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  Jim Brown   11/6/02,  4:38:53 PM
Market Monitor Problems - We are going to archive the monitor in about 30 min to do some server work before tomorrow. It will be down for several hours if not most of the night. Hopefully we can reduce the problems we have been seeing recently.

 
 
  Jeff Bailey   11/6/02,  4:21:03 PM
Cisco Systems (CSCO) $12.96 ... Trading $13.51 in extended hours after reporting Q1 EPS of $0.14, which was penn better than consensus. Company said revenues rose 8% year-over-year to $4.85 billion, which was also better than consensus for $4.81 billion.

 
 
  Jeff Bailey   11/6/02,  4:11:36 PM
Cisco Systems (CSCO) $12.96 +2.12% .... stock active at $13.34 after beating by a penny. Will follow with more detail when known.

 
 
  Jim Brown   11/6/02,  4:05:27 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
It was just brought to my attention that the Dow high on some charts is showing 8800.00. My alarms never triggered and I went back to the tick chart and the high tick is showing as 8799.72. Since some charting services are showing 8799 and others 8800 you may have been stopped out 15:46:48 instead of exiting at the close. I don't have numbers for the 15:46:48 tick but a quick glance it looks like the OEX was about 472, SPX 925.

The SHORT signal was closed at 15:59:00 with the Dow at 8767. OEX 470.92, SPX 923.44, DIA 87.80, SPY 92.75, DJX 87.67, NDX 1064.85, Compx 1417.84, QQQ 26.47, ES-mini 922.50, NQ-mini 1066.50, YM-mini 8749.0

That did not quite go as planned and puts me a 0-1 for the month. Now watch Cisco warn and we will hit 8300 on Thursday.

 
 
  Jim Brown   11/6/02,  4:03:48 PM
Market Monitor Problems - I apologize for the outage this afternoon. This application uses components on six different servers and one of the critical components failed. Technology is great when it all works

 
 
  Jim Brown   11/6/02,  3:57:23 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
EXIT AT THE CLOSE - DO NOT HOLD OVER!

 
 
  Jim Brown   11/6/02,  3:56:18 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the stop loss on the current SHORT signal to a Dow print at 8775. This is not much of a drop but I want to stay just over the reaction high of the day. If not hit we will exit the signal before the close regardless of the level.

 
 
  Jim Brown   11/6/02,  3:56:06 PM
Swing Trade Signals
NDX futures are trying to break out of 1060 and S&P futures are knocking on the 920 door again. I am going to lower the stop loss slightly just in case we get another bounce. The original plan was to exit before the close to avoid any Cisco surprises. I was hoping for another run at breaking 8600 before then.

 
 
  Jonathan Levinson   11/6/02,  2:54:20 PM
Getting a bounce here, COMPX 1408, SPX 917. The TRINQ is now quite low at .45, with the TICK.NQ +180. HUI and XAU are both positive, having reversed out of negative territory.

 
 
  Jim Brown   11/6/02,  2:51:38 PM
Swing Trade Signals
OK, we had the sell the rally and then the buy the dip and several of their children. Once the reaction moves run their course we will see the real trend appear. Without the Fed in our future the markets are going to have to find something else to trade on. If the Cisco news tonight is good it will be the rallying cry, 50 points in their pocket and tech recovery in progress.

If Cisco is negative then traders may start worrying about deflation, a worse economy than expected due to the 50 point cut and tech recovery still out of sight. It all hinges on Cisco tonight.

 
 
  John Seckinger   11/6/02,  2:43:38 PM
I try to think of 12:15 p.m. as the start of a new trading day. With that said, I will look for 8676 as a possible pivot, and since the Dow is lower than that level, I expect more selling. The 30-year is up almost the 'magical' full point level (32 ticks), and if that happens I will expect the Dow to come under even more pressure during the last hour.

 
 
  Linda Piazza   11/6/02,  2:37:01 PM
Even boring stocks such as KO were fun to watch during and before the FOMC announcement. Having reached a low of 45.20 this morning, KO laboriously climbed up to 45.44 or so just before the announcement. Immediately afterward, it zoomed to 45.90, but started getting knocked back right away. For the last few moments, I've been watching asks that are lower than the bids as price drops rapidly. Currently at 45.10, KO has reached a new low for the day and is threatening to break through the next level of support at 45.

 
 
  Jonathan Levinson   11/6/02,  2:35:28 PM
I'd say that Jim's one heck of a trader. What's your favorite brand of non-cuban cigar?

COMPX is printing fresh lows. Looks like it didn't take long for the implications to start sinking in. TRINQ climbing, currently 1.21. Deep red across yields except for the FVX. QQV +1.48.

 
 
  Jeff Bailey   11/6/02,  2:34:01 PM
Treasury YIELDS now on the move lower, looks defensive for stocks.

Dow -42, SPX -7, OEX -5, NDX -12 points.

 
 
  Jim Brown   11/6/02,  2:33:33 PM
Can I breathe now?

 
 
  Jim Brown   11/6/02,  2:32:10 PM
Swing Trade Signals
Looks like that overhead supply I spoke about earlier has kept a lid on the bullish enthusiasm. They were lurking in the attic and waiting for the traders to wander into range. Now they will likely chase the price down to avoid a negative surprise from Cisco tonight.

 
 
  Jeff Bailey   11/6/02,  2:31:08 PM
13-week YIELD ($IRX.X plummeting lower at 1.205% as 50-basis point cut looks to be BIG surprise. This is the rate of interest most banks offer for shorter-term savings and money market account.

Longer-dated Treasuries also seeing some buying with 30-year (us02z) 110'00 +0.51%, and YIELD falling a bit to 5.044%. Most likely takes a break below 5.0% in 30-year to turn equity market sour.

Dow +23, SPX +1, OEX -0.45, NDX +0.24. All trading near unchanged after FOMC. Investors/traders may be going through FOMC notes right now.

 
 
  John Seckinger   11/6/02,  2:28:33 PM
Interesting to say the least. A slight 'fundamental shock' by the Fed (50 instead of 25); however, the Dow continues to trade on a technical basis (adhering to solid resistance levels). The bond markets appear rational as well. Note: Dow was at roughly 8676 at the time of the announcement.

 
 
  Jim Brown   11/6/02,  2:26:18 PM
Swing Trade Signals
Well that was exciting for about 5 minutes. The futures are already selling off along with the Nasdaq and the broader markets. All are dropping from their highs. The moves both up and down were not drastic and stopped well below resistance. It is obvious the cut was priced in and now the real concern will be Cisco.

Remember the 50 points will not be felt in the economy for 6-9 months. This is a political move and they took back any future cut by saying the risk was now balanced. This means there are no more cuts in the hopper and like a crack addict the market got its jolt but now must face more long months with no drugs. The rest of today and tomorrow is going to be interesting.

 
 
  Linda Piazza   11/6/02,  2:24:28 PM
A quote from FOMC report: "Uncertainty ... is inhibiting spending, production and employment." The risks to the economy are now seen as balanced.

 
 
  Steven Price   11/6/02,  2:24:00 PM
Pretty weak reaction, I'd say - and so far we have the Dow failing at 8750, which is the next resistance level, after the initial boost.

 
 
  Jonathan Levinson   11/6/02,  2:23:14 PM
Nothing like fed volatility on a Wednesday afternoon. That spike is blowing off into a spike, COMPX 1407, SPX 917. TRINQ at .60, TICK.NQ 164, QQV +.48. It looks like a bitter sweet, or rather sweet-bitter reaction from the market so far.

 
 
  Kent Barton   11/6/02,  2:17:35 PM
Major indices moving higher after the announcement, but not explosively.

 
 
  Jeff Bailey   11/6/02,  2:15:43 PM
Fed cuts 50-basis points.

 
 
  Jeff Bailey   11/6/02,  2:13:56 PM
21-day SMAs QQQ $23.90, NDX 962, SPX 877, OEX 445, INDU 8,270,

 
 
  Jeff Bailey   11/6/02,  2:10:25 PM
30-year YIELD Chart to go with 01:56:02 post regarding price. Link

 
 
  Jim Brown   11/6/02,  2:08:20 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The official signal is to hold the current SHORT over the Fed decision at 2:15 and maintain the current stop loss at 8800. Even if we get a 50 point cut that is a long way from here. That would put the OEX around 475, SPX 930 and both have strong resistance between the current 465/914 levels and those numbers.

Make your own decision but the Swing Trade Model is staying short.

 
 
  John Seckinger   11/6/02,  2:06:58 PM
The December 30-year (ZB02Z) has rallied roughly a full point (32/32) in the last hour, and (as discussed in 1:11:03 Post) the five-year note has underperformed. This price action is actually more than I expected before the announcement; nevertheless, it should take a lot of "energy" to reverse things. What does this mean for equities? Should spell out lower prices.

 
 
  Jim Brown   11/6/02,  2:03:34 PM
Swing Trade Signals
One thing to consider on the entry/exit decision is the chance for reentry. If the market rallies on the decision and stalls at 8725-8750 then that would be our reentry point for a new short. Getting out here at 8675 with the strong chance of getting back in at 8725 makes no sense. Right now I am still leaning on staying in and taking the risk. The broader markets, SPX/OEX, have been weaker and a rally to the high of the day to 470 on the OEX could exhaust the bulls.

 
 
  Jeff Bailey   11/6/02,  1:59:45 PM
Like a horse race traders have the indexes pegged near unchanged. The horses are in the gates.

Dow -7 points, SPX -2 points, OEX -2 points, COMPX -3.5 points, NDX -5 points, RUT +2.5 points.

Hey Russell, is that you?

 
 
  Jim Brown   11/6/02,  1:56:39 PM
Swing Trade Signals
The resilience of the markets in front of the meeting is worrying me. If we were lower, say below 8640, I would feel better about holding over the decision but up here close to our entry point I am not so convinced. The general consensus of opinion from every source I can find in real time this afternoon is about a 65% chance of 25 points and almost zero percent of 50 points. That is setting us up for the strong possibility of a drop after the decision but that potential is NOT being telegraphed into the current market. Those same traders feel there is a 100% chance of a drop regardless of what happens but again we are not seeing it in real time.

We saw how strong the resistance at 8725-8730 has been this week so I think the possibility of a blowout is slim but we always need to protect ourselves against the unexpected. With all the bullishness I would think there are large institutional orders setting just above the market in order to take advantage of the post Fed volume to close long positions.

Historically there is usually a huge spike/dip after any decision and then a reversal into the close. Also, historically there is over a 75% trend of the markets selling off on the following day even when there is a rate cut.

This means the odds are heavily weighted on a drop regardless of what the Fed does. Especially with Cisco earnings after the close. Tech buyers should be wary of staying long over the close.

At 2:05 I will make the decision about holding the signal over the decision but traders should be considering now how they feel about it so you can be ready to act if necessary or not act if that is your decision. My decision should only be a guideline. You are in charge of your own fate.

 
 
  Jeff Bailey   11/6/02,  1:56:02 PM
30-year Treasury Futures (us02z) will be the long-end of bond market to keep and eye on after FOMC. Equity bulls do NOT want to see PRICE above 111'10, which would have YIELD falling. I've highlighted two points on this PRICE chart, where I've proviled YIELD calls in the past. A YIELD trader long calls wants to see PRICE fall. However, it's been my thinking that the YIELD calls were the "less risky" bullish trade in the market. A trader that has some YIELD calls may be happy with some offsetting QQQ puts from yesterday. The two combined will help a QQQ bear control his/her trade and better able to get a pulse from the BOND market how bullish/bearish things are toward the economy going forward. My thinking is, if the 30-year PRICE chart goes back to new highs, then QQQ goes back to the lows. Here's a PRICE chart of the 30-year. You can see from retracement where we'd look for PRICE RESISTANCE. Link

 
 
  Steven Price   11/6/02,  1:51:50 PM
For a current snapshot of OI's stock plays, click here Link

 
 
  Jeff Bailey   11/6/02,  1:50:07 PM
Are you listening to this bond trader on CNBC? If you're a "new" options trader and just getting started, he is known among his peers as one of the better bond traders. One comment that rings so true for me and speaks to what I've said in the past, especially for options traders, is to start with smaller positions, then as success builds, account does too, and allows the trader to take on more risk with time.

Too often, traders take on TOO BIG A TRADE, or TOO MUCH RISK, all at once, have one trade go against them, and they're done.

 
 
  Kent Barton   11/6/02,  1:47:19 PM
Citigroup (C) $37.65, -0.36: Time for a pullback? Shares have bounced more than 40% from the October 9th lows. The bulls seem to be running out of steam after failing to push the stock up to its 200-dma ($39.64). The rolling oscillators suggest that C will retrace some of its recent gains, and today's FOMC announcement might provide the perfect catalyst for a sell-off. But as Jeff mentioned in his 12:55 post, the banking group might be less vulnerable to a heavy decline if the Fed decides to leave rates unchanged. The expected quarter-point cut could actually be the optimal decision for Citigroup bears.

 
 
  Steven Price   11/6/02,  1:43:30 PM
Reader Question:how about blockbuster video (BBI) as a short play? daniel

Bockbuster Inc (BBI) : $21.51 (-0.57) BBI has been bouncing at $21 the last couple of weeks, ans has some support below at $20, as well. The PnF bullish support line is just below at $19. That support line has held the last three times it was tested. When I look for a short candidate, I like to see a little more room to fall before finding support, so I would pass on BBI from the short side.

 
 
  Jeff Bailey   11/6/02,  1:39:47 PM
The 1:00 PM Intraday Update has been posted. Link

 
 
  Jeff Bailey   11/6/02,  1:38:12 PM
Say what you will about CNBC, but that little spot they just did in the bond pits should have traders FULLY UNDERSTANDING how important the bond market is right now, has always been, and will be within about 45-minutes as it relates to equities.

Palms out, traders feel that's it for interest rate cuts.

Palms in, traders look for further cuts down the road. You and I know what that means for the economy and equities.

 
 
  Jeff Bailey   11/6/02,  1:34:17 PM
The 1:00 PM Intraday Update has been poster. Link

 
 
  John Seckinger   11/6/02,  1:11:03 PM
I continue to wonder what could happen to the bond market and yield curve after the FOMC announcement. I am long just a few December 30-year bonds, short a few five-year notes, and long some tens going into the announcement. What does this mean? I expect all maturities to rally after the announcement, and both the 10 and 30-year bonds will outperform to the upside (read: yields will fall). Stocks should fall, but I would prefer a nice, rational downdraft instead of panic selling (might not happen). Why rational? So traders don't jump into five-year notes as a knee jerk reaction. If Fed cuts by 25 bp, I should get this scenario. If the Fed does nothing, I really should get the scenario. If the Fed cuts by 50 bps, I might take some heat.

 
 
  Jonathan Levinson   11/6/02,  1:07:39 PM
The indices seem to be putting in a short term higher low as they drift lazily upward, with the COMPX in what looks like a vague rising bullhorn, SPX in a bear flag on the 10 minute candles. The TRINQ is still in bullish territory at .66, TICK.NQ at -3, FVX up 10 bps while the shorter 13 week bill (IRX) is down 2.5 bps. Not a lot of action for the moment, which is certain to change.

 
 
  Jeff Bailey   11/6/02,  12:55:57 PM
Banks Both the BIX.X -1.57% and BKX.X -1.5% now leading sector loser list. I'm thinking sector under a bit of pressure and defensive on POTENTIAL of 50-basis point rate cut. This might well be the group a BULL should focus on under a no rate cut scenario, especially if they sell off 5-7% on a negative knee-nerk market reaction. A trader that holds some equity puts can reach into his/her gut and buy some weakness in a sector that gets hit lower on broader market negativity when in actuallity, the "lack of a cut" would be more beneficial to the banks.

 
 
  Jim Brown   11/6/02,  12:54:57 PM
Swing Trade Signals
That 8650 support held and the markets are trying to hold to the high ground. The underlying bullishness is still surprising and I think there are going to be a lot of surprised people over the next couple days unless Cisco blows out the numbers after the close. The volume after the Fed decision is going to be huge as there are large numbers of traders lined up on both sides of the market.

 
 
  Linda Piazza   11/6/02,  12:52:58 PM
VIX: On Monday, VIX approached its 200-dma, but didn't touch it, with a Monday low of 32.45. In his weekend articles, Mark Phillips has been cautioning us to watch the VIX as it approaches 30, to see whether 30 again forms a floor for the VIX as it did during the August rally, or whether the VIX breaks through into its historical range. The historical range for the VIX has been approximately 20-30 in recent years, but in recent months that range translated upward, with 30 being the floor. Although it's too early to tell whether this current move upward in the VIX will be sustained, action so far this week has maintained that 30 floor. It appears as if VIX is forming lower highs and higher lows as it coils into a tighter pattern. I've provided a link to the daily chart, but also click over to the weekly chart. I'm seeing H&S and reverse H&S patterns everywhere these days, but it almost looks as if the weekly chart shows a reverse H&S formation with two left shoulders and the head formed, with the VIX perhaps in the process of forming the right shoulder. Of course, should the VIX break back into that lower historical range, the potential reverse H&S pattern would be negated. VIX is currently on a sell signal, but a move to 39 should negate that signal and give a new P&F buy signal. Link

 
 
  Jeff Bailey   11/6/02,  12:47:17 PM
Option Price Calculations Hi Jeff, So how does a person calculate "potential option price" as referenced by your 12:13 update.

For in or at the money, it's pretty easy. If put a stock that's trading $15 and you hold the $15's and target is $14, then current month expiration should be MINIMUM bid of $1.00 if stock trades $14.00. If currently trading with $0.50 offer premium, then good chance bulk of premium holds remainder of the day, thus might place a sell limit at $1.40 to be safe.

Out the money a little more difficult, but still pretty easy. For instance, if stock is trading $15 right now, and trader is buyin out the money $12.50's, then take a look at what the in/at the money's premium is right now. Trader can then pretty easily "eyeball" what the option price would be if stock falls to your target.

Yesterday I profiled the at the money QQQ November $26's. I wanted to hold an option that could easily be calculated into the FOMC with a target of $24.25. If QQQ trades $24.25, then option should traded MINIMUM $1.75 with some premium. One "advantage" of at the money is that there should be good liquidity and potential buyers at the offer under such a decline.Link

 
 
  Steven Price   11/6/02,  12:40:45 PM
Those considering entering retail plays short can keep an eye on Wal-Mart (WMT) $53.58 (-0.84). The stock has been sitting on its 50-dma for the last 5 day's without a decisive break in either direction. On a breakdown, look for intraday resistance at this level ($53.66) for signs of sector weakness. While I hesitate to play WMT itself as a short, as it has been resilient to the year's declines, I like it as a barometer for the sector.

 
 
  Linda Piazza   11/6/02,  12:36:48 PM
Bloomberg television reports that European markets closed on or near the lows of the day. The broadcast also mentioned that the BOE, Bank of England, meets tomorrow, as well as the ECB.

 
 
  Jim Brown   11/6/02,  12:14:28 PM
Swing Trade Signals
Now that the trend appears to be going in our direction the first bump we are likely to encounter is support at 8650. We bounced this morning at 8656 and that shows that others see this support as well. Once below 8650 we have speed bumps at 8600 and stronger support at 8560. Nobody ever said the drop would be without vertical.

There is an amazing string of commentators on CNBC that appear to be talking down a chance of a rate cut. These same people were talking it up several days ago. It appears all that 50 point conviction has mellowed into maybe 25 points. "After all the economy is growing" (grin)

 
 
  Jeff Bailey   11/6/02,  12:13:45 PM
Ahead of the Fed .... one thing a trader holding multiple equity/index puts or calls ahead of the FOMC meeting might want to do (especially November expiration), is begin calculating potential option price should stocks jolt quickly to your targets. Then, place you orders in the account. This way, you're not scrambling if a move takes place at your target. This also instills some discipline in your trading and will help remove emotion. Too often, a trader gets the favorable move, but hesitates to act as he/she then begins to think... "it's going further than my original plan." That type of thinking can be "the death of a trader."

 
 
  John Seckinger   11/6/02,  12:13:15 PM
The cash 30-year (TYX) has made its way above 5.1% and is definitely outperforming the futures market (read: prices falling more and yields rising faster). If this market stays above 5.1% after the FOMC announcement, I would then expect a rise to 5.25% and then towards 5.4%. If yields fall under 5.1%, I will then look for a pullback to 5%. Remember, higher yields should mean higher equity prices, and vice versa.

 
 
  Linda Piazza   11/6/02,  11:52:03 AM
In late trading today, Germany's DAX 30 is down 1.5%. The IBEX closed down 50, .79%. Bloomberg television guests have been discussing whether ECB will lower rates when they meet on Thursday. Others commented that European market participants see the elections as "dollar positive."

 
 
  Jim Brown   11/6/02,  11:49:35 AM
Jim, Saw a brief note in IBD that Reuters reported the unemployment rate would have come in at 6% vs the 5.7% without a "mysterious jump in farm-based jobs". "Since June some 415,000 jobs have been created in agriculture." "A USDA official said there's no industry change to account for the pickup."

Pretty amazing to get a decent jobs number from a unexplainable source just before a tight election.....Ron

Come on Ron, that would imply a conspiracy! (grin) Just because the numbers for most government economic reports have been revised significantly recently does not mean that someone is trying to influence the markets. It just means they ran out of fingers and toes and their etch-a-sketch tablets may be wearing out. Surely there is no conspiracy in the government just because there have been dozens of "earnings" scams reported in the corporate world lately. We all understand the government is all knowing and infallible. Just ask them. Restatements are for our benefit. If they had posted the right numbers in the first place we might not have been able to take it. You know what wimps we consumers are. As for the +415,000 jump in unexplained agriculture jobs...that is probably just new coverage of Al Queda infiltrators that were previously left off the prior surveys. No problem.

 
 
  Jeff Bailey   11/6/02,  11:44:59 AM
The 11:00 AM Intraday Update has been posted. Link

 
 
  Steven Price   11/6/02,  11:41:05 AM
Reader Question: Steve, I noticed your earlier comments on shorting IBM below 80.

Curiously, I was assigned a short position in IBM this morning when someone exercised the Nov. 65 calls I was short as part of a Nov. 65/75 bear call spread. I'm still in the Nov. 75 calls as these hedge the short shares I was assigned.

There's still some time value to the Nov. 75 calls in addition to their intrinsic value, so if I wanted to close out the play I would sell the calls and then buy back the short stock position for a slight advantage over exercising my 75 calls.

I'm holding on to see if IBM does drop further. Do you have any other suggestions on handling this situation? Thanks for your great comments in Market Monitor. Brian

Response: IBM $81.23 (-0.30) I would set my stop in IBM at $84, just above Monday's high of $83.81, which would also be a decisive break above the descending 200-dma of $82.09.

By holding the long call, short stock position, you are synthetically long a Nov 75 put. You can view the position this way, because that is how it will behave. The other way to close, other than buying in the stock and selling the call, is to simply sell the Nov 75 put, which would put you in a reversal, which is a "locked position," as you will be the proud owner of 100 shares of stock per option at $75 at expiration, which should cancel your current short shares. This also allows you to capture the time premium left in the Nov 75 strike. For a brief description of a reversal, you can check out my column on JPM in Ask the Analyst on 10/13 Link

 
 
  Jonathan Levinson   11/6/02,  11:26:42 AM
Watching the indices creeping higher toward resistance. I guess if they can't run over the finish line, they'll try to walk. The TRINQ is still in sustainable bullish territory at .66, TICK.NQ +225, and the QQV is now flat on the day. FVX off its highs but still up there, +9.5 bps. The CBOE put to call ratio peaked at the open at .76, and then came in at .62 each half hour after that, which looks like most participants are still thinking bullish thoughts. All of the weekly and daily 5(3) stochs are peaked and waiting to turn, but of course, as we all know well, the stochastics can stay buried when they want, longer than options can wait. Thanks to Matt for sending me his recent TA. Looks like the stage is set for Mr. Greenspan, as the audience begins to arrive with tickets in hand.

 
 
  John Seckinger   11/6/02,  11:23:16 AM
Interesting note: The difference from the low on July 24th at 7532 to the high on August 22nd at 9077 is 1545 points (read: Wave One). I then take this 1545 points and add it to the low on October 10th (7197) (read: Beginning of Wave 2). I get 8742. The Dow is currently at 8717. Interesting. Where is Elliot Wave when you need him? (grin)

 
 
  John Seckinger   11/6/02,  11:14:15 AM
There was an article this morning in the Journal on deflation, and it might be getting some bids to come into Treasuries (hoping for 50 bp cut). I tend to believe the bid in related to some hedges taken off (after Freddie Mac deal) and normal position squaring ahead of the Fed. Deflation has been on traders' minds for months. So, if the Fed cuts 25 bp. will the dollar fall? I think some of the recent selling already priced in a 25 bp cut, so currency traders short the Greenback might cover after a 25 bp announcement.

 
 
  Jim Brown   11/6/02,  11:08:03 AM
Fed - I just heard an interesting comment. If the Fed cuts rates AND leaves their bias to easing due to weak economic conditions that it could bode ill for the market. DUH.

If the economic conditions were not weak they would not cut rates. Do you think they will cut rates and then say they are planning on raising them soon? I think not. Obviously reporters are struggling to find something to say and are not always successful.

 
 
  Steven Price   11/6/02,  11:00:16 AM
Reader Question: What do you think about UNS? rick

Unisource (UNS): $17.64 (+0.24) In our daily UNS report (just kidding Rick), we see UNS bumping its head up against the 200-dma for the third day in a row. I mentioned the other day that this level often provides significant resistance for stocks and if it can clear this hurdle, I think the next resistance point will be $18.50, which would be a PnF bearish resistance breakthrough. If it manages above that level, look for $20. If I were holding the position long, I might take at least 1/2 profits, since so far the 200-dma has proved tough, with additional resistance on the daily chart at $18 just above, and we could see a pullback.

 
 
  Steven Price   11/6/02,  10:49:04 AM
Anyone who caught Apple Computer's Steve Jobs on CNBC the other night heard remarks that underscore the comments Jim referred to. He said he has been hearing that a tech recovery is six months out for the last two years, but has seen no sign of it yet. Food for thought.

 
 
  Steven Price   11/6/02,  10:45:13 AM
Forest Labs (FRX) 103.03 (+1.95) OI call play, entered at $98.75, FRX gave a new buy signal on the PnF at 102 on Monday, pulled back to 100, than took off again. I like the series of higher highs and higher lows here, but conservative traders can look for entry on another test of $100 if the market rally fades this afternoon following the FOMC announcement. I'm raising the stop on the play to $98.

 
 
  Jim Brown   11/6/02,  10:44:49 AM
Intel - At 10:00 this morning it was reported that Intel said they were comfortable with current estimates and the market roared off to the current levels. While traders were busy placing those tech trades they missed the second half of the sentence. "but global conditions are still uncertain and we have not seen any economic recovery in its business sectors." They also said they were going to keep the lowered capital spending limits until a recovery was seen. Traders read between the line and see bullishness in every word it appears.

 
 
  Steven Price   11/6/02,  10:36:14 AM
Reader Question: Hi Steve, I would like to get your views on WPI long play. It was dropped from the CALLs list but wondering if this election and chances of tech rally fading will lead to some gains short term on WPI play. Regards

Watson Pharmaceuticals (WPI): $28.86 (-0.18) I like this morning's bounce above $28, and a trade back over yesterday's high ($29.13) would leave me bullish from this level. We dropped it ahead of this morning's earnings, which beat estimates, but were accompanied by statements that essentially capped full year and fourth quarter earnings with a top end right at the consensus. At this point, I don't see a reason to drop if you didn't yesterday along with us. A break back below $28, which now appears to be support, might make me re-think holding the position, but that offers decent risk/reward from here. One note of caution is that the earnings range the company gave for the full-year and next quarter leave open the possibility of a miss if the company hits the low end of the range.

 
 
  John Seckinger   11/6/02,  10:29:46 AM
The Gold Index (XAU) is lower by 0.74%, but more importantly could be in the process of forming a right shoulder in a H&S pattern (daily chart). For this shoulder to form, Tuesday's high of 68.76 should not be taken out. The neckline? I would use a trend line that started on July 26th and bisects the low on October 10th. Currently this line comes in at 60. A break below the trend line places the XAU at 40. Yes, I might be getting ahead of myself, but not a bad risk/reward. Risk 68.76 for a possible move to 40. I believe bears will get aggressive under the 50 DMA at 66.28.

 
 
  Steven Price   11/6/02,  10:26:00 AM
Reader Question: Good Morning steve QLGC is approching the critical level of 42.5,is the time to go short arrived? Thank you...

Response QLogic ($42.34 +1.53) The last time QLGC tested this level and failed was at a time when it was failing its 50-dma on each bounce attempt on the way down. In fact, it was the third of 6 straight failures at the 50-dma. Right now that barrier is far below and the stock has shown nothing but strength. While this may not seem logical, given the news out of the sector, picking a top in a rising sector is always a big risk. The SOX bounced above 300 yesterday, and until I see a defeinitive rollover in this sector, I am going to stay away from shorts. When I see that rollover, I'll be driving the short bus(GRIN), but not until then. If you'd like to see some perspective on the sector, check out Sunday's Ask the Analyst column Link

 
 
  Jonathan Levinson   11/6/02,  10:26:00 AM
There certainly is some strong selling in five year treasuries, with FVX +11 basis points. The QQV has eased off its early gains, now up just .68 to 45.76. The TRINQ is in bull territory at .69, and the COMPX is up to 1408. The SPX is drifting higher at 917.85. I would guess that another failure to make new highs will be very discouraging to bulls, if such occurs.

 
 
  Jim Brown   11/6/02,  10:25:38 AM
Swing Trade Signals
The bulls bought the dip and ran the markets right back to resistance again but the lack of conviction was evident as the indexes moved back to the highs. The strongest indicator is the Nasdaq futures which have rebounded strongly off 1045 and are approaching 1060 again. This is especially strange in light of the Cisco earnings after the close. With negative guidance from every large tech to announce and confirmed by CSC last night it is amazing traders are not running from techs this morning. The new bull market is alive and well and it is entirely possible bad Fed news and bad Cisco news could simply be ignored.

 
 
  Jonathan Levinson   11/6/02,  10:19:50 AM
The Fed has remained flat with respect to open market operations today- nothing added or drained.

Link

 
 
  John Seckinger   11/6/02,  10:18:50 AM
The Federal Home Loan Mortgage Company (FHLMC, or Freddie Mac) performed a buyback this morning and most likely sold Treasuries as a hedge. This buyback is apparently over now, and we are seeing those bond shorts covered in order to unwind the position. I believe the buyback involved 5-year notes to 30-year bonds.

 
 
  Jim Brown   11/6/02,  10:18:22 AM
IRAQ - Several readers have pointed out that a Republican victory will put us at war with IRAQ sooner rather than later. I think it was a given that we were going there anyway. What I do find strange is that the attack in Yemen and the news that the U.S. was sending in 1000 troops to prepare for a larger force later and another potential search and destroy mission in Yemen was completely ignored in the press. It shows that the potential for fighting this battle on numerous fronts is increasing and many more troops are going to be involved. I guess we are used to the fact that we are in a war that may never end.

 
 
  Steven Price   11/6/02,  10:12:45 AM
Not seeing many plays jumping out to me today. FOMC days are usually pretty quiet ahead of the announcement. However, Linda's last post mentioned Kimberly Clark (KMB) $50.43 (-0.89). I Watch Listed this stock, looking for a breakdown below $50.00, which it has been testing repeatedly. The stock gave a triple bottom sell on the PnF at $52, along with touching $50 on the big fall Oct. 22. A break under $49.70 and resistance under $50 would look good for a short in KMB, whose bounce failed under the breakdown level. Current bearish vertical count is $42, and I like the risk reward with a stop at $53

 
 
  Jim Brown   11/6/02,  10:08:04 AM
Could you post an explanation of the PPT and who that is or a previous link on it? Thanks, Steve

The Plunge Protection Team was created after the 1987 crash by Regan with a goal to prevent a recurrence of that crash. The original concept was to instill confidence in the markets by having team members from many of the largest financial centers. The idea was to calm the markets and provide some additional liquidity in times of crisis. (that liquidity could come in the form of cash spent for stocks/futures etc.) The team has morphed into a very secret existence but their work can be seen from time to time when things appear the bleakest. Sudden huge buy orders in futures, SPDRs, QQQ, etc have been seen. There is no published record of their interventions and sometimes the large orders actually come from banks outside the country. It has been theorized that the Fed PPT works with teams in other countries to help each other and shuffling the cash afterwards is invisible to the public. I know it sounds like a crazy conspiracy but after you have been watching the markets long enough you start believing in these ghosts after seeing very strange occurrences at exactly the right time to prevent a total meltdown.

 
 
  Jeff Bailey   11/6/02,  10:07:58 AM
Johnson & Johnson (JNJ) $60.98 +1.82% ... getting upside alert here at 80.9% retracement. This is near the 10/21/02 relative high after bullish profile near $55. May be "bullish" response to Republican wins as drug stocks may be benefactor. Also interesting perhaps in this morning's 09:00 Update, is former Chairman of Pfizer is name on SEC list potential. Link

 
 
  Linda Piazza   11/6/02,  10:05:35 AM
Non-sexy sector: Consumer Staples KO, CCE, PEP, PBG, BUD, and KMB all down on the day, with consumer staple MO bucking the trend, but off its highs of the day. Yesterday, many of these stocks printed an inside day. KO was one of those stocks. Currently at 45.65, it's moved below yesterday's low of 45.84. Moving below the low of an inside day would normally be a sell signal, but KO won't break its wedge from the last couple of weeks until it moves below 45.35, and there's also strong support at 45. It's been testing that support over and over the last couple of weeks, and I expect it to be broken, but that's not proven yet. Some support exists at 43.50, too. I have a conservative put position in KO, and I've been following it for educational reasons, to follow a conservative trade that takes several weeks to unfold. Hopefully, it will unfold in the right direction!

 
 
  Jonathan Levinson   11/6/02,  10:05:28 AM
The XAU and HUI have seemed to be rising against the falling dollar, which, I've been guessing, has been those markets pricing in a fed rate cut. As it begins to look like a 1/4 point is the best they can expect, the dollar seems to be recovering and gold pulling back, making me a little less short term bullish on precious metals than I was earlier in the week.

 
 
  Steven Price   11/6/02,  10:03:39 AM
Reader Question: Hi Steve, I have a nice profit in XAU calls should I hold or fold before FED meeting? Thank You rick

Response Gold and Silver Index (XAU.X) 68.03 (-0.14) Interestingly enough, this normally defensive play has followed the equity market higher the last few weeks. It has begun to roll over as it hit its 200-dma of $69.68. I would be looking to take at least partial profits here if I was long. How it will react to the FED is questionable, since it has not behaved in a defensive manner lately.

 
 
  John Seckinger   11/6/02,  10:00:43 AM
Well, the Dec. 30-year did find support at 108'30 and now sits down '08 ticks at 109'06. The nice thing for equity bears is this contract has room to run to 110'07 before finding resistance (read: higher bond prices, lower stock prices). The intra-day high is 109'19, and there should be some stops right around the 109'25 level.

 
 
  Jim Brown   11/6/02,  9:57:51 AM
Swing Trade Signals
Remember the high hopes for the finance sector this morning with positive comments from all the talking heads? Check out the BKX.X. Somebody forgot to place orders to back up those positive comments. (Thanks Fabe for pointing this out)

 
 
  Jim Brown   11/6/02,  9:55:40 AM
Jim, Should we all take out an insurance policy and buy a "courtesy call"? This will surely make things go down....Brad

Good point! A token Nov $85.00 call on IBM might be enough to express our bullishness. (grin)

 
 
  Jim Brown   11/6/02,  9:52:43 AM
Futures Trade Signals
All three targets I profiled in the Futures wrap last night as potential entry points were hit this morning and are looking strong. YM 8700, ES 920, NQ 1055 are all profitable now.

 
 
  Jim Brown   11/6/02,  9:48:05 AM
The unspoken wild card here is the Plunge Protection Team and any attempt to hold up the markets this morning to make any bad medicine at 2:15 easier to take. Their mission in life is to step in front of speeding trains and catch falling knives with baskets of money. Today could be a busy day for the PPT.

 
 
  Jonathan Levinson   11/6/02,  9:47:33 AM
The fed has 4B of 2 day repos expiring tomorrow, nothing expiring today, and so any repos this morning will be additional liquidity for the market. Still no announcement at Link

 
 
  Jonathan Levinson   11/6/02,  9:45:31 AM
IBM has also announced a 19.3 million share shelf offering, equivalent to 1.5Bm, which will be dilutive.

 
 
  Jim Brown   11/6/02,  9:43:54 AM
IBM - Steve, don't forget that CSC warned on their earnings last night that demand for consulting services and system integration was slipping and that there was no recovery in IT spending in sight. CSC, IBM and EDS are the three biggest in that field and it should mean that IBM is seeing the same weakness in demand. I would not hesitate to short IBM this morning.

 
 
  John Seckinger   11/6/02,  9:43:38 AM
Checking the Intermarket Relationships: The Dollar did rebound nicely overnight and is above the 106 level at 106.22. Neutral to slightly bullish for stocks. The Utility Index is higher while Oil is lower. The Oil Index is at 435, and will have to make a run above 440 or below 425 before I give it a good weighting. The UTY Index has been trading with the Dow, and is up 0.90% (Dow up 0.07%) at 256. With the Dow back underneath 8700, this interest-sensitive index will have to stay below 260 and hopefully fall underneath 251 and get new shorts involved.

 
 
  Jonathan Levinson   11/6/02,  9:43:12 AM
Outstanding, Jim- looks perfectly timed so far. All we need is Valter's blessing from here...

 
 
  Jim Brown   11/6/02,  9:41:17 AM
Swing Trade Signals
Looks like a war being fought at Dow 8705 with heavy buying and selling at that level. As I write this we are starting to see some red candles and once it starts down we should be safe.

 
 
  Steven Price   11/6/02,  9:40:25 AM
IBM $80.80 (-0.73) I've got IBM back on the radar as a short candidate. The company filed to offer 19.1 million shares, which pushed it down this morning. With CSCO's earnings release after the bell, I'm not going to enter the play today, since we could be looking at a gap tomorrow. However, I like the rollover from the 200-dma ($82.37) on Monday and failure there again yesterday. I'll be looking for a break below $80 or another failure at the 200-dma after CSCO's news.

 
 
  Jim Brown   11/6/02,  9:38:50 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
That is not exactly how I wanted it to happen but we will take it. The SHORT signal was triggered at 9:33:46 when the Dow fell back below 8700. OEX 468.93, SPX 917.80, DIA 87.27, SPY 92.23, DJX 87.00, NDX 1054.40, Compx 1405.95, QQQ 26.22, Emini 917.50, Nqmini 1056.50, Ymmini 8705.00.

The initial stop loss will be Dow 8800, which should be well over current resistance at 8725-8750.

 
 
  Jonathan Levinson   11/6/02,  9:37:14 AM
The Nikkei as well was significantly up in the morning before reversing nearly all of its gains.

 
 
  Linda Piazza   11/6/02,  9:35:36 AM
Marketwatch.com reports that despite early gains and expectations for a strong Wall Street opening, European markets have erased early gains and moved down. The Nikkei closed up 15.73 points.

 
 
  John Seckinger   11/6/02,  9:34:40 AM
Note: High in Dow on Monday was 8730, while high in Nasdaq was 1420. Does the bond market say we will get there? Dec. 30-year is only down '16 ticks and right at support (108'30). Will have to give the contract a few more minutes to trade.

 
 
  Jim Brown   11/6/02,  9:33:12 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We are now over 8700, the trade is loaded and a drop back below will trigger the short entry.

 
 
  Steven Price   11/6/02,  9:32:31 AM
It will be interesting to watch the brokers this morning after a report that the SEC is filing civil securities fraud charges against GS and JPM for IPO laddering (directing shares to certain clients).

 
 
  Jonathan Levinson   11/6/02,  9:31:36 AM
7 point gap up open on the COMPX to 1408. TRINQ 1.18, TICK.NQ +459, QQV +1.96 to 47.04.

 
 
  Jeff Bailey   11/6/02,  9:29:01 AM
The 9:00 AM Intraday Update has been posted. Link

 
 
  Jim Brown   11/6/02,  9:26:52 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Prepare to go short at the open. If we move over 8700 at the open the trigger will be a drop back below that level. If we continue up over 8700 I will try to pick a rally failure at a higher level for a manual entry. Repeat: Go short with a drop below 8700 after an initial bounce over that level.

 
 
  Jonathan Levinson   11/6/02,  9:24:33 AM
For anyone who missed my article explaining the Fed's open market operations, you can find it at this Link

 
 
  Jim Brown   11/6/02,  9:21:56 AM
Swing Trade Signals
I am still planning on going short on any rally failure this morning. "Rally failure" could mean different things to many traders. Because of the potential for a positive open is slipping it appears that the opening bounce could be short. Just like a widely expected earnings report is sold on good news the Republican win could be sold at the open as well. Unfortunately, Ma and Pa trader may be excited about the win and the possibility for a rate cut and they are sitting with their finger on the trigger this morning to buy stocks. This type of trader is not factored into the futures.

The bottom line for me is the need to take our shot at the open up or down. If we can get in at Dow 8700 I think the 8725-8730 resistance will give us minimal risk for a upward run before the Fed meeting. If the futures hold before the open we should be able to hit that number. If they continue to fade then I will pull the trigger manually. Be aware this could be a quick move and we are going to enter at the open regardless of the trend. If we could get a bounce over 8700 at the open then I would be content to enter the short on a drop back through 8700 or an obvious failure in the 8730-8750 range. Unfortunately I can't script it exactly in advance and we will play it by ear after the open.

 
 
  Linda Piazza   11/6/02,  9:20:46 AM
Yesterday, I commented that CNBC commentators rarely mentioned the ways the Fed might infuse liquidity into the system, other than rate cuts. A reader reminded me that Larry Kudlow does discuss these issues, particularly around the time of FOMC meetings. I didn't want to wrongly malign CNBC coverage. Still, until Jonathan and other staff writers began alerting us to the impact those Fed repos were having on day-to-day trading, we were all missing an important tool.

 
 
  Jim Brown   11/6/02,  9:11:32 AM
A whole new ballgame - The Republican sweep yesterday has changed the dynamics for today. The possibility for less regulation has prompted a bounce in the futures this morning. This may be good for the market long term and as I have mentioned several times in the last couple weeks a Republican win actually reduces the Fed's chances of a rate cut or at lease a 50 point cut. This is the best news Greenspan could get. The markets will like it after the initial volatility today and it keeps him from having to use some of his remaining ammo.

I don't think it changes the eventual outcome this morning other than we may get a higher entry. The Fed decision is still unclear and Cisco's earnings are still an unknown. This should still provide caution for bullish traders this afternoon. The Republican win and a cut by the Fed should continue the bullish run simply due to bullish sentiment and despite the slipping economy.

Just remember that when everything seems the most bullish markets tend to flounder. When things look most bearish the markets tend to bottom. It is not logical but it is true.

 
 
  Jonathan Levinson   11/6/02,  9:10:41 AM
Futures are pulling back sharply, with NDX now up 5.50 to 1057 and SPX 4.60 to 918.60.

 
 
  Jonathan Levinson   11/6/02,  7:52:12 AM
The US Dollar Index has been rising slowly and steadily, currently trading just above 106.20, while gold has been choppier, but is trading below $317.50. Equity futures started to ramp up as the word "Republican" began popping up on TV and around the internet, and though off their highs, SPX is still +8.70 at 922.70, NDX +15 at 1066.50. I expect to hear many conflicting explanations and theories to explain the intermarket action we'll be seeing today, and I intend to ignore as much of them as possible, focusing instead on support and resistance levels. Having looked closely at many charts in many different timeframes last night, my conclusion is that while a significant upleg to this already impressive rally is possible without violating the current bear trend, I expect the COMPX to be capped at the current rally highs, and the SPX at 960, if not 925-930. The depth of the pullback is an important question, and for me the wildcard is the high number of traders expecting that pullback- sellers eventually become buyers, and the more there are, the sooner the transition. Because of this uncertainty, I strongly suggest aiming for singles and doubles instead of homers. Trailing stops are an excellent way to accomplish this, but you get the idea.

 
 
  Jim Brown   11/5/02,  1:41:23 AM
And the decision is?

Not quite unanimous but a majority, 19 of the top 20 primary dealers who deal directly with the Fed, think the FOMC will inject the sleepy economy with another shot of speed by lowering the interest rate at least another quarter of a point. Last meeting 2 of the 10 FOMC members voted to cut rates and the consensus is that at least another 3 have crossed the line. That makes it a tie and I would assume whatever side Alan is on will get their way. One of the factors weighing on the decision is said to be concern over retail sales for the coming holiday. With those sales normally kicking off the Friday after Thanksgiving that only gives the Fed three weeks to raise consumer confidence to the point where they will drag out the credit cards and go on a feeding frenzy at the mall.

I think it is a stretch to think that a 25-point rate cut will accomplish this but we are almost at the point where the Fed is damned if they do and damned if they don't. Analysts feel the Fed can always take it back in the spring if things start heating up too quickly but they can't back date a rate cut if things go bad in December.

Using this same logic they should pull a rabbit out of the hat and cut a full 75 basis points or even 100 and really shake up confidence. Or course that would invoke the famous catch-22 where consumers would suddenly wonder which part of the sky was going to fall first since the Fed obviously knows something they don't and the economy must be worse off than everyone thought. Yep, damned if they do, damned if they don't. What is it going to be Alan?

It appears the consensus this morning is Alan is stuck behind the curve and he has to cut at least 25 points or the market will be mad at him. Since the elections are over does anybody really think Alan gives a rip if the markets are mad? Actually I think he does today because the wealth effect has turned into the wealth defect due to the market and fixing the market may be the only real tool Alan has left to stimulate the economy into recovery.

These mind games will drive you crazy if you think about them long enough. Kind of makes you think the three stooges are in charge of monetary policy and nobody can decide who is on second. (you have to be afflicted with OLD to get that joke)

 
 
  Jonathan Levinson   11/5/02,  1:20:44 AM
SEC Chairman Harvey Pitt has just announced his resignation. Here's the Link

 
 
  Jim Brown   11/5/02,  1:20:31 AM
The Swing Trade Game Plan has been posted: Link

 
 

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