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  Jeff Bailey   10/11/02,  8:38:24 PM
Bull Alert! Today's action has the NASDAQ-100 Bullish % ($BPNDX) reversing into "bull alert" status at 22%. This is most often the more volatile and quicker changing bullish % that will reverse up/down before the others.Link

Note: In early July (red 7), the NASDAQ-100 Bullish % reversed higher from 8%. At that time, the NDX.X was trading at approx. 1,000. Then by August (red 8) the internals continued to improve, but the NASDAQ-100 was trading lower at approx. 900.00.

In essence, traders are on "bull alert" status for the NASDAQ-100. Bears are best served to establish finite stops in bearish trades they hold, and finite downside targets of support where a pullback to support has the trader closing out, or limiting exposure to the trade.

Bulls will be looking for stocks that break above consilidation (two weeks consolidation preferably) and show strong relative strength versus both the NASDAQ and broader S&P 500.

 
 
  Alan   10/11/02,  6:00:52 PM
Index Futures
5:46 PM NEWS: General Electric (GE: a dow stock) files $ 50 billion shelf registration.

 
 
  Alan   10/11/02,  5:30:43 PM
Index Futures
Readers Question: a few emails came in asking for some "basic" futures information - realizing that not every OI client reads the website daily, or monitors the Market Monitor throughout the trading day; the easiest way I can answer you is to refer to 2 Futures Articles written this past week - one being a rather detailed primer on the Basics of Futures, and the second one concerning using Futures as Hedge with an Options Position:

The 2 URLS are:

Futures Basics Information: Link

Using Futures as Hedging tool for a stock or options position: Link

 
 
  Jeff Bailey   10/11/02,  5:30:38 PM
Swing Trade Signals
The swing trade model continues to hold SHORT the broader market from OEX 419.99, with a STOP above today's high at 427.00 and TARGET of 410.00-406.00 range.

 
 
  Alan   10/11/02,  5:26:28 PM
Index Futures
5 PM : as written in the 3:43 PM post, there was indeed a bullish tone to the close, as ES futures not only retested the 830 level, it soared about it to close at 838 (or about 10+ ES points in under 30 minutes. Same with the Dow cash index from the 3:43 PM level of 7765 as it also attacked the 7800 resistance and climbed 80 points to its 7843 close

4:15 PM Futures Close: ES (SP500 futures) 838.25, YM (Dow $5 futures) 7865, NQ (NDX futures) 894:

 
 
  Alan   10/11/02,  4:07:30 PM
Index Futures
4:00 PM Cash Close: ES (SP500 futures) 835.25, YM (Dow $5 futures) 7820, NQ (NDX futures) 892:
As mentioned in the 3:45 PM post, ES did indeed make a closing attack on the 830 level to have an 8 ES point move into the Close. The Dow (cash) also climbed back from 7765 to close right under 7850 at 7843.
MSFT is always a great stock to watch from 3:30 PM to the close as MSFT confirmed the "up" move into the close.
4:04PM ES 837.50, YM 7836, NQ 894 (few points higher than 4 PM cash close)

 
 
  Alan   10/11/02,  3:54:38 PM
Index Futures
Futures Index Trade 3 EXIT: 3:45 PM
From the YM (Dow Futures) short from Dow 7900 Cash, the previously suggested target of +100 (or more) point gain was reached as Dow Cash touched 7765.

Shall use this trade to answer some reader emails on Futures Margin and % of returns : Depending upon your entry from Dow Cash 7890-7900 area, the trade generated a gain of +100 points - at $5 per Dow point this is $500 gain per contract, and Dow margin varies from $800-1500 for daytrades. (Depending on said margin, this would represent a Net gain of 33%-60%[or more].

The Futures Index will not generate any more Trade signals today going into the weekend Flat.
If forced to make a guess on the last 20 minutes, I wouldn't be surprised to see one final attempt on Dow Cash 7800/ES (Sp 500 futures) 830.
This is now the first week in 6 weeks with a Green weekly close.

 
 
  John Seckinger   10/11/02,  3:25:45 PM
Looking at a chart of 30-year cash bond (TYX.X), yields closed above its 22 DMA (4.75%) for the first time since July 29th. On Friday, the contract settled at 4.82%. Will be interesting to see if prices can reach the 50 DMA (4.89%); something not done since June 11th.

 
 
  Alan   10/11/02,  3:25:10 PM
Index Futures
Futures Index Trade 3 Comment: From the YM (Dow Futures) short from Dow 7900 Cash, lower the trail stop from 50 points to 75 points (that is, lock in a minimum of 75 points with the target remaining +100 points). We'll allow either target to hit and shall exit the trade today regardless if neither target hits as who knows what Monday brings: an assult on Dow 8000 or back to 7500-7600.

 
 
  Alan   10/11/02,  3:19:48 PM
Index Futures
It appears the closing tone will be set by what happens with Dow Cash 7800; and the ES (SP500 futures) battle between 830 and 835.

 
 
  Jeff Bailey   10/11/02,  3:10:14 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the SHORT signal at 15:06:42 when the OEX traded 419.96. TARGET is to close out at OEX 410.00

Stop loss will be OEX 427.00

May get some short-term profit taking from the bulls into the close, maybe get some chasing bulls to "realize" a mistake of chasing and have them also looking to close out on thought that "it just isn't going to hold and I've bought another false rally."

Time and Trade equivalents were... SPY=83.40 , SPX= 831, DIA= 78.00, DJX= 77.98, NDX= 881.57, QQQ=21.91

 
 
  Alan   10/11/02,  3:08:50 PM
Index Futures
Futures Index Trade 3 Comment: 3 PM has brought some selling. For the remaining 1/2 Size YM (Dow Futures) from Dow Cash 7900; put a stop to lock in a minimum of 50 points profit, and the goal will be a Profit of +100 points (which would be an approx. gain of 33-50% depending upon the broker's margin requirements.)

 
 
  Jeff Bailey   10/11/02,  3:01:24 PM
Swing Trade Signals
OEX 422.14 +3.99% ... 60-minute chart of OEX has 200-hour SMA serving as last hour's resistance, and may be a "level" that traders are monitoring agains on a near-term basis. 50-hour and 21-hour SMA's below at 405.00 both offer up support targets. Link

Currently looking for GO SHORT the broader markets on break below OEX 420.00, with an OEX target of 410.00.

 
 
  Jeff Bailey   10/11/02,  2:49:21 PM
Swing Trade Signals
The hourly charts of the indexes are burried in oversold conditions and for first time in two-days, show a recent hour's low violated. Will protect with a stop above daily index highs to protect from further short-covering wave, but bears may be starting to sit back after they've chased all they were willing to. At least for now.

 
 
  Jonathan Levinson   10/11/02,  2:48:59 PM
Those red candles seem to have brought a few friends along, and the small pullback was enough to bring the deeply overbought intraday stochastics into bearish crosses. Let's see how the COMPX does at 1200 support/QQQ 22.85 or so. I expect a bounce from there, but will be very happy to see a failure of that level.

 
 
  Jeff Bailey   10/11/02,  2:46:38 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Will GO SHORT the broader market in the Swing Trade Model on an OEX trade under 420.00. Follow with STOP above today's high of 427, and target 410 near-term.

 
 
  John Seckinger   10/11/02,  2:46:01 PM
Earnings scheduled for next week includes a number of bellwether companies. I have devised a list including some notable names:

Monday: FNM, before the open; MYG, SONC, UIS, all after the close

Tuesday: BAC, ONE, BBOX, C, FITB, FRX, FCX, GM, JNJ, LLL, WFC, all before the open; MEL, USB, both during trading hours; AMCC, DCLK, HDI, INTC, ISSX, MOT, NVLS, RFMD, TER, all after the close

Wednesday: BK, BA, CAT, KO, FBF, F, GD, GENZ, HON, HI, JPM, MER, PFE, RETK, USM, WHR, WB, all before the open; AMD, AKAM, AAPL, CDWC, CLS, IBM, IWOV, MACR, QLGC, RSAS, SEBL, SYMC, VIGN, all after the close

Thursday: BOL, BAX, CEN, CAL, CY, EMC, FO, GP, KEY, MAT, NYT, NOK, MO, PNC, PPG, S, LUV, UNH, all before the open; ATML, ELY, CPWR, EBAY, GTW, HAND, MERQ, MSFT, NT, PBI, PMCS, DGX, RATL, SFA, FON, SUNW, SY, XLNX, all after the close

Friday: BGEN, ERICY, MRK, TLAB, all before the open

 
 
  Jeff Bailey   10/11/02,  2:45:10 PM
Dow Industrials (INDU) 7,821 +3.8% ... Jeff: Just learning the point and figure charts that you like to use. Would a trade at 8,000 be a buy signal?"

Yes... it would currently take a trade at 8,000 to have the Dow Industrials (INDU) give a point and figure buy signal. This rather "BIG" reversal of the recent column of O's is what can be called a "low pole" reversal and can mark a near-term bottom. Link

 
 
  Alan   10/11/02,  2:42:50 PM
Index Futures
Futures Index Trade 3 Comment: From the YM (Dow Futures) short from Dow 7900 Cash, with the Dow Cash currently at 7812, consider taking 1/2 Short Profit in this area to Lock in a +50 to +75 point gain. Use a break-even trail stop for the rest. ES (Sp500 futures) have not retaken the 840 level (making the previously mentioned Lower High); and have now lost the 835 pivot trading at 833s currently.

 
 
  Jonathan Levinson   10/11/02,  2:29:13 PM
I haven't seen this many consecutive red candles since the initial pullback today off the opening gap up. The symmetry of this rise across the indices is very impressive. The QQV is still down hard today, below 50, and the TNX is up an astounding 1.58. I hope that everyone has been locking in mortgages at these low rates during the past months.

The COMPX is testing the 100 minute simple moving average, which so far has supported price all day. A break below will allow bears to breathe optimistically, but it will be shallow with bonds rallying and volatility collapsing. The TICK.NQ is at -27 and the TRINQ is at .46.

 
 
  John Seckinger   10/11/02,  2:26:09 PM
Just a few minutes ago, the Dow finally tested the 22 PMA (7844) for the first time all session.

 
 
  Alan   10/11/02,  2:25:49 PM
Index Futures
Futures Index Trade 3: As I do not know if any of you took that Dow Short at Dow Cash7900 from my prior post, with Dow Cash now at 7840, put in a stop to at least lock in 35 points of Profit. Obviously, no one "knows" what the last 90 minutues of trading brings, but in this fashion, "some" profit is locked in. A short from Dow Cash 7900 now wants to see ES (SP 500 Futures) not retake 840, thereby making a lower High, and looking for ES to lose the large support now at 835.

 
 
  Jeff Bailey   10/11/02,  2:20:53 PM
Lucent (LU) $0.67 -2.85% ... ouch! I don't know about you, but I still think telecom equipment a little out of favor still.

 
 
  Steven Price   10/11/02,  2:16:40 PM
Reader Question: Harman Audio (HAR) is trading just above $50, obviously because of the rally. I am new to Option Investor and know that you don't give advice yet I'd like to ask if you see this as a good entry point on the short side? Thanks.

Response: HAR $50.68 (+2.67) I still feel HAR is a short candidate for all of the reasons in our recommnedation. I also can see the rally running out of steam around Dow 8000. However, I am not going to stand in front of a train. I'll wait for the rally to fail before initiating new short positions and stick to my stops.

The Dow lost almost 1900 points in the drop from Aug 22, and has actually stopped short of its 38.2% retracement at 7915. However, even a 50% retracement would have another 200 points in it to the upside. While I like the fact that the rally failed just below a significant retracement level, I'm still going to wait for more evidence of a failed rally before getting short.

The fact that the rally occurred as soon as the SPX hit its July 24 intraday low also suggests to me that the shorts hit their target and are covering. Still, there is no reason to be stubborn in the face of a rally.

 
 
  Linda Piazza   10/11/02,  2:15:00 PM
Referencing my 11:17 post about those down-sloping 22-dma's, the indices drove through them as easily as if tornado winds were driving poles through a brick wall. So much for watching how prices sometimes bounce down from those MA's when MA's slope down so quickly! It's a good thing I qualified that by saying they were only 22-dma's and not longer term 50's or 200's.

 
 
  Jeff Bailey   10/11/02,  2:14:11 PM
Swing Trade Signals
Bullishness continues to unfold by each hour and while I'm "upset" I didn't chase the move at the open, I sure as heck can't justify chasing it here (as a bull, not a bear). OEX 425 +4.8% now firmly above the 21-day SMA of 418 and 60-minute charts remain in "overbought" conditions. Each hourly low continues to hold and not be broken. For aggressive bulls holding positions on their own, a trailing stop under the previous hourly low would pay off if you took the risk at the open or anywhere in between today.

Last hourly lows... OEX 420, SPX 832, SPY 83.50, QQQ 22.00, NDX 885, DIA 77.95, DJX 77.93.

 
 
  John Seckinger   10/11/02,  2:12:03 PM
Per 09:49:31 Post, the "hammer" formation on a weekly chart looks like it will not be properly formed. Why? According to Candlestick experts, the "real body" (open to close) should be 1/2 or less of the lower shadow (open to low). With the Dow up an impressive 343 points, the lower shadow (7528 to 7197) is almost equal to the real body (7528 to 7868).

 
 
  Alan   10/11/02,  2:05:42 PM
Index Futures
Index Trade Short Stop Hit: The 'high risk' Dow Short from Dow Cash 7850-7860 25 point Stop was triggered taking it to FLAT ...

I am oh so very reluctant to type this, but it now appears the logic of the trade was correct, simply 40-50 Dow points too early. Dow Cash now 7900 and 700 points above yesterday's Lows.
This now appears to be "The Number" - With great! hesitation typing this, if you did not take the "high risk" short at Dow Cash 7850-60, you might consider taking it here at Dow Cash 7900 as we head into the last 2 hours of the day.

To answer a readers question: Technical Trade Entries sometimes work, and sometimes do not. A similiar "high risk" Technical Model trade on Monday (a Long), and on Tuesday (a Short at ES 810) both worked very well; with ES (SP 500 futures gains of 10-15 ES points and 15-30 ES points). Today that same technical model did not work, and the best that can be done is having an intelligent stop in place.

 
 
  Linda Piazza   10/11/02,  1:59:37 PM
I've been looking for an explanation for the rise in the .XAU today, and batted around several possibilities for its rise. I also found an article that mentions a new South African mining charter that "provides for 15% of equity in existing mining operations for historically disadvantaged people in five years and 26% in 10 years." Apparently, the original version was viewed as unworkable. When news of that original charter was leaked on July 26, foreign investors fled. This new version is called much more pragmatic. While I'm not sure this has anything to do with the .XAU's rise, I thought I might mention it since several readers have asked what's going on.

 
 
  John Seckinger   10/11/02,  1:42:47 PM
The aggressive upward trend continues. It is interesting how Gold is higher by 2.71% at 62.38. Also impressive is the 9% rise in the Semiconductor Sector. I still wonder if Soros is done selling the Treasury Bonds bought with the theory that the ECB would lower rates. Yesterday, the ECB kept rates unchanged. So, is the pain over for shorts in equities and short-term longs in bonds? No reason to believe that it is.

 
 
  Steven Price   10/11/02,  1:33:15 PM
Dow Industrials : 7845.50 (+311.55) We've certainly seen a break in the down trend line in the Dow. However, we got similar breaks on other bear market rallies, and I'll wait for a break above 8012 on a closing basis for confirmation that the downtrend has reversed, with a higer high. That being said, this rally may still have some life left in it, even if we don't cross that level. However, I do expect it to slow down as we get to 8000.

 
 
  Jonathan Levinson   10/11/02,  1:30:31 PM
For not the first time, I like the cut of Jeff's jib. The COMPX has been taking a nice, easy climb higher, pausing often for rest and refreshment, though not much relaxation as the TRINQ is only now easing into a more neutral .48. Yields are now in a full-blown rally and the QQV has let go by nearly 10%. There is little to inspire a QQQ bull to go long at any point, because the march has been straight, but slowly up. A pullback would be a good place to jump into calls for those who not yet in and wish to do so. I expect this range to top at the 1225 area, and we could easily bounce around between 1200 and 1225. There's some intermediate resistance at 1215, but I wouldn't want to short with the smart money voting so clearly in the bond and options markets.

The fed money this morning was basically neutral, supporting yesterday's expiring infusion and adding that 1.25B until next week. The point here is that bonds and shorts are the most likely source of fuel for today's action. With equity mutual funds having seen outflows again this week and being nearly fully invested already, the buying isn't coming from them.

 
 
  Alan   10/11/02,  1:26:08 PM
Index Futures
Index Trade Entry: Dow Cash 7852, YM (Dow Futures 7832), ES (SP500 futures) 839 (middle of next higher resistance at 838-840), NQ (NDX futures) 897 (under the psych level of 900) has triggered a very high risk technical Dow short entry at above numbers, repeat very high risk. Please note: this is a purely technical trade as ES did indeed come within an inch of the 840 upper band of resistance. Use 25 point stop from entry if trade is taken.

 
 
  Alan   10/11/02,  1:14:53 PM
Index Futures
Index Trade Possible Setup: Currently FLAT: Dow +300 for day. While not trying to be a stubborn bear, my Dow model has a short triggering from the +300 number on a technical and not sentiment level. YM (Dow Futures) at 7815 currently, and Dow cash 7830; however, I the human, on market sentiment reasons, am NOT going to take the trade unless ES (SP 500 futures either hits the 838-840 resistance and looks to fail -or- ES loses 835; and that will then actually trigger the Trade. If the trade isn't done, so be it.

 
 
  Jeff Bailey   10/11/02,  1:10:51 PM
Campbell Soup (CPB) $22.55 +1.57% ... So far CPB is spreading wings like an eagle. I hope will not finish like the crow Ha,ha.Martin

Laughing.... we shall see. Need some cold weather and some "heated up equity markets." Looks like the latter is taking place.

 
 
  John Seckinger   10/11/02,  1:09:02 PM
If an aggressive trader currently long, I would be following the 22 PMA on a five-minute chart (Dow). This average is currently at 7794 and has not be tested all session. Next resistance I see in the Dow is at 7878. When will I turn neutral for the session? Most likely when the Dow trades under 7750.

 
 
  Alan   10/11/02,  12:59:46 PM
Index Futures
Please note the corrected error from my prior post: The next level of ES resistance is 838-840, not the 848-840 as previously typed.

 
 
  John Seckinger   10/11/02,  12:56:57 PM
As noted in last night's Traders Corner article, when the 30-year falls one full point (32/32), there is usually a good chance underpinning bids in equities will remain the entire session. Note: The Dow is at its session high.

 
 
  Alan   10/11/02,  12:52:12 PM
Index Futures
Some retracement levels for today's ES (Emini SP500/SPX futures): ES 50% retracement from the 827 support level to day high of 835 is 831, from Day Low to Day High 816/836 is 826. Hindsight being wonderful, but as I was having some technical problems posting to the Market Monitor; I was reluctant to suggest re-opening a New Short on ES at 835 with a target of 3 ES points so quickly after the Dow Trade of (+0 to +35 gain). Continue to monitor the ES 830-835 level for a sense of general market direction. Next ES higher area of resistance comes in at 838-840; and then a very large one at 850-853

 
 
  Jeff Bailey   10/11/02,  12:49:45 PM
Swing Trade Signals
The Swing Trade Model remains flat, with no open long/short orders. Looking at the 60-minute chart of the OEX, each bar since yesterday's low of 387.80 has held and not been violated. Extension lower of our downward regression channel, which was broken to the upside at 414 today, extends lower and currently resides at 413. I could envision some type of re-test of this trend near 410 early next week.

After new lows, I'm a pretty firm believer (based on prior observations) that old downard trends or horizontal levels of resistance that are broken usually get re-tested as support.

Now that the indexes have "stretched their wings" a bit, a pullback begins to give a bullish trader some type of near-term reward potential.

 
 
  Jeff Bailey   10/11/02,  12:35:29 PM
Jeff: what does the trusty STA say about volume and price action on Columbus day

I don't see anything about volume as it relates to Columbus Day Volume.

However, yesterday's volume on the NYSE was over 2 billion and NASDAQ was 1.8 billion. Volume approaches 1 billion at NASDAQ and NYSE here.

New highs on both exchanges are same levels as yesterday. NYSE has 18 and NASDAQ has 15, these are IDENTICAL to yesterday at the close. This again hints that BULK of buying is from bears. At some point (we never know when) the bears will exhaust and a pullback will take place. That's when both a patient bear (that already had taken bulk of profits off the table) and new bulls will look for support entry levels.

I'm thinking modest gains on Monday, then a drift lower into Wednesay/Thursday.

Problem for a BEAR right now, is that there may not be a lot of bulls with anything left to sell them that they didn't sell them last week/early this week. This is my thinking right now as it relates to that action of the indexes reversing themselves, each time a previous day's low was taken out.

 
 
  Alan   10/11/02,  12:34:43 PM
Index Futures
Index Futures Trade: Stoped Out: The 11am Dow Short from 7800 Cash either generated the lower band of the 35-50 point target at Dow Cash 7760 -or- you were just stopped at Breakeven. My intent was not a 35-50 point trade, but we have to trade what the market gives us. ES (SP futures) are at a prior support number of 835 currently, NQ NDX Futures 890, MSFT 48.10; Dow Cash 7823. ES failing to lose 827 seems to have been the bullish trigger at 12 Noon; also shorts tried to press ES Futures back under 830 but didn't have much success. ES / SPX 835 without a doubt is a known pivot number, but so far (similiar to yesterday) the pullbacks are very shallow. Waiting to see how the market handles this ES / SPX 835 level; my guess remains down on Long Profit taking - but that really hasn't happened yet. At this point, there's no real sell trigger until ES/SPX loses 825-827, and Dow 7550. We now have the First GREEN closing week in 7 weeks.

 
 
  Steven Price   10/11/02,  12:25:27 PM
Semiconductor Sector Index: 245.58 (+18.34) The SOX is approaching the 250 level I referred to earlier this morning. If it breaks, then look for 256 as the next resistance level. I'll also be watching the Nasdaq Comp (1205.65 +42.28) for the 1222 level, which would also be a higher high on the close.

 
 
  Linda Piazza   10/11/02,  12:23:25 PM
In regards to my 10:53 post about divergence, a reader reminds me to mention that divergence can also occur when stochastics or RSI push to a new high and prices don't. Divergence occurs when price action and the action of the indicators diverge, or when they're not "in gear," as Martin J. Pring, author of several books on technical analysis, calls it. When they're not in gear, traders should be alert that a trend may be changing. This is an alert, only, however, and trades should not be initiated until price action confirms that alert. Thanks, Keith, for that reminder to mention this type of divergence, too.

 
 
  Jeff Bailey   10/11/02,  12:12:37 PM
Jeff: Just noted the last 2 bear rallies topped out when VIX dropped to near 40.

That's a good observation. I think it was last week that Steve was talking about the VIX.X and that it holding ABOVE the 40.00 level was sign that institutions were NOT selling premium at that time.

 
 
  Alan   10/11/02,  12:09:58 PM
Index Futures
Index Futures Trade: 12 Noon: ES (SP500 futures) 829-830, Dow Cash 7775, NQ (NDX futures) 883: The 11 AM Dow short from Dow Cash 7800 so far has not been very impressive; at most offering 35 points (as Dow Cash 7750 has held so far). Not knowing what Next Week will bring: Dow to 8000 or Dow to 7500-7600; with the Dow up 600 points from yesterday's Lows; that appeared the best Trade an hour ago. So Far, ES has held the 827-829 pivots, the 50% retracement of ES low/high 816/833 is 824.50. The ES round number of 830 is providing a great deal of chop here. Status: Maintain with a break-even on your entry. If any of your decided to just take the 35 points ($175 or roughly 10% gain); stay flat and wait to see what the afternoon brings.

 
 
  Steven Price   10/11/02,  11:50:40 AM
Reader Comment: Here's some info for readers looking at AEP. Thanks for the comment.

Last night on Nightly Business Report they spent some time talking about how big the dividend was on AEP. Might be getting some retail business as a result. Thanks for all your work. Shelley

 
 
  John Seckinger   10/11/02,  11:48:30 AM
Equity mutual funds posted net cash outflows totaling 5 billion for the week ending October 9 (Wednesday). Where did the money go? It is reported that Taxable bond funds saw an inflow of 2.3 billion. Other notes: Lucent announces job cuts of 10,000. Looking at the 30-year bond, the US02Z is currently lower by 24 ticks at 113-00. It will most likely take a move above 113-18 before cash begins to leave equities and enter the fixed-income arena.

 
 
  Jonathan Levinson   10/11/02,  11:41:08 AM
The COMPX appears to have achieved equilibrium at 1199, so no further trading should be necessary. I note that all intraday 5(3) stochastics are buried, the daily is oversold, and the weekly has given a bullish cross. However, neither the daily nor the weekly show any signs of turning down, and while I'd be thinking of shorting this, the price action has grown too "quiet". Bears with itchy trigger fingers could add a partial position here (I'd go no more than 1/4) with a stop around 1211 or so, just in case a breakdown starts here. However, when it looks this tempting, I become cautious. The TRINQ is a little higher but still clearly overbought at .35. The TICK.NQ remains just north of neutral at +137.

 
 
  Jeff Bailey   10/11/02,  11:41:00 AM
11:00 Update is posted Link

 
 
  Steven Price   10/11/02,  11:38:13 AM
Ask the Analyst: Just a reminder to send in your questions for this weekend's column. You will get a detailed analysis of your question, accompanied by some graphs, as well. I have a couple of suggestions I am currently considering, but I am still open until the end of the day. Send questions to asktheanalyst@OptionInvestor.com (note to Jonathon: we generally don't give advice to the lovelorn in this column, unless it's a really good question)

 
 
  Steven Price   10/11/02,  11:34:50 AM
Wellpoint (WLP): $79.90 (+1.50) New OI call play WLP carries a trigger over $80, which it is approaching. I still would not initiate a new position here until I see a trade of $80 and some evidence of support at that level. No reason to jump the gun, there looks to be plenty of upside if we get the breakout.

 
 
  Steven Price   10/11/02,  11:31:23 AM
Reader Question: Steven, what are your opinions on AEP. I own NOV 20 puts bought @ 1.30. There was a big blow off a couple of days ago (I should have sold!), yesterday it recovered some, but today it looks very weak and is down while almost everything is up. Would you hold or sell? Thanks.

American Electric Power (AEP) $20.05 (-1.15) It looks like the blow off on the newws of employees falsifying data found its bottom and has rebounded. With the news out, it also looks like AEP is in a range and is finding support at $19.50-$20.00. It still looks pretty weak however, and if I were holding the position, with more than a month until Nov expiration, I would probably ratchet down my stop to correspond with a stock trade of either $22.50 or $23, above the high that seems to have put a ceiling on it the last few days.

 
 
  John Seckinger   10/11/02,  11:26:01 AM
One sector not participating in the rally is the Utility Index (UTY). Currently down 0.51% at 222.95 (Dow +3.16%), weakness below 220 could pressure this interest-sensitive index back towards 212. Because the UTY isn't at a significant relative low or high area, most likely the Dow will not immediately lead; however, equity holders certainly have this index on the radar screen.

 
 
  Linda Piazza   10/11/02,  11:17:34 AM
COMPX and both S&P's (and nearly the DOW) are bumping up against their 22-dma's at these levels. Those DMA's slope sharply downward, and sometimes prices bounce down from MA's that slope down this sharply. It's rather like the DMA's are speeding vehicles and the faster they're going, the harder they're going to hit the prices. This effect doesn't always hold and don't make any trading decisions based on this, especially as these are 22-dma's and not longer-term MA's, but watch to see if the effect holds this time just for educational purposes.

 
 
  Alan   10/11/02,  11:04:52 AM
Index Futures
Trade Consideration: Dow Cash 7800 (current level) to open up a Short as Futures Index is currently Flat: (sorry for not longer advance notice, but had stepped away for 15 minutues). At this moment, cannot say whether this will be a 35-50 point target or holding for more. This is a high risk entry as the market tone remains bullish with shallow pullbacks. My only reasoning is Dow 7800 is 600 points above yesterday's Lows on a Friday.

 
 
  Jeff Bailey   10/11/02,  11:03:38 AM
Duke Energy (DUK) $19.28 +2% ... I entered a long put position on DUK when it broke below 17.50. My trading plan, which dictates the size of loss I am willing to take on a given trade, will have me stopped out near 19.75 (just above 18 day EMA). Perhaps this was a bad risk/reward entry based upon reasonable moves in the stock. I know that you are playing the January 20/17.5 P's. What technical and business plan criteria are you using to determine if this play has gone against you?

"My plan" is/was to buy the Jan. $20 puts, not risk more than I could afford to lose, and target the bearish vertical count of $12.50. I have "no plan" so to speak for "if the trade goes against me." I RISKED $3.50/contract before DUK gave the sell signal at $17.50. At $17.50, my "risk" in the stock to DUK's first "buy signal" is to $21.00, which is $3.50. For me, I now have until January to see how things pan out and since I did not OVERLEVERAGE and was willing to risk $3.50 before I made the trade, then I will hold until expiration or target is achieved. Link

For those that do trade stops with their options, then first sign of strength would be a trade at $21.00.

 
 
  Linda Piazza   10/11/02,  10:53:42 AM
Reader Question: I had a couple of reader questions concerning the market wrap last night:

1. Bullish divergence - I have never been clear on this. How does lower prices and equal or lower stochastics and RSI indicate bullishness?

2. Double top - How do these predict a target?

Response: Divergence can be a great tool, so I'm glad you asked. Think of stochastics as a measure the strength of a move. If prices make a new or equal low, but the stochastics don't, that's rather like saying there wasn't much conviction behind that move down. RSI measures relative strength and it's a leading indicator, meaning it has a bit of predicting ability rather than measuring what's already happening, especially if you use it to look at divergence. If the prices make a new or equal low, but RSI doesn't, that means that the relative strength of the stock or index remained higher, even while the second low was being made. You're alerted that the trend may reverse.

You can use divergence with tops, too. If prices move higher, but stochastics and RSI don't, that questions the strength of the move. You're on the alert to watch for a change in trend. However, you can't rely on divergence only to predict what will happen next. Divergence puts you on alert, but prices must confirm (as they seem to be doing so far today).

Double tops and double bottoms do offer the opportunity to measure the minimum expected move down or up. For example, in the case of a double top, subtract the difference from the two tops down to the trough that separates them. Say that the two tops are at 50 and the trough is at 40. That distance is 10 points. Then subtract that 10 points from the bottom of the trough, so that you can expect the price to move down to 30, at a minimum. Do the reverse in the case of a double bottom. This is why it's okay to wait for confirmation of a double top or bottom if you're a cautious trader who likes to be sure. You may have missed out on the first half of the movement, but after confirmation, you can feel confident of entering the trade and setting your stops and profit potential.

 
 
  Jeff Bailey   10/11/02,  10:48:15 AM
FedEx (FDX) $51.00 +2.16% ... with Dock worker's lockout somewhat resolved near-term. Will use today's strength to take small profit in recently profiled bullish play. Will wait for stock to give the triple-top buy signal at $53.00 for new entry, or look for pullback. Link

 
 
  John Seckinger   10/11/02,  10:45:52 AM
Pattern Recognition: The high in the Dow during the first five-minutes was 7646. For bulls, this level should not be tested again today. In fact, the market should keep an aggressive channel all session and close near its highs. Bears, on the other hand, should hope prices consolidate near the 7725 level until longs finally book profits and send equities back towards the 7670 level. Note: Vix down over 4% at 44.34.

 
 
  Steven Price   10/11/02,  10:41:07 AM
Reader Comment: The VIX has never closed two consecutive weeks above 45. At least for as long as Q-charts has data. -WS

Response: Market Volatility Index (VIX) 44.45 -1.84 Thought this was a very good point. It has come close a few times, but going back to July 1997, it hasn't happened. Taking this a step further, it would require a sell-off/pullback today to make it happen.

 
 
  Jonathan Levinson   10/11/02,  10:32:40 AM
Of course, MER downgraded GE just yesterday. Perhaps MER needed a quick profit on some GE stock to help pay its $100M fine for misleading investors? Just a random thought.

The 5(3) COMPX intraday stochastics are, predictably, very overbought, as is the .29 TRINQ. The TICK.NQ is reading a measly 100, taking a breather after the morning's buying frenzy. The QQV is down 1.2 today, less than the bullish explosion would have one expect.

 
 
  Jeff Bailey   10/11/02,  10:25:45 AM
Stock Trader's Almanac has Monday marked as "bullish." Monday before expiration has been up 9 of last 11 years.

 
 
  Jeff Bailey   10/11/02,  10:24:29 AM
Swing Trade Signals
Indexes just off their best levels... Dow 7,723 +2.5%, SPX 825.95 +2.74%, OEX 416 +2.64%, COMPX 1,194 +2.67%, NDX 875 +3.06%, QQQ $21.78 +3.32%.

NASDAQ Comp 1,200 may be some formidable resistance near-term. Was support in late July and early August, when broken, NASDAQ faded to the lows. Should provide some near-term resistance and may provide enough to get bulls an entry point on a pullback near 1,157.

 
 
  Steven Price   10/11/02,  10:24:02 AM
IBM: $63.17 (+5.59) I've been looking for a short opportunity in IBM and a gain over $5 seems like that opportunity on the surface. However, when a major investment firm like Lehman upgrades a stock 2 days ahead of earnings, the conspiracy theorist inside me thinks there are more intelligent/less risky opportunities.

 
 
  Jonathan Levinson   10/11/02,  10:23:03 AM
Alan, that's the 3AM Corynthian Geyser Formation!

 
 
  Alan   10/11/02,  10:18:59 AM
Index Futures
Day 2 of "Buy the Bad News" as the 9:45 AM Sentiment numbers were not good, ES (SP500 futures) did dip from 822 to 815 (815 prior mentioned pivot) in the moments the report came out. However, that bad news was bought; and more shorts covered rocketing ES Futures up to 830 at 10:00 AM, Dow Cash 7750. Given the incredible speed of these upticks, I was unable to type fast enough or give you enough lead time to offer a Trade consideration to Exit Longs/Open Shorts at ES 830 or Dow 7750. If you don't have futures quotes and wish to see how ES futures reacted overnight, go to www.livecharts.com and type in the ticker of ES02Z (Emini Sp500 December futures), 10 minute, and click Chart tab and select 'All sessions' and look from 3 AM. That site is free but has 10 minute delayed prices. If you look at www.cbot.com you will find an area for free YM (Dow $5 December futures) charts and auto-refreshing Bid-Ask-Last. Index Futures remains Flat. Today is Friday, there is a great deal of Long Profit from yesterday at 10 AM and I would be suprised to see the Dow today go much higher than 7750-70; but the safe short entry for a new trade was missed at 7750 Dow/830 ES given the amazing quickness of the move and no chance to give you advance heads-up time to ponder it. I would consider a Trade Short if ES firmly loses 823-825 with a target of 818, or 3-5 points. Time of day note: Yesterday at 10 am was Day Lows, will today at 10 AM prove to be Day Highs ?

 
 
  Steven Price   10/11/02,  10:16:57 AM
Market Volatility Index (VIX) 44.70 -1.59 I find it interesting that the VIX had been rejected at 50 for three straight days, as the market tanked throughout the beginning of the week. It was only after the index broke through 50 yesterday morning at 10 a.m. that the rally kicked in. This is in keeping with previous trends. The last several rallies took place only after the VIX cracked 50.

 
 
  Linda Piazza   10/11/02,  10:11:44 AM
Preliminary Michigan Sentiment numbers were 80.4, versus a forecast of of 85.5, with previous number 86.1. The current conditions component was 92.9, versus 95.8 in September. The expectations component was 72.4 versus 74.9. This confirms concerns about consumers, but perhaps this worry was already priced into the market. I'd wait to let the market digest this information before making trading decisions.

 
 
  Jonathan Levinson   10/11/02,  10:09:07 AM
The fed has added $5.75B via a 6 day repo, refunding the expiring 4.5B overnight repo from yesterday, for a modest net add of $1.25B. Yesterday's jam job is therefore being supported today, expiring next Thursday. Our free markets at work - not.

 
 
  Linda Piazza   10/11/02,  10:07:35 AM
Consumer Sentiment numbers hit a 10-year low, but market participants don't seem to care. Yet.

 
 
  Jeff Bailey   10/11/02,  10:06:11 AM
S&P Banks Index (BIX.X) 262.95 +4.87% ... makes bold break out of 4-day consolidation of 236-252. Monitor for resistance at 267.

 
 
  John Seckinger   10/11/02,  10:05:50 AM
In last weekend's wrap, I drew a monthly regression channel from the 11,750 high in the Dow. The bottom of this channel now comes in at 7728. In theory, once back inside the channel, the Dow could gravitate back towards the middle of the channel (roughly 8800). Of course, if the Dow closes under 7728, will traders give this regression channel more weight than the "hammer" or "doji" formation outlined earlier?

 
 
  Steven Price   10/11/02,  10:04:56 AM
Lockheed Martin (LMT) $63.14 (+2.26) Traders looking to enter OI call play LMT can look at the 50-dma of $63.57 from this level. New entries can wait for a break above that mark, or give the rally some time to fade and look to enter lower. The recent Friday trend has been red candles, with the market finishing below its open, so I'd like to give it some time before entering long.

 
 
  Jeff Bailey   10/11/02,  10:02:44 AM
Swing Trade Signals
All indexes have broken above their downward trends from regression. These technicals now turn me more bullish and looking for pullback entry points. On an intra-day basis, Swing Trade Model would look for OEX pullback near 410 as we're nearing 418 level of retracement resistance.

 
 
  Steven Price   10/11/02,  9:59:58 AM
Harman (HAR): $49.38 (+1.37) OI put play HAR is right up against the 200-dma of $49.45. Let's see how it reacts at this level, before thinking about punting. The current stop is $50.75, just above the high on 10/8. Failure to hold the 200-dma by the end of the day could be seen as an additional sign of weakness in a rising market.

 
 
  Steven Price   10/11/02,  9:56:48 AM
Per my last post, the SOX closing level of 256 on 9/25 could be seen as the higher high waterline, rather than 250, so watch that level as well. Because 250 & 256 are so close in time and distance, I would look at both, and wait for 256 to confirm.

 
 
  Steven Price   10/11/02,  9:53:23 AM
Reader Question: Good evening Steven: Readers question, QLGC - QLOGIC, 20.85 + 0.88 (4.41%) We are now long/call on Stock, been bouncing back on the 20.00 mark, where do you see real support and resistance, we have the Nov.20/c QLQKD, we appreciate your comments on MM Thank you, Michael

Response: QLGC $21.65 (+0.80) I could see a move to fill the 10/3-4 gap up to $24.50, but the stock will have to get over the $23 opening print on 10/4 first. Also watch the Semiconductor Sector Index (SOX.X) 238.80 (+11.56). It bottomed at 211 and its current rebound has taken it right up against the descending trendline from the end of August (connecting the highs of each rebound attempt). If it breaks past 240-242, then it will break that trendline, and then the next significant level is 250. A close above 250 would constitute a higher high and a break in the trend of lower highs.

 
 
  John Seckinger   10/11/02,  9:49:31 AM
Per 09:31:26 Post regarding weekly "doji" in Dow, if the Dow keeps its gains and closes at current levels, it would still be a reversal bullish pattern ("hammer"). Looking at Intermarket Relationships, Dollar higher but still not at 108 (107.42). 30-year lower by 14 ticks, while the Oil Index is making progress upwards (+1.15% at 442). These are bullish towards equities, but nothing significant.

 
 
  Jonathan Levinson   10/11/02,  9:49:05 AM
Looks like the con-con number was negative. A splash of red on my screens.

 
 
  Jonathan Levinson   10/11/02,  9:47:44 AM
The COMPX is now right at trendline resistance on my 60 minute chart. A break upward will target 1205-10 as the next heavy congestion area to clear.

 
 
  Alan   10/11/02,  9:46:11 AM
Index Futures
Index Futures are Flat and awaiting the 9:45 AM consumer sentiment numbers which may provide a pause to this morning's very large gap up. Futures had sold off a few points overnight making midnight Lows of ES (SP 500 Futures) 800, YM (dow) 7480, NQ (NDX) 847. Mentioned in last night's Futures Wrap, ES trade pivots: 795-6, 800, 805, 809-12, 815, 823. ES (SP500 futures) exploded upward at 3 AM, when Europe markets opened with ES trading at 815 by 6 AM, sold off to 809 ahead of the 8:30 AM economic data, and exploded upward to current 9:43 AM prices of ES 821, YM 7680 (Dow Cash 7705), NQ 873.

 
 
  Jeff Bailey   10/11/02,  9:46:09 AM
30-year Treasury Bond (us02z) 113'11 -'13 ... yesterday I showed a chart of this bond's price. Breaking below its 21-day SMA today, so hesitant to implement bearish positions in equities here.

Yesterday I profiled a call positon in the 30-year YIELD March 47.50 calls for 1/4 or 1/2 positions. Just the inverse of the bond itself, the 30-year YIELD ($TYX.X) breaking above its 21-day SMA. Hasn't CLOSED above this 21-day SMA since last doing so on 07/30/02.

In this weekend's Index Trader Wrap, talked about the 10-year YIELD last week and first higher YIELD close in some time. Thought it might be a hint that stocks would turn higher this week and that looks to be unfolding. 30-year YIELD does have an upward trend from 09/24/02, which is "longer" than any stock index upward trend I see. Therefore, like the YIELD calls for a longer-term option trader.

 
 
  Jeff Bailey   10/11/02,  9:43:48 AM
Bond Market Will be closed on Monday in observance of Columbus Day.

 
 
  Linda Piazza   10/11/02,  9:43:21 AM
Preliminary Michigan Sentiment numbers to be released at 9:45 ET. Forecasts of 85.5, with previous number 86.1.

 
 
  Jeff Bailey   10/11/02,  9:34:15 AM
Swing Trade Signals
The Swing Trade Model remains flat. With market volatility high, the 2-day weekend ahead and option expiration next week, will be cautious about opening new index option positions, as some premium erosion will take place the next two days. With a more bullish atmoshpere, would expect the VIX to fall, making for erosion of premium too. Even a 200-point move in the Dow Industrials can have options doing little between now and Monday.

 
 
  Jonathan Levinson   10/11/02,  9:33:51 AM
COMPX gap up to 1180 resistance area.

 
 
  John Seckinger   10/11/02,  9:31:26 AM
The yield curve is once again coming under pressure, as fives are down 9 and tens down 11 (13 tick flattener, and bullish for equities). Speaking of equities, a weekly chart of the Dow shows a powerful "doji" reversal pattern. Will be interesting to see if it holds heading into the weekend.

 
 
  Steven Price   10/11/02,  9:28:22 AM
Before we enter any short positions this morning, let's wait for the rally to fade. If it doesn't, the Dow could still be in for a few hundred points to the upside without setting a higher high. We had lost around 1900 Dow points from the end of August to yesterday morning's low of 7197, so a bear market rally has a little room to run.

 
 
  Jeff Bailey   10/11/02,  9:25:35 AM
09:00 Update is posted Link

 
 
  Jonathan Levinson   10/11/02,  9:02:36 AM
Retail sales fell 1.2 percent (versus expectation of 1.1 percent) after rising a revised 0.6 percent in August. Excluding volatile automobile sales, retail sales rose 0.1 percent (meeting expectations) after rising a revised 0.3 percent in August.

That doesn't look particularly bullish to me, but the futures markets say different: NDX +17.50, S&P +12.90. GE is currently trading a whopping 23.629 in the premarket, QQQ 21.46.

CNNfn reports that LU has warned again and will be cutting more jobs.

 
 
  Jonathan Levinson   10/11/02,  8:10:21 AM
Readers have been asking about the Fed's open market ops. Those little press releases have been calling the market action to a "T" for weeks now. The idea is that the markets are nothing more than a liquidity meter, and by following the amount of liquidity, one has a very good idea of the potential for stocks and bonds to rally or decline. The fed, by adding to or draining from bank reserves, directly influences the amount of money available to the markets each day. Read Livermore's account of J.P. Morgan's chat with the bankers when the markets were crashing in (my memory is very fuzzy on this passage) 1909 or 1914 because the banks were overextended and traders couldn't raise more margin. He said "Use your reserves... that's what they're there for." It's in Reminiscenses of a Stock Operator. Well, the fed, which was originally formed by a consortium of banks and to this day, in my opinion, is nothing but an association for the banking cartel, adds or drains banking reserves through its open market ops. When there are extra reserves, banks (the fed's 22 primary dealers) can enter the bond or equity markets and buy securities. When reserves are drained, they must exit. Lately, the fed's activity has been to remain flat, which violates the trend of adding to reserves. With no money from the fed, the bond market or the equity market must be sold to provide liquidity, and this is what we've been seeing. If this is all a new concept to you, I strongly suggest following along to develop a feel for it before trying to use it as an indicator.

 
 
  Linda Piazza   10/11/02,  7:37:11 AM
Double Bottom: This morning, a professor of finance at the renowned Wharton School of Business visited CNBC and talked about the encouraging double bottom in the S&P 500. While the market may be in the process of forming a double bottom, it hasn't formed one yet. A mere touch and bounce from the area of a previous low doesn't meet the definition of a double bottom. While it's always important when markets bounce from an area of previous support, and the bounce may make a good short-term trade, traders should wait for confirmation of these formations before making long-term decisions based on the belief that markets have made a double bottom. A double bottom is formed by two roughly equal lows separated by a peak in prices. The confirmation doesn't come until prices move above the level of that peak. In addition, volume should be lower on the second low than on the first, and then should explode on the move above the level of central peak separating the two lows. Until prices move above that peak, there's always the danger that they could first move back down below the level of the second low.

 
 
  Jonathan Levinson   10/11/02,  7:21:53 AM
Gee! No, GE, whose 3rd-Qtr Net Income roses 25% and sales climbed 11%, meeting estimates. That's the event that appears to have hit the futures with a dose of viagra, with S&P currently +10.60 and NDX +9.20. I for one will not be turning bullish on GE or equity markets, not with comments like this: "General Electric had a gain in the quarter of $317 million gain from the sale of its electronic-commerce unit. It had a $156 million loss at its reinsurance unit and a $167 million loss at its private-investment arm." GE's Q3 profit rose 25%, but was helped by the one time sale of this dot-bomb unit. The reinsurance and investment losses are potential repeating items, which likely explains why the stock isn't trading significantly higher, currently +.37 to 22.97. Interesting how the stock ramped up into the close after failing to participate in yesterday's market bounce. In any event, the US Dollar Index is still in its range around 107.20 and gold is down a little more, with goldbugs eyeing 315 support nervously. There more market moving data on the way this morning- it's shaping up to be an interesting day.

 
 
  Jeff Bailey   10/10/02,  10:11:53 PM
The Swing Trade Game Plan has been posted: Link

 
 
  Jeff Bailey   10/10/02,  10:10:21 PM
The Futures Trader Wrap has been posted: Link

 
 
  Jeff Bailey   10/10/02,  10:08:54 PM
The Market Monitor has been archived. To view Thursday's entries, simply click this Link

 
 
  Alan   10/10/02,  1:08:17 AM
Index Futures
Fri 1 AM: ES (Emini SP500 futures) 800, YM (Dow Futures) 7475, NQ (NDX futures)848. Futures have gone sideways from midnight to 1 AM. The next move will be around 2:30-3:00 AM off the Europe markets open. NOTE: GE earnings pre-open, economic data at 8:30 and 9:45 AM, and the ES 800/Dow 7500 numbers likely to control the open. Good Night.

 
 
  Alan   10/10/02,  12:02:52 AM
Index Futures
11:30PM US Futures have faded (gone Lower) in the overnight session
ES (Emini SP500 futures) 800, YM (Dow Futures) 7462, NQ (NDX futures)847.
Nikkei having a very Green day 8550-8600 and at day highs.

 
 

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