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  Jim Brown   9/25/02,  6:13:22 PM
The Swing Trade Game Plan has been posted: Link

  Steven Price   9/25/02,  3:58:35 PM
Abbott Labs(ABT): $43.56 +1.46 OI call play ABT, which experienced a point and figure triple top breakout at $42, also encountered bearish resistance at that level. The trade of $43 broke through that bearish resistance line and the breakout also looks like a break fron a bullish PnF flag.

  Jeff Bailey   9/25/02,  3:55:27 PM
C'mon "frixee .... Forest Labs (FRX) $79.99 +1.6% ... trade that $80 and give another "buy signal." Link

  Jim Brown   9/25/02,  3:50:30 PM
Swing Trade Signals
Futures are rolling over and declining volume is moving up strongly. Looks like market on close orders were weighted to the sell side. (just a guess) I like the idea of going into the close short since the economy did not recover in one day. Hopefully we will get triggered here soon. I don't want to cheat the trigger (at least not officially) and would like to see that support fail first.

  Steven Price   9/25/02,  3:50:03 PM
Autozone (AZO) $79.30 (+6.25) The triple top breakout in this stock has really removed some significant resistance. For those readers still long, I would raise my stop to at least $76.50 to lock in some profits. This is just below the point of the breakout at $77.00.

  Jeff Bailey   9/25/02,  3:48:36 PM
Selling naked puts Jeff: Your thoughts on selling the JPM November ITM puts. Does this institution have any value?

I like the "strategy" of selling naked puts when volatility is high, but NOT THE STRATEGY of selling naked puts in weak stocks. JPM being one of those.

Is it worth the "risk" is the question that needs to be answered. On July 18th, when JPM was trading a matching 52-week low of $27.20, was it "worth the risk" of selling naked puts, even after the stock's decline from $37.30? Stock fell to $19 just 5-day's later.

JPM is a very weak stock right now and I'd consider any selling of naked puts in it a HIGH RISK trade, with upside limited to the premium received.

Here's a relative strength chart of JPM versus the Dow Industrials. Link and a RS chart of JPM versus the S&P 500. Link

  Steven Price   9/25/02,  3:43:54 PM
Reader Question: Hi Steve,could you comments on BRCM-QLGC-MXIM- going short after the bounce up today??????Thank you....

Reponse: With the bounce in the Semiconductor Sector Index (SOX.X) 258.25 +18.67 engulfing the last three red candles, I'm going to stay away from shorting these stocks for the moment. I still think there is some downside, but the Index lost 35% in a month and was due for a bounce at some point. Because I really don't know how much of a bounce we are going to get after a 130 point drop between Aug 21 and Sept 23, I'm going to wait for signs of a rollover in the sector before going short again.

  Jeff Bailey   9/25/02,  3:41:47 PM
The 3:15 PM intraday update has been posted. Link

  Jim Brown   9/25/02,  3:37:54 PM
Swing Trade Signals
Looks like a double top just over OEX 424 and a drop on the way. Now it gets interesting. Will be get past the 420 support level?

  Jim Brown   9/25/02,  3:34:15 PM
IBM A reader pointed out that this may be an entry point for IBM puts. It is up nearly $4 today and they are still expected to warn. Exercise caution and keep those stops in place.

  Linda Piazza   9/25/02,  3:12:03 PM
Ten-year and thirty-year bond yields tried to fill Monday's gap down, but didn't push above the gaps in their respective charts.

  John Seckinger   9/25/02,  3:08:22 PM
The Dow reached my first area of resistance (see 13:38:31 post) at 7879; now currently underneath at 7843. Bonds are still weak, Dollar slightly higher, and both Oil and Utilities are up roughly 2 percent. Now that the bond market is closed, most likely the main equity indices will control the intermarket relationships during the last hour.

  Mike Parnos   9/25/02,  3:00:11 PM
Don't You Just Love It?
Short term traders have to love these bounces. Paranoid shorts are scurrying to to cover their positions. Dreamers are jumping in because they don't know how to short and are afraid they'll miss the bottom. Then, when people realize that the market hasn't changed since yesterday, the selling continues and the market gives back today's gains -- and then some.

For bearish strategies, today is a great opportunity to enter a trade.

  Jim Brown   9/25/02,  2:54:30 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Let's go SHORT the broader market with an OEX trade below 419. This would be a significant breakdown from the current level and below the 1:30 support. If you are concerned about the risk then just use 1/2 of a normal position.

  Jeff Bailey   9/25/02,  2:51:13 PM
Program Trading Curbs were in effect when the Dow Industrials (INDU) 7,880 +2.57% (+199 points) traded 180 points above yesterday's close. For program curbs to be lifted today, the Dow Industrials must fall back to within 90-points of yesterday's close of 7,683.13, or 7,773.13.

  Jim Brown   9/25/02,  2:50:59 PM
Swing Trade Signals
The 3:PM turn is just about 10 minutes ahead and after the big gains there is a good chance that turn will be down. However, these types of rallies can feed on themselves. There could be a lot of shorts hoping for that down turn to get out at a lower level. If the market holds then they could race to cover before the close. I am thinking about an entry on a drop from here but not at the highs.

  Jim Brown   9/25/02,  2:41:59 PM
Swing Trade Signals
I see next resistance at 425 and for any other week of the month I would think that a good entry point for a short. However with the short covering and what looks like end of quarter buying in progress I would be very careful about risking a full position. Better to watch from the sidelines than continue to throw good money after bad. Resistance after 425 would be 430.

  Jonathan Levinson   9/25/02,  2:30:42 PM
Perhaps the run to 1225 got to me, but I see a bearish ascending wedge on the 5 minute COMPX, with the lower ascending trendline roughly slicing through 1220. If it holds, we could push higher, back to approximately 1227ish. The TRINQ lost some steam on that pullback to a less extreme reading of .23.

  Linda Piazza   9/25/02,  2:25:55 PM
Just saw $TRINQ print .15. If it's not an error, that may be such extreme buying that it's a contrarian, bearish indicator.

  Jonathan Levinson   9/25/02,  2:24:30 PM
The TRINQ has redlined at .16 after briefly touching .15. Resistance at 1225 held, just, and the run may well not be over yet. The TICK.NQ is barely positive at +12, while the QQV seems to have hit the canvas at 49.55, -2.6 on the day. I added a 1/4 back month QQQ put position on this run, and will wait to see how this upper resistance level fares.

  John Seckinger   9/25/02,  2:14:27 PM
Here is a good rule of thumb: When the long bond is down over a point (32/32), usually there is enough assets rolling from fixed-income securities to equities that will keep the stock market well bid most of the session. Currently the December 30-year bond is down 1 - 07/32 to 113-09. The uptrend is still in tact, but this rule of thumb can be used for day traders.

  Jim Brown   9/25/02,  2:04:49 PM
Swing Trade Signals
I am sitting on my hands! This sure looks like another entry point at 421 but I have already been burned twice trying to short the next dip. With advancing volume rising and the A/D line improving I could see an upside move instead of a drop from here. Exercise extreme caution!

  Steven Price   9/25/02,  1:49:26 PM
Reader Question:Was wondering what your thoughts are on a long call position on BBH on a break of 80? Thanks, Bob

Response: Biotech Holders (BBH) $79.20 (+2.70) There is an awful lot of noise on the chart between $80 and $84, as well as the 50-dma at $81.50. I'm not sure I would take a directional opinion in that range. I see additional resistance at $86, as well.

  Jonathan Levinson   9/25/02,  1:49:00 PM
We're getting bearish crosses on the COMPX 30 and 60 minute 5(3) stochs, and the TRINQ has just jumped from .18 to .35 in what looks to be a single tick. QQQ bears can get in here, with a tight stop in case this bounce has legs. I don't expect to see the north side of 1220-25 today.

  Jeff Bailey   9/25/02,  1:45:46 PM
The 1:00 PM intraday update has been posted. Link

  Jim Brown   9/25/02,  1:42:36 PM
Swing Trade Signals
That dead stop at 421.39 was a crash into the 5DMA. It was hard enough to activate airbags on my desktop. (grin) We will see if this resistance will hold.

  Steven Price   9/25/02,  1:40:37 PM
Reader Question: LLL was listed as a call play in last nights newsletter. When I look at the technicals I see an overbought daily and weekly charts. I was wondering if you could comment on the play after this mornings news and selloff. thank you marjorie

Response: $56.74 (-0.05) I usually look to oscillators to confirm what I see from other indications. While they can be somewhat reliable, I have seen them stay in overbought or oversold conditions for long periods of time. LLL bounced nicely from its 200-dma, after Saddam said he would allow inspectors back into Iraq. It has continued to climb since then, as the rest of the market has sold off. I would suggest that more conservative traders wait for a break above the recent high of $58.45 for entry. The stock made it to $58.01 this morning, so it may not be long.

  John Seckinger   9/25/02,  1:38:31 PM
Today's rally in the Dow did manage to rise back above an Intermediate trend line that began in mid-May. I have illustrated a series of resistance lines (some from a Monthly or Weekly chart) regarding the Dow. The black lines are more psychologically important than the Red, while the Green are more important than the Black. The only one in blue represents support. Please see chart. Link

  Linda Piazza   9/25/02,  1:36:45 PM
Several days ago, Jim posted a graph supplied by a reader, showing long-term support for SOX at 260, on an uptrend that extended from 1994 to the present. That support was broken. Usually, the longer a trend exists, the more important is a break from that trend. It will be interesting to see how the SOX behaves now as it approaches that 260 area. Will the former long-term support now be resistance?

  Jim Brown   9/25/02,  1:35:33 PM
Trading Systems - We have only one of the dual flat panel trading systems left. If you are interested you need to act today. Link

  Steven Price   9/25/02,  1:28:13 PM
Reader Question: Steven, As always thanks for your excellent service. I looked at the October 30 and 35 puts. The 35 are around $5.50 and the 30 is around $2.40. Obviously the 35 has alot more intrinsic value. Is there any disadvantage to buying an option that deep ITM? Thanks, Marc

Response: BGEN $30.39 (+1.31) It is really a risk assessment for the individual trader. Buying ITM options generally gives you more to lose if the stock goes the wrong way. Buying an OTM requires more movement to achieve your profit goal, but also requires less capital and gives you less to lose. I would also wait for new entries in BGEN for a break back under $30.

  Jim Brown   9/25/02,  1:26:14 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the SHORT signal at 13:20:42 when the OEX traded above 418.50. SPX 833.21, DIA 78.00, SPY 83.59, DJX 77.96, NDX 872.67, Compx 1210.56, QQQ 21.67, Emini 833.00. The GE affirmation prevented the meltdown to 7550 today it appears and the end of quarter buyers and shorts covering could hold us up for the rest of the week without a negative news event. I am not going long and will wait for this rally to fail for the next entry.

  Jonathan Levinson   9/25/02,  1:25:11 PM
The COMPX has begun to fill its September 23rd gap, with next resistance at 1220-25. With the TRINQ at a miniscule .25, I will be shocked to see that level fail overhead. The TICK.NQ is reading +253. and QQV has fallen 2.87 to 49.27.

  Jim Brown   9/25/02,  1:08:06 PM
GE   They may have affirmed guidance for this quarter but a reader emailed me today to report that employees at a plant in Bangor ME were told this week that 50-75 workers would be cut by Christmas if business did not pick up. Evidently business is not quite as good as GE would have us believe

  Jeff Bailey   9/25/02,  12:55:50 PM
Knight Transport (KNGT) $16.31 -1.3% ... last night, after I had reviewed bottom line of account and monitoring against monthly goal, was going through my open positions. I didn't see previously profiled bearish trade in KNGT Oct $20 puts. Evidently, I sold these on 09/19/02 for $3.90. I think what happened is I was trying to set some targets based on stock price, thought I was putting in a sell at $4.90 and messed up. Link

Still looks bearish, but wanted to disclose the reason why this position was not covered in yesterday's account management comments.

  Jim Brown   9/25/02,  12:52:52 PM
Swing Trade Signals
The indexes just keep struggling to move higher but the only index to move above its open was the Nasdaq. We still have solid resistance above us but the GE affirmation this morning took some of the bearishness out of the market. Microsoft has been having trouble breaking out of negative territory and that could be holding the Dow/Nasdaq down. The trading interest today has died and any end of quarter buying could provide the lift needed to get us out of our rut. We are short in a dull market and that seldom works out well. Only time will tell.

  John Seckinger   9/25/02,  12:45:41 PM
When I look at five-minute chart, I use the 22, 50, and 200 PMA's (all exponential). If curious "why", please see article Link

Looking at Jeff's chart, his averages also work very well for trading levels.

  Jeff Bailey   9/25/02,  12:40:44 PM
5-minute chart of DIA gives short-term view of how 200-pd SMA is currently in play as resistance. Technician "knows" he/she needs a break higher, then uses 21-pd and 50-pd as trailing support on this time frame. Link

  Mike Parnos   9/25/02,  12:38:40 PM
Condor Candidate
Although I prefer to trade indexes, there are many stock people out there. I noticed a stock that might be ripe for an Iron Condor Spread play. GILD (Gilead) has held up pretty well in this bear market. It's been trading between $30 and $40 for a long time.

If you were to sell the GILD Nov. $40/$45 bear call spread and the Nov. $30/$25 bull put spread, you could take in about $1.55. Your exposure would be only $3.45. If you click your heels together twice, cross your fingers, and say your prayers at night, GILD may end up somewhere between $30-40. The return would be 44.9% on the $3.45 risk in less than eightweeks. Not too shabby.

  Steven Price   9/25/02,  12:37:31 PM
Autozone: $76.81 (+3.76) Fpr those readers still holding the AZO position through earnings, today's high of $77.10 was a triple top point and figure breakout. This is a bullish sign, and if we hadn't closed the position ahead of earnings, I would leave at least a 1/2 position on at this point.

  John Seckinger   9/25/02,  12:36:53 PM
Looking at the Dow, the 22 PMA (five-minute chart) has crossed above the 50 PMA (7748 and 7744, respectively). Is this a bullish sign? Well, in theory it might be; however, the last time the 22 PMA crossed above the 50 PMA was before the close on September 23rd. That time it turned out to be a "false breakout" and longs exited en masse the following morning. If the rally continues, I do expect resistance at 7800. Note: 200 PMA (exp) is at 7793.

  Jonathan Levinson   9/25/02,  12:35:46 PM
Here we go. The COMPX is back into the 1200-05 congestion zone, targetting 1210 and 1220-5 resistance. The descending trendline on my screen has been violated by this move up, but a blowoff spike would return things to normal, so we're waiting and seeing for the moment. The TRINQ got down to the low .30s, currently .39, which teh QQV is down 1.96 today to 50.49.

  Jeff Bailey   9/25/02,  12:32:35 PM
QQQ $21.50 +2.18% ... now challenging early morning high. DIA bull would like QQQ to make its move here and bring a more bullish tone to things near-term.

Quick check of Treasury YIELDS also back near morning high, so bond market may be responding with some selling.

  Jeff Bailey   9/25/02,  12:19:17 PM
Dow Diamonds (DIA) $77.70 +0.76% ... going to give the DIA a trade from the bullish side here from Index Trader Wrap. Stop $76.60 and targeting $80.00 near-term. Will adjuststop up should DIA break above daily high of $78.40.

Not playing the options, as I think premiums too high for target in mind. Also looking to offset remaining puts I have open currently should intra-day gains build. From account management perspective, get's me to a more "neutral" stance near-term.

  Mike Parnos   9/25/02,  12:06:09 PM
Re: BBH Iron Condor
BBH is rebounding a bit from a low of $72.75 two days ago, it's now trading at $78.60. For those of you who are following our hypothetical trade, we are now short 1,000 shares of BBH, covering our Oct. $80 short put position.

BBH is bumping up against some overhead resistance in the $79 range. However, if it breaks through that resistance, we have to be prepared to cover the 1,000 short shares at $80.

  John Seckinger   9/25/02,  11:50:52 AM
Per 10:07:52 Post, the Semiconductor Sector has broken its string of lower highs. The Index recently took out yesterday's high of 247.61 and there is a chance some shorts will be covering towards the 253 level. Only very aggressive longs should look to buy semis here. A move back underneath 241.50 would nullify the recent move and could actually be a solid shorting opportunity towards 216 (lower end of regression channel). The mid-point of the regression channel, initiated since March 8th, comes in at 263.

  Mike Parnos   9/25/02,  11:45:04 AM
Reader Question:
I closed half my straddle position on Q's last week (Oct 26 P) and have a cost basis of .15 in the Oct 24 C. I am still long the Oct 25P's and 23C . I need another 60 cents out of the 25P's to cover the cost of the entire position.... but the Q's sure didn't give up much ground today. Do you have a target price for the Q's? Do you think we see $18 before the end of Oct?

So you now are rooting for the QQQs to go up so your Oct. $24 calls will appreciate. And, at the same time, you want the QQQs to go down so you can sell your Oct. 25 puts and then be long the 23 calls. When the QQQs were at $20.66 yesterday, didn't that give you a chance to liquidate the $25 puts at a good price? That would have left you with both the $23 and $24 long Oct. calls and you could be rooting for only one direction -- long.

I think the QQQs will ultimately go down to 18, but the timeframe is questionable. I wouldn't be surprised if, one of these days, we have one of those bear market bounces. It will likely be short-lived. I just see no good reason for the market to go up at this point.

  Jonathan Levinson   9/25/02,  11:40:31 AM
The COMPX is struggling right at trendline resistance now.

  Jeff Bailey   9/25/02,  11:39:57 AM
L-3 Communications (LLL) $56.30 -0.86% ... LLL was recommended as a postion trade in last night's market monitor. When I look at the charts I see the daily and weekly stochastics in overbought territory . It met with substantial selling this morning. Can you comment on this?

I don't make the individual play rec's at OI. I've discussed this with one of the play pickers and even individual traders. My "problem" with a bullish trade in LLL is this. What's my upside? If I look at the point and figure chart, though bullish, I've got 2, I repeat... 2, vertical counts that have $59 as current upside. While these counts can always be exceeded, sometimes never met, the current risk/reward from a point and figure perspective isn't there for me.

Here's the chart I'm looking at.. Link . The bullish vertical count (column of X from 44 to 48) is $59 , with equation being... $44+((5*3)*1)=$59.

My "second" bullish objective could be derived from Professor Davis' study, and the past "triple-top buy signal" at $48. According to Professor Davis' study, the triple-top can be profitable 87.9% of the time, for an average gain of 28.7%, over 6.8 months. LLL gave the triple-top at $48, so a 28.7% gain would have me looking at $61.77.

As such, a stop in the underlying stock would be at $53 and a target range of $59-$61.77 can be established. From yesterday's close of 56.79, a trader is risking $3.79 to potentially make $2.21 to $4.98. For me, this is not the best risk/reward. Not that I'm the MARKET, but it may also not be good enough risk/reward with the information at hand to have the stock trading higher today.

  Jeff Bailey   9/25/02,  11:35:44 AM
The 11:00 AM intraday update has been posted. Link

  Steven Price   9/25/02,  11:33:46 AM
Cigna (CI) : $70.89 -0.66 I like the break under $71 for a short entry. However, more conservative traders may want to wait for a break in round number support at $70, or the November 1, 2001 low of $69.86. The rebound in the Insurance Index (IUX.X) 237.84 (+0.52) was turned back just over 240, a level it broke yesterday for the first time since July. The July low was just above 220, so it looks like there is some room to fall. CI is already below the July low of $75.05 and is approaching the Nov 1 low of $69.86. The next level of support below the Nov 1 low is back in March 2000 around $61.

  Linda Piazza   9/25/02,  11:31:10 AM
Reader Question: On 9-19-02, I bought the 390 in the AM after the open. Trading 434.73. Paid 7.50 for them. I waited for the fluff to come out. 9/25/02 they are worth 8.10x8.50. 21-22 point move on the OEX in 6 days and a dang buck profit!! What’s up? VIX is up and OEX is down and 5 days of melt should be worth 5.00 profit at a min.

Response: Thanks for the question, Mark. I watched something similar happen with the 400’s from the middle of last week until early this week. My guess is that you’ve been a victim of the options expiration cycle. 9/19 was Thursday and next-month option prices get inflated as traders roll out of current-month options and into the next month’s options on the Thursday before options expiration. Jim has long warned of this phenomenon. To find out how you might actually benefit from this phenomenon next options expiration cycle, you might read this article by Mike Parnos. Mike is on the Monitor today. Perhaps he and other writers will weigh in on option pricing considerations. Link

  John Seckinger   9/25/02,  11:25:36 AM
IMF has cut its growth forecast for the US, reporting that 2002 GDP should be 2.2% and 2003 GDP should come in at 2.6%. This is down from 2.3% and 3.4%, respectively.

  Jim Brown   9/25/02,  11:19:18 AM
Swing Trade Signals
We have now retraced the opening gap up and moved up off the closing lows from yesterday. If we are going to bounce today this is the place it should happen. The indexes fell back to negative territory from a +120 Dow at the open. Now traders will watch for somebody to blink to decide which direction to play.

  John Seckinger   9/25/02,  11:06:28 AM
Gold still remains in a tight range (between 76 and 72.80), while the 22 DMA is at 72.50 and continues to slope upwards. A close above 76 should be the catalyst for a move towards 78, while weakness under the 22 DMA could take the index towards the 50 DMA (70.79) and then the 200 DMA at 68.43. I think weakness would be viewed more as a buying opportunity than a reason to go short.

  Jonathan Levinson   9/25/02,  10:58:34 AM
Fed auctions 27 billion of 2 year notes this afternoon. Won't this take money from stock market and set up an afternoon swoon? Russ

My point exactly from my 11:27:26 post.

  Jonathan Levinson   9/25/02,  10:56:29 AM
We have bearish crosses on the 15 and 30 minute 5(3) stochastic on the COMPX, and the 60 minute stoch is starting its own. The TRINQ is still low at .48. The descending trendline is now at approximately 1197, which should be resistance on the COMPX for the next bounce attempt.

  Steven Price   9/25/02,  10:52:20 AM
Reader Question: if sox can close above 250 might you go long? for a quick play? then short it again later, for possible Oct drop? Thanks Denise

Response: I'm not sure about going long the semis, even for a quick bounce, since the news in the sector has been so bad. But a close above 250 would have me closing shorts in the sector. If it closes above 250, I'll reassess and maybe look for a few diamonds in the rough, but those will be hard to find.

  Jonathan Levinson   9/25/02,  10:47:24 AM
Every day is a learning experience with you guys. I have seen references to fading the gap several times. What exactly does it mean to "fade the gap"?

Fading a trend means to disregard/bet against it. As with most trading truths, it applies far beyond trading, but I'll let you think of the examples.

  Jeff Bailey   9/25/02,  10:46:40 AM
Duke Energy (DUK) Plot thickens a bit doesn't it with this news of $1 billion secondary offering, which could put up to 52 million additional shares on the market.

Here perhaps is where a "dividend" investor comes into play. Will DUK be able to pay an annual dividend of $1.10, which currently yields about 5.72% on the additional 52 million shares? Or will DUK have to cut dividend? Time will tell I guess, but question's may rise as to the "safety" of the dividend.

  John Seckinger   9/25/02,  10:46:14 AM
30-year U.S. mortgages are once again seeing near-record numbers of applications. There are concerns due to rising delinquencies and defaults; nevertheless, the 30-year rate still fell 0.05 percentage points to 5.85 percent last week, according to the Mortgage Bankers Association of America. That represents the lowest 30-year rate since the MBA began its weekly mortgage application survey in 1990.

  Mike Parnos   9/25/02,  10:39:55 AM
Good Morning
Hello, OI readers and CPTI students. I will be participating in today's Market Monitor. If you have any questions on the strategies we've discussed, or anything else for that matter, feel free to send them along. I'd love to hear from you.

  Steven Price   9/25/02,  10:36:54 AM
Biogen (BGEN): $29.82 +0.74 The failure under $30 looks like we are getting a better entry point on this new put play. The 5 min chart shows heavy resistance there yesterday and today. With the Dow and Nasdaq rally fading, I like entries at this level. Conservative traders can wait for the stock to trade below its low of the day ($29.08)

  Jonathan Levinson   9/25/02,  10:36:03 AM
Thanks for the frequent updates - it's like having a trading partner all day long. The gap: I was short some DIA, and offset this in premarket with long in QQQ in case of run away. Bailed on the QQQ as rally sputtered, and kept the DIA shorts. (Have OTM DIA calls as hedge for blowup)

Well played, George.

  Jonathan Levinson   9/25/02,  10:32:56 AM
Still more readers who faded the gap up open. None have reported going long.

The TRINQ is holding at .32 now, which is still showing buying pressure verging on extreme. The descending trendline on the COMPX at 1197-1200 is still holding. A break past the highs of the day will bring the next resistance levels into view, but the TRINQ is overbought and it will take a big push to accomplish it.

  Linda Piazza   9/25/02,  10:27:40 AM
I do watch volume patterns, but only to confirm what I'm seeing in chart formations. For example, a classic H&S formation will show the greatest volume on the formation of the left shoulder, with declining volume on the formation of the head and right shoulder. Volume should pick up again with the break of the neckline. That's exactly what happened with the volume pattern in the recent H&S patterns in the various indices. That volume pattern was a further confirmation of the H&S pattern, so that I have further trust in the downside goals.

  Jonathan Levinson   9/25/02,  10:27:26 AM
The Fed has announced an addition of 4.5B in overnight repos, which is a net add. However, it's not as bullish an indication as I'd otherwise think, as I've heard that there's a bond auction today, which should skim liquidity from equities.

  Jonathan Levinson   9/25/02,  10:14:00 AM
All of my responses so far have been from readers who either faded the gap up or sat on their hands. One mentioned suing our friend Abby J-C, though I suspect he was joking. The "lol" tipped me off.

  Jonathan Levinson   9/25/02,  10:11:32 AM
Some traders watch volume carefully, but it's an art. When high volume confirms the strength of a move and creates trends, whereas light volume on a price move is likely corrective/temporary within the longer trend. Declines on strong volume are trend-making, yet selling creates liquidity that can be used to fuel a future bounce, whereas a light volume price decline simply destroys paper wealth without adding liquidity, making a bounce back up more difficult. Your best bet is to watch volume and develop your own feel for it. In general, when price moves on heavier volume, you likely have a new trend and an important move, whereas when price moves on lighter volume, expect a reversal of the move.

  Jeff Bailey   9/25/02,  10:09:56 AM
Duke Energy (DUK) $18.23 -5.35 ... Jeff, Do you still "smell a rat" at $17.50?

I haven't sold my previously profiled Jan $20's, so my reply is... "snap" and "squeeeeek." Yes, still smell a rat.

  John Seckinger   9/25/02,  10:07:52 AM
Semiconductor Index (SOX.X) is higher by 1.43%, but the streak of lower highs and lower lows has not been broken. For 9 consecutive days, this index has set a lower daily low and lower high. The high today is 246.05, not yet eclipsing yesterday's high of 247.61. For the string to continue, yesterday's low of 231.59 will need to be penetrated.

  Steven Price   9/25/02,  10:05:01 AM
Reader Question: I have a question on volume. I have heard many times to check the volume of the stock as just one of the indicators in making a determination of an entry or exit point. My question is ... With heavy volume, is this an indication of Institutional selling or buying? With heavy volume and little price change, how can I tell if the big guys are buying or selling? I have assumed that with a price decrease and heavy volume the institutions are selling, but I have no way of justifying this. Any help would be appreciated. Steve

Response: Volume generally goes with the trend. It also usually increases to the upside. Increased volume on a decrease can be seen as bearish, and may indicate institutional selling.

  Jonathan Levinson   9/25/02,  10:04:28 AM
Did anyone go long on the gap up open? I'm wondering how our readers, who are no doubt better than average market watchers and traders, are treating these gap moves.

  Jim Brown   9/25/02,  10:04:00 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the re-entry into a SHORT signal on the broader market at 9:57:36 when the OEX traded below 415. SPX 827.21, DIA 77.70, SPY 82.98, DJX 77.60, NDX 854.92, Compx 1193.67, QQQ 21.27, Emini 827.00. The initial stop loss will be just over the day's high at 418.50. (SPX 832, DJX 78.15) The internals are shrinking again and the home sales did not help the sentiment.

  John Seckinger   9/25/02,  10:03:44 AM
Utility Index has just gone negative, down 0.24% at 239.25. This UTY.X index has, over the past few days, been a good leading indicator for weakness in the Dow. A break under yesterday's low of 238.28 might be needed for confirmation. Stay tuned.

  Jeff Bailey   9/25/02,  10:00:25 AM
Index Traders ... from Index Trader Wrap. Not seeing any overly bullish moves above our levels of retracement. QQQ is fighting with 38.2% retracement at $21.44, as morning high has been $21.49, currently trading $21.30.

OEX at 415 here, has our 38.2% at $418.53, with morning high of 417.82

SPX at 827.32 here, has our 38.2% at $834.64, with morning high of 831.15

INDU at 7,761 here, has 19.1% of 7,747, with 38.2% at 8,043.49.

In my opinion, a bull would be playing the Dow Industrials, stop under yesterday's lows and looking for rally to 8,043. Trade would have Dow bull using SPX and OEX as "leading indexes" on breaks above their 38.2% retracement levels.

  Steven Price   9/25/02,  9:57:46 AM
Fiserv (FISV) :$28.22 (-1.39) OI put play FISV was downgraded this morning by Sun Trust. The stock had previously strong PnF support between $30 and $32, but has now broken through those levels. Conservative investors may want to put on a half position here and wait for a $30 re-test to put on the full position.

  John Seckinger   9/25/02,  9:51:13 AM
Checking the Intermarket Relationships, Dollar is higher while Gold is lower (normal), Oil and Utilities higher while Dow is higher (normal), and yield curve is flat. For the rally in the Dow to continue, I will need to see more weakness in the December Five year note (FV2Z). Note: Looking at cash bonds, the yield curve is actually steep (five-year bonds down 9, Ten-year notes down 16).

  Jonathan Levinson   9/25/02,  9:49:36 AM
I have a descending trendline on the COMPX starting at the 9/11 peak. This trendline resistance has so far held. A break and hold above 1200-05 will violate it, but so far that's the line in the sand. COMPX is printing lows of the day and the TRINQ has "rallied" all the way to .22. Note how the bottom in the TRINQ was the top in the COMPX. We have a bearish cross on the 5 minute 5(3) stochs, but no confirmation on the longer timeframes. If jumping in on the put side, use a tight stop. We could get some sustained chop here, and I still think that any entry will be risky, so it's either jump in with a tight stop, or not at all.

  Jim Brown   9/25/02,  9:47:33 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Looks like we are going to fail early. Let's go SHORT again with an OEX traded under 415.

  Jonathan Levinson   9/25/02,  9:43:09 AM
There was no upside follow through, but no downside either coming off that first collision with resistance. The TRINQ is still too low- unless this is the start of a significant rally (stong enough to redline the TRINQ for a sustained move), Mr. Bull doesn't have much space in which to run.

  Steven Price   9/25/02,  9:41:24 AM
Semiconductor Index (SOX): 244.73 +5.15 The rebound in the sox looks like it is beginning to fail around the same point as yesterday, when it traded 247.61. Today's high was 246.05. The long-term outlook for most of these stocks still looks negative, and if the index can't make it back over 250, then maybe the bounce from this level will be short lived. As we've reached July's lows in the broader markets (Nasdaq on Monday, Dow on Tuesday), we're getting a bounce in several sectors. We've tightened our stops to account for this and take some profits, before looking for new entry points. The SOX had given up 35% in the past month before finding a temporary bottom yesterday morning just over 230. Some bounce was expected after such a big drop (approx. 130 points), but we decided to ride the drop as long as possible. We have closed our chip plays for the moment and will look for new entries depending on whether the bounce holds.

  Linda Piazza   9/25/02,  9:39:48 AM
I'm watching five-year and ten-year bond yields come down a little. Will they roll over and fill this morning's gap up, or move higher and fill yesterday's gap down?

  Jim Brown   9/25/02,  9:39:46 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out of the SHORT signal at 9:32:30 when the OEX traded above 417. SPX 829.27, DIA 78.23, SPY 83.52, DJX 77.91, NDX 863.91, Compx 1202.05, QQQ 21.48, Emini 832.50. The multiple positive earnings comments today offset the horrible news from yesterday. We will watch for the news to fade and sellers to return. It could be today or it could be as late as Monday per the game plan from last night.

  Jeff Bailey   9/25/02,  9:39:39 AM
Duke Energy (DUK) $18.20 -5.3% ... gapping lower this morning after company said it expects plans to offer 52 million shares in secondary offering next week of approximately $1 billion and says it will use the proceeds from the offering to repay commercial paper.

$1 billion divided by 52 million shares is $19.23, which looks like it was marked to last night's close of $19.24.

Disclosure... I currently hold bearish position in DUK

  Jonathan Levinson   9/25/02,  9:37:07 AM
That was fast- the TRINQ is very very low at .18, and price is rolling over just below initial resistance at 1205, but it's too early to get confirmation from even the twitchy 5(3) stochastics.

  John Seckinger   9/25/02,  9:34:26 AM
In world economic news, Germany reported a better-than-expected Ifo report; however, the Euro did not manage to rise after the news. Speaking of currencies, the US Dollar is 0.12 percent higher at 107.65. A close above 108 would be slightly bullish, while weakness under 107.31 should take sentiment to more neutral levels.

  Jeff Bailey   9/25/02,  9:30:58 AM
Tobacco For the second time this week, Morgan Stanley trims 2002-03 estimates for MO Link , CG Link and RJR Link

"The MO" looks weak and may follow RJR lower. Looks 1/2 position short/put in MO, as bearish vertical count is to $35 currently. I'd like the December or January $45. Then, if rally back near 47-48, look for any consolidation break lower from bar chart to round out to full.

The supply/demand charts do seem to hint of Morgan Stanley concerns.

  Jim Brown   9/25/02,  9:29:48 AM
IBM One reader suggested this morning that we buy IBM calls. With Micron up after missing earnings significantly IBM is sure to go to $100 if they warn! (grin) Good idea Brad!

  Jonathan Levinson   9/25/02,  9:28:51 AM
With the put to call ratio closing at .86 yesterday and the TRINQ going out at .53, I'll be surprised if this bounce makes it to my upper resistance level at 1220. Let the stochastics do the guesswork for you. I'll be watching the 15, 30 and 60 minute 5(3) stochastics to identify the turn, show and then confirm the rollover. The TRINQ should open down further and I will wait to see it blow off its lows as well. A cross out of overbought on the 30 minute stoch with the TRINQ compressed down to some low number and coming off its low of the day (I'm guessing below .40) will have me targetting puts.

  Jeff Bailey   9/25/02,  9:26:56 AM
The 9:00 AM intraday update has been posted. Link

  Jim Brown   9/25/02,  9:25:39 AM
Swing Trade Signals
Lightning struck this morning with GE affirming estimates and removing that cloud from the markets. ASML also affirmed shipments for 2002 and calmed chip investors after Micron missed estimates last night. Even Micron was trading up in pre-market after missing estimates significantly after Tuesday's close.

What a difference a few hours makes. When I went to bed last night the futures were down significantly at 811 and this morning they are over 830. This just reminds investors how quickly oversold bounces can occur with any spark of good news.

I don't think market conditions have changed and after a bout of short covering along with some end of quarter buying we will be seeing lower numbers again.

The current stop loss on the open short signal is OEX 417. (SPX 832, DJX 78.00)

  Jeff Bailey   9/25/02,  9:24:16 AM
Market Volatility (VIX.X) 45.38 ... with volatility high, traders holding October expiration puts may want to check positions for profitability and assess a stocks "rally potential" to resistance and perhaps its first "buy signal" on a point and figure chart. Should volatility decline, expect some deterioration in premiums, especially if holding some out-the-money options. Once assessed, trader may want to sell October expirations if stock looks to rally, then roll to November/December or later expiration should stock rally to your level of identified resistance. Think strategy also. Is stock you're currently holding a potential "tax loss sell" candidate into the end of the year? If so, may make sense to lock in October expirations, and roll to December.

  Steven Price   9/25/02,  9:18:04 AM
Autozone (AZO) $73.05 We closed this OI call play last night ahead of earnings, as is our policy. AZO beat forecasts of $1.41 by a mile, posting a gain of $1.73. The stock recently reversed to PnF support of $73, and a trade of $77 would constitute a triple top breakout. If it manages to achieve this level, I would look for the next level of resistance to be around $82

  Jonathan Levinson   9/25/02,  9:07:12 AM
The COMPX has resistance at 1200, 1210, and 1220-25, with the strongest resistance at 1220-25. Bond yields are in the green and futures are holding their gains.

  Linda Piazza   9/25/02,  8:49:22 AM
If you entered a put play yesterday afternoon, now, before the markets open, is the time to reaffirm your stop losses. First, take a look at the stop loss you envisioned before entering the trade. (You did do that, didn’t you?) You had a good reason for setting that stop when entering the trade. Honor that reason today. If you didn’t think about your stop loss, start now by reading Jim’s “Swing Trader Game Plans” and Jeff Bailey’s “Index Trader Summary” from last night’s newsletter. Incorporate your own trading style as you make this decision and also think about the option position you purchased. Did you purchase a November deep ITM option, prepared to ride out any technical bounces and intending to stay in the trade through October’s traditional downturn? Did you purchase an ATM October option that’s going to devalue quickly during a technical bounce and deflating VIX? Did you over-leverage? Factor those variables into your decision, as we each must take responsibility for setting the stops that fit our unique situations.

  Jonathan Levinson   9/25/02,  8:11:33 AM
The Corinthian Geyser launched at 3AM and has yet to look back, with NDX futures +12.50 and S&P futures +12.20. The US Dollar Index is hovering at 107.70 and once again, gold could not break $330 resistance. QQQ is currently trading 21.31.

  Jim Brown   9/24/02,  9:27:37 PM
The Swing Trade Game Plan has been posted: Link


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