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  Jonathan Levinson   9/30/02,  8:30:22 AM
The US Dollar Index has come down to 106.90, and the futures are in the red, S&P -7.80 and NDX -8.50. Gold is pushing toward $325 again. QQQ is currently trading 21.13 from a close of 21.31.

 
 
  Jeff Bailey   9/27/02,  6:22:26 PM
General Electric (GE) $24.47 -7.27% ... lots of questions regarding GE's bearish vertical count. Did you know that there's a tutorial in the "Bailey's Basics" that helps explain how to calculate a bearish count? Link

There is some "errors" in www.stockcharts.com p/f chart. At leat I believe so. They "adjust" the point and figure chart to reflect dividends that are paid. As such, this "throws off" the chart and will have "buy signals" and "sell signals" where they SHOULD NOT BE. For instance, in December, after the "red C" GE did trade $41.00 (12/21/01, traded $41.39). Tell an investor that bought GE that day at $41.00 that he didn't buy it there because he got a dividend later (and paid taxes on it) and he/she will tell you to go fly a kite! By negating that trade at $41, stockcharts.com point and figure chart has us calculating a bearish count of $18. (column of O from $40-$30). Link

For those of you that subscribe to Dorsey/Wright's point and figure chart service, their chart looks correct and current bearish count is $6.00, dating clear back to July of 2001.

In July of 2001, it looks like stockcharts.com has a "bad tick" in their data (unless it was caused by dividend adjustment) as there should not be a 3-box reversal higher into X, after the red 7 as GE's bar chart will show the stock would have generated a looooooong column of O from $50 to $29, without so much as a 3-box reversal.

Suffice to say, I wouldn't necessarily be trying to pick a bottom in GE. If you are tempted, then stop goes under the low at $23. Kind of like a bull would have done at $36, and $28.

 
 
  Steven Price   9/27/02,  4:54:40 PM
Reader Question: Hi Steve, ERTS - Breaking to new highs - However the volume is just a little above avg. Appreciate your thoughts on bullish positions here ? Thanks.

Response: ERTS $67.73 (+0.63) We discussed this play and considered it as a long. However, with the market sagging heavily, we thought it would be best to wait for a pullback to around $65 and then reconsider.

 
 
  Jonathan Levinson   9/27/02,  4:25:30 PM
I would suggest CEF or CEF.A on Toronto to participate conservatively in gold. It's a fund that holds gold and silver, just the metals. The miners are a more aggressive way to play, but avoid going long ABX, AU and PDG, which are the largest hedgers and tend to underperform the unhedged gold miners. I currently hold a position in CEF.A, as well as AGF Precious Metals Fund and Royal Precious Metals fund, none of which own any hedged miners as of the last time I checked.

 
 
  John Seckinger   9/27/02,  4:01:16 PM
How do I best get involved on the long side of Gold without using an option or index?

Response: The XAU index comprises of the following compaies; Anglogold Ltd (AU), Ashanti Goldfields (ASL), Barrick Gold Corp. (ABX), Battle Mountain Gold Co. (BMG), Coeur D'Alene Mines Corp. (CDE), ecla Mining Co. (HLH), Freeport McMoran Copper & Gold (FCX), Homestake Mining Co. (HM), Newmont Mining Corp. (NEM), Placer Dome Inc. (PDG). As a good proxy, I like to watch ABX, NEM, and HM.

 
 
  Linda Piazza   9/27/02,  3:44:15 PM
Candlesticks are now forming a far-from-classic evening star formation on OEX, predicting more downside. In a classic evening star formation, the formation would form after a sustained rise, and the central formation would be a doji that sits above the white candle on the left and the red candle on the right. However, Nison, the father of candlestick charting, advises that these formations don't always have to be classic if they're forming in an area of former resistance. While I won't bet the farm that indices will go down next week, I'll give this formation some weight even if it isn't classic, since it formed at resistance in the 430-432 area.

 
 
  Jim Brown   9/27/02,  3:40:50 PM
Swing Trade Signals
Nasdaq 1200 is holding back the flood. If that number fails then Dow 7700 will not be far behind. Not any signs of end of day short covering yet. Could be an interesting close!!

 
 
  Jeff Bailey   9/27/02,  3:40:20 PM
The 03:00 Update has been posted. Link

 
 
  Jonathan Levinson   9/27/02,  3:38:58 PM
I'm not aware of any chart pattern that defends the quadruple bottom as being valid, and the "bounce" at COMPX 1200 is more of a pause than anything else, at least from where I sit. The TRINQ is at .78 and the TICK.NQ -590. QQV is flat, -.07. My best analysis of these strange numbers is that participants don't believe what's happening- as if they're having a picnic at the edge of the Grand Canyon. Poetic exaggeration, perhaps, but that's what it looks like to me.

 
 
  Jeff Bailey   9/27/02,  3:15:16 PM
QQQ $21.44 -0.78% ... challenging yesterday's low. Dow Industrials (INDU) 7,700, has slipped below our 19.1% retracement from Index Trader Wrap. If Dow closes below 7,750, would hold Q's over the weekend if withing your trading discipline.

 
 
  John Seckinger   9/27/02,  3:14:35 PM
How is the Gold And Silver Index (XAU) looking?

Response: This index fell 10% from Tuesday's close to Thursday's low at 67.20; however, the XAU has recovered slightly and is now above the 200 DMA (68.59). Also important was the index rallying off the breakout area (67.60) set on August 29th. Going forward, there should be resistance at both the 50 and 22 DMA's (70.61 and 71.85, respectively). If the index gets back to the 74.50, I would take 1/2 position off table if long (or at least put a stop under the 22 DMA). The key in the intermediate term is to get back above 76. Weakness under the aforementioned 67.60 area should have bears regaining confidence and bulls exiting to the sidelines.

 
 
  Linda Piazza   9/27/02,  3:08:34 PM
DOW hit that 7760 promised by the double-top pattern and then some! Usually chart patterns predict a minimum movement up or down, but, again, don't give too much credence to intraday patterns. It's nice that this one worked out, but formations that set up over days or weeks are usually more reliable than these short-term ones.

 
 
  Jim Brown   9/27/02,  3:08:08 PM
Swing Trade Signals
What was that? The 3:PM turn hit and it looked like a train wreck. The bottom is clearly ahead and we appear to be falling over the cliff's edge. Next week should be exciting!

 
 
  Jonathan Levinson   9/27/02,  3:08:07 PM
My screen just exploded in a sea of red. COMPX 1200 support right here.

 
 
  John Seckinger   9/27/02,  2:50:46 PM
Something is going on in shares of J.D. Edwards (JDEC), rising almost .40 in the last 25 minutes and currently setting an intra-day high at 9.78. Low of the day was 9.37. Robert W. Baird did place a "neutral" rating on the company this morning, but shares actually fell 0.22 cents after the announcement.

 
 
  Jim Brown   9/27/02,  2:28:16 PM
Swing Trade Signals
Coming very close to Nasdaq 1200, now 1210. If the 1200 support level breaks then the remaining market supporters will likely head for the woods to hide. It is amazing to see the selling accelerate before the end of the month and makes you wonder how much farther we would have fallen without any end of month buying. If we are this weak before the weekend then next week could be a disaster.

Like I said hindsight is 20:20 and it is clear we should have gone short again at 12:45 when the morning lows of 422 were violated. I saw 420 as potential support again and it did hold for over 30 min. Once that level failed all illusions of remaining end of quarter buying disappeared. With such a big drop today we could see a bounce at the open on Monday but I think everyone will agree that once out of September the bears will be in complete control again.

With 90 minutes before the close nothing is a guarantee. There could still be an end of day bounce but anyone thinking about buying this dip has got to be scratching their heads right now and reevaluating that decision.

 
 
  Steven Price   9/27/02,  2:25:06 PM
Reader Question: Is the $25 level mentioned in last night's OIN for TECD Put Play only the next level of support or the final target? Thanks! Jim

Response: TECD $27.48 (-0.90) $25 is the next level of support and our initial target. This served as support in the first part of 2001. However, if the stock continues to look weak at that level, we would tighten up our stop and look for a break to $20, which is support from Oct 1999 - Feb 2000.

 
 
  John Seckinger   9/27/02,  2:21:39 PM
Interesting side news: There is speculation that Imclone's CEO Sam Waksal might seek a plea bargain. Mr. Waksal would testify that he shared the FDA/Erbitux information with Cephalon's CEO before it was made public. Shares of IMCL are down 5.0%, while CEPH is lower by 3.93%.

 
 
  Steven Price   9/27/02,  2:17:45 PM
Reader Question: I'm still hanging on to OI put play AET from 40. What's your outlook here in light of insurance stocks in the US and Europe getting hit. AET seems to show strength but can't penetrate resistance. Could we be in for a nice downswing to 35? John

Response: $37.27 (-0.51) I think AET looks good down to $35, or just below. The 200-dma at $34.56 could provide some support and coincides with a key level from February. I'd like the play even better if it could close below the $36.50 level that has provided support on the last two drops.

 
 
  Jonathan Levinson   9/27/02,  2:14:42 PM
The last half hour has seen selling accelerate on the COMPX, bring the TRINQ up to a more neutral .72, but with a TICK.NQ still firmly negative at -320 showing broad based selling. The 30 minute 5(3) stoch is oversold and trying to cross back up, with the COMPX at 1212. We could see a rebound to 1219 from here, but resistance is stacked up above it, and I have no doubt that the highs of the day will be today's ceiling. The ascending wedge on OI put play BSC broke and the stock is now down over 1%, although the volume at 433,500 is extremely light compared with its ADV of 1.23M, so there's not a lot of conviction here. Most of the volume so far today in BSC has been upward, and so today looks like a sideways move within the larger down cycle. GE has fallen below 24.50 now, which is acting as resistance.

 
 
  Jim Brown   9/27/02,  2:03:12 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the SHORT entry at 13:56:06 on the SHORT entry when the OEX traded below 418 again. SPX 835.65, DIA 77.99, SPY 83.84, DJX 77.83, NDX 872.86, Compx 1213.22, QQQ 21.72, Emini 835.75.

If history repeats itself 418 will be the low of the day. I resisted shorting the drop because I kept thinking there might be some end of day buying but at the rate we were falling that buying could have been in the 410 range if I was waiting safely on the sidelines. When 420 broke I felt the risk/reward was worth the bet.

The initial stop loss will be OEX 421.

 
 
  Jim Brown   9/27/02,  1:55:14 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Hindsight is 20:20! The Nasdaq is finally breaking down and the OEX has broken under 420. The Dow looks like it is finally going into free fall. I can't stand watching the points bleed off my screen. End of quarter buying appears to be over. Let's go SHORT the broader market now with another OEX below 418. With 400 as our target we will use 421 as the stop loss.

 
 
  John Seckinger   9/27/02,  1:55:00 PM
Looking at the yield curve, both five- and ten-year notes are up 11 ticks, representing a (66-44) 22 tick steepener and definitely confirming the bearishness in equities. Looking at cash, there is a 97 basis point difference between yields on 10-year notes (3.70) and yields on five-year cash (2.73). The 30-day high is 98.3.

 
 
  Jeff Bailey   9/27/02,  1:53:57 PM
QQQ bears OK... got some weakness in the Dow as it relates to a scenario for a QQQ short. What are the major "weightings" in the QQQ as it relates to sector? Biotech and Software.

Microsoft (MSFT) $46.37 +0.41% is component of Dow and QQQ, and biggest weighted stock in QQQ. As such, trader should monitor MSFT for weakness/strength. Let's look at 60-minute interval, since this is timeframe I was using to monitor for Dow weakness. "Key" SMA will be the 21-hour, just like in the DIA. Here's a 60-minute chart of MSFT. Link

 
 
  Jonathan Levinson   9/27/02,  1:32:48 PM
The TRINQ has "rallied" up to .53 on this move, not a lot of weakness in techland as Jim points out, although the COMPX at 1220 with barely a bounce in it is hardly a tower of power this afternoon. Then again, flat is a lot better than -7.01% like GE. The longer intraday 5(3) stochastics are in various stages of bear rolls, which is a little disconcerting because price isn't falling particularly hard. Then again, the windows aren't ready to be undressed, which I'm convinced is behind the buying. Most stocks are declining on the COMPX, even if advancing volume is outpacing declining volume by 20M shares, and there almost 15 new lows for each new high.

 
 
  Jim Brown   9/27/02,  1:27:16 PM
Swing Trade Signals
MSFT, CSCO, ORCL, IBM all positive again. INTC only down -15 cents. Techs must be the sector of choice for those funds buying for window dressing. This is interesting and would seem to me that they want to show a tech stock front as being correctly positioned for maximum returns when the recovery comes. Evidently holding PG, MMM, UTX, JNJ would provide the appearance of being too cautious.

The other possibility is that they don't have enough cash to buy MMM at $113, PG a4 $88 and UTX at $58. It is easier to spread the portfolio with tech stocks under $20 or even under $10. The other school of thought is that there is little risk for these stocks at these levels. Of course investors in LU, CIEN, NT could explain the benefits of reduced risk in penny stocks if they were interested

 
 
  Jeff Bailey   9/27/02,  1:21:27 PM
The 01:00 Intra-day Update has been posted. Link

 
 
  John Seckinger   9/27/02,  1:15:53 PM
Semiconductor Index higher by 1.30% at 251.54, helped this morning when shares of Micron (MU) were upgraded by a former analyst at B of A. MU received a "buy" rating, and is currently higher by 3% at 12.91. Note: MU's 22 DMA is at 15.69. AMAT, also a part of the SOX, is up 2.47% at 12.03. Furthermore, KLAC, another component, is up 2.67% at 29.17. The Sox needs to close above 245.87 to show a net weekly gain, the first since the week of August 11th.

 
 
  Jim Brown   9/27/02,  1:08:58 PM
Swing Trade Signals
The bottom finally appears to be falling out of the market support over the last 15 min. The Nasdaq has finally gone negative and Dow 7850 has failed. While I wish we were still short the end of quarter support may not be over. I think waiting until Monday before entering a new position is still the best plan.

The chip sector has been holding firm until five min ago and without a failure of chips there will be no failure of the Nasdaq. Without a failing Nasdaq there will be no final failure of the Dow. While I would hate to see OEX 420 fail today I am willing to watch from the sidelines in case there is a final buying spurt this afternoon. This will also allow option premiums to deflate further.

 
 
  John Seckinger   9/27/02,  1:06:37 PM
With Dow lower by 2.19%, sectors underperforming include Airlines (XAL, down 8 percent), NYSE Utility Index (NNA, down 3%), and Transports (TRAN, lower by 2.91%).

 
 
  Steven Price   9/27/02,  1:05:32 PM
Reader Question: Steve, What is your outlook on the Broadcasting/Media group and Tribune (TRB) in particular? Thanks for your insight. RRC

Response: Tribune Company (TRB) $42.98 (+0.28) I think the sector is facing the same uphill battle as many other businesses. Less business spending generally equals lower advertising revenues. That being said, a couple of these stocks (TRB and NYT) have put together a nice series of higher lows since August 5. There is some resistance at each round number ahead for TRB, but $44 looks to be the biggest hurdle. $44 would be a new PnF buy signal, but there's still a lot of noise between $44 and $48. Above $48 looks like clear sailing, but that seems a long way away for this stock. However, if it is able to forge through all the resistance to that level, the strength would be hard to discount.

I must admit, as a long time Chicagoan, I'd be tempted to suggest this as a long stock play if I thought the money would make it to the Cubs roster, but so far that hasn't been the case (GRIN).

 
 
  John Seckinger   9/27/02,  1:02:37 PM
The recent downdraft in the Dow has turned the Volatility Index (VIX) positive, now higher by 2.59% at 41.16. The Nasdaq has also been forced to turn negative, lower by 2.26 points at 1219. Notable shares still higher despite selling pressure include MSFT, MCD, and KO.

 
 
  Jeff Bailey   9/27/02,  12:49:29 PM
Agilent (A) $13.50 -1.95% ... breaking to intra-day low...

see that 20K bid in A at $13.50? Specialist is offering liquidity for those that want it right now, perhaps measuring some order flow and any bullish worry.

 
 
  Jeff Bailey   9/27/02,  12:48:44 PM
Dow Industrials (INDU) 7,846 -1.88% .. breaking to intra-day low.

QQQ $21.87 +1.20... QQQ bear can come in here with partial.

 
 
  Jeff Bailey   9/27/02,  12:47:37 PM
Agilent (A) $13.53 -1.81% ... stock traders should be using some of the index action along with the stocks they're monitoring. If you've had success from the bearish side in a stock, even if you closed out a trade previously. Monitor those stocks you've view as weak and were RIGHT on. They too can hint that weakness is building. If they're strong, then a bear is more cautious.

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

 
 
  Jonathan Levinson   9/27/02,  12:47:10 PM
GE has now exceeded its average daily volume and is printing a fresh low at 24.73, down 6.29% on the day.

On the COMPX, more rangebound trading, but the TRINQ is at .42, which is verging on extreme buying. The TRINQ at these levels is starting to look overbought, as there's no corresponding move higher in COMPX price. The TICK.NQ is reading -447 and QQV is down .6 on the day. Yields are weaker, and these divergences look quite bearish to me.

 
 
  Jeff Bailey   9/27/02,  12:43:55 PM
Index Traders remember our conversation from Wednesday night's wrap about the 21-hour SMA dating back to the 09/09/02 action at this 21-hour. Know what to look for as it relates to "similarity" or DIVERGENCE. On 09/09/02, the Dow Diamonds (DIA) dipped under the 21-hour SMA for 3-hours, then recovered back higher. Link

A QQQ bear that is playing a break lower in the Dow/DIA would ideally like to see a BOLD move lower. That would hint of DIVERGENCE to the 09/09/02 action.

QQQ $21.89 fading a bit from $22. You know we're not the only ones thinking this. KEY right now would be to not OVERLEVERAGE. You know what to look for and monitor....

 
 
  Steven Price   9/27/02,  12:33:53 PM
Straddle Play: Here is the link to the aforementioned straddle play. Link

 
 
  Linda Piazza   9/27/02,  12:30:26 PM
DOW has now formed a double-top formation, best seen on the 15-minute charts, breaking through the neckline at 7880. Although such short-term charts are not always as reliable as longer-term charts, a dip to 7760 area seems possible now. (8000 top - 7880 neckline = 120 points. Subtract 120 points from 7880 neckline = 7760.)

 
 
  Jeff Bailey   9/27/02,  12:28:23 PM
Index Traders Per last night's Index Trader Wrap .... for a QQQ bear, monitoring the 60-minute Dow Industrials (INDU) 7,859 -1.72% chart, on 60-minute time interval. Traders will not Dow trying to hold its upward trending 21-pd SMA. If we should see break of session low (7,848) in Dow, can short/put the QQQ rally (currently $22.00 +1.89%).

Thinking here is that break in Dow to session low could have QQQ bids being pulled.

 
 
  Steven Price   9/27/02,  12:19:14 PM
General Motors (GM): $40.16(-1.36) New put play GM is approaching $40. New entries can use a break in this level to initiate the play. $39.50 is a secondary entry point, just below yesterday's low of $39.58

 
 
  John Seckinger   9/27/02,  12:15:07 PM
Looking at a weekly chart of the five-year note (FV2Z), the contract is at 113-11.5 and one tick lower than Monday's opening level. If the five-year settles here, this would be the first red weekly candle since the week of August 11th. Not sure if such weakness will spur a type of asset allocation, but something to put on the radar screen. Support below current levels stand at 113-05 and then much lower near the 112 area.

 
 
  Steven Price   9/27/02,  12:10:32 PM
RJ Reynolds (RJR) $41.87 -4.68 For anyone still short from the play I profiled last week at $49, we are just past PnF support at $43. I would take at least 1/2 profits at this level and place stops at $43.

 
 
  John Seckinger   9/27/02,  12:08:28 PM
Side Note: Merrill Lynch lowers S&P 500 EPS ests to $45 from $46 for 2002 and $52 from $55 for 2003. Yesderday, Salomon Smith Barney cut their 2003 S&P 500 estimates.

 
 
  Jonathan Levinson   9/27/02,  11:50:45 AM
I hear that! A lot of folks I know are were saying that NT was a steal at $1.50- 2.00, US and/ or CDN. I do a lot of snickering in the hockey locker rooms lately when I see some of these guys- quietly mind you.

The sad truth is that most investors do more research choosing a refrigerator than they do choosing an investment vehicle for their retirement savings.

 
 
  Jonathan Levinson   9/27/02,  11:39:24 AM
The receptionist at my friend's mutual fund advisory firm just asked me if I'd bought any NT. I laughed. She said "You can't go wrong at 89 cents" and then transfered my call before I could respond. She may be right or she may be wrong, but we here at OIN know better than to look at a low price in a vacuum and decide that "you can't go wrong".

 
 
  Jeff Bailey   9/27/02,  11:35:53 AM
11:00 Update has been posted. Link

 
 
  Jonathan Levinson   9/27/02,  11:34:46 AM
The General has so far traded 23,174,200 shares against an adv of 30,053,818. Again, it's getting sold off on volume, confirming the trend southward. Any bounces on light volume will be selling opportunities.

 
 
  John Seckinger   9/27/02,  11:24:09 AM
With the Dow down 87 points at 7909, many Intermarket Relationships continue to hold true to form. Dollar higher, Gold lower. Bids in five-year notes while equities are weaker. Utility Sector lower, Dow lower. The interesting sector is Oil, higher by 1.35% and rose above its 22 DMA at 463 (XOI currently at 464). Also of note is the SOX index higher by 2.63%.

 
 
  Steven Price   9/27/02,  11:21:39 AM
Ask the Analyst: You can send questions for this weekend's column to asktheanalyst@OptionInvestor.com

 
 
  Jonathan Levinson   9/27/02,  11:20:09 AM
The TRINQ is quite low at .41, but we've seen lower this week. The COMPX is challenging that 1235-1240 congestion area, but I don't see that level of conviction just yet. Volume breadth has improved somewhat, with almost two advancing shares for each declining, which is commensurate with the falling TRINQ. Yields have actually worsened a bit in the past 30 minutes, though, and I just don't see more strength today than we had earlier this week. We'll have to wait and see.

 
 
  Steven Price   9/27/02,  11:17:52 AM
Reader Question:

I heard recently a lot about the delta-neutral straddle strategy, which supposedly is profitable in whatever direction the market goes and especially good for unpredictable markets like the one we are in now. If you ever wrote about that strategy, please send me the link. Otherwise I would appreciate your educational column on that strategy. One thing that bothers me is that one always has one looser in the trade, which has tax implications, especially as a private person where you are limited to $3000 loss write-offs. Also, finding delta = 0 straddles is cumbersome. Do you know about an easier way to get an option screen of delta = 0 or close to zero plus minus a deviation of say 5%?

Thanks a lot. jean

Response:

Jean, I realize the question was directed to Mark, but I'd like to throw in my two cents. When I was still on the floor of the CBOE, my mother called and said that she had been to an options seminar where she was told that straddles were a "can't lose" scenario. When I stopped laughing, I explained that 80% of all options finish out of the money and many premium sellers collect a nice profit each month.

A straddle is the purchase of a call and put at the same strike. The only way to do this trade delta neutral is to buy the straddle when the stock is at the strike, and even then there are some differences in the deltas, because the future price of a stock is considered and the call with have a higher delta. However, it is pretty close and delta is not an exact calculation in my opinion anyway. Changes in volatility can affect deltas and if you get close to zero, you're pretty neutral. You can also trade stock with the straddle to remain delta neutral, but I don't recommend this unless you are an advanced trader. In order for a straddle to be profitable, the stock has to move far enough to justify the purchase price of both options. There is a strategy to buy stock low against the straddle and sell it high. I wrote a column on September 8 in "Ask the Analyst" on this strategy, as it applied to FRX. Right now the link is down, but I will post it later today.

 
 
  Jonathan Levinson   9/27/02,  11:11:24 AM
OI put play BSC (58.35, +.43) seems to be forming a bearish ascending wedge pattern and is currently trading very close to upper trendline resistance, best seen on the 15 minute candles. Volume has been falling on this upmove, showing a lack of buying conviction at these rising prices. Lower trendline support, depending on how you draw it, is at approximately 57.70. The daily 5(3) stochastic is not yet overbought but is headed in that direction. The weekly 5(3) stoch is completing a bullish cross from oversold, and all shorter timeframes are rolling over in or near overbought. I agree with the stop loss at 59, because if the 5 week cycle is dominant, there could be substantial upside ahead. Better to bail at 59 and re-short at higher levels in that case. In the meantime, we'll utter a collective "ohmmm" and try to will the price back down in concert with the intraday stochastics.

 
 
  Linda Piazza   9/27/02,  11:04:09 AM
Funniest reader response to the broker stories this morning: "What's a broker? lol"

 
 
  Steven Price   9/27/02,  10:50:02 AM
Reader Question:Steven: I'm trying to put a covered call on my long-term holdings of Network Appliances (NTAP 8.16, +0.16), a NDX component producer of mid-sized storage systems. Fundamentally, it is better off than most all of its fellow competitors but I nevertheless expect it to succumb to a failing market. My question is regarding the amount of extrinsic value for its options. I see the November $5 options at 3.20/3.40 (meaning there is only $0.04 - $0.24 juice, and 3.16 intrinsic value) while the $7.50 options are $1.4-1.50 (meaning $64 - $0.74 juice). I can see many reasons for this like higher delta and greater certainty, but I would have thought that the amount of juice would have been closer. Could you give me your thoughts on this, and if possible, your thoughts on NTAP's outlook as well. Many thanks in advance. Jeff

Response: NTAP $8.19 +0.23 NTAP's earnings do seem to be on the upswing, and asset to debt ratio also seems decent, so your assessment is probably as accurate as you can get with a stock of this nature. As far as the premium levels in the options, you need to think about the out of the money options to judge how much premium should be present. On a percentage basis, a move to $7.50 from the current level is around 9%, while the move to $5 is closer to 40%. You look at the out of the money options because calls and puts at the same strike have the same amount of premium (not including interest and dividend considerations at that strike), and determine the move to that strike. This accounts for the large difference in the premiums at those levels. If the stock were $100, you would see much smaller percentage differences in the premium between strikes 2.50 apart (actually you would most likely not see 2.50 strikes in a $100 stock unless there were a split, but the principle is the same.)

 
 
  Jonathan Levinson   9/27/02,  10:45:06 AM
While GE sputters below 25 (no, I won't call- it could have just as easily been my mistake, and the important thing is that no one lost money), the COMPX has just printed a new high above 1225. So much for the 5 minute h&s pattern. The TRINQ is staying steady at the low end of neutral around .6, and bond yields have recovered well off their lows though still in the red. I'm surprised to see this much strength in the market on today's news, but there are a lot of windows and account statements to dress. In other words, I'd be a lot more nervous if this were occurring on November 1st than on Sept. 27th. The COMPX is up to 1230 as I've been typing. Next resistance is upon us, and 1235-40 was the previous top-end congestion area. Let's see how it does on this go-round. Volume breadth is 208M advancing to 167M declining shares on the COMPX.

 
 
  John Seckinger   9/27/02,  10:32:39 AM
Regarding post 09:56:31 and the possible "hammer" formation, by definition the shadow should be at least twice the real body. Let's say the Dow closes at 7884, the shadow (7884 to low) would be 219 points. The real body would be 103 points (using open to 7884). 103 times 2 is 206; therefore, one can call the formation a hammer and speculate about a possible reversal in trend. Note: A settlement under 7877 would cancel out a possible formation.

 
 
  Linda Piazza   9/27/02,  10:26:00 AM
My broker suggested I buy CSCO not long ago, when CSCO was near 17.

 
 
  Jonathan Levinson   9/27/02,  10:21:16 AM
I'm considering calling my parents' broker when GE breaks 25, $1.38 less than when it was recommended just yesterday.

 
 
  Jeff Bailey   9/27/02,  10:17:53 AM
Forest Labs (FRX) $82.94 +1.23% .... from previous bullish profile near $73. Stock approaching recent 52-week highs. According to Dorsey/Wright and Associates, the "drug sector" bullish percent recently reversed back down into "bear confirmed" status and hints of weakness in the drug group. As such, looking at bar chart with regression and think resistance may be encountered near $83. Call option traders may want to move to sidelines near-term, then look for pullback to the $77-$80 level for re-entry. If holding more than 1 option, may sell partial position, raise a little cash on some internal sector weakness. Link

I bought just 1 FRX Jan $70 call. I'm going to sell it here, but then look to reduce some risk in account, and look once again at January expiration, but look $75-$80 strike.

Note... "nothing wrong" with FRX, just seeing some internal weakness from the sector, which might weigh on FRX near-term.

 
 
  Linda Piazza   9/27/02,  10:15:09 AM
Yesterday afternoon, DJ Transports broke out of hours-long consolidation, and made a run for the 50-dma, but ended the day just short of that measure. This morning so far, DJT is falling back from that level, and the hourly stochastics show a bearish cross. Those stochastics can turn back up, of course, but RSI on daily chart is also turning down. Morgan-Stanley Cyclicals tested minor resistance in the 430 area, but seems to be struggling with that level, and hourly stochastics show a bearish cross here, too. Daily RSI is also turning down here. The transports particularly are looking overextended on an intraday basis. So far, no signs of great market strength in these areas, but the day isn't over yet.

 
 
  Jonathan Levinson   9/27/02,  10:14:04 AM
The Fed has 6B added via 5 day repos, refunding an expiring 6.75B of O/N repos from yesterday, for a net drain of .75B. Again, any rally will have its work cut out for it today.

 
 
  Steven Price   9/27/02,  10:05:02 AM
Semiconductor Sector Index (SOX.X): 247.66 (-0.69) As per Jim's earlier comments, I'm wondering if the SOX has finally found a consolidation level. Of course, we wondered this up around 275-300, as well. After bottoming intraday around 231 on Tuesday, it has rebounded and held around 250. It lost over a third of its value between the end of August and Tuesday's close, so the sellers may be a little exhausted. With warnings still coming out of the sector on an almost daily basis, it may simply have found its new range. I'm still bearish on the sector, but won't jump back into the water until I see signs of new weakness from this level.

 
 
  Jonathan Levinson   9/27/02,  10:04:45 AM
Well, it's a more bullish market than it was a few moments ago. This advance has brought the COMPX back to resistance in the 1220-25 area, which coincides with the neckline of a small head and shoulders top formation on the 5 minute COMPX chart.

 
 
  Jim Brown   9/27/02,  9:57:46 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the exit signal at 9:52:26 when the OEX traded above 424. SPX 846.78, DIA 79.15, SPY 84.87, DJX 79.04, NDX 870.73, Compx 1215.82, QQQ 21.64, Emini 846.00. Unbelievable strength with negative news on all side. Just too much strength to risk holding for the next buy program to come through. I do not plan of entering a new signal today. Let the funds beat themselves up and premiums deflate. We will look for a new entry on Monday.

 
 
  John Seckinger   9/27/02,  9:56:31 AM
As far as a weekly chart of the Dow is concerned, the blue-chips need to close above 7986 in order to show a net weekly gain. Regardless, at current levels there is a look of a "hammer" pattern in place and this might attract some interest from technicians.

 
 
  Steven Price   9/27/02,  9:56:29 AM
General Motors (GM): $40.66 (-0.86) Conservative traders may want to wait for a break below $40, but with all of this morning's economic data already out, the stock is still looking heavy. A break below $40 looks like a good entry point for those who didn't get in on the open. A failure at $41 is another alternative. I'll be watching the intraday chart for signs of a failed bounce.

 
 
  Jonathan Levinson   9/27/02,  9:53:07 AM
The TRINQ has risen a bit since the open and is currently .6, showing no shortage of buying enthusiasm. The COMPX is trading in a range just below 1215 following its intial gap down. Yields are negative, precious metals are negative, and QQV is positive. Not a very bullish day so far.

 
 
  Jim Brown   9/27/02,  9:52:22 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Close the current SHORT sign with an OEX trade at 424. If we get a bounce this morning I want to exit without a loss and wait until Monday/Tuesday to get back in. The internals are very negative but there is an underlying bid probably due to window dressing or asset allocation programs.

 
 
  Jim Brown   9/27/02,  9:51:21 AM
09:38 ET DAL Delta Air Lines halted - news pending (11.50)

 
 
  John Seckinger   9/27/02,  9:51:10 AM
Michigan sentiment 86.1 vs 86.0 consensus

 
 
  Steven Price   9/27/02,  9:50:40 AM
Tech Data (TECD) : $28.61 +0.23 We are looking for a couple of different scenarios to initiate this put play. First, break below $28 for conservative new entries. However, in looking at yesterday's intraday chart, the resistance at $29 is formidable. The stock is managing a slight rebound after yesterday's big drop, but the other plan for shorting around the $30 may not get achance. I'm going to look for another failure at $29 as a possible entry.

 
 
  Linda Piazza   9/27/02,  9:49:49 AM
With a put position this morning, I'm doing a quick survey of various measures to judge my comfort level with my position. Dollar down, bond yields down, gold up, declining volume higher than advancing volume: so far, these measures indicate a defensive posture. I'd like to see the SOX weaker and $TRINQ higher, indicating stronger selling, but I'm comfortable so far as I wait for the release of sentiment figures. If you're new to trading, start looking at these broader measures of market strength or weakness, in addition to the strength of the company or sector in which you trade.

 
 
  Jim Brown   9/27/02,  9:45:02 AM
Swing Trade Signals
I would like to wait for the Sentiment in 16 minutes to trigger an exit just in case it comes in negative.

 
 
  Steven Price   9/27/02,  9:43:49 AM
The sideways movement seems to be slipping. If we can get some momentum going to the downside, we may see some good short entry points. With this morning's lack of conviction, however, I don't want to jump in due to boredom

 
 
  John Seckinger   9/27/02,  9:40:55 AM
Weakness out of Japan overnight included consumption figures falling to 71.4 with spending lower by 0.2%. Speaking of economic reports, the revised Michigan Sentiment report for September is due out at 9:45. Expectations are for 86.0 versus 86.2. The 86.2 initial reading represented a drop of 1.4 points, or 1.6%.

 
 
  John Seckinger   9/27/02,  9:33:04 AM
Treasuries up this morning, with a solid bid in the five year notes (up 6 ticks, while 10 year up 7). Reasons include weaker equities overseas and a bid in the dollar versus the yen.

 
 
  Jim Brown   9/27/02,  9:14:23 AM
Swing Trade Signals
I am really surprised that the futures are not down more than they are. With MO and SBC both warning, GE under pressure and multiple new warnings you would think we would be down -10 points or more. This makes me think there are still some end of quarter buyers holding the market up.

Chip stocks are hugging the flat line despite bad news yesterday and leading me to believe the SOX may be close to a bottom. SLR was upgraded this morning by Thomas Weisel after its earnings last night.

The final Q2 GDP at +1.3% was slightly higher than expected.

We will look to exit the SHORT signal after the open on any strength. The current stop loss is OEX 432 but we are not going to wait for that level.

 
 
  Jonathan Levinson   9/27/02,  8:05:48 AM
Today ended the 3AM winning streak, with futures down at 3AM, chopping back and forth within negative territory only to sell off in the past half hour or so, NDX -8, S&P -6.8. The US Dollar Index is hovering around 107.65. QQQ is trading below 21.50.

My parents' broker tried to sell them on GE yesterday. He said that the stock is at or approaching levels where it's a compelling value. I hate to use profanity in my mom's presence, but I hate to be dishonest, and so wound up feeling guilty for not being honest enough but also for being profane :) My mother laughed and thanked me, and then I called my dad to head their broker off at the pass. I won't launch into a rant about GE, except to say that it baffles me how a huge, diversified industrial, media and financing company can keep apparently growing profits in a broadbased economic and financial downturn. Revenues flat but profits up? At best it looks unsustainable and at worst it looks crooked. Just my $.02. I won't rant about brokers either- I received the information as hearsay, and broken-telephone is a bad way to judge peoples' arguments. But, so long as there are dip-buyers and bottom-pickers, I won't believe we've reached a true capitulation. Traders are still willing to chase falling knives.

 
 
  Jim Brown   9/26/02,  10:56:02 PM
The Swing Trade Game Plan has been posted: Link
 
 
  Jeff Bailey   9/26/02,  9:22:12 PM
The Market Monitor has been archive. To view today's comments, simply click this Link

 
 

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