 in August 2002 negated the bearish count. Link

Now, rather long explanation here, but I'd consider a bearish play in HRB as a "lottery play." However, are there any stocks that have rallied 30% or so (like HRB) that remain in a downward trend, where Relative Strength is WEAK and the stock has rallied back to a level where OVERHEAD supply is nearby where remaining BULLS from the overhead resistance will tend to have the stock lagging any type of broader market move?

The best place for a bear to find success and better trade setup is stocks where you have a greater amount of "winners" and "losers" in the stock. Think about it. A bear wants the "winning bulls" from a lower level to sell the rally, but also the "losing bulls" from a higher level to sell the rally where they should have gotten out to begin with, in stocks that continue to be weak and are NOT generating relative strength "buy signals."

For now, thinking in HRB is that the only sellers in the stock are those that may "know for certain" of pending doom (stock doesn't reflect that right now) or from WINNERS that have reached some type of bullish target. As I see it, (from the supply/demand chart) there aren't a lot of sellers in the crowd and this can make for a tough bearish trade.

  Jeff Bailey   8/20/02,  4:04:43 PM
The 3:15 PM intraday update has been posted. Link

  Steven Price   8/20/02,  3:57:59 PM
Reader Question: Good morning Steve: Qual comm (qcom) 29.18 -O.72 (-2.41%) stock yesterday slightly reached over resistance level of 30.18, could this again be a roll over point which it has done in the past, presently would like to short the stock, your comments are welcomed. Thank you, Michael

QCOM : Qualcomm seems to be consolidating just under $30, however the 50-dma of $27.75 could provide support. I would like to see a continued rollover below yesterday's low of $28.78 before initiating 1/2 position and then a break below 50-dma for the rest. I don't love this as a short right now and would use a tight stop above yesterday's high (possibly $30.50) in case of a breakout to the upside.

  John Seckinger   8/20/02,  3:56:27 PM
If the dollar closes below 107.40, could this be good for gold?


The dollar has taken a turn lower, currently at 107.32 and well underneath its intra-day high of 107.89. The objective is for a move to 106.60, and there is a good chance that the weaker dollar will drag equities even lower. Ok, getting to the question, YES, there should be an inverse relationship with gold. The lag time, historically, has been very minimal. Looking at the XAU.X index, the 200 DMA at 66.15 should be the near term objective, while weakness below 61.61 might make sense to head to the sidelines.

  Jeff Bailey   8/20/02,  3:53:40 PM
03:00 Update Way late with the 03:00 Update, but I switched gears as not all that much taking place here. Talked about PIXR and ATVI in more detail to perhaps give traders something to be looking for in other stocks you may be trading and making some associations with.

  Jonathan Levinson   8/20/02,  3:48:49 PM
The market has been trading a flat, uneventful range. 1380 remains the magic number, and is acting as a price magnet on the COMPX. The TRINQ is at the top of today's range at 1.20, and the QQV is still up, now .95 on the day. These observations are as boring as the market action here, made worse by the fact that this remains a very difficult market to gauge directionally. Given that even today's TRINQ readings are neutral after a week of abnormally low readings, I consider that the COMPX is short term overbought. However, the lack of momentum to the downside is worrisome to bears, making today look like the bull's merely taking a breather. As Leigh aptly pointed out, there's a disconnect between fundamentals and technicals. Technically, I'll become more bullish on a break of COMPX 1400, and more bearish on a break of 1355-60. In between, I'll remain mostly confused and thoroughly bored.

  Steven Price   8/20/02,  3:48:34 PM
Reader Question:steve, thanks for the answer on large block puts and calls...confused on the sides taken by smart money...10,000 options traded is quite large, has 2 sides, one side the "smart money"... who takes the other side ( i won't say "dumb money"), another institution?, market maker? more smarter money? does it have to do with liquidity in the market? maybe the question is, how can you tell WHICH side is THE smart money?

Response: When a broker brings an order into a trading pit, generally market makers will honor quite a few contracts (especially out of the money options which do not require much directional hedging) and then fade the market (lower their bid or raise the offer). At that point the broker solicits orders by calling around to different large trading desks and trying to match up what's left. Usually the broker bringing in the original order represents the "smart money," since the order was originated based on some information or plan. By looking at which way the option prices moved relative to the same stock price, you can tell what the original offer (smart money) was trying to do. If the price goes up, the smart money was buying; if it goes down, the smart money was selling.

  Jim Brown   8/20/02,  3:48:19 PM
Swing Trade Signals
For those of you who got the stop changed to OEX 478 in time I would continue to watch it carefully. We did not sell off even after that big sell program came through. The A/D line is dropping and the TICKs are negative. The oscillators are still pointing to more negative ahead. There are no serious economic reports tomorrow and we are moving into earnings warning season again. Just watch it and don't let it get out of hand. The market is definitely unsure of its direction here. Beware of a bullish bounce at the open.

  Leigh Stevens   8/20/02,  3:44:02 PM
Subscriber QUESTION: "could you assist with your comments on QCOM - where do you see support. We are short, stock strong, appreciate your input on market monitor."

RESPONSE: 31-31.25, then 34 is resistance in Qualcomm (QCOM). The stock may be developing a trading range between 27 & 34. I don’t see big downside or upside in the near-term or next 3-4 weeks I think. Support at 27.9, at 50-day mov. avg., then down in 25 area. Volume has been declining on advance so rally is not "confirmed" by volume, which would trouble me if I were long QCOM.

  Leigh Stevens   8/20/02,  3:26:50 PM
Subscriber QUESTION: "I recall you saying on the market Monitor that you would take off bullish positions on the day the market is negative and closes negative. If today turns out to be a negative day (oh boy, its rallying as I type) would you then consider taking off bullish positions? Thanks for the valuable insight you all give us through the day"

RESPONSE: Yes, would consider taking profits on bullish positions in QQQ - while I don't currently think a correction will be steep, we've had a substantial run up, so there is some risk in giving back a substantial portion of profits.

QQQ is vulnerable to a pullback to 23.60 near the low end of its hourly uptrend channel, possibly to the 22.50 area in a retest of its last swing low; and, the Nas Composite (COMPX) to around 1330, possibly back to the 1300 area.

  Leigh Stevens   8/20/02,  3:16:42 PM
Subscriber QUESTION: "What is your initial target for QQQ short from 25.25?"

RESPONSE: My initial downside target on QQQ is to 24.50

  Jim Brown   8/20/02,  3:11:05 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Did not get it changed in time. We were stopped out of the open SHORT signal at 15:06:12 when the OEX traded above 476. SPX 941.07, DIA 89.13, SPY 94.69, DJX 89.01, NDX 1014.59, Compx 1383.72, Emini 941.75. Tomorrow is another day.

  Jim Brown   8/20/02,  3:07:08 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
If we don't get stopped out before you get this post let's change the stop loss back to OEX 478. We have too much volatility here and I think the end of day could turn down.

  Jeff Bailey   8/20/02,  3:04:29 PM
Activision (ATVI) $30.00 -0.29% ... Jeff: Love your commentary I noticed that Activision has a bearish signal reversed today on slightly higher than average volume – I know that the probabilities 92% (from your P&F guide) are very high that this will continue higher - how would one calculate the bullish count from here? Cheers

Good eye! I've "turned on" the volume with the point/figure chart. Now, stock trades tough today, but note bearish resistance trend at $30. Right now, toug to say "up or down." Thinking could be that smart money is selling into the rally here, but bears most likely jitters. I'd wait things out currently, but a trade at $31 most likely has stock unfolding to upside. Link

For vertical count, all we do is look for the first "buy signal" that would negate a prior sell signal. So... see the "sell signal" at $29, after the red 6? Now, we see a "buy signal" at $30 (red 8), which becomes the bullish vertical count column. Thus current count becomes $24 + ((7*3)*1)=$45.

Risk/reward .... now you can assess POTENTIAL upside of $45 versus where a p/f stop of $22 would be placed in determing the trade. At $30, a bull is looking at risk of $8 (to $22) and reward of $15, which is just about the minimum risk/reward of $1/$2 a trader would want in a trade.

True, the Bearish Signal Reversed is the most "powerful" bullish patter, but you can only imagine, that it would be much better to see selling in treasuries to help the move higher in ATVI. However, do I want to be risking things right now at downward trend? Good technicals to have on the watch list at $31, and keep an eye on those Treasury YIELDS.

Quick check of relative strength has ATVI strong versus S&P 500 Index so good bullish stock to monitor on break of trend. Link

  Jeff Bailey   8/20/02,  2:53:03 PM
Abbott Laboratories (ABT) $38.99 -2.52% ... Jeff: Could you take a look at ABT? It looks to me like the Bullish Vertical Count is 63 (11 * 3 * 1 + 30; ABT is currently at 40! ). And what sector does ABT trade in? I checked out PPH and $DRG and both of their P&F's look pretty good. What else should I look at if I'm thinking about a bullish trade here?

Not to split hairs.... you're equation is correct ((11*3)*1), but add to the beginning of X column, which is $31, thus $64, but if the stock does eventually trade $63, I always like to sell early too! Link

Dorsey/Wright & Associates has ABT classified as "drug," which as of last night was "bull alert" at 36% bullish after relative low bullish % of 12% in July. Would take a reading of 56% currently to get sector "bull confirmed." Dorsey tracks about 144 stocks that he classifies as "drug" so at 36%, roughly 51 of the 144 stocks tracked show a p/f buy signal on their chart.

Note: ABT currently trades BELOW trend, so partial bullish position advised.

Other stocks that investors familliar with are Eli Lilly (LLY) Link and trade at $60 would be sign of further strength, Merck (MRK) Link , Pfizer (PFE) Link (one of the stocks still on a "sell signal" and still below trend (AVOID) , and my "favorite" in the group, Forest Labs (FRX) Link which trades above trend and has been on "buy signal" since trade at $74 back in July and recently gave "bullish triangle" pattern at $74.

  Jim Brown   8/20/02,  2:50:12 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We just can't seem to break through that support at 472.50 and have bounced off it several times. I am beginning to wonder if the 3:PM turn may be up instead of down. The Dow has been moving sideways since 11:30 despite a couple spikes to either side of the move. Let's lower the stop loss to OEX 476, (SPX 940) just over our entry point and keep as much capital as possible in case the 3:PM move is up.

  Jeff Bailey   8/20/02,  2:16:43 PM
Iraqi Embassy MSNBC reporting that German police stormed Iraqi Embassy in Berlin and have retaken the embassy with no injuries. Stocks edge up modestly.

Dow -117, S&P 500 -13, NASDAQ Comp -17 points.

Treasuries little changed with 5-year YIELD ($FVX.X) 3.258%

  Jonathan Levinson   8/20/02,  2:05:56 PM
The COMPX continues to flutter without a clear direction, still glued to the 1380 mark. The QQV has dropped a bit on this rise off the day's lows but is still positive, and the TRINQ is at .93. The COMPX is now right at the top of its descending trendline from yesterday's highs as the shorter intraday stochastics are curling over in overbought territory.

  Jim Brown   8/20/02,  2:01:43 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I am watching the A/D line rise vertically over the last 20 min and the Dow is close to a higher high. I have been pondering changing the stop loss to OEX 474 to take us out on a bounce but I would hate to be hit with it that close only to see a 2-3:PM rollover. If you want to be out early I would suggest you change the stop now. I am going to maintain the existing OEX 478 stop for another few minutes.

  Steven Price   8/20/02,  1:53:56 PM
Reader Question: steve, thanx for the insights...i'm watching the call and put vol leaders, here's the situation, FLEX (9.41) trades over 27,000 in the sept 10 calls...RATL (6.07) has traded over 10,000 in the oct 5 puts...both are otm, so could have been sold...question, can either of these unusual vol trades be an indication of things to come, ie, tradable?

Response: Look at time and sales and see whether the options went up or down, relative to the same stock price, after those trades. Usually big trades are done by smart money. If the smart money is buying calls(the options go up relative to stock price), then it is bullish (or bearish if they are buying puts). The opposite is usually true as well. If they are selling calls, it may also mean they see a decrease in volatility coming and are trying to capture the premium decay.

  Jeff Bailey   8/20/02,  1:51:10 PM
The 1:00 PM intraday update has been posted. Link

  Leigh Stevens   8/20/02,  1:32:30 PM
Subscriber QUESTION: "With a short position in qqq, technically, where would be the stop level for today?"

RESPONSE: Per my recommendation last night in my Index Trader wrap - initially suggested QQQ buy stop or exit at 26.00, but given the start of an apparent correction here, will suggest lowering buy stop to 25.50 and risk very little on shorts held at 25.25.

  Leigh Stevens   8/20/02,  1:27:31 PM
Subscriber QUESTION: "I have a question regarding drawing bear flags. Perhaps you can address this in Market Monitor-- After the run-up on August 14, I saw the potential for a bear flag covering span of Aug 15 & 16. With the spike up again on Aug 19, how does one adjust the bear flag lines???

Do you draw a 2nd bear flag, keeping the original? Or, delete the original bear flag and draw a new bear flag?? Or, some other scenario??"

RESPONSE: 15 & 16th. Aug. formation on 60min chart on DJX was bull flag "failure" it appears - "confirmed" if 88.3 is penetrated on downside. There is no second flag - you elimate the drawing of the flag, except note the top end of the consolidation to see if this still holds as support. If it holds, flag upside objective might still be valid - time will tell on that. Did you happen to see my Trader's Corner article on "flags"? - at Link

  Jim Brown   8/20/02,  1:21:03 PM
Swing Trade Signals
I just spent some time going through charts of all the Dow stocks to see if I could determine which way it was leaning. Of the 30 Dow stocks only 7 could be interpreted as trending up. 10 were trending or expected to go down and 13 were flat to down. Many were at solid resistance and showing no indications of being able to break through that resistance. This would indicate to me that the Dow has more risk to the down side. Several stocks that have powered the recent rise, IBM, MMM, PG, JNJ, T, MO are due for profit taking even though they are in the uptrending group. IBM has moved from $66 to $82 in the last two weeks. This is begging for profit taking, MMM has come to a dead stop at 130 again. JNJ moved from 41 to 66 and has started rolling over.

All these comments point to potential Dow weakness ahead. Still we need to remember the bulls are back and they are actively buying the dips. While the charts are pointing to weakness the bulls may see this as a buying opportunity. We are not in the same market we had two months ago. The bulls have been given hope and they are spending that hope every day. Until that account runs dry again we can expect the volatility and the bounces to continue.

  Leigh Stevens   8/20/02,  1:14:42 PM
Subscriber QUESTION: "What is the impact of yesterday's drug on OSIP? What is risk on downside? Is advisable to play on long side?"

RESPONSE: What I can say about OSI Pharmaceuticals (OSIP), which lost over half of its value yesterday on very heavy volume, is that is looks like long-term support is down in the $10 area - stock is last at 15.9. However, low yesterday at 13.5 was at bottom of its downtrend channel of past few months. This may have brought in some technical buying. However, the stock can continue to "walk down" along this lower trendline - the rate of descent slows down, but it just takes longer to get where its going.

It's risky to buy stocks right after these sharp breaks. If a "final" low is made on the break, it still take some time for a "broken" stock like this to establish an area where buyers are willing to support the stock. Initially, you typically have the "bargain hunters" come in, but these buyers are typically looking for a quick bounce or recovery move - if this doesn't happen and it often doesn't, the stock sells down again.

Best to wait to see how things "settle" out in my estimation

  Jonathan Levinson   8/20/02,  1:12:33 PM
Can you comment on any known explanation for the low volume?

Like most indicators, this is subject to interpretation. The obvious view is that low volume indicates that investors are in a "wait and see" mode at current levels. My take on the past week's action is that a move upward on decreasing volume is suspect, as it shows decreasing conviction in the higher price levels. Add to that price approaching resistance levels, as we had yesterday, and it leads me to bet on a breakdown at resistance. The fact that price has so far failed to pierce resistance confirms my guess, but the fact that there's been no acceleration downward indicates that there's little conviction in today's pullback as well.

It's then necessary to examine other indicators. The TRINQ has risen to 1.23, which indicates an increasing proportion of selling. The QQV is up 1.37 on the day, which indicates increasing caution as option traders insist on a higher premium for the contracts they sell. Bond yields are lower still, as money flows into the relatively safer haven of bonds. None of these are bullish signs to me, and would lead me to conclude that when volume does pick up, it will be more likely on the sell side. However, the market has been very whippy of late, and all of these indicators can reverse in a heartbeat with a strong round of buying.

  Steven Price   8/20/02,  1:04:47 PM
Reader Question : Steve: As per your comment on QLGC, I shorted 500 @ 36.75 1000 @ 37.25 Today, even though market is down, it looks very strong. What is your opinion on this one after today's action.

Response: QLGC $37.03 (-0.34) In yesterday's commentary I mentioned that I would put on only 1/2 of a position at this level, given rising QLGC stock and recent market strength. I also mentioned that I would use a tight stop, around $38, as the stock was at the top of its descending channel. Today's trade of $38.10 violated that channel and would have stopped out the position. However, if you are still holding the position, I would place a stop above today's high. the stock is showing good relative strength and the market appears to be in consolidation after recent gains. The Dow has bounced back from its 50-dma, and the COMP did the same. The COMP and NDX have both broken out of descending channels, so the argument for shorting stocks in the tech sector is not that strong. If you draw QLGC's channel from the middle of July, you can see how well defined it is, and appreciate the significance of a break above it.

  John Seckinger   8/20/02,  12:20:02 PM
The US Dollar Index (DX00Y) is once again straddling a bearish trend line which began last February. Currently at 107.57, a close below 107.40 could have shorts aggressively selling the currency back towards 106.60. It was on August 8th when this trend line was also momentarily breached before falling back below; thus accelerating a move in the U.S. currency from 108.40 to 106.18. Most likely, this was longs liquidating and shorts adding to existing positions. Therefore, a close above 108 could squeeze shorts and propel dollar-denominated assets in general.

  Jonathan Levinson   8/20/02,  12:10:20 PM
Other than the brief runup this morning, very little has happened as the COMPX chugs along both sides of 1380. The TRINQ is at .96, in the middle of its range today. Bond yields are still down, and the QQV is back in the green, up .75. QQQ 25 is the support to watch for the moment.

  Leigh Stevens   8/20/02,  11:53:56 AM
Subscriber QUESTION: "10:01:34 response you mentioned "scale up selling" - can you briefly tell me what this is? Is it selling specifically measured so as not to bring the price down? If so why would it indicate a correction before a second leg up?"

RESPONSE: For example, an institutional holder of a group of stocks or specific stocks, wants to reduce its exposure to this group or take some profits, often does this on a scale up basis instead of all at once which would tend to bring the stock down more than is in the interest of the seller. So, they may sell on a "scale-up" basis; i.e., selling gradually on each rally that carries the stock higher by a few points.

It can take a large institutional holder of a stock some time to reduce holdings in a single stock in a way that does not depress the price which is answer you suggest. This activity would not necessarily indicate a correction - that is, scale up selling would not - however, a break of an up trendline that is drawn up thought higher highs not far off a bottom can often lead to a sharp price break as a number of the recent buyers exit.

At least those buyers who bought the stock on a speculative basis rather than the ones accumulating the stock for the longer-term. If you look at the comments in the context of what I was saying, I try to explain what both buyers and sellers might be likely to do.

  Jim Brown   8/20/02,  11:47:42 AM
Swing Trade Signals
The volatility continues as the internals vacillate back and forth. The buying binge from 10-11 am has faded and the Dow is setting a new low. The A/D line began dropping strongly as we approached the earlier lows for the day. The VIX has flat lined at 33+ and after spiking to 3.15 at the open the TRIN has declined back to .90. It now looks like the bears may be gaining strength after the initial attempt to buy the dip ran out of steam. Still to early to signal a trend change but we are definitely seeing some profit taking. We are approaching that 472 intraday uptrend support and should see some slowing of the drop until that is broken.

  Leigh Stevens   8/20/02,  11:41:01 AM
Subscriber QUESTION: "If QQQ breaks the current range, is the next Resistance at 26.2? Do you pay attention to TRIN at all? Jim Brown thinks TRIN at 0.37 would indicate a significant drop for the next few days. What's your take on this?

In addition, if your target for OEX is 500, wouldn't OEX pull QQQ to a higher level as well? Thanks for your candid technical analysis."

RESPONSE: 26.4-26.5 is next resistance above recent highs in QQQ based on twin peaks in this area on the daily chart - going back to July. I pay attention to TRIN - in fact, I wrote a Trader's Corner piece on the Arms Index (TRIN) - how it's calculated and how to use this indicator - at Link

Jim is completely correct in saying that a very low level of TRIN, while reflecting very strong buying in that moment, is also, in a "contrarian" sense, potentially bearish for the period ahead as such strong buying often is associated with a price peak. When investors/traders get extremely bullish, its often associated with a top, temporarily or a more major top.

Lastly, if OEX manages to climb another 20 points from its recent 480 high and reach my "maximum" projected upside to the 500 area now, rather than later, it would probably pull the Nasdaq up with it also in the near-term - OR, lets say that strong buying in the NYSE stocks would most likely reflect some or a similar buying interest in the tech oriented Nasdaq indices. My thought was that everything would start to correct near-term, but that doesn't mean that we won't climb again later and make higher highs down the road.

  John Seckinger   8/20/02,  11:28:20 AM
Just read your analysis on the yield curve and how it portends towards the equity markets... EXCELLENT. What are your thoughts ahead of this afternoon's Treasury Budget figures, and how the Market could interpret it?

Response: Thanks for the kind words. The July Treasury Budget (2:00 p.m.) is expected to show a deficit of 32 billion, compared to a $3 billion surplus just one year ago. Reduced tax receipts and increased government spending and debt insurance should mean more supply hitting the Treasury market. More supply usually means lower prices, higher yields, and potentially lower equity valuations. What is the positive aspect? None as of yet. Federal tax Receipts continue to plummet, while the economy continues to struggle as Federal spending remains accelerated.

  Steven Price   8/20/02,  11:27:35 AM
Reader Question: Hi Steve, Just wondering what the right trigger point for GS will be? Nick

Response: Goldman Sachs (GS) $80.31 (-1.19) I would like to see a break below $80 to go short, as evidence that the stock is not simply in consolidation. I would use a stop loss just above the 200-dma of $82.43.

  Jeff Bailey   8/20/02,  11:24:45 AM
The 11:00 AM intraday update has been posted. Link

  Leigh Stevens   8/20/02,  11:16:32 AM
Subscriber QUESTION: "A faithfull market monitor watcher here. Wanted to get your thoughts on Phillip Morris ( MO ) I noticed a slight downgrade today to under perform and also notice it's having a hard time keeping up, seems to keep pulling back with every dow high. Just wondering what your thoughts are? "

RESPONSE: Well, Phillip Morris (MO) has been in a strong uptrend. I don't see any "underperformance" relative to the S&P or Dow.

However, the stock is now back into a very key resistance area and is "overbought" also. Resistance at $52 is the low end of the downside chart gap from the sharp downside break over 6/21 & 6/24 (Fri. & Mon.) - the chart gap is from 52.60 to 52.10. 51.6-52.00 is also the low end of its consolidation trading range from Feb. - March (also, 51.6 was Oct. peak).

MO needs to push on above 52 on closing basis and then stay above this level to suggest that the stock was going to go on up to where the June break started from - in the 54-55 area. I suspect that there is abundant supply (stock for sale) from around 52 on up to 54-55 area and I see this "capping" rally attempts for some weeks ahead.

  John Seckinger   8/20/02,  11:08:04 AM
The September Bond continues to be resilient, currently up 20 ticks at 109-17 and above a regression line beginning in March. A close above 110 should be the catalyst for new longs entering the bond market. Please see chart: Link

  Jim Brown   8/20/02,  11:07:45 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Looks like we may stop out here but the bright side is that we may get an entry at that higher 485 level if we do. Looks like the buy program may have run its course but the trend for the last 30 min is up. We need a lower low back below 474 again to get back on track.

  Jonathan Levinson   8/20/02,  11:04:27 AM
The COMPX has advanced into this morning's gap, and is currently printing highs of the day at 1386. The QQV has just flipped to negative, currently down .07 on the day at 40.96. The TRINQ is at or near its low of the day at .64 with the QQQ trading at 25.40.

  Steven Price   8/20/02,  10:57:53 AM
The 50 dma mark was hit by many stocks and indices across the board yesterday. This is a function of the market rising and falling together, therefore reaching similar averages at around the same time. Keep an eye on these levels to see which issues have the strength to maintain them and which are turned back.

  Steven Price   8/20/02,  10:54:16 AM
Semiconductor Index (SOX.X) The SOX yesterday traded over its 50-dma intraday, but was turned back by the close to finish just underneath. The Dow, NDX and S&P 500 all managed to hold above this level. The SOX had tacked on 50 points in a week and looks overextended, with the stochastics just turning over and giving a sell signal. The other 3 broad market indices have gained support from the 50 dma this morning, holding above it, while the same level seems to be putting a ceiling on the SOX.

  Leigh Stevens   8/20/02,  10:45:48 AM
Subscriber QUESTION: "I have puts on c and granted higher highs and lows at moment, but doesn't daily chart show a bear wedge? maybe wishful thinking!"

RESPONSE -- Citigroup (C) daily chart pattern certainly has the appearance of a classic bearish rising wedge - it also has hit resistance yesterday/today at its 50-day moving average. If C takes out or pierces the lows of today - at 35.50, especially on a closing basis - it falls under the lower trendline of the wedge formation.

Normally, the wedge is a pattern at the top of an up trend, often a prolonged uptrend. However, the main thing with patterns is what is it showing - usually this pattern of higher highs and lower lows that "narrow" in, is showing scale up selling and scale up buying in a tighter and tighter range. This is a type of market "compression" - when price break out of this pattern there is often a sharp move in the direction opposite the slope of the wedge.

Reason being is the folks doing the scale up buying will often sell out. In this case, this would be the early bulls - there are always lots of early bulls in an emerging up trend. They don't typically yet have a lot of conviction in the trend.

  Jim Brown   8/20/02,  10:38:22 AM
Swing Trade Signals
The next intraday support level for the OEX and a possible problem for the current SHORT signal, is OEX 472, a break below that level sets up a potential test of the bottom of the recent uptrend support channel at 465. We are getting an initial bounce off the 473 level led by the Nasdaq where the futures are near the high for the day. The SPX/OEX are lagging but following.

  John Seckinger   8/20/02,  10:36:38 AM
Time to re-visit the yield curve! Five-year notes are up 16 ticks, while ten-year bonds are higher by 17.5. Based on a formula I learned at the CBOT, I multiply the 5-year movement by 6 (16 times 6 equals 96) and ten-year change by 4 (17.5 times 4 equals 70). Subtract 70 from 96 and we have a 26 tick steepener. This is bearish for equities. If the change gets to 32 ticks or more, I would consider this as significantly bearish. Under 16, slightly bearish. Bearish because it illustrates capital playing it "safe" with shorter-maturity bonds.

  Jeff Bailey   8/20/02,  10:33:43 AM
Iraqi Opposition Group seizes Iraq's embassy in Berlin. Gold stocks as depicted by the Gold/Silver Index (XAU.X) 63.34 +0.85% bid earlier in the session, but when learned the group was calling for overthrow of Saddam Hussein, gold stocks faded back.

September 2002 Crude Oil futures (cl02u) $29.95 +0.36% edged up and traded $30, which was 100% from fitted retracement. Bullish vertical count on this commodity contract from p/f chart at Dorsey/Wright & Assoc. was/is $36.50. First sign of trouble is trade at $26.25.

  John Seckinger   8/20/02,  10:20:58 AM
Normally, the dollar and gold index trade in an inverse fashion; however, it does appear gold stocks are experiencing some short covering after yesterday's breakdown. The Dollar is slightly higher at 107.73; however, most likely still needs to rise above 108 in order get new longs involved. Taking this one step forward, movement in the dollar should make its way to 30-year Treasuries, currently up 19 ticks at 109-16.

  Jonathan Levinson   8/20/02,  10:16:33 AM
Just as we saw the TRINQ running between .7 and .8 as the COMPX tried to hold its opening levels, with proportionately more buying than selling required to keep the COMPX price constant, we now have the reverse, with the TRINQ at 1.18 in neutral "sell" territory, with price still unchanged. The question that will determine the direction of the break from this level is whether the buyers or the sellers will run out first. Well, the TRINQ rising from the open shows that selling has been increasing. Additional clues? Bond yields continue to drop, and the QQV continues to rise. COMPX remains below 1400 resistance and is currently working on the 1380 s/r line. I expect COMPX 1400 to hold even if price breaks north from here, but time will have to tell.

  Steven Price   8/20/02,  10:06:04 AM
IBM $81.06 (-1.43) OI call play IBM has pulled back some, with the rest of the Dow. However, after a $10 gain in 4 days, some consolidation is in order. It is currently setting up an inside day, which is a consolidation pattern.

  Leigh Stevens   8/20/02,  10:01:34 AM
Subscriber QUESTION: "I read your SPX commentary about an inverse head and shoulders pattern, but don't see it on the chart. My understanding of head and shoulders patterns is that some part of the right shoulder must be below the top of the left shoulder. The shoulders don't need to be symmetrical, but should form in the same vicinity. For example, in the case of a head and shoulders top, if the top of the left shoulder is at $50, the bottom of the right shoulder must be below $50.

In the case of your chart, the SPX would have had to pull back down below 914 while forming the right shoulder. Can you comment?"

RESPONSE: Re my suggestion that the S&P 500 (SPX) was forming a possible Head & Shoulder's (H&S) bottom or "inverse" H&S. It would help if I had drawn the left and right "shoulders" properly on TOP of the shoulders and not "underneath" them. That said, it is still true that the lowest point on the Right Shoulder (RS) on SPX is at 916 and the lowest point of the Left Shoulder (LS) is at 892, so the RS is 24 pts (2.6%) higher than the left. The right shoulder usually mimics the left side. The right shoulder declines to about the price level of the left. "About" to me is plus or minus 2-3%. This is usually within the range.

Another key thing with the pattern is that it have symmetry - the shape being the same on the left side as on the right should be apparent - which it is here. Of course defining this pattern as a H&S "bottom" is a bit speculative on my part as the H&S bottom most often forms after a significant decline, not after a substantial rally such as we have had.

The main thing with this pattern is the trendline that goes up from the first series of highs to the second cluster of highs. Hourly highs have formed this line of resistance that the uptrend is "walking up" it but not breaking out above its upper trendline. This suggests to me that there is scale up selling going on, so I anticipate a correction before there is a second up "leg".

The SPX hourly chart in question can be seen at Link

  Jeff Bailey   8/20/02,  10:00:57 AM
Hanover Compressor (HC) $10.60 +6.10% ... stock up after naming former Schlumberger VP, Chad Deaton, as CEO. HC is a provider of outsourced natural gas compression services. Link

  Jim Brown   8/20/02,  9:55:00 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the SHORT signal at 9:48:24 when the OEX traded below 475. SPX 939.34, DIA 89.00, SPY 94.40, DJX 88.88, NDX 1005.28, NDX 1005.28, Compx 1375.02, Emini 938.75. The stop loss on this signal will be tight at OEX 478 (SPX 945)

  John Seckinger   8/20/02,  9:51:55 AM
In Global News, European Industrial Production rose for the first time in three months; however, recent strikes have hurt production and outlook calls for only stagnant progress. Note: One-fifth of European exports goes to the United States, and a lower U.S currency will hurt European exporters (lower dollar has less purchasing power). Moreover, inflation is below the ECU 2 percent limit while interest rates have been left unchanged since November (currently at 3.25 percent).

  Jeff Bailey   8/20/02,  9:49:46 AM
Micron Technology (MU) $21 -5% ... stock lower after Wedbush Morgan cuts to "hold" from "buy" on belief that there is no near-term catalyst for the stock given the flattish PC demand pattern in a supposedly seasonal strong period. In a separate note, SoundView comments that it will be tough to sustain rising contract prices through the back half of the year. Link

  Jim Brown   8/20/02,  9:46:11 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Let's go short the broader market with an OEX trade below 475.00, (SPX 940) This is below the low of the day and below the afternoon support from yesterday.

  Jonathan Levinson   8/20/02,  9:45:26 AM
A struggle going on here with the bulls pushing for a fill of the opening gap down. This pressure is being reflected in the TRINQ, which is on the "buy" side of neutral at .73. Option traders are again apprehensive with the QQV up .57 on the day. Bond yields are down.

  Jeff Bailey   8/20/02,  9:36:02 AM
The 9:00 AM intraday update has been posted. Link

  Jeff Bailey   8/20/02,  9:35:57 AM
Per Steve's 09:16 Update Home Depot (NYSE:HD) $29.03 ... reported EPS of $0.50, which beat estimates by $0.03. Revenues rose 11.7% to $16.28 billion versus the $16.52 consensus. For Q3, company sees EPS of $0.40 (consensus $0.39). Company comfortable with current full year consensus of $1.57. Company said it expects comparable store sales to be up 2-4% in Q3 versus flat comps last year. On track to open 200 new stores in FY02; will open 50 new stores and 1 EXPO store in Q3. Link

Note : May be a "bear trap" at $27.

  John Seckinger   8/20/02,  9:31:38 AM
June trade deficit figures were reported at $37.2 bln as imports rose just 0.5%. Moreover, May's record deficit report was revised wider than previously reported, now at $37.8 bln. Turning to the dollar, Japanese officials mentioned that the recent strength in the Yen is "unwarranted," helping the Greenback gain ground.

  Jim Brown   8/20/02,  9:29:58 AM
Swing Trade Signals
Looks like traders have lost some of their bullishness overnight. After a +20% gain from July lows the markets are due for a rest. I just wish they would not rest at the open. I would like to see that climax-buying spurt that takes them to OEX 485, Dow 9125 before rolling over. The premarket news was mixed with the Saudis threatening to withdraw billions in investments in the US unless the 9/11 survivors drop their trillion dollar suit against them. Could it be that it is hitting a little closer to home than they would like? This threatening posture is proof to me that an attack on Iraq could have very negative political consequences.

According to the game plan last night I was looking to go short at resistance this morning. If we get a down opening that sticks then I will try and pick an entry point based on the market action. I am hoping the negativity at the open is temporary and we rally after the morning dip and give us a chance to enter at a higher level. Leading the Nasdaq down will be the chip sector with its daily rash of downgrades.

  Jeff Bailey   8/20/02,  9:29:32 AM
Qwest Communications (Q) $2.24 ... QWEST has been pretty hot the last few days at prices that look like options. Evidently this runup is based on the belief of a big investor that there are sufficient assets to pay off bondholders in the event of a bankruptcy. Do you think there's more upside here?

I don't know enough about the various bonds that Q has out there, but that would be the place I'd make any bullish bets (senior and secured). I still feel the stock is a "gamble" at this point. One thing that concerns me is they are looking to sell off the profitable businesses (cash cows) and hold onto the losing cash, but potential growth business. At $2.24, would treat as an option and only risk capital at this point. Stop on any bullish positons most likely $1.00 here. Link

  Steven Price   8/20/02,  9:27:48 AM
Goldman Sachs (GS) - OI put play GS ($81.50) announced plans to sell $1 billion in global 10-year notes. They are the third bank to sell bonds this week, following Citigroup (C) and Marshall & Ilsley (MI). The stock is up against its 200-dma of $82.43 and we are looking for a rollover from this level to initiates short positions. Wait for the rollover, rather than picking a top.

  Steven Price   8/20/02,  9:23:16 AM
Northrop Grumman (NOC)- $117.25 OI Call Play NOC announced it is in talks with German submarine builder HDW to jointly produce stealth ships and submarines.

  Leigh Stevens   8/20/02,  9:17:56 AM
Pre-Opening INDEX Comments - Nasdaq in particular was bumping against the upper end of its hourly uptrend channel yesterday in both the Composite and the Nas 100. QQQ got to my upside objective and suggested selling area, at 25-25.25. In my Index Trader commentary last night I suggested activating a sell in this area in the Q's.

SPX has been "walking up", but not breaking out above, its up trendline, so the S&P also looks like it could correct from recent highs. Details at Link

  Steven Price   8/20/02,  9:16:31 AM
Retail Index (RLX) 300.14 Yesterday the RLX ventured back over resistance at 300, for the first time since July 12. It also crossd its 50 dma (as did the Dow, SPX and NDX) of 299. With Staples and Home Depot both releasing earnings this morning that beat expectations, look for the sector to keep rolling. Next resistance looks like 320 and 330

  Leigh Stevens   8/20/02,  9:12:02 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > -4.50 at 944.50; Dow Industrials > -32.00 at 8935; Nasdaq > -6.50 at 1014.00

S&P Futures "fair value" numbers: S&P ($SP02U) = +.40 -<>- Nasdaq 100 futures ($ND02U)= +1.81

Complete explanation of program trading fair value numbers & index futures arbitrage buy/sell programs can be found in my Trader's Corner article at Link

  Jonathan Levinson   8/20/02,  8:53:56 AM
The COMPX has support at 1380, then 1355-60 and at 1325. Resistance is at 1400. Given the declining volume on the QQQ during the past 2 days of this up move and the extreme low TRINQ readings, I'm expecting a pullback. However, the dilemma I see is the same as yesterday - with the widespread talk of this summer rally being "The Rally", many will be looking to buy the dips. For this reason, it remains a dangerous market to short, but also a dangerous market to go long. Any trades today should be made with tight stops, and I wouldn't hesitate to pull out profits. A decisive break of 1400 will be very bullish.

  Jonathan Levinson   8/20/02,  8:18:32 AM
The U.S. Dollar Index' moonshot peaked at around midnight last night, at the 107.60 level, where it is currently hovering. The futures held up well but have begun to sell off, NDX -7.5, S&P -7. QQQ is currently trading at 25.14.

  Jim Brown   8/19/02,  6:30:18 PM
Swing Trade Game Plan - Click here: Link

  Jim Brown   8/19/02,  6:29:56 PM
The Market Monitor for August 19th has been archived. Click here to view it: Link


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