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  Jim Brown   8/30/02,  3:57:13 PM
Swing Trade Signals
The volume of large orders just increased significantly on the QQQ. Huge hundred thousand share orders coming across at ask but still a flood of 2,5,10K coming in at bid. Definitely a conflict of opinion about Monday.

 
 
  Leigh Stevens   8/30/02,  3:46:25 PM
Subscriber NOTE: "I wonder at how much effort & time you are giving to educate us for our financial benefit with your expertise in the field of finance. Thanks for the great job by the OI team."

RESPONSE: thanks - you probably have seen my articles on Trader's Corner, but here is complete list:

Continuation patterns: Flags Link

Continuation patterns: Triangles & rectangles - Link

Indicators: Stochastics - Link

Indicators: Arms Index (TRIN) - Link

Indicators: MACD - Link

Indicators: RSI - Link

Indicators: Moving Average Envelopes - Link

Program trading & index futures arbitrage - Link

Reversal patterns: the Head & Shoulder's - Link

Reversal patterns: Wedges - Link

- My latest was was the last one listed - WEDGE reversal pattern

 
 
  John Seckinger   8/30/02,  3:33:32 PM
In Jeff's 3:15 PM intraday update, he profiled Campbell Soup (CPB). They have earnings next Thursday before the open. Next week's earnings schedule is very light, with the other notables National Semi (NSM) on Wednesday during market hours and Albertson's (ABS) also before the open on Thursday.

 
 
  Jim Brown   8/30/02,  3:33:15 PM
Swing Trade Signals
Holding over - I had projected a follow through rally on Tuesday based on historical trends and a projected afternoon rally today. After watching the indexes fall through the floor after failing at resistance all afternoon I am no longer leaning toward a rally on Tuesday. Any Tuesday rally was only projected to be an intraday event anyway. I think diving into the close is a leading indicator of what is going to happen when volume returns on Tuesday. I could be very wrong but I am planning to hold the short over the weekend. Don't fight the trend and the trend has changed! The Dow looks like it will close below 8736 which will be the first time since 1981 that it had five losing months in a row. That can't have a good impact on sentiment. Holding short!

 
 
  Jonathan Levinson   8/30/02,  3:25:06 PM
Maybe it was P-Diddy slamming those 30,000 share bids that just rescued the QQQ again on that last dip.

 
 
  John Seckinger   8/30/02,  3:23:14 PM
It was interesting to see the Utility Index and the Dow turn lower at the exact same time. If the Dow closes under 8690 and the UTY.X sector settles under its 22 DMA (281, prices are at, no coincidence, 280.83) I would expect more selling pressure on Tuesday.

 
 
  Jeff Bailey   8/30/02,  3:20:13 PM
The 3:15 PM intraday update has been posted. Link

 
 
  Jeff Bailey   8/30/02,  3:15:41 PM
Thanks to everyone that has wished me a good vacation. Don't think that I don't sit under the trees while looking for critters and not think about the markets several times a day. See you all on Tuesday morning Sept. 10th!

Keep an eye on John Seckinger while I'm gone and don't let him "bond talk" you too much.

If anyone gets too bearish while the bullish % charts are in a more bullish phase, remind them that bear season opens up this Saturday. No I'm not going bear hunting, but just wanted to let all the bears know that season opens this Saturday!

 
 
  Jonathan Levinson   8/30/02,  3:09:34 PM
jon--thats old news on puffy--he changed monikers when j-lo dumped him--guess he told her !

All's fair in love and war, I guess. I wonder what they're invested in... Silver like B. Gates, G. Soros, and W. Buffet, or are they still long NT and JDS Uniphunk?

 
 
  Leigh Stevens   8/30/02,  3:02:06 PM
Subscriber QUESTION: "It sure looks like an SPX failure right below your 930 level. Also right at calculated resistance of 927 on my Pivot Point algorithim. Also at top of BB, at top of descending channel on 60m chart, and with most time frame 5pd stoch overbought. What do you think about a 931 stop?"

RESPONSE: I agree with your assessment on SPX - I figured they were going to take em up to those trendlines and a bit above on OEX to run stops, then dump. Also, of course, it’s the last trading day of August & there is some buying to close out the month - I think I would give SPX puts a little more leeway than exit at 931. Maybe wait for the close and do your own "close-only" stop/exit if you don't want to carry the position in case they run it up a bit more. Weekends tend to "favor" shorts - I haven't seen a weekend yet where peace broke out - am still waiting - will be willing if not happy to take the loss on puts if that happens!

 
 
  Leigh Stevens   8/30/02,  2:59:14 PM
Subscriber QUESTION: "It sure looks like an SPX failure right below your 930 level. Also right at calculated resistance of 927 on my Pivot Point algorithim. Also at top of BB, at top of descending channel on 60m chart, and with most time frame 5pd stoch overbought. What do you think about a 931 stop?"

RESPONSE: I agree with your assessment on SPX - I figured they were going to take em up to those trendlines and a bit above on OEX to run stops, then dump. Also, of course, it’s the last trading day of August & there is some buying to close out the month - I think I would give SPX puts a little more leeway than exit at 931. Maybe wait for the close and do your own "close-only" stop/exit if you don't want to carry the position in case they run it up a bit more. Weekends tend to "favor" shorts - I haven't seen a weekend yet where peace broke out - am still waiting - will be willing if not happy to take the loss on puts if that happens.

 
 
  Jonathan Levinson   8/30/02,  2:59:09 PM
I'm typing in a hypnotized stupor. There are endless bull/bear arguments going on, but the day highs remain untouchable, and Jim's call just preceded a brief dip in the COMPX, which, zoomed in on today's narrow range, was pretty significant. Declining volume is still ahead on the COMPX, with 487M declining shares to 299M advancing. The TRINQ is still at 1.72, which was exact reading on the screen when I typed my last post. HUI and XAU are slightly up, bond yields are down, and the bias in the market is clearly not bullish, but just not bearish enough to put a smile on put-holders' faces.

In other news, I've just learned that Puff Daddy is now going by the monicker "P-Diddy". Please conduct yourselves accordingly and try not to panic.

 
 
  Jim Brown   8/30/02,  2:52:11 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Not the way I expected this day to end up but resistance appears to be holding the rebound back on lack of volume. If traders cannot take them up then they take them down. We were triggered on the SHORT signal at 14:47:58 when the OEX traded below intraday support at 465. SPX 923.75, DIA 87.56, SPY 92.90, DJX 87.36, NDX 958.05, Compx 1331.91, Emini 923.25. The initial stop loss on this short signal will be OEX 468, just over the high of the day at 467.23. (SPX 929)

 
 
  Leigh Stevens   8/30/02,  2:46:52 PM
Subscriber NOTE: "Well, you are probably tired of responses by now, but here is my two cents worth.

I use Q-chart and it matches your closing number from last night. Selecting exponential produced a much higher closing number. Under "Settings", "Length" of course is 50, "Source" is Close, and "Exponential" is unchecked. The remaining variable is "Offset" which should be 0. Changing Offset to 2 was the only way I could get the Subscriber's closing number."

RESPONSE: And thank YOU for this information & insight - very interesting!

 
 
  John Seckinger   8/30/02,  2:41:52 PM
With the Utility Sector Index (UTY.X) almost always leading the Dow in relative highs and lows, there are a few companies within the Index worth watching. Southern Company (SO), DTE Energy Company (DTE), and Northeast Utilities (NU) should all be solid barometers for the Utilities Index. Note: The Dow Utilities has led the Dow Jones at every peak since 1960 with only a few exceptions (most notably the 1977 peak). When looking at lead times, on average the Utility Index peaks three months prior, with a variance of one to ten months.

 
 
  Jim Brown   8/30/02,  2:41:43 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Another pair of failures at resistance! I am getting the feeling that there may not be a rally in our future. I want to set a breakdown trigger in case the bears start gaining confidence with each stop at resistance. Go SHORT the broader market with an OEX trade below 465. (SPX 923.50) Another failure at this support could setup a retest of the weekly lows. This is a high-risk signal and should NOT BE AUTO EXECUTED. Only enter this signal if you agree that the market appears to have run out of momentum and could drop significantly before the end of the day. This is HIGH RISK!

 
 
  Jeff Bailey   8/30/02,  2:28:31 PM
Account management and paying yourself Each month, I adjust my account back to my base level for the trading account and create whatever type of paycheck I can for myself for the month.

Example: If my trading account that I set up was $50,000, then at the end of the month, I check the TOTAL BALANCE of the account (including current open positions). If account balance is $51,000, then I sweep $1,000 out of the account and put it in my checking/savings account.

Then, on September 3, I start all over again and have to earn a paycheck. No profits to play with and have me getting away from my stated trading discipline.

If I try and sweep $1,000 from my account and it's all tied up in open positions, then I'm FORCED to sell one or some positions that I deem has either played itself out for the most part, or just hasn't been and doesn't look as if it will be as good of a trade as the other positions I hold. This in essence has the trader REMOVING what he/she believes is the weakest link in the account.

If my account TOTAL BALANCE is $49,000, then I either don't get a paycheck this month and need to figure out what I did wrong or needs to change so that I get a paycheck next month.

 
 
  Jeff Bailey   8/30/02,  2:19:17 PM
Day Traders I will be gone next week, but seeing quite a few "inside days" so far today. Semiconductor HOLDRS (SMH), Biotech HOLDRS (BBH), so thinking there are also some tech stocks in these two groups doing the same.

Can make for some decent trading Tuesday and Wednesday.

Historical note from stock Trader's Almanac has the month of September opening strong the last six years in a row. If there aren't any terrorist or invasions of IRAQ over the weekend, would be looking a bit bullish early next week. Some good "inside days" to perhaps be looking for on the bullish side is a stock that's had a nice little 10-15% decline in recent sessions, that has been stabilizing today near a level of support. Look for bears in those stocks to be eager to take some profits on a break higher as he/she knows the stock fell 10-15% in the last couple sessions and doesn't want a gain to slip away.

An early rally next week perhaps then sets up some bearish entry points on the rallies back near, but just shy of overhead resistance toward the end of September.

 
 
  Jim Brown   8/30/02,  2:15:08 PM
Swing Trade Signals
Capitulation is a wonderful thing only when it is done by somebody else. Suddenly the Nasdaq decides to rally just after I close the long on caution! (cuss)

 
 
  John Seckinger   8/30/02,  2:07:41 PM
The anemic volume continues. The Dow seems to be "asleep" near the 8750 area; thus putting the Dollar in a comatose. The Utility Index did in fact go positive, albeit slightly. It does make sense to square positions ahead of a holiday-extended weekend, mainly due to event risk. The September bond is 10 ticks higher, and this coupled with a stronger dollar should allow the Dow to post a weekly net gain (1st time in five months). The weekly breakeven point is at 8736.

 
 
  Jeff Bailey   8/30/02,  2:01:15 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Jim Brown   8/30/02,  1:58:52 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Close the open LONG signal here at OEX 465. There is no momentum, the end of day move is likely to be down from here.

 
 
  Jim Brown   8/30/02,  1:56:12 PM
Swing Trade Signals
If the volume gets any lower we might as well quit early. The candles on the NDX futures on the 5 min chart are turning into dashes not candles! If there was ever a dull market ready to explode this is it. It looks like anybody with $100K could cause a major move! The agonizingly slow movement today has already started turning the short term oscillators back into overbought and it appears the next move may be down due to lack of interest. With 8750 holding I am thinking about closing the long signal and going short again at this level. With no positive momentum, into the close it could be telegraphing a negative move on Tuesday. Tough to call but we are sitting right at resistance which has held all week.

 
 
  Steven Price   8/30/02,  1:47:38 PM
Reader Question: Hello Steven, I found your entry on what floor traders are saying interesting.What do they base this consensus on? How often are they correct? And how much "stock"do you personally put in it. Thanks--as always, Jane

Response: They are basically talking about what they are hearing, not any specific consensus. My instincts tell me their plan to get long just ahead of 9/11 may keep the price of upside calls pumped up a little if they are looking to get long without the downside risk.

 
 
  Steven Price   8/30/02,  1:41:07 PM
Qlogic $33.94 (-1.35) I have received several emails asking what my target is in this OI put play. I see support right around $32 and just above $30. I'm targeting $30, since I can't seem to find a reason for the stock NOT to continue its drop. The current PnF bearish vertical count is $27, with support at $31.

 
 
  Steven Price   8/30/02,  1:31:56 PM
Reader Question: Looking at my real time charts I see that most stocks trade at a volume of 50% or less of their average volume. Only 2 of the 150 (top DOW and NASDAQ) I follow closer are above 100% right now. Isn't this reduced volume just a bubble that most likely will burst Tuesday? Thanks. jean

Response: It is hard to take much from such a low volume day. However, up is still up, even if it is not as convincing as it would be with heavier volume. Also, the fact that we haven't seen selling before the weekend in the semis after the bad news throws up a red flag for bears.

 
 
  Jonathan Levinson   8/30/02,  1:17:20 PM
The CBOE put to call ratio for this past hour came in at .79, its low of the day but in neutral territory. The COMPX has been in the most energy-sapping, mind-numbing 7 point range... I've been rendered totally useless with boredom, and even dozed off for a few minutes there. The TRINQ is right where we left it, the QQV is down to flat on the day, and the oscillators are chopped up from the last of clear direction. Declining volume is still almost double advancing volume, but the buying and selling is being done steadily enough to prevent any price movement outside of this narrow range.

 
 
  Jeff Bailey   8/30/02,  1:14:19 PM
Agilent (A) $13.66 -3.8% ... stock looks in trouble. Two successive gap lower days, each to new 52-week lows, really hints of lack of buyers and longs getting more aggressive and looking for the exits. Triple-bottom at $15 was big negative and "old" bearish vertical count of $20 was exceeded a long time ago. It has been a couple of years since I've seen technicals recover from this type of action and has sometimes has seen stock end up in single digits. Link After recent "buy signal" at $17.50 and now reversal and sell signal at $15, bearish vertical count now $10, but could grow with current column of O.

Jan. $15 puts (AMB) offered $3.30.

 
 
  John Seckinger   8/30/02,  1:06:58 PM
With the Dow posting an almost one percent gain, I would not be surprised to see the Utility Average catch up (currently at 282.56, down 0.47 percent). The UTY.X average rejected levels underneath its 22 DMA (281) and a break above the 50 DMA at 284.94 should really get investors' interest. For an article on the Utilities Average and how it relates to the Dow (also includes the relationship to Oil), please read article at Link

 
 
  Jeff Bailey   8/30/02,  1:01:14 PM
ADTRAN (ADTN) $17.43 -7.28% ... telecom equipment stock with high short interest. A trade at $17.00 Link is bearish and would turn vertical count bearish to $13.50 as a start. Equation on a trade at $17 for bearish count would be... $19.50 - ((6*2)*0.5)

 
 
  Jim Brown   8/30/02,  12:57:17 PM
Subject: Market Moving event:
Jim, You'll be happy to know that I'm leaving to play golf now. I'm still short the DJX so look for that to continue it's upward move. I'm not playing with Weldon so it isn't necessarily a slam dunk that the market will maintain this upward move, but my guess is that this is an excellent call buying opportunity for the other subscribers. I'm playing with a PGA Tour caddy at Shining Mountain in Woodland Park. He's a character and has all the inside stuff on Tiger and the boys. I'll report if there is any good gossip. John Beyer

John, we really appreciate the extra effort you put forth for the good of our readers. We wish you the best of luck and hope you win enough money at golf to cover the loss on the open short.

 
 
  Leigh Stevens   8/30/02,  12:57:14 PM
Subscriber QUESTION: "I am learning a lot about charting and Thanks! What does it mean when the daily stocastic shows "buy" but the daily MACD shows"sell" like on the daily GE and KSS charts like I see on BIGCHARTS website? Please respond cause I am Perplexed."

RESPONSE: Well, these indicators are different - the Stochastic, depending on how its set, can generate a so-called buy or sell "signal" well ahead of the slower acting MACD. If you want to delve into this and understand it better, I have a couple of my Trader's Corner articles that will tell you more about each "study" or indicator.

Indicators: Stochastics - Link

Indicators: MACD - Link

If your thirst for knowledge or more information in this area, motivates you to study charting and technical analysis a bit more in depth, then I suggest an introductory book such as my own or others; e.g., by John Murphy.

 
 
  Leigh Stevens   8/30/02,  12:47:12 PM
Subscriber NOTE: "I am using a simple moving average based on the close, exponential is not selected, so yesterday's Q-chart difference relative to your figure was not a result of my not also looking a simple moving average."

RESPONSE: We're maybe back to my best guess, which is there is 1 or more different closes between charing app that you're using versus mine. Your report on this highlights a possibility for minor differences in different software charting applications that I was not previously aware of. Normally, it makes NO difference at all of course, but at crossover points it's more significant.

 
 
  Steven Price   8/30/02,  12:46:49 PM
IBM: $75.68 (-0.94) The weakness in the Nasdaq appears bearish with the Dow up. The fact that IBM, the third heaviest weighted Dow component is still down on a nice gain for the rest of the group reflects concerns after last night's tech warnings. The Semiconductor Index (SOX.X) is still hanging in, though, in spite of last night's warnings at 304.33 (unch). I'm not sure we'll get enough trading activity this afternoon to get much of a push in either direction.

One pattern I have noticed on the short-term (3 min., 5 min.)charts is put play QLogic (QLGC) ($34.18 -1.12) forming a series of bearish wedges throughout the day.

 
 
  Jeff Bailey   8/30/02,  12:46:05 PM
This is why I love what I do here Jeff, I know you guys are about teaching technicals and making money, but I want to share WHY I will be a life long member. A few months ago you profiled a PUT trade in DYN and I watched that work to perfection. You next profiled a PUT trade in WMB. I did not have much to work with but bought as many of the JULY 15's as I could. Shortly after, the stock broke down and I was up by 60% ...I was going to sell the next day, but you specifically mentioned that you believed the stock had more downside, and that you were holding onto your position. I followed your advice, and instead of a 60% profit, I ended up with an 290% return !!

I want you guys to know, that this allowed me to take time off from work and fly down to CA. and spend almost a month with my parents... they both passed away the last week of July within a week of each other... I would not have been able to afford that without that trade !! Since then, I have devoted most of my time studying charts and trying to help others in learning and sending them to your site. I would like to know how you arrive at your targets based on P & F charting .. Thanks and Bless you all !!

Wow.... I don't know what to say. While I'm glad you made money in the trade, seeing your parents was most important. Life is so short, so trade smart.

As for trading targets. I use both the vertical count and Professor Davis' study that was discussed in this morning's 09:00 Update. Understand the above mentioned trade. What did we do? We witnessed weakness in an energy trader Dynegy (DYN), the used that observation to look for potential weakness in other supply/demand charts in the energy traders and found WMB.

I find it tought to try and "criticize" the trader on anything, BUT, I would have not feet as touched/emotional today as if this e-mail had read.... "Jeff: I bought as many of the July 15's as I could, and lost it all and never got to visit my parents....." Just remember to not OVERLEVERAGE. I've been wrong on some other profiled trades to.

 
 
  Jeff Bailey   8/30/02,  12:36:05 PM
Market Internals while I discussed the change of status in the narrower and more volatile NASDAQ-100 Bullish % ($BPNDX) Link to "bull correction" from "bull confirmed", traders/investors may have noted a net gain in the broader and less "techy" NYSE Composite Bullish % ($BPNYA) Link to 46.6% from Wednesday's closing 45.08%. Subscribers that have been with us more than two months note that the NASDAQ-100 bullish % was the first bullish % to reverse up (more volatile and narrow) and later, the broader NYSE bullish % eventually reversed. Then, after the NYSE reversed up, the also broad NASDAQ Composite Bullish % ($BPCOMPQ) Link eventually reversed up.

Can you kind of "feel" how things are moving? the first to reverse up is now a little soft. Now, if I were to bet, I'd bet that a race for a potential reversal between the NYSE and NASDAQ bullish %, will have the weaker NASDAQ bullish % reversing into a column of O first, should a reversal take place in either of these broader market bullish %.

Interesting too. The NYSE Composite (NYA.X) 499 +0.83% HAS NOT closed below its 50-day MA since closing above on 08/19/02 Link while the NASDAQ Composite (COMPX) Link has.

In simplistic form, 4-lettered stock may be weaker than 1,2 and 3-lettered stocks.

May also hint that market makers in 4-lettered stocks are perhaps selling some resistance levels from retracement. Get those retracement brackets out and start fitting some levels to the 4-lettered stock charts. Try to put yourself in the market makers shoes. A good test is to first pretend you're sitting on 1 million shares of the stock at a 10% loss (long). What level from retracement are you looking to get squared up? Then after you've done that, turn the table and pretend your sitting on 1 million shares of the stock at a 10% loss (short). What level are you looking at to get squared up?

The the bullish % charts to help you assess MARKET risk.

 
 
  John Seckinger   8/30/02,  12:34:00 PM
The bifurcation continues, as the Dow is higher by 73 and Nasdaq lower by 7. The dollar did not follow-through higher; however, it did make "technical progress" during trading on Friday. The September Bond (USU2) is higher by 9 ticks, which makes sense since both the Dow and dollar are in the green. Looking at the Dow, I would be surprised if prices fell underneath 8690 during the remainder of the session. Only interesting phenomena is the bid in the five-year notes; possibly traders not willing to sell as September approaches.

 
 
  Leigh Stevens   8/30/02,  12:33:44 PM
INDEX Comments: S&P/DJX - on the rebound OEX and DJX have come back up to the "necklines" of their Head & Shoulder hourly top formations - this is worth noting as a return to this trendlind often is a "stopper" of "deflection point" for the rally. But, if OEX manages an hourly or daily close above 466 and DJX above 87.5, then this kind of move could "nullify" the H&S top pattern as far as predicting any lower downside objectives such as to 450 OEX.

QQQ already fulfilled the downside target for it's H&S top by the move to 23.

SPX is perhaps the best S&P index to follow - its neckline is very well defined at 930 - a close ABOVE 930 in SPX would suggest that the 900 target suggested by the H&S is out/not valid as a target based on the H&S pattern.

 
 
  Jim Brown   8/30/02,  12:31:53 PM
Swing Trade Signals
The short squeeze is getting tighter as the Dow trades back to 8750 resistance again. This is where the rubber meets the road as they say. A break over 8750 would be a positive signal and could trigger numerous buy stops. At least that is the hope as we watch the lowest volume day of the year drag by.

 
 
  Leigh Stevens   8/30/02,  12:18:15 PM
Subscriber NOTE: "Re OEX moving average discrepancies, it's possible the subscriber who wrote you about QCharts may have his moving average calculated exponentially, and yours may be arithmetic, or vice versa."

RESPONSE: Thanks for that thought - it hadn't really occurred to me - perhaps because its more unlikely in TradeStation application that I use, that you would have an exponential average applied unless you took the step of "applying" that type to your chart -"Exponential" Moving average is a separate moving average choice rather than, in the functionality of Q-charts, of a box being checked for "Exponential" on ANY moving average.

I think this in Q-charts could more easily lead to the result you mention - or, person might not know of difference or think about it. The two types of averages can vary significantly - more so of course in relatively short moving average lengths; e.g., 5 rather than 50.

 
 
  Jim Brown   8/30/02,  12:13:42 PM
My two cents on the Iraq conversation. I have been receiving updates from around the world from many readers and the buildup is occurring at a rapid pace. However there is almost unanimous agreement that due to weather in Iraq no attack can occur before November at the earliest. www.globalsecurity.org has a countdown clock on their website to their expected attach date of Nov-6th. They also have the latest military and civilian intelligence with satellite photos. My contacts on the ground in the area tell me that Nov-6th will not work due to the Ramaden holy days but anytime thereafter looks good. Bush is far from having any coalition built and he will not attack before the US elections. If it went bad republicans would suffer at the polls. Just my two cents!

 
 
  Steven Price   8/30/02,  11:59:49 AM
Reader Input:

Steven: It may be a good idea to buy before 9/11 under the following conditions (my humble opinion):

1) On 9/6 we have New Moon. If the US attacks in September, it will be during that night considering the advantage of complete darkness. This may well be in preparation as for example the Colorado National Guard has sent first soldiers supposedly to Afganistan last weekend (Denver Post), who knows where the pit stop is! The week before 10,000+ soldiers were apparently sent to Turkey, small print in the news.

2) Saddam probably knows about the "military secret" of first attacks during complete darkness. If he sticks to his promise that he will strike first before the US attacks, it may happen before 9/6, could even be Labor day when the US people prefer to party.

If nothing happens by 9/7 I believe it will be "safe" as safe can be, to get into the market before 9/11. Hope this is the case. jean

Response: Thanks for the input. I'm interested in hearing theories on what might make people get long or short before the anniversary. Personally, I'm going to be hedging any long positions with cheap out of the money puts. This allows for cheap insurance and the ability to make money if we get a big rally after the 11th or a collapse.

 
 
  John Seckinger   8/30/02,  11:57:27 AM
Looking at a monthly chart of the Dow, July closed out at 8736. Currently, the Dow is at 8716, looking to close out August. Something to think about. The Dow has closed lower the last four months, will it be five? I hope not.

 
 
  Leigh Stevens   8/30/02,  11:57:01 AM
Subscriber QUESTION: "What does Professor Davis' Study say about both types of wedges and H&S patterns? Thanks."

RESPONSE: I'm not sure that his work has involved studying the Head & Shoulder's - H&S - (top/bottom) OR Wedge patterns. Anyway, have no information on Professor Davis in this regard.

However, as discussed in my book, Dr. Andrew Lo at M.I.T. did an extensive statistical study of common technical chart formations to determine if they are, in fact, predictive, for future market action. Dr. Lo's study concluded that the H&S pattern was one of the chart patterns, of the ones they studied, that had a greater than (random) chance to identify a subsequent market reversal. They did not study the "wedge" pattern as it is not one of the most "common" chart patterns.

And, Bulkowski in his "Encyclopedia of Chart Patterns" did find that the rising bearish wedge did not met his standard of a "reliable" outcome - he looks for a pattern to be reliable at a certain percentage level. He did find that the bullish falling wedge did meet his criteria for reliability. I find that the wedge pattern is pretty reliable as a predictor, but I haven't seen nearly as many of them as he studied, so my view is more subjective and less comprehensive probably.

My trading/technical analysis mentor, who was an amazingly successful trader, used to put considerable stock in wedges when he saw them developing - but, he always ALSO was looking at all possible patterns and influences and didn't act solely on the basis of the formation of a wedge. However, when he say one, I know that he would intensify his study of the key stocks in the index, technical indicators, "sentiment" indicators, wave patterns, etc. for possible confirmation. This is always the best approach in technical analysis - using what Joe Granville used to call the "'tree' of indicators

 
 
  Jonathan Levinson   8/30/02,  11:54:48 AM
Funny how all the longs and all the shorts are sweating now. The TRINQ and the QQV are telling me that nothing has changed since the last time I posted, but my fear of being sent to the rat-infested dungeon by the taskmaster (Jim) has me eager to post my reflections on the coming week. The relatively high put to call readings lately, as well as general sentiment, has everyone predicting a monster bull run to start anew. August should have taught all of you bears that the market is the message, and that awful news can be ignored when the market feels like it. I personally find the thought repugnant, but August was a very costly dose of tuition for some I know, and those who ignore history are doomed to repeat it. Nevertheless, the bullish talk has me thinking of our hero, Jesse Livermore, whose lack of regard for the "word on The Street" was notorious. Whenever the general consensus is bullish, well... the crowd is supposed to be wrong. The trouble I see with my contrarian view is that the put to call ratio says otherwise, as can be see in the link below. Bottom line is that the news is mediocre at best, there's a great deal of event and political risk, and it's generally difficult to get excited at the prospect of owning calls on any but the shortest term basis. However, prudence is in order, because for all of this negativity, the markets seem to be holding up where many expected them to fail. Here's that Link

 
 
  Jeff Bailey   8/30/02,  11:54:23 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Jim Brown   8/30/02,  11:48:44 AM
Swing Trade Signals
Looks like we got a temporary reprieve on the LONG signal. Maybe there is some hope left. If shorts are going to cover before leaving the markets early today they should start any time now. I am encouraged the tech drop stopped and that should be a leading indicator that shorts will want to cover before the weekend. The reverse is also true. If the bulls cannot mount a rebound here, shorts may feel more comfortable and elect to remain short or add to positions. Anybody care to flip the coin? Very low volume so any directional move could be strong.

 
 
  Jim Brown   8/30/02,  11:25:17 AM
Swing Trade Signals
Looks like the LONG signal has run into trouble with the Nasdaq reversing roles today and acting as the anchor for the markets instead of the leader. Dow 8750 resistance appears to have held. If we are stopped out I will consider staying flat into the close and look to short any rally on Tuesday.

 
 
  John Seckinger   8/30/02,  11:19:04 AM
The dollar continues to make headway higher, currently at 107.01 and much higher than the 106.40 intra day low. This should give equity traders underpinning confidence. The Greenback does have to get above 107.40 in order to gather both institutional and retail demand. The key resistance level is much higher at 108.50. On the downside, a close underneath 106.60 should have bearish implications. Turning to the Dow, 8660 looks to be pivotal. It will be interesting to see if a stronger dollar can keep equity prices in the green.

 
 
  Steven Price   8/30/02,  11:13:40 AM
Barr Labs (BRL) $70.01 (+1.71) New OI Call Play BRL has established a 3-box reversal up on the PnF with its trade of $70 this morning. It appears to be forming a textbook bull flag on the PnF chart. The current bullish vertical count is $84. The trade above $70 also removed psychological resistance and the bounce from its low of $68.10 this morning looks like the 200-dma of $67.75 is providing real support.

 
 
  Steven Price   8/30/02,  11:02:48 AM
Reader Question: Good morning steve,even after several warning the semi stock are very resiliant to go down,what do you think is the best strategy at this poin to take advantage to this particular situation??????Shall we short the klac-nvls-amat-etc and wait for the market to comeback to reality,or all the bad news is already into the stock(hard to belive if we look at valuation)????????Thank you

Response: I am also surprised that we are seeing some resilience from the semis. It is difficult to get any one sector of the market to go down without the overall market heading south. I am encouraged (to the short side) that this group has not participated in today's Dow rally. The bad news seems to keep coming for this sector. Our current tech shorts (IBM, QLGC, ADI, MXIM) are all either down or close to unchanged, however I would probably wait for a break in the Semiconductor Index (SOX.X)304.24 (-0.09) below 300 to add to short positions, as well as initiate new ones. More conservative approaches would be to wait for a break below yesterday's low of 293.17, or the Aug 5 low of 282.75.

 
 
  Steven Price   8/30/02,  10:53:39 AM
United Technologies (UTX): $60.31 (+1.55)

Reader Question: with UTX rising into the fail zone 60-61 would you comment possible entry .... thank you

Response: I would look for a rollover and break below $60 to initiate short positions. The Boeing machinists union has said they will continue working past their Sunday deadline, which sounds like the union is cracking on their demands. If there is a strike, this is definitely bad for UTX, which may see a drop-off in orders Link . Right now I'm looking for a rollover in the broader markets as well to initiate a short in UTX.

 
 
  Leigh Stevens   8/30/02,  10:49:09 AM
Subscriber QUESTION: "You mention in the Index Wrap that OEX closed just below its 50 day moving average; I show a close of 462. I am using Qcharts and my daily chart shows the 50 DMA at 460.044 which is about a 2 point difference.

My daily chart is looking at a 2 year time period. Is the difference attributed to the fact that you are looking at a shorter time period, for example 6 months, or a year compared to 2 years? Sounds kind of picky I know, but I want to be making my decisions based on the right information."

RESPONSE: I was showing 50-day moving average for OEX yesterday at 462.10, versus its close at 462.00.

This discrepancy with what you are showing on Q-charts, would not be accounted for by how many days of history you have, as a simple (closing) moving average always calculates the same way - taking the close of the prior X number of days and dividing by that number.

I don't know why TradeStation, which I use, would have a number that was different than Q-charts, except that one application is showing a different close(s) on some day or other. The reported close for a calculated index value should be the same everywhere, but sometimes there are discrepancies that show up for one reason or another.

 
 
  Jim Brown   8/30/02,  10:48:57 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the LONG signal at 10:40:50 when the OEX traded at 465, SPX 923.68, DIA 87.62, SPY 92.87, DJX 87.48, NDX 960.87, Compx 1334.14, Emini 923.50. I tried to time this entry to a break by the Dow over 8750, which is resistance, but it appears I was a little too close. The Dow stopped right at 8754 again. A break over 8750 by the Dow will be needed for the markets to rally today. The initial stop loss will be OEX 462 (SPX 918)

 
 
  John Seckinger   8/30/02,  10:46:53 AM
The World Trade Organization recently announced that the European Union (EU) can impose trade sanctions of up to $4 billion against the United States in a tax dispute, the biggest penalty it has ever allowed. The United States claimed the award should be less than $1 billion. The WTO ruled last year that tax breaks for US companies was an illegal subsidy and violated international trade rules.

 
 
  Jonathan Levinson   8/30/02,  10:39:36 AM
Given the historical Sep/Oct. market drops & the fear of another terrorist attack around 9/11, is it likely the Fed will try to curb this anxiety by adding money to the market by doing overnight repo action similar to your Aug 21st comments?

If so, can they actually do enough to prevent a sell off in Sep?

That's a great question- so great, that I don't believe that Mr. Greenspan himself could answer it. Whether market intervention can overcome "organic" money flows is a philosophical question until it can be answered with historical data. I heard an excellent interview with Ian Gordon, vice-president of Canaccord Capital, about the The Kondratieff Winter. Mr. Gordon clained to have a friend who discussed the Kondratieff Cycle with Mr. Greenspan in the 60's, and Mr. Greenspan allegedly said that he hoped to be Fed chairman during the K-Winter, because he thought he could overcome it by flooding the system with enough liquidity to overcome the deflationary cycle. It appears that he got his wish, but whether he will succeed is the big question. From a trader's perspective, the market is the message, and I personally will try to trade what I see. That said, I try to trade with the longer trend, which remains down this year, and so I don't expect to be as aggressive on the long side, should it come to pass, than I've been on the short side.

 
 
  Leigh Stevens   8/30/02,  10:34:57 AM
Subscriber QUESTION: "Kinda new to this, but am following your OEX. What option are you using, Sept., Oct, etc? Thanks, love following your recommendations."

RESPONSE: As is the case with Jim's Index Swing Trader recommendations, I don't suggest a particular option or "measure" upside/downside potential in the OEX except by using the Index itself. What traders prefer using in terms of an option month and strike price varies so much that its impossible to please everyone, so to speak, with YOUR choice of month and strike - how far out, whether the option is at, out of or in the money - then, how far out of the money is a big question.

I tend to go out to index options that are one expiration removed from the current one. But, at times, especially, if premiums are high (high VIX), and I see a short-term swing developing with what I assess as a strong likelihood of short-term follow through, I may trade an option with only a few days to expiration.

Generally, also, I myself don't like to go too far out of the money in an option, but even that depends on what I think is the potential for the predicted move. This is why I spend a lot of time calculating the potential objective. For sure, I want to stay in an active contract. So, I always look at the open interest. Sometimes a strike with a large open interest will sway me some in terms of my trade selection, as I am also always looking for liquidity.

 
 
  John Seckinger   8/30/02,  10:20:00 AM
Note: 22 DMA in the Dow is at 8742. Dow is currently at 8740, up 69.

 
 
  Leigh Stevens   8/30/02,  10:18:28 AM
Subscriber QUESTION: "Great call on the QQQ's at 23. I am relatively new to technical analysis and was looking over the last couple of days to determine how you got the 23 target. I see the H&S formation, but where does the 23 objective come from? Again thanks for all your insight."

RESPONSE: For a full explanation on the "measuring" objectives related to Head & Shoulder's (H&S) top or bottom breakouts, take a look at my Trader's Corner article on this subject at Link

In the case of the H&S Top, it's basically measuring the price distance from the top of the head (straight) down to the neckline - this distance is then subtracted from the price point where the index or stock pierces the neckline AFTER forming a right shoulder.

Then, of course if you really get turned on to technical analysis, a good introductory book is a must. Then, when you see patterns or have questions, you can look up the pattern. Dare I say it - my book would fit the bill. Shameless self-promotion! Seriously, I learn a lot by looking up and reviewing chart patterns - I have done it for years and will likely continue for years more.

 
 
  John Seckinger   8/30/02,  10:15:28 AM
What a difference a few minutes make. Immediately following the Chicago PMI report, bids quickly entered the 10-year note and the yield curve went neutral. Five's up 6.5 and ten year notes now up 10 ticks. Oddly, Utility Sector still down 1.47% while Oil recovered. I will have to give the market (Dow) more time before getting a solid read on the Intermarket Relationships.

 
 
  Steven Price   8/30/02,  10:13:12 AM
Market Volatility Index (VIX): 36.06 -0.26 Most long weekends see the VIX hammered on Friday, as traders and firms try to take advantage of time decay over the weekend by selling options. With September 11 looming, this may be the first long weekend in a while where we don't see a significant down move in the index.

Talked to some floor traders yesterday who said the whole floor is expecting a major rally after Sept 11 and is planning on getting long on the 10th. It's the same sentiment I hear off the floor as well, and I'm wondering if we may see buying beforehand, instead of the major sell-off that many investors (myself included) have been expecting prior to that date.

 
 
  Jonathan Levinson   8/30/02,  10:12:44 AM
Declining volume is almost double advancing volume on the COMPX, with 22 new lows to 14 new highs, 1206 advancing issues to 1134 declining.

 
 
  Jim Brown   8/30/02,  10:11:58 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go LONG the broader market with an OEX trade over 465. (SPX 924) The PMI numbers may give the bulls that extra bounce they need to make another run.

 
 
  Jonathan Levinson   8/30/02,  10:09:20 AM
The COMPX has now filled its opening gap on what looks from my chart like positive Chicago manufacturing index. QQQ made it up 23.88 on that move, but there is continuous selling on these rises. The TRINQ is still 1.99 and QQV is still positive, +.44 on the day. A whippy, directionless market so far.

 
 
  Jim Brown   8/30/02,  10:09:07 AM
Text of Greenspans speech: Link

 
 
  John Seckinger   8/30/02,  10:06:13 AM
The Chicago PMI rose 3.4 points to 54.9 in August (consensus was 52-52.5). Michigan sentiment 87.6 vs 88.0 consensus

 
 
  Jim Brown   8/30/02,  10:06:10 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the open short signal at 10:01:44 when the OEX traded above 462.16 SPX 919.27, DIA 87.25, SPY 92.57, DJX 87.07, NDX 959.00, Compx 1332.51, Emini 920.25. The markets exploded with volatility at 10:AM when the contents of the Greenspan speech were released and the PMI jumped to 54.9 from 51.5 in July. Now we will get to see if it is going to hold before triggering a long play.

 
 
  Steven Price   8/30/02,  10:05:52 AM
BJ's Wholesale Club (BJ) $24.30 (-0.49) New OI Put Play BJ traded below $24 this morning. It has rebounded with the Dow, but has reached lows not seen since March of 1999. A rollover in the Dow should be seen as an opportunity to initiate short positions in BJ

 
 
  Jeff Bailey   8/30/02,  10:03:38 AM
SBC Communications (SBC) $24.39 -5.4% Link ... stock down rather sharp, trade at $24 is sell signal and turns vertical count back to the bearish side at $18 (will take 1 stock away from S&P bullish %, Dow Bullish % and NYSE Comp bullish %) after goldman cuts estimates across the board for Bells after Bell South (BLS) $22.66 -6.5% Link reduced guidance this morning.

 
 
  Leigh Stevens   8/30/02,  10:03:08 AM
Subscriber QUESTION: "I want to clear myself about trading terminology, I understood as follows, correct me if I am wrong: trade type - - - - - - - objective

1. Buy call (long) - price will rise

2. Buy put (short) - price will fall

3. Sell call(sell long) - price will fall

4. Sell put (sell short)- price will rise"

RESPONSE: 1 & 2 are always correct in terms of the "objective".

#'s 3 & 4 with options - another objective or outcome that produces the hoped for results, is when the underlying stock or index price goes SIDEWAYS, resulting in a decline in the premium and the option expires worthless - in this case you also achieve the profit objective of "capturing" (keeping) the premium recieved on the sale of the call or put.

 
 
  Jeff Bailey   8/30/02,  9:52:47 AM
Trucking Stocks In q-chart, you can open up a new "quote sheet" and then drag your mouse up to Quote Sheet on your q-charts command line, then left click on Quote Sheet, then left click on symbols in the pull down menu, then left click on sector lists, and you get a bunch of different sub sectors.

here's a list of "trucking" stocks that I've sorted by price. Can be a handy tool to then begin looking at some p/f charts. Looking for something that looked like ROAD before yesterday's drubbing. Link

 
 
  Jim Brown   8/30/02,  9:49:08 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
After a nice drop this morning I want to lower the stop loss to OEX 462. (SPX 918) I do not want a news spike to take away our advantage.

 
 
  Jonathan Levinson   8/30/02,  9:41:49 AM
There is moderate to strong selling pressure at the open, reflected in the TRINQ at 2.5. There's at least one very big buyer who disagrees with the rest of the seller, and that buyer is bidding in lots of 30,000 shares each for QQQ. The COMPX is holding so far just below 1325.

 
 
  Leigh Stevens   8/30/02,  9:36:50 AM
INDEX Comments: Nasdaq/QQQ - as I went into last night on my Index Trader commentary (see Link ), while the Nasdaq Composite (COMPX) & QQQ (it came within 2 ticks of my 23.00 objective) did not quite reach, or exceed, the "mimimum" downside objectives implied by their their Head & Shoulder's tops - I still think this will happen and that the market will be under pressure for a while to come. The Q's would have to go to 22.5 to re-test its last swing bottom which also seems likely.

OEX, on the basis of their H&S hourly tops "projects" to around 450 and SPX to the 900 area.

 
 
  John Seckinger   8/30/02,  9:35:15 AM
The yield curve looks pretty steep (more positive) this morning, as five and ten year notes are up 7 ticks. This is obviously bearish for stocks. The dollar is relatively unchanged, while Gold is fractionally higher. The two should trade inversely. Both Utilities and Oil Index is lower; however, the Utility Index still has not fallen under its 22 DMA. These two indices should fall in-step with the blue chips.

 
 
  Steven Price   8/30/02,  9:32:00 AM
IBM $75.50 -1.12 OI put play IBM back under $76.00 Look for support around $75 as a psychological level, and technical support at $74.

 
 
  John Seckinger   8/30/02,  9:31:37 AM
The Chicago Purchasing Managers Index is expected to be released at 10 a.m. and should set the tone for next week's ISM report. Economists are expecting a one point rise to 52.5 after a nine point collapse in May. In other news, corporate spreads issued by Ford and GM are showing promise and should be good for shares of F and GM. In current events, UAL is asking employees for $1.5 billion in wage concessions.

 
 
  Jeff Bailey   8/30/02,  9:28:59 AM
Knight Transport (KNGT) $17.36 .... "trucking stocks" got hit to the downside yesterday. What I did last night was look at the point and figure chart of Roadway (NASDAQ:ROAD), which warned on earnings and was the catalyst stock for yesterday's trucking stock's weakness.

Here's a chart of ROAD Link and we can see the stock did give multiple signs of weakness before yesterday's plunge to a session low of $21. Now, bearish vertical count was to $19, so perhaps makes some sense that stock recovered a bit from yesterday's intraday low of $20.58 to close at $23.10. However, at current levels, risk/reward on the p/f chart not all that favorable for a trade.

Then I started looking at some other "trucking" stocks and stopped at Knight Trans (KNGT) $17.36 Link . Noting similar rally to bearish resistance trend after a recent spread-triple-bottom sell signal at $16.50. Would need a trade at $15.50 to trigger a triple-bottom sell signal and get stock back on a sell signal to have a bearish vertical count.

Profiling 1/2 bearish position in KNGT here (trader that can watch things close, may look for stock to fill yesterday's gap lower to the upside) in the October $20 puts. No need for stop in the puts as risk from p/f chart $17 would be to a stop in the underlying stock at $19.50, which is about $2.50 and very close to the price of the put options at current level. If a trader would normally short $5,000.00 worth of stock as a FULL position, then 1/2 position would be $2,500. With KNGT at roughly $17.00, then 1/2 position would be about 147 shares. Therefore 1 or 2 contracts would be equal to 1/2 position.

The first two days of September have opened strong the last 6-years in a row, and pehaps KNGT would fill its gap to the upside under such a history.

 
 
  Jeff Bailey   8/30/02,  9:27:43 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Steven Price   8/30/02,  9:26:09 AM
Look for a pullback from yesterday's Nasdaq gains. After the bell, Novellus (NVLS) warned that 3rd quarter revenue would be lower than expected. There were also comments by Sun Micro (SUNW) about the spending environment on big ticket technology equipment worsening. One note was NVLS's comments that they saw an uptick in IT spending.

These comments were followed by downgrades to Novellus, Kla-Tencor (KLAC), Applied Materials (AMAT), and Lam Research (LCRX)

 
 
  Jim Brown   8/30/02,  9:24:13 AM
Another reader sent me this link which shows the historical holiday trends: Link

 
 
  Jim Brown   8/30/02,  9:22:03 AM
Swing Trade Signals
With no disasters before the bell this morning the futures are close to neutral. I guess a gap down three days in a row is too much to expect. The report with the best possibility of moving the market is the Consumer Sentiment at 10:AM. Until then there should not be a strong directional move. Greenspan also speaks this morning at 10:AM in Jackson Hole at the Fed Summit.

I mentioned in last nights game plan that I expected the markets to rise today after any opening sell off on the SUNW/NVLS news. That is still my view but we need to maintain the current short position until we see strength. Today is very thinly traded and the bond market closes early. This could be a very volatile day.

I outlined the DJX play in my market wrap last night and the bottom line was to consider closing it on any strength today and reopening it on Tuesday from a possible higher level. I had a reader who went to great lengths last night to debunk the Tuesday rally theory by going back for 20+ years and giving the percentage gains/losses for Fri/Tue/Wed. His research showed "closing" gains on Tue/Wed were very few. It appears the historical trend is more focused on intraday swings which amounted to a +233 point gain intraday on Tuesday last year before selling off to close up only +48. The prior year there was a +163 point swing higher and in 1999 all the gains were on Friday with a +263 point gain.

I summarized this here to show that while the history show intraday bounces the actual closes were for only minimal gains. This means while markets are traditionally lower by next Friday there can be some strong swings between now and then with no assurance of another drop. Holding a short position over the weekend can be dangerous. If we had a big drop today I might chance it. If we close strongly positive today I would not take the chance. Traders should evaluate their current profit/loss position and decide in advance if they want to hold over and take the event risk or sell today and hope to reenter Monday on the bounce. I would think a Dow print over 8800 today would be a signal to close and reopen next week. A negative close today below 8600 would be a signal to hold over. Just my opinion.

 
 
  Jonathan Levinson   8/30/02,  8:51:57 AM
CNNfn reports that personal income was unchanged after rising a revised 0.7 percent in June. Personal spending rose 1.0 percent after rising 0.5 percent in June. Economists, on average, had expected income to rise 0.3 percent and spending to rise 0.8 percent.

 
 
  Jonathan Levinson   8/30/02,  8:29:31 AM
The US Dollar Index started a move up about an hour ago, and is currently trading 106.70. NDX futures are down 5.50, S&P 2.20. QQQ is trading 23.65, and bond yields are down.

 
 
  Jim Brown   8/29/02,  10:01:36 PM
Swing Trade Game Plan - Click here: Link

 
 
  Jim Brown   8/29/02,  10:01:25 PM
Reader Survey

We recently changed to a different format on some of our chart images in the Swing Trade Game Plan. The new images use a smaller file type that allows for faster loading over dial up lines. Several readers complained that the images were broken. We have traced the failure back to readers still using Windows 95 and Netscape. We switched back to the larger .GIF type images for Thursday's Game Plan.

We would like to know how many readers are still using Windows 95 or any other operating system that does not recognize the new images. Please click on the link below and send me an email ONLY IF YOU CAN'T SEE THE CHARTS!

Link to Wednesday's Game Plan with new image format: Link

If you cannot see the charts please send me an email with your Operating system, version, browser and version. Like Win95, Netscape 5.7.

Only send the email if YOU CAN'T SEE THE CHARTS!!

Thanks - jim@OptionInvestor.com

 
 
  Jeff Bailey   8/29/02,  9:53:13 PM
Market Monitor has been archived. To view today's comments, simply click this Link

 
 

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