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  Jim Brown   8/27/02,  9:31:47 PM
Swing Trade Game Plan - Click here: Link

 
 
  Jeff Bailey   8/27/02,  5:31:40 PM
Key Levels traders may be watching near-term after quickly flipping through some p/f charts.

Today's brief trade at $85 has the Biotech HOLDRS (AMEX:BBH) $85.13 -3.75% giving its first "sell signal" since first "buy signal" off the bottom at $74. May have sector bulls doing some covered call writing on stocks they want to hold onto longer-term, but first sign of weakness in over a month. Risk should be assessed to bullish support trend at $76, as vertical count turns bearish to $76. Link We talked about this yesterday in market monitor at 12:02:10 Link per subscriber e-mail.

Also on the "alert" should be a trade at 8,750 in the Dow Industrials (INDU) 8,824 -1.06%. Tough trade here ahead of Thursday's revised GDP numbers considering today's stronger than expected durable goods. Recent triple-top buy signal at 8,800 has been serving as support on the recent pullbacks as shorts undoubtedly lined up at that level. Past history however has had spread-triple-bottom of 9,800 back in late May (just before red 6) being the "kiss of death" to the July lows. Link

Also mentioned yesterday that Stock Trader's Almanac notes that the last two day's of August (Thursday and Friday) have been "murderouse" five years in a row. While early part of September has opened strong six years in a row, the month of September marks the worst month historically for the Dow and S&P, with only two decent midterm Septembers in the last 10.

Over the past 51-years (January 1950 to April 2001), the Dow Industrials have lost a TOTAL of 32.6% of its value, while the AVERAGE loss has been -0.6%. Has traded up 19 years, down 32.

Over the past 51-years, the S&P 500 a TOTAL of 18.8% of its value, while the AVERAGE loss has been -0.4%. Has traded up 21 years and down 29, with 1 year unchanged.

Last year's September (not included above and should remember Sept. 11) Dow fell 1,102 points (-11%), while S&P 500 fell 93 points (-8%).

While Dorsey/Wright and most institutions view the SPX p/f chart on $10 box Link a $5-box Link , which introduces more "noise" shows triple-bottom at 935, and trade at 930 a negative, especially if Dow Industrials gives triple-bottom sell too.

According to StockTrader's Almanac, bullish sectors for September have been $IIX.X (digital interactive), $CMR.X (consumer), $MSH.X (Morg. Stanley High-Tech), $XTC.X (N. Amer. Telecom), $DRG.X (Drug), $HCX.X (Healthcare).

 
 
  Jeff Bailey   8/27/02,  4:45:01 PM
Mandalay Resort (MBG) $28.41 -3.92% ... reports Q2 EPS of $0.51 compared to year-ago quarter EPS of $0.41 and consensus estimates of $0.52. A detailed release of various operating units around the country can be viewed by clicking this Link for "gaming stock traders."

 
 
  Jeff Bailey   8/27/02,  4:38:46 PM
H&R Block (HRB) $50.89 -0.23% ... Reports pro forma EPS of $0.01 or $1.3 million a share versus consensus for loss of $-0.10. Including a one-time noncash impairmant charge of $18 million, net income would have been a loss of $-9,544,000, or $-0.05 per share. Revenue were up 31% to $431.3 million versus year-ago quarter's 328.9 million. Link

 
 
  Jeff Bailey   8/27/02,  4:29:01 PM
Hewlett Packard (HPQ) $14.17 -4.3% ... Reports Q3 net EPS of $0.14, which was inline with consensus of $0.14. Revenues declined 11% to $16.536 billion (consensus $16.823 billion). Company affirms Q4 consensus of $0.22/$17.4 billion. Link

 
 
  John Seckinger   8/27/02,  4:06:05 PM
If the people that got burned in the stock market begin to chase bonds now (with bonds possibly peaking here), are they going to have 3rd degree burns when that market collapses?

Response: It is my opinion that bonds can be a leading indicator when the lag is accounted for; therefore, if bonds peak now it might make sense to go into equities – since equities should peak later. If bonds really tank, then the 3rd degree burn will most likely come into effect. Note: If bonds peak now and don't sell off substantially, I expect the Dow to peak around Christmas.

 
 
  Jeff Bailey   8/27/02,  4:01:01 PM
After bell earnings Have Hewlett Packard (HPQ) $14.19 -4.51% expected to report EPS of $0.14, Mandalay Resort (MBG) $28.42 -3.8% expected to report EPS of $0.52 and H&R Block (HRB) $50.89 -0.23% expected to report a loss of $-0.10.

 
 
  John Seckinger   8/27/02,  3:57:14 PM
The U.S. dollar is underneath the bearish intermediate trendline which began last March, and the recent weakness should continue to pressure equities going forward. The dollar did manage to stay above this trend line for three sessions; therefore, there should be some longs bailing during trading tonight and into tomorrow. The September Bond (USU2) is down roughly one percent as well; however, it has not endured the same techical damage as the Greenback. Currently at 109-03, further weakness under 108-00 could be reason to expect the bond to fall all the way to 106-16. This selling pressure is most likely dollar related and I don't expect assets rolling into equities as yields rise.

 
 
  Jim Brown   8/27/02,  3:53:01 PM
Swing Trade Signals
That last dip was nice but it came to a stop about 31 cents above yesterday's low of 468.25. The bids showed up right on schedule. The next test will be the most critical. If it holds again then I would start deciding the bulls have more friends in high places than first thought. The A/D line is still negative about -2000 issues but dip buyers are still lurking in the shadows. There are no major economic releases tomorrow so we will hold this position overnight.

 
 
  Jeff Bailey   8/27/02,  3:49:28 PM
U.S. Physical Therapy (USPH) $12.98 -20.50% ... now #2 market loser. Most likely on HRC news.

 
 
  Jeff Bailey   8/27/02,  3:45:45 PM
NASDAQ Composite (COMPX) 1,349 -3.01% ... of the major market averages that were able to break above their 50-day simple-moving average, this is first one that looks to close back below with 50-day MA currently at 1,360. Still 20-minute to go until the close, but more technology exposed average showing first sign of technical weakness if benchmarked from 50-day MA. Link

 
 
  Leigh Stevens   8/27/02,  3:40:30 PM
Subscriber QUESTION: "as we wander into the close, how strong is OEX 470 pivital support looking? of course this may be OBE before it arrives!"

RESPONSE: The hourly down trendline in OEX - really, the neckline of a possible H&S top - intersects at 467 currently. 467-468 looks like key level OEX needs to hold especially on a closing basis, to suggest bullish trend was going to continue without more significant downside move than we've seen so far.

 
 
  Leigh Stevens   8/27/02,  3:31:11 PM
Subscriber QUESTION: "Read an article about the fact that the last time QQQ's had less than 100k put options in expiry month, market cratered seriously within days. Understand that low P/C ratio can be contrarian indicator- would be very bearish with such a low # of puts. as of yesterday QQQ puts were less than 100k. could you comment please?"

RESPONSE: I don't know on the historical tendency to signal weakness ahead, relative to such a low level of open interest in QQQ puts for the current month expiration - bullish sentiment among those trading (and there are a lot of traders on the sidelines scratching their heads on whether recent rally is start of major turnaround) has been fairly high recently - not extreme, but reflecting a more bullish market outlook. It's an interesting observation on the level of interest in holding QQQ puts being low.

 
 
  Jeff Bailey   8/27/02,  3:29:31 PM
The 3:15 PM intraday update has been posted. Link

 
 
  Leigh Stevens   8/27/02,  3:21:46 PM
Subscriber QUESTION: "Do you see a long play on MIDI ?"

RESPONSE -- Medimmune (MEDI) could be basing and forming the right shoulder of a Head & Shoulder's bottom - its been trading recently in a sideways range between 27 and 30 area. Looks to have good support in the 26.5-27.00 area. Buying at or on dips below 27 looks to offer decent risk to reward. Risk to 26.30 for a tight stop - upside is back up to 30 at least and if it pieces 30, then upside looks like 33 next, maybe a bit higher, perhaps to 36 if market gets in gear too.

 
 
  Leigh Stevens   8/27/02,  3:11:39 PM
Subscriber QUESTION: "I'm in agreement with your negative posture on the NASDAQ. This morning purchased 140 contracts QQQ Sept 24 puts at $0.75. Set Stop Loss at $.45.

Is this the right specific option to trade given OI's views on NASDAQ. OK Stop Loss? Would you recommend the Sept 25 puts instead? What's your suggested stop loss on these?"

RESPONSE: We tend not to suggest which strike you use. And, OI does not have typically "one" view on say, downside target on QQQ.

24 strike seems ok in my opinion, as does stop - I'm looking for a move to 23 - can't see beyond that currently.

 
 
  Jim Brown   8/27/02,  3:06:27 PM
Swing Trade Signals
Definitely not a high volume sell off! I am watching MSFT/CSCO/INTC on Level II and there are a surprising number of bids lingering just under the current action. There is still a floor under the market despite the day's drop. Yesterday's OEX low of 468.25 is our next downside target but something needs to happen quickly before an end of day rally appears. The Nasdaq is still acting as the anchor and with HPQ announcing earnings after the close investors may be adding Intel's comments and Consumer Confidence and getting a miss by HPQ.

 
 
  Leigh Stevens   8/27/02,  3:04:10 PM
INDEX Comments: QQQ - Per the e-mail questions I've gottne and my earlier posted comments (12:07) on the Head & Shoulder's Top (H&S) formation on the 60min chart in the Q's - its latest decline is a break of the H&S neckline, suggesting a possible move back down to the 23 area as a possible objective.

 
 
  Jonathan Levinson   8/27/02,  2:58:46 PM
The COMPX and QQQ are getting smoked today, with 1355 support in serious danger here, having lasted all of one hour after having been a congestion area for days going back several weeks. Despite this, the QQV is up relatively slightly (+1.52), ditto the TRINQ (1.51). This is what a bear wants to see- a gradual, panic-free decline to lower lows. Intel in particular is looking weak, and I'm following a debate as to which of CSCO and INTC will be the first to single digits. Today was a bad day for INTC, having violated its support line going back to 1997.

 
 
  Jeff Bailey   8/27/02,  2:34:28 PM
Market Maker IDs If you're a Level II trader and want to see who is bid/offer or active in a NASDAQ listed stock, you can match their market maker ID from Level II and go to this Link to find out what firm is bid/offer by matching up their market maker ID.

 
 
  Jeff Bailey   8/27/02,  2:29:30 PM
Arctic Cat (ACAT) $15.17 -2% Link .... a stock I think bullish traders in Polaris (NYSE:PII) $74.56 +0.81% Link would want to see some gains from and perhaps "confirm" bullishness in the ATV/Snowmobile arena.

Interesting note from Raymond James back on April 22nd when ACAT traded down to $18, from highs of $20 just prior to downgrading ACAT to "buy" from "strong" buy. Hints Ray James sold ahead of downgrade. Reason for downgrade was Ray James thought stock was expensive valuation and challenging snowmobile market for FY03. Trimmed FY02 estimates for ACAT to $1.20 from $1.21 and FY03 to $1.32 from $1.35 with price target of $22.

PII bulls may want to keep eye on ACAT. ACAT building support at $15.00 like a straight line. Since ACAT a NASDAQ stock, look for pierce below $15.00, perhaps market makers suck in some shorts, then reverse back higher type of action. Thinking here might be that stock of ACAT relatively thin traded, need to suck in some volume to get liquidity for any institutional bulls. Link

Might get bullish ACAT if PII can sustain bullish move higher.

Level II traders will note market maker ID for Ray James is RAJA

 
 
  Jonathan Levinson   8/27/02,  2:19:40 PM
The COMPX appears to be squeezing into a wedge below 1360, which should continue south. Of course, I'm squinting at a one minute chart to see it, but with price now below the 50 dma, it seems like a safe bet. 1355-60 is a congestion area going back to the 2nd week in August and the beginning of July, and it should be good for at least some rangebound trading at the very least. The TRINQ is advancing very slowly, now up to 1.42, and the QQV is up 1.33. Internals continue to be negative, now on the NYSE as well as the COMPX, and at 2:15PM, total COMPX volume of 1.02B seems a little heavier than yesterday.

 
 
  Jeff Bailey   8/27/02,  2:09:17 PM
Glamis Gold (NYSE:GLG) $8.63 +4.10% ... Jeff: What is your opinion about gold stock "Glamis Gold Ltd" symbol "GLG" ?

Never heard of these guys before Link (needs a trade at $10.50 to negate current bearish count of $3.50). Looks just like many in the sector. Viable bullish candidate as stock's RS chart is strong versus the Gold/Silver Index (XAU.X) Link and has been Since April (red 4) of 2001.

 
 
  Jim Brown   8/27/02,  2:04:48 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the SHORT entry at 13:57:12 when the OEX traded below 472. SPX 936.89, DIA 88.75, SPY 94.20, DJX 88.53, NDX 981.76, Compx 1358.41, Emini 936.50. The initial stop loss will be OEX 476, SPX 944.50. The Dow provided the stop for that dip at 8850, next support 8750.

 
 
  Jeff Bailey   8/27/02,  1:54:48 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Jeff Bailey   8/27/02,  1:52:19 PM
Day Trader's ... see that little tick at $14.01 in Harmony Gold (HGMCY) and then move lower to $13.78? That's a market maker backing off his offer, sucking in some longs, then selling an order into strength. Kind of like a little "bull trap" on the point/figure chart. Short-term day-traders will sometimes then look for rally back near $14.00 as short-term exit point. I was trying to write the 01:00 Update and wasn't able to mention here, but if you're a day-trader, take some notes of how "tricky" these market makers can be.

Also... look back on 5-minute chart interval at 08/26/02 and 10:10:00 time near $13.00. See trade at $13.01, then sideways for next hour or so and finally higher? See how pullback at 15:30:02 came right to $13.02 and rebound higher from there. Very indicative of a market maker probably shorting $13.00, stock trades higher to $13.50, then pullback, market maker covers. Little bugger probably doing some shorting at $14, providing liquidity to the market and bidding $13.50. If order flow is strong from the buy side, he/she won't be able to cover and we might get that $14.25 by session's end.

 
 
  Steven Price   8/27/02,  1:29:04 PM
Reader Question QLogic (QLGC) $36.36 (-0.86): Steve would you short QLGC right now?

Response: QLGC's recent rollover has found support above $36. While the graph certainly looks bearish, right now the stock is moving sideways. I would like to see support at $36 taken out, as we've seen support there the last two days. A trade below $36 looks like a good short entry point.

 
 
  Jim Brown   8/27/02,  1:28:04 PM
Swing Trade Signals
Right on schedule the OEX rebounded after trading to within 50 cents of the morning lows. The volume on this bounce is very light and could be telegraphing a quick demise. We are waiting patiently for a trade under OEX 472 to trigger the next SHORT signal.

 
 
  Steven Price   8/27/02,  1:23:36 PM
Reader Question: On your play of the day ERTS. Do you give a status report through out the day on the current "play of the day"? I see the underlying has lost ground today and the option of choice EZQ JM has lost .65. Do still feel this stock has the upside potential and is now a good time to jump in on EZQ JM? thanks j

Response: Electronic Arts ($65.05 -0.81) I try to give updates on significant moves I see on all of our plays throughout the day, particularly when I see entry/exit points. Looking at ERTS in particular, I like the fact that it has held over $65. It traded below this level earlier in the day, but the pattern has been for the buyers to come in and lift it each time it has broken this level. A successful test of support here, which is our closing price stop-loss level, would keep me bullish on the stock. That being said, I would like to see the overall market get its engine running again before piling on to this long play. I would suggests new entries above today's high of the day ($66.24), as evidence of a successful bounce from support. The stock reached a new all time high recently, and the market pullback the last few days has taken some momentum away. When deciding whether to keep or drop a play, I look at not only direction, but speed of movement as well, since we are playing the options, which decay if a move takes too long.

 
 
  Jim Brown   8/27/02,  1:11:39 PM
Swing Trade Signals
The Nasdaq is setting new lows for the day and the Dow/OEX/SPX are now approaching their morning bottoms. That congestion at this reaction low could provide another intraday bounce before an eventual end of day trend is seen. There is no rush to sell just like there was no rush to buy this morning. The overall trend is still down since recent highs of last Friday but there has been no rush to the exits yet.

 
 
  Jonathan Levinson   8/27/02,  1:09:57 PM
QQQ has just violated its 50 dma at 24.57, currently trading 24.53, ditto the COMPX, currently 1362. If price stays below this line, with the TRINQ at just 1.3 and the QQV up only .77 on the day, we could see an acceleration of selling. Treasury yields are still in the green, however, which tells me that equity bears aren't out of the woods yet. In the meantime, the metals continue to do well, with HUI + 5.42 on the day at 124.83, and XAU up 2.3, just below 68.

 
 
  Jim Brown   8/27/02,  12:54:27 PM
Swing Trade Signals
Dow, OEX, SPX are resting on support of their 5-DMA. The Nasdaq is already well below and testing 1365 and the low of the day. It appears sentiment is still fading but bulls are fighting for every point with their last dollar

 
 
  Jeff Bailey   8/27/02,  12:48:43 PM
Gold/Silver Index (XAU.X) 67.70 +3.38% ... sector winner today. Session high has been 67.90, just shy of the 68.00 needed for break of trend and triple-top buy signal for sector. Intra-day action does appear to have some nervous shorts covering, but also some shorts coming in and looking for risk/reward trade to the downside. Setting aler at 68.00. Link

Yesterday I took position in Bema Gold (BGO) $1.27 +6.72% at $1.17, but dumped it this morning at $1.18 on stronger GDP data (whish I hadn't). Current long Harmony Gold (NASDAQ:HGMCY) $13.88 +4.9% from $13.80, stop $13.70 target $14.25 on day-trade long.

According to Dorsey/Wright & Assoc, precious metals group is "bull alert" at 32% after recent low reading of 14% and May's "overbought" readings of 82%.

 
 
  Leigh Stevens   8/27/02,  12:39:40 PM
Subscriber QUESTION: "Would you please comment on the companies (defense and oil) that would benefit the most from a war with Iraq."

RESPONSE: This is beyond my scope in terms of doing fundamental analysis on these companies and analyzing their revenue breakdowns and possible government contracts, etc. However, I could take a look at the stocks tonight (in my Sector Trader wrap) in the Defense Sector index (DFI), which would be the more direct play, and see which ones remain in good uptrends or have pulled back to support.

DFI stocks are: ATK; BA; COL; DRS; EASI; EDO; ERJ; ESL; FLIR; GD; INVN; ITT; LLL; LMT; NOC; OSIS; RTN; SSSS; TDY; TTN; UIC

 
 
  Jim Brown   8/27/02,  12:28:08 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
If this bounce does fail to hold after traders have had time to reevaluate the numbers from this morning then the outcome for the day should be down. I think we should be prepared to reenter the short below the low of the day because the resumption of the August trend could be sharp. Let's go SHORT the broader market again with an OEX trade below 472 (SPX 937). This will not trigger until the morning bottom has failed. The declining volume is accelerating and the A/D line is dropping. The Nasdaq is leading the drop as it appears the Intel news is more important to the markets than the Durable Goods. Intel has their mid-quarter update next week on Sept-5th and today's comments could have been an attempt to blunt any coming bad news. This is a high-risk signal! Enter only if you agree with my analysis. Aggressive traders may want to jump the gun with a trade below 475.

 
 
  Leigh Stevens   8/27/02,  12:22:58 PM
Subscriber QUESTION: "I was thinking about IBM 75 / 80 sept puts over the holiday. What do you think?"

RESPONSE: Actually, IBM looks to me like it could rally from around current levels - last at 78.29. At most I think, the stock could pull back to the 74 area, which I see as strong technical support currently.

 
 
  Leigh Stevens   8/27/02,  12:17:59 PM
Subscriber QUESTION: "I am short the SMH - what would be downside projection? I know you are thinking 300 on the sox "

RESPONSE: Well, technical or chart support looks like 297-300 area in the Semiconductor (SOX) index - I think this is a reasonable next target, now that the SOX is retreating again from the top end of its downtrend channel in 360 area and from its post 9/11 low at 344. The Semiconductor HOLDR's (SMH) - the stock, last at 25.8 , could get back down to 23.50, which is an equivalent area. I would key off the SOX, as SMH can track a bit differently due to bullish sentiment or whatever it is.

 
 
  John Seckinger   8/27/02,  12:15:04 PM
The dollar is picking up steam to the downside, currently off by 0.84 percent at 106.95. Objective still near 106.30, and could pressure equities in the process. Treasury bonds lower by 28 ticks at 109-07, while yield curve remains flat. What does this all mean? Fixed income holders are waiting for the Dow to make a move first. In fact, this seems to have been the pattern during the last month; Equity traders controlling bond prices. However, I do believe the dollar is taking a more aggressive role and not waiting for blue chip holders.

 
 
  Jonathan Levinson   8/27/02,  12:14:05 PM
I see the COMPX printing a similar formation, and I've heard it referred to colloquially as a Hunchback formation. In any event, there is certainly significant overhead resistance built up. The TRINQ is creeping up higher, but the QQV is not following, and the market is more complacent than it was yesterday. COMPX breadth is still well in the red, with more than 2 declining shares for each advancing, which is notably worse than the NYSE, on which there are 285M advancing shares for 260M declining.

 
 
  Jim Brown   8/27/02,  12:12:17 PM
Swing Trade Signals
I think we are seeing the final momentum fade on the intraday bounce. The dip buyers came in, spent their money and now are finding themselves alone in the gap. Like Custer at Little Big Horn, they rode into the dip this morning thinking they had plenty of support behind them. Once through the front lines they are now realizing those foot falls behind them were not more bulls but bears closing the exit. The 11:00 rally is now looking like it does not have enough strength to reach the high ground again but retreat is still not an option. The A/D line is weakening and volume is drying up again. The bulls are slowing running out of ammo and without a quick influx of new hope the battle is going to end soon.

 
 
  Leigh Stevens   8/27/02,  12:07:39 PM
Subscriber QUESTION: "I see Head & Shoulder on QQQ hourly chart. Head at 26.2, Shoulders at around 25.5, and Neckline at 25. Do you see the same Price Pattern? Would you set downside target at 23.8 and stop at 25.7, just a bit above Shoulders?"

RESPONSE: A Head & Shoulder's (H&S) top pattern, of a somewhat "irregular" shape in that it slopes down to the right, is apparent on the QQQ hourly chart. However, the "neckline", which must by necessity slope down to the right, intersects or touches in the 24.8 area and at 24.60 on the right shoulder. "Confirming" break of the neckline will occur with a break of 24.60 currently - this level decreases slightly over the coming hours of trading.

Assuming a neckline break, a downside target implied by the "minimum" downside target based on the 1.6 distance from the Head to the neckline, subtracted from a potential neckline break, is to the 23.00 area. These targets are not always realized of course and can fall short or go longer. But it gives an idea of a possible objective. Certainly, the pattern is showing that the index is running into significant resistance as it runs into repeated selling - which makes the 3 peaks of the H&S top.

 
 
  Steven Price   8/27/02,  11:54:55 AM
Target (TGT): OI bearish Watch List candidate continuing downward after downgrade from Merrill Lynch. Now trading $34.50 (-1.29), TGT is below its 50-dma of $35.01. The next support level looks to be just under $33. $32.28 would close gap from Aug 15.

 
 
  Jim Brown   8/27/02,  11:52:18 AM
Editors Plays - Rumble Trade Several readers have asked about the current play from Sunday. It was a laddered entry into a DJX put position. The concept was to add contracts at each century mark on the Dow above and below the 8850 weekend close. The first trigger at 8900 was hit yesterday morning for the Sept-85 put (20-DJXUG) at $1.35. The second trigger was hit yesterday afternoon (8800) at $1.65 on the puts. The third trigger (9000) was hit this morning with the option price at $1.00. The average cost in this position is now $1.34 for 40 contracts.

The exact scenario of a dip and then a rebound was not outlined but using the concept of adding to your position at every century mark up to 9100 is still valid. I would suggest you set the current stop loss to 92.00. This is +100 points over the last trigger at 91.00.

Depending on the scenario you chose to implement your stop loss could have been Dow 9000 (DJX 90.00) and you are out of the trade. If you are still in it I would change your current stop to 92.00. This would represent a new Dow high and a new bullish scenario.

 
 
  Jonathan Levinson   8/27/02,  11:52:16 AM
I hope you’re doing well. I enjoy your clear comments. I bought MSFT puts this morning. Every single indicator I follow points to a pullback for Softee. Every oscillator I know of is at the highest level in months for the stock. To me, MSFT rules, consequently I don’t see the market going up much at this point. The stock ran up 9 points and that has accounted for the rallies off the lows in all three major indexes. At this point in time I regard Softee as the best indicator of market direction. Any time the compx moves up a few points, you can rest assured MSFT has moved up some pennies. The same applies on the downside. The compx doesn’t determine the direction MSFT will take, imo, it is MSFT which calls the shots.

Agreed on all counts. My only caveat would be that these indicators and ozzies could become more overbought, but, as Jeff so often points out, it becomes increasingly unlikely as they compress higher. The greater risk seems to me to be to the upside. As with any position, however, particularly during this recent phase in which most participants are getting whipsawed endlessly, caution is the rule. This month has proven that the market does not have to behave rationally, and above all, don't allow your capital to slip through your stops. I've had the impulse several times during the past week to back up the truck on puts. Well, only one of those impulses would have been a winner so far. The only thing of which I'm absolutely certain is that we'll be seeing some great setups in the future.

 
 
  Jeff Bailey   8/27/02,  11:47:21 AM
Ladish Company (LDSH) $7.26 -25% ... maker of high-strength forged and cast metal components for a variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrials markets trades lower after last night's filing of 8-K document disclosing that auditor Deloitte & Touche has ended its auditor relationship with the company. Deloitte has advised Ladish that it believes there has been a disagreement regarding the company's method of recognition of valuation allowances against deferred tax assets. Link

Stock doesn't trade options, but today's trade at $7.50 is triple-bottom sell signal. Vertical count (column of O from $12-$8) bearish to $3.00. Looks short here, stop $8.50 and target $3.00 by year's end. May establish 1/2 or 1/4 position here, look for some type of "inside day" setup from a consolidation pattern, then round to full position on a potential break lower from consolidation. Link

 
 
  Jeff Bailey   8/27/02,  11:35:46 AM
The 11:00 AM intraday update has been posted. Link

 
 
  John Seckinger   8/27/02,  11:34:09 AM
Turning to the yield curve (five year notes versus 10-year), the curve is currently flat for the session - meaning that traders do not expect a significant move for the Dow in either direction. Weakness in 30-year prices seems to be profit taking and technical in nature; however, a move above 9000 in the Dow once more may be the catalyst for bond holders to rush into equities for the near term.

 
 
  Jim Brown   8/27/02,  11:22:07 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the SHORT signal at 11:15:54 when the OEX traded above 476. SPX 945.05, DIA 89.32, SPY 95.04, DJX 89.11, NDX 1000.24, Compx 1375.23, Emini 945.00. It appears that traders only want to be short if the indexes are in free fall and any pause brings out the dip buyers and the short covering begins. This volatility on the unexpected Durable Goods orders appears to be throwing the historical trend out the window. We will look for another failure at extreme resistance, somewhere in the SPX 965 range.

 
 
  Steven Price   8/27/02,  11:14:24 AM
Payless Shoesource (PSS): $52.85 -1.14 OI bearish Watch List candidate PSS has continued its rollover after the retail downgrade from Merrill Lynch this morning. This stock looked very overextended when we put it on our list, just after it was turned away at exactly its 200-dma. It now looks headed for the 50-dma of $50.24.

 
 
  Jim Brown   8/27/02,  11:13:23 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
It appears the drop may be over and support has held again. The A/D line is improving and indexes are recovering to post Confidence highs. Let's close the open short signal with an OEX trade above 476. (SPX 945)

 
 
  Leigh Stevens   8/27/02,  11:04:13 AM
Subscriber QUESTION: "Any ideas on a put play for "ba" due to the strike??"

RESPONSE: Would like a rally to do some further put buying - the best opportunity presented itself when Boeing (BA) rallied up to its 50-day and 200-day moving averages in July. You have to be concerned that a strike is already pretty much priced into the stock already - however, BA is not back yet to what I consider to be major technical support in the 32 area - stock last at 37.25 - a strike may need to occur to drive the stock back to that area.

The Nov. 35 puts (BA WG) - offered at 2.20 currently - are worth watching, particularly if BA rallies back up to its near-resistance at 38.50 -39.00.

 
 
  Jonathan Levinson   8/27/02,  11:00:54 AM
The COMPX is hesitating just above the 50 dma and is currently trading at 1366. There's no real bounce happening, but support is so far holding. The TRINQ is just above 1 and QQV is slightly positive on the day, +.35. This is a moment of truth for the COMPX, as traders speculate on the chances of yet another bounce from this level. I expect a small waterfall if this level fails, particularly given the mellow breadth and volatility numbers so far- both have plenty of room to run up on a break of this critical level. Meanwhile, treasury yields are still up but off their best levels of the day, and precious metals are back up as well, XAU +1.53 and HUI above 120, currently 122.85, +3.85 on the day.

Gold bugs can take advantage of the discrepancy between XAU and HUI to plan their positions. XAU is an index made up primarily of hedged miners, while the HUI is unhedged. On days when gold is up, the HUI will usually outperform the XAU. I'd therefore be inclined to play puts only on the XAU, using it as a hedge against longs in the metals, as that index tends to have a negative bias. Alas, there are no options on the HUI, and so goldbugs must pick their longs.

 
 
  John Seckinger   8/27/02,  10:56:46 AM
Just an observation: Stocks lower, dollar lower, bond prices lower. Believe it or not, that scenario can make sense. True, bond prices did rally in the last hour while equity prices fell; however, the September bond (USU2) is still down roughly 16 ticks as the Dow is off 60. For more information on Intermarket Technical Analysis, please see this article: Link

 
 
  Jeff Bailey   8/27/02,  10:53:01 AM
Select Medical (SLMC) $13.86 -11.59% ... stock recoverying from session lows of $11.60 after Merrill Lynch defends by reiterating "strong buy" rating. (see 10:30, 10:07)

 
 
  Leigh Stevens   8/27/02,  10:48:13 AM
Subscriber QUESTION: "Do you think that yesterday's & this morning's market action confirms the head & shoulder patterns on the SPX & OEX indexes? Is this market headed much further down in all liklihood?"

RESPONSE: The OEX & SPX hourly chart patterns now look more like Head & Shoulder's Tops in terms of now having better "definition" of the Right Shoulder (RS) - the key will be if there is a "confirming" break of the necklines of these patterns

Confirming type breaks are at 468 in OEX (its neckline slopes down a bit as RS is a bit lower than the Left Shoulder) and at 930 in SPX - the S&P 500 index has a level line for a neckline. An particularly watching 930 in the SPX - an hourly close below this level is the confirming H&S neckline break and then sets up a possible eventual downside objective to the 900 area.

 
 
  Leigh Stevens   8/27/02,  10:38:06 AM
INDEX Comments: OEX now trading again below its uptrend channel after breaking its hourly up trendline - its did this yesterday and then came back - my key short-term technical focus now becomes whether the "line" of OEX support in 472-468 area will contain further weakness - a break of yesterdays low at 468.25 would suggest a retreat to at least next technical support at 460-462 in OEX.

 
 
  Jeff Bailey   8/27/02,  10:37:25 AM
Newmont Mining (NEM) $27.55 +2.72% ... trying to make a break higher above consolidation. Upside near-term to $28.75. p/f chart Link and bar chart shows break of consolidation Link

Similar bar chart technicals in the Gold/Silver Index (XAU.X) 67.10 +2.3%, as found in NEM's bar chart, but sector lagging a bit. NEM bull wants to see XAU.X confirm and get sector action to push NEM higher. Link

 
 
  Steven Price   8/27/02,  10:36:26 AM
Polaris (PII): $74.14 +0.18 As per Leigh's earlier comments on Polaris, the current OI call play is showing good relative strength. Looking at the support in the stock around $73, it appears all of the durable goods orders must have been for ATVs and PWCs. New longs should look to initiate on a positive turn in broader market.

 
 
  Jeff Bailey   8/27/02,  10:34:11 AM
Morgan Stanley Health Provider Index (RXH.X) components tickers are ... AHG, CYH, HCA, HCR, HMA, HRC, LNCR, LPNT, OCR, RCI, SRZ, THC, TRI, UHS.

 
 
  John Seckinger   8/27/02,  10:33:52 AM
After the Merrill Lynch downgrade of the Retail sector, I am not surprised to see retail corporate bonds a little weaker this morning. Weaker corporate bonds means higher yield and more risk; negative for a company's stock. In other news, rumor about Japanese banks and their non-performing loans estimate the figure is now at US $1.25 billion. Also, supply pressure could hit the short end of the curve as there is a $27 billion dollar auction tomorrow. Turning to the dollar, some reasons for a weakening domestic currency include Cheney's comments on Iraq yesterday as well as lack of strong endorsement from other governments to accelerate action against Iraq.

 
 
  Jeff Bailey   8/27/02,  10:30:50 AM
Select Medical (SLMC) $12.61 -19% ... stock down in sympathy with HRC (see 10:07) Link

Setting downside alert at $11.50, which would be spread-triple-bottom and stock hasn't traded that in two years.

 
 
  Steven Price   8/27/02,  10:28:59 AM
Maxim (MXIM) $34.88(-1.04) : Current OI Put Play MXIM is trading below $35.00 this morning, which looks bearish, but I would wait for a trade below Friday's low of $34.78 to add to the current short position. We are fast approaching this number.

 
 
  Jeff Bailey   8/27/02,  10:24:05 AM
Kraft Foods (KFT) $38.65 ... Announces it will boost its quarterly stock dividend by 15.4%, to an annualized rate of $0.60 per common share of Class A and Class B. The new quarterly dividend of $0.15 per common share, up from $0.13 per common share, is payable October 7, 2002, to stockholders of record as of September 16, 2001. Link

 
 
  Steven Price   8/27/02,  10:23:50 AM
Northrop Grumman: $123.20 (+3.88) There was another Iraqi no-fly zone encounter reported earlier this morning. Defense stocks seem to be jumping on the escalation of tensions. (ATK $66.43 +1.13). The fact that Bush is talking with Saudi Arabia also seems to indicate things are speeding up with plans for the region. I would love to say "go long" on these, but there is an awful lot of room to fall if some type of negotiation takes place, as opposed to an all-out invasion. Also jumping on a stock like NOC, which has already run on the news, may be dangerous even if we do go to war, since the premium seems to have already been put in.

 
 
  Jeff Bailey   8/27/02,  10:18:56 AM
Consumer Confidence fell to 93.5 in August from 97.4 in July. Consensus was for 97.0. The decline in confidence a bit surprising given the rebound in stocks seen in August. Trader/investors will now be monitoring upcoming consumer spending numbers as a result. Personal Income and Personal Spending scheduled for release this Friday at 08:30 AM EST.

 
 
  Jonathan Levinson   8/27/02,  10:11:55 AM
The COMPX is going to test the 50 dma. Despite this morning's selloff, the TRINQ never made it beyond neutral buy territory, currently .88, and the QQV is up only .76. Down volume is more than doubling up volume, and there are 1716 declining COMPX issues for 786 advancers.

 
 
  Jim Brown   8/27/02,  10:09:11 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the broad market short at 10:00:58 when the OEX traded below 478.00 SPX 947.63, DIA 89.55. SPY 95.25, DJX 89.39, NDX 1000.61, Compx 1375.59, Emini 945.75. The initial stop loss on this signal with be OEX 482, SPX 956.

The consumer sentiment numbers fell to the lowest level in a year and when taken with the Intel news the durable goods orders became even more suspect. Those goods numbers are know for their volatility and typically make big swings depending on timing of major purposes.

 
 
  Jeff Bailey   8/27/02,  10:07:19 AM
Health Provider Index (RXH.X) 321.90 -4.38% ... sector loser here after component Healthsouth (HRC) $6.85 -42.7% opens for trading. This morning, HRC announced that its Board of Directors had approved in principle a plan to effect a tax-free separation of its surgery center division into a new publicly trade company. HRC indicated that it was moving forward with the separation plan at this time in part because of unfavorable developments in outpatient therapy reimbursement. Expects revenues and expenses relating to outpatient rehab services to be adversely impacted in the near term. At this time, HRC is discontinuing earnings guidance for the remainder of 2002 and 2003. CEO Scrushy will serve as Chairman of new surgery center company, and turn over day-to-day management of HRC to current COO William T Owens.

Stock gets flushed when no guidance for 2002 and 2003. Link

 
 
  Jim Brown   8/27/02,  10:02:42 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go SHORT the broader market with an OEX trade below 478. (SPX 949) This is a high risk signal as the markets could turn positive again at any moment.

 
 
  Jim Brown   8/27/02,  9:57:28 AM
Swing Trade Signals
With 11 of 30 Dow stocks trading in negative territory it appears the positive sentiment is far from unanimous. The A/D line is turning negative, the Russell is negative, the Nasdaq is going deeper into the red. S&P futures are at a low for the day. If we get a less than expected Sentiment number we could be back to the dog days of August again.

 
 
  John Seckinger   8/27/02,  9:55:33 AM
US Dollar traded underneath yesterday's low of 107.43 (intra-day low of 107.19) and gives the impression that equities will come under pressure. The objective for the dollar is for a move to 106.30. Support can be found at 107, while a settlement above 107.43 most likely will keep bears at bay. Note: The dollar has completed four days of consecutive lower highs and has been a solid coincident indicator of the Dow.

 
 
  Jonathan Levinson   8/27/02,  9:53:20 AM
In case anyone was wondering, no, I did not just go long. Perhaps it was a reader who just sparked that little selloff?

 
 
  Leigh Stevens   8/27/02,  9:52:09 AM
Wall Street Journal (WSJ) - Some key stories in this morning's WSJ:

Solomon Smith Barney, the brokerage/investment banking arm of Citigroup (C) acknoledged publicly that it directed thousands of shares of hot IPOs to executives of WorldCom, one of its biggest corporate clients. WorldCom's ex-controller tried to prevent a subordinate from raising accounting concerns with the firm's auditors, e-mails showed. Hey, in this feel good time in the market, this becomes "old" news. Everyone was ready to belive that this kind of stuff was the way of the Street.

Boeing (BA) and its union of 25,000 machinists appear headed for a showdown over a new 3-year contract that both sides see as critical to their survival. This may be knock down, drag out conflict. Somehow, aircraft sales accounted for a big part of the jump in durable goods orders - there was a whopping 121.6% rise in orders for nondefense aircraft and parts and a 134.6% rise in defense aircraft and parts orders.

Meanwhile, back at the ranch, the "right column" front page story is how "in an uncertain time, Americans resort to Expensive Toys". Polaris Industries (PII) for example, selling a record number of all-terrain vehicles (ATVs), along with its popular jet-skis. Hey, maybe this fun stuff contributed to the durable goods orders strength. Either stop reading the papers or take to the wilderness or waterways and get away from it all!

 
 
  Jonathan Levinson   8/27/02,  9:48:22 AM
The lower ascending trendline from yesterday on the COMPX (5 minute chart) is one or two points away, around 1384-5. A break below would bring 1377 support into play, after which we're looking at the 50 dma around 1364.

 
 
  Jeff Bailey   8/27/02,  9:47:17 AM
Sector Weakness out of the gate has Biotech (BTK.X) -0.87%, Semiconductor (SOX.X) -1.46%, Retail HOLDRS (AMEX:RTH) -1.1%

Sector Gains Oil (OIX.X) +1.62%, Airline (XAL.X) +1.26%, Broker/Dealer (XBD.X) +1.13%

 
 
  Jim Brown   8/27/02,  9:46:43 AM
Swing Trade Signals
Interesting spike this morning. It failed to make it to prior resistance and the Intel news has already pulled the Nasdaq back into negative territory. With Consumer Confidence due out at 10:00 there is no rush to get into the markets despite a marked weakening of the internals. I would rather be late on this one than early.

 
 
  Jeff Bailey   8/27/02,  9:45:52 AM
Apparel Sales per Steve's 09:41:56 .... retail analysts cite warmer weather depressing fall line of clothing sales, which tend to carry higher margins that summer apparel.

 
 
  Steven Price   8/27/02,  9:41:56 AM
Merrill Lynch downgraded a bunch of retailers this morning, due to continuing warm weather, which should continue to depress apparel sales and consumer spending concerns.

Cuts to "neutral" include: TGT, BJ, COST, BKS, LTD, ANN

Cuts to "sell" include: DLTR, JWN, SKO

 
 
  Jeff Bailey   8/27/02,  9:41:48 AM
Consumer Confidence numbers due out at 10:00 AM EST. August reading forecasted at 97.0 versus prior 97.1.

 
 
  John Seckinger   8/27/02,  9:36:26 AM
With the September Bond (USU2) down 28 ticks at 109-08, is it safe to assume cash is leaving bonds and entering equities? Yes; however, bonds are still in an aggressive trend higher which began in March. In fact, the 30-year can sell off to 106-20 and still hold the bullish price pattern.

 
 
  Jonathan Levinson   8/27/02,  9:35:14 AM
Just a 3.3 point gap on the COMPX, though the TRINQ is all the way down to .29 on the move. QQV is up so far, +.35 on the day. This is perplexing given the tumble in treasuries.

 
 
  Jeff Bailey   8/27/02,  9:33:40 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Steven Price   8/27/02,  9:32:47 AM
Reader Question: Electronic Arts (ERTS) $65.88

Steve, as you comment on OI put/call plays in the Monitor, I would like to see your comment on want appears to be 3 bear flags over the last three days. These are on the 60 min chart. Roger

Response: You are correct about the bearish flag patterns on the 60 min. chart. I would give these greater bearish significance if the last of these 3 patterns had not found such strong support at the 50 period moving average. The stock rode this average up as soon as it was hit, and rebounded back from below $65, riding its 10-dma in a similar fashion (looking at the daily lows). Yesterday's low of the day, from which the stock rebounded, also coincides with the bottom of a rising channel started whent the stock began its recent run from $55. Today's open over $66 also looks bullish from this point

 
 
  Jim Brown   8/27/02,  9:29:36 AM
Swing Trade Signals
All Bets Are Off! The surprise durable goods report this morning has thrown everything into doubt. Orders for goods like computers rose +13.9%. These numbers got a significant boost from nondefense aircraft which rose +121%. The futures rocketed on the news despite a revision in last months number to a -4.5% drop. This news overshadowed news from Intel that businesses were not buying computers and they saw no improvement in the near futures. They are laying off 4,000 workers or about 5% of their workforce.

These news events are going to cause us to question the historical market trend of selling off before Labor Day. This could cause shorts to cover and with the thin markets this covering could produce a major move.

The challenge here is for traders to focus on Durable goods but not average the last two months as an anomaly and get a real growth rate of +2.1%. They need to ignore the Intel comments and the new Citigroup comments and blindly look at only the durable goods. Will this happen? Who knows. Futures are not up as high as you would expect on the high order rates.

I will not be as quick to pull the trigger on the next short at the numbers I discussed last night. This could produce the last bit of climax buying which fails at resistance or it could energize the market into a new leg up and change the historical trend.

Either way I plan to sit tight and watch instead of jump in. I will be more skeptical of a failure at resistance since that failure could be short lived.

 
 
  Leigh Stevens   8/27/02,  9:27:12 AM
Pre-Opening INDEX Comments - - First we get a record New-Home sales yesterday - highest monthly level on record - then we get a huge jump in Durable Goods orders today. Seems that there was a reason that none of the indices have broken their technical uptrends, per my comments and chart doodling in last night's Index Trader wrap up at Link

 
 
  Jeff Bailey   8/27/02,  9:25:46 AM
Steel/Iron According to Dorsey/Wright & Associates (www.dorseywright.com), the steel/iron group reversed back up into "bull confirmed" status yesterday at 24%. In April, this group reached the 80% level before the recent reversal lower and now up again.

Nucor Corporation (NUE) $50.49 recently gave a "buy signal" at $54. Low risk entry point here, stop $48, bullish vertical count of $65 with bearish resistance trend at $60. Link

Would only look long 1/2 positions until relative strength turns more positive, but may be a play on today's stronger than expected GDP numbers.

Other sector ideas ... Steel Tech (STTX) Link , Siderca (SDT) Link , Schnitzer Steel (SCHN) Link and Valmont (VALM) Link

 
 
  Jonathan Levinson   8/27/02,  9:23:11 AM
The US Dollar Index is up to 107.60 on this move.

 
 
  Leigh Stevens   8/27/02,  9:10:15 AM
Pre-Opening, Stock INDEXES - Good Morning!

Index FUTURES snapshot: S&P 500 > +7.00 at 954.40; Dow Industrials > +70.00 at 8980; Nasdaq 100 > +9.00 at 1025.50

S&P Futures fair value numbers: S&P ($SP02U) = +.30; Nasdaq 100 futures ($ND02U) = +1.62 (NOTE: 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   8/27/02,  8:47:23 AM
Wow! NDX futures are now +2, S&P +4.50, Gold below $310, and QQQ trading 25.38. Why?

The Commerce Department reported that orders for goods made to last three years or longer, such as cars and computers, rose 8.7 percent following a revised 4.5 percent drop in June. Economists expected durable-goods orders to rise 1.4 percent, according to Briefing.com. - CNNfn

 
 
  Jonathan Levinson   8/27/02,  8:27:49 AM
We saw the same pattern this morning in the futures, with the 3AM ramp job abruptly slammed by a 6AM selloff, with the NDX futures currently -13.50 and S&P -5. The US Dollar Index got croaked and is currently trading 107.10. Gold broke 310 and is holding it. QQQ is currently trading 24.90, MSFT 51.56.

 
 
  Jim Brown   8/26/02,  11:10:45 PM
Swing Trade Game Plan - Click here: Link

 
 
  Jim Brown   8/26/02,  11:10:35 PM
The Market Monitor for Monday has been archived. Click here to view it: Link

 
 

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