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  Jim Brown   11/21/02,  10:29:58 PM
The Swing Trade Game Plan has been posted: Link

 
 
  Jeff Bailey   11/21/02,  7:00:37 PM
Semiconductor after hours .... INTC $20.19 at $19.96 after-hours. AMAT $17.03 at $16.81 after-hours, KLAC $42.85 at $42.34 after-hours, NVLS $35.89 at $35.40 after-hours, BRCM $20.00 at $19.70 after hours, MXIM $42.63 at $42.11 after-hours.

While after-hours trading not indicative of tomorrow's trading, not all that negative response to book-to-bill on the cover of things.

 
 
  Jim Brown   11/21/02,  6:40:23 PM
Semiconductor - Book-to-Bill - New orders fell by -7.9% in October making it four consecutive monthly declines. It would have been even steeper but they revised downward the number from September from 0.80 from 0.84. Using the original number from last month of .84 and the headline number for October of .73 that would have been a -13% drop instead of the revised -7.9% drop. It is amazing how the magic numbers keep getting revised with each succeeding period. BTB, Jobless Claims, Nonfarm Payrolls. It almost looks like a conspiracy to let us down slowly by managing the numbers. That would be illegal so I am sure it is just a coincidence.

At .73 this is the lowest ratio in nearly a year. Every month the order inflow drops it pushes the tech recovery a month farther into the future. With a six-month lead time from order to delivery this means any possible recovery is well into 2003 "IF" orders picked up next month. Typically the holiday season is a low spot for manufacturers with forced holidays and mandatory plant closings to save money until orders pick up in the 1Q. This puts any recovery off until 3Q of 2003 at the earliest if historical trends continue. "IF" traders pick up on this report tomorrow the tech rally could be in trouble. However, since it is a "hope" rally anyway maybe they will consider this bad news another snack on the bull's buffet.

 
 
  Jeff Bailey   11/21/02,  4:25:14 PM
Just to share... yesterday I got an e-mail from a subscriber that was looking at a Dow Industrials put. He was bearish the Dow Industrials. However, he was looking at the spreads and premiums on the DJX puts and was measuring against his bearish target of $82. His question was this...

Following the Swing Game Plan for today, I’m looking for a possible entry on the DJX options should the h-s be completed and breakdown, I see where there is a 0.65 – 1.00 spread between the bid/ask on puts from 80 to 88.

Using the 84P as an example, it looks as if the Dow would have to drop 200 pts just to make the trade break even on the spread. This doesn’t even consider the potential risk/reward of the trade itself based on the factors you have been describing. I therefore conclude that a DJX put option does not pass the test and should be ignored.

Am I missing something?

In the end, the trader decided to pass on the play as the downside target objective didn't meet his risk/reward profile based on the option price under consideration. Sometimes the business plan will keep a trader out of trouble.

 
 
  Jeff Bailey   11/21/02,  3:55:57 PM
Tellabs (TLAB) $8.77 +0.22% ... Would you be buying TLAB now or wait for a little pullback. If wait, what levels would you target. Thanks.

I'd do this if just looking bullish. With semiconductor book-to-bill due out after the close, that's my risk. If positive, TLAB could gap higher. If negative, the TLAB pulls back.

Now... I don't know what the book-to-bill is going to be, but I can control my risk. How about a 1/4 or 1/2 bullish position before the close. That way I've got more "limited" yet some exposure to the stock, but I'd buy MINIMUM January expiration calls. This way, if NEGATIVE book-to-bill then I've got time and could monitor for support at $8.00.

I'm targeting $10.00 near-term, but looking more to $12 by the spring of next year as a guide for targets.

 
 
  Jeff Bailey   11/21/02,  3:50:15 PM
The 3:15 PM Intraday Update has been posted. Link

 
 
  John Seckinger   11/21/02,  3:48:02 PM
Price action speaks a thousand words. The Dow came to 8804 and rebounded, while the S&P 500 fell to 928.99 and then moved higher. Moreover, there is word of a lot more supply hitting Treasuries in the next few sessions; therefore, watch for funds selling Treasuries in order to hedge the new corporate paper. Moreover, word that hedge funds were selling bonds today and moving into stocks seems extremely possible as well. The only thing that gets me worried is talk that this week "marks the end of the multi-decade bond market rally." It is very rare that these prognosticators are right on.

 
 
  Jim Brown   11/21/02,  3:43:15 PM
They tried to take them back down several times and failed to get back under 8800. This could be very bullish for tomorrow if that Book-to-Bill is not a poison pill tonight. I am looking for another spike/dip at the close as the holdouts get weak in the knees. I am hoping it is the shorts that are getting nervous and not the buyers.

 
 
  Jim Brown   11/21/02,  3:11:17 PM
Now in the last hour of trading it should get exciting soon. Shorts should be deciding on covering or suicide about now. Bulls should be deciding if they want to hold over the BTB. There are no major economic reports tomorrow and no major earnings tonight. With the capture of the Al Queda big fish who is reportedly talking the bullish sentiment should move higher.

If we get a sell off below 8750 the entire bounce could be questioned so traders may be quick on that sell trigger on weakness. About the only thing we can count on for the rest of the day is high volume and high volatility although you will not be able to tell from the VIX which has crashed to 27.50 on the bullish sentiment. Buckle your seatbelts!

 
 
  Jeff Bailey   11/21/02,  3:10:57 PM
Al-Qaida ... more than 30-minutes ago, it was reported that Al-Qaida chief of Persian Gulf operations was captured. Not overly meaningful to markets, except slight positive perhaps toward investor/consumer psychology that war on terrorism continues to find some success.

 
 
  Linda Piazza   11/21/02,  3:05:37 PM
In regard to my 1:58 post about double bottoms, a reader questions whether similar calculations can be applied to the DOW to find a target. The trouble with this is that the DOW reached a lower low in October, about 335 points lower, I believe. I've looked but haven't been able to find any studies that show how close--either by absolute number or percentage--two lows have to be to each other to be considered equal lows. To me, it looks as if the DOW made a lower low and not an equal low, but if the S&P's were to comfirm the double bottom, I'd expect the DOW to be carried along for the ride, too. Perhaps some of our other writers might have an opinion and want to weigh in on this.

 
 
  Jeff Bailey   11/21/02,  3:01:57 PM
Tellabs (TLAB) $8.87 +1.37% ... has been very interesting intra-day action for this stock hasn't it? Up at the open, tests upper-end of Bolling Band, then fades -1.5% as technical sellers sell that strength at near-term resistance. But note how previous observation of YLS.X and sector moving higher along trending higher and upper-level of its Bollinger Band seem to have TLAB finding bid again here? At same time, today's price action actually has upper Bollinger Band on TLAB starting to turn ever so modestly higher, almost like it's following the YLS.X higher.

These are short-term observations, but very relative to even longer-term type of action. A TLAB bull begins to understand how even recent couple of days action presents opportunity for traders. Remember.... on Monday how we thought YLS.X move higher and TLAB pullback near support may have had a bull thinking... "hey, sector leading higher, TLAB should play catch up?" Wow! That was true yesterday as TLAB jumped 10%, while sector was up just 3%. Today? Different story with YLS.X +5.7%, TLAB up 1.25% here. But like an "inchworm" that's how stocks can move within sectors and how that movement can impact the sector.

Where's TLAB in the scope of the "inchworm or snake?" Tail, mid-section, or head? When looking at RS chart of TLAB versus YLS.X, I think mid-section. The RS chart show TLAB on "buy signal" but column of O. RS being on a "buy signal" versus the sector is bullish, but the O pullback hints it is "taking a rest" compared to the sector itself. Link

One thought here is that maybe, just maybe some institutions are seeing the upside action in YLS.X and wanting exposure. If using RS and not wanting to "chase" some of the overestended group members, and avoiding the weaker group members, they'll go after the mid-portion RS stocks with some technical perception of "value" RELATIVE to others that are leading, but maybe a little overextended techncially.

 
 
  Jeff Bailey   11/21/02,  2:46:44 PM
Cyclical Index (CYC.X) ... Excellent observation by Kent (14:37:30) and bullish looking chart. Kent showed the "default" p/f chart used by www.stockcharts.com.

Not taking anything away from "default" charts here, but Dorsey/Wright, which most institutions will use, shows CYC.X having $5 box scale. Just for grins, will check a chart of that here. Link

A little different look than the conventional isn't it? Just below longer-term trend here, so might be worth a wait for trade at 460, try and get that break of longer-term bearish trend. Still, while "Kent's" default scale shows "bullish triangle" pattern, the $5 box scale shows recent "triple-top" buy signal at $435, which is also presenting bullish thoughts that demand is building for group.

On $5 box scale, bullish vertical count is $495. While Professor Davis' study was limited to stocks, the triple-top buy signal at 435 and "Kent's" bullish triangle patterns are both bullish toward the cyclical.

Unfortunately, cyclicals are made up of forest/paper, chemical, steel, those kinds of groups all comprise the cyclicals so I can't get a real "cyclical" bullish %.

However.... one stock mentioned as a cyclical is MMM Link and classified as a "chemical" stock. According to Dorsey/Wright, the chemical bullish % (BPCHEM) is "bull alert" at 40.9%, and would take a reading of 44% to achieve "bull confirmed" status. A reading of 36% would be a negative and be a reversal back to "bear confirmed."

Do you see perhaps how MMM technicals become somewhat important to "confirm" the market bullishness and PROVE that bulls really believe and will push not only MMM higher, but how the CYC.X and $5 box need to PROVE the MARKET hungers for the more economically sensitive group that would eventually find bottom line growth and spend on new technologies? MMM and even the CYC.X become "confirming" type stock and index from a supply/demand side of things.

 
 
  Kent Barton   11/21/02,  2:37:30 PM
Traders are often skeptical of any market rally that doesn't include the participation of the Transports and Cyclicals. The former is moving higher today, as shown by the 1.7% gain in the Dow Transportation index. The TRAN had previously been forming a possible head-and-shoulders pattern on the daily chart. Today's gains help to nullify that formation, but it's still worth noting that the index remains under near-term resistance at 2350. Meanwhile, the $INDU is already trading at relative highs.

The CYC.X cyclical index, however, is looking decidedly bullish. The CYC is outperforming the Dow with a 3.5% gain and is threatening to break above resistance at 460. I checked out the point-and-figure chart of the index, expecting to see something like a pending double-top buy signal. But lo and behold...It's a bullish triangle breakout! Link . This is an indication that perhaps Wall Street's economic outlook is becoming more optimistic. Technically, the CYC looks like it could rally to the 500 area if resistance at 460 gives way.

 
 
  John Seckinger   11/21/02,  2:33:03 PM
It was certainly nice to see the Dow not fall under 8800 during that recent round of profit taking. It should take a move back above 8825 to get traders to not think about long liquidation. Moreover, the S&P 500 Index remains above its breakout area of 927. Yes, on a daily chart there is a bearish divergence between prices in the Dow and Nasdaq and their RSI oscillator. However, there has to be confirmation, and price action all day has told traders it makes sense to be long.

 
 
  Jim Brown   11/21/02,  2:25:01 PM
A reader pointed out that the NDX has topped at 1115 and is not following through with the rally to the extent of the other indexes. With the book-to-bill coming after the close tonight and the SOX up so high and above 360 there could be some underlying risk to the tech rally.

Don't get me started on this topic. The bulls bought the very bad BTB news last month and that was the fourth consecutive monthly drop. Since this covers the month ago period when there was a small flurry of buying there could be a slight increase which would probably be hailed as "evidence of a strong turnaround" or a smaller drop than the month before. That smaller drop would probably be hailed as evidence "the semiconductor slump has slowed". You see the problem. When bulls have their rose colored glasses on everything is signs of a bounce.

Back to the NDX topic. With the NQ futures now diving after leading the surge this morning there could be an urge to profit take. There could be a sell the news event on the BTB after the huge gains regardless of the numbers. This is just one more thing for bulls to consider before assuming the next bull market has begun.

 
 
  Jonathan Levinson   11/21/02,  2:08:06 PM
I'm receiving numerous emails from bearish readers here, urging me to point out that we are witnessing the formation of a top. Well, in response to those emails, I see divergence on the MacD on the COMPX 10 minute chart. I see the 5(3) stochastics maxed out on all time frames, and even the monthly candles show the fast line at 98%, though no sign of a rollover there yet. I see gold and the miners that won't let go, and the dollar that won't rocket north. I see the five year yield having a big day, but not a blowout, staying in a range between +5 and +10 basis points. Most importantly, I have bearish friends calling me and emailing me who don't know whether to ---- or wind their watches. Bear panic is a great sign of a relative top, as is today's upgrade of CSCO by S&P. Upgrades happen at tops, not bottoms. The QQV, VIX and VXN are pushing to extremes that happen at market tops, as is the TRINQ. Bullish percent readings as well, as pointed out by Jeff, are getting up there.

On the other hand, I'm watching VOLUME come in to stocks like GE in particular, and resistance lines are dropping like flies. These blasts upward aren't burying my breadth indicators, which is bullish until the divergence rights itself. I agree with Art Cashin, I heard that he looked dazed and confused. This market is treacherous for bears and lately very kind to bulls. Whatever your bias, and most of you have one, please use and respect your stops. Don't end your careers as traders at this junction in time, as many have and are doing today. The top and bottom 5% of every big move is the most costly for more traders- this rocket has been a falling knife for bears. Please be careful... and keep those emails coming.

 
 
  Linda Piazza   11/21/02,  1:58:03 PM
We've talked about H&S formations, and now it's time to look again at double bottoms. While we've seen a potential double bottom in the OEX, the OEX needs to move above the August 487.42 peak to confirm that double bottom. A move above that level would give an OEX target of approximately 587 (487.42 Aug 22 top - 387.80 Oct 10 low = 99.62. Add 99.62 to 487.42 = 587.04. Although the July 24 OEX was slightly lower than the Aug 22 one, I've used the more conservative figure.) The OEX has also given an ascending triple top break out buy signal. None of that means that the OEX would zoom straight up to its target, of course, even if it does manage to push above the August highs, but I've been willing to wait for confirmation of that double bottom because it still gives me a solid move. As Jeff emphasized this morning in regards to H&S formations, this is only a potential double bottom until that August peak has been exceeded. With the OEX daily stochastics in overbought territory, I wouldn't be surprised to see some backing and filling ahead of a move to push above that August high.

 
 
  Jeff Bailey   11/21/02,  1:53:18 PM
The 1:00 PM Intraday Update has been posted. Link

 
 
  Jonathan Levinson   11/21/02,  1:45:31 PM
The US Dollar Index is up on the day, but still below 106.00, leading me to believe that the bulk of the buying is coming from bonds. HUI remains slight up, while XAU is down .81 on the day. The CBOE put to call ratio came in at .83, reflecting only a slight uptick in bullishness- great news for the bulls as the indices print new highs. The QQV remains flat and yields are back up but not at their highs of the day. So, this wave of buying is failing to affect most of the indicators- the bulls are getting good grip, and doubtless many bears are buying at any price. I don't watch CNBC, but Art Cashin's "Buying stocks here is like buying week-old fish" is making the rounds, and on a day that has many shaking their heads, it's best to watch our indicators and follow the charts. I agree that jumping in long is risky at relative highs- an obvious point. Tight stops are the obvious solution.

 
 
  Kent Barton   11/21/02,  1:38:07 PM
In his 11:54 post, Jeff mentioned that the biotech sector is currently "bull confirmed" on the p-n-f bullish percent. Graphic evidence of that internal strength can be seen in the biotech index. The BTK.X (376, +11.87) is breaking breaking to new relative highs today, trading at levels not seen since late-August. HGSI (+12%), IMCL (+6%), IDPH (+4%), and SEPR (+4%) are all powering the group higher. Sector leader AMGN is lagging the rally with a fractional gain.

Biotech bulls can be encouraged by today's action in the BTK.X, but at the same time they need to be aware of possible resistance at the 200-dma (391.65) and the August highs near 400.

 
 
  John Seckinger   11/21/02,  1:36:56 PM
As the Dow rocketed past 8800, the other indices seemed content with their percentage gains (Nasdaq higher by 3.15% while Dow up 2.31%) and remained near highs set a few hours back. The Dow above 8800 should be analogous to the S&P Index above 927, and it would be nice for bullish investors if the markets closed above those areas. The bond market believes this can happen, as the 30-year never tested the 110'16 breakdown level and is now at 109'29 (read: lower prices good for stocks).

 
 
  Steven Price   11/21/02,  1:32:56 PM
I mentioned in last night's Market Wrap that a bearish H&S pattern in the ten year bond had been forming during the equity rally. A breakdown of the neckline would seem to confirm the switch from treasuries to cash. Here is a chart of today's action, showing the neckline break. Link . It coincides with the failure in the Dow H&S and can be viewed as another bullish sign for equities.

I mentioned in previous articles that the right shoulder upturn in the Dow looked bullish, but that bulls needed to be aware that a H&S breakdown was still possible below 8800. I agree with Jeff's earlier post about the right shoulder not looking reliable once it gets to an "ear," but it was still something that bulls needed to be aware of, since a shoulder can still form anywhere below the head. That possibility appears to be behind us, although I'll be more comfortable with a close over 8800 in the Dow and 925 in the SPX (which appears very likely).

 
 
  Jim Brown   11/21/02,  1:27:04 PM
Now that the 8800 level has been broken the internals have really exploded. The A/D ratio is better than 2:1 in favor of advancers and expanding. The up volume is far exceeding down volume by 5:1 on the NYSE and 10:1 on the Nasdaq. The VIX is plummeting at 27.56 and the TRIN is at .44. We will eventually have to pay the piper but it is not likely to be today. Next resistance on the Dow is 9000-9050. Closing the week with a "9" in front of the Dow would energize many couch potato investors back off the sidelines.

 
 
  Steven Price   11/21/02,  1:15:31 PM
Hi Steve, What do you think of UNS here? Rick

Unisource (UNS): $17.27 (+0.04) UNS got a nice bounce after failing the 200-dma and pulling back to support at $16, which was previous resistance. I'd wait for a break over $18 to add to a long position, keeping in mind resistance at $19 from the end of June.

 
 
  Jeff Bailey   11/21/02,  12:47:59 PM
10-year YIELD ($TNX.X) 4.135% .... intra-day high YIELD has been 4.19%, so that's above the 4.15% "neckline" of reverse head/shoulder. Short-term equity bulls would sure like to see a close in YIELD near the session high, if not at least above 4.15% to give some short-term confirmation that the MARKET is willing to sell some perceived safety.

 
 
  Jim Brown   11/21/02,  12:43:13 PM
Looks like they are buying the dip with improving internals once again. Granted this is on the "subatomic charts" as one reader once called the intraday intervals. The A/D line is improving again and declining volume on the NYSE is slowing. If that pullback at 12:00 was the only profit taking we are going to get then this afternoon should be exciting. The 8800 level still looms large in our future but every attempt weakens the strength of the sellers. We are a long way from any direction determination for this afternoon but the indications are still positive.

 
 
  Jeff Bailey   11/21/02,  12:43:10 PM
QQQ $27.52 +2.91% ... today's trade at $27 is first "buy signal" on this chart since mid-October of last year (after red A) at $37. Link

This now gets QQQ back on a buy signal and has bullish vertical count of $42 after QQQ easily achieved prior bearish count of $25.

Will make note that a back testing of prior bullish counts have not come to fruition, while bearish counts have. Regardless, bullish count is longer-term upside assessment.

One thing a QQQ bull needs to be careful of, or at least cognizant of is the higher bullish % reading right now. www.stockcharts.com is now showing a bullish % reading of 70%. This is deemed "overbought" (levels above 70% considered overbought, while levels below 30% oversold). Can always go to 100%, but recent history shows 78% in December of last year and 80% in May of 2001 relative high readings. I've "expanded" the NASDAQ-100 Bullish % chart to show historical perspective. Traders will use the monthly (1-9 and A-C) entries on both the bullish % and QQQ chart itself to make historical time reference and see how "risk", which the bullish % tells us about, ties in with the QQQ itself. Same can be done for NDX traders. Link

 
 
  John Seckinger   11/21/02,  12:39:46 PM
It is definitely encouraging for bulls that the recent pullback in equities didn't test the breakout period of a few hours ago. In theory, this breakout area should not be tested. As slight profit taking hit the Dow, the 30-year bond did rise from 109'21 to 110'08 and is close to testing an important trend line at 110'16 (profiled earlier this morning). Yesterday, I spoke about a lack of participation in the Utility Index (UTY) and inability to get back above 243. Currently, the UTY is higher by 1.13% and at 242.53. For bulls, it would be a nice addition if the UTY rises above 243 while the Dow eclipses 8800.

 
 
  Jeff Bailey   11/21/02,  12:27:24 PM
Speaking of Autos .... General Motors (NYSE:GM) $37.75 +6.79% ... trade at $38 today gets this Dow component back on a "buy signal" and adds 1 stock to the Dow Industrials Bullish % ($BPINDU) to get back on a buy signal. Observation here is that one of the laggards (tail of the snake) starting to pull free from what had ahold of it. This can allow the "head" of the snake to move forward.

Has us turning to past observed leaders in MMM $130.25 +1.19% Link to see if bulls are making headway to new highs where $130 has been BIG resistance despite such a strong stock. MMM is a component of the Morgan Stanley Cyclical Index (CYC.X) 454 +2.7%.

Thinking on MMM has been... the only sellers in MMM are very brave shorts playing a risk/reward trade with a stop just above $132 or "very smart" as to future downside, or profitable bulls that just don't believe in economic recovery.

So far... this "head of the snake" or leader just hasn't been able to make a MEANINGFUL break of resistance and charge higher. Hints of tentativeness toward economy right now. Still monitoring this leader for further LEADERSHIP, but keep the bullish side of me rather cautious.

 
 
  Jim Brown   11/21/02,  12:16:05 PM
Dow 8795 is solid resistance. Every tick up to that level is met with an immediate sell candle on the 1 min chart. The Dow appears trapped in the 8775-8795 range. Considering the big gains this morning the narrow range is bullish and could indicate an eventual breakout. The fact that the sellers are not chasing the Dow once it falls below 8795 indicates they are confident that the upward pressure will continue. Many programs once launched continue selling until done. It also means that there is rising support as funds wait for each pull back to nibble at stocks. They are not chasing them up to higher highs but are content to pickup the crumbs as they fall back into their range. Now the challenge is who will end up with the strongest hand. Whichever side blinks first loses. If buyers start feeling that 8800 cannot be broken they could take profits and look to reenter on the next pull back. Nobody wants to be flat if the rally continues but they want to protect profits from yesterday and this morning.

 
 
  Jeff Bailey   11/21/02,  12:14:19 PM
Ford Motor (F) $10.28 +15.11% ... Stock Link up on thought that today's drop in jobless claims bodes well for consumer confidence down the road (no pun intended) and perhaps turn around recent sluggish car sales numbers. Lending to bullishness is a not out of Deutsche Bank Alex Brown analyst Rob Lache saying, "A contact at Ford mentioned to us that November sales have been tracking better than October."

Disclosure... I currently own a bullish position from weeks ago in F Jan05 $7.50 call LEAPS.

According to Dorsey/Wright & Associates, Autos&Parts bullish % (BPAUTO) is "bull confirmed" at 40%.

 
 
  Jonathan Levinson   11/21/02,  12:12:51 PM
The put to call ratio continues to rise, latest reading at .86. It looks like too much bearishness at a glance, and that tends to be how I read it. However, so many possibilities muddy the water- for example, are stock bulls buying puts as a hedge? Nevertheless, the rising p/c ratio with steady or rising stock prices generally looks bullish to me. The QQV has recovered more off its lows, now down .41 on the day. TRINQ is still signalling a very overbought COMPX at .22, TICK.NQ at +42. Volume breadth has weakened a touch, with 8.2 advancing COMPX shares to each declining. Still a hugely bullish day. If they can hold the gains, bulls will have something to cheer about.

 
 
  Jeff Bailey   11/21/02,  12:03:04 PM
United Health (UNH) $86.00 -4.17% .... Yesterday, company reaffirmed full year 2002 consensus estimate of $4.20 and reiterated its own 2003 EPS estimates for growth of 18-20%, which suggested EPS of $4.96-$5.04. Stock Link trading lower after this morning's analyst meeting and weighing on healthcare sectors, HMO -3.98% and RXH -2.29%.

Golman defending stock here saying that nothing said during this morning's analyst meeting should be causing today's weakness. Goldman's own comment this morning that pricing may have peaked may have caused some concerns about margins, but Goldman also says the deceleration of pricing may mean that government will not step in to mandate price caps or cuts, and is therefore a positive for the industry.

My analysis? MARKET seems to be dealing with what it "thinks" it knows (pricing may have peaked) with the uncertainty of what it "doesn't know" (government not stepping in and mandating price caps or cuts). Risk weighs to the cautious side and looks to have supply getting an upper-hand right now.

 
 
  John Seckinger   11/21/02,  12:03:04 PM
November Philly Fed at 6.1 vs -0.5 consensus

 
 
  Jim Brown   11/21/02,  12:02:00 PM
That sell program at 8795 has knocked the wind out of the bulls sails. The futures are all trending down now and declining volume on the NYSE and Nasdaq is increasing. The net volume is still strongly positive and advancing issues still have a +2000 lead over decliners but the sentiment is changing. This is probably just a pause to take a breath since the Dow is holding 8780 but the sharp opening bounce has overextended the indexes and we could see some pull back before any afternoon bounce. As long as the net advancing volume is increasing the bargain hunters are alive and well.

 
 
  Jeff Bailey   11/21/02,  11:54:31 AM
Regeneron (REGN) $19.74 +12% ... Jeff: REGN caught my I recently. Your opinion?

I hope it caught not only your "I" but a bullish trade at $18.00 on that triple-top buy signal! Link

According to Dorsey/Wright and Assoc, REGN is classified as "biotech" as such, quick check of biotech bullish % (BPBIOM) shows sector is "bull confirmed" at 40%.

REGN has bullish vertical count of $28.00, so from $18, risk to sell signal was $2.50, with potential reward to bullish count of $10. That's very good risk/reward.

Add to that Professor Davis' study of the triple-top buy signal at $18 being profitable in bull market conditions (MARKET and SECTOR both bull phase) showed the triple-top pattern was profitable 87.9% of the time, for an average gain of 28.7% in 6.8 months on average. From $18, that would have a bullish target of $23.16.

Hmmmmmm... we talked about a triple-top in GNSS (semiconductor) Link yesterday that had been triggered at $14.00 and that stock achieved its triple-top objective in less than a month and looks to embark on its bullish vertical count target.

Analysis.... bullish on REGN!

 
 
  Steven Price   11/21/02,  11:51:56 AM
Hovanian (HOV): $33.60 (+1.25) OI call play HOV bounced over the 200-dma for the fifth straight time in the recent pullback. It raised guidance yesterday and said november orders remain strong. It also bounced over $31, which would have been a PnF reversal down and remains in a column of "X." I like that big bounce we got, and would look to enter on a move back over $34, which established our current "X" column. Yesterday's 21% increase in mortgage applications can be seen as bullish, as well and is probably an indication of sales numbers about a month ahead of time.

 
 
  Linda Piazza   11/21/02,  11:49:54 AM
Interesting discussion about potential H&S formations, Jeff. I've seen some TA books that suggest that because H&S formations are so reliable (if volume considerations are factored in, too), it's possible to play them as soon as that right shoulder begins to form, but waiting until the neckline is broached is always safest. As you seem to be pointing out, they're only potential H&S formations until that happens. Pring comments that H&S formations can fail, and when they do, the reaction is usually dramatic, as traders realize that their original pessimism wasn't valid.

 
 
  Jim Brown   11/21/02,  11:44:52 AM
Looks like the rally ran into that resistance at 8795 and developed a clear case of conscience. The A/D line has lost -300 positive issues in the last 20 min. It appears there was a sell program triggered when the Dow hit 8795 and we will need to work through that supply before the markets can make another breakout attempt.

 
 
  Jeff Bailey   11/21/02,  11:37:54 AM
Seeing too many head/shoulders? ... I had a great e-mail discussion with a fellow trader earlier in the week about many trader, not just one, trying to play some POTENTIAL head/should tops, and even POTENTIAL reverse head/should patterns. The conversation got "heated" at times in what really makes a good head/should or reverse head shoulder pattern.

The "argument" was .... at what point is the right shoulder really not a right shoulder at all? I used the term "hunch back of Notre Dame" to describe those "head/shoulder" patterns where a bear continues to play the POTENTIAL pattern even as the right shoulder grows higher into the "ear" of the head. My argument is that the right shoulder of the pattern that might POTENTIALLY be in pay shouldn't grow into the ear.

Well... after a great discussion, here's a chart that the subscriber sent me today. I think it's funny. He calls it the "hunch back" formation. Link

I've said before... we have a great group of subscribers here at OI. Some have a great sense of humor too!

 
 
  John Seckinger   11/21/02,  11:34:27 AM
All eyes appear to be on Dow 8800. Note: Philadelphia Fed report is due out at 12:00, and expectations are for a -0.5 number versus -13.1, month prior. The recently-reported Empire State Index was stronger-than-expected, and economists are most likely trying to draw parallels to Philadelphia. Traders will also look at the new orders number, since it was negative in October. Economists will probably also like to draw a correlation from Phila to Chicago (next Friday) to December 4th's ISM report. There used to be a 83% correlation from Chicago to ISM, but it has dropped significantly over the last few years.

 
 
  Jim Brown   11/21/02,  11:28:24 AM
The next resistance level on the OEX is 485 and 960 on the SPX. This equates with the 9050 level on the Dow. If we get over that earlier Dow 8800 resistance the bears will be giving real thought about closing shorts and switching sides. This is far from being a guaranteed event. We are extended here with no positive economic news other than HPQ and the Jobless claims. I have noted before that those claims numbers are continually revised upward the following week. Last weeks claims were revised upward to over 400,000 but nobody seemed to notice. This weeks 376,000 number was based on a four day week and is not relative to anything. Next weeks claims should be the number to watch. Any bets for over 400,000?

 
 
  Steven Price   11/21/02,  11:20:56 AM
One more note on covered writing being the most common option trade: Many brokers recommend this strategy to their clients, whithout understanding option pricing, or risk parameters.

I once interviewed for a job many years ago with Merrill Lynch, when I was considering a move from Chicago to Washington D.C. (where there is no trading floor). The branch manager interviewing me was excited at the prospect of having a trader in the fold, and spun the computer on his desk around and started telling me about the covered calls he told his client to sell, in order to collect the premium. I asked him if he would ever tell his client to simply sell naked puts on the stock. He laughed and said "Of course not, that's too risky." I informed him that the risk parameters were exactly the same. His eyes glazed over and he needed a long lesson in why that was true.

If you read the articles on our site, it is highly likely that you know far more about options than your broker. Keep this in mind when the broker recommends covered writing every month. While it can certainly be a profitable strategy, educate yourself, rather than relying on the advice of someone who knows only one strategy because his company told him to recommend it.

 
 
  Jeff Bailey   11/21/02,  11:20:00 AM
The 11:00 AM Intraday Update has been posted. Link

 
 
  Jim Brown   11/21/02,  11:18:31 AM
The SOX just broke resistance at 363 and is nearing 366.

 
 
  Jim Brown   11/21/02,  11:17:41 AM
The next test for the markets today is Dow 8799 which is the intraday high from Nov-6th. This is the strongest resistance level in our immediate future. Once past that resistance we should be clear to 9000.

 
 
  Jonathan Levinson   11/21/02,  11:16:58 AM
The five year yield has made it higher still, now up 10.6 bps on the day, and NDX volatility has come up off its lows, now down .88 at 36.88. The put to call ratio came it at .7, then rose to .82, and the latest reading appears to be delayed. That looks like far too much bearish trading going to signal a top to this move, which is great news for bulls. Perhaps the only residual question market is the unhedged metals index, the HUI, which is positive at 115.53, +.36 on the day. However, we note that this is an index comprised of equities, and it's obviously being buoyed by the rising tide. COMPX currently 1460, SPX 930.

 
 
  Linda Piazza   11/21/02,  11:16:24 AM
VOD Update: 19.70, up 0.55. For those of you who bought Vodafone early last week after the first buy signal, or who bought Monday morning after VOD moved above the 18.68 high of its Friday inside day, you're continuing to add to your profits. Vodafone has continued to add to its P&F target, too, with the current target at 27.50. All daily stochastics are in nosebleed territory, although none have yet shown a propensity to turn down. There's some resistance at the nice round number of 20, up to about 21. That may be a handy place for a pullback. There's some support in the 18.20 area, where it consolidated before this last push upwards. The main support lies below at 17, its breakout point and also the level of its 22-dma. Think about your original profit goals and other account management issues as you make decisions about staying in this trade.

 
 
  Steven Price   11/21/02,  11:10:21 AM
Dear Steven: Great Market Wrap today. I especially liked the part explaining why volatility drops during market rises. I would appreciate it if you would explain one part to me. You said regarding covered call writing" This activity also provides a tremendous amount of selling pressure on options during market rallies" I do not understand why there would be more selling pressure during market rallies than during market downturns. Thank you. Regards Jim

Jim, Thanks for the question. When investors sell covered calls, as they purchase stock, this leads to a stream of orders on the sell side. Like any product, excessive supply leads to lower prices. As a market maker, I am only willing to buy so many calls at a certain price, before I lower that price. If the sell orders continue, then I lower my bid a little more. Once I own a lot of option premium, I am willing to buy less and less, due to time decay. Therefore, I lower prices on other options as well. It is the fact that the most common option trade in the market is stock purchasers selling calls. The more stock purchasers, the more call selling.

Since MMs hedge most of their trades by taking the opposite direction with the underlying stock, being long calls or puts has a similar effect, allowing a market maker to make money in either direction, as long as the stock moves. Example: I buy 10 ATM calls with a 50 delta, therefore shorting 500 shares to remain directionally neutral. If the stock goes down, I make money on the short stock; if it goes up I make money on the calls. Therefore it doesn't really matter whether I buy a call, or a put, as long as I trade stock against it.

The risk is if the stock goes nowhere, and the options decay. Therefore I am only willing to take so much of that risk before I lower my price.

 
 
  Jim Brown   11/21/02,  11:05:44 AM
If anyone doubts the underpinnings of the Nasdaq rally you should check out the move in the SOX.x. It is up +25 points (+7.5%) and has broken away from congestion. It is currently at resistance of 363 but a breakout from there could be huge. It appears traders are buying chips as the leading tech sector and one that must improve first before a broader Nasdaq rally can take place. Breaking through 363 is going to be tough and a break here would signal the beginning of the next leg up on the Nasdaq.

 
 
  Jonathan Levinson   11/21/02,  10:57:37 AM
The QQV is now down 1.38 to 36.49 and the FVX is now up .80. It looks like the bond and QQQ option markets became believers in the past fifteen minutes.

 
 
  Jim Brown   11/21/02,  10:55:15 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
We were triggered on the LONG signal at 10:49:46 when the SPX traded above 927. OEX 474.32, DIA 87.68, SPY 93.28, DJX 87.52, NDX 1106.58, Compx 1453.74, QQQ 27.48, SP02Z 927.50, ES02Z 927.50, NQ02Z 1107.00.

The initial stop loss will be SPX 921.

Now that the Dow is over 8750 and Nasdaq Compx over 1450 the shorts should be running scared and this could turn into a significant move if the short covering turns into a rout.

 
 
  Jeff Bailey   11/21/02,  10:43:04 AM
Leading Indicators ... The index of leading indicators was unchanged in October, slightly better than the -0.1% forecast.

 
 
  Jonathan Levinson   11/21/02,  10:40:26 AM
The TRINQ remains low at .19, but it could hold this level all day, as we've seen recently. The QQV, however, is down a mere .02, flat on the day, at 37.74, while the five year yield has barely budged all morning, currently up 6.1 bps. These indicators are showing me no rally whatsoever. Of course, price is the only action. But the options and bond markets are not participating in this equity price run.

 
 
  Jim Brown   11/21/02,  10:32:36 AM
Futures are over the 925/1100 levels mentioned earlier but they are struggling. It appears there is increasing resistance lurking just above those levels and that resistance is not giving up easily. The Nasdaq Compx is pulling away to 1450 and the Dow is starting to press 8750. We could be ready for a pop if that futures resistance breaks.

 
 
  John Seckinger   11/21/02,  10:29:54 AM
Looking at the Nasdaq, while prices (1444) are above the 1419 high set on November 6th, the RSI reading today (64.19) is under the 69.10 level seen during that high. By definition, this is a bearish divergence, since a security's price (read: Nasdaq) makes a higher high that is not confirmed by a higher high in the indicator (RSI). The same thing is seen in the Dow. With this said, the Dow makes a new high; therefore, probably best to wait for confirmation.

 
 
  Linda Piazza   11/21/02,  10:28:43 AM
KO Update: 45.30 -0.78 as of this writing. For the last week, KO moved up and tested its descending trendline from July, and failed there. Volume had been lower than average daily volume as it moved up and tested that line, as should be true if the put play is to remain valid. Stochastics have rolled again, and KO again appears bent on testing that six-year support between 43.50-45.00. Although the charts still look bearish and KO is still in a descending channel, so far it's bounced from every test of that level. The rapidly decreasing VIX has impacted the value of the JAN puts. If this test doesn't result in a failure at support, it may be time to exit this put play.

 
 
  Jim Brown   11/21/02,  10:27:15 AM
We got the expected post open dip and it appears Nasdaq 1440/SPX 922 held. We are getting the second entry bounce and now the fun begins. This will be the real directional test. The A/D line has been flat at +1700 issues for the last 30 min and advancing volume has slowed. It still appears the market wants to go up but the conviction is still lacking. I am surprised we have not seen more short covering on the Nasdaq with the 1425 level broken. Traders are either expecting a retracement before the close or most saw the handwriting on the wall and exited over the last few days. Look for a resistance test in the next few minutes.

 
 
  Jonathan Levinson   11/21/02,  10:23:37 AM
The fed has announced an overnight repo of 6.25B, for a small net addition of $1.5B.

 
 
  Steven Price   11/21/02,  10:19:36 AM
Trimeris (TRMS): $49.90 (+1.04) We aded TRMS as a put with possible entries at the PnF sell signal of $47, which we never got, or a rollover under $50. We are approaching the second possible entry, so I'll look for a rollover from this level, which previously acted as support. If the stock breaks over $50 and holds that breakthrough, then I'll close it without getting an entry point.

 
 
  Steven Price   11/21/02,  10:14:27 AM
Imclone (IMCL): $13.84 (+0.36) OI call play IMCL found resistance just over $14, at around the same point it was turned back after jumping on takeover rumors a few days ago. I like the upward trend since the pullback after the rumors, but I would hold off on new entries at this time for some signs of intraday support over $14, or a trade above $14.50.

 
 
  Jim Brown   11/21/02,  10:09:38 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go SHORT the broader market with an SPX trade below 920. If the tone changes we have a huge spike to retrace.

 
 
  Jim Brown   11/21/02,  10:04:29 AM
Swing Trade Entry Point Alert - OEX/SPX/DJX/DIA/SPY
Go LONG the broader market with an SPX trade above 927. I see the SPX as the controlling index this morning.

 
 
  Jim Brown   11/21/02,  10:02:07 AM
S&P futures came to a dead stop at 925 and Nasdaq futures at 1100. A break over those levels would be bullish confirmation of a continued move.

 
 
  Jeff Bailey   11/21/02,  10:00:45 AM
Tellabs (TLAB) $8.93 +2.28% ... from recent bullish profile near $7.50 and the January $7.50 calls. Stock reached upper Bollinger Band of $9.04 Link this morning, with morning high trade of $9.02. Short-term type of swing-trader most likely books some gains if traded December options. January call trader looking for a little more upside. TLAB p/f chart Link

Wireless Telecom (YLS.X) 57.08 +3.25% ... also at upper end of Bollinger Band, but here the band his trending higher. Link

 
 
  Jim Brown   11/21/02,  9:59:59 AM
We are trading above initial resistance on the SPX/OEX and Compx. The Dow is still below the 8750 resistance level. I was considering going long over SPX 925 but without Dow confirmation I am still leery. I would rather remain flat than jump in at the very top.

 
 
  Jeff Bailey   11/21/02,  9:55:58 AM
30-year YIELD ($TYX.X) 4.996% ... per last night's Index Trader Wrap regarding 10-year YIELD ($TNX.X) Link and this morning's 09:00 Update, along with previous bullish profiles in 30-year YIELD calls.

Most likely, correlated at 10-year YIELD of 4.15% break higher with a 30-year YIELD break higher at 5.0%. Correlative trade target for 30-year YIELD based on 10-year retracement bracket shown last night, would be 5.325% or close to that level, based on the 10-year YIELD's reverse head/shoulder pattern.

Note... equity bulls like that 10-year 4.15% YIELD trade today. Gets a triple-top "buy signal" on YIELD (sell on the bond) and turns that YIELD chart's bullish vertical count to 46, or 4.6%.

Thinking... if they'll sell the "safer" 10-year, then high odds they'll sell the riskier 30-year YIELD too! Link

Bond action looks quite bullish for equities.

 
 
  Jonathan Levinson   11/21/02,  9:55:41 AM
The last intraday candles on the SPX aren't even in the upper bollinger band, but printed completely outside it - check out the 15 minute candles. I've never seen that... though I rarely watch the bollinger bands closely. More than half a candle's violation of a bollinger band is a reversal signal, for whatever it's worth right now.

 
 
  Steven Price   11/21/02,  9:54:49 AM
Forest Labs (FRX): $105.01 (+1.51) Interesting action in OI call play FRX lately. After entering at $98.75, the stock found resistance at $103.50, before its recent breakout up to 106.35. It pulled back the last couple days , but just as it looked like it was ready to rollover yesterday, buyers came in and closed it right at $103.50. Coincidence? Not likely. Nice action on the stock back over $105. Entries can look for intraday support here (over $105), after the evidence of higher consolidation at $103.50. More conservative traders can wait for a new high over $106.35. Merrill Lynch recently raised estimates and also the price target to $115. Not that I put my faith in brokers' analysts, but its a start.

 
 
  John Seckinger   11/21/02,  9:51:43 AM
One sector outperforming once again is the Semiconductor Sector (Sox), higher by 3.89% at 351 and above the daily pivotal area of 343. This 343 level was a relative low back on September 27th, 2001, and also a relative low of July of this year. With that said, the next level upward is between 367 and 376. The 367 level was the high on August 22nd, while 376 is a 38.2% retracement level from the high in March to the low in October.

 
 
  Steven Price   11/21/02,  9:49:03 AM
Per Jonathon's earlier comment: "The four-week average of claims fell to 395,750 from 400,250. The last time the average was this low was the week ended Aug. 24." Anyone remember what happened at that time? August 22 was the market high, after rallying 1500 points from the morning low of 7532 on July 24. Now that we are through the August high in the Nasdaq, I'm looking at a break over 925 in the SPX (922.74)as evidence that the bearish head and shoulder pattern has failed. A close above that level would certainly be more decisive than intraday movement only, but an intraday move over that level would be a good start.

 
 
  Jim Brown   11/21/02,  9:46:14 AM
The Dow at 8715 is only -35 points from strong resistance at 8750. The SPX at 923 is only -2 points below resistance at 925. We are nearing the confirmation points for a further rally. We are over the prior resistance and internals are bullish but at 16 min into the trading day the outcome is far from certain.

 
 
  Jim Brown   11/21/02,  9:43:47 AM
We got a nice bounce at the open with the Compx breaking the 1425 ceiling but the other indexes are having trouble at secondary resistance. Once the opening volatility is over we will see how much short covering will appear to impact the rest of the morning.

One thing that traders should be watching is MSFT. The stock has been stuck under $57 for two weeks and even with the positive bounce in the markets MSFT cannot break the $57 level. How far the Nasdaq can run without MSFT support would be the question. INTC is only up +48 cents and Dell +29 cents. This is definitely not a big cap blowout for the Nasdaq, yet.

 
 
  Jeff Bailey   11/21/02,  9:42:37 AM
Syncor Intl. (SCOR) $26.88 +11.15% ... getting upside alert at $27 Link which negates prior bearish vertical count of $4.00. SCOR and Cardinal Health (CAH) have initiated discussions regarding the potential modification of terms to their previously announced merger. While Syncor believes the previous information it has learned in its investigation would not result in failure to satisfy the terms of its merger agreement, both companies say they believe in engaging in discussions regarding the possible modification of certain terms of the merger agreement and presents the best course of action considering recent events.

If short the underlying stock, would stop out on break at $27. If overly put the stock, look to salvage current put premium with today's stock action in response to the above news. Any downside risk in SCOR at this point in my view looks to be only if the deal with CAH were to fall through entirely.

Disclosure.... I currently hold a bearish position in SCOR (Jan. $20 puts).

 
 
  Steven Price   11/21/02,  9:38:00 AM
Genesis (GNSS): $19.85 (+1.85) OI call Play of the Day GNSS is at new relative highs after bouncing off $16 after a downgrade a couple of days ago. Let's look for some intraday support for entry, either over $19, or on a break over $20.

 
 
  Jonathan Levinson   11/21/02,  9:37:50 AM
The indices are pushing higher, a flood of green on my screen, and the TRINQ compressed down to .15, an extreme reading. It just ticked up to .20 as the COMPX pulled off its high by 1 point.

 
 
  John Seckinger   11/21/02,  9:37:31 AM
As the equity markets open higher, it appears as though some of the cash is (once again) coming from the bond market. The 30-year is lower by '20 ticks at 110'17, and momentarily broke under the daily wedge at 110'11 (intra-day low of 110'07). Here is a simple illustration of the wedge: Link

 
 
  Jonathan Levinson   11/21/02,  9:32:23 AM
COMXP gap up to 1431, TRINQ .16, QQV +.66 to 38.42.

 
 
  Jeff Bailey   11/21/02,  9:28:28 AM
January Crude Oil (cl03f) $26.37 +1.07% ... crude continues to show some gains after January contract reached a low of $25.18 on November 13th. President Bush warning of potential drawdown needs should U.S. have to take action with Iraq and supply concerns cited, despite record levels in the strategic reserve. However, it has been noted in the past that the strategic reserve is to be used more for millitary and "times of crisis" than for general public type needs.

I post this more as it relates to prior comments regarding Devon Energy (DVN) $46.55, which traded to the UPSIDE of yesterday's inside day. While DVN finds near-term resistance from trending higher 200-day SMA of $46.66. Near-term, crude price rebound works against a DVN bear near-term.

 
 
  Jonathan Levinson   11/21/02,  9:28:08 AM
The fed has announced a 28 day repo in the amount of $3B, which refunds an expiring 28 day repo of $2B, for a $1B net add. There are $2.5B worth of overnight MSP's maturing today, which is an add of $2.5B. However, $7.25B of 3 day repos mature today, for a drain of $4.75B. We will await this morning's announcement for short term repos/MSP's to determine what the bottom line will be for today- as it stands now, $4.75B is due to be drained.

 
 
  Jim Brown   11/21/02,  9:25:34 AM
The GE news and the better than expected Jobless Claims has not energized the markets as much as you would have expected. With S&P futures only up +3.60 it is not indicating that much excitement. The Nasdaq futures are positive on the HPQ earnings from last night and it is looking like the Nasdaq will test 1425 again.

The key numbers for the morning are Dow 8650 and Nasdaq 1425. Unless we can trade over those levels and do it convincingly we need to be careful about entering new long plays. There is additional resistance just above us at Dow 8750, SPX 917 and 925, OEX 470-472. A Nasdaq breakout should help drag the other indexes along for the ride.

The GE news was expected but the -2,200 Morgan Stanley job cuts and the Boeing -5,000 cuts was not expected. Stay tuned.

 
 
  Jeff Bailey   11/21/02,  9:24:58 AM
The 9:00 AM Intraday Update has been posted. Link

 
 
  Jonathan Levinson   11/21/02,  9:12:20 AM
From CBS Marketwatch: "Initial jobless claims and the closely watched four-week average of benefits requests fell in the latest period, the Labor Department reported Thursday. The four-week average of claims fell to 395,750 from 400,250. The last time the average was this low was the week ended Aug. 24, when it was 394,500. For the week ended Nov. 16, jobless claims fell by 25,000 to 376,000, the lowest mark in four months. The report also showed that the number of people continuing to collect unemployment benefits decreased by 61,000 to 3.58 million."

 
 
  Jonathan Levinson   11/21/02,  9:12:08 AM
GE is now trading 25.54, but the futures are a little lower, SPX +.10 to 918.80, NDX +6 to 1082. The US Dollar Index is down to 105.60. Light selling in treasuries has the FVX up 3.5 bps, TNX +3.7 bps, and TYX +2.8 bps.

 
 
  Jonathan Levinson   11/21/02,  9:11:59 AM
From Bloomberg.com, "General Electric Cuts 2002 Earnings Forecast, to Take $1.4 Billion Charge: General Electric Co. cut its 2002 earnings forecast to $1.51 a share from $1.65 as it increases reserves at its reinsurance unit." Stock is trading at 25.00 on Island ECN. Link

 
 
  Jim Brown   11/21/02,  9:11:08 AM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link

 
 

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