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  Jeff Bailey   9/20/02,  5:31:34 PM
Heee, hee, hee.... Jeff: geez--you could have saved time and just said relax --it ain't SOUP yet

I've said before we have a great group of subscribers. Many have a great sense of humor. Unless I find something really interesting to make note of later tonight, I hope everyone has a great weekend! It snowed in the high country of Colorado this week... brrrrrr it's going to be a long, cold winter. I can feel it in my bones.

Would be interested in an update on the waterfowl migration in the upper-reaches of Canada. Are the quackers (ducks) and honkers (geese) on their way south yet? If they start arriving a little earlier than normal, let me know. Waterfowl can be a great predictor of weather patterns. One year, was out in the corn fields of northern Colorado. Was a bluebird day, sunny, and warm. However, for some reason, the ducks and geese came out early in the afternoon, about 2-hour earlier than normal for an early dinner. Couldn't figure it out. About three-hours later, you couldn't see the mountains as the storm came in. Amazing creatures indeed!

 
 
  Jeff Bailey   9/20/02,  4:58:31 PM
It has been some time... since a play recommendation of mine has gotton so much subscriber response. I really have NOTHING more to say on Campbell Soup (NYSE:CPB) $22.02 +1.99% that THIS IS A SEASONAL PLAY.

Yesterday, subscribers were wondering about the recent downside action. Today it was the upside action. Some are wondering about my targets near $28, some concerned about the rolling MACD on daily chart, some about the unusual volume spikes that have been coming on upward moves, some about the stochastics, some about the p/f charts bearish vertical count of $16, some about where support/resistance is at.

All this is is a seasonal play based on historical bullishness from the more seasonally cold months. That's it.

While it is FANTASTIC to finally see subscribers showing interest in "boring stocks" way too much focus and attention that traders could be spending on more important things is being wasted.

For me... since the point and figure chart wouldn't give a "buy signal" until $32, I've taken retracement from $28.40 to $21.00. This perhaps represents some "levels" that the stock has been traded on in recent months. Volume spikes have all come withing the $21-$23.82 range. Volume doesn't really tell you much about price action, but it does tell you there's interest in the stock (from bull and bears). There's nothing that says an institution that has been holding the stock from $27 won't be a seller, even this time of year, if he/she feels there's a BETTER OPPORTUNITY elsewhere for his/her capital, and the current loss is needed to perhaps offset a gain somewhere else in the portfolio.

Here's the bar chart of CPB Link . Perhaps some "educational" things to take note of as it relates to assessing if an option makes sense. Note that I've profiled the November $22.50 calls for $1.10 in the past. I KNOW that the stock needs to trade above $23.60 on or before expiration if it is to make money (excluding commission). All a trader has to do is decide for themselves if the trade makes sense as it relates to their account. I'm not betting my retirement on this (nor do I on any option or stock) and I would hope that any subscriber taking this trade doesn't either. Do you see how risking $1.10 in the call is about the same amount of risk as buying the stock at $22.02, with a stop at $20.90? Option traders that DON'T OVERLEVERAGE and DON'T buy more call options, which cover the same amount of shares you would normally buy in the underlying stock have an ADVANTAGE!!!!! That advantage is TIME. If I buy 100 shares of CPB at $22.02, with a stop at $20.90, I MUST STOP OUT AT $20.90 as this is my tolerance for risk and honors the technicals I've interpreted. However, if I buy 1 call option (equates to 100 shares), I CAN WAIT UNTIL NOVEMBER EXPIRATION to see if my "seasonal scenario" plays out! I don't have that benefit if buying the stock at $22.02 with a stop at $20.90

I don't know what the volume spikes are telling me at this point, other than there's interest in the stock at those ranges traded. I do "know this though." If it's bullish buying and the stock breaks above $24 and all those that are buying for some catalyst in the future and decide they're not sellers, there could be a supply/demand problem if further buyers show up to get in on the bullish action. At the same time, if the stock breaks $21.00 and everyone wants out, then CPB trades lower. However, that downside risk of $1.10 has already been factored into a trader's decision before he/she ever bought the option. At least it should have been.

Point here.... there's a lot "bigger can's of soup" to be opening than all the stress some traders are showing over this recently profiled play.

 
 
  Jeff Bailey   9/20/02,  4:03:49 PM
Bookend programs Got one alert at the open from the "buy program" execution level, which made sense as futures were above fair value. Then at the close, I get a "sell program" at the $-2.00 premium level. May not mean much, but will take a note here and see what happens on Monday. Then, next triple-withing, if we see the same thing, may be tradable in the future. Get your trader's logbooks out and make some notes! Sometimes it can be amazing what you pick up on.

 
 
  Jim Brown   9/20/02,  4:03:34 PM
Swing Trade Signals
I should have waited for the 425 print! (grin) I got a surprising amount of email from readers who are still thinking LONG for Monday. Hey, I understand. I have felt that way for several days but I just did not like the setup the markets were giving us. I have a personal problem with trading my bias when it goes against the markets and I am trying to not get married to my bias. We will see how Monday plays out but the bottom line is we should see 7500 before the week is out.

 
 
  Jeff Bailey   9/20/02,  4:01:10 PM
Awesome observation Jeff: I have noticed that there is extraordinary volume relatively speaking at the open today on several stocks that I monitor, i.e., WM, A, MMC, XL, and AIG just to name a few. I know today is triple witching Friday so is this the reason or is there some other possible explanation? Any thoughts you might have would be appreciated.

Most likely this does have something to do with expiration. For example. Assume you are a mutual fund, and hold bullish all of these positions. In the recent quarter, you felt the markets were lower, despite how good your fundamental research was. To protect some of your holdings, you bought some SPX puts to help insure against declines. After all, your fund-holders were redeeming funds at about 1 million dollars per day. Now, over this quarter there have also been some "changes" to you second-quarter scenario, where a couple of the stocks no longer fit your previous investment goal (something changed, either stock/sector specific, or economically) and you've been a steady seller each day of a couple of these stocks.

Well, today, the hedge comes off and perhaps you taking the remaining cash from your profitable SPX puts, some cash left over from what you've sold, and perhaps add back into your favorite positions. At the same time, you're looking to dump whats left of the positions you still hold long that you're looking for the door on.

All this may have had some impact on volume at the open.

 
 
  John Seckinger   9/20/02,  3:48:42 PM
Economic releases scheduled for next week isn't too exciting. On Monday, LEI at 10:00 a.m. (should not be a factor at all, but somehow that number makes headlines. I remember when it went private back in the 90's to get more respect). On Tuesday, Sept. Consumer Confidence and FOMC Meeting. (Ok, now we're talking. Definitely the most important day of the week). Wednesday features Aug. Existing Home Sales (Hmmmm. Expectations are for 5.3 million. A number under 5 million would get my attention. This index did tank 11% in June). Thursday features Aug. Durable Goods (I have never been able to read this release), Initial Claims (good importance), Aug. New Home Sales (most resilient indicator ever, and it could hit 1 million. Expectations are for 970k). Also on Thursday is the FOMC Minutes. On Friday, Q2 GDP-Final (Economists should get this one right and the market should have it priced in) and Sept Revised Michigan Sentiment (should be overshadowed by the confidence report on Tuesday). Note: This is just my opinion.

 
 
  Jim Brown   9/20/02,  3:46:31 PM
The Dow has traded in a 82 pt range today.
The Compx in 16 pts.
The OEX in 5 pts.
What kind of triple witching is this? JF

Welcome to the September. The volume was all in the first hour and then everybody went home. Shorts left are finally covering to give us a little excitement at the close but just a better entry point for those expecting a 7500 retest next week.

 
 
  Jim Brown   9/20/02,  3:37:00 PM
OIN Plays for Monday

Adding
ABT - call
AIG - put
BBOX - put
JCI - put

Dropping
AVY
TIN

 
 
  Jeff Bailey   9/20/02,  3:36:38 PM
Research in Motion (RIMM) $9.05 -2.68% ... Jeff: Still holding 3 DEC 15 puts which you profiled a few months back. Entered @3.30, currently bid at 6.1 (100% intrinsic value). Currently have GTC limit order to sell @6.6, set way back. Looks like RIMM has a current bearish vertical count of 6.5. Would like to hold a little longer to see if I can get my limit price, especially since market is weak and bearish count still in play, but also see pretty good gains so far. Any technical suggestion for a "profit-protection" stop level? (Also considering selling 2 of the 3 contracts now...)

Funny.... was looking at RIMM this morning as notable 52-week low. I'm thinking like you. Take two off the table, then hold the other as you remove entire risk from the initial trade. This one ranks "high" on my list of tax-loss sell candidates into the end of the year. Bearish vertical count is currently $6.50 as you state. Excellent analysis from subscriber and Excellent trade/account management in my opinion. Link

 
 
  Jeff Bailey   9/20/02,  3:35:19 PM
The 3:15 PM intraday update has been posted. Link

 
 
  John Seckinger   9/20/02,  3:31:32 PM
The event calendar for next week includes the FOMC policy announcement on Tuesday, Merrill Lynch Global Pharmaceutical Conference (AZN, BMY, LLY) on the 25th and 26th, and the European Central Bank Meeting on Thursday. Note: Tokyo markets closed on Monday.

 
 
  John Seckinger   9/20/02,  3:19:48 PM
Notable earnings reports scheduled for next week includes GS and LEH Tuesday before-the-opening, MU after-the-close on Tuesday, BBBY on Wednesday after-the-close, and SWY before-the-open on Thursday. Not exactly a busy earnings week.

 
 
  Jonathan Levinson   9/20/02,  3:12:55 PM
The only caveat to all this bearishness is that we rarely get 5 down days without a reversal. If we close near the high today, we would get a nice hammer which, after 4 down days could signal a short term bottom. Just a thought.

Good point, Marc. The next 50 minutes will be critical. I'll bet on a star at worst, and possibly a reinflation of the downward spike to leave us with a mostly complete red candle- either a flat close or down from here (and a partridge in a pear tree!).

 
 
  Jonathan Levinson   9/20/02,  3:06:36 PM
Don't mention it :)

 
 
  Jim Brown   9/20/02,  3:05:01 PM
Swing Trade Signals
I could not stand the waiting for 425 and had to pull the trigger at the 424 failure. Now, bring on the negative news!

 
 
  Jim Brown   9/20/02,  2:59:52 PM
thank you jim and john for getting so bearish. I have bought my call options. regards SB.

Anything else we can do to help let us know!

 
 
  Jonathan Levinson   9/20/02,  2:46:55 PM
Looks like the market makers have parked JPM in the garage at 20 even. The COMPX has found a new residence at 1220, still within its descending channels. The TRINQ remains in neutral buy territory, as if today were just a run-of-the-mill rally day... except for the non-existant price action. The QQV, down 2.74 to 50.89, is also indicating that price is on the rise... except that it isn't. Only bond yields seem to make sense, and look bearish for equities. I will be staying short this weekend.

 
 
  Jim Brown   9/20/02,  2:43:40 PM
Swing Trade Signals
It is really shaping up to be an ugly close. The A/D ratios are dropping, the declining volume is rising and the indexes are leaning to the downside. I am still surprised there is no short covering bounce and would love to see one as an opportunity to get short personally. I am setting a short entry point for myself at OEX 421 just in case we don't get a bounce back to the 425 area.

 
 
  Jim Brown   9/20/02,  2:27:25 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the stop loss at 14:21:58 when the OEX hit our stop at our entry point of 422. SPX 841.65, DIA 79.42, SPY 84.33. DJX 79.41, NDX 866.74, Compx 1218.06, QQQ 21.56, Emini 841.00. There will be no more entries today. Going short here at 422 would be risky because of the support at 419-421. I would love to get a bounce back up to the 425 range to give me a personal entry for a weekend short.

 
 
  John Seckinger   9/20/02,  2:21:48 PM
Note: The Dow is currently down 360 points for the week, and a settlement at current levels (7942) will be its worst weekly close since September 1998.

 
 
  John Seckinger   9/20/02,  2:18:25 PM
The Dow finally broke away from its 22 and 50 PMA's (7971 and 7975 area, respectively), and will most likely use these averages as resistance going forward. It is interesting how the December Bond is negative, while both five and ten year notes are showing price gains (lower Yields). This is slightly bearish for equities.

 
 
  Steven Price   9/20/02,  2:14:22 PM
Loews (LTR): 45.54 (-2.01) I am lowering the stop on OI put play LTR to $49.00, just above yesterday's high.

 
 
  Jim Brown   9/20/02,  2:13:44 PM
Swing Trade Signals
The markets are looking pretty grim this afternoon. With no rebound and no short covering it is pretty clear nobody is worried about an upside surprise on Monday. There is no talk about a possible Fed rate cut on Tuesday. (rightly so since there has not been any telegraphing of a possible cut by Fed heads) Still you would have thought reporters looking for a story angle would be talking it up. Personally I have moved to looking for any bounce so I can go short over the weekend. It appears the event risk is not slowing and with so many possible negative events both in and out of the market that looks like the best option.

 
 
  Steven Price   9/20/02,  2:10:37 PM
Semiconductor Sector Index (SOX.X): 248.65 (-3.81) The index has broken the previous target of 250. Looks like the bounce was minimal and short lived. It is currently trading near its lows of the day and I am looking for a failure on an attempted rebound under 250 to pile on the semis.

 
 
  Jeff Bailey   9/20/02,  1:55:24 PM
The 1:00 PM intraday update has been posted. Link

 
 
  Steven Price   9/20/02,  1:54:29 PM
Reader Question: Steve, What are your thoughts on BBox considering how weak they seem to be. I was thinking of an OCT 30 put with a move up to around 32 again. As always thanks. Gary

Response: Black Box (BBOX) $29.92 -0.38 BBOX has broken down below $30 after finding support there yesterday. The breakdown looks bearish, as the stock is on a point and figure triple bottom breakdown, that has also gotten a couple boxes past a "bear trap". The current column of "O"s is a little extended and could see a bounce. However, the chart looks bearish and today's intraday chart shows a rebound stopped dead just below $30. The idea of buying a put on a bounce to $32 is well thought out, as that was the previous level of PnF support, as well as support on the daily chart and should act as resistance on a bounce, while providing a cheaper entry on the put.

 
 
  Jonathan Levinson   9/20/02,  1:49:56 PM
The 30 minute 5(3) stochastics have turned and the descending trendline resistance seems to have held on the COMPX. Bears aren't sparking the stogies just yet, but this cycle should bring the COMPX down to lower trendline support. Of course, deontological statements have no place in trading, but that's how my chart looks at this moment, with room for a pause or a bounce at the lows of the day. The TRINQ squeezed itself into a corner at .35 and is now at .54 on this small decline. The TICK.NQ is at -190, and QQV is off its lows near -3 on the day to -2.43 currently, at 50.96.

 
 
  Steven Price   9/20/02,  1:32:21 PM
Reader Question: Hi Steve, I'm watching IBM and thinking put at failed rally at the 66 area. What do you think? Thanks, Steve

Response: IBM $64.67 (-0.13) I like that idea a lot. It was the bottom of the previous trading range, which should serve as resistance, and provide for a better entry point on a short play.

 
 
  Linda Piazza   9/20/02,  1:23:38 PM
Reader Question: When the intra-day signals to "Buy the broader market" or "Let’s go short the broader market," could you tell me what actions could possibly be taken to participate in the alerts? Is it when that number is hit, buy the options at that strike price at market, or but any options at all. Maybe buy the index itself at that level or what?

Response: I’m so glad you asked those questions, William. If you have those questions, other readers may, too. Since you mention the broader market, I assume you’re referring to Swing Trade recommendations. In this context, buying the market usually means buying call options, and going short the broader market usually means buying puts. In other contexts, buying might mean buying a stock while going short might mean shorting a particular stock.

Choosing the right strike price will depend on your own trading style, but Mark Phillips wrote two wonderful articles that can help you make that choice. I’ve provided the links. Part 1: Link Part 2: Link

 
 
  Jim Brown   9/20/02,  1:13:27 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
There has been a succession of lower highs and the internals are weakening. Raise the stop loss to our entry point of OEX 422 and let's go flat for the weekend if this market rolls over.

 
 
  John Seckinger   9/20/02,  1:11:14 PM
From an Intermarket Relationship stand point, conditions have not changed in the last few hours. Relative strength in the Dollar, Gold stuck in narrow range, Yield Curve neutral, Oil finding some short-covering bids, and the Utility Sector continues to be in trouble. Looking at the Dow, the 50 PMA (five-minute chart) has held up relatively well at 7977. The 22 PMA is just underneath at 7973, while the 200 PMA is trending lower from 8060.

 
 
  Jonathan Levinson   9/20/02,  12:40:39 PM
Depending on the timeframe, we are at just above the upper descending trendline of a bullish falling wedge on the COMPX. The 30 minute chart is the clearest view of it. It projects much lower, and so I wouldn't be looking for a big pop here, today, but bears should keep an eye on it. The TRINQ, meanwhile, is down at .36, giving you some idea of how much buying it's taken to get the price up 10 points off the lows. QQV is down 2.08 today, and the TICK.NQ is currently -134. Yields are all currently positive.

 
 
  John Seckinger   9/20/02,  12:32:21 PM
Side Notes: The Italian economy is all but in a recession; moreover, the euro/lira conversion has prompted strong concerns over stagflation (rising prices in a weakening economy). What did Italians do to show their displeasure? They tried for a few days to not buy anything. That's right, a buyers strike! I believe Germany is in the same boat as Italy. Ok Germany, today, buy nothing! Note: Many businesses in Italy raised prices (in some cases over 20%) soon after the introduction of the Euro, most likely triggering the strike by Italians.

 
 
  Jonathan Levinson   9/20/02,  12:30:51 PM
Thanks to Jean who points out that my volume reading on GE is lagging. In fact, GE is up near 100% of its average daily volume already. Yet another bad reading from Scottrade.

 
 
  Linda Piazza   9/20/02,  12:12:18 PM
Okay, today I'm the poster girl for Jim's admonition against buying October options on the Thursday before options expiration. Jim warns that market makers bid up those options because so many people are rolling out of September options and buying the Octobers. I bought puts on yesterday's break of 427 on the .OEX and sold them on today's drop--for the same price I paid for them.

 
 
  John Seckinger   9/20/02,  12:06:12 PM
One stock not participating in the market rebound is shares of Prudential (PRU). Shares are setting a new all-time low, currently down 0.64 percent at 27.71. Volatility should pick up now that shares are under 28, and as bearish as the chart looks, I would not be surprised to see a "bear trap" take place. That would happen if shares closed back above 28 on solid volume. The downside objective is for a move to 25.86, figured via retracement analysis.

 
 
  Jim Brown   9/20/02,  12:01:16 PM
Buying back short options for a nickel To add to Steve's earlier comments. I have received several emails over the years from readers who let options "expire worthless" on Friday only to find stock in their accounts on Monday. One reader I remember vividly. He had 10 contracts of naked puts on SDLI in the $200 range. His strike was about $7 out of the money at the close and the bid was .15 cents to buy them back. He let them "expire" only to have somebody else warn after the close in the same sector. SDLI fell nearly -$20 in after hours. He woke up Monday to find stock in his account that was worth about -$20 than it was at Friday's close. If I recall correctly he lost $11,000 on the trade because he did not buy back those $.15 cent put options at the close. Unless you are way out of the money I would always buy them back. I have seen this happen to readers probably a dozen times over the last four years. Just my two cents. (I have also let thousands of contracts expire worthless myself) You just need to be aware that there is risk and be prepared to deal with that risk.

 
 
  Jonathan Levinson   9/20/02,  11:59:45 AM
GE has already done about 66% of its average volume so far, and on this little bounce, volume was very thin. Looks very weak to me.

 
 
  Jeff Bailey   9/20/02,  11:53:23 AM
Diageo PLC (DEO) $50.76 +0.7% ... Jeff: I value your thoughts and dedication to the OI site. THANK YOU !! One of my employees who gets a 1/2 hr for lunch just got back after 90 minutes. Said he ate at Burger King and the lines were out the door. They have just added many new items to their 99cents menu and are doing large amounts of promotions. Now that you have the pork and beans play in motion,how about taking a look at DEO.

Lets take that observation and see what the MARKET thinks right now as it relates to supply/demand. The p/f chart of DEO Link is bullish, with demand in control. The bullish vertical count (column of X from $43-$49) hints at a longer-term bullish price objective of $64, with a bull's risk to a sell signal at $45. The relative strength chart of DEO is also bullish versus the MARKET as depicted by the SPX. Link

As such, I can find nothing "bearish" about DEO. According to Dorsey/Wright and Assoc., stock is classified as a "food/beverage/soap" and that group is currently "bull alert" status at 36%. It would take a sector reading of 32% to have this group reversing back into "bear confirmed" status and currently would take a reading of 78% (May's high was 76%) to get the group back into "bull confirmed" status.

With some of the broader-market bullish % charts reversing lower in recent weeks, would look for bullish entry in DEO, but on a pullback near $47, help take some "risk" out of the stock, and then follow with a stop just under the bullish support trend, which would be $44 should the stock reverse back into a column of O. This would give the bullish trader a little room for a 1-box sell signal, kind of like that trade at $42 in late July.

Hey.... How can an Irishman like myself be BEARISH a stock like DEO when they also make Guinness Stout and more importantly Bailey's Original Irish Cream ?

 
 
  Jim Brown   9/20/02,  11:51:35 AM
GE - Gee, no GE! A reader and I have been discussing GE. Do you remember last quarter when GE was affirming guidance about twice a week? Every time somebody else warned that was even remotely related to their sectors GE would rush to reaffirm guidance. This quarter there has not been a peep out of them. The stock has crashed to $26 today and looks weak. If you want a catalyst for Dow to 7500 then picture a warning from GE and IBM next week. Things could get really ugly really fast.

 
 
  Steven Price   9/20/02,  11:50:34 AM
RJ Reynolds (RJR): $47.83 (-2.62) RJR, profiled earlier this morning as a short, continues to extend its losses. It is just off its lows of the day, but below the $47.90 July low.

 
 
  Jeff Bailey   9/20/02,  11:48:55 AM
The 11:00 AM intraday update has been posted. Link

 
 
  John Seckinger   9/20/02,  11:38:39 AM
With the Dow currently higher by 12 points, there is a trend line (diagonal blue) that might be the reason momentum has turned around to the upside. Please see chart: Link

 
 
  Jonathan Levinson   9/20/02,  11:35:47 AM
We have a bounce on the COMPX, with price currently 5 points off the low of the day, close enough to yesterday's low to look double-bottomish. If long, I'd be keeping a tight stop underneath, because a revisit to the low of the day would negate the current potentially bullish double-bottom thesis. Remember the "Dubya" on the COMPX daily chart a few months back? Well, the "Dubya" isn't as convincing in a "tripya" pattern. That said, the TRINQ is back down to .53, reflecting the renewed buying/relaxed selling, and the TICK.NQ is neutral at -23. A number of readers are asking for direction. My guess is up from here or sideways, followed by a re-test of July's lows, followed by another bounce or sideways move. However, it's rare to see such a wide array of bullish and bearish opinions, and so I strongly suggest looking at the charts and trying to form your own. In any case, however, use tight stops. Don't overleverage and risk cratering your account in case you or we are wrong.

 
 
  Steven Price   9/20/02,  11:31:46 AM
Reader Question: Can you take a look at INTU..appears to have broken and early august uptrend and also broken thru 50 dma. your thoughts..and if wanting to do a spread or hedge on this what would you look at? thanks Gary

Reponse: Intuit (INTU) $44.52 (-0.04) INTU broke throught the 50 dma as you said, however recovered above it. I would look for a close below that level to be sure it won't provide support. I would also be concerned about support at $43 from the end of August. The 200-dma of $41.70 could also give some support. The graph does look very bearish, but there are several levels below that could prevent a real free-fall. The Oct 40-35 debit put spread at 0.85, or the Oct 40-30 for $1.10 could be lottery plays for a break under $40, which is also a level of support.

 
 
  Jim Brown   9/20/02,  11:31:22 AM
Swing Trade Signals
Looks like the shorts are beginning to cover. With -375 Dow points and -75 Nasdaq points this week they have a lot of profits to protect before the close. The volume is very strong today and it has started trending in favor of up volume. The A/D line has gone positive again. S&P futures are off their lows and 838 appears to have held. It is still way to early to predict the outcome but with the Dow and Nasdaq back in positive territory I would say things are moving in the right direction.

 
 
  Steven Price   9/20/02,  11:23:08 AM
Reader Question:I am a new student...I do not understand why firms with otm sept options would buy them back for nickels and roll to Octobers. Why would firms not just let the options expire worthless? Or at least just watch them until near the close and make sure they are going to expire worthless...Thank you. Linda

Response: Linda, this is a good question and one that I often pondered as I sold out of the money calls for a nickel. My guess is that it is done for one of two reasons.

1) To avoid increasing risk in case a stock experiences news after the bell - options don't actually expire until Saturday. If they were to simply sell the October options, without buying back the September options they would be doubling the risk. For example, IBM dropped $4.00 after the bell when EDS lowered guidance the other day. If you were short the Sept 70 put, your risk increased tremendously after hours.

2) To induce traders to make the trades. Traders may be more willing to buy the Octobers if they can dump the out of the money Septembers they are long, which will most likely expire worthless.

I remember trading ELON (when it was trading much higher) when they released bad news after the bell on expiration. I was long the slightly in the money call which was an automatic exercise, and my position was flat at the end of the day. The stock dropped $6.00 after hours and I was able to purchase the same stock for $6.00 less and simply not exercise the call. It was a big gain for me, but a huge loss for the traders who were short the same slightly out of the money put, as they were assigned the next morning.

 
 
  Jim Brown   9/20/02,  11:17:34 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We are now LONG the broader market at OEX 422. SPX 841.72, DIA 79.55, SPY 84.44, DJX 79.48, NDX 869.65, Compx 1220.12, QQQ 21.65, Emini 842. The initial stop loss will be OEX 417. We came very close to the 420 level at 420.66 and then rebounded to 422.06. This was very close to the scripted entry and with the rumor squashed I decided to pull the trigger. There is still a possibility that the markets will fall on their own weight. We have psychological support at Dow 7900 as well as strong OEX support at 419-420. Based on all available information this should be a decent entry and only slightly early. However the A/D line is still falling and declining volume has not slowed. We are at a dangerous inflection point. Tread carefully! If you don't want to use the wide stops listed above then choose your own quickly.

 
 
  Jim Brown   9/20/02,  11:08:28 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
With the rumor over I would like to get LONG here for a possible bounce. Go LONG the broader market now at OEX 422.

 
 
  Jonathan Levinson   9/20/02,  11:05:55 AM
The TRINQ is only at 1.03 despite this decline, and the QQV is lower now, -2.25 on the day, yet yields have pulled back. I expect a bit of madness in the options markets due to op ex day, but it makes this a very confusing moment as regards short term direction. The lack of strength and price declines should have yields falling more and QQV rising, same for the TRINQ. Either the smart money is bullish here, or it's op ex shenanigans. 21.50 QQQ is projected support and has been holding so far. This is a critical pivot.

 
 
  Jim Brown   9/20/02,  11:05:54 AM
Check out AIG on the alert status rumor!

 
 
  Jim Brown   9/20/02,  11:05:13 AM
Swing Trade Signals
The rumor was triggered by some problem with a flight out of Canada heading to Washington DC. It appears the situation has been cleared and the alert status will not be changed from orange. The markets look to have slowed their descent. Could be time for a bounce.

 
 
  Jeff Bailey   9/20/02,  11:02:53 AM
Hewlett Packard (HPQ) $12.48 -2.8% ... has been bearish profiled stock above $14 in recent weeks. Giving up yesterday's low. Point/figure bear would like to see trade at $12.00 and get stock back on a sell signal. HPQ is listed on the NYSE and a trade at $12, would have this stock "taking away" one stock from the NYSE Bullish %. Link

Disclosure... I currently hold a bearish position in HPQ.

 
 
  Steven Price   9/20/02,  11:00:13 AM
Reader Question: Re: Panera Bread (PNRA) does a put play below 26.00 look in order . support seems to be 23.92 pivot point 26.56 resistance 29.20 stock at 26.52 momentum players could be leaving the stock at the end of day ? I know the technicals our out the window on rumor news but looks tempting

Response: $26.35 (-0.54) When I saw that PNRA ran into resistance between $27 and $28, I considered a short lottery play in my personal account, however decided that if the rumors turned out to be true I could be looking at a gap up overnight. What kept me in business as a trader was not taking unnecessary chances, knowing the market provides plenty of opportunities each day. If I were going to play it short again, I would probably wait for a break under $25.50, where it found resistance throughout the early part of the week.

 
 
  Jeff Bailey   9/20/02,  10:55:37 AM
Treasury YIELD watch ... this morning, Treasuries YIELDS were green, but rather sharp reversal. Stocks eding modestly lower and doesn't look as if bulls too agressive on the equity front.

 
 
  Jim Brown   9/20/02,  10:53:23 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
With the new rumors let's raise that entry point to 422 after a touch at 420. I want to give this market plenty of room to waffle.

 
 
  Steven Price   9/20/02,  10:51:47 AM
Reader Question: Howdy, I'm not sure who wrote last night's stock play on PDLI, but I had a question on the option portion of that play. When they say go Long the Put, do they mean to sell the PUT for the premium? The explanation in that section is a little confusing to me. Thanks, Bob

Response: Sorry for the confusion, Bob. The play was to go long the stock and buy a put as protection in case the stock goes down. If the stock goes down, the trader can sell the put for a profit to make up some of the loss in the long stock position (or exercise it and sell the stock higher). There was also a reference in the play to CSCO, which is being corrected to read PDLI. Questions about the stock plays can be directed to me.

 
 
  Jeff Bailey   9/20/02,  10:51:03 AM
Panera Bread (PNRA) $26.17 -2.67% ... Yesterday I got a lot of e-mail regarding PNRA. I'm thinking some may not have realized that stock is close to bullish support trend and near the $24.00 level, where stock saw support (demand) back in July. Bears really nead a break at $23 to be thinking longer-term bearish. Personally, would NOT want to be put/short a FULL position currently. Link

Vertical count is bearish to $12, but longer-term bullish trend still intact. As such, current risk/reward to bearish count versus stop at $36 ($36 is current risk to a buy signal) has bearish trader at $26 assessing risk/reward in bearish trade of ... risking $10 to potentiall make $14. My thoughts as it relates to point/figure chart and how risk/reward may be viewed by institutions.

Risk/reward currently more favorable for bulls, with stop at $23 and reward.... unlimited. Perhaps this thinking is why stock bid in a down market yesterday.

 
 
  John Seckinger   9/20/02,  10:50:13 AM
Volatility Index down 2.7%, but I have a feeling we will see a positive number in the near term. Dow is higher by 0.18%, and sectors outperforming Dow include Cyclical, Pharmaceutical, Telecom, and Transportation issues.

 
 
  Jonathan Levinson   9/20/02,  10:48:40 AM
Correction- the Fed's matched sale is itself a drain, and so today's total drain is 4B in unrefunded ON Repos from yesterday, and another 1.75B of MSP today, for a total of 5.75B drained today. It's either in defence of the USD, or, as Russ speculates, perhaps the fed is adding to their powder to defend the critical July lows when they get visited next.

 
 
  Jim Brown   9/20/02,  10:47:17 AM
Swing Trade Signals
That last downdraft was due to a strong rumor that the U.S. was going to red alert on its terrorist status. Just a rumor but you see what happened.

 
 
  Jim Brown   9/20/02,  10:43:36 AM
Swing Trade Signals
Glad I raised than entry point from 425 to 426! That opening resistance was strong and by placing the entry just over it we give up a couple points on any move but we avoided being triggered prematurely. We are getting close to the target entry point on the downside at 421 after a touch at 420. It will be interesting to see how this develops!

 
 
  Linda Piazza   9/20/02,  10:32:39 AM
How deep will the markets go on a retest of July lows? We’ll soon know for sure, but Martin J. Pring talks about a study by H.M. Gartley that might have offered a prediction. Gartley looked at the relationship between a primary movement, such as the current bear market, and an intermediate movement, such as the bear market rally off the July lows. If such a rally retraced only a small percentage of the fall, Gartley concluded, the retest would make a relatively big movement down. Since Pring states that most intermediate movements retrace 33-66%, and since the July rally retracement came in at the low end of that figure, Gartley would have predicted a relatively deep retest.

 
 
  Jim Brown   9/20/02,  10:28:43 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
With no direction decided yet let's raise the entry point on the overhead signal to OEX 426. This is above the high of the day and prevents getting triggered just before we hit earlier resistance. Sorry for the number of changes here but I am trying to be more careful based the market action so far today. This gives us an entry signal on a breakout and a signal on lower support.

 
 
  Jonathan Levinson   9/20/02,  10:27:46 AM
Fed drains finds from system via weekend matched sales. Seems unusual with a weak market. Maybe they are keeping powder dry for next Tuesday???

Either that, or they are defending the US dollar, which was in a bad way last night. Presumably the draining of liquidity supports the value of dollars, just as the increase in supply of money lessens its value. This is all beyond guesswork- just thinking out loud.

 
 
  Jeff Bailey   9/20/02,  10:27:00 AM
Agilent (A) $14.01 -0.42% ... has been profiled bearish in market monitor above $15.00. Was monitoring the stock closely yesterday. Rather large bidder at $14.00, but also looked to be some shorts getting agressive. Stock modestly weak, but battle looks to be taking place between supply/demand here. If $14.00 is lost on closing basis, would be positive for a bear.

Disclosure ... I currently hold bearish position in A.

 
 
  Jonathan Levinson   9/20/02,  10:25:50 AM
Deadcharts is now undead.

 
 
  Jeff Bailey   9/20/02,  10:24:35 AM
Duke Energy (DUK) $19.19 -10.7% .... Doing some work on the point/figure chart and then retracement. IF and I repeat if, DUK were to trade $17.50, that would generate a "sell signal" on the point and figure chart and have the bearish vertical count at $5.00. As such, will begin setting a retracement on bar chart to alert trader on a break of $17.50. Some "suspicious looking" resistance come in near the $23.00 level, which served as resistance in recent sessions, almost as if "smart money" was shorting that level ahead of today's news. Link

Aggressive bear may establish some longer-term puts in the Jan $20's, just in case further overnight news were to have stock gapping lower in future, but current bearish positions are deemed "early" as stock has NOT yet given a sell signal.

 
 
  Jonathan Levinson   9/20/02,  10:23:06 AM
The Fed has added 1.75B via weekend matched sale, for a net drain of 2.25B. So far this week, we've seen that drain days tend to be down days for the markets- not a rule by any means, but another arrow in our quivering quivers.

 
 
  Jonathan Levinson   9/20/02,  10:17:16 AM
We seem to be getting a fresh breakdown here, with QQQ finally giving up 21.60 support and the TRINQ up at .99. NDX volatility as measured by the QQQ is uff its lows and now only down 1.44 at 52.19. Bear Stearns, which play I just managed to jump into, has gone negative. Again, I'm surprised by the lack of a bounce so far, but the lower low just seen on QQQ isn't very encouraging, particularly on op ex day.

 
 
  John Seckinger   9/20/02,  10:13:44 AM
Hard to decipher direction at current levels. Encouraging for bulls is a higher Oil Sector, as the sector has been under pressure all week; however, the Utility Index is down 3.6% at 244 and could become a problem for stock holders. The yield curve is steepening, but only slightly. Note: 22 PMA (five-minute average) is currently at 7984 (Dow Jones).

 
 
  Jim Brown   9/20/02,  10:10:13 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the overhead entry point from 427. GO LONG the broader market with an OEX trade over 425. This is over the last relative high.

 
 
  Jim Brown   9/20/02,  10:06:50 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go LONG the broader market with an OEX trade at 421 but only after 420 is touched. (SPX 838 est) If we are triggered then the initial stop loss will be OEX 416. Support is at 417-420 and should hold without a complete breakdown in the markets.

I don't want to catch a falling knife. If the OEX hits 420 and then rebounds to 421 then we want to go long. This prevents a straight drop through all support. We will never be able to script a perfect entry in advance but this should eliminate one possible avenue of risk.

If we do not get to this level I will revise the earlier signal downward.

 
 
  Steven Price   9/20/02,  10:05:20 AM
The move in the cigarette companies (LTR, UST, MO, RJR) can be attributed to Morgan Stanley lowering earnings estimates for Philip Morris. This does not change my opinion of RJR as a short. Note: OI put play LTR is a conglomerate with tobacco one of its many interests.

 
 
  Jonathan Levinson   9/20/02,  10:03:17 AM
Deadcharts is still down. Thanks to Kevin for confirming that I'm not alone.

 
 
  Jeff Bailey   9/20/02,  10:02:39 AM
Duke Energy (DUK) $19.15 -10.5% ... Down sharp after reducing FY02 EPS to $1.95-$2.05 versus consensus of $2.47; sees 2003 flat assuming modest improvement in energy market, versus consensus of $2.63. Also cuts 2002 capex to $6.2 billion from $6.8 billion and cuts 2003 capex to $3.5 billion, all of which will be internally funded. DUK also defers construction of three power plants. Link

"I smell a rat" at $17.50. Will set alert there, and begin looking at some January $17.50 puts (DUKMT) $2.20. Have seen and played some other "energy traders" like ILA, EP, WMB with similar chart patterns from levels similar to DUK.

 
 
  Steven Price   9/20/02,  9:59:32 AM
RJ Reynolds $48.65 (-1.80) RJR gave a triple bottom break sell signal at $50 back in July. This turned out to be a bear trap, with a one-box breakdown and then rally. Of course this rally followed the broad markets, but the PnF doesn't take that into account. The trade of $49.00 this morning got us past that earlier signal and makes me more confident shorting it here. Conservative traders may want to wait for a break below $48.00, or a failed rally under $50, as the current column of "O"s is pretty extended. I do like the failed rally underneath th 50-dma the last week or so.

 
 
  Jim Brown   9/20/02,  9:56:17 AM
Swing Trade Signals
Much better A real dip instead of a runaway gap. We did not get confirmation of the gap and run so we are still flat and looking for a better entry point. I will leave the 427 signal open for a few minutes in case we get a rebound but my initial target is still 420. I will post that signal now.

 
 
  Jeff Bailey   9/20/02,  9:54:03 AM
Index Trader Thoughts... In last night's Index Trader Wrap, I challenged a QQQ bearish trade with aggressive and tight stop at $22.13. So far, session high has been $21.90. Has me thinking market participants to overly bullish at this point.

Biotech Index (BTK.X) -0.52% and Semiconductor (SOX.X) -0.42%. Semi weakness may be attributed to Texas Ins. (TXN) $16.16 -5% and Salomon Smith Barney downgrade.

 
 
  Steven Price   9/20/02,  9:53:44 AM
Loews (LTR) ($46.80 -0.75) OI put play LTR started the day negative, as did fellow tobacco interests RJR and UST. RJR $48.95 (-1.50) is currently flirting with support at $49.00. There is support at $48 from July, but that was on a bounce of the 50-dma which is now above the stock. RJR is on my radar as a possible short today.

 
 
  Jonathan Levinson   9/20/02,  9:52:54 AM
It looks like my Livecharts has become Deadcharts, but I'm following the action from my level II bookviewer and streamer. The TRINQ is still in extreme territory at .31, while the QQQ is near the end of today's range at 21.71. If that was The Bounce, then the markets are in big trouble today.

 
 
  John Seckinger   9/20/02,  9:47:47 AM
Not expecting much out of the Gold Index (XAU.X) today. Currently down 1.41 percent at 74.76, this index has experienced price compression that last few days and will most likley do the same on Friday as equities take the spotlight. Support underneath is felt at 74.30 and 72.80. If the XAU.X moves above 76, I will then look for a test of 79 in the near term.

 
 
  Steven Price   9/20/02,  9:45:24 AM
If you are considering purchasing out of the money October equity options, you may want to wait until later in the day. As the day goes by firms will start trading rolls on the out of the moneys. What this means is that they will buy back September options for nickels that were sold at higher prices and then sell the out of the money Octobers. The time spread usually shrinks as traders lower the October options throughout the day. Of course if we get a big move, those out of the money options may be in the money and much more expensive than where they were when we began the day, but rolls usually trade all day on expiration.

 
 
  Jim Brown   9/20/02,  9:40:30 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
The gap open was negligible and does not represent a large risk. GO LONG the broader market with an OEX trade over 427. This is over the high of the day and represents a confirmation of the opening move.

 
 
  John Seckinger   9/20/02,  9:39:06 AM
One of the reasons for a stronger dollar was the failed auction of Japanese Government Bonds (JGB), scheduled for sale yesterday. The 1.4 trillion offering attracted only 1.2 trillion in bids. The Dollar/Yen exchange rate is currently at 123.15.

 
 
  Steven Price   9/20/02,  9:38:28 AM
Semiconductor Sector Index (SOX) 252.98(+0.52) I would have expected somewhat of a bounce after yesterday's sell-off and Qualcomm's guidance last night. While I'm not entering new shorts in the area until it breaks below 250, I think we may get that chance sooner than I thought

 
 
  John Seckinger   9/20/02,  9:32:44 AM
Most likely helping equities is the US Dollar higher by 0.53 percent at 107.56 and back above the 50 DMA (107.51). As noted the last few days, I would still like to see the Greenback above 108 before turning bullish on dollar denominated assets.

 
 
  Jeff Bailey   9/20/02,  9:31:05 AM
The 9:00 AM intraday update has been posted. Link

 
 
  Jim Brown   9/20/02,  9:29:19 AM
Swing Trade Signals
This is the kind of morning that tries my patience. After trying to get long just before the close because of the expected bounce we ended up flat overnight. This morning is shaping up as a gap open to the upside and due to the oversold conditions it could just keep going.

On expiration Friday it is too risky to trade September OEX options unless you trade deep in the money. October options are too expensive because market makers know that thousands of traders have to roll over positions yesterday and today.

This all adds up to trouble. A gap open, which could run for a couple hundred points or roll over a few minutes later and no options available to trade it safely. Any direction change once in a position today creates huge swings in premiums. The best play this morning may be no play at all.

The desire is to trade due to the expected move. Your heart says yes but your mind says no. The gap open is a sucker play today. If we buy it, it will roll over. If we don't it will run for 20 points. If I buy it I am the villain if it rolls over. If I don't I buy it I am the villain if it runs for a couple hundred points. Since I am a villain either way I am going to wait for a post open dip. If we don't get it I will just stay flat without an obvious signal later.

You pull the trigger on your own trades. If you want to trade differently please jump right in.

 
 
  Jeff Bailey   9/20/02,  9:26:50 AM
QQQ and NDX.X ... Have not gotten a call from the AMEX yet regarding yesterday's performance disparity between the QQQ and NDX.X. I will post here in market monitor when they do call.

One trader's e-mail notes open interest @ 100,000 in the September 22 puts. This could be today's "peg level" for option expiration.

 
 
  Jonathan Levinson   9/20/02,  9:26:26 AM
Do you have a time period for the roll over, today, Monday? I quess I am asking would you hold over the week-end? I don't know when it will come, but I intend to be patient- I've shorted the middle of too many rallies to want to do so again. If I get a good entry, I will have no problem holding over the weekend, but I intend to target November contracts to take the edge off the premium from today's op ex, and to afford some leeway. QQQ options are at such low premiums that the extra month looks quite cheap to me.

 
 
  Jonathan Levinson   9/20/02,  8:52:36 AM
The US Dollar Index did a U-turn on it way straight south last night, coming off lows of 106.80 to a current 107.70. Equity futures are up, NDX +9.50, S&P +4.50. QQQ is trading at 21.87, and bond yields are positive. I'm personally hoping for a nice bounce on which to reload some puts. Bear in mind all of the former support levels where the decline paused- these are now resistance, which I see at 1225, 1231, 1237, 1244, 1251, 1260, 1271, 1277-80. And so on. Unless price goes vertical and starts trending on some new, undiscovered fuel, I will watch the oscillators and wait for a rollover at any of these levels (read, somewhere higher than here). I expect a rollover and then a revisit to the July lows, which should be good for a pause or, more likely, a bounce.

 
 
  Jim Brown   9/19/02,  10:43:35 PM
The Swing Trade Game Plan has been posted: Link

 
 
  Jeff Bailey   9/19/02,  9:33:12 PM
The Market Monitor has been archived. To view today's comments, simply click this Link

 
 

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