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  Jeff Bailey   11/13/02,  10:49:22 PM
Devon Energy (AMEX:DVN) $42.38 -4.3% ... was answering an e-mail regarding "suspicious" option activity and how to look for it. One way is to jump to the CBOE site at this Link .

This is Tuesday's action, but "suspicious" is the unusual action Tuesday in DVN and the Jan. $35 puts. Why would somebody make a bet that BIG and that FAR out of the money. Either highly speculative or highly EDUCATED.

Let's check supply/demand and see if this trader sees/knows something that might be explained in the supply/demand situation. Link

Hmmmm... on Tuesday, there was no sign of weakness, but today, DVN traded over 2 million shares, broke a triple-bottom at $44 and threatens trend. Last time DVN broke a triple-bottom was July at $45 and that wasn't pretty.

Looks like "smart" money may have known something prior to today. Speculator? Or somebody getting ready to unload a lot of stock over the next couple of weeks which might have the stock vulnerable to $35 or lower? Vertical count is bearish to $32 currently and worth a look to the downside is my thinking.

According to Dorsey/Wright, DVN is classified as "oil" stock and the oil sector bullish % (BPOIL) is "bull confirmed" at 36.36% (bullish % fell 4.55% today) and a reversal at 34% would have sector "bull correction" status. As such, 1/4 or 1/2 positions only while DVN is ABOVE trend.

  Jim Brown   11/13/02,  9:49:07 PM
The Swing Trade Game Plan has been posted: Link

  Jim Brown   11/13/02,  4:22:00 PM
AMAT Comments from AMAT earnings release - "The semiconductor industry continues to face uncertain economic conditions worldwide and reduced demand for electronic products. In recent weeks, a number of semiconductor manufacturers have announced reductions in their capital spending budgets, affecting the market outlook for equipment suppliers.

  Jim Brown   11/13/02,  4:08:15 PM
The cause of the peace rally. Now this is really good! This is the actual letter from Saddam to the U.N. This is worth reading. Link

  Jim Brown   11/13/02,  3:49:11 PM
The peace rally has evaporated and we are going to be left with IBM, AMAT and INTU guiding our fate tomorrow. AMAT earnings estimates are 8 cents, INTU is expected to lose -23 cents. Tomorrow morning we get Import/Export prices, Retail Sales and the Philly Fed Survey.

  Jim Brown   11/13/02,  3:44:04 PM
Swing Trade Signals
The news from the IBM meeting is neutral so far. They are going to take a $750 million charge to earnings this quarter for the PWC acquisition. They are not going to comment on the 2003 earnings picture until after the markets close. The Dow is on the verge of going positive again but the day should still be seen as a negative due to the failure at 8500 again. The Dow has traded in a 200 point range for two days in a row and closed near the bottom both days. Base building, consolidation or simply lack of conviction, the outlook is not positive.

  Steven Price   11/13/02,  3:39:48 PM
Hi Steve, Good article and nice extension to the straddle. Must have missed that before. We may be range bound here for a while unless the top-heaviness takes over. The key indexes and the QQQ are all more or less in recent ranges.

Would you consider opening a QQQ 25 DEC or JAN straddle and trade off this or do you consider this range too tight to play (~1.5 points)?

Keep up the great work. Regards, John

QQQ $24.96 (+0.01) The Dec 25 straddle is offered at $3.15 and Jan 25 is offered at 4.00. I usually like to play a wider range, but these straddles are relatively cheap and seem like a good way to attempt the strategy at a lower cost. On a lower priced underlying product, the straddle should be priced lower to reflect the smaller trading range. I like the Jan 25 straddle better, since I think the extra 0.85 should be able to be made up with an extra month worth of scalping the underlying, given the current swings we are seeing in the market..

  Linda Piazza   11/13/02,  3:37:43 PM
Reader Question: Could you clarify why stochastics are not very reliable? What are your favorite or more reliable indicators? Appreciate any insight as I am mainly using stochastics.

Response: Stochastics are useful in a market that's trading in a range, identifying times when the market will turn down near the top of that range or turn up again near the bottom. However, if the market is in a strong trend, they're not as useful. They can be "jittery," seeming predicting a move up or down that fails to materialize. For example, imagine that a stock you're watching is in a strong, new uptrend. Stochs are overbought and start to turn down. However, what may happen instead of a move down in price may be a consolidating, sideways move. That's why it's important to use other methods to confirm what you think you're seeing on stochastics and to know the times when it's useful to use them and the times when it might not be. Some technicians have researched stochastics and feel that they're one of the least reliable indicators. However, I know stochastics are jittery, so I don't trade based on that information, but I like the way they give me good warning signals of a possible change in direction of the markets. Sometimes that warning is warranted and sometimes it's not, but I can watch price action. It's that price action--a break of a trendline, the completion of a pattern, a move above or below MA's--that guides my final decision, but I sure appreciate the warning.

  Jeff Bailey   11/13/02,  3:37:37 PM
The 3:15 PM Intraday Update has been posted. Link

  John Seckinger   11/13/02,  3:32:50 PM
With 30 minutes left in the trading session, bears have to think 'victory' one more time. The Dow set a lower low and lower high on a daily chart, and the weekly bearish shooting star formation remains intact once again. As with most patterns, market participants want to force out all the weak players first while keeping the 'major' technical levels intact. I believe a close above 8500 would have done 'major' technical damage for a bearish trader. It won't happen, and maybe we will get the selling tomorrow bears expect. Note: Retail Sales and Initial claims are on the economic docket.

  Jim Brown   11/13/02,  3:30:49 PM
Fed Vice Chairman Ferguson was just quoted as saying that business borrowing was still weak. He said lack of demand was causing the slowdown but capital was available to any high credit borrower that wanted it. The problem was nobody wanted it or their credit from the recession hit kept them from being approved. He said housing should continue ok BUT, U.S. manufacturing was facing further challenges from the economy and stiff international competition.

This was a far cry from the positive picture everyone painted yesterday.

  Jonathan Levinson   11/13/02,  3:30:21 PM
From the same release:

Citigroup also reported in the 10-Q that on Sept. 18 it contributed 16,767,260 shares of its common stock to the Citigroup pension plan. The shares were contributed in reliance upon an exemption from the registration requirements of the Securities Act of 1933, the filing said.

  Jonathan Levinson   11/13/02,  3:25:35 PM
Thanks to RLTDMT for sending in this DJ Newswire release:

...Also in its 10Q, Citigroup said it owes $159 million to Travelers Property Casualty Corp. (TAPA) in the fourth quarter under an agreement in connection with Travelers' initial public offering. Under the agreement, Citigroup agreed to pay Travelers in excess of $150 million after any reinsurance in any fiscal year in which Travelers records asbestos-related income statement charges.

  Jim Brown   11/13/02,  3:16:11 PM
Swing Trade Signals
Those buyers showed up right on schedule but they did not bring friends. The initial bounce is fading but we did this several times in the last 45 min yesterday.

  Linda Piazza   11/13/02,  3:14:24 PM
The 38.2% retracement from the Oct. 10 low to the Nov. 6 high lies at 8211.19 on the DOW, which correlates nicely with the short-term minimum target for the double-top formation that was completed when the DOW dropped below 8350. (See my 13.27 post.) However, a short-term formation (and this one formed within a couple of days) are not as reliable as formations that develop over a longer period. I wouldn't use this formation alone to predict a further fall on the DOW, but it can be helpful when correlated with other indicators.

  Jonathan Levinson   11/13/02,  3:05:31 PM
All kidding aside, Citicorpse is getting obliterated here, down 5.61% on heavy volume. I have trouble believing that this is solely attributable to the silly headline about Weill and Grubman's emails. If anyone has any information as to why this financial is getting trashed today, please let us know.

  Jim Brown   11/13/02,  3:05:04 PM
Swing Trade Signals
We are now approaching the lows of the day and a break below the OEX 445 .73 low would be very negative. (SPX 872, Dow 8298) Look for buyers to appear at those levels but how many is the question. Would you catch this falling knife?

  Jeff Bailey   11/13/02,  3:03:22 PM
Telephone & Data Systems (AMEX:TDS) $51.30 -0.77% ... here's a stock I came across by accident (typed in wrong symbol) Link but looks quite bearish. Offers bearish trader attractive risk/reward with stop just above $54 and recent long column of O from $58-$45 gives bearish vertical count of .... $58 - ((14*2)*1) = $30. From current levels, risk/reward is risking $3 to potentially make $21. Haven't seen too many of these recently. Break at $49 is another sell signal and may have bulls looking to become disconnected from the stock.

RS chart of TDS versus SPX is horrific and shows no sponsorship from bullish camp. Link

  Jonathan Levinson   11/13/02,  2:45:32 PM
The SPX flipped to red 3 points ago, and the COMPX is 4 points away. The TRINQ is still in bull territory at .47, but the trend is bearish off the lows in the .20's. The QQV is gaining as well, currently down .51 on the day, and bond yields are now in the red. GE has gone negative as well, and I note that it racked up relatively little volume on the way up off its lows of the day- not a bullish sign. Citicorpse has already exceeded yesterday's volume by 5 million shares, a very bearish sign given the significant downward moves it has taken today.

  Kent Barton   11/13/02,  2:42:16 PM
The FCC just green-lighted the AT&T Broadband/Comcast merger. CMCSK is trading lower on this news, while T is holding firm.

  John Seckinger   11/13/02,  2:36:04 PM
Just had a solid conversation with Jeff on the markets, and it is nice to know we both believe the markets are more vulnerable to the downside. Interesting Notes: The 30-year has decided to go into the green (price, not yield) before the Dow has gone into the red. Speaking of the Dow, the 8400 level is one of those short-term pivots where stops are most likely placed just underneath. This was seen roughly 30 minutes ago; therefore, the next time down below 8400 could get a better follow-through to the downside.

  Jeff Bailey   11/13/02,  2:28:42 PM
Quest Diagnostics (DGX) $57.75 -3.76% ... per previous bearish technicals, stock making a move lower in past 30-minutes on heavy volume of 820K shares. Link

  Kent Barton   11/13/02,  2:25:52 PM
Biogen (BGEN), $38.15 -0.44: Showing relative weakness versus the NASDAQ. AMGN and the BTK.X biotech index are also drifting lower today. BGEN isn't looking so hot after rolling over from its 200-dma ($41.07) and reversing into a column of "O's" on the p-n-f chart. The stock has found short-term resistance at $39.00 and is currently trading an Inside Day. A break under the intrday low ($37.58) might clear the way for a move to the $34-$35 area.

  Steven Price   11/13/02,  2:20:40 PM
I wrote a column on the straddle strategy, with stock trading around it, a couple of months ago. Here is the link Link

  Steven Price   11/13/02,  2:18:24 PM
Got an email from a reader asking about a Nov 80 straddle on IBM, trying to capture movement in either direction after today's analyst meeting. I would usually post the email, but seem to have misplaced it in cyberspace somewhere.

My thoughts are this: Straddles get pumped up in value ahead of earnings annoucements, analyst meetings, etc. The at the money straddle is offered at $2.70, which would require a move in either direction in that amount by Friday. While this price does not seem outrageous, given the recent range in the stock, I would think the profit potential is more to the downside, since there is heavy resistance between $82-$83. However, if the news is not overwhelming, expect the time premium, which in this case is almost the entire cost of the straddle (puts are in the money by 0.30), to be almost gone tomorrow, with one day until expiration.

  Jim Brown   11/13/02,  2:07:55 PM
Swing Trade Signals
Suddenly things are not looking quite as rosy for the bulls as they were this morning. Today is starting to look like yesterday with a failure at 8500 again and late afternoon sell off. The internals are turning decidedly negative with declining volume spiking suddenly. This could be worry over possible negative IBM comments at 3:PM. This shows that there is no conviction by the bulls and without some positive news events they are not likely to break that 8500 level.

  Steven Price   11/13/02,  2:02:15 PM
Forest Labs (FRX) $102.10 +0.98 OI call play FRX, which we entered at $98.75, reached another relative high today, trading up to $103.46. While the stock has dipped below $100 intraday, it has continued to show strength on a closing basis at that level. I still like the long play here, as long as the stock remains over $100 at the end of the day. Conservative traders looking to enter can wait for a break above $104.00.

  Steven Price   11/13/02,  1:52:35 PM
Hi Steve, C down 4.8% today it looks very weak. What´s your opinion about go short??? What will be a target?? Thanks in advanced

Citigroup (C) $35.15 (-1.24) I fully expect C to head south at some point. HOWEVER, it has bounced so many times above its gap, I would like to see a trade under $34 before commiting to a short play here again. Even then, a short play is risky, as it bounced at $33.40 on 10/23. While all signs point to a short, considering the growing problem of underperforming loans, the stock continues to find buyers on the pullbacks. C's problems today most likely stem from Jack Grubman saying Sandy Weill pushed him to upgrade AT&T and then Grubman's release saying he fabricated that story. It will be interesting to see how this shakes out.

  Jim Brown   11/13/02,  1:46:48 PM
Swing Trade Signals
Other than the Greenspan event this morning and the Iraq bounce this day is less than inspiring. The current support level on the OEX is 452 and until broken we are doomed to trade in the 452-456 range from yesterday's highs.

The IBM analyst meeting at 3:PM this afternoon could cause some fireworks that could provide a welcome change. AMAT announces earnings after the close.

The general consensus of opinion is that a Dow failure to break 8500 today could start us back down the slippery slope. There is a lot of investor expectations for a year end rally and that will make breaking through the Dow 8200-8350 level tough. I expect more range bound trading without a major news event.

  Steven Price   11/13/02,  1:45:30 PM
Steve - I missed the entry on MIB earlier today. Could you comment on the current price for entry? Thanks Rich

MBIA (MBI): $39.65 (-1.84) New OI put play MBI has been left behind in the rally. Salomon Smith Barney defended recent concerns in the stock about exposure to truck school loan defaults, which we talked about in last night's write-up. Apparently investors are still concerned, and after bouncing from $39.14, the stock found sellers at $40. I like the intraday resistance under $40, and I think entries here look safe. The stock filled its gap down to $40.72 and just kept going. I would probably use a lower stop on entry at this point, such as $43, instead of $45 on the original entry.

  Jonathan Levinson   11/13/02,  1:45:02 PM
We have better than 4 advancing shares for each declining on the COMPX as price chops along at 1365. The QQV is down 1.26 on the day but the bond market is not comfirming the bullishness. The TRINQ at .26 on the heels of the low readings we saw yesterday indicates a great deal of bullishness out there, but it's getting spend keeping the price of the COMPX in this range. The beating in HUI and XAU goes on, with HUI off its lows but down 4.47 on the day at 117.12. It's turning into a quiet afternoon after the morning's fireworks, but recalling that this is opex week, I don't intend on relaxing too much.

  Kent Barton   11/13/02,  1:44:04 PM
Guilty by association: Wellpoint (WLP) and Unitedhealth (UNH) were slammed last week on the Tenet Healthcare (THC) CEO resignations. Both stocks came up as possible calls in yesterday's OI play meeting. Despite the flood of negative media coverage, there isn't any actual evidence that these companies have commited the same errors that have killed THC. Technical bulls can be pleased with the way WLP bounced from its 200-dma and created a bear trap alert on the p-n-f chart. Traders with a high risk tolerance could weigh entries at current levels, keeping in mind that possible resistance looms at the 50-dma ($77.84) and $80.00.

  Steven Price   11/13/02,  1:35:21 PM
IBM $79.90 (+0.75) OI put play IBM failed again on its move over $80, reaching $80.99 intraday, before dropping. As I mentioned yesterday, there is an analyst meeting after the bell, which makes the stock subject to a gap in the wrong direction (up). However, If the stock continues to fail at $80, the downside appears to have plenty more room than the upside. This play has some risk in it because of that meeting, but unless the Dow can break out to the upside, I still like the failed rally for put holders. Our stop remains at $80 on a closing basis.

  Jeff Bailey   11/13/02,  1:33:40 PM
The 1:00 PM Intraday Update has been posted. Link

  Linda Piazza   11/13/02,  1:27:57 PM
If (big "if") markets should roll from today's highs, there's the potential for a short-term double top. The target for the DOW would be around 8200. (8500 approximate top - 8350 approximate trough between the two peaks = 150. 8350 - 150 = 8200). These short-term patterns often fail and a double top would not be completed until the DOW moved below 8350. For clues, I looked at intraday stochastics. The hourly stochastics are approaching overbought levels, but haven't yet rolled down. The fifteen-minute stochs headed down long ago and are trying to curve up again, but haven't yet done so. Again, none of this hints at a clear direction yet. A move above today's highs negates the possibility of a double-top formation.

  John Seckinger   11/13/02,  1:25:07 PM
The bond market doesn't appear to be believing the equity rally which began three hours ago. The yield curve is steepening, and the bond market does not seem to want to fall; all signaling risk to being long stocks. Even with the Dow higher by 58-points, longs are most likely not calling this session a 'win' just yet. A close above 8500 might do it; however, that is still sixty points higher.

  John Seckinger   11/13/02,  12:42:05 PM
The likely 'war premium' in the XAU index appears to be deflating. With the XAU falling 3.3% to 65.38 and under a series of support levels, positive sentiment from yesterday's late-day rally has all but evaporated. If the XAU can get back above the 22 DMA (66.21), there could still be some hope. If the XAU closes at current levels or below, technicians will once again look for a move towards the 60-61 area.

  Linda Piazza   11/13/02,  12:13:30 PM
OEX: The various indicators are as confused about direction as I am right now. On the daily chart, RSI is hinging up, as are (5)(3) stochastics. (21)(3) stochastics are still headed down, though, and MACD is rolling down. Often, but not always, when indicators are this mixed up, price action trades in a consolidation pattern until the indicators all line up again. Although I like to watch stochastics because they give me early warnings of changes, they are not as reliable as the other indicators, particularly with the shorter period (5)(3) setup. With prices at resistance and with no clear signals on the indicators, I'm not getting a strong feel for entering the market in any direction. That may change later, of course, as I watch the price action.

  Jim Brown   11/13/02,  12:09:39 PM
Hi Jim - I think you may be analyzing the Iraqi news with regard to your position. No war now is NO WAR NOW !!!!!! that is not No Material IMPACT - Arty

Arty you are right. I misspoke. This is a short term positive because it puts the threat of war off into next year and well out of the investor horizon. Military families will get to spend Christmas at home, confidence will be stronger as the Iraq situation moves to the inside pages until Feb-2003. This is a short term positive for consumers but no real change in the eventual outcome. We will still go to war eventually but traders can be very short term focused when they want to be. Thank you for your comments.

  Linda Piazza   11/13/02,  12:03:38 PM
At 299.87, the SOX is also approaching resistance.

  Jonathan Levinson   11/13/02,  12:01:56 PM
The indices are fast approaching resistance at 1377 COMPX and 895 SPX. The TRINQ at .25 is indicating an overbought market, though as we saw yesterday, nothing requires it to reverse quickly. The QQV is down 1.36 today, though yields are barely up, with FVX actually flat.

  Jim Brown   11/13/02,  12:00:51 PM
Swing Trade Signals
The Dow is rapidly approaching the 8500 level where it failed yesterday. A break through today would be bullish after the basically negative Greenspan comments. The A/D line is now strongly positive at +825 issues. It appears traders are buying the news on Iraq and that to me is unbelievable. Saddam has 14-18 prior resolutions against him and he ignored them all. We bomb him weekly and he still defies the world. The true test will be here at 8500 and we will see if the bulls can produce enough to break this resistance.

  Jonathan Levinson   11/13/02,  11:36:51 AM
I'm certainly not buying calls on this news. The breadth of the resolution is such that the only reasonable conclusion from today's news is that Hussein is trying to buy some time. Does anyone truly think that the execution of the UN resolution by Iraq will be flawless? I saw a special on PBS about a journalist trying to cover Iraq- the outright lies, deceit, propaganda and subterfuge chronicled by the British reporter were astounding. This sudden bounce looks like a gift for those seeking a short entry, but that's just my $.02. The HUI and XAU are certainly getting beat up, and the bounce has not yet run out of steam.

  Jim Brown   11/13/02,  11:35:46 AM
Swing Trade Signals
It appears the "public" sees the Iraq news as a strong positive since the announcement bounce is attracting buyers. The A/D line has gone positive and advancing volume is accelerating. The Russell is rebounding as well. Now that Greenspan has quit speaking we should see if it will stick. We all know that the Iraq news has no material impact other than the war will start in February instead of December.

  Jeff Bailey   11/13/02,  11:34:52 AM
The 11:00 AM Intraday Update has been posted. Link

  Linda Piazza   11/13/02,  11:28:54 AM
Up/Down volume slightly to the positive on the NYSE, at 292/214, and more strongly so on the Nasdaq, at 544/162.

  John Seckinger   11/13/02,  11:22:55 AM
Welcome to the world of geopolitics. The Dow is right on the bottom of a daily regression channel (8420). The low after the shock was 8387, and the 22 PMA is at that level as well. Hard to find pattern recognition at current levels, but risk still appears to be to the downside. Felt like a quick short covering rally, and the market will soon let us know if that was the case. Still neither indication from bond market nor significant movement in Utility or Oil Index.

  Steven Price   11/13/02,  11:16:13 AM
I'm with Jim on this one. The Iraqi news is positive, but doesn't change the bottom line in our economy. That being said I'll wait for failure before jumping in short. We may get some decent short entry points on a Dow failure at 8500, if the rally continues. One thing to be careful of is that the recent drop started when the U.N. accepted the U.S. resolution, so there may be some pop in the bounce.

  Linda Piazza   11/13/02,  10:59:53 AM
KO update: KO got swept up in that last whoosh upward, reaching the 45.50 area, near my trailing stop on this put play, but sellers stepped in and knocked it back down. The last five trading days, it's been trading in an unstable broadening pattern that usually breaks to the downside, but that remains to be seen.

  Jim Brown   11/13/02,  10:59:47 AM
Swing Trade Signals
I was typing a "lower the stop loss signal" when the Iraq news blew through and now I am glad I did not get it posted in time. The acceptance of the resolution is not material and nobody expected him to just reject it up front. Saddam will try to beat the inspectors with the same shell game he used last time and that is when the concerns will heat up.

With the negative Greenspan comments today I would be surprised if this bounce held.

  John Seckinger   11/13/02,  10:53:23 AM
Word that Iraq accepts UN resolution on inspections

  Jonathan Levinson   11/13/02,  10:51:43 AM
Wow! A geyser on the charts. Now *that's* a buy program! TRINQ at .24 on this move, QQV still positive as the options market shakes it head in wonder.

  Jim Brown   11/13/02,  10:46:46 AM
Chip sector woes - A reader sent me this link this morning to some negative news about the current state of the chip sector. Apparently MOT is forcing up to 5000 employees to take ten days off by year end and AMD could be close to announcing another round of layoffs. (Thanks for the link Sam!) Link

  Jonathan Levinson   11/13/02,  10:42:04 AM
The SPX is trading up to the 875 level, now short term resistance. A failure at this level will NOT be bullish.

  Jim Brown   11/13/02,  10:29:48 AM
Greenspan Testimony - I don't think the markets will hold up well on comments like "last weeks rate cut SHOULD prove HELPFUL". He made discouraging comments questioning continued productivity gains, continued consumer spending and higher consumer debt. There were several comments about the current economic soft spot in terms that indicated it could continue for some time and that it was finally impacting the consumer as well as business. Instead of propping up previous comments Uncle Alan actually said things that appeared to express concern that we are headed into a deeper period of concern. There were numerous comments about a growing degree of uncertainty. This was not a short term positive speech.

  Jonathan Levinson   11/13/02,  10:28:18 AM
thanks for the updates on GE. I've been long the stock for years and have been selling covered calls/buying puts in the last two months, with much success thanks to you. Today I covered my Nov 25 calls at a big gain and am about to sell the December 25s and buy some 22.5 puts. I bought some 05 leaps in place of 100 shares of stock that i sold in October and have about halved my basis by selling CCs vs. it. So unless the Co. completely tanks in 2 years I'll own the equivalent of 500 shares for nothing pretty soon as I keep selling the covered calls. All this thanks in large part to your continuing updates. thank you rb

RB, thanks for making my week with that one. This is what it's all about.

  John Seckinger   11/13/02,  10:21:13 AM
With the bond market not giving a good sense of equity direction, it might be time to turn to the Oil Index (XOI.X) as the sector is lower by 0.98% and fell underneath a channel that began on October 31st. Support is below at 420.50, and recent selling might be the catalyst to take the Utility Index (UTY) under the 38.2% retracement level at 229 (UTY currently at 231.8). A lower Oil Index should pressure stocks in general.

  Jim Brown   11/13/02,  10:17:15 AM
Greenspan Testimony - In case you did not get to hear it live or just want more education in Fedspeak and English composition you can click here: Link

  Linda Piazza   11/13/02,  10:16:19 AM
Greenspan says, "On the business side, there have been few appreciable signs of any vigor."

  Jonathan Levinson   11/13/02,  10:16:02 AM
Speaking of GE, the stock was in the red all yesterday, and has been trading weakly today as well. On Monday I shorted the Nov 22.50 puts against my long Dec 22.50 puts, hoping to skim the premium going into expiration. Well, the stock has been so weak that the decline has been keeping up with premium decay so far, causing me to sweat bullets at the thought of having to cover the position should the stock go below 22.50 by Friday's close. I'm still confident, but it sure is one weak stock. I'm hoping for my parent's broker to recommend another "buy" to them- this will be my third successful put play on it since his recommending it as a long :)

  Steven Price   11/13/02,  10:12:24 AM
Retail Holders (RTH) $70.90 (-1.10) OI put play RTH is at a new relative low, after bouncing briefly yesterday. WMT's future outlook put another damper on the sector, in spite of the earnings beat. This shouldn't be a surprise, but certainly no one likes to hear it from the biggest company in the sector.

  Jeff Bailey   11/13/02,  10:06:43 AM
General Electric (GE) $23.61 -0.96% ... Link Wall Street Journal column "Heard on the Street" reports that Warren Buffett may have the upper hand as he has emerged as the most likely buyer, and perhaps only bidder, of GE's Employers Reinsurance Corp. Journal implies that if Buffett is only buyer on the horizon then this reflects concerns about the adequacy of the unit's claims reserves and complex issues related to Employers Reinsurance own use of reinsurance, and is another sign of the financial stress facing some potential bidders, most notably some big European reinsurers that normally would be on the scene as competing bidders.

  Jim Brown   11/13/02,  10:05:54 AM
Swing Trade Signals
It appears Greenspan's speech was bearish instead of bullish. With traders expecting uncle buck to prop up the markets they are not going to be happy with comments like "wealth effect a negative on consumers despite home equity gains". The economic soft spot is alive and well according to his prepared text.

  Steven Price   11/13/02,  10:04:47 AM
MBIA Inc. (MBI): $40.81 -0.68 New OI put play will close the gap of 10/15 with a trade of $40.72. If there is no bounce there, then new short entries look good.

  Jonathan Levinson   11/13/02,  9:57:32 AM
The Fed has announced an overnight repo of 7B, for a net addition of .75B, which is minor.

  Jeff Bailey   11/13/02,  9:55:48 AM
TiVo (TIVO) $5.57 +13.67% .... Link mentioned this one the other day on favorable data regarding interactive retail sales for holiday season. Stock up strong today after Wall Street Journal reports that Toshiba will integrate TiVo technology into its DVD players.

  Steven Price   11/13/02,  9:49:02 AM
Thanks for the segue Jonathon. One of the other factors in stocks gravitating toward a strike, once it is close to that strike, is , market makers take advantage by "scalping" the stock against their long options.

When you have a call that suddenly goes in the money, say a $50 call that was worthless, but now is worth whatever the stock is trading over the strike price, you can short stock against it, then buy the stock back for a profit if it drops back below the strike. This locks in some profits if the call then ends up worth nothing again if the stock drops. If the stock keeps going up, then the call protects the short stock position. The same activity happens when you are long a previously worthless put that suddenly gains value as the stock drops - you buy some stock and sell it higher if the stock goes back up, with put protection if it keeps going down.

Most market makers with long option positions have hedged them partially with stock when they first bought or sold the option, allowing for some profits as they cross strikes that can be taken in the above manner, as well. So all of this selling just over the strike and buying just underneath it tends to keep stocks close to the strikes on expiration.

The same thing happens during the month, but it is not as pronounced. On expiration, the option moves at 100% of the rate of the stock and therefore market makers hedge more fully, or scalp at a higher level, as opposed to during the month, when the options move at a smaller correlation to the stock.

  Jim Brown   11/13/02,  9:48:45 AM
Swing Trade Signals
The Dow bounced off support at 8350 again and appears to be content to hover in the 8350-8375 range while waiting for the Greenpsan appearance. The Nasdaq was the stronger index again and almost made it back to positive territory despite several tech earnings problems overnight. The biggest of those problems was guidance from NTAP that they see no recovery in IT spending and the environment remains tough. We get earnings from AMAT at the close and those are not expected to be positive either. We are still waiting for the Greenspan speech at 10:AM.

  Jonathan Levinson   11/13/02,  9:47:19 AM
The Fed has 6.25B in repos expiring today. It has been announced that an overnight repo is being prepared, but the quantum hasn't been published yet. I'll keep you posted.

  Jonathan Levinson   11/13/02,  9:44:26 AM
The COMPX has just about filled its opening gap, now approaching 1350 resistance. QQV is down .18 on the day, nothing bearish or bullish there, TRINQ verging on overbought at .40, TICK.NQ -114. With yields slightly positive and QQV slightly negative, I see no signs of concern from the "smarter" money at this time, and could spell and other bounce to resistance or some sideways chop.

  Jonathan Levinson   11/13/02,  9:31:58 AM
7 point gap down open on the COMPX to 1342, TRINQ .59, TICK.NQ -163.

  Jeff Bailey   11/13/02,  9:30:07 AM
Expedia (EXPE) $72.35 ... Link stock hit lower at $68.70 in pre-market after WSJ reports that the Bush administration today is expected to propose changes that would give airlines more flexibility in choosing how they distribute tickets. Under the administration's approach, the airlines can continue to give Orbitz exclusive access to special Web-only bargain airfares. The article speculates that move would deal a major blow to Orbitz rivals such as Expedia. Computer-reservation system owner Sabre (TSG) Link is also listed as an opponent of this plan.

  John Seckinger   11/13/02,  9:29:30 AM
Not getting too much out of the bond market, as the Dec 30-year is only down '02 at 112'25. Since trading at 113'20 on Tuesday, the contract has set a trend (30-minute chart) of lower highs and lower lows. A move back above 113'02 should bring more equity bears out from the sidelines. Support below is felt at 112'00. Ticker: ZB02Z

  Steven Price   11/13/02,  9:24:29 AM
Adding to Jim's comments, while Wal-Mart did beat earnings, there was concern about the company's plans to offer deep discounts to spur 4Q sales. Some analysts saw this as likely filtering through to the low end of 4Q earnings estimates. The company's estimates of 0.53 per share was at the low end of expectations of 0.53-0.55.

  Jeff Bailey   11/13/02,  9:22:07 AM
The 9:00 AM Intraday Update has been posted. Link

  Jim Brown   11/13/02,  9:19:40 AM
Swing Trade Signals
Maybe the consumer has not boarded up his windows and doors and gone into hibernation. WMT, FD, TIF all beat earnings estimates by a penny. It did not appear to help the market this morning with futures down -5.00.

The big headline this morning is Greenspan's state of the economy speech in about an hour. Analysts think he will focus on productivity gains as a reason to be hopeful about the future.

The Swing Trade Model is short the broader market from Dow 8413, SPX 885.62, OEX 452. The current stop loss is OEX 456.50. With futures down -5 we are headed in the right direction but Greenspan will be the key.

  Jonathan Levinson   11/13/02,  8:51:04 AM
Enjoyed you comments on option expiration week and the tendency of stocks to move toward the strike price with the most open interest. Can you help me understand just how a market maker can make a stock move toward the price they want?

The answer is pretty simple- by purchasing and selling stock. Our resident expert on the subject, Steven, might have something to add here, but in general market makers can buy and sell whatever they need to in order to achieve their goals, but even they will not step in front of a speeding train. In managing risk, market makers can move the stock a bit, or hedge their short option positions using complex option strategies/spreads.

  Jonathan Levinson   11/13/02,  8:29:05 AM
Bad news for the Euro is good news for the USD, and the Index broke 105.00 in the early morning, peaking just above 105.20 and now settling back down a bit. Gold is taking another run at 325/oz. Equity futures are down, NDX -9.00, SPX -5.30. QQQ is trading at 24.79 on Island ECN.

  Linda Piazza   11/13/02,  6:26:48 AM
Bloomberg reports this morning that a panel of government advisers known as the "Five Wise Men" warned of weakening German economic growth. This panel expects growth to reach a nine-year low as Chancellor Gerhard Schroeder implements policies they consider the "wrong remedies" for growth. They predict growth of 0.2 percent this year and 1 percent next, saying that the recovery will be slower than Schroeder expects. They also predicted an unemployment rate that will rise from 4.06 million to 4.17 million next year. Perhaps reacting to this news, the already hard-hit DAX has fallen 2.87% today as of this writing. Other European markets are down, too, with the FTSE 100 down 1.29% and the CAC 40 down 1.51%. The Nikkei was down a minimal 0.31% while the Hang Seng managed a 0.03% rise, essentially even on the day.

  Jim Brown   11/13/02,  2:39:50 AM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link

  Jim Brown   11/13/02,  2:39:32 AM
The Swing Trade Game Plan has been posted: Link


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