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 Jim Brown  11/4/02,  19:17:40
The Swing Trade Game Plan has been posted: Link

 Jim Brown  11/4/02,  17:55:14
Yes, Steve, I am picking it up after the close on Wednesday.

 Steven Price  11/4/02,  17:17:12
Jim, noticed in the halloween pictures you posted last week, you weren't wearing a bear suit. Must have been at the cleaners!

 Jim Brown  11/4/02,  16:29:53
AMAT - Applied Materials announced after the close that they were going to cut 1750 jobs or 11% of its current work force to combat a continuing two year slump in chip demand. They estimate the continuing slowdown will mean chip makers will spend -25% less on capital equipment in 2003. Now that's bullish! (grin)

 Linda Piazza  11/4/02,  15:59:20
KO update: 45.66 -1.17, with today's 6.3M volume much stronger than Friday's volume. Stochastics are turning over again. Each time KO bounces up from the 45 level, the bounce is weaker, with MA's and a descending line pressuring it down.

 John Seckinger  11/4/02,  15:57:43
As far as candlestick patterns are concerned, it looks like the Nasdaq just performed a bearish "shooting star" formation. This is when there is (1) A Price gap to the upside, (2) Small real body formed near the bottom of the price range, (3) The upper shadow at least three times as long as the body, and (4) The lower shadow is small or nonexistent.

 Jim Brown  11/4/02,  15:55:38
Swing Trade Signals
How do you think all those LONGS are feeling now? We are nearly -200 points off the highs on good news. MSFT verdict is in, Dell says servers are strong, GM thinks car sales will pick up, etc, etc. Did the market suddenly remember the fundamentals from last week? No.

They are afraid the election will go bad and gridlock will continue with no terrorism insurance bill. They are afraid Iraq is really going to happen. They know there is nothing the Fed can do on Wednesday to help the markets. Any cut is already priced into the market. They are afraid reality will resurface with a warning from Cisco on Wednesday night. Has anybody hear John Chambers out saying positive things about the business? No. On that same topic, has anyone heard any Fed member talking about the need for a rate cut? No. But every commentator is still hyping a 50 point cut. Wednesday will be interesting.

 John Seckinger  11/4/02,  15:54:15
Another interesting note: The Alaska oil pipeline was shut down after the 7.9 magnitude earthquake yesterday; however, crude oil and the Oil Index remains lower. The XOI index is down 1.4% at 429. Further declines in this index could easily pressure equities in general. Support is seen at 417, while resistance is felt at 440.

 Kent Barton  11/4/02,  15:48:10
The 3:15 Intraday Update has been posted. Link

 Steven Price  11/4/02,  15:46:22
Trimeris (TRMS): $56.00 +2.08 This OI call play has been bucking the trend against the afternoon fade. Traders may want to take some partial profits here, but I really like the strength. I am strongly leaning toward raising the stop and leaving the play open. The stock found buyers at $55 on the intraday pullback, which is even higher than I would have expected. This may be our new support level. I would give that level another test for new entries, however.

 Jonathan Levinson  11/4/02,  15:34:43
Strange that the US Dollar Index couldn't add any gains in light of the news that foreign central banks might cut their rates- such a move would be supportive of the US Dollar. Precious metals are near their day highs, and I'm actually seeing some red on my screen, notably C and GM. The COMPX is back at gap support at 1395, with the TRINQ still very low at .25.

 John Seckinger  11/4/02,  15:28:03
Just reminding myself: The European Central Bank (ECB) and the Bank of England (BoE) meets on Thursday, and rate cuts are expected as a result of both meetings.

 Jim Brown  11/4/02,  15:24:45
Swing Trade Signals
They are trying to hold them but the outlook is gloomy. After I made that last post about they had to buy them above 8600 or the bullish sentiment was in danger of a serious black eye, they really tried. They are going to have to call for reinforcements quick to keep from losing it all.

 John Seckinger  11/4/02,  15:21:52
The current support in equities could be related to the Nasdaq near 1400 (currently at 1403). The bond market is closed, and the 30-year futures contract closed under 110'00 at 109'24 (intra-day high at 110'03). This close is pretty neutral for equities.

 Linda Piazza  11/4/02,  15:11:38
Very interesting. OEX is now below September high of 464.02.

 Jim Brown  11/4/02,  15:06:16
Swing Trade Signals
Nice pause just before the 8620 trigger was hit. The Dow fell right back to the gap up support and then paused for several minutes before falling through. If anybody is going to buy this dip now is the time. If it fails here then we could go back to zero. That would really do wonders for bullish sentiment.

 Steven Price  11/4/02,  15:02:37
Reader Question: Hi Steve, LEH appears to be rolling over just at resistance 57.50, stop 58. Thoughts? Thanks K

Response: Lehman (LEH) $57.09 (+2.52) got a boost with the rising tide today, and hasn't presented the entry points we identified in the play write-up. However, it is failing at the descending trend line ($57.50) we talked about in the write-up, as well. I actually like the failure here for short entry, but traders need to be very careful of shorting in a rising market, possibly byu putting on only 1/4 to 1/2 positions. Our stop loss of $58 would be a trend break, so it still serves as a logical stop.

 Linda Piazza  11/4/02,  15:00:38
VIX 33.32, well off its low of 32.45. Before turning up, VIX hadn't yet touched the 200-dma John mentioned at 32.09, nor has it tested the 30-level Mark mentioned this weekend. With so much ahead of us this week, it's premature to draw too strong a conclusion from today's trading alone, but so far, the 30 level held as a floor for the VIX.

 Jeff Bailey   11/4/02,  14:59:08
Defense Secretary Rmsfeld quoted as saying that he "would expect that there would be guard and reserve call-ups in the immediate period ahead," suggesting the Administration continues to prepare for war with Iraq.

 Jim Brown  11/4/02,  14:57:16
Swing Trade Signals
It the bulls are going to catch this falling knife they will need steel gloves. The intensity of the selling has picked up substantially as we near the 3:PM turn. Looks like the conviction is fading fast.

 Jonathan Levinson  11/4/02,  14:53:44
This is shaping up to be a heavy volume day for the COMPX, and it's still almost 12:1 advancing volume. The FVX made it up to near its day's highs just now but eased back, currently up 9.8 bps. The TRINQ fell back down to .16, while the metals' indices are off their highs but still in the green. The US Dollar Index is down to the 106.10 level, and I'm starting to think that anything less than a 50 basis point cut from Mr. Greenspan could be seen as bad news by equity bulls. Of course, this is just idle speculation, and besides, the bulls have been aggressively buying bad news for weeks now. The put to call ratio bottomed at .60 and hte latest reading came in at .63, still the lower end of the range. With p/c ratios low, TRINQ very low, markets relatively high near upside resistance, you know which way I'm thinking next, but timing will be key. Any positive surprise from here could add a shot of nitrous oxide to the already volatile mix.

 Jeff Bailey   11/4/02,  14:47:26
Dell Computer (DELL) $30.42 +4.9% ... Jeff Can you refresh me on how the horizontal count works on the P&F chart. DELL looks like it made and important break thru at 30 today

Share of DELL triggered a triple-top buy signal at $27 and resulting column of X to $28, gives us the vertical count column (6 X's). Therefore; Bullish Vertical Count is... $23+ ((6*3)*1) = $41 Link

Professor Davis' study shows the triple-top profitable for a bull under bull market conditions 87.9% of the time, for an average gain of 28.7% in 6.8 months. From $27, a 28.7% gain would be $34.74. DELL triggered the triple-top on 08/14/02, so 6.8 months would be about March of 2003 as a time table.

According to Dorsey/Wright and Associates, DELL is classified as "computer" and that group is currently "bull alert" status at 30.48% and would take a readin of 34% to achieve "bull confirmed" status.

 Kent Barton  11/4/02,  14:42:22
Reader Question: Hi Kent, I am holding DEC 40 puts on MO. Wondered what you think since it isn't participating in this rally and what effect you think the republicans winning will have. Thanks Jane.

Response: Healthcare and defense are the two sectors most likely to get an immediate boost from a GOP victory, but tobacco also stands to benefit. Republicans are less likely to support the multi-billion dollar lawsuits that have plagued the group...Not to mention their idealogical opposition to raising taxes on cigarettes.

Now, whether the GOP actually wins control of Congress is an entirely different matter. At this point it appears that the Republicans will maintain a narrow advantage in the House of Representatives. But with so many tight Senate races, it's possible that we won't know who's in control until several days after the election. Candidates who lose by very small margins may fight for a recount. Some mail-in ballots in Minnesota will have to be hand-counted because of the Mondale/Wellstone switch. In Louisiana (where they have an unusual election process), Democratic incumbant Mary Landrieu will likely face a run-off election in early December. So it's possible that the final composition of the Senate won't be determined until then. Brings back memories of 2000 in Florida, doesn't it?!

As far as Big MO ($42.03, -0.39) is concerned, today's relative weakness is definitely not a good sign for the bulls. It's also interesting to see that the stock rolled over from its 50-dma ($42.99) this morning. Although Friday's large rebound appears to have simply been short-covering, support at $40.00 could continue to buoy the stock. A post-FOMC selloff on the Dow could provide the catalyst that takes MO below this level.

 Steven Price  11/4/02,  14:39:17
Reader Question: RE: when is implied volatility high/low?

Response: This is actually a tough question to answer. The best way I think you can track this is to look at past volatility levels, and then look at where they are currently trading.

Implied volatility usually goes up for a reason, and sometimes trades ahead of the stock. A firm may come in and start buying options ahead of activity in a stock or sector. I put on a post last week about how implied volatility went up in AMGN just before the stock dropped, as buyers came in for puts ahead of time.

A trader should compare implied volatility to the VIX, to see where overall market volatility is, since the overall market affects all stocks. If you are looking at a tech stock, check the VXN in addition to the VIX.

You can start by checking the stock's past volatility at the CBOE website Link and then play with the options calculator to see how different implied volatility levels affect the option price Link

My suggestion is somewhat tedious, but will give traders a "feel" for volatility levels. If you really want to get familiar with what is going on in a stock, then you can even chart these levels daily. If you see implied volatility creeping higher, even when the stock is not moving very much, it is a good bet that someone with a lot of buying power is expecting a move soon.

 Linda Piazza  11/4/02,  14:27:15
Reader Question: Are you getting the feeling that this bull run is about out of steam? The dow had a tough time at the 8730 level and you have to think that as much as the shorts are scared, the longs have to be a little nervous with the upcoming events. I am looking for some profit taking on Tuesday and Wednesday to start the selling after they lower the rates by 1/4. Your thoughts?

Response: While my gut tells me a pullback is coming, I'm reserving judgment about how deep a pullback will be. I mainly trade the OEX, so most of my comments are directed toward that index. As I mentioned in my 11:08 post, I see some bullish signs in the OEX daily chart. Jeff also mentioned that today's trading in the OEX has triggered a new buy signal. We've seen some of those brief moves above resistance serve as traps lately, so I'm particularly interested in today's close and in the action after the elections, FOMC meeting, and CSCO earnings. If the OEX closes above and stays above that recent consolidation range, particularly as stochastics cycle back down and then hinge upward again, then I might look for a test of August highs. If OEX falls back into that consolidation range of 443-460, I'd view that action as more bearish and start testing the theory that today's move had been a trap and the recent rally had been just another bear market rally. Other than a few already established positions, I'm sitting out the next few days. I'm engrossed in the markets as this week's action may finally help us to decide whether to test bearish or bullish plays. If you're a more aggressive player than I am, perhaps you'll be profiting wildly while I stand aside, but I'll be no less interested in what's happening.

 Jim Brown  11/4/02,  14:16:41
Swing Trade Signals
Looks like we are going to continue to chop around the 8700 level until the bulls exhaust themselves. The A/D has been getting weaker but we need to remember the end of day buying that has been the norm lately. Bulls that wanted to buy the open but were scared off by the big gap may decide to buy the close instead to avoid being left behind on another gap up tomorrow. This is not a serious possibility (gap up) to me but then my mindset is different.

I think it is more likely that shorts in denial at the open this morning will finally decide to bite the bullet and buy the close. This will be especially true if we close in on the 8730 level again. Somebody is still buying the dips and it could be either camp. I still think a Dow print at 8620 will be the signal the rally has come to an end until after the Fed meeting.

 John Seckinger  11/4/02,  14:00:12
Technical analysis works again. Resistance in the Dow came near 8730, bond yields did not reach 5.1%, and the 30-year bond futures contract is not lower by more than a full point (currently lower by '20 ticks at 109'23). Going forward, I will be looking to see if the Utility Index will break either above 260 or below 252 (currently at 256.87). Turning to the Sox, the important barometers include resistance at 340 and support at 310. The sox is currently at 333. Important levels in the 30-year include 110'18 and 109.

 Jeff Bailey   11/4/02,  13:52:38
01:00 Update was posted. Link

 Jeff Bailey   11/4/02,  13:50:11
Cisco Systems (NASDAQ:CSCO) $12.44 +7.14% ... Jeff.. What is your opinion on CSCO with the big run up this morning??I think you mentioned you were holding puts a few weeks ago..Was thinking of grabbing some premium for some Nov ccalls..Dicey before earnings though..It looks like 13.50 and 15.00 offer solid resistance..But looks overextended here as well..your thoughts would be appreciated...Keep up the good work...

Yes... still holding 1/2 position in the Nov. $10 puts. Have been doing some bullish trading away from the networkers in the Software sectors (MSFT, PSFT, RATL) to hedge the CSCO loss. However, I do think market a little ahead of itself and we might see some "profit taking" or pullback on FOMC and perhaps CSCO if they say similar stuff as Intel (INTC) about reduced IT spending.

If holding some bullish gains in CSCO, might not be bad idea to write a covered call, wait to see what company has to say going forward. Retracement from August highs, which NASDAQ Composite is about to reach, on CSCO is $15.25. With retracement then attached to the lows of $8.12, I've got 50% at $11.68, 61.8% right here at $12.52, then 80.9% up at $13.88. With that said, the CSCO Nov. $12.50 calls (CYQKV) are bid $0.75, which OBLIGATES the cover call seller to sell at $12.50 + 0.75 = $13.25, which is just short of 80.9% retracement of $13.88. Also just shy of bearish resistance trend on CSCO's p/f chart. Link

 Jonathan Levinson  11/4/02,  13:49:37
The COMPX is 11 points off its high of 1420, but still 15 points above gap support. My hat's off to anyone bold enough to nail the top of this move, but I continue to urge caution because of the longer term (daily and weekly) configurations. FVX is still up 8.7 bps, and the QQV is up only .11, showing more potential bullishness for equities than a prudent bear wants to see. The TRINQ has edged up to .24, which is still a very low reading, still in bull territory.

 Jim Brown  11/4/02,  13:45:54
Hi Jim: Not knowing what the end of day ARMS Index will be----it is currently @ .37 Once upon a time, you noted the following re: the DAILY ARMS CLOSE:

12/5/01 .34 DOW 10114 400 point drop next 6 days
6/17/02 .35 DOW 9687 600 point drop next 7 days
7/5/02 .26 DOW 9379 1200 point drop next 6 days
8/19/02 .37 DOW 8994 700 point drop next 10 days
Regards - Gary

As you point out in the rest of your email the TRIN can close at those lows without a major drop DEPENDING on the external factors. The recent numbers you provided

10/10/02 .39
10/11/02 .42
10/15/02 .41
10/21/02 .34

show that extremes can occur based on strong bullish moves. The ARMS/TRIN is an indicator derived from the advancing volume and declining volume as well as advancing issues and declining issues to show the strength of buying/selling in the market. As you know we sometimes make strong moves on weak breadth and weak volume because of only specific sectors or specific stocks with news.

To learn more about the ARMS Index (TRIN) here is a link to ArmsInsider.com and a description of the indicator: Link The key for using the TRIN for trading is to look for extremes as indicators that the market is overbought or oversold. When the broad market moves up strongly on both advancing issues and volume it produces low TRIN numbers. When those numbers reach the lows you see above it indicates the possibility of immediate profit taking within the next 3-7 days. However a one day number is far less reliable than one developed over several days. The number today is a result of serious short covering across the broad market due to fear of the Fed and the MSFT verdict. It could be pointing to a condition that would react strongly to bad news. That bad news could come from the Fed or from CSCO earnings on Wednesday night. Hope this helped.

 Kent Barton  11/4/02,  13:40:59
EBAY, $65.55, +0.75: Currently trading at levels not seen since the beginning of the year. Today's breakout has created a double-top buy signal on the point-and-figure chart, and the rising daily stochastics (5,3,3) indicate this rally might have some staying power. The stock faces overhead resistance at $66.50 and $70.00.

 Steven Price  11/4/02,  13:39:40
Reader Question: Steven Any opinions on GNSS ? It has been on a tear lately , PnF has a triple top signal. What do you think is the top for this cycle. Thanks GeorgeQ

Response: Genesis Microchip (GNSS)$14.70 +1.54 Genesis has certainly been on a tear, along with many of the chip stocks. We liked its potential when we added it to our stock plays back on Sept 15 at $9.30 Link . The stock is currently on a PnF triple top breakout (at $14), with a bullish vertical count of $26.50. There is some resistance between $19-20, which contains the 200-dma and gap level from May 30. All of that being said, we are looking at a gain of over 50% in a little over 6 weeks and I'd like to see some support above $15 before piling on long. After such a big move, there is bound to be a pullback at some point and I would look for evidence of support on a pullback for ideal entry. The fact that it failed at $15 (high $15.25) tells me this may be a new level of resistance.

 Kent Barton  11/4/02,  13:23:49
Home Depot (HD) 27.60, -0.80: With the retail sector weakening on this morning's weak economic data, HD is looking downright ugly. Shares have sold off from the 50-dma ($29.74) and seem to be headed for a test of the $24-$25 area. HD has been underperforming the market for several days, and the rolling MACD and recent three-box p-n-f reversal don't give technical bulls much hope either. Aggressive bears could think about taking short positions if HD falls below $27.50.

 John Seckinger  11/4/02,  13:19:01
Can you talk about the bond auction process?

Response: There are many bond auctions that take place during a given year; from 3-month and 6-mo bills every Monday to the quarterly refunding that used to include 30-year bonds. The Treasury announces on the Wednesday of the month preceding the amount (1) what it will replace (2) how much will be new funds (3) and estimated cash needs. The Primary Market auction is then conducted on a yield basis; involving both competitive and noncompetitive tenders. Noncomps can be submitted up to 1 million face amount. The auction results are determined by first deducting the total noncomps and nonpublic purchases (eg. Fed purchases) from total auctioned securities. The remainder is awarded to competitive bidders. The highest yield accepted by the Treasury is referred to as the "stop yield." The difference between the average yield and all bids accepted is called the "tail." Bidders higher in yield "missed" or were "shut out."

 Steven Price  11/4/02,  13:09:25
Reader Question: Hi UNS up again today what is your opinion? Rick

Response: Unisource (UNS) $17.56 (+0.47) UNS topped out today at $17.70, just 0.05 shy of the 200-dma, which often provides significant resistance for stocks. I am also looking at the Aug 27 high of $17.95, lending further significance to the $18 mark. From a technical standpoint, if the stock can get over $18 AND stay there after the FOMC announcement on Wednesday, I might consider a partial position long. However, $18.50 is the PnF bearish resistance breakout (and resistance on the daily chart) and there is addtional resistance at $20. Bottom line: this stock looks like it has some legs, but there are a number of resistance points above. I probably wouldn't pick this one to get into, but wouldn't necessarily sell it if I already held it. Keep in mind that the current market rally, with elections tomorrow and the FOMC on Wednesday, is not going to turn me into a bull. I'm going to stay away from shorting, rather than swim against the tide, but right now it seems based on the possibility that republicans may take over the Senate and the FOMC may lower the FF rate. We've chosen to play the long side, as well, with more calls than we carried on the way down, but will not hesitate to exit quickly on a turnaround.

 Jonathan Levinson  11/4/02,  13:09:25
The US Dollar Index is trading just below 106.30, and gold is up off its lows. HUI is +2. and XAU +.88. This divergence from the runup in equities is likely the markets anticipating a rate cut.

 John Seckinger  11/4/02,  13:08:40
The Dow did find good sellers near 8730, and looks to test its 22 PMA (five minute chart at 8704) for the first time all session. Looking at other indices, the 7.4% rise in the Sox to 336 is certainly giving tech holders an underpinning bid, while the Utility Index (UTY) is picking up speed as it heads for 260 (currently at 256). Note: VIX is lower by 4% at 32.63 and nearing its 200 DMA at 32.09.

 Jonathan Levinson  11/4/02,  12:50:02
There are currently 16 advancing shares for each declining on the COMPX, with the COMPX just below 1420, the TRINQ back down at .13, the TICK.NQ at +195, and the CBOE total put to call ratio between .62 and .65 since 10:30AM. HUI and XAU are both positive on the day in what amounts to the only counterintuitive move on this otherwise perfectly bullish day. FVX is up 9.6 basis points, a little off its high.

 Linda Piazza  11/4/02,  12:45:01
Marketwatch.com gives the following figures for European markets: Paris CAC 40 closed up 3.5%, FTSE 100 closed up 3.6%, and Frankfurt Xetra DAX 30 is up 5.1% in late trading.

 John Seckinger  11/4/02,  12:15:58
As the Dow looks to test strong resistance near the 8730 level, both the 30-year cash bond and the bond futures contract has yet to concede and drop significantly in price (read: lower yields). As discussed earlier, the 30-year bond needs to rise above 5.1%, but is currently at 5.08%. As far as the ZB02Z contract is concerned, the contract is lower by '29 ticks but not the 'magical' full point (32 ticks). If the Dow powers higher and bonds do collapse in price, Election Tuesday should be a real battle.

 Jonathan Levinson  11/4/02,  12:12:21
Zooming out to the daily chart, the COMPX has resistance at 1420-25. The 20 day SMA has crossed above the 50 day SMA, and other than the significant gaps below and the resistance above, the chart looks bullish. The same goes for the weekly candles. The MacD and stochastics are pointing north. This is based on the charts only. I am receiving numerous bearish emails, and while I remain persuaded by their merit, bears need to be aware that the top that they are awaiting will be a major relative top, meaning that it may well take its time arriving, and that once it does, there will be plenty of time to put on bearish positions. I agree entirely with Jim- this market looks devoid of obvious setups given the market moving news scheduled throughout the week, and the traders who last are the ones who trade prudently.

 Steven Price  11/4/02,  11:57:04
Semiconductor Sector Index (SOX.X): 331.99 (+18.95) For all of those chip stock bears (myself included), the next level of resistance looks like the August high in the 360 range. The sector shook off another downgrade this morning (from Salomon) and appears intent on testing that level. While I'm definitely not piling on long across the board here (we are long FCS), I'm not going to pick a top and look for shorts until I see a rollover. I will not be surprised if the rally runs out of steam before reaching 360, as we could see a sell-off following the FOMC announcement, but picking that point can be tricky. You can take a look at the current ranges in the SOX and the PnF chart here. Link

 Jeff Bailey   11/4/02,  11:49:12
11:00 Update was posted. Link

 Jeff Bailey   11/4/02,  11:43:42
General Motors (GM) $35.65 +4.79% ... good morning jeff. great day to go shop for a new car. what do think about shorting GM at 36.00 IS IT A DOUBLE TOP BREAK down/?? maybe some dec. 32.50 puts. thanks great informational site.

Hmmmm... after triggering a triple-bottom sell signal at $40, GM did achieve Professor Davis' probabilities study for a 93.5% chance that the stock would decline 23% in 3.4 months. ($40 * 0.23 = $9.20; $40 - 9.20= $30.80). Note... GM traded $30.80 exactly on 10/09/02. Link

As such, would be cautious with a short. Vertical count is still bearish to $12, but would be negated with a trade at $38. As such, can short 1/4 position here, but tight stop at $38 warranted after stock traded Professor Davis' study so close. Relative Strength versus Dow Industrials is weak, so good candidate. Link Unfortunately for bear, Dow Industrials Bullish % ($BPINDU) Link is "bull confirmed." GM is one of the stocks currently on a "sell signal," but you can perhaps see how GM potential "buy signal" at $38 would contribute 1 stock toward the bullish % and would most likely have GM rally to $40-$41.

 John Seckinger  11/4/02,  11:36:10
As the Utility Index clears resistance at 251.8 (currently at 254), a few companies within the index seem ready to power higher as well. FPL and DUK. FPL Group is above solid resistance (read: now support) of 60 at 60.30, while Duke Energy is above its 50 DMA of 21.24 at 21.33. Both stocks have solid risk/reward opportunities, as the objective in FPL is 64 and objective in DUK is 24. If shares fall underneath 60 and 21, respectively, odds are this move was simply a bull trap. As it stands now, buyers have the upper hand.

 Steven Price  11/4/02,  11:34:10
Reader Question: INTU has pulled back to Friday's close. In light of strength elsewhere is this a poor sign for this new OI call play? THX, Chris

Response: Intuit (INTU) $53.89 (-0.12) As we said in the write-up, the stock has been on a bit of a tear lately, breaking out repeatedly to new 52-week highs. Our preferred strategy is to buy the bounce around $51-$52 on a pullback. That strategy seems to be the most prudent, given the current action. As this stock has not necessarily behaved according to the market around it, outperforming according to its own rules, I am not shocked that it hasn't run this morning. Often, after a big gain, there will be profit takers and I think that's what we're seeing here. By waiting for a pullback to enter, we'll get a look at where we can find new support.

 Jonathan Levinson  11/4/02,  11:17:16
Thanks to Bob for asking The Question, as I sat watching the different indicators. The FED has announced an overnight repo in the amount of 2B, for a net drain of 5.25B from Friday's expiring weekend repo.

 Jim Brown  11/4/02,  11:14:49
Swing Trade Signals
Seeing a little more weakness appear. The A/D line is starting to weaken and the advancing volume is going flat. The last bounce on the intraday charts for all the indexes are showing a lower high and lower low on INDU, SPX, OEX. The Russell is starting to roll over as well.

We need to realize that there are some other key stocks trading up today as well. GM is up strongly on their "flat to up" guidance for November auto sales. MMM is trading 21 cents from the critical 130 level. A trade over 130-131 could cause huge short covering as 130 has been a free money short entry for months. IBM is 50 cents from the 82.85 highs from August.

The bottom line here is that all the big guns of IBM, MMM, MSFT all appear to have stalled and past resistance could be keeping the lid on today's market. This could be the great entry point everyone is looking for but all it would take would be one strong buy program to push these stocks over that resistance and we could be off to the races again.

Personally I think a Dow print under 8620 is the kiss of death for this bounce but there are too many wildcards to make it a real signal. Use your own judgment on personal risk if you decide to take that trade. The dip buyers are alive and well.

 Linda Piazza  11/4/02,  11:08:36
Today might not be a great day for trading, but it is an interesting day for watching and testing various theories. OEX appears ready to prove whether or not markets are in the process of forming a double bottom. OEX needs a move above 485 to clear the peak between the two troughs. Will it do it? A look at the daily OEX chart shows that OEX has broken out of the recent consolidation, and stochastics have turned up again. The 20-dma has crossed over the 50-dma, another bullish sign. The 20-dma is moving up sharply, another bullish sign. However, this crossover hasn't been entirely reliable lately, and also these crossovers can be a little late in giving a signal. This one may actually be indicating the bullish move that's already taken place. To continue the bullishness, OEX needs a close above 465 or so rather than an intraday move above it. The chart below is a daily one, showing the MA crossover. After you've looked at it, switch to a weekly chart, and take a look at the 10-week and 30-week MA's. Martin Pring mentions that these are the most reliable averages to watch for a new primary market. With the 10-week at 438.52 and the 30-week at 474.68, these MA's are not anywhere near a crossover yet. Link

 Jonathan Levinson  11/4/02,  11:03:39
The 10:30 CBOE p/c ratio is finally out, roughly 20 minutes late- .63, indicating a slight increase in put activity over call activity, but still at the low end of the range we've been seeing.

 Steven Price  11/4/02,  11:02:35
Reader Question: Steve what do you think about the defense sector (DFX)? It seems like NOC, LMT can't keep up with the rest of the market. Do you think they are a good short?

Response: A look at both charts screams SHORT! However, I think this is a play at your own risk sector. These stocks are subject to world developments at any time. With the chances of Iraqi invasion fading in the near term, the sector has faded. However, one aggressive statement from any member of the Presidential triumvirate (Bush, Cheney, Powell) can send these stocks saoring. LMT ($54.84 -1.54) has some support at $52.50 and NOC ($98.62 -2.15) has support at $97 and $93. The DFX and DFI are both actually trending upward, but are experienceing pullbacks today.

 John Seckinger  11/4/02,  10:52:12
A real test in asset allocation could come soon, as the 30-year cash bond (tyx) is once again closing in on the 5.1% yield. On Friday, this index rose to 5.09% before falling to 5.01% by the close. Currently at 5.078%, a rise above 5.1% could be analogous to the Dow clearing 8726 (high of right shoulder set on September 11th). Back to the 30-year, this 5.1% level has been pivotal since August and should definitely be on the minds of the mutual fund managers as the election and FOMC meeting approaches.

 Jim Brown  11/4/02,  10:51:43
Swing Trade Signals
I know the current weakness in the markets may look like an ideal entry point for a short but you have to believe there are plenty of shorts out there still in shock and waiting for a dip to close positions.

For those with a strong risk profile I think 8700 would be an excellent point to consider a new short but just be aware that the current weakness could end quickly if the shorts decide the pull back has stopped. I would be more aggressive at this number later in the afternoon. Funds not wanting to buy the bounce could also be looking for a larger dip to enter. Plenty of volatility but little justification for being bullish.

Personally I think there is money to be made here but it is very high risk. I am more than willing to wait for the coming external factors to pass before choosing a direction.

 Jonathan Levinson  11/4/02,  10:48:18
The CBOE put to call ratio for 10:30 is now late- perhaps the CBOE is using Deadcharts too :)

 Jonathan Levinson  11/4/02,  10:46:14
What arun on qlgc what do you think about a short here. Thanks for any help.DAVID

QLGC appears to be headed for its 50 week MA at 42.19. With the weekly stochastics and MacD having completed bullish crosses, this is a risky train to step in front of. On the daily chart, the 20 DMA looks like it's 1 to 2 days away from from crossing above the 50 DMA, and while the stochastics looks toppy, it's showing no signs of rolling over. Conclusion- set a trailing stop under your long and wait for signs of a rollover before shorting, hopefully at the 42.19 level.

 Linda Piazza  11/4/02,  10:43:19
If you don't trade LEAPS, you might have missed Mark Phillips' running discussion on the historical behavior of the VIX. In last weekend's article, he reminded us again that until recently the historical range had been roughly between 20 and 30. Volatility has been running much higher these last few months, with 30 providing a floor in July rather than a top. With the VIX currently at 32.77 -1.21, we may soon be provided with another opportunity to see how VIX behaves on the next test of that 30 level. For Mark's latest mention of the VIX, you can check this weekend's LEAPS article: Link

 Jim Brown  11/4/02,  10:42:51
MSFT - Don't look now but weakness is beginning to appear. It has dropped back below 57. Could be that reality is starting to appear.

 Jim Brown  11/4/02,  10:29:54
Swing Trade Signals
The Dow was the only index that really dipped after the open and the follow on rally is being led only by tech stocks, which is actually the weakest sector. Other Dow stocks of note, UTX +1.04, GGE +.64, HON +.62, JNJ +48, WMT -.22, PG -1.20, XOM -.23, BA -.22, MCD +.31, DD +.52, AA +.71. You can see that there is not a new bull market in the non-tech issues. I would look for the bullishness to fade as the Dow reaches 8799.

Volume in MSFT is 26 million and has slowed somewhat although the upward trend is continuing.

 Jonathan Levinson  11/4/02,  10:26:39
Keynes said that markets can remain irrational longer than you can remain solvent. I am reminded of this, today! :-)

A timely quote, Denise. Thanks!

 Jonathan Levinson  11/4/02,  10:25:50
There are 22 shares advancing for each share declining on the COMPX, 53 new highs to 12 new lows, and just over 2 advancing issues for each declining. TRINQ still .11, TICK.NQ +477, COMPX at 1411 just below its high at 1412. FVX +11.3 basis points.

 Linda Piazza  11/4/02,  10:23:20
After studying estimate revisions after the release of Q3 earnings, Banc of America analyst Douglas Lee today lowered his 2003 forecast for global semiconductor industry sales from 15 percent to 8 to 10 percent. He thinks growth in average selling prices will be difficult to maintain.

 John Seckinger  11/4/02,  10:19:47
The Utility Sector Index (UTY), to me, is just as interesting as the move in the Sox index. Currently higher by 2% at 251.84, this interest-rate sensitive sector is above its 50 DMA for the first time since late August. As with the sox, this index should trade instep with the Dow on Monday. Resistance is actually at current levels, while more sellers should step in if the index reaches 260. A close under the 50 DMA (247.8) would reverse the current bullish sentiment.

 Steven Price  11/4/02,  10:16:52
The economic data appears to be weighing on the retailers. The Retail Holders (RTH) $75.15 -0.28 is refusing to participate in the rally. The Retail Index (RLX) 286.05 -1.24 is also struggling with its 50-dma of 285.63. The data Jim referred to, showing more layoffs, adds to my sense that holiday shopping numbers will be less than stellar.

 Jonathan Levinson  11/4/02,  10:15:40
The CBOE put to call ratio has just come in at .57 for the first half hour of trading. The TRINQ remains buried at .11 and the COMPX at 1405 could be the beginning of a breakout or a run at the inevitable stops placed overhead. I would have expected a quick spate of short covering to rally from the violation of 1400, but it has yet to come. FVX has climbed higher, +10.5 basis points. It's looking like another blast northward is a possibility, but note that we're less than 10 points above this morning's gap up open on the COMPX.

 Steven Price  11/4/02,  10:10:44
Trimeris (TRMS): $56.05 +2.13 Those looking to initiate new positions in OI call play TRMS should wait for a pullback to intraday support, possibly at $55. Those currently in the position can raise stops to $53. This stock found a slew of buyers in the last few minutes of trading Friday and so far the frenzy has continued.

 Jim Brown  11/4/02,  10:10:22
The Challenger Layoff report came in at 176,010 jobs cut and was more than twice as many as last months 70,000. Factory Orders fell -2.3% but is was slightly less than expected. Both of these numbers show the economy still slipping and should have bulls concerned about the rally continuing after Wednesday despite any potential Fed move. The job cut number was the result of the falling technology sector, which accounted for 34% of the October cuts.

 Steven Price  11/4/02,  10:04:02
Reader Question: Hi, I have never written to you all before, but the recent behavior of Microsoft has me baffled. Just before the Microsoft earnings, I bought Nov 55 calls at 1.70 with MSFT trading at about $52. I was hoping for a move like the IBM post-earnings jump. Well, MSFT went up and back down before it opened on Friday and then the calls started falling, although the stock was going up. I finally sold at a loss a few days later. What happened? Someone said they thought the marketmakers were trying to keep MSFT rangebound. Someone else said that the implied volatility pre-earnings was over 50% while historical was around 30%, and as volatility dropped, so did the price. Now on Friday, the stock fell, but call option price rose (as volatility rose?). The after hours market on MSFT shows a huge jump in stock price. Will we see the same scenario as we did before with small moves in the call price. I am confused. If you could help me understand what did happen, maybe I will better understand future plays. Thanks for your ask the analyst column. Ted

Response: Implied Volatility essetnially refers to the price level of an option. It is the percentage at which the stock must move to justify the premium level. However, it is also a reflection of current supply and demand for a specific option. Just prior to earnings, implied volatility will go up, as speculators come into the pits to purchase options to try and capture a big move, like the one you were looking for. If there are option buyers, then market makers will continue to increase the offer to sell the option at higher levels. This in turn leads to an increase of IMPLIED volatility. The same scenario most likely happened on Friday, with the legal decision on MSFT's settlement. There were probably many buyers of calls (and possibly puts) looking to capitalize on a move in either direction.

If either the call or the put are raised, then the corresponding call or put at the same strike must also be raised, in order to keep the mathematical relationship between the two in line.

After the announcement (earnings or Friday's decision on the seettlement), the news is out and those who bought the options usually come in to sell them, therefore adding selling pressure, and then market makers will lower the bids. After the news, often institutions will also come in and sell implied volatility levels, which are higher than the stock usually trades, whether they have previously bought the options or not, adding additional selling pressure and driving the option prices even lower.

When I say drive the prices lower, I am speaking in a relative sense about the premium over parity. Obviously, if a stock moves up $4.00, as MSFT has today, then calls will go up, but the amount of premium over parity for a call that is the same distance out of the money as a call on Friday should decrease. For instance, the at-the-money most likely will have less premium; the $5 out-of-the-money will have less premium.

 Jonathan Levinson  11/4/02,  10:01:07
The COMPX is flatlining between a huge 35 point gap below 1394 and huge supply at 1400. It is overbought on the weekly all the way down to 10 minute 5(3) stochastics. Ditto the TRINQ at .13. A fascinating moment.

 Jim Brown  11/4/02,  09:55:23
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
I would like to restate my comments from the Game Plan. I do not see a LONG entry today because of the strong gap up, resistance at 8700 and the strong possibility of any further bounce slowly bleeding off tomorrow. The election outcome could cause a bounce/dip in advance of the Fed meeting but not something that we can speculate on based on charts. Once the Fed meeting is over we should get some direction but the key for me is the lack of non-fundamental factors to move the market for the rest of the week. This will give us a much better entry point for the next move either long or short. Until then placing a trade is no better than flipping a coin.

Going forward I only want to focus on high odds entry points with a strong degree of confirmation. Nothing that is going to happen today or Tuesday fits that description. I do not see a swing trade entry point today.

For those type A personalities that must trade I would look for a failure at 8700-8725 as a short entry. There is a lot of pre-Fed profit built in here and bulls should be worried about holding over the election and the Fed.

 John Seckinger  11/4/02,  09:54:32
Side note: Japan is closed for Culture Day, but there was a report that five of the major life insurers will significantly reduce their investment in foreign bonds. The amount is speculated to be around 2 trillion yen. This could explain weakness in the 2- and 5-year sector, as well as softness in the US dollar. Affect on equities? Might not be a direct correlation, since cash will most likely be put to domestic use; however, it might be the catalyst for Europeans selling US dollars as well and that could quickly bring deflationary fears and pressure stocks.

 John Seckinger  11/4/02,  09:43:06
The Semiconductor Sector (Sox) continues to power higher this morning, up 2.75% at 324 and heading towards the next solid area of resistance at 345. A close back underneath 310 (relative high on September 11th) would take sentiment towards more neutral levels.

 Jim Brown  11/4/02,  09:42:21
Swing Trade Signals
The start was exactly what we expected with short wondering what hit them. The Dow soared to 8640 and the Nasdaq to 1397 and only 3 points below strong resistance at 1400. There has got to be strong denial on the part of many shorts and that denial could continue to power the rally after any initial post excitement dip.

The chip sector is positive again despite some negative comments this morning. The key point for everyone to remember is that the economy did not turn around just because the judge ruled in favor of Microsoft. If the rally today carries over to Wednesday the Fed could see the bullishness as less of a reason to cut rates. That would focus the markets back on fundamentals and bring back the worries about stocks being overvalued based on earnings expectations over the next 6-9 months. Going to be an interesting day.

 Jeff Bailey   11/4/02,  09:38:46
9:00 Update has been posted. Link

 Steven Price  11/4/02,  09:38:17
Trimeris (TRMS): $54.75 (+0.83) OI call play Trimeris has just broken back above last week's highs. there is likely to be some resistance at $55, and conservative traders who got into the play between $50-$51 may want to take some profits, or tighten up the stop. Due to last week's volatility, I'm going to leave the stop alone for the moment, but an alternative would be $53

 Jonathan Levinson  11/4/02,  09:35:27
The COMPX has heavy resistance at 1400, and I seem to remember SPX 911 as a pivot going back to 9/11 as well as during the summer. The market has gapped up right to The Question Mark. Will it break through or reverse? The TRINQ at .10, QQV +1.1, FVX +9.2 basis points. We have to wait and see.

 John Seckinger  11/4/02,  09:34:51
Cash seems to be leaving the fixed-income arena and enter stocks this morning, as the 30-year bond is lower by '20 ticks to 109'23 (ZB02Z). Solid support should be found near 109. Five-year notes are significantly lower this morning, down '14 ticks at 112'29 and close to its 22 DMA at 112'26. Ticker: ZF02Z. A bounce off this 22 DMA could give bullish equity traders a temporary reason to take profits.

 Jonathan Levinson  11/4/02,  09:32:05
35 point gap up open on the COMPX to 1395, TRINQ .11, QQV +5.02. The QQV must be a bad tick- or a serious divergence. It has just reprinted to +.9 at 42.97.

 Steven Price  11/4/02,  09:28:24
Along with Jim, let's let the open settle in before jumping in long or short on individual plays.

 Jonathan Levinson  11/4/02,  09:17:36
Yields are up, though not as much as equity futures would imply- FVX +8 bps, TNX +6.8 bps, and TYX +4.3 bps.

 Jim Brown  11/4/02,  09:16:12
Swing Trade Signals
As expected the markets look like they are ready to blast off to the next resistance level with a gap open. Microsoft is trading at $57 in premarket. The futures are climbing steadily with the Dow futures indicating 8630 should be hit at the open. This should start another round of short covering that could power the Dow to the next strong resistance at 8725.

With the election outcome on Tuesday still in doubt and the Fed meeting on Wednesday I don't see a long entry after the gap open. At this point I want to let the initial Microsoft bounce run its course and then look for a high odds entry later.

 Linda Piazza  11/4/02,  08:52:44
Remember sector rotation? During the heyday of the tech bubble, consumer staples performed poorly in comparison to tech stocks, but they've done well in comparison to techs during the bear market. For example, from 1 Dec 99-3 March 2000, Amex Tech SPDR XLK performance was +23.66%, while Amex Consumer Staples SPDR XLP was -19.2%. By 1 Sept. 2000-4 Dec 2000, those figures had rotated to XLK - 25.24% and XLP +29.08. Over the last four years, these two sectors have mostly moved in opposition to each other, except this July, when they both dove along with the S&P 500. Knowing this, I'm able to develop a theory about how these two sectors might perform in relationship to each other. If tech is now in a recovery, as will be tested this week, and will outperform the S&P 500, then perhaps consumer staples will underperform again. That's one reason I was willing to enter the KO put play. Caveats to this theory: just as all stocks tend to go down during capitulation, perhaps all tend to rise during the early phases of a bull market. The four-year comparison charts didn't extend back to the beginning of the 90's bull market. Also, while signs point to the possibility of at least an intermediate bull market, that's not proven yet. Still, I'm preparing myself for the possibility, forming theories as to what might happen. If you're interested in seeing how other sectors perform in relationship to each other, click on the link below. You can slide the tab at the bottom of the chart back and forth to compare performance over a four-year time span. Link

 Jonathan Levinson  11/4/02,  08:49:50
The US Dollar Index rose all night to its current 106.40. NDX futures are strongly positive after a vertical rise from last night's open, +29.50 to 1050, +13.70 to 912.20. I have received any anxious questions from readers about going long at the open. I would not and would be patient- call premiums will be greatly inflated, and you could wind up paying top dollar even if the rally follows through strongly. Put premiums will be greatly diminished, so shorting puts will be risky as well.

 Jonathan Levinson  11/2/02,  16:04:30
Here's a thirty one year chart of the US Dollar Index I've just come across, to put some longer term perspective on our frequent updates:


 Jim Brown  11/2/02,  02:53:41
The Swing Trade Game Plan has been posted: Link

 Jim Brown  11/1/02,  18:17:44
Java Monitor - We have received many comments and suggestions from readers who downloaded the Java Monitor this week. We also developed a list of problems, which need to be corrected before we release it for general use.

We thank everyone for giving it a good test. We are deactivating it until these changes are made. We have also made some changes in the current monitor to speed up the refresh rate for new content. Please continue to use the current monitor until we release the next version of the Java product.

 Jim Brown  11/1/02,  18:17:30
Friday's Market Monitor has been archived. We archived it early to allow us to make some changes to the infrastructure and test software over the weekend. You may view it and any previous days here: Link


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