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  Jeff Bailey   11/19/02,  8:35:34 PM
Syncor Intl. (SCOR) $24.41 ... stock lower at $22.00 on late news that company said in filing with SEC that an an internal investigation had found evidence of questionable payments made "over a substantial period of time" at its Taiwan operations. Similar payments of an undisclosed amount were also discovered in at least six other countries in Asia, Latin America, and Europe.

Cardinal Health (NYSE:CAH), which is in negotiation to acquire SCRO discovered potentially illegal overseas payments to customers while performing due diligence on a proposed merger. Cardinal Health representatives were not immediately available for comment.

Syncor said the information uncovered by the probe would not have an impact on its ability to satisfy the merger conditions.

The company said it had concluded that apparent deficiencies and weaknesses in its internal compliance programs and internal audit functions need to be corrected.

Syncor also said it had accrued $2.5 million for estimated potential fines and other penalties, but said it could not assure that the reserve would be enough to pay penalties actually imposed by the SEC, the DOJ (Department of Justice) or any other governmental authorities.

Jeff Bailey thinking here.... if I were Cardinal Health, am I going to acquire this risk? If so, then previously negotiated price for SCOR has to come down.

Traders still holding their $20 puts from past profile, now is the time to think things through. If too much heat to your liking was taken, then reduce some of that exposure at tomorrow's open on what looks to be weakness. Most traders have gone home as this news hits the wires and will be interesting to see how SCOR opens for trading tomorrow. Link

Disclosure ... I currently hold bearish position in SCOR. My risk/reward profile may not be as yours, but I'm hanging in for a little while, see of that bearish count of $4.00 doesn't try and play itself out. If SCOR can't meet potential SEC fines and CAH backs away from the deal, then I wonder what is next?

  Jim Brown   11/19/02,  8:25:24 PM
The Swing Trade Game Plan has been posted: Link

  Jeff Bailey   11/19/02,  7:22:20 PM
Business Plans If you don't mind... would like to see some of the work people are doing. If you are like me, you're handwriting isn't that great and you're typing them anyway. Then, with complete anonymity and you're permission, might post a few in the "Bailey's Basics" section and review them. Would be helpful to some other "new" traders as they embark on their new business. You know... get'em young before they learn the hard way. Generate some ideas, things that maybe we didn't cover this weekend. I'll try and come up with a couple of "prizes" for best business/trading plans. Maybe my little booklet on p/f charting or something. I have to clear that with the powers that be though.

However... don't just do it to "win" something. Do it for YOURSELF and YOUR success! Hey... when the grandkids grow up and start trading, something to hand down. Something they won't get in school or other life experiences.

  Jeff Bailey   11/19/02,  7:17:14 PM
Index Wrap Request ... Now that Leigh is back and doing the index wrap I am very interested in your continuing to show your weekly spreadsheet of the indexes and sectors plus commentary. I duplicated the spreadsheet in excel. I found your posting on sundays an easy way to update my own spreadsheet. But also would like to continue to benefit from your insight on relationships between dollar bonds sectors etc

I'm glad you like that part of the wraps. What I'm planning on doing is trying to bring that into the Wednesday wraps.

Funny.... but until www.stockcharts.com updated their bullish % charts every day and I started showing them and quoting them each day, Dorsey/Wright & Associates started updating their bullish % charts every day.

Dorsey used to only update their bullish % charts each Wednesday after the close. Their reason was that Wednesday and week-to-week measurements of indicators was best done mid-week as it took out option expiration, and various weekend type trades that created a more "unnatural" type of market environment. Was funny too. I'd get up an hour early on Thursday mornings to get to work and look at the sector bullish % charts to see how things were shaping up.

I won't go back and take the time to adjust all dates for Wednesday closes, but will try and start tracking the weekly changes from a Wednesday to Wednesday time table for our weekly Index/Sector tabulations.

I'm glad you find it useful and others have asked the same.

  Jeff Bailey   11/19/02,  6:56:47 PM
Devon Energy (DVN) $45.38 -1.15% ... OK... per last week's conversation of "unusual" option activity in the Jan. $35 puts. Stock has rallied back to $46 and trades "inside day" today. Yesterday's rally came on BIG volume of 2.6 million shares as December Crude jumped 4%. However, DVN didn't break above 200-day SMA. Does that put buyer of last week, just before decline on BIG volume "know something?" He/she was tested yesterday and on "educated" short would have defended the 200-day Link if he/she "knew for sure" stock was/is going lower. Watch a break below today's low ($45.10) as short/put entry, and target $35, stop above Yesterday's high of $46.60. Link

P/F chart Link has stock's rally coming right back into upper supply. DVN held that $43 trend and it really takes trade at $42 for the axe to fall. The recent 3-box reveral has the bearish vertical count column (O's 52-43) completed and calculates at objective of $32. Risk to buy signal is $8, while reward to bearish count is 14. Only with stop just above yesterday's high and 200-day SMA would trade make sense from risk/reward perspective. As such, can look 1/2 on break below today's low, then watch oil prices and DVN break below $42 to round to full. January $45's $3.50, but for an extra $1.40, the April $45's are 4.90. An "April" window may get a trader out past any potential "Iraq war" conflict. That's the wild card for a bearish oil play right now.

Sector has Dorsey/Wright's Oil Bullish % (BPOIL) "bull confirmed" at 35.61%, but ever so close to the needed 34% to have sector reversing to "bull correction" status and back into O's. Here too, reason to be cautious as bear and limit to partial positions right now.

Hmmmm.... DVN's p/f chart looks familiar from the supply/demand side of things.... Oh, I know where... Link so does the bar chart .... Link

  Jeff Bailey   11/19/02,  6:12:27 PM
Exciting? ... Jeff, Thanks sharing your knowledge, you made everybody's week exciting in the coming holiday season.

I'm thinking subscriber talks about this weekends "Business Plan" article. To be truthful, I really wanted to stay in bed today. As it turns out, my e-mail was/is full of stuff that really made me glad I came to work. I always found it "exciting" to try and implement something with real world application, not just talk about "what happened," but actually show some real world stuff, explain it, and see if it makes sense to some educational pieces we've read.

I didn't run one trade in my account today, in fact, didn't even open it up to see what was taking place as I was pretty excited about applying some stuff to subscriber questions. I loved the subscriber e-mail, questions regarding risk/reward. I didn't get to all, but have one that needs special attention regarding the Coutch Potato section and straddle.strandles,iron condors? Are those similar to triple-top or triple-bottom sell signals?

Those trades to are all about risk reward, but subscriber makes some points as to risk/reward in those trades. However, many of those trades to have less that 1:2 risk/reward, but they are outlined as such. The trader is looking for the stock to stay range-bound, have premiums erodes and the trader keep the money! That doesn't mean a trader doesn't look at the charts try and find stocks that simply look pegged in a range, where nothing happens except premium erosion. You still have to figure out risk/reward in the underlying stock. Most stocks that stay range-bound, stay that way because there is little risk/reward profile to have traders making bullish or bearish bets that get the stock's price moving. Hey... if you're a bullish trader and looking at a stock with 1:1 risk/reward, you move on to another stock don't you? Thinking is... if stock has 1:1 risk/reward, nobody's going to touch it anyway, and if supply/demand is stagnate, the stock isn't moving unless some type of catalyst shows up and has the stock breaking out of its range.

Anyway... we'll try and tackle that one tomorrow. I'll get out of bed earlier cause I look forward to discussing this type of trade.

  Jeff Bailey   11/19/02,  5:20:16 PM
Retail HOLDRS (RTH) $72.54 .... I'm thinking that the $74.40 closing print is a an error. I'm showing size of 25,000.

However, GYMB Link and SKS Link both beat estimates after the bell, JWN Link reported "in line."

  Jeff Bailey   11/19/02,  5:10:30 PM
Advanced Micro Devices (AMD) $5.58 -14% ... BIG volume (32.4 million shares) today on word that Salomon Smith Barney doing a $300 million AMD convertible offering, with notes due in 2007. Good looking end of year tax-loss sell candidate with target of recent 52-week lows. Link

Will watch for confirmation of convertible, but if true, may be some shorts coming in ahead of the offering, and if convertible is low YIELD type of convertible, then would expect those taking the convertible to short the stock, use the convertible as their hedge.

To perhaps understand why convertibles are heavily shorted, I wrote an article in the Bailey's Basics section back in Sept. 2000 on Analog Devices and a convertible offering they did Link

  Jim Brown   11/19/02,  4:06:52 PM
Swing Trade Signals
Nice head fake right at the close but I think it was just short covering and not an indication of things to come. We just finished the pick meeting for OIN plays tonight and there was very little to be excited about. The vast majority of stocks appear to be rolling over and even stocks with good news today were selling off at the close. Several people have mentioned H&S formations on different charts and the OEX has a clear one on the 15-min chart.

  Jeff Bailey   11/19/02,  4:00:15 PM
Retail HOLDRS (AMEX:RTH) $72.25 -3% ... not a good day, but still bullish with stop at $70. Trying to weather the Home Depot (NYSE:HD) $24.97 -12.9% storm Link but a basket of retail stocks is a baske of retail stocks. HD was a weak component as tock was on a sell signal and below trend. Maybe moms and dads aren't getting tool belts this holiday season?

RTH bull would like to see HD get a rebound from current levels and may associate a RTH trade at $70 should HD break new lows at $23.

RTH bull might think of bearish trade in HD on break to new lows as bearish count of HD is $13. HD is weaker stock in RTH so may want to play as a bit of synthetic hedge or "pairs trade."

  Jeff Bailey   11/19/02,  3:53:36 PM
The 3:15 PM Intraday Update has been posted. Link

  Jeff Bailey   11/19/02,  3:52:52 PM
I've run behind all day on the updates and greatly apologize. Much like account management, when you get behind on intra-day updates, the slide builds.

In brief, am advising bears from last night's Index Trader Wrap to hold overnight if short/put the QQQ/NDX from today entry. Treasuries saw buying again and may make for marginally lower open tomorrow morning.

  Linda Piazza   11/19/02,  3:42:40 PM
What's happening with gold? While I don't pretend to understand all the intricacies of intermarket relationships, I've been scouring news sources today to see what might be affecting gold and XAU prices. I've read mentions of increased production prices among the mining companies that are driving their prices down, confidence by Japanese economists that their banks will be able to recover, and hope that Iraq will comply with inspections. In particular, today Saddam Hussein announced that he would meet the December 8 guideline for revealing his weapons of mass destruction. While I don't believe it, somebody does, apparently.

  Jonathan Levinson   11/19/02,  3:41:05 PM
Good eye on that two-headed head and shoulders formation, Linda.

  Jonathan Levinson   11/19/02,  3:29:14 PM
QQV lower still, down 1.43. That's how confident the market is that the Qubes will bounce here.

  Jonathan Levinson   11/19/02,  3:25:49 PM
The QQQ is at its low of the day, yet the QQV is down 1.04 on the day. The distribution machine appears to have lulled QQQ option traders to sleep. Volatility should be way up as my screen turns red, and not down.

  John Seckinger   11/19/02,  3:21:16 PM
Note: 8475 is roughly the 50% retracement of the entire day's range, and a trade underneath here could certainly get sellers' attention. Note: The 30-year closed Tuesday's session up '19 ticks at 112'04 and set a higher high and higher low for three consecutive sessions. The price compression noted this morning is still intact, and it would take a close above 113'13 on Wednesday to breakout higher.

  Linda Piazza   11/19/02,  3:19:28 PM
So far, this dip isn't resulting in a lot of put buying. Currently at 31.56, the VIX is at about the middle of the day's range.

  Jim Brown   11/19/02,  3:07:27 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the entry point for the SHORT signal at 14:59:44 when the oex traded below 458. SPX 897.46, DIA 84.85, SPY 90.20, DJX 84.78, Compx 1377.05, NDX 1027.44, ES02Z 896.75, NQ02Z 1028.50, SP02Z 896.50. The initial stop loss will be OEX 463, just over the high of the day.

OEX 459 is the current pivot point for that index and has been congestion all day. It appears this is where the battle is being waged and overhead resistance has been dropping. 455 is the closest support level below us.

  Jonathan Levinson   11/19/02,  2:52:04 PM
Glad you are feeling better just bought 500 shares of adbe on up grade to 36.As allways your opinion is valued.Thanks David ps we have better bird seed in arkansas.

Thanks for the well wishes, David, and the birdseed recommendation. Jim's was far from palateable, and I had expected better from Colorado... On the Adobe front, I'd suggest that you program a very tight stop under it. Without knowing the reasons for the upgrade, and being generally sceptical of upgrades and downgrades because of the continuing conflicts of interests between analysists and trading desks within the same firms, I note from the chart that the 14 day (14(3)) stochastics are in the process of rolling over from overbought and have just crossed. The MacD is looking toppy as well but has not yet crossed. The weekly stoch is also toppy, though the MacD on that timeframe is still bullish. If it wants to keep going up, excellent, but I'd be vigilant with that stop. The 20 day EMA is at 25.76- that's the lowest I'd be setting the stop if it were my account, although I'd probably go higher still.

  Linda Piazza   11/19/02,  2:47:27 PM
Clarification on my 14:32 Post: The potential H&S formation I noted on the OEX hourly chart, with a neckline completed at 455-456, is not "the" H&S formation that other writers have been noting on the daily charts for quite some time. This one is on the hourly charts, and would have a target of about 445. (467 top - 456 neckline = 11. Subtract 11 from 456 = 445.) This would bring the OEX down near the neckline of the bigger H&S formation noted on the daily charts. Pring notes that smaller H&S formations often form within bigger ones. One shoulder of a H&S formation might be formed from a smaller H&S formation, for example.

  Jeff Bailey   11/19/02,  2:45:09 PM
Egg on my face ...Fellow Dorsey/Wright subscriber points out.... ACN is part of the "Business Products" sector (actually it's a IT service provider and IT consulting firm). According to Dorsey&Wright sector status is Bull Confirmed 40% in row of Xs.

Well noted. I Assumed it was drug. However, good note that this sector is "bull confirmed" at similar level of bullishness as drug. Yes, I went to Yahoo! Financial profiles , but makes sense perhaps with today's news. However, this doesn't jive with vaccine stuff does it?

Hmmmm not homeland security, but noted SPLS, ODP and OMX action this morning. They're "business product" sector also. (see 09:44:04) post.

  Jonathan Levinson   11/19/02,  2:43:42 PM
I wonder how much stock got distributed during that intraday round trip that's just about completed?

  John Seckinger   11/19/02,  2:43:36 PM
The Nasdaq evidently doesn't want to participate; however, this tech-laden index remains just barely above its short-term pivot of 1378. Nevertheless, the bullish sentiment a few hours ago seems more neutral at current levels. Bonds didn't continue to sell off, and the Dollar seemed to come under some profit taking near its 22 DMA (105.94, while Greenback's intra-day high is at 105.88). With 1.5 hours left in the trading session, it is interesting that bonds held up despite a Home Builders report rising to its highest level in 2 years and portending a better-than-expected Oct Housing Starts, which is released tomorrow. The market is already pricing in a decrease to 1.71 mln. from September's starts of 1.84 million.

  Jeff Bailey   11/19/02,  2:36:47 PM
Subscriber Comment regarding 01:00 Update ... Hi Jeff, I believe the defeated amendment would have stripped the exclusion of liabity from vaccine manufacturers that is in the bill. The defeat means they will not be subject to liability claims when the vaccines cause adverse reactions. At least that's how I understand it.

OK... will post this here, but would still suggest we check for ourselves. Never know for sure, but this subscriber might be some type of plant that is long LLY at $80 and trying to coax us into things. (BIG grin)

  Linda Piazza   11/19/02,  2:32:18 PM
Interesting thing happening on the OEX. (5)(3) hourly stochastics are moving into overbought range and there's a mere hint of a hinging in the stochastics. If--again, a big "if"--price and stochastics turn over here, there's the possibility of a H&S pattern being completed if/when OEX falls past 455/456.

As a result of the slow markets today, I've been scanning charts and noticed something about the Q's, too. There's an incipient reverse H&S formation here, with the left shoulder and head completed, with the neckline at about 27. RSI and (5)(3)daily stochastics are beginning to roll. If--another big "if"--Q's fell all the way back to the 21.25-23.00 range before moving back up, that would form the right shoulder.

These are just musings and not predictions.

  Jim Brown   11/19/02,  2:31:50 PM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Raise the entry point on the outstanding SHORT signal to an OEX trade at 458.

  Jim Brown   11/19/02,  2:30:30 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the stop loss on the open SHORT signal at 14:25:18 when the OEX fell below 460. SPX 901.27, DIA 85.19, SPY 90.59, DJX 85.11.39, Compx 1381.02, NDX 1032.09, ES02Z 901.00, NQ02Z 1034.00, SP02Z 901.00.

The indexes appear destined to complete the H&S with a lower high today. I am going to raise the SHORT entry trigger point.

  Jeff Bailey   11/19/02,  2:28:07 PM
Microsoft (MSFT) $54.92 -1.6% ... per last night's Index Trader Wrap and short/put the NDX/QQQ today. We see MSFT getting close to testing upward trending 21-day SMA of $54.25 and NDX/QQQ bear would like to see stock close at low end of today's range (so far $55.80-$54.50) and eventual break of MSFT 21-day SMA to have NDX below its 21-day SMA (1,011) and QQQ ($25.14).

With Dow +0.46%, SPX +0.28%, OEX +0.41%, then NDX/QQQ looks to have been best near-term trade for bear, but we realize strength here in NDX/QQQ still.

But... somewhat interesting is that NDX/QQQ have been "stronger" near-term basis and today a bit DIVERGENCE. This may be a short-term observation of DIVERGENCE worth noting as Treasuries continue to find some buying.

For options trader the "risk" of a $2 put option in the QQQ, is the same RISK as a $2 put option in the DIA or SPY. It was noted last night that NDX and QQQ were closest to resistance as other indexes were sitting nearer their 21-day SMA's, which are between Bollinger Bands we use. Today's action just hints that things are trying to come into eqiulibrium a bit.

Hey... maybe same thing with TLAB +3.95% and Wireless Index (YLS.X) -1.62%.

  Jim Brown   11/19/02,  2:25:10 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
It appears the afternoon rally has run its course and we could be looking at a roll over at the close. As a precaution I am raising the stop loss on the current LONG signal to an OEX trade at 460. This is just under the 1:30 lows. The SPX/OEX never really cleared the resistance at 900/461 to give a reason to hold over.

  Jeff Bailey   11/19/02,  2:13:10 PM
The 1:00 PM Intraday Update has been posted. Link

  John Seckinger   11/19/02,  1:58:32 PM
It was nice to listen to Mr. Greenspan on Productivity, ability to use the yield curve if Federal Funds rate gets too low, etc...With his speech now behind us, the markets seem intent on making another move higher. The 30-year is only a few ticks off its lows, and the Nasdaq is about to go positive.

  Jonathan Levinson   11/19/02,  1:56:45 PM
Playing with numbers a bit, we see that the COMPX traced a total 51 point range from yesterday's opening high to today's intraday low. 61.8% of that range from yesterday's high projects to 1393.50, about 1 point from today's high. The 50% line is at 1400, and 38.2% is at 1406. I can't explain why fib lines work, but they do tend to pop up. This move off today's low turned the longer intraday 5(3) stochastics north, and they have yet to peak. The TRINQ is remaining neutral, and the QQV has sunk a little lower, down 1.31 on the day. FVX is still flat, and I'm wondering what's funding this bounce. It hasn't been bonds today and it hasn't been the fed. The US Dollar Index is up big to over 105.80- it looks like it could well be foreign buying.

  Kent Barton   11/19/02,  1:37:21 PM
Amazon.com (AMZN) $21.51, -0.91: Finally getting a pullback today after an explosive breakout above resistance at $20.00. This morning's valuation downgrade from Bear Stearns provided the perfect excuse for some profit-taking. Looks like the stock is a little too rich for BSC's blood after a 120% rally this year! But with the p-n-f chart on a quad-top buy signal, AMZN still looks like a good bullish candidate on a pullback to $20.00.

  Steven Price   11/19/02,  1:28:44 PM
Do you like GNSS options long here around 16.70? Thanks, Steve.

Genesis (GNSS): $16.45 (-1.15) This morning's downgrade, partially due to the stock reaching RBC's target and uncertainty in the ASP market doesn't necessarily scare me away from the long play here, especially given the company's recently raised revenue guidance. However, I would wait to enter on a move back over $17.00 which is not only round number resistance, but also the 200-dma. The stock did register a PnF reversal, but it has found support above the breakout buy signal at $16.00.

  John Seckinger   11/19/02,  1:14:35 PM
Five year notes are now back above 3.00%, while ten year bonds are above 4.00%. This selling in bonds (read: higher yields) is certainly adding to the rise in equities. With the Nasdaq still slightly negative (down 1.51 points), equity traders can turn to the Dec 30-year contract (ZB02F) for direction. This contract is now higher by only 8 ticks at 111'25, and a move into the red (prices lower on the day) should be the catalyst for keeping even the Nasdaq in the green.

  Linda Piazza   11/19/02,  1:10:21 PM
It looks as if Jonathan, Jim, and I were all looking at the same aspects of the market at about the same time. Either that's an example of brilliant minds thinking alike or else it's just an example of the importance of watching these market internals.

  Linda Piazza   11/19/02,  1:05:54 PM
The internals have improved over the last hour, but still aren't giving strong signals of market direction. Ad/dec is now positive for NYSE stocks, at 1.09, but still negative for Nasdaq stocks, at .83. Up/down volume figures are still negative for both indices, although almost neck-and-neck for the NYSE at a ratio of 331/349. That ratio is 392/475 for Nasdaq, as of this writing. The $TRIN is 1.12 and $TRINQ is .96.

  Jonathan Levinson   11/19/02,  1:05:16 PM
The COMPX has just filled its opening gap and is now +.39 on the day at 1394.08. The TRINQ has finally made it to neutral territory at .91, TICK.NQ a little more bullish at +154. FVX is almost flat now and QQV has keeled over, -1.26 on the day to 40.85.

  Jim Brown   11/19/02,  1:02:12 PM
Swing Trade Signals
Don't look now but that last little buy program spike pushed us over resistance at 8500 and turned the Dow, SPX, OEX, RUT all positive for the first time today. The TRAN came within 50 cents of positive as well. The A/D line spiked to breakeven and the highest level of the day.

This little spike is the most eventful thing to happen in the last two hours as the markets have been frozen in time with the charts moving slower than a watched clock. Advancing volume took a sudden surge upward at 12:03 when it appeared the tide turned. It is far too early to be excited about this minor market movement but after watching the paint dry on the charts all morning any movement is appreciated.

  Jeff Bailey   11/19/02,  1:01:12 PM
Tellabs (TLAB) $8.00 +5.67% ... Jeff: I must say, I'm starting to kind of grasp this risk/reward thing. On Friday, you mentioned TLAB in your commentary and talked about risk/reward. I looked for news on TLAB today and don't find any, but think I at least know what some shorts might be doing as it relates to risk/reward and perhaps bulls like yourself. Again, I'm still learning, but it is starting to make some sense. Thanks!

Well... we shall see, but yes, when comparing the "technicals" of TLAB Link , which looked to be pulling back after a decent pop off the bottom and the YLS.X Link which was giving another "buy signal", TLAB did offer better risk/reward than the sector. We need/needed the sector to pull higher and get TLAB to rebound from support at its first buy signal of $7.00, which was really little different than what the YLS.X did after generating its first buy signal at $45. Kind of using the sector to help with TLAB trade. Very cautious of BOTH as they're below trend, but worth 1/4 or 1/2 positions just in case they make it to targets.

IF TLAB gets back near $9.50 and YLS.X continues to just sit at current levels, then we may look to take some profits and TLAB and YLS.X perhaps get in "unison" under such a scenario. At that point, we could reassess risk/reward to target, check account/business plan and see how things are shaping up. If we're ahead of plan in our account, then we can take some risk and let things ride. However, if at weekly review the bottom line of trading account dictates some profits must me locked in on TLAB when all is in unison, the so be it. Again... got to meet those yearly objectives!!

  Jeff Bailey   11/19/02,  12:43:37 PM
Option Pricer ... E-mail now full of questions regarding Jeff's "option pricer" and where it can be found.

Very simple. Let's say I'm looking at a call option in stocks ABCDE that trades at $20. My bullish target is $25. The January ABCDE $20 calls are trading for $2.00. What will these calls be worth at a MINIMUM if the stock trades target of $25? Target - Strike = Call price .... so... $25 - $20 = $5.00

Aha! But what if ABCDE trades $25 tomorrow? What about the premium that your option calculator doesn't factor in? Well... Premium is a VARIABLE, and I don't like to try and figure out VARIABLES. Premium can fluctuate with the VIX or VXN. As trader/investors, you and I have enough work to do to figure out where a stock is going, let alone trying to figure out where volatility, which can impact option prices are going. But if we NEGATE or don't factor into the equation PREMIUM, which is a VARIABLE, our work becomes much easier and we begin dealing with MINIMUMS when assessing a trade.

Now.... before we run the trade, there's PREMIUM already built into the option (some more than others). So... lets now pretend my TARGET on ABCDE is still $25, but when I look at the Jan. $20, they're offered $4.00. My option calculator says at $25, option is worth $5.00. Now.... does it make sense to risk $4.00 to potentially make $5.00. HE-double toothpicks no!!!!! By NOT factoring in premium at the other end I get a much better/conservative risk/reward profile for this option.

Some will argue with this, but.... I remember one time, we called a perfect BOTTOM in IBM and profiled calls. Unfortunately VOLATILITY was HIGH, and premiums were jacked. If memory serves me correct, IBM jumped 8% the next day, VOLATILITY fell, and really negated the call price action that day. Those were short-term calls too so it wasn't like we had 3-months time to let the trade work!

By forgetting about CALL/PUT premium at your bullish/bearish TARGET, any premium left in the option when your target is hit and you're closing out the trade is candy! If I'm buying at or in the money calls/puts (like you read about in just about every option book ever wrote) you KNOW what premium you're paying before the trade is ever run. If you KNOW things, you're better-able to make investment decisions. What's MSFT going to be trading at on December expiration? What's the premium going to be when it trades your target? Ugh! The first question was tough enough, if you can answer the second one accurately, then an option trader would never have a losing trade. That's impossible in my book. On both counts (option premium and losing trades).

  Jonathan Levinson   11/19/02,  12:32:54 PM
The low of the day on the COMPX has been holding, but the bounces are getting progressively weaker, which has been printing a continuation pattern that should project lower, but without my copy of Bullkowski at the office, I hesitate to make predictions here. The TRINQ is still at 2.01, and the sellers are still out in force. The FVX has recovered some, now down 2.6 bps, and QQV is a little lower, now down .68 on the day, while the TICK.NQ is higher, now +66. The weakness of the bounce makes me dubious of the long side, but we'll have to see.

  John Seckinger   11/19/02,  10:52:04 AM
The volatility continues. Speaking of the Vix, the index is currently higher by 4.37% at 32.47 and back above its 200 DMA (exp) of 32.29. The 22 DMA remains upward at 35.46. Getting to the markets, the Dow has now retraced 50% of the rally seen during the last hour. It didn't seem like this would happen; however, it should be viewed as normal. If bullish, a move back above the 8450 level should get some new buyers involved.

  Steven Price   11/19/02,  10:47:47 AM
Hello Steven, Do you think that pg is on run up or should I hold the put until it hits the stock price of 68 is the stop loss?? thanks R C

Procter and Gamble (PG): $87.30 +1.15 PG continues to bounce at $85 and I'm starting to lose faith in the put play, with what I see as sideways movement. If it breaks $85 I still think the downside could be $10 ($12 from here). The stop loss is $89, which is jst above the 200-dma of $88.80 and I haven't seen a decisive move upward yet. That makes the risk/reward here $1.70/$12.30, which is a great ratio. SSB also recently downgraded the stock with some pretty bearish comments. However, without the $85 breakdown, put holders may want to consider closing. I'm not ready to punt just yet, but I am getting close.

  Jonathan Levinson   11/19/02,  10:39:20 AM
The COMPX stopped its decline right at Nov 14 gap support, but the bounce appears weak. If the 1380 level gets violated, expect next support to come just below 1370, then at 1360 COMPX.

  Jeff Bailey   11/19/02,  10:31:43 AM
Weekend Ask the Analyst ...Is my evaluation of potential profit to risk ratio proper?

First I specify entry point for the stock and target price for the stock. Then I go to option pricer and input these values checking what will be the option price at these levels. I check potential % profit on option position and according to this set a stop loss level, e.g. if target profit is 50% I can set stop at 25% to keep profit / risk at least 2 / 1. If that stop loss level is in the defined range (actually I set it as 5% of overall capital) and makes sense considering volitality of option price/stock and bid-ask spread - it's OK. Is that correct? Could you please explain how max. entry prices and stop loss levels are set at OI recommendations.

Second question relates to an article by Jim Brown from 06/18/2000. Jim wrote that for $10,000 account optimal are two positions $3,500 each, which makes $7,000. The level of risk looks really high for me. What is your opinion?

The last thing: is it possible to shortly present at OI proper use of different kinds of orders in different situations; I mean which types of orders should be used in which situations (or is it a question rather to my broker)?

First... my "option price calculator" is in my head or a very simple calculator with a +,- and division key, and done with simple math. Target minus strike is all I need to know. Some will argue... but what about premium, you've got to figure in what the premium will be!!!! I say/ask why? If the silly stock hits you're target there's no downside to the trader if the option has excess premium when you sell your target. That premium is icing on the cake and since you didn't "factor" in premium to the target when you ran the trade, then you're not messing around trying to capture that part of that 10 cent spread as you've already got more profit that you orginally thought you would (with the premium now realized) so you sell the bid and leave with a successful trade.

The only reason a trader needs a stop in an option is if he/she has OVERLEVERAGED or exposes more capital than stated business plan allows for (based on my article). Remember, once you stop out for a 25% loss in an option, that's it and the 2,3,4 months time you bought when you initiated the trade, well... that time advantage that an option allows is gone, along with the 25%.

As for what Jim Brown said on 06/18/2000, I haven't read it, but that has no relevance to this weekends article does it? That would be more in line with an option trader that has to monitor his/her trade closely and use a stop. This weekend's article allows the trader to have a defined set of rules, place the trade fully comprehending and conceding loss that won't blow his/her account up even if the stock gaps against the trader, then enter a sell order at the specified target, then not look at that option until expiration. So what if the stock trades you profitable target the next day or two, it gets sold, cash is generated to your account, and you're that closer to your monthly, quarterly, semi-annual and annual goal.

Your last question about how entry points are set at OI should be directed to Steve and Jim as they select what plays are profiled in the OI play list.

I'll go through today's "play of the day" in ABC and how I (Jeff Bailey) would analyze this trade. I'll set a time clock on my analysis and make a decision if I like it or not based on this weekend's "ask the analyst" column. I think it will take me 2-minutes with the point/figure charts. I'll put it in the 11:00 Update.

  Jim Brown   11/19/02,  10:30:57 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the LONG signal at 10:25:06 when the OEX traded above 458. SPX 898.50, DIA 84.83, SPY 90.31, DJX 84.68, Compx 1382.29, NDX 1032.41, ES02Z 898.75, NQ02Z 1033.00, SP02Z 899.00.

The initial stop loss on this signal will be OEX 455. We had a decent bounce underway but on very light volume. We are far from out of the woods but things are looking up.

  Steven Price   11/19/02,  10:27:39 AM
Looks like Hovanian has broken down a little bit I've been patient waiting for it to come back to me. Do you think it's still a good play on the long side? Thanks, Carol

Hovanian (HOV): $32.70 (+0.05) I actually like the entry here, as long as the stock is above its 200-dma ($30.63), where it continues to bounce. I also like the bounce this morning off $32.00. My target is around $40, so the risk reward from this level looks even better. If the stock trades $31.00 we would see a PnF reversal into a column of "O" and if it closes under $30 I'd close the play.

  Steven Price   11/19/02,  10:20:00 AM
General Electric (GE) OI put play GE is moving slowly, but set another relative low this morning. The next downside test is $22.00

  Steven Price   11/19/02,  10:07:42 AM
Amerisourcebergen (ABC): $57.55 (-5.85) We are getting a slight bounce in OI put play ABC, but keep in mind this morning's bounce came right at previous support of $56.25, so that looks like the key level to watch for signs of further breakdown. I would not initiate new entries here unless that level is broken.

  Jonathan Levinson   11/19/02,  10:07:11 AM
The Fed has announced a 1.25B Matched Sale-Purchase Agreement, the opposite of a repo, which is a net DRAIN of 1.25B. For a discussion of repos and MSP's, see my article at this Link

  Steven Price   11/19/02,  10:04:44 AM
Steve, In last night's recap, you give the Head & Shoulder's target of 7800, and that coinsides with the PnF chart target of 7850. How did you come up with the 7800 figure from the H&S chart? Thanks, Bob

Dow Industrials (8419.35 -68.22) I drew the line from the top of the head to the neckline and then projected that move downward. In the chart Link the purple line above the neck is equivalent to the purple line below it (this is actually a little hard to see, since the top line overlaps the candle). As I pointed out on the PnF chart, the PnF target is no longer 7850, as it has reversed into a buy signal. That column of "X" on the PnF reversed once again to the downside this morning, but doesn't give a new sell signal (and bearish count) until 8250. However, it is beginning to look like an H&S pattern there, as well.

  Jim Brown   11/19/02,  10:04:32 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
lower the entry trigger to go LONG to OEX 458. This is just slightly above the intraday high.

  Jim Brown   11/19/02,  9:59:09 AM
Swing Trade Signals
The broader indexes remain slightly stronger than the Dow and the Nasdaq is weakest by far. Note that the SPX/OEX have both resisted falling below their support points at 895/455 twice this morning. The Dow/Nasdaq could still drag them down but they are trying to hold the line. I would not hold my breath on this to continue.

  John Seckinger   11/19/02,  9:58:36 AM
With the dollar lower and bond prices higher, the equity markets should remain under pressure. Looking at the yield curve, fives are higher by 9 ticks while the ten year note is up 13.5. This is a pretty flat curve (intra-day basis) and doesn't show the hand of some institutional investors. Speaking of the dollar, the recent short-term bullish trend line has been broken. The DX00Y contract is currently at 104.92, while the rising trend line remains above at 105.07.

  Jonathan Levinson   11/19/02,  9:52:54 AM
The COMPX gapped down and is showing little strength, yet QQQ volatility is flat to negative, with QQV -.46 on the day to 41.65. The TRINQ at 1.80 and TICK.NQ at -218 confirm that the Nasdaq sellers are comfortable and clearly outweigh the buyers. The fed announcement is going to be key today.

  Linda Piazza   11/19/02,  9:47:50 AM
So far, up volume is below down volume by 21/45 on the NYSE and 44/97 on Nasdaq, but it's probably too early to draw strong conclusions based on this information. So far, though, this ratio does seem to support the downward thrust of the markets, but it will be important to see what happens after the early-morning volatility.

  Jim Brown   11/19/02,  9:46:58 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go LONG the broader market with an OEX trade at 461. The initial stop loss will be 455.

  Steven Price   11/19/02,  9:46:38 AM
Amerisourebergen (ABC): $56.30 (-7.10) OI put play ABC getting crushed on the open. There is usually some bounce after a drop of this extent intraday and then a rollover, however, those put players may want to lock in a significant gain here.

  Jim Brown   11/19/02,  9:46:22 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go SHORT the broader market with an OEX trade at 455. The initial stop loss will be OEX 461.

  Jim Brown   11/19/02,  9:45:55 AM
Swing Trade Signals
We got the bounce which took us slightly off the lows but not convincing enough to make me believe the final direction is up. I am going to issue both a shot and long signal to cover either direction. Once the bounce matures the real direction should appear.

  Jeff Bailey   11/19/02,  9:44:04 AM
Staples (SPLS) $17.31 +6.65% ... stock gaps to just under 200-day SMA after posting Q3 net of $0.27 a share, $0.03 better than the consensus. Sales rose 9% to $3.09 bln (consensus $3.0 bln). Company expects Q4 earnings that are consistent with current analyst estimates. Link

News giving a lift to Office Depot (NYSE:ODP) $15.54 +3.6% Link and Officemax (NYSE:OMX) $5.50 +2.04% Link

  Linda Piazza   11/19/02,  9:43:56 AM
CS First Boston analyst Tim Long today lowered the wireless telecommunications sector rating to "underweight" from "market weight," but did not change individual stock ratings. He believes that stocks have been priced to include growth rates higher than CSFB believes to be appropriate for the industry. Continued cuts in capital expenditures point to extended weakness in wireless infrastructure, and he also now believes that the build out of wireless infrastructure in China will be postponed to 2004 at the earliest. He still feels that Qualcomm, Nokia, and Ericsson have the most potential.

  Steven Price   11/19/02,  9:42:06 AM
BJ's Wholesale Club (BJ) $22.10 BJ followed Wal-Mart and Federated's lead, saying November same store sales were running below plan. I'm expecting these announcements to continue throughout the week, and I'm thinking about getting back into the RTH short. We entered the put play a couple of week's ago at $74.60, watched it trade down to $70.95 and then bounce, stopping us out. After yesterday's rollover, I'll watch for signs of weakness today. So far Jeff's long play here has been successful, so I'll keep that in mind before entering in the opposite direction.

  Jeff Bailey   11/19/02,  9:41:12 AM
BJ's Wholesale (BJ) $22.10 ... stock not open for trading yet. This morning, company reported Q3 net of $0.38 a share (exluding items), which was a penny better than consensus. Sales rose 11% to $1.41 billion, which was better than consensus of $1.38 billion. On conference call, BJ said that it sees flat Q4 same store sales, and that Nov sales were running slightly below that plan so far. Company expects FY04 earnings to be in about the same range as the current fiscal year (FY03 consensus is $1.98), whereas consensus for FY04 is $2.23. Link

  Jim Brown   11/19/02,  9:37:50 AM
Swing Trade Signals
The opening drop has put us slightly below the pivot points and in to the short area but we need to give ia another 5-10 min for volatility to fade and make sure there is not going to be a bounce. Looks pretty negative for the Dow but the broader indexex SPX/OEX are just now approaching the trigger points of 895/455.

  Jeff Bailey   11/19/02,  9:35:18 AM
EMC Corp. (EMC) $6.74 ... in pre-market note, Reuters reports that CEO told reporters in Tokyo that he saw no signs yet of a pick-up in corporate spending on information technology. "There are no real tangible signs that it's improving. There's a lot of conventional wisdom that believes it could improve some time in later 2003, but we'll see," said Joseph Tucci. Link

  John Seckinger   11/19/02,  9:32:27 AM
The Dec 30-year is higher by '26 ticks and right at the October 15th high of 112'11. Note: The intra-day high is 112'11. If buyers continue to pour funds into the fixed-income arena, the long bond might be able to reach 113. On a daily chart, there is some good price compression; therefore, expect a break out (up or down) in the next few days.

  Jonathan Levinson   11/19/02,  9:32:21 AM
6 point gap down open on the COMPX to 1387, TRINQ at 2.06.

  Jeff Bailey   11/19/02,  9:30:45 AM
Ross Stores (ROST) $43.67 ... stock edging higher at $43.78 after reporting Q3 EPS of $0.57, which was in line with consensus. Revenues rose 17.7% year-over-year to $870.2 million, which was below consensus of $871.1 million. Link

  Jeff Bailey   11/19/02,  9:28:34 AM
The 9:00 AM Intraday Update has been posted. Link

  Jonathan Levinson   11/19/02,  9:24:07 AM
The fed has no repurchase agreements maturing today, so any amounts added today via repo are net additions. We'll wait for the announcement. Buying in bonds has the FVX down 4.1 basis points, TNX -6.2 bps, and TYX -4.9 bps. GE's last trade on Island at 23.15.

  Jim Brown   11/19/02,  9:17:40 AM
Swing Trade Signals
It looks like we are headed for a flat opening with a slight downward bias. The game plan for this morning was to look for a dip at the open and a bounce around Dow 8450, SPX 895, OEX 455. If we do get a bounce and move higher then we are looking to go long at 8525/905/461. If there is no bounce at 8450 and the markets continue dropping we will go short from that level.

With the S&P futures down -4 to 896, Dow futures down -35 to 8445 it appears we will open very close to the decision point at 8450. Regardless of where we open we will wait for the opening volatility to fade before choosing a direction.

  Jonathan Levinson   11/19/02,  9:17:27 AM
Thanks to all for asking: It seems that it was just a 24 hour flu, and I'm feeling much better now, thanks. I'll know not to eat Jim's birdseed in the future :)

  Jonathan Levinson   11/19/02,  9:06:37 AM
U.S. October Consumer Prices Rise 0.3%; Core Rate Rises 0.2%; inline with expectations. For the full story, see this Link

  Jonathan Levinson   11/19/02,  9:05:07 AM
From Yahoo news: The U.S. trade deficit dipped slightly in September to $38.03 billion, but was still the second highest level on record, the U.S. Commerce Department (news - web sites) said on Tuesday.

  Jonathan Levinson   11/19/02,  9:04:56 AM
11/19/02, 08:43:49 The US Dollar Index and equity futures came down last night, USD to below 104.80, currently trading 104.90, with SPX futures down 2.70 and NDX -5.50. QQQ is trading 25.89 on Island ECN. For those bearish on GE, Bloomberg reported analysts are predicting that the company may take a fourth-quarter charge of as much as $2 billion, mostly to increase reserves at its reinsurance unit. Blooberg reported that GE is also likely to shift between $2 billion and $6 billion in equity to the balance sheet of its financing arm to keep the unit's debt at no more than eight times its equity. The analysts meeting that will put the bottom line on this speculation is scheduled for Thursday, but the stock is trading down .25 from its close to 23.35 on Island.


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