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  Linda Piazza   12/13/02,  4:01:56 PM
Newbies who celebrate holidays this time of year might consider putting some of the books in the OptionInvestor bookstore on your wishlist. Leigh Stevens has written a book on technical analysis, and the bookstore also features my favorite beginning text (because Leigh hadn't yet written his book!), Clifford Pistolese's USING TECHNICAL ANALYSIS. The bookstore also features Steve Nison's BEYOND CANDLESTICKS, another favorite of mine, as well as Jeff's often-quoted favorite by Dorsey on P&F charting.

  Jeff Bailey   12/13/02,  4:00:07 PM
QQQ $25.03 .... session lows here. Will note yesterday that high trade was a penny below my market maker resistance of $26.18 at $27.17, bear that wants to finish flat might get some after-hours action at $25.01, a penny above market maker support of $25.00.

  John Seckinger   12/13/02,  3:52:41 PM
To me, it is extremely suspicious that the Nasdaq took out the low on December 9th by only one point. This is normally a bullish indication, since this 'one-point' new low will at times trigger sell programs and get traders hoping for the big sell-off; only to trap them in the process. It is interesting that the Nasdaq falls 2% and can be looked at as bullish, while the Dow falls 0.92% and could easily fall another 60 points before finding bids. There certainly seems to be a good number of shorts that could get squeezed if the markets begin to turn around.

  Jeff Bailey   12/13/02,  3:46:18 PM
The 3:15 PM Intraday Update has been posted. Link

  Kent Barton   12/13/02,  3:43:22 PM
Reader question: What do you see the AMZN support at? It looked like 21 to 22 to me.

Response: The support on AMZN that I was referring to is the ascending trend of higher lows on the daily chart. Connecting the relative lows from the July, it looks like shares have pulled back to this trend. I would agree with you that this support is in the $21-$22 area. There is some additional support at the 50-dma ($20.51) and $20.00.

  Steven Price   12/13/02,  3:40:33 PM
Swing Trade Signals
I'm seeing no life to this bounce and the COMP just took out the relative low. I'm probably going to head into the weekend flat unless I see something that changes my mind. If this bounce continues to fail I think we could see lower lows again on Monday.

Current readings Dow 8453/OEX 452.92/SPX 891.04/COMP 1366

  Linda Piazza   12/13/02,  3:38:26 PM
The QQQ's fell through the 25.40 level that was 38.2% retracement of the October lows to recent highs. The next important retracement of that particular move will be the 50% retracement at 24.34. Earlier in the week, a reader named Jeff also pointed out that we could also look further out, snapping Fibonacci retracement levels on the August to October fall and looking for support or resistance lines from those retracement levels, too.

  John Seckinger   12/13/02,  3:38:12 PM
With only 25 minutes until the close, a close here will break both horizontal and vertical support. Yes, there is one more sign of hope for bulls, and that level does come in at 8400 (an "efficent" area developed during the rise higher towards 9000). Here is an illustration of what I am talking about: Link

  Jim Brown   12/13/02,  3:36:38 PM
I know the pessimism is pretty thick right now but we have the potential to close very close to strong support and at the end of a two-week slide. When everyone is thinking the worst is when the markets tend to rebound the strongest. I obviously cannot guarantee this will happen but technically the Dow "SHOULD" rebound from the 8350-8400 level. Whether this potential rebound will happen on Monday or later in the week from a lower level is or course unknown. What we do know is that the holiday week is almost ALWAYS bullish. We do know that the January effect for small caps normally starts next week.

If you remember several weeks ago I pointed out how the big money crushed the markets just before a bullish period to profit from the holiday rebound. They pull the bids and try to push it down in order to find real support before putting big money to work. In my opinion this is what is happening today. They would love to close right on support and then launch a two-week run right through the holiday week hoping to develop unstoppable momentum.

Also, next week is triple witching options expiration week and the recent trend is for the week before to be negative, not the actual expiration week. The week after expiration has been up.

These are just random observations but some things I think every trader should consider before donning that bear suit again.

  Linda Piazza   12/13/02,  3:31:57 PM
The $COMPX has just moved below Monday's low of 1367.07.

  Jonathan Levinson   12/13/02,  3:28:01 PM
HUI and XAU are tacking on some gains here, HUI +2.48 and XAU +1.81, with the TRINQ above 3 now. Perhaps traders are piling into gold because of Arch's alleged warning (grin). While bulls are breathing a sigh of relief that the 1367 level on the COMPX has held, the lack of any significant bounce should be keeping their champagne corked for the moment. This has been an impressively tight day in the markets so far.

  Jonathan Levinson   12/13/02,  3:18:02 PM
Inquiring minds need to know what he is thinking? What did he say exactly? Doesn't say on his home page, but it hsn't been updated lately.

Honestly, I don't know. I'm not an Arch subscriber, and I repeated everything I heard on the subject. If anyone has a line on this, please let me know.

  Linda Piazza   12/13/02,  3:16:54 PM
Despite the latest downdraft in the markets, the adv/dec numbers have remained about the same as the last time I reported them (.56 versus .64 on NYSE issues and .46 versus .45 on Nasdaq issues). What has worsened is the proportion of up volume to down volume, perhaps showing that market participants are selling the declining issues more heavily than they were earlier. That's why I like to watch both figures.

  Mark Phillips   12/13/02,  3:14:16 PM
Looking For A Bounce LEAPS watchlist play DELL has been drifting lower ever since the company's earnings release last month and it looks like we could see a solid long-term bullish entry, perhaps as early as next week. The stock is rubbing noses with the 200-dma at $26.57 today, and with significant support between here and approximately $25.75, we should see the decline begin to slow. Another important metric is the rising trendline that began last September. That trendline currently rests at $25. It certainly isn't a coincidence that the bullish support line on the PnF chart is resting at $25 as well. The closer we get to the $25 level, the better the entry point looks in my opinion, given the solid fundamentals at the company. Remember, it will take a trade of $23 to negate the stock's current bullish vertical count of $41. It may take quite a while to get there, but that's the advantage of LEAPS -- they give us plenty of time to be right. If looking to enter the play, remember to wait for the bounce from support!

  Jonathan Levinson   12/13/02,  3:13:50 PM
Please note that I doubt anyone's ability to read the future, Arch include. I'm just passing along the message. I know some readers swear by him, and others, such as myself, have no clue as to how astrologers can possibly predict market movements or current events.

  John Seckinger   12/13/02,  3:10:16 PM
I'm looking at the 5 minute chart of the Dow that you just posted. You said that when prices rose above the 50% level the objective was the high during the first five minutes of trading (8536). Are you saying that once the 50% level is exceeded, this level based off the first five minutes is always the next target?

Response Yes, once the 50% level is taken out, either the high or low during the first five minutes is the always the next target (depends on the initial move). This is simply a pattern recognition based on a five-minute chart. Since the 85536 objective wasn't hit and the Dow came back to the 50% area, it shows weakness in the market. For an article on this subject, please see link: Link

  Linda Piazza   12/13/02,  3:04:25 PM
As you make end-of-the-week trading decisions, remember that OTM December options will see a lot of decay in value over the weekend.

  Jonathan Levinson   12/13/02,  3:01:13 PM
Arch Crawford watchers are reporting that Arch recommend that bulls and bears alike "pray" that what he's imagining doesn't come to pass over the weekend. Being out of step with the motion of the heavenly orbs but being a big fan of Arch's mellifluous voice, I pass on the information with neither verification nor endorsement. I note that the COMPX has just printed a string of fresh lows, and the TRINQ has made it to nearly 3.

  Jeff Bailey   12/13/02,  2:56:55 PM
QQQ $25.10 -3% .... seee ya! $25 coming up after break of intra-day lows. For QQQ bear short between $27-$26.18, resistance now should be firm at $26.18. On trade at $25 near the close, may leg further short/put as risk becomes $23.82. Still, just partial it, and ideally look for some type of rally back near $25.75 as short on rally entry.

  Linda Piazza   12/13/02,  2:50:46 PM
More about the fish that got away: UNH now 81.38, down 2.38. So far, UNH has remained above the final resistance in the 81 area. Psychological resistance lies just below at 80, too. A drop below 80 would ordinarily make a good entry, but not on a Friday afternoon of a down week, especially for a stock still on a P&F buy signal. In retrospect, yesterday afternoon when I mentioned putting the stock on your watchlist would actually have been an ideal entry point, but sometimes you just miss these good entries. There will be another stock and another good entry.

  Jeff Bailey   12/13/02,  2:49:37 PM
PHLX Defense Index (DFX.X) 153.98 -2.12% ... similar components to DFI.X, and technically weaker. Still.... will begin looking through some potential candidates, most will undeoubtedly look weak, and may well be headed lower. Component symbols... (ATK, BA, DRS, EASI, EDO, ESL, GD, GE, GY, ITT, LLL, LMT, NOC, RTN, TDY, UTX). Things I would look for.... stocks that have achieved or are close to achieving bearish vertical counts, stocks with good RS versus the SPX, some meaningful "buy signals" close by that would correlate with a breakout in the defense indexes.

  Steven Price   12/13/02,  2:47:13 PM
Hi Steve: Any comment on IGT? Regards, Gary & Liana

International Game Technology (IGT): $73.81 (-2.19) Funny you should ask. I have put it on my list for discussion at today's meeting. I like the breakdown below the 50-dma (74.30), but I also see support throughout the next dollar below the current level. A trade of $73.00 would create a triple bottom breakdown on the PnF chart and $72.00 would get us past a bear trap.

  John Seckinger   12/13/02,  2:46:21 PM
Jeff, it is my belief that most H&S formations on shorter-term averages do fail. I don't have any quantifiable evidence, just my belief. We were looking at some patterns, and one that comes to question is Bema Gold (BG0) on a 15-minute chart. Ok, looking elsewhere, the XAU index is higher by 2.2% at 77.05 and near the 77.08 intra-day high. Are these gold players betting on a geopolitical event over the weekend, or is it simply buying based off a weak dollar and soft economic news?

  Jonathan Levinson   12/13/02,  2:20:45 PM
The US Dollar Index actually made it up to the 104.40 area on that spurt of buying in the early afternoon- was it foreign buying that spiked the indices for that brief moment? Coming off its highs, the USD is headed back down and is just above 104.00, as the QQQ and COMPX return to near their lows of the day. The latest p/c ratio printed .85, as the increase in bullish speculation continues.

  Kent Barton   12/13/02,  2:18:06 PM
Running through the NASDAQ-100 in preperation for the Friday pick meeting, a few stocks popped up as possible plays. Long: ADBE and AMZN (both pulling back to support) and Short: CEPH, MOLX, PCAR.

  John Seckinger   12/13/02,  2:16:35 PM
How is my wildcard Sox index doing? Currently lower by 2.62% at 312 and right on a few shorter period moving averages. The aforementioned bearish trend line is above at 322, but selling might not pick-up unless 310 is taken out. Another note on the Dow: It looks like we will have another down week (two in a row), and, as pondered on Monday, there are odds of selling picking up on Friday late in the session if longs know there is no way for a net gain. Should be a good few hours left to the close.

  Linda Piazza   12/13/02,  2:15:47 PM
A quote from the President's update on smallpox vaccinations: "Our government has no proof that a smallpox attack is imminent," says President Bush, "yet it is prudent to prepare for the possibility." He is ordering that the military in some areas receive the vaccination. He will receive the vaccination along with the military, not willing to order the military to do something he's unwilling to undertake himself, he says.

  Steven Price   12/13/02,  2:01:27 PM
Hi Steve, Can you give an idea as to what would be a good stop for a Qs short. I presently have my stop at 26.25. And wher you think the support is?

QQQ: $25.25 (-0.61) The stop of $26.25 is logical, given Thursday's high just below that level. The alternative would be above today's high (possibly at $25.60), to avoid the Qs filling the gap.

  John Seckinger   12/13/02,  2:00:54 PM
Looking at a five-minute chart of the Dow, there is a nice wedge pattern that traders seem to be looking at. Since the top of the wedge is close to the 50% day's retracement, I had to do a quick sketch. Link

  Linda Piazza   12/13/02,  1:57:03 PM
All of this war talk today reminds me of something I recently read. Are we due for a trough war? In 1926, a Russian economist named Kondratieff noted that the U.S. economy had cycled through three economic waves of 50-54 years duration. Waves of about the same duration have been noted in other economies, too, including that of the U.K., going as far back as 1271. Kondratieff broke the 50-54-year wave into three stages: a 20-year movement up, a 7-10 year time of stability or transition, and then a 20-year movement down. (That doesn’t add up to 50-54 years, which bothers the mathematician in me, but my assumption is that these are approximate lengths.) He noted that the 20-year upwave usually begins and ends with a war. The war that begins the upwave occurs at the trough in the economy and is called a trough war. One author, writing in 1974, postulated that the U.S. economy would hit a trough period around 2000. We’re a couple of years off, but if that author is correct, we’re due for a trough war to start that next upwave.

I’m not an economist, so I can’t answer detailed questions about Kondratieff theory. I know just enough to get me into trouble with readers who probably know much more about this particular theory than I do. I am instead a self-taught trader, interested in learning about the long-term forces moving our markets. I encourage you to do the same.

  Jeff Bailey   12/13/02,  1:54:13 PM
War/geopolitical risk? .... With recent goings on in North Korea added to the mix with Iraq, I'm a bit "surprised" that the Defense Index (DFI.X) 516.13 -1.29% isn't finding a bid. Interesting technicals at play here with large triangle forming. Looks range bound but would thing upside of some sort. Setting alert at 526. Link

Hmmm... I really like it when "all the stars" allign for a particular scenario, but the rather anemic action today in defense index doesn't really "confirm" a thought of any type of prolonged war efforts does it? Will see, at least there's an upward trend still intact on the bar chart. Downward trend is longer, thus more powerful, but MARKET doesn't seem to bullish on sector at this point. Good sector to monitor perhaps if "gold bug" and overly bullish on gold. I'd want to see some gains in the defense stocks if leveraged to the hilt in gold.

  Steven Price   12/13/02,  1:53:16 PM
Swing Trade Signals
I've been debating whether this morning's bounce off of the 50-dmas in the Dow and the SPX were the ideal entry points I'd been looking for. However, with the dollar still down on the day and the lower lows and so far lower highs, I'm still not convinced there won't be another leg down. The Dow did make it back up over 8500 briefly, but has failed that level and I am looking for signs of lower resistance. Yesterday we saw resistance at Dow 8550, so we may now be seeing the brief trend of higher intraday highs and higher intraday lows reversing itself back in the other direction.

Current levels Dow 8490/OEX 455.63/SPX 895.43/COMP1375.

  Jim Brown   12/13/02,  1:50:13 PM
This is a very uninspiring day for the bulls. If it had not been for that strong buy program at 12:30 we would be looking at an entirely different market. The lack of conviction by either side is amazing. We continue to nibble away at broad support from 8350-8500 and each dip takes us a little closer to the danger zone. The lack of a meaningful rebound as each of these initial levels are tested is making me wonder about our future after the holidays. I am not worried about the support holding next week but the closer we get to January the more concerned I get.

The Nasdaq came right back to the 38% Fib retracement at 1368 again but the lack of a bounce points to a risk of hitting 1312 which is the 50% retracement level. Where I expected the Dow to test 8750 this week and 8350 next week it now appears those weeks may have been reversed. At least I hope they are reversed. I still have faith that the 8350-8400 support will hold and I would still be a buyer at 8400 with a stop at 8250 in order to profit from any potential holiday rally.

  Kent Barton   12/13/02,  1:49:17 PM
That weakness in MSFT that Linda discussed earlier is pressuring the GSO.X software index (103.51, -3.27), which is giving back a large chunk of the recent gains. Sector bulls will be watching for support at the relative low of 102.74 or the 50-dma at 101.48.

  Mark Phillips   12/13/02,  1:42:54 PM
OMC $66.82 (-2.03) Big drop for OI Call play OMC this morning, but bulls trying to put in another higher low here near the $66.50 level. Normally I'd be thinking about taking an entry near this level, but I don't like the fact that there appears to be no real upside interest. My preference would be to wait for some bullish conviction, resulting in the stock powering back above the $68 level. As it stands right now, OMC is finding mild support in the lower third of its recent range ($64-70.50). If the stock is going to deliver to the upside, its going to need some buying volume to get over the 200-dma (now at $69.06) and then the recent highs near $70.

  Jonathan Levinson   12/13/02,  1:40:57 PM
The put to call ratio has put in an afternoon low of .87. Nothing for bears to cheer about, but it's certainly a move in their favor. The HUI is back up and approaching its highs of the day, with gold +1.90/oz and HUI +1.69 to 138.56. Yields are off slightly, with FVX +4.4 bps, TNX +5.7 and TYX +6 bps. This is a nice, boring range- I can tell because I'm being excited by smaller and smaller moves.

  John Seckinger   12/13/02,  1:39:24 PM
There is a rumor that this weekend's Barron's may contain a negative article on Ebay (EBAY), possibly involving accounting irregularities. Shares of Ebay are lower by 1.70% at 67.56 on 3.4 mln shares.

  Jeff Bailey   12/13/02,  1:37:27 PM
The 1:00 PM Intraday Update has been posted. Link

  Linda Piazza   12/13/02,  1:33:49 PM
When I mentioned earlier that the adv/dec line broke up through its descending trendline, that didn't mean that adv/dec numbers had turned positive, but only that the descent had slowed. The adv/dec line has now come down to retest its descending trendline again, and the adv/dec numbers remain negative, as they have been all day. Current readings are .64 on NYSE issues (up from .44 this morning) and .45 on Nasdaq issues (up from .37 this morning). Down volume continues to swamp up volume, but not by as great a proportion as earlier. New highs and new lows are now running neck and neck.

  Jonathan Levinson   12/13/02,  1:30:58 PM
The dip off the afternoon high has continued, with the TRINQ back up above 2, the TICK.NQ -304, and QQQ back to the low 25.20's. The put to call ratio dropped to .90 on the move, and it appears that there were plenty of sellers for the brief uptick in prices.

  John Seckinger   12/13/02,  1:29:58 PM
I wonder if traders are looking forward to next week's economic data. The date should show an economy trying to rebound. November industrial production is expected to be flat after a 0.8% fall in October. Moreover, Housing starts should show a rebound from the collapese in October and decade high reading set in September.

  Jonathan Levinson   12/13/02,  1:14:23 PM
Good call, Linda! So far it's looking like program trade or two with little to no follow through. Yes I like them Sam I am... Time to watch if it makes another lunge from here, but so far it's not shaping up.

  Linda Piazza   12/13/02,  1:00:58 PM
QQQ: 25.40 is the 38.2% retracement of October lows to recent highs. That level may now serve as resistance.

  Jonathan Levinson   12/13/02,  12:57:48 PM
Looks like that little move is getting bigger, as advancers over decliners increases and the TRINQ slips to 1.85. QQQ is currently 25.36 and the QQV has just gone negative.

  Linda Piazza   12/13/02,  12:57:24 PM
About 12:45 ET, the adv/dec line broke firmly up through its descending trendline from today. We'll see if it holds.

  Jonathan Levinson   12/13/02,  12:55:26 PM
The COMPX has taken a small spike upward (about 3 points) but this jumps off the chart, whic had flatlined. The indicators aren't much impressed, however, as the TRINQ remains at 2.1, QQV +.39, and FVX +.59. Precious metals continue to hold their gains, which is a feat in itself after yesterday's launch. The put to call ratio printed its last reading at .97, back up to early levels and showing a relatively high degree of bearish speculation.

  John Seckinger   12/13/02,  12:54:44 PM
A note on a weaker dollar AND lower bond prices: Treasury Participants could definitely be concerned of "in"flation (not deflation) picking up due to a weak dollar. I would expect to see such fears in the Commodities Index (crx); however, this index is lower by 0.51% at 235. Crude Oil is higher, Natural Gas in high, as well as a bid in Gasoline and heating oil. Just trying to figure this all out.

  Jeff Bailey   12/13/02,  12:54:17 PM
SBC Communications (SBC) $26.26 +2.69% ... with Dow Industrials bidding back and down just 40 points now, SBC has been intra-day strength. P/F chart shaping up a bit and decent pullback entry, stop under $25 and target $28.50, just under 200-day SMA. Link

  Jeff Bailey   12/13/02,  12:51:31 PM
Ryland Group (RYL) $34.07 -2.04% ... Company just announcing that it expects to make at least $6.57 per share in 2003, which is 2-cent above consensus of $6.73. However, for Q1, the company said it sees EPS of $1.00, which would bell well below consensus of $1.12.Link

After triple-bottom at $39 and recent break of trend, would avoid as bullish candidate for now.

  John Seckinger   12/13/02,  12:48:19 PM
Speaking to Jeff, and we are both impressed with the bid in Natural Gas and the weakness in bond prices. Even the bid in the Dow is slightly interesting (could see resistance at 8510). 50% of today's range is 8480, but I will not expect extended weakness unless the 8440 area is broken.

  Linda Piazza   12/13/02,  12:45:10 PM
Yesterday, Jim posted an email from a reader who had calculated the midpoints of several candles on the MMM chart. For those of you not familiar with candlestick charting, I thought I’d explain why Nelson was linking the midpoints of candles to support areas.

First, let’s look at a daily chart of the SPX. Scan across to late July and notice the long white candle that extends from 852.84 to 898.96. This candle is much longer than other candles and has a long real body without appreciable shadows, so it should be easy to spot. That’s the type of candle you want for this method of finding support or resistance levels. After you find that candle, estimate the midpoint and scan across the chart, noticing how many times that area served as support in the intervening months. Link

The exact middle of that July 29 candle lies at 875.90. (898.96 – 852.84 = 42.12. Divide 42.12 by 2 = 23.06. Add 23.06 to 852.84 = 875.90.) In recent weeks, several writers have mentioned that 874-877 area as being strong support for the SPX. It provided support in early September, late October, and mid November. Voila! A magic way of finding support!

Actually, this isn’t magic. It’s logical. It’s analogous to finding a 50% retracement level. It’s just a lot quicker and a lot more fun than using Fibonacci retracement levels. These long candles provide a quick visual clue that’s easy for anyone to see. It works with long black candles, too, and serves to find both support and resistance levels. Just scan charts looking for white or black candles much longer than normal, with long real bodies and without appreciable shadows. A line drawn through the middle of such candles across the length of the chart often helps you pinpoint resistance and support levels.

KO has been a company in the news today. I have a conservative put play in KO, entered when it broken under 47 some time ago. Now that you’ve learned how to use those longer-than-normal white candles, take a look at KO’s chart and see why I mentioned in Market Monitor posts that the 45 level would provide some support and KO might take time to break through that level, if it ever did. Link

  Mark Phillips   12/13/02,  12:43:50 PM
FYI My email server is down today, so if you've tried emailing me, I haven't gotten it. I'll get to any questions as soon as technologically possible. My apologies.

  Mark Phillips   12/13/02,  12:25:45 PM
AZO $68.25 (-5.27) Speaking of the fish that got away, I was leaning bearish on this stock earlier in the week, looking for a failed rally near the $82 level (which at the time was the midline of the 2-month descending channel) to give me a favorable bearish entry. I guess I got a bit too stingy there, as the top for the week came in around $80.50. Earnings were out yesterday morning and the stock has been slammed since then, losing more than $12 since the open yesterday. Apparently the higher levels of inventory revealed in the earnings report sparked a sell-the-news event on the once again stellar earnings results.

Currently, I don't see a winning play in the stock due to the sharp drop that has already taken place. There is some strong support down in the $63-65 area, so further downside ought to be limited. However, it doesn't look attractive from the bullish side right now either, due to all the technical damage that has been inflicted. Yesterday's slide took out the 200-dma and today's drop violated the ascending support line ($69) that has been in place since early 2001 when the stock took off on its meteroic rise from a base near $25. That doesn't even take into consideration the ugly picture on the PnF chart, where AZO has far exceeded its bearish vertical count of $73. Hey Jeff, any guidance on picking a new bearish target based on the PnF chart?

My gut feel is that the stock will likely stabilize above the $63 support level and might even turn out to be a decent bullish play next year, but NOT NOW. AZO has now moved into the watch and wait category.

  Steven Price   12/13/02,  12:21:33 PM
Won't spx snd oex eat up a lot of margin? isn't10 contracts of spxxp 880 $880,000? is there another way to do it?

Traders can also look at the DJX or DIA, which are based on the Dow. Current markets on the Dec 84 calls in the DJX is $1.40-$1.65 and Jan 84 is $2.95-$3.30. Similar markets are found on the DIA.

  John Seckinger   12/13/02,  12:17:12 PM
The Dow continues to remain near the 8470 area, but would not be surprised to see an attempt at the day's low (8422). Bonds continue to post higher yields, while the dollar remains near 104 and looking susceptible to falling further. If the pattern of lower dollar-denominated assets continue, there will certainly be talk of the same type of pattern before October of 1987.

  Jonathan Levinson   12/13/02,  12:13:12 PM
Squinting at the charts, I see what could be a bear flag on the COMPX 5 minute subatomic chart, and a completed but imperfect head and shoulders on the COMPX daily candles. The latest put to call reading is tardy, though the previous reading came in a touch lower at .92. With yields climbing significantly, it looks like a fair quantity of cash growing, and while I don't believe that money flows effortlessly from bonds to equities and back again, others disagree. I'd be short term not bearish here but am frankly surprised that there has been no pop yet off the lows. Continuing to watch and wait. As I typed, the put to call reading for the past half hour just came in at .91- not a significant drop yet.

  Jeff Bailey   12/13/02,  12:08:36 PM
Gold/Silver Index (XAU.X) 75.78 +0.51% ... Jeff, Been doing a little work with eh XAU after its break out. Seems a little suspect to me. If I put a retrace from the June high to July low, I find it stalled just below the 61.8% line ($75.95). This is the same place it stalled in September. Now, I look at the Stoch (21(3),5) and find not only is it overbought, but looking like we have bearish divergence almost confirmed relative to price from the last peak early November. I recognize there are other forces at work here (pending war, weak dollar, etc) which could push it further higher but my base technical observation make me hesitate. Comments?

I've had retracement set similar to yours for a couple of weeks, with anchors at high close and low close. I liked the 50% retracement tie in at $72.19 as it correlated pretty close to prior comments about 72.00 being key resistance. Yesterday's upside alert at 72.19 came from 50% retracement. Link

Now.... I don't know as if I "question" the break-out in gold yesterday. I do think were're at a level where some profit targets from those bullish below 72 are looking to pay themselves for risk they took. This is one reason why I profiled 1/2 positions in NEM yesterday on the break in XAU.X at 72.20 and had mentioned NEM last week as bullish candidate on potential break (so traders could develop a plan). Now... trader with partial bullish from yesterday sits and waits, looks to add on further break above 77.35, or pullback to breakout of 72.19.

Good observation and thinking by subscriber, and good reason to not go overboard in gold stocks at current level. However, I'm sure there are some that will question the break out in gold even up to the 52-week highs of 88.65. Nothing wrong with that. It keeps a trader honest and under control.

Now that we've looked at a reason to "not be bullish", turn the table, place yourself short $1 million in XAU.X at 72.19. Are you questioning yesterday's break out in gold? I don't say this sarcastically. Think both sides of things and try and get inside the "market's head" and what other traders/investors might do at various levels. Why, such a sharp reversal on 12/10/02 at 68.30? Could have been BIG bull or BIG short used the weakness to do a little buying. I think they perceived upside more than 76.07 though.

  Linda Piazza   12/13/02,  12:05:08 PM
Reader Question: MSFT: 1. 50 day ma above 200 day ma, bullish; 2. test 200 ma at 52.6; 3. Aug top (support) at 52.45; 4. double bottom break down PnF chart; and 5. day chart gap filled. This stock is a good one for funds' window dressing. Buy here with tight stop?

Response: Great research! You've made some great points about the bullish/bearish signals. Here are a few other considerations as you make a decision. Bullish: Volume has been decreasing as the price falls, so volume is not confirming a fall in this stock. On the weekly chart, there's been a bullish 10-week/30-week MA crossover. Staying above those August highs also keeps MSFT above the peak of its rough double bottom formation.

Bearish: MACD still very bearish on daily chart. RSI is bearish on the weekly chart, as well as a rolling (5)(3) stochastic on that weekly chart. I see overhead resistance at 50-dma at 53.53 (simple) and the 10-week MA at 54.39, and at historical resistance at 53.75, 55, and 55.50. With that P&F sell signal, the bearish cast of the indicators on the weekly charts, and all those clustered overhead MA's, a bullish play at this time wouldn't fit my own trading parameters. That doesn't mean that this won't be another "fish that got away story," but I'm willing to let some of those fish get away if I don't get an ideal entry. You've already noted what should be firm support (that August top), and so would suffer a minimal loss if you elected to jump in on the bullish side, using that as a stop.

  Mark Phillips   12/13/02,  12:05:05 PM
ABC This is the stock we talked about in that Monday article on getting to know a stock. Thanks for the plug, Linda! Sure enough, ABC continues to find support right at the $56 level. This is interesting in light of the continued broad market weakness, and hints of strength building for another rebound. Note that daily Stochastics (5,3,3) are bottomed out in oversold and the volume has been waning for the past couple days. Unless the stock prints 455, the PnF chart is still cautiously bullish, so it may make sense to game a small bullish trade from here. Any decent rebound should have enough gas to top the $60 level, and possibly test the early Decmber highs near $63.

One cautionary note however is the possibility for the stock to form a H&S top and break down from there. If we get a rebound up near the $60-61 area and then another rollover, then I'd be looking to play the downside for a breakdown under $55 and move to new all-time lows. Currently, the stock's all-time low is $53.85, posted last November.

  Steven Price   12/13/02,  11:48:35 AM
AIG $59.61 (-0.48) OI put play AIG has rolled over back below $60, setting a new relative low of $59.40. The stock attempted a rebound, but found $60 as resistance. $60 is the PnF bullish support breakdown level and I like at least a 1/2 position short entry here. More conservative traders can look for a move under $59 or additional resistance at $60 on another failed rebound attempt. .

  John Seckinger   12/13/02,  11:45:59 AM
It continues to be interesting how yields on the ten-year (tnx.x) rise while stocks fall. This is not normally the correlation, and a weaker dollar and potential lack of buying from FNMA is certainly throwing a wrench in the correlation. Going forward, I do expect one of the capital markets to concede and quickly trade opposite of today's trend. See chart of ten-year: Link

  Jeff Bailey   12/13/02,  11:44:31 AM
The 11:00 AM Intraday Update has been posted. Link

  Steven Price   12/13/02,  11:43:10 AM
Steve , Since we broke the lows for the week shouldn't that take us down furthur? rick

Swing Trade Signals
That last bounce is starting to roll and I'll be watching to see where we get support. If we get some additional support above the 50-dma I may dip my toes in the water with a 1/4 long position. I still think the best entry comes below 8400 in the Dow and with the lower lows this morning, and weak bounce, we could see another leg down to around 8300-8350.

  John Seckinger   12/13/02,  11:21:32 AM
It is reported that equity mutual funds saw $1.8 bln of inflows for the week ending Wednesday, December 11th. About two-thirds of that cash went into the non-domestic sector. There was also a report of $1.2 bln leaving taxable bond funds. This was the largest one-week withdrawal in over a year. One-third of came out of high yield corporate funds.

  Linda Piazza   12/13/02,  11:19:00 AM
You know the stories about the fish that got away? Yesterday, I referred readers to Mark Phillips' weekend column on choosing a stock and getting to know that stock's pattern, watching for a good entry. (Thanks, Mark.) I'd talked about how readers might watch UNH, too, as its behavior was similar to the stock profiled in Mark's article. UNH broke through 85 support in late November and had been coming up to test that previous support, which I thought should serve as resistance. I'd liked the way that volume was decreasing as the price rose to test that former resistance. I'd expected the stock to roll over again as it would also be facing the 22-dma at 84.49, the 200-dma at 87.02, and the 10-week and 30-week MA's, also in that 85-87 area. I'd suggested that readers should wait for that rollover, and cautioned that UNH was still on a P&F buy signal and wouldn't give a sell signal until it moved below 76.

Well, UNH didn't roll over. It toppled over. At 82.38 currently, it's down 1.38, but has traded as low as 81.67 this morning. That would have made a good return on the money for an overnight position, but alas, it didn't happen.

What now? Today's low was near the bottom of a gap up from a couple of days ago, and now it appears that UNH will try to retest the top of that gap near 83. If it can push above that gap, that would be viewed as more bullish action than I would like to see in this already aggressive (because of the P&F buy signal) potential put play.

  Steven Price   12/13/02,  11:17:36 AM
Swing Trade Signals
Traders willing to take on a little more downside risk can play the bounce off the 50-dma in the SPX with a small long position. I've thought about putting on a 1/4 long position here, but the bounce just doesn't seem that powerful and we could see another leg down. I

  Jonathan Levinson   12/13/02,  11:03:34 AM
The put to call ratio has just come in higher at .99, while the HUI and XAU are holding in the green but well off their intraday highs. QQV has edged higher though- looks like building fear in the options markets, but what's puzzling is that the indices are remaining near their lows.

  John Seckinger   12/13/02,  11:02:21 AM
There is that 'feeling' that the market wants to try to bounce higher, but not getting a ton of confirmation. The yield curve is steep (bearish for stocks, as bids enter shorter maturities), but not that steep that traders would take profits and enter stocks. The XAU is unchanged, so no clear direction there (if any, would be bearish for stocks). The Sox is down 3.37%, but still above the lows set on the 9th and 10th. The Dow is basically right on the 8469 area, and I would have expected the blue chips closer to 8425 at this time. Just thinking outloud.

  Mark Phillips   12/13/02,  11:00:40 AM
MO $41.33, +0.54. stealth recovery in progress. Remember when this tobacco stock got slammed down to the mid-$30's? Well, don't look now, but the stock has been gradually advancing in what looks like a flight to quality. This is another stock we've been following in the LEAPS column due to the fat (and likely very secure) 6.28% dividend yield. While LEAPS holders don't get to harvest that dividend, they do reap the benefit of the rising stock price caused by investors who want the dividend. With even the 30-year bond only offerring a relatively-paltry 4.9%, investors in search of an income stream will be hard pressed to find a better value than MO.

That said, MO is coming up on some formidable resistance. First there is the descending trendline from the June and August highs, which will come into play near $42.50 and then we have solid shart resistance in the $43-44 area. And lest we get too excited about the prospects of a return to the highs anytime soon, there is the PnF bearish resistance line looming at $45. I expect the stock to churn through these levels, but at the same time I don't expect it to be an easy battle.

  Linda Piazza   12/13/02,  10:47:29 AM
Now that the markets have had time to digest this morning's economic news, it's time to look at volume patterns. On NYSE issues, adv/dec reads at a decidedly negative .44, and on the Nasdaq, it's .37. Are these numbers low enough to vote for a bounce, in a contrarian view? Possibly, but I've seen them this low other times recently. Up/down volume is 60/190 on the NYSE and 48/347 on the Nasdaq. Surprisingly, new highs are above new lows on both markets, reversing a recent trend of more lows than highs. On NYSE there are 15 new highs to 10 new lows, and on the Nasdaq, 23 new highs to 19 new lows.

  Jonathan Levinson   12/13/02,  10:39:59 AM
The COMPX is taking a pause so far just off the week lows, while the TRINQ stays in neutral-to-high sell territory at 2.28, QQV +.42, a very slight gain, and yields are actually positive. There's clearly bullish sentiment at work here, the expectation of a bounce. Unfortunately for bears, the put to call ratio made it up to .96 on this dip, which could support that bounce. Precious metals, however, continue to hold their gains. With yields climbing slowly and a high p/c ratio, a bounce looks likely, but so far it hasn't come. An interesting morning.

  John Seckinger   12/13/02,  10:39:41 AM
So far the downward pattern is still holding, as the most recent rebound hit only 8463 and not the 8469 low. There should be some support in the Dow near 8400, and bears will most likely give it everything they have in order to close the market around these levels or lower. A lot of shorts that have the potential to get squeezed? Absolutely, and that is why levels are so important. Just a small rise back above the 8469 area would take my sentiment to neutral levels.

  Linda Piazza   12/13/02,  10:23:38 AM
Interesting to note that the $COMPX has stayed above its Monday lows, while the $NDX did not. I took a look at the Russell 2000 and noted that it hasn't yet come anywhere near its Monday lows. This weakness seems to come from the big caps, then, at least in the Nasdaq.

  John Seckinger   12/13/02,  10:22:27 AM
Definitely weakness in the Greenback is a factor today, as Jon mentioned. Higher gold prices and worries over economic growth is likely the culprit. The dollar traded at its lowest level versus the Euro since January 2000. The Eurozone is only strong on a relative basis, and there is certainly talk that Bush would like a weaker dollar to help multinationals.

  Mark Phillips   12/13/02,  10:17:58 AM
NEM 28.81, +0.70. Charging to new recent highs. If there's one area of the equity market that should continue to benefit from the weakness in the dollar, it's the gold stocks. With February gold futures (GC03G) charging to new multi-year highs ($336.70) this morning, NEM is further extending its breakout over the top of the neutral wedge we've been talking about in the LEAPS column for weeks now. Turning to the Point and Figure world, we now have fresh PnF Buy signals for Gold Futures, The XAU index and NEM, reinforcing the longer-term bullish case for the yellow metal and those stocks associated with it. NEM is reaching mild resistance near $29 now and looking like it wants to test $30 in the near term. I would not favor chasing the stock higher at this point, as the test of $30 resistance will likely give us our next pullback in the stock. The depth of that pullback will allow us to gauge the stock's strength and assess the best area to initiate new positions. Right now, I'm leaning towards the $26.50-27.00 area as the next likely entry level on a pullback, due to the support (old resistance) at $26.50 and the 200-dma at $26.88.

  Steven Price   12/13/02,  10:16:16 AM
Swing Trade Signals
The SPX is sitting right on its 50-dma of 888.88, currently trading 889.30, with a low of 888.48

  Steven Price   12/13/02,  10:13:31 AM
Swing Trade Signals
Daily lows are shot in all broad market indices. I'd like to see some speed to the downside so we get a look at a possible bounce. I am a little concerned entering over the weekend, but support is support. In any case, we are not quite there yet, so I'll bide my time.

The Semiconductor Index (SOX) 309.18 (-12.05) this morning's chip downgrades sent the sector rolling, and we have broken through previous support at 310. However, we have the recent low at 307, 50-dma at 302 and round number support at 300. This range is pretty congested, so I'd like to see a break below 300 before considering a short here.

  Jonathan Levinson   12/13/02,  10:11:26 AM
The Federal (un)Reserve(d) has added 7.25B via 4 day repurchase agreements, for a net add of 500M. This is a very slight addition, but the fed can be seen here to be maintaining a much higher level of liquidity in the markets than we've seen in previous months. It is my unscientific opinion that 4 day or 28 day repos have a greater impact than overnight repos, because the purchases in the markets can be made more gradually and held- imagine if you were forced to close every position within 24 hours of opening it? With a 4 day repo, the flexibility given to the 22 primary dealers is much more substantial. Bears should keep a close eye on their positions. 7.25B is enough for a signficant ramp job, should the fed's dealers be focusing on equities. There might be more significant priorities, such as attempting to arrest the slide in the dollar (though 7.25B is chicken feed in the currency markets), attempting to keep a lid on gold, or buying bonds.

  Jeff Bailey   12/13/02,  10:10:25 AM
Treasury YIELDs HIGHER while stocks lower. J. Seckinger makes some notes at 09:35:07 regarding FNMA lack of potential buying. I might also make note that weaker U.S. Dollar and selling in Treasury could also be due to foreign capital leaving the U.S., perhaps ahead of potential war efforts and recent N. Korea developments.

Gold/Dollar relationship may be the offsetting correlation against equities to follow right now. Seems to have given us "heads up" for equity weakness yesterday.

  Linda Piazza   12/13/02,  10:08:40 AM
And there goes the SPX. At 1373.99 as of this writing, the COMPX is the last holdout, still above this week's low of 1367.07.

  Linda Piazza   12/13/02,  10:04:32 AM
So far, the COMPX and SPX have managed to stay above this week's lows (see my 9:46 post), but the OEX and DOW have dipped below theirs.

  Jonathan Levinson   12/13/02,  10:04:07 AM
HUI and XAU are showing uncharactistic volatility today after their uncharacteristic jumps yesterday. HUI currently +1.22 to 138.09 and XAU +.60 to 75.99.

  John Seckinger   12/13/02,  10:03:29 AM
Nice to see technical analysis work. The Dow used 8469 as a pivot, retraced 50% of the range, and is now falling. Now this 8469 area should turn from a pivot to resistance once 8455 is taken out (I like to use 10-points below, so that means a print of 8445). Note: Sox is down 3.4%.

  Steven Price   12/13/02,  9:59:31 AM
Welcome back to the Monitor, Mark!

  Steven Price   12/13/02,  9:58:08 AM
Swing Trade Signals
So far we got a bounce at recent lows in the SPX and OEX, while the Dow set a new relative low. The COMPX still has some room to fall before testing 1367. Current reading are Dow 8481/OEX 455.18/SPX 895.56/COMP 1381. Morning lows were Dow/8455/OEX 453.75/SPX 892.87/COMP 1379. So far the bounce hasn't shown that much strength, so I don't think this is the blow-off bottom before a big rally like we've seen at the last two bottoms.

  Mark Phillips   12/13/02,  9:57:26 AM
MMM 123.04, -0.61. New OI Put play broke below both the 200-dma and $123 support this morning before the initial rebound. So far the rebound has been rather tepid. So long as the stock continues to find resistance below the 200-dma, new entries look attractive here. I was going to say that more conservative players may want to wait for a declilne under $122.72, which is the 38% retracement of the stock's rally off the October lows. While I was typing, the stock fell down to a new low for the day at $122.62

  Linda Piazza   12/13/02,  9:55:11 AM
A reminder: that COMPX 1367.07 low from Monday is also the site of the 38.2% Fibonacci retracement from the October lows to the recent highs, so it carries significance beyond being this week's low.

  John Seckinger   12/13/02,  9:52:31 AM
The old H&S neckline profiled in the futures wrap for the Dow comes in today at 8493, and will trend upward slightly throughout the session. Another note: 50% of today's range so far is 8496. The Dow is currently at 8491.

  Jonathan Levinson   12/13/02,  9:52:26 AM
Michigan Sentiment 87 vs. 85 expected.

  Jonathan Levinson   12/13/02,  9:47:37 AM
The fed has 6.75B in overnight repos expiring today, for which we await the announcement. Given the strength of the selloff so far, I'd be surprised if they don't launch a repo here to cover it. The annoucement should be out within the next 15 minutes.

  Linda Piazza   12/13/02,  9:46:13 AM
John listed the December 10 low for the DOW as 8469. I listed the QQQ low at 25.20. Other lows this week to watch are as follows: COMPX 1367.07, SPX 891.97, and OEX 453.99.

  Jeff Bailey   12/13/02,  9:44:33 AM
Buy/Sell Programs HL Camp & Company has their computers set for program buying at $0.25 and set for program selling at $-2.72. The premium symbol for q-charts is $prem.x . Had sell programs triggered at the open this morning.

Traders might want to look for "sell program" alerts at SPX.X 898-900 on any intra-day rally.

  John Seckinger   12/13/02,  9:40:50 AM
As a reminder: The Preliminary December Michigan Sentiment Report is due out at roughly 9:50 a.m.. In November, confidence came in at 84.2. Estimates are for an 85 number. The report is much smaller than the Conference Board survey, and focus more on the household than business; nevertheless, traders will be watching for the release as a barometer as consumers continue to hold up the economic recovery.

  Jonathan Levinson   12/13/02,  9:38:26 AM
The US Dollar Index is back below 104.00.

  Linda Piazza   12/13/02,  9:36:33 AM
KO 44.60, down 1.27. Investors aren't reacting well to Coca Cola's announcement today that it would no longer provide quarterly guidance or update yearly guidance. Disclosure: I have a conservative put play in KO.

  John Seckinger   12/13/02,  9:35:07 AM
The move lower in bond prices seems to be related to FNMA, since it now appears they will not be a large buyers of Treasuries in the near term. Getting to the Dow, we will have a solid range during the first five minutes; therefore, look for the low of the first period to act pivotal over the next few hours. The low has now been set at 8469. Interesting note: The 8469 low corresponds with the low set on December 10th.

  Jeff Bailey   12/13/02,  9:34:32 AM
The 9:00 AM Intraday Update has been posted. Link

  Steven Price   12/13/02,  9:34:04 AM
Regarding Linda's post about the Deutsche's buy rating on Intel, as opposed to sell rating on other semis, such as MCHP: JPM also initiated several chip stocks with underweight rating after analysis of the top three semiconductor end markets - computing, wireline, and wireless communications - indicates all three should remain depressed with the possibility of inventory corrections and pricing pressure through the first quarter. However, it gave underweight ratings to INTC, AMD, RFMD, and TQNT, while giving an overweight (positive rating) to MCHP. That's what I love about the rating business - consistency!

  Linda Piazza   12/13/02,  9:33:53 AM
In the Q's, Monday's bounce came from 25.20, the day's lows. You might watch that area for support today.

  Jonathan Levinson   12/13/02,  9:33:25 AM
Another quote for our trading day:

Louis Winthorpe, III: Think big, think positive. Never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear . . . that's the other guy's problem.

  Jonathan Levinson   12/13/02,  9:31:25 AM
12 point gap down open on the COMPX to 1386, TRINQ 2.33.

  Steven Price   12/13/02,  9:24:58 AM
Swing Trade Signals
So much for that pattern of higher lows in the Dow. We have a recent low of 891.97 in the SPX, with the 50-dma sitting at 889. I expect some type of bounce off those levels, but if we don't get it, then I'll be watching a bounce from Dow 8350 or so for a long entry. I will wait for a bounce, rather than simply picking a bottom. Jumping in short here has limited potential to the downside before we hit significant support, so we'll play that support when we get there. SPX 880 is the corresponding support level.

  Linda Piazza   12/13/02,  9:11:46 AM
Despite an expectation for a flat PPI and core number, the PPI fell .4% and the core number fell .3% this morning. Some attribute the last two month's surprises to fluctuations in the auto market due to the release of new models, saying that the government doesn't do a good job of incorporating changes due to the introduction of new year models. Talk surfaced about deflationary concerns, but some point out that the PPI numbers don't include price increases seen in many services, such as those in medical care and housing. Futures were down before the release of these numbers, dipped further immediately afterward, but DOW futures are now off their lows. The lowest I saw this morning was down 94, and they're now down 80.

The CAC 40 and DAX rose after the release of these U.S. numbers, both avoiding dipping to the 3000 level. The CAC 40 is now at 3093.52, and the DAX at 3072.18, with the FTSE 100 fairly steady, now at 3852.

  Jonathan Levinson   12/13/02,  9:06:19 AM
This is NOT market advice, but does anyone remember the film Trading Places? Clarence Beakes, Randolph and Mortimer? Remember Randolph, upon discovering Aykroyd and Murphy's subterfuge, when he panicked? "SELL MORTIMER, SELL!" Again, it's not market advice, just the reminiscence of this stock operator. The US Dollar index has been turned back from 104.20, while QQQ has slipped another nickel to 25.55. Yields are flat with the FVX negative by 1.5 bps, nothing special considering the selling in QQQ so far.

  Jonathan Levinson   12/13/02,  8:08:59 AM
Gold actually broke 335/oz last night before dipping back and is now trading 334/oz. The US Dollar Index actually broke 104 last night and is now just below 104.20. Bloomberg is blaming this on Iraq inspection tensions and a weak dollar, but notes that is a 5 1/2 year high for the metal. For some reason I can't get a futures quote this morning, but QQQ is trading 25.60, down from its 25.86 close.

  Linda Piazza   12/13/02,  7:20:00 AM
A surprise improvement in the Bank of Japan index of corporate sentiment for large companies, released today, failed to rally Japanese markets. The forecast had been for a minus 13 number, but instead improved to minus nine in December from September's minus 14. Despite this release, the Nikkei fell for an eighth straight day, marking the first time since 2000 that the Nikkei had an eight-day losing streak. Many losses came from exporters as the yen rose against the dollar. This was also true in Europe, where exporters Royal Philips and DaimlerChrylser fell amid concerns that the rise in the euro against the dollar would lead to weaker U.S. sales for these companies. CNBC commentators noted this morning that both the CAC 40 and the DAX now hover around the psychologically important 3,000 level, with the CAC 40 down 1.86% to 3078.98, and the DAX down 1.75% to 3057.54. The FTSE 100 is down 1.82% to 3863.70.

Like many early morning risers, I tend to wake with an optimistic attitude about the day, but overnight news about European and Japanese markets hasn't provided me with much cheerful information to include here. Unfortunately, neither does news about U.S. companies this morning. Deutsche Bank today initiated coverage of TXN, MU, MCHP, and ATML with sell ratings. It did, however, initiate coverage of INTC with a buy rating.

  Steven Price   12/13/02,  3:37:57 AM
The Swing Trade Game Plan has been posted: Link

  John Seckinger   12/13/02,  3:37:37 AM
The Futures Trader Wrap has been posted: Link

  Jim Brown   12/13/02,  3:37:14 AM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link

  Jeff Bailey   12/13/02,  12:53:26 AM
Hey you! I've deleted the e-mail, but in the 11/24/02 "Ask the Analyst" column, we were discussing the need to plan the trade and trade the plan. What I hope the subscriber that asked about the QQQ short straddle in the Jan 05 $25 strike will do this weekend, is do some soul searching right now. Link

Question would be.... How have you been feeling the past month? Is the volatility you've seen the the last month and swings of emotion worth the premiums received, if you have to deal with this type of volatility for another 2-years?

Today's close at $25, is right at your strike. Do you see how in increase in the NASDAQ-100 Volatility Index (VXN.X) 50.92 from 11/24/02 reading of 44.70 has the option sold then, trading higher now despite the passage of one-month's time?

It was actually the subscriber's e-mail from above and that column, that had me placing a retracement on the QQQ from $30-$20. Link We "liked" that retracement, because it seemed to match the NASDAQ-100 Bullish % ($BPNDX) Link and helped represent a "high level of risk" that market makers may have had to start implementing hedge trades in their NASDAQ-100 stock inventory.

Here are some thoughts for the next couple of weeks. The QQQ low trade during REGULAR session was $25.01 (big agency crosses of orders that had been filled during today's session that NEEDED to print DURING regular session 4:15 PM EST to make it on the books). Extended hours did see trades below $25, but that's the retail traders like you and I trying to scalp a little here and there and often times a chance for the pros to take everyone's money). If, and I mean IF, the QQQ trades $25.00 or lower during REGULAR SESSION hours, then I think resistance firms at $26.18 and solid at $27. Risk level now to downside becomes $23.82 and with bullish % still rather high, I'd be surprised if we see $28 before we see $23.82.

On Monday, should the QQQ open ABOVE $25.00, we could well see a rally into expiration, but I think hard pressed for anything north of $26.18. The reason the $25.01 "bothers me" is the same reason I pointed out the $26.17 trade in Thursday's Index Trader Wrap. I'm not going to say market makers are predictable, but the $26.17 trade and downside action the next day (today), and now a $25.01 trade.... "upside action?" Never know for sure, but these market makers can be tricky.


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