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  Jim Brown   8/26/02,  5:54:02 PM
Swing Trade Game Plan - Click here: Link

 
 
  Jeff Bailey   8/26/02,  5:21:51 PM
QLogic (QLGC) $37.19 +1.61% ... lots of questions regarding this one today and action here. Today's trade at $36.00 was enough to have stock reversing lower by 3-boxes. Link

Now, one can imagine that the "best" time to have shorted/put the stock was back in late-July at around $42, under similar test of bearish resistance trend (red +). When we look at a bar chart, we see that trading took place on July 30th, "inside day" on July 31st, then breakdown to $35 by August 5th (triggered triple-bottom on that day), then rally back on August 6th-8th to $39, then another leg lower.

As such, trader might "expect" a bit of a rally back, but NOT much above the 50-day MA. Link

First sign of real strength on p/f chart is trade at $40, which was risk for bear even down at $31. Link

Darned relative strength chart of QLGC still hanging tough versus SPX and really need a break of RS 36 level. Still bearish, but partial positions only at this point. RS chart of QLGC versus SPX = Link

 
 
  Jeff Bailey   8/26/02,  4:50:49 PM
Are you on goal? Per 11:02:50 comments regarding risk management and goal management. How did you do today?

If you know what your yearly goal is and reduce it to a daily goal, each day at the close you should have an answer to this question. If you did "really good" and the bottom line of your account grew $200.00, yet your daily goal needed to be up $10.41, then the end of the day feeling is that your account is on the right side of the market.

However, if you account declined $-200.00 and your goal needed to be $+10.41, then something (a position) may need to be looked at. If you look at a point/figure chart and don't see any "buy/sell" signals generated on a stock, then everything should be OK, as long as you understand current risk to the "buy/sell" signal. One "problem" that may become apparant, if you find you're account took a daily hit to the negative is that you may have an OPTION position in it where you OVERLEVERAGED and a small point/figure type move in the stock then greatly outweighs the overall total of your account. While the stock didn't really do anything in the scope of things, the OVERLEVERAGING and poor account management is then identified as the potential problem and can be addressed.

The BOTTOM LINE to YOUR account is all that matters. A "daily" fluctuation isn't overly concerning, but can be an early alert to a potential problem building in a trade.

I hope this makes some sense and over time, one should be able to perhaps track the closing value of their account on a daily basis on a piece of graph paper, pretty close to how you'd chart a p/f chart. While we can't efficiently track our account's high/low for the day, we could easily track its closing value just like a mutual fund does with its closing net asset value. If your WEEKLY goal is to make $300 in your account, then chart the closing value of your account on a $100 box scale. Each week you would like to to see a net gain of 3-x's in your portfolio. It would perhaps make sense if you had a $600 gain day on Friday, and the next day (today) you had a $-300 loss day, you simply say, "hey, today's $300 loss was nothing more than profit taking in the trades I have open after Friday's $600 gain day." It's when you start charting O's day after day that you begin to note... "hey, something's wrong with what I'm doing. I need to stop what I've been doing and rethink things a bit."

Good mutual funds usually will cut a loser that lacks relative strength, gives sell signals, especially if the "fundamentals" may be suspect or something develops that puts risk to their past scenario of why fundamentals should improve. Then cash freed up from the loser often finds its way into a new idea, or to further build a position where fundamentals are unfolding or at least in play and stock giving buy signals or relative strength improving.

 
 
  Jonathan Levinson   8/26/02,  4:17:08 PM
Is something wrong with the data feed? INDU has been at 8919.010 for at least five minutes!

That happens every trading day around 4PM (grin). Time to go take a break, Shelley.

 
 
  Jim Brown   8/26/02,  4:16:32 PM
Weldon just emailed. He apologized for being in the market today but said he has a doctors appt tomorrow and will be playing golf on Wednesday. Looks like the coast is clear!

 
 
  Jim Brown   8/26/02,  3:57:36 PM
Jim, WHO LET WELDON IN? AP

John was supposed to be keeping Weldon on the links. Have not heard from both of them today so I assumed they were going for 72 holes. You think maybe Weldon placed a cell phone trade from the 18th hole? (grin)

 
 
  John Seckinger   8/26/02,  3:57:05 PM
Looking ahead, the US Dollar has performed an "inside day within an inside day"; most likely meaning prices are compressing for a very explosive move. Example in Nasdaq: last time there was an "inside within inside day" the market settled at 1262 on July 26th and then traded to 1335 by following close. Once the dollar moves, commodities and bonds most likely will follow suit. The real question is: Will the dollar lead equities?

 
 
  Jim Brown   8/26/02,  3:53:35 PM
If there was more than ten minutes left in the trading day I would be shorting this last minute drop. However, as long as the indexes stay green we could see a bounce at the open. I plan on waiting for that bounce to enter.

 
 
  Jeff Bailey   8/26/02,  3:41:39 PM
The 3:15 PM intraday update has been posted. Link

 
 
  Jonathan Levinson   8/26/02,  3:41:07 PM
I agree with Jim- this move looks like an upstream salmon run... and what is it that bears eat?

 
 
  Jim Brown   8/26/02,  3:37:22 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the short signal at 15:28:34 when the OEX traded above 478.52. SPX 949.20, DIA 89.53, SPY 95.45, DJX 89.32, NDX 1018.88, Compx 1391.69, Emini 950.00. While I am frustrated about being stopped out I think we are just being given a better entry point for the next short signal. The bulls have no support here and are running on borrowed time! (grin) I wish they would run the SPX back to 960 at the open tomorrow and that would give us a real green light.

 
 
  Leigh Stevens   8/26/02,  3:34:36 PM
INDEX Comments: OEX - this recent bounce has put OEX back INTO its hourly uptrend channel.

SPX has stayed within its channel, as has DJX and Nasdaq COMPX.

 
 
  Leigh Stevens   8/26/02,  3:29:39 PM
Subscriber QUESTION: " Technically, any meaning to the fact that the 10dma went above the 50dma in the SPX ??"

RESPONSE: No, not really.

Well, not that's it has no significance - but, given the moves lately, a crossover of the SPX 10-day moving average above the 50-day is not going to be acted on by many traders as it's too likely to be a whipsaw type "signal" Where it would tend to be more significant would be a crossover occurring closer to the recent bottom or after a more lengthly correction.

 
 
  Mark Whistler   8/26/02,  3:26:45 PM
Quick observation: The CBOE Gold Index ($GOX.X) looks as if it could close above the 200-dma. At the time of this post, the GOX was trading up 5.17% for the day, showing decent relative strength compared to the Dow. The December gold futures (GC02Z) are up 0.87%, while the Dow is trading up +0.10%.
Link

 
 
  Jonathan Levinson   8/26/02,  3:26:25 PM
Unlike the SPX, the COMPX did not print fresh highs this afternoon. The TRINQ has stayed above 1, and the QQV is still up over a point today, currently +1.41. QQQ is staying below 25.25, and the COMPX has yet to break 1290. Volume so far is 1.15B, which is anything but heavy, and I can almost hear Tom O'Brien crowing "Battam line, folks, down day on lighta volume, this baby's gonna test the highs again and then it's all ovah." Perhaps, although that was the conclusion following Friday's light volume decline as well. The persistent TRINQ readings above 1 tells me that there's distribution going on, and while I'm hoping for one last push up to load up on puts, today's action makes it look less likely that we'll see it. In the meantime, I'm watching the lower trendline for a break, rougly 1355-60.

 
 
  John Seckinger   8/26/02,  3:23:01 PM
Side Note: For those wondering, I was at my sister's wedding in Cambridge, MA over the weekend. Phenomenal city and I definitely recommend a visit. Moreover, the wedding was fantastic.

 
 
  Leigh Stevens   8/26/02,  3:22:15 PM
Viewer NOTE: "Do you see a head and shoulders formation on the SPX 60 min chart, neckline around 930?"

RESPONSE: Looks like a right shoulder could be forming of a Head & Shoulder's (H&S) SPX top.

Exactly right - "neckline" is at 930. The right "shoulder" is lacking some "definition" or shape - if SPX traded up to around 950 in next few hours of trade, then started drifting down, it would be picture perfect H&S top pattern at that point - then of course, break of 930 would suggest a downside objective to 900-895 area.

 
 
  Jim Brown   8/26/02,  3:11:10 PM
Swing Trade Signals
Internals improving slightly. If we are going to see an afternoon dive it better start soon. Now approaching the high of the day and the area where sellers may be lurking. VIX is diving at 32.91 as well as the TRIN at .97. S&P futures are spiking which would indicate program trades in action.

 
 
  John Seckinger   8/26/02,  3:07:18 PM
The US Treasury Yield Curve has taken a neutral to slightly bullish slant concerning equities during the last hour. This is most likely traders squaring positions in case the Dow makes an unexpected move higher after the bond pits close. It is my opinion that the "yield curve" is actually a better leading indicator than most, since it represents a good portion of Treasuries and gives a solid reading of institutional and international sentiment towards bonds, the dollar, and equities - all by playing the yield curve.

 
 
  Leigh Stevens   8/26/02,  3:02:27 PM
INDEX Comments: OEX - traded under low end of its hourly uptrend channel, then back into the channel on the rally, but as Jim noted, lack of follow through is now causing a dip back below its uptrend line - I look for a continued sideways to lower drift, especially if the index again dips under the "line" of prior hourly support at 472. Below 468 low of today, technical support looks like 460-462.

 
 
  Jeff Bailey   8/26/02,  3:01:40 PM
Eli Lilly (LLY) $59.53 -0.06% .... Announces that the European Commission has granted Marketing Approval for LLY's sepsis drug Xigris in all 15-member states of the European Union. The approval decision follows positive opinion adopted by the European Committee for Proprietary Medicinal Products on May 30, as well as U.S FDA approval in November 2001. Link

 
 
  Leigh Stevens   8/26/02,  2:53:52 PM
Subscriber QUESTION: "I am short the market here but believe we could turn back up midweek. If that is the case where do you see FNIS heading? It has held up well but backed off the 25 resistance."

RESPONSE - re FNIS (Fidelity Nat'l Info Solutions) -if stock drops under its 50-day moving average at 21.42, which it has risk of doing here - last at 21.8 - then stock could fall back to support in the 20 area; then, if exceeded, next potential support is 18.5 area at its 200-day moving average. FNIS retraced 50% of its May - July decline, which is about as much as I look for on a "normal" retracement before a further consolidation and correction. SO, bottom line, do not anticipate a move above 25 anytime soon. Of course, its that happened, I'm WRONG in this view so would exit shorts at that point as ability to stay above 25.00 would suggest another up leg.

 
 
  Jeff Bailey   8/26/02,  2:50:46 PM
Activision (ATVI) $30.92 +0.58% ... did print $31.00 and high of $31.05 on about 10K + shares. This gets stock further through bearish resistance and bulls further like the recent "bearish signal reversed" at $30. Note this morning's "suspicious" trades at $30.02, as if bear was sitting their and trying to do some covering on weakness. Link

 
 
  Jeff Bailey   8/26/02,  2:46:10 PM
Biggest name on NASDAQ new lows list today is Chartered Semiconductor Mfg. (NASDAQ:CHRT) $14.00 -0.84%. However, traders will not that bearish vertical count is $13 (based on column of O from $29-$22), thus difficult to assess enough downside to have trader aggressively looking short/put. Link

 
 
  Jim Brown   8/26/02,  2:42:59 PM
Swing Trade Signals
The Dow bounced exactly off the bottom support line and was unable to mount a credible rally. Link

 
 
  Jim Brown   8/26/02,  2:25:27 PM
Swing Trade Signals
The recent bounce could be a little pre-election market propping by the Plunge Protection Team. It is in the best interest of the Fed and the administration to prevent a meltdown that can be used against them in the elections or add to the chances of a double dip recession. Nobody ever buys in the week before Labor Day! (at least almost never) Look at the bright side - this is a great entry point for new positions or adding to old ones!! At 2:20 it is time for the roll over. (positive affirmation! grin!)

 
 
  Jonathan Levinson   8/26/02,  2:25:02 PM
Before Canada Does Soccer, this canadian will have bailed for the US. Despite this wave of buying washing over my little COMPX 1377-80 sandcastle, the XAU has continued its march upward and bond yields have remained in the red, though not by much. Nasdaq-100 volatility as measured by the QQV can down to 42.16, still in the green for today, and QQQ is at 25.22. The COMPX bounced off its lower ascending channel line from the beginning of August, and is currently just under its 20 hour ema of 25.24.

 
 
  John Seckinger   8/26/02,  2:15:43 PM
The Dow seems to be on its own course this afternoon, since the dollar and bonds do not confirm the conviction. Even the rise in Gold goes against the rise in equities. I would imagine the three percent rise in the volatility index is somewhat related to this bifurcation - creating uncertainty.

 
 
  Jim Brown   8/26/02,  1:53:41 PM
Swing Trade Signals
Nice little bounce here but today looks just like Friday. That bounce rolled over right at 2:15 or 25 min from now. Hope this is a repeat!

 
 
  Jeff Bailey   8/26/02,  1:49:47 PM
August 29th is rather "big day" for traders. Final revisions to 2nd quarter GDP are due out at 08:30 AM EST so take this into consideration if looking to put on any new trades right now. If you still like a trade, may consider partial position ahead of this revision.

Also, for semiconductor sector traders, Novellus (NVLS) $26.57 -0.74% Link is expected to give analysts its mid-quarter update. Last week we noted Goldman Sachs thought Taiwan Semi (TSM) $8.87 +1.37% Link might cancel "significant" equipment orders and Goldman thought NVLS might mid-quarter might reflect some incremental weakness if TSM is indeed cancelling orders.

 
 
  Steven Price   8/26/02,  1:45:37 PM
Reader Question: Good morning Steve,how would you comments the action on QLGC today??? Thank you.......

Response: Qlogic - QLGC $37.22 (+0.62) OI put play QLGC looks to have rolled over from its recent highs once again. Today has so far been a classic consolidation inside day, on the way down. However, a look at the short-term charts shows support at $36. I would wait for a breakdown from the current rebound, possibly below $36, to initiate a short entry. A trade down below that level would put the stock back into its descending channel and below round number support. I do see a print of $35.97 at 10:35 a.m., so conservative traders may want to use that number as a trigger.

 
 
  Jeff Bailey   8/26/02,  1:39:45 PM
United Tech (UTX) $58.48 -3.3% .... per August 13th 03:00 Update, Link traders will note that BA did give the triple-bottom from that chart at $37.

Traders now eyeballing UTX and potential spread-triple-bottom sell at $58. Vertical count currently bearish in UTX at $48. Link

Trader that has followed BA's progress perhaps gets feel for trade potential in UTX under similar technicals.

 
 
  Jeff Bailey   8/26/02,  1:38:04 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Jonathan Levinson   8/26/02,  1:34:09 PM
The COMPX is testing its 1377-1380 s/r zone from the downside now, as QQQ breaks above 25. The QQV is still staying above 43 despite this move which brought the TRINQ down to 1.25. Advancing volume is catching up to declining, now just 1.3 declining shares for each advancing. The shorter intraday 5(3) stochs are topping here. Given the persistence of 1377-80 over the past weeks, its failure this morning looked very significant to me. This "return to the scene of the crime" will help us judge how significant it actually was.

 
 
  Steven Price   8/26/02,  1:29:58 PM
Reader Question: He Steve, Can you please provide a quick TA on NOC recent climb from 114-115 to 118+ ? Is it a good entry point for long position or should this ramp be shorted ? Regards,

Northrop Grumman: $118.58 +2.85 NOC was an OI call play which we closed due to the extreme volatility. The stock went our way, but the pullbacks were dramatic and did not define a trend. The stock rebounded off of its 200-dma around $109 on Aug 14. The bullish vertical count on the PnF is $148.00. This group is very sensitive to Iraqi developments right now. I assume comments regarding Bush's ability to invade Iraq without Congressional approval and Cheney's comments about the reasons the U.S. should invade Iraq, have contributed to the sector's rise today. The overall trend in the stock is still up, but with pretty large swings in between. A trade of $120 would create a fresh PnF buy signal, as well. I am hesitant to play this stock again, since it is so news sensitive. If I was going to short the news today, I would use a stop at $120, and probably take any profits quickly. The stock reached a recent high of $119.12 on Aug 16, but was turned away below $120. If we do go to war, we will see a continued rise in the sector, but right now we are seeing jumpiness with each news conference. The sector had been rising and then Bush's comments last week about being a patient man and looking for non-military ways of ousting Saddam Hussein took the wind out of their sales. I would probably wait for a breakout above $120 at this point, to go long, rather than chase a group that has had a big news related run today.

 
 
  John Seckinger   8/26/02,  1:17:32 PM
The Dollar, Equities, and Bonds seem to be in a consolidation phase; however, Gold continues to outperform and remain above its 22 DMA. The dollar and gold should trade inversely, and it still remains my opinion that Gold still needs some more work on the upside before it becomes "technically strong". Currently at 64.77 (22 DMA at 64.41), the XAU.X index could test the 50 DMA at 66.26 in the near term and still only look "neutral" as mid-August resistance levels remain just above 67. I would wait until a settlement above 67.50. Downside risk could be limited at 62. IF the dollar does move lower, then certainly I will approach Gold differently. However, it is still my belief that the dollar will trend higher from current levels; pressuring gold in the process.

 
 
  Jim Brown   8/26/02,  1:09:50 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The Nasdaq is trying to lead the indexes in a bounce off of that rising wedge support line. Sellers have not gone away but the techs are seeing some bargain hunting. Let's lower the stop loss on the current SHORT signal to OEX 478.50 (SPX 949) If we do get a bounce here I want to minimize the loss. However, a lot more buyers will have to appear before that happens.

 
 
  Jonathan Levinson   8/26/02,  1:01:49 PM
What do you think about Mike's "Options 101" Large Movement strategy he gave this weekend as it pertains to Q's?

It looks like something I might try this week.

What downside do you see? I guess if the Q's did not move 3 points up or down in the 2 months is about worst case. Loose everything?

Russ, the major risk is if the Qubes flatline, which looks pretty unlikely to me. Because you're going long volatility with a strangle, if volatility drops significantly, the value of the entire position will deflate, quite apart from the ordinary premium decay. For this reason, I'd be inclined to do some TA on the QQV to determine the range of volatility and where we find ourselves before putting on the position. I'd look to enter the position when the QQV is near a relative bottom. I don't expect to see it reach 30 on this move, but lower bollinger band support is currently at 35, which would look good to me. As volatility moves higher (QQQ goes lower), the IV on your contracts will increase, helping slow the decline in the price of the calls and boosting the appreciation on the price of the puts. If, however, volatility continues to fall (QQQ goes higher), the appreciation on your calls will be less than the depreciation on your puts (my guess).

 
 
  Jeff Bailey   8/26/02,  12:27:25 PM
Amgen (AMGN) $46.12 -2.4% ... Here's my bar chart of AMGN with retracement overlaid. Also referencing April's bullish % reading to help us understand how sector bullish % was more in favor of bear at that time, when MACD was rolling below signal. Thinking right now, bear will be "lucky" if MACD trends to zero level, but then curls back higher. Might tie in eventually with curling higher 50-day. Still, bears need's a break of retracement, which kind of ties in with p/f chart at $45.00. Also I "review" past observations. I was bearish AMGN in early August when profiling the Sept. $45 puts. I "thought for sure" that bearish resistance on p/f chart would hold as resistance and MACD would roll lower, cross below signal and I'd be rich. Didn't happen as sector bullish percent was low and gaining strength. Link

Also note that AMGN broke below "inside day" and may have had shorter-term trader taking bearish short at $47.10 (Friday's low was $47.11) with stop currently above Friday's high of $48.90. Perhaps targeting the 50-day for potential swing-trade type action.

 
 
  John Seckinger   8/26/02,  12:09:52 PM
Treasury Bonds now 8 ticks higher at 110-06. This is above the first area of resistance of 110-03 and approaching the significant 110-18 level. At current levels, I do expect more buying of fixed-income securities and pressure on equities as traders presently prefer the "safe" Treasury market. Turning to the dollar, the 107.86 reading still places the Greenback in-between the critical 107.66 and 108.08 support and resistance levels. I still believe the lower dollar is more responsible for lower equities than higher bond prices.

 
 
  Jim Brown   8/26/02,  12:02:56 PM
Jim, Do you have a target on the current OEX play? Kyle

I would love to see it go all the way to 420, which is my eventual target for the next two weeks. However the two days after Labor Day are usually up so we will close on Friday if not before. I see 465 as the next close support but a break under that sets up 442 as the next support level. The trend has changed in our favor and I see no need to trade it. I plan on keeping the stop wide and hope the trend continues. For those not in this trade I would look at a break below 468 as a possible entry point with an eye on 465 for a pause.

 
 
  Jeff Bailey   8/26/02,  12:02:10 PM
Biotech HOLDRS (BBH) $85.61 -4.18% ... Jeff: I bought some Biotech Holders near $80. What does your point and figure charts say? Should I hold on to take a small profit?

Well... chart is still bullish and first sign of weakness would be a trade at $85.00 (not $85.01, or $85.02, but $85.00). Vertical count is still bullish to $101.

Trader could either raise a stop to $84.75 (give a little wiggle room) or begin looking at potentially selling a September $85 covered call (BBHIQ) which is bid $4.30. This would lower cost basis from $80 to $76 and have trader's position right at bullish support trend. Of course, must be willing to sell at $85 + premium received for call should BBH trade higher. Still, if selling roughly $4.00 on trade at $85, the buying $80 and selling $89, not all that bad should BBH get called away. Link

According to Dorsey/Wright & Associates, biotech sector is "bull confirmed" at 34%.

Amgen's (AMGN) $45.86 -2.98% is your "key stock" and first sign of weakness would be trade at $44. Link

May want to "correlate" AMGN $44, with BBH at $85 for signs of sector/weakness.

Disclosure ... I'm still holding AMGN Sep. $45 puts from past profile, but looking to close September expiration much below $45-$44. Getting some MACD roll-over on AMGN's bar chart, but rounding higher 50-day would be my most bearish September expiration target. Link

 
 
  Steven Price   8/26/02,  11:43:59 AM
The Dow (8760.95) is currently trading right at the rising trend line from the intraday low of July 24, before the recent rally. The index bounced off of this trendline on Aug 5-6 and Aug 14.

 
 
  Jeff Bailey   8/26/02,  11:40:06 AM
General Electric (GE) $31.50 -2.32% ... Jeff: Which is the current GE pf count? How can I find a probably down target for Ge?. Thanks for yours comments.

Vertical count remains bearish to $18 (column of O from $40-30) on the www.stockcharts.com chart. This bearish vertical count would only be negated currently if a trade at $33 were achieved (something we noted in recent sessions that the stock just wasn't able to do, thus thoughts of willing sellers just under than level). Link

Dorsey/Wright's p/f chart of GE is different than www.stockcharts.com and bearish count there is $6.00. I checked in the past (can't remember off the top of my head) but think www.stockcharts.com either adjusted the chart for a stock dividend, or had a "bad tick" in its data.

No probabilities right now, as current bullish % are "bull" status. However, should we see bullish % turn "bear" status, then double-bottoms per Professor Davis' study would have shown profitable 82.1% of the time, for an average gain of 22.7% in 4.7 months. Would get a "double-bottom sell" at $28 on the current p/f chart from Dorsey and stockcharts.com.

Disclosure ... on Friday, I purchased the Sept. $32.50 puts so currently own bearish position in the stock.

 
 
  Steven Price   8/26/02,  11:38:25 AM
Reader Question:Steve, hi: I enjoy your intraday commentary on OI plays. It's good to know how the action is shapingon them. BA used to be an OI put play and was dropped because of the $9B govt. deal. It's printing below $36 today. Is it a rollover? Thanks Bala

Response: Boeing (BA) $36.15(-0.98) A look at BA's daily chart looks like a rollover. With the exception of the day after United's (UAL) bankruptcy plans picked up steam, BA has bounced from the bottom of its recent descending channel (begun when its daily volatility increased at the beginning of July) on 3 occasions. The bottom of that channel is just under $35, so the near term target on a short play is not that far down. That being said, the rollover looks decisive. A look at the 1 min. chart shows support at $36.10 and $35.90. I would probably wait for a break below these levels before shorting. OI would probably pass on this short play because of the limited downside target and the fact that the airline news is out and the sector seems to have found support.

The Airline Index (XAL.X) 49.14 -0.45 broke out of its descending channel last Thursday. It has rolled over since then, but is holding just above the upper trendline. I would probably look for a break back into the channel, around 47.00 before shorting the airline related stocks.

 
 
  Jeff Bailey   8/26/02,  11:38:13 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Leigh Stevens   8/26/02,  11:34:21 AM
Subscriber QUESTION: "Can you please give us the 50 dma numbers for the indices?"

RESPONSE: 50-day Moving Averages are today (8/26) at -

DOW: 8818 - trading below today; S&P 500 (SPX): 926.46; S&P 100 (OEX): 464.43; Nasdaq Composite (COMPX): 1364.24; Nas 100 (NDX): 998.39; QQQ: 24.64

 
 
  Jonathan Levinson   8/26/02,  11:30:57 AM
With bond yields now negative, US Dollar Index down this morning to just above 107.8, and gold trying for 310/oz, we're watching a flight from equities into relatively safer investments. It looks like investors aren't feeling very optimistic about September this morning. The COMPX is slightly above its lows of the day but still hugging its lower trendline on the shorter timeframes, and the QQV is higher still, now up 2.28 to 43.35. COMPX breadth is still quite negative, 354M declining to 151M advancing shares.

 
 
  John Seckinger   8/26/02,  11:10:10 AM
Research firm Lipper Inc. reported on Monday that a record $49 billion dollars was pulled out of US stock mutual funds in July. The previous record was in September 2001 at $30 billion. A Lipper senior research analyst stated it appropriately, "The pain and the fear became unbearable and several million investors gave up at virtually the same time."

 
 
  John Seckinger   8/26/02,  11:04:01 AM
Geopolitics: There is a report stating that "White House lawyers have told President Bush he would not need congressional approval to attack Saddam Hussein's Iraq". This could explain the underpinning bid in Treasuries, with traders noting that further worries over Iraq could propel yields significantly lower from current levels. Of course, this "safe haven" buying most likely is at the expense of equity shareholders.

 
 
  Jeff Bailey   8/26/02,  11:02:50 AM
General Electric (GE) $31.64 -1.89% ... Jeff: Thanks for the heads up on GE on Friday regarding a day trade and following up with comments regarding over the weekend. I did hold over the weekend and glad I did. However, I'm not sure what you mean by "trading discipline" as it relates to my account management. Could you explain that comment?

Yes.... every trader/investor should have some type of BUSINESS PLAN for their account. This plan outlines what amount of assets (cash) you have to work with, what your GOAL is for the account (% return forecast for the year) and what type of DISCIPLINE or RULES you will trade by to achieved the stated yearly goal. For instance, a trader starts out with $10,000 in the account. What's the goal? Let's say it is a 25% return for 12 months. If that's the goal, then I know I must somehow make $2,500 in 12 months, or $208/month, or $52 per week, or $10.41 per day (as an example). Now, I know I will not be right 100% of the time, I will have losses and I will have gains during this 12-month period. However, the "rules" as defined in the business plan should clearly state, what a "full position" for $10,000 account is. Let's say that no more than 10% of an account can be invested in any one underlying stock. As it relates to Friday's GE commentary, a trader with $10,000 cash may not have been able to short more than 31 shares of GE at $32 without VIOLATING his/her business plan. However, a "day trader" could have shorted 300 shares, but then would have needed to revisit the business plan to see if such a large trade could have been held over the weekend or if the trade needed to be cut down prior to Friday's close. It's important to have in your business plan at what point a LOSS needs to be cut, in order to not put your business plan in the hole, where the yearly goal then becomes in jeopardy. A trader that did hold 300 shares of GE over the weekend, finds his/her account up about $180 today. How does that fit into your goal on a daily, weekly, monthly, annual basis as it relates to your business plan's goal?

 
 
  Jim Brown   8/26/02,  11:02:48 AM
Swing Trade Signals
The indexes are right on the verge of breaking the bottom support of the bearish rising wedge and that could accelerate the decline. I would look for the possibility of a bounce here as well, as dip buyers see this as buying support and a prime entry point. Without volume the bears should have the upper hand but only time will tell.

 
 
  Steven Price   8/26/02,  10:42:42 AM
Citigroup (C) $33.83 (-0.17) I see a print of $33.00 is listed somewhere today, but I am wondering if this is a bad print. There has been a lot of support in the $33 range the last few days and I would wait for a break below here to short the stock. There have been a lot of buyers around $33.75 and $33.80. The fact that there has been bad news and the stock has not really broken down makes me nervous about shorting it.

 
 
  John Seckinger   8/26/02,  10:42:09 AM
Dollar and bonds still in defined range, while equities come under pressure. Semiconductor issues are underperforming, but Gold, Utility, and Paper Product issues are nicely in the green. I do expect a "significant technical move" today out of either bonds or the dollar; however, if it does not develop then there could be the potential for even greater volatility in the near term.

 
 
  Jonathan Levinson   8/26/02,  10:39:35 AM
The COMPX is hugging its lower descending trendline, and QQQ 25 failed as the TRINQ broke 1.5, current reading 2.31. Looks like good news is now being sold, leading me to reconsider my friend's comment that "The market is the message" and news and the economy have nothing to do with it. All month, bad news has been good, and now what appears to have been good news is bad. Either way, QQV is higher by a few more teenies, currently 42.77. Declining volume is outpacing advancing volume 2.2:1.

 
 
  Jeff Bailey   8/26/02,  10:39:26 AM
Good bond commentary from John at 10:17:56 regarding junk bond observations.

When you think about "laddering risk" the risk would be defined as Treasuries as "least risk", Corporates "middle risk" and Junk "high risk" with stocks being "super high risk" as Junk bonds are still backed by assets, while stock is at the end of the line under bankruptcy conditions. One reason I added the Goldman Sachs Corporat IShares (AMEX:LQD) into the "Beetle's Balanced" was to get some feel between Corporate and Treasury and MARKET's perception of risk. John's comments from "junk" still shows that there are doubts about economic turnaround.

Mutual funds are a great way to track high YIELD markets on a broader base. These babies can act like stocks under a recovery scenario, and like stocks under economic weakness. Check out the AIM High YIELD Class A fund (AMHYX) Link or the American Funds Hich Income Trust Link both have been "good funds" historically when considering other "like funds."

If a fund manager can show "good" results longer-term then is his/her fund's recent performance due to the MANAGER's lack of ability, or is it simply because the "group" is so out of favor? Good funds don't "style drift" as they invest per the prospectus. BAD fund do "style drift" and will get away from what they "know" or what they are paid to do. It's YOU as an INVESTOR/TRADER of mutual funds that should KNOW what is "in or out" of favor as deemed by the market and invest bullish in those that are "in favor" and get out when sector/group begins to "lose favor."

 
 
  Steven Price   8/26/02,  10:37:08 AM
Reader Question: I was looking at the Citigroup options chain and noticed that the same strikes have two options trading at different prices (ie DEC 30 put has CXF and CLTXF as the symbols).

How does one find out what the difference between the two are? I know that Travelers 'B" shares are trading on the S&P so I assume that one of the symbols includes the Travelers stock and the other does not...Is there any way to tell from online sources (CBOE/AMEX) what the symbols represent? My broker RBC doesn't have a clue... BTW, what are your thoughts on C with the ongoing investigations? Thanks

Response: I spoke to the CBOE about this issue and was told that the CLT options involve transfer (if exercised) of the following:

100 shares of Citigroup; 4 shares of Travelers Class A; 8 shares of Travelers Class B.

If you have further questions about a specific strike, you can call 1-888-OPTIONS (this will get you to the CBOE)and listen to the menu (I believe it is selection "2" to be connected to the right department).

One more note - if you see the same option root listed with different endings such as "E", "X", "A", "P", these stand for the different exchanges on which you can purchase (or sell) these options. Most brokers route orders to different exchanges, and the specialists in the option pit will match the best price offered at another exchange unless the best offer is another public order which is not close to the specialists' (or other market makers')bid/ask.

 
 
  Leigh Stevens   8/26/02,  10:35:37 AM
Subscriber QUESTION: "Looks like small breakout in DRG."

RESPONSE: A minor breakout as you say, but lacking follow through this week - the Pharmaceutical sector index (DRG) seems to be rolling over to the downside this week after reaching significant resistance and completing a 50% retracement of its March-July decline. Now, key will be if any pullback holds at or above its 50-day moving average, currently in 292 area - DRG trading at 305.2 currently.

 
 
  Jeff Bailey   8/26/02,  10:29:43 AM
Treasury Watch YIELDS have reversed across the maturities and now red. Only the very short-term 13-week ($IRX.X) 1.627% in the green on YIELD.

Not a "sharp" move in YIELDS, but more defensive seeing them go from green to red.

 
 
  Leigh Stevens   8/26/02,  10:26:53 AM
Subscriber QUESTION: "A tradable bottom after the historically deadly September/October or do you think we'll break historical "norms" like we have been doing over the past two years and the rally starts now?

I would bet we have a big rally this coming week. Reason? It's my "out of town" indicator. Every time I leave town and can't trade the mkt has a big rally."

RESPONSE: I really don't know yet on the "tradable bottom" question - I tend to "trust" bottoms better where there is a re-test of the lows or a secondary bottom that gets back into that area - or, there might be a 50 to 62% retracement, which would be "normal".

My "indicator" is the market only rallies, or falls, big time, if I have taken early profits and hesitate to get back in :-

 
 
  John Seckinger   8/26/02,  10:17:56 AM
I have read a short news blurb concerning the distress surging in junk bonds. 29.7% in Aug, up fr/ 25.5% in July, which is just above 29.6% in 09/01. They are saying that distress ratios foreshadow defaults. Apparently, they are saying the Middle East is selling bonds. Could you explain junk bonds and the possible implications of this would be?

Response: A high yield, or "junk", bond is a bond issued by a company that is considered to be a higher credit risk. The credit rating of a high yield bond is considered "speculative" grade or below "investment grade". This means that the chance of default with high yield bonds is higher than for other bonds. The U.S. junk bond market is on pace to post its worst year ever, due to a possible credit crunch (read: poor accounting) as well as low stock prices. The falling prices place yields close to 10 percentage points higher than US Treasuries. If 10% percentage points or more, the junk bond is considered at distressed levels. One in four junk bonds is trading at such levels. This distress ratio is definitely a leading indicator of the default rate. I have heard rumors of Middle East players selling bonds; however, very hard to tell exact size and positions. The possible implications with lower junk bond prices are (1) much weaker consumer sentiment, and (2) companies scrambling to raise cash via selling their own stock. There most likely will have to be a capitulation in the junk bond market as with equities, and I would not be surprised to see such selling pressure in the next 2 Quarters.

 
 
  Jeff Bailey   8/26/02,  10:11:37 AM
Existing Home Sales rose 4.5% to 5.33 million units, just above the 5.2 million annual rate of forecast.

 
 
  Leigh Stevens   8/26/02,  10:08:12 AM
Subscriber QUESTION: " Re the bearish rising wedge that you describe, could you direct me to where I could find the explanation of the psychology behind this technical analysis?"

RESPONSE: Well, when I suggest reading my book, I'm accused of shameless self-promotion - I would NEVER do that!

What is being suggested in a rising bearish wedge is that buying is being met with stronger and stronger selling as prices edge higher. When prices fall below the lower up trendline of a rising wedge pattern, a trend reversal is suggested – prices may rebound to the trendline again, but should not get back above it. The buyers, who have been paying higher and higher prices, tend to exit all at once - selling is often a 1-time decision and former buyers tend to rush for the exit all at once, which can cause a sharp price break. (This, compared to buying, which is often a longer period of piece-meal accumulation.) Strategy wise: place a liquidating buy stop just above the broken trendline of the lower trendline of the wedge pattern, when broken, if a short position is established on the downside break.

The opposite pattern - a declining or bullish falling wedge suggests a bullish market situation because this pattern suggests that selling is being met with increasing buying. Eventually, this can set the stage for an upside reversal.

 
 
  Jeff Bailey   8/26/02,  10:05:40 AM
New Home Sales rose 6.7% to 1.01 annual rate, which was above the 975,000 forecast.

Dow Jones U.S. Home Construction Index (DJUSHB) 337.05 +0.57% into the green for first time today here. $5-box chart Link and $10-box chart Link

 
 
  Jim Brown   8/26/02,  10:05:07 AM
Swing Trade Signals
Traders following the DJX trade in the Editors Plays this weekend should have been executed at 9:37 on the Sep-85 put for $1.35. The next entry point will be at either 9000 (hope not) or 8800.

 
 
  Jeff Bailey   8/26/02,  10:02:35 AM
Subscriber comment Thanks Jeff for taking the time. It isn't too often a person, especially in the trading world, takes the time and helps explains a few things. More often than not they just want your money and little else. Since I joined OI you guys have truly been professional, a matter of fact, you have been the one to point me to point and figure charting (No pun intended) and the DWA site. I have basically stop trading from about May to study PNF, option trading and how I can combine PNF with my past candlestick charts and other indicators. Between you and Tom Dorsey you guys have truly open my eyes on the supply and demand of stocks. I must have been pretty lucky in the past as evident of the big draw down I'm in right now. Of course, also trying to learn options trading I think I have my work cut out for me. Anyway, thanks you for your time and of course your insight on a daily bases.

Glad you're using p/f charting. Good idea for every trader is to go back and pehaps review some old trades. Ones you may have gotten BURRIED in, but also those the you found SUCCESS. What was the p/f chart "saying" about the stock when you put the trade on? What did the bullish % say about the MARKET when you put the trade on? Was there a finite point where the trade could have been cut from the account to save some pain? Was there a finite point where we should have averaged up to gain further profitability? Review the past as is relates to the p/f chart and will perhaps give confidence toward the future. If using Dorsey/Wright & Assoc. p/f site, what did the sector bullish % say? MARKET, SECTOR, STOCK analysis very important.

 
 
  Jonathan Levinson   8/26/02,  9:56:44 AM
The market feels "light" this morning, perhaps due to the low volume on Friday's decline. Perhaps everyone's on Cape Cod right now, freezing their ankles at Nausset beach like I wish I was. Either way, the TRINQ opened low and floated up to almost 1, and is now sinking again on this second spurt of buying. QQV is up a bit, currently at 42.1, indicating what we feel right now, namely the expectation of a drop but the unwillingness to back up the truck on those puts / short calls just yet. As Jim's charts show, these ascending wedges could easily produce another leg up, and the light volume from Friday leads me to expect it. The options market is pricing in the possibility of a drop, but the likelihood of another rise is keeping a lid on the volatility. COMPX is currently trading near the top of today's range at 1388.

 
 
  Steven Price   8/26/02,  9:53:43 AM
Qlogic (QLGC): $36.54 (-0.06) New OI put play QLGC has rolled over since breaking out of its descending channel and looks headed back into that channel. The top trend line of that channel coincides with the 10-dma of $36.22. Look for new short entries below this level.

 
 
  John Seckinger   8/26/02,  9:50:40 AM
Turning to the September Bond (USU2) for thoughts on asset allocation, the recent consolidation in bonds shows an efficient market and "lull" in trading (currently at 109-21). Resistance should be found at 110-03 and then more importantly at 110-18. Support seems to be clearly defined at 108-23 and 108-08. It will be interesting to see if the correlation between bonds and equities become stronger in the near term, or if traders keep their focus on the US Dollar for guidance. As always, bond prices trade inversely with yields.

 
 
  Jeff Bailey   8/26/02,  9:43:16 AM
Ciena (CIEN) $4.53 +8.8% ... stock up after Soundview upgrades to "outperform" from "neutral," saying they expect the July quarter to be the low point in analyst estimates and the beginning of the march back to profitability. Also thinks the strategic decision to spend when others are cutting is supported by $2.2 billion of cash and should enhance the company's leadership position. Price target is $7.00. Link

Fiber Optice Index (FOP.X) 42.98 +2.5% gaining as a result. Link

 
 
  Jonathan Levinson   8/26/02,  9:40:35 AM
This morning I see a rare combination of equities, gold, bond yields and the US Dollar all in the green. Take a good look at a rare occurrence.

 
 
  John Seckinger   8/26/02,  9:35:55 AM
Looking at a correlation between the Dollar and equities, it is encouraging to see the Dollar (currently at 108.11) still above the 50 DMA of 107.94. The 22 DMA is slightly underneath at 107.33. Also noteworthy is the Dollar performed "an inside day within an inside day" (Friday's range was within Thursday's, while Thursday's range was inside Wednesday's), which should mean an explosive move in the near term.

 
 
  Jeff Bailey   8/26/02,  9:32:37 AM
Stock Trader's Almanac has history showing September opening strong the past 6-years in a row and next Tuesday and Wednesday historically bullish, however September is worst month for Dow and S&P, with only two decent midterm Septembers in last ten.

 
 
  Jeff Bailey   8/26/02,  9:32:03 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Jonathan Levinson   8/26/02,  9:30:37 AM
COMPX is at 1377 support, with next support at 1355-60. Resistance is at 1410, then 1425.

 
 
  Steven Price   8/26/02,  9:28:30 AM
Keep an eye on the 50-dmas in the Dow, NDX, COMPX and SPX - all were crossed last Monday and have acted as support since.

 
 
  Jim Brown   8/26/02,  9:28:17 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The current stop loss is OEX 476. SPX 945. I think the opening bounce may be short and I want to change the stop to OEX 480.50, (SPX 951.50) This may be wider than your risk profile will allow and I suggest OEX 478.50, SPX 949 as an alternative. The official stop will be OEX 480.50. Hopefully we will not be close but I would rather give it room to move than lose the spread on a tight stop at the open only to have it roll back over a point later.

 
 
  Leigh Stevens   8/26/02,  9:25:57 AM
Pre-Opening INDEX Comments - - Surprise! A higher opening this am. Key technical support/resistance on SPX looks like 930 support and 965 resistance to break out - although the S&P 500 wouldn't take out its hourly trendline resistance until it rallied above 980.

A decisive intraday upside penetration of 972, or a close above 970, is needed to break out above the upper line of the bearish rising wedge on the daily chart as highlighted in my Weekly Index Trader wrap at Link - the rising "wedge" is a technical pattern with implications still for a reversal but without the higher predictibility of say a Head & Shoulder's top pattern. Anyway, move above 470-475 reverses or "negates" the bearish wedge pattern. I am keying off the SPX as to market direction.

 
 
  Jeff Bailey   8/26/02,  9:25:24 AM
Fair Value for the S&P 500 today is $0.32. That price will not change during the session. HL Camp & Company has their computers set for program buying at $2.02 and set for program selling at $-1.30. Fair value for the NASDAQ-100 today is $1.65.

 
 
  Jim Brown   8/26/02,  9:22:20 AM
Swing Trade Signals
The futures are showing some opening optimism this morning on no material good news. The Home Sales are due out at 10:AM to give us a look at the housing bubble and its impact on the struggling economy.

I think any bounce this morning would provide an entry point for anyone not currently short. The futures are up in the premarket but not overly robust. I mentioned in the weekend wraps I expected a bounce this morning and then another sell off and this looks like it will follow at least part of that script. I am going to modify the current stop loss now.

 
 
  Leigh Stevens   8/26/02,  9:12:07 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > +5.70 at 946.70; Dow Industrials > +47.00 at 8915; Nasdaq 100 > +7.50 at 1021.50

S&P Futures fair value levels: S&P ($SP02U) = +.32; Nasdaq 100 futures ($ND02U) = +1.65 -- Complete explanation of program trading fair value numbers & how index futures arbitrage buy/sell programs work can be found in my Trader's Corner article at Link

 
 
  Jonathan Levinson   8/26/02,  8:24:23 AM
The futures began their 3AM Corinthian Geyser on schedule, unexpectedly pulled back just after 6AM, and then continued their moves up, but for all that, they are up only modestly, NDX +8, S&P +6. The US Dollar Index is off its nighttime highs, currently trading just above 108.10. QQQ is trading 25.30.

 
 
  Jim Brown   8/23/02,  1:35:13 AM
Swing Trade Game Plan - Click here: Link

 
 
  Jim Brown   8/23/02,  1:34:58 AM
The Market Monitor for Friday has been archived. Click here to view it: Link

 
 

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