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  Kent Barton   12/20/02,  4:06:25 PM
Split announcements today: CWTR (3-for-2) and CVBF (5-for-4).

  Linda Piazza   12/20/02,  4:04:37 PM
I sometimes take a look at the daily candlestick chart at the end of the each day to help make trading decisions, but since this is the end of the week and the end of the options expiration cycle, I thought I'd take a broader look at the weekly chart instead. Link As has happened so many times lately with the daily chart, this week's candle is a spinning top, a candle formation that indicates a possible loss of momentum in the current movement. Looking beyond the candle, though, I see a bearish cross of the 10-week over the 30-week MA, with that 10-week is turning back down. I see stochastics approaching levels showing oversold conditions, but not yet there and certainly not yet turning back up. RSI has flat-lined, not providing much guidance, either. Sometimes charts are easy to decipher, and sometimes they're not, and this charts shows a draw between bearish and bullish elements, in my opinion. Since the overall trend is downward, that leads me to lend more credence to the bearish signs, but that doesn't rule out more consolidation or a try for higher levels.

  Linda Piazza   12/20/02,  3:52:48 PM
Japan may not be looking forward to a year-end rally. Japan annnounced this week that it will reduce its public works budget by almost 4 percent next fiscal year and freeze most spending. Prime Minister Junichiro Koizumi struggles to keep Japan from slipping into recession for the fourth time in a decade as he also tries to contain the growth of the world's biggest government debt.

  Jeff Bailey   12/20/02,  3:51:47 PM
The 3:15 PM Intraday Update has been posted. Link

  Jeff Bailey   12/20/02,  3:42:09 PM
Dow Diamonds (DIA) $85.05 ... my day trader short stopped break-even. Low of $84.66 didn't get close enough to target of $84.45. The $85 puts were biggest in the money contract that was close and looks to take them out of the money by session's close. $84 puts were next biggest and thought good chance of a $84.50 settle, with a dip just below to target of $84.45.

  John Seckinger   12/20/02,  3:39:30 PM
On Monday, there is November Personal Income and Spending to be released at 8:30 a.m. PI is expected to rise to 0.2% from 0.1%, while PS should remain unchanged at 0.4% from October's reading. On Tuesday, Durable Orders for November will be released at 8:30 a.m. This usually-volatile report should fall to 0.9% from a 2.4% increase the month prior. On Wednesday, please sleep in.

  John Seckinger   12/20/02,  3:36:14 PM
It is encouraging that the 8455 pivot was never tested during this last pullback (low at 8464). The Dow still has a shot at 8515. Note: It looks like the Dow will close higher for the week. Also encouraging is how the 38.2% retracement held. These pullbacks are considered normal.

  Jim Brown   12/20/02,  3:31:19 PM
Looks like the ramp up for the holiday week rally is beginning. If you are not long from Dow 8450 with a stop at 8250 then I would consider buying a break above today's high of 8508. That would set you up for my target of 8750 late next week. Just my two cents.

  Linda Piazza   12/20/02,  3:27:52 PM
For those considering an option position at or near the close, choose your option expiration dates with premium decay in mind. You'll face premium decay over the weekend, of course, but will also face decay from the middle of the day Tuesday until the markets open Thursday morning--times when you can't trade due to the holidays.

  Jonathan Levinson   12/20/02,  3:16:00 PM
The sudden buy program turned the COMPX aound almost instantly. The Qubes seem to be glued to the 25.19 level. While the TICK.NQ is bearish at -292, the TRINQ at .68 shows steady and solid buying. Looks like a deadlock between bulls and bears at this level.

  Linda Piazza   12/20/02,  3:08:01 PM
In re-reading my 15:01 post, I realize that I should have said that the small candles and tightening Bollinger bands portended greater volatility rather than saying it portended a big move. The market--in this case, the COMPX--might end up right at the same place after the big moves end, but candles should increase in size and the Bollinger bands should expand as volatility increases, until equilibrium is again established.

  Ray Cummins   12/20/02,  3:06:31 PM
Spread Trading: MMM Follow-Up

Hi Ray...As I write, one can leg into the MMM call spread at 0.80...I know that's a bit risky sometimes, but today being slow, it might just be worth a try. I'm tempted to do this, but if market does have year-end rally, then MMM will likely rise further don't you think? If so, at what level does one consider the position at risk, i.e. rather than waiting till MMM touches 130, is there a key level you see at which you might get concerned? Many Thanks! SR

Hello SR...Indeed the MMM spread has improved since the position was highlighted earlier in the session and a credit near $0.70-$0.80 is certainly possible, given the recent activity in the issue. In addition, a year-end rally may yet occur and even if it doesn't materialize, MMM appears poised for higher prices in the very near-term. The key levels a trader could use to monitor the progress of MMM might include the 30-DMA (near $125), the bottom of the NOV-OCT trading range (near $127) and of course, the current resistance level (and sold strike price) near $130. Your style of trading (aggressive/conservative) will determine which of these areas is most important in determining a potential exit signal. I wish you much success!

  Linda Piazza   12/20/02,  3:01:50 PM
I was just about to type something about how small the candles were on the COMPX one-minute and five-minute intraday charts, and how a grouping of small candles like that usually portended a bigger move, when that move began. If you were looking at Bollinger bands when a series of small candles were being produced, you'd see the bands collapse inward toward the candles, another visual sign that a big move might be next.

  Jonathan Levinson   12/20/02,  3:01:16 PM
Precious metals continue to strengthen, with XAU actually in the green by a dime, and HUI now down 1.01 on the day, well off its lows. Yields have continued to weaken, currently flat to down. To practice your ESP, find the nearest round number to predict the closing levels. My guess, for example, is QQQ 25. That could coincide with MSFT 52.50, INTC 17... these are bald guesses, but we've seen the way market makers like to work. The TRINQ has risen all the way to .94, and QQV is down 1.31 on the day. The COMPX has just begun to print new lows of the day, but I'll be very surprised if the last hour brings us a significant breakdown from here.

  John Seckinger   12/20/02,  2:59:55 PM
There is a chance that tomorrow will be the busiest shopping day of the year, as some chain stores are opening up at 7 a.m. for those who want an even bigger discount. BizRate.com reported sales reached $262.8 million on Wednesday, down 28 percent from the week before. However, from November 1st to December 18th, sales grew 42 percent to $11.1 billion from $7.8 billion a year earlier. If retailers can't manage a rally in the near term, it should be hard for the overall market to rise. Shares of Wal-Mart (WMT) are currently higher by 1.47% at 50.86; however, still in a downward trend that began in early December.

  Ray Cummins   12/20/02,  2:45:32 PM
Spread Trading: A Great Question!

Attn: Combos Editor -- I want to use some of the basic spread strategies (credit w/puts to begin with) on a few of the oil stocks I follow in my personal portfolio, but many of the options I want to trade do not have much volume. Should I be concerned about that or not? I would probably enter the buy and sell orders together at a limit price and hope to get filled on a sell-off. Is this possible or likely? Also, should I use the current bid/ask on the options to determine the limit price - even though the options are not trading much? LP

Regarding volume and open interest: Both of these components are valid concerns when trading options, especially when your positions involve straight puts and calls, but they are slightly less important when executing spread/combination trades with "limit" orders. With net-credit or net-debit orders, moderate daily activity and/or robust volume is definitely a plus however they are not necessary to initiate a favorable trade. The reason is that market-makers are required by the exchanges to trade options, in a fair and equitable manner with all retail participants, regardless of whether or not there is any interest in the class or series. Of course, that does not mean they have to give you a "good" price, but since these specialists use risk-less positions (conversions/reversals) to "make a market," they have no reason to avoid trading. As far as the limit or "target" price in the spread, I would start with an order that is $0.10-$0.20 above the current (combined) credit for spreads under $3-$4 and add $0.05 or $0.10 more in higher-priced positions. Hope that helps! Ray

  Linda Piazza   12/20/02,  2:40:05 PM
Have you heard about the four-month rule as it relates to GM? Some economists feel that GM's health or weakness correlates strongly to the health or weakness of the broader markets. The four-month rule says that if, during a market decline, GM fails to reach a new low within four months of the previous low, that decline either has reversed or soon will. Similarly, if GM fails to make a new high within four months of a previous high during an uptrend, that uptrend has reversed or soon will. Here's a two-year line chart of GM: Link When GM failed to reach a new high four months after May's high, economists following the four-month rule would have predicted that markets would reverse back into a downtrend. So, did the four-month rule predict October's lows, when the August-September uptrend failed to reach new highs?

GM troughed in October. According to the four-month rule, if it does not fall to a lower low by February, the markets should move into a more bullish cycle, at least intermediately. Let's watch.

  Kent Barton   12/20/02,  2:28:26 PM
Semiconductor index (SOX.X) 296.88 -0.13: Still trading under 300. Today's bounce (or lack thereof) is not a good sign for the bulls. Some traders may have been looking for a short-covering rebound after the heavy losses earlier this week, but that hasn't been the case. If the index does manage to move higher, watch for possible resistance at the 50-dma (311) and 330.

  John Seckinger   12/20/02,  2:26:19 PM
Well, the Dow never traded the 8515 level I profiled as an intermediate term piovtal level; however, there might be some bids at the 8455 area (only 15 points under current levels) so bulls still have a small chance. If the Dow continues to soften and close under the 8455 area, bears will most likely have an advantage heading into trading on Monday.

  Steven Price   12/20/02,  2:21:35 PM
Some expiration info for readers who are trading options on the many indices. Here is a link to obtain the information on which indices stop trading on Thursday and which stop trading on Friday. Those indices with an AM settlement stop trading on Thursday and settle on Friday morning. Link

  Jeff Bailey   12/20/02,  2:19:40 PM
Dow Diamonds (DIA) $84.77 +0.9% ... day traders from $85.05 short, lower stop to brea-even of $85.05, get ready to close at $85.45. If trade at $84.50 and see some volume on 5-minute, the lower stop to $84.76.

  Jonathan Levinson   12/20/02,  2:11:44 PM
As John reports, 1.4B is the damage for systematically misleading investors through biased research, with a token amount for restitution. If anyone doubts the levity of this penalty, note that C is up .83 or 2.24% on the day, and it's green across the screen for brokers. JPM is up 1.27 or 5.44%. These types of shenanigans will continue so long as the investing public remains tolerant of them. I promise to abandon my soapbox on this topic- back to your regularly programmed market commentary.

The COMPX has achieved a rollover on the 60 minute 5(3) stochastics with this 4 point drop to 1364. QQQ remains pegged above 25.20, and the premium on the QQQ Dec 25 puts has vaporized. The XAU has recovered a good portion of its losses while HUI remains weak, but holding its level off the lows of the day. Yields continue to fade slightly, while the TRINQ has added a bit to its current reading of .55. This being op ex day, barring some external event I expect to see very little movement from here. Famous last words, perhaps.

  Linda Piazza   12/20/02,  2:11:07 PM
Marketwatch.com and CNBC report that Xerox (XRX) is reporting an error in the calculation of non-cash interest expense, resulting in an understatement of $5-6 million in expenses. The company will restate 2001 reports and revise 2002 ones due to the error. At 7.87 as of this writing, the stock sold off a bit immediately after the announcement, climbed almost up to the level before the announcement, and now is pulling back again.

  Kent Barton   12/20/02,  2:06:00 PM
American Intl. Group (AIG) $59.13 +1.04: Not too surprising to see some rebound action after two days of relatively strong selling pressure. As Mark touched on earlier, this optioninvestor/premierinvestor short play is holding below $60.00. A failed rally at this level might provide traders with an opportunity to open new bearish positions.

  John Seckinger   12/20/02,  2:00:00 PM
Wall Street firms said on Friday that they will pay $1.4 billion to settle charges that they issued biased stock research. Under the settlement, Wall Street firms will pay $900 million in 'retrospective relief' for investors, $450 million to fund independent research and $85 million for what regulators called 'investor education'.

  Steven Price   12/20/02,  1:58:05 PM
Swing Trade Signals
We stopped dead at the 50-dma in the Dow (8512) and have pulled back from that level. While the LONG play had a little more life in it after we closed it, I think Jeff has a point about a possible short here with a stop at 8525. It would be a low risk play, but traders risk a gap after the weekend. With the current geo-political environment, we are certainly subject to gaps in either direction, especially with thepossibility of an Iraqi response over the weekend.

With the SPX still unable to break 900, the Dow struggling to hold 8500 and the SOX back at 300, I'm getting the feeling that we may be out of gas. However, we haven't seen a reversal from the day's trend yet, so shorts from here may want to use a small position if they intend to hold over the weekend.

  Jeff Bailey   12/20/02,  1:56:31 PM
The 1:00 PM Intraday Update has been posted. Link

  Mark Phillips   12/20/02,  1:40:51 PM
Open Mouth, Insert Both Feet, Chew Vigorously Ever have one of those days? Seems I need to think things through before jumping to conclusions. Fortunately, I've got plenty of sharp readers to help keep me on the straight and narrow...And they've been coming in volume since my ill-considered post on the SPX expiration. Here's a couple examples.

thought the December S&P expired last night and settled this morning. Am I confused with what indexes expire when. Thanks

Mark, I think spx/djx/ndx all settled this morning, today's close has no impact on major index options. However, oex/sox do expire at market close. I think MM are pinning oex/sox to 455/300

Aaaah, right you all are! Yes, the DJX/SPX expired last night, so clearly the OI numbers I posted earlier don't count for much! You can tell I don't often trade the indices during expiration week, at least not with those front-month contracts! GRIN

As that second email above indicates, we ought to be focusing on OEX and SOX open interest to figure out where things are going to be pegged this afternoon and 455 and 300 respectively certainly look like the high-odds candidates.

  Linda Piazza   12/20/02,  1:35:46 PM
The adv/dec numbers appear steady from this morning, with the number for NYSE issues at 1.91 and for Nasdaq issues at 1.17. Up/down volume figures aren't quite as strong as they were earlier, although still positive. On the NYSE up volume runs 3.34 times more than down volume, and on the Nasdaq, up volume runs 2.68 times down volume. New highs are ahead of new lows on the NYSE, but the opposite is true of the Nasdaq stocks.

  Mike Parnos   12/20/02,  1:33:39 PM
What A Response!!
For the last hour I've been answering email questions from Market Monitor watchers who have not as yet indulged in the non-forbidden fruit we call CPTI.

Some OI readers are looking for a quick fix to make up for money lost speculating -- the amounts I see are staggering! The strategies we use at the CPTI are conservative with defined risks. They are essentially "hands off" positions that normally require a minimum of monitoring.

We don't hit home runs. We are satisfied to sleep soundly and nibble around the edges of the market for our profits. We're the ones who, for the most part, are booking the bets of the speculators. I've said it before, but I can't resist. Retail investors are wrong a lot more than they're right. Bless their hearts. I've put my kids through college with their money and more!

For those OI traders who aren't familiar with our strategies, I recommend you go to the OI archive (a GREAT resource) and look for the Traders Corner section under "Education." Read my past columns (since July) and you will get a good idea of what we do.

While you're in the archives, take advantage of the wisdom of many of the other OI writers. Each has his own area of expertise. There's an abundance of information there for the taking. There is something for everyone. Remember, knowledge is power. Have some, it's good for you. It's like chicken soup -- what can it hurt?

Feel free to contact me with specific questions on our strategies. I don't sugar coat things (as you may already have guessed). I guarantee you knowledge and some smiles along the way. You have an opportunity here to learn things you can use for the rest of your life. Jim has a membership offer going now. You can't beat it. If there's someone in your life who you care about and who can comprehend what we do, give them an OI membership for X-mas. If you don't like them enough to pay for it, then, at least tell them about us and our free trial. :-)

  John Seckinger   12/20/02,  1:32:37 PM
One stock that I do follow quite a bit is IBM. An high at exactly 80 (pivotal yesterday) and has been in a tight range shortly after the close. The pivot of this channel appears to be at 79.72, and ideally for shorts, shares rise above 80, hits stops, and then goes back under 79.72 and gets longs out and shorts involved. Twice as much selling. If 80 is taken out with authority, I see 80.40 as resistance. $79 dollars as support. These "efficient" ranges actually are fun to watch at times.

  Mark Phillips   12/20/02,  1:20:51 PM
Looking at the open interest on December contracts on the major indices, I have to give the nod to the SPX with its huge OI at the 900 strike level. Currently more than 81,000 Calls and 72,000 puts at the 900 strike, which dwarfs the open interest at any of the other nearby strikes. Check out this Link

My bet is that they'll pin the market awfully close to SPX 900 at the close, based on those numbers. 2 1/2 hours to go, and then we'll know for sure!

  Jeff Bailey   12/20/02,  1:20:32 PM
Diamonds (DIA) $85.04 ... I like a day-trader's short here, stop $85.25, target $84.45.

  Jonathan Levinson   12/20/02,  1:16:25 PM
The COMPX managed to do nothing while I lunched, but the 60 minute 5(3) stochastics have grown more overbought without rolling over and without any significant increase in the price of the COMPX. The TRINQ is still on the low side at .41, and the QQV is near its lows of the day, down more than 2. Precious metals have been trying to recover, while yields have given up most of their gains with TYX actually negative by .2 bps- not much. It looks like the fed money did its thing in bonds, as I speculated earlier. No rollover in the indices, but its looking increasingly likely as the price remains parked at these levels with the oscillators growing ever-toppier.

  Jonathan Levinson   12/20/02,  1:06:46 PM
Abbey is almost a fool-proof “contrarian” indicator. I’ll be backing my “short” truck up and getting a big load for the way down.

That's how I see it, but of course, we have to be careful as always. Even a broken clock is right twice a day. In Abbey's case, even that would be a step up.

  Ray Cummins   12/20/02,  1:01:02 PM
Reader's Question: MMM "Bear-Call" Spread

Ray -- Regarding your calculations for the MMM spread -- How did you come up with the margin requirement and profit potential? LT

First, the position is:
buy $135 call - sell $130 call
The margin requirement is the difference between the strikes minus any premium received ($135 - $130 - $0.60 = $4.40)
The profit potential is the premium received divided into the margin amount (which is also the maximum potential loss)
The break-even point is simply the sold strike price plus the premium received

Any questions? Go to: Link

  Linda Piazza   12/20/02,  1:00:59 PM
Reader Question: First let me say thanks for all of your hard work! I'm hoping one of you can help me. I keep hearing a lot of talk about Small Caps. Where can I locate a current list of Small Cap stocks?

Response: You're welcome on behalf of all the writers. Here's a listing of the stocks making up the Russell 2000, an index composed of small capitalization stocks: Link

Here's a description of the Russell 2000: Link For those of you who haven't yet checked out the CBOE site, it's got lots of useful information for options traders.

  John Seckinger   12/20/02,  12:48:08 PM
To make my life difficult, the Dow would close at 8515 and the SPX would end the session between 900 and 901. The 30-year at 110'31 right now is analogous to the Dow at 8515. Intermediate pivots are fantastic when the market is trading, but to close on them is not convenient. Note to retracement followers: Try looking at the 19.1% retracement (half of 38.2%). It works well, actually.

  Mark Phillips   12/20/02,  12:41:11 PM
Expiration Speculation With just under 3.5 market hours until those December contracts expire, what does today's action tell us about where things are likely to close? Well, the DOW is trading just above 8500, SPX is about 2.5 points below 900, and the QQQ is just above $25. If I was a betting man, I'd go with the QQQ holding above $25, and the DOW and SPX closing very near 8500 and 900 respectively. There's some interesting setups on the OI Play list as well, although mostly on the Put list.

AIG - Holding just under (but not too close to) the $60 level

RKY - Closing in on the $60 level. Don't expect that support to crack ahead of expiration.

ROOM - After yesterday's breakdown, bears seem intent on keeping ROOM under $60 until the closing bell tonight.

And from the recent drop list, I find the action in MERQ and ISSX to be interesting as well. Both of these stocks were dropped last night due to their poor price performance, but they are getting a decent bounce today. MERQ is back above $30, but seems unlikely to advance far above there for the remainder of the day, given the heavy open interest on the DEC-30 Calls. And ISSX is closing in on the $20 level, another even strike, with pretty heavy open interest. Look for a close near that level this afternoon.

  Mark Phillips   12/20/02,  12:41:00 PM
MMM $122.98 (+2.67) While not likely the cause for the continued market strength, MMM certainly has provided a glimpse of what to expect from the market today. My earlier post (10:43) served to put a floor under the stock and it didn't take long for it to crawl through our $122.50 stop. Since then the stock has been inching higher, just like the broad market, both of which are trading near their highs of the day. Barring a big selloff into the close, MMM will be dropped this weekend.

  John Seckinger   12/20/02,  12:36:02 PM
The Euro/Dollar currency exchange rate is currently 1.0255. $1.0270 is the 50% retracement of the 1998-2000 decline. With that said, we could start to see an explosive move out of the Greenback in the near term if this popular retracement level is tested. Speaking of the Dollar, the index is currently at 103.50 and basically unchanged for the session. This looks to be the worst weekly close for the Dollar since January 2000.

  Steven Price   12/20/02,  12:34:14 PM
Curent levels: Dow 8495/OEX 456.05/COMP 1369/SPX 896.75

  Ray Cummins   12/20/02,  12:33:48 PM
A (Spread) Trading Opportunity?

Shares of 3M Corp.(NYSE:MMM) have rebounded this morning, up almost $3 at $123 as of 12:15 P.M. EST. Despite the rally, a number of traders are taking advantage of a (bearish) spread opportunity at the $130 strike, due to the well-established resistance area near that price.

Those who believe MMM will have difficulty breaching that level can initiate a "bear-call" spread at $135/$130 (JAN options) for approximately $0.60 credit. The maximum risk (and collateral/margin requirement) is $440 per contract with a potential profit of 14% and a break-even point of $130.60.

  Steven Price   12/20/02,  12:32:23 PM
Swing Trade Signals
With the move in the SPX over 895, the next resistance levels to watch are SPX 900/Dow 8512, which is the rising 50-dma in the Dow. The COMP has gotten just over the 1367 level, but is still just shy of the intraday high. Hindsight is 20/20 and I certainly wish I had given the Dow a wider stop this morning, but until we get back over that 50-dma, I'm not entirely convinced we're not simply seeing an oversold bounce. Traders who are currently long should watch these levels for signs of failure and successively higher levels of support.

  John Seckinger   12/20/02,  12:22:32 PM
Sticking with pattern recognition within the Dow, the apex at 8455 (per 11:09 post) will now most likely become support if prices fall. It will be interesting to see if the 8515 level is tested, since that is a good intermediate term level. The Sox is higher by 1.79% at 302, but the pivot appears to be higher at 320. In the futures wrap last night, I really did like the 888 pivot in the ES contract (I called it "perfect") and how that a rise above should portend a move towards the next area of resistance at 897.25. The ES03H contract is currently at 896.25. The low from 9:30-9:35 was 888.50.

  Jonathan Levinson   12/20/02,  12:21:56 PM
I hear that Abby Joseph Cohen is calling the bottom again and predicting a 30% rise in equities next year. Given her awesome track record over the past few years, I'm surprised they still have the gall to trot her out.

  Linda Piazza   12/20/02,  12:10:18 PM
OCLR: Ocular Sciences, 15.16, down 5.62 or 27.5% on 16 times average daily volume! I hope none of our readers was holding this stock over earnings. The contact lenses firm warned last night that it expected Q4 earnings of 32 to 36 cents rather than the First Call estimate of 47 cents a share. The company mentioned weak sales of high-margin products, an unfavorable product mix, and increased product costs. This is an example of what can happen in a thinly traded stock. This one averages less than 159,000 shares traded on an average day, and when 2.5 million shares suddenly get offered the next morning, prices will dive.

I would never suggest that readers trade such a thinly traded stock, but I thought this might provide an opportunity to see whether technical analysis might have alerted investors that something was wrong, and when they might have had an opportunity to get out of the stock. Here's a weekly chart: Link Several warning signs appear on the chart. First, as prices were rising from late September 2001 until reaching a high just over 30 in April 2002, a descending line could be drawn across the tops of the RSI indicator. That was bearish divergence. In early summer 2002, the 10-week MA made a bearish cross of the 30-week, a sign of a reverse in trend. At about the time that bearish cross happened, OCLR broke through its own ascending trendline, retested it, and then fell. As it began to fall, volume increased, always a bearish sign. At the bottom of the chart, an accumulation/distribution chart shows that the accumulation/distribution line broke through its moving average in June of this year.

The first signs of trouble happened near the top in prices when RSI failed to confirm the rise. Soon after, prices confirmed what was showing up in the RSI when they fell through the trendline and retested, climbing again to about 28. That would have been the time to exit. If not then, the bearish MA crossover when OCLR was at about 26.50-27.00 would have been the next opportunity. The fall below support at 22.50 and then the unsuccessful retest of that level, at about the same time the accumulation/distribution line broke through its moving average, was the next opportunity to exit.

Isn't technical analysis wonderful?

  Mark Phillips   12/20/02,  12:03:36 PM
DELL $27.48 (+0.66) Slipping through the cracks. I could have sworn I posted this yesterday afternoon, but somehow it must have fallen through the cracks. So let's give it another shot this morning.

We've been following DELL as a Watch List play in the LEAPS column for several weeks now, and we've seen quite the battle around the 200-dma over the past week. With the stock refusing to break down despite the weakness in the broad market, I have been encouraged by the fact that the bears can't crack this important level. with weekly Stochastics starting to turn up, and support being found near the 200-dma, I like this area for new entries. Link Accordingly, we'll be initiating a new position in the LEAPS Portfolio this weekend. More cautious traders may want to wait for a test of the $25 level (the current site of the long-term ascending trendline), but need to understand that it might not get hit before DELL heads back up the charts.

In fact, today's action (+2.5%) has it looking like the rebound is already underway. For those that initiate new positions, there are a couple ways to approach setting a stop. Since we have trendline support and the bullish support line on the PnF chart at $25, a stop just below there should work. Link But I want to give the position some room to breathe, so I'm going to set the stop on the play at $23, since it would take a print of $23 to change the PnF chart from bullish to bearish. Look for more details in the weekend LEAPS column.

  Steven Price   12/20/02,  12:02:38 PM
Steven: Attached OI email, today MERQ.... 30.14 + 1.06 DROPPED CALL.......do not understand this comment, money flow on stock was good, if there is resistance to the upside at 32.00, that is a 3.00 + profit, why was the call dropped, day before as you remember we pointed out it was a call play but mentioned as a put, there are big monies involved with these trades at this end, could you elaborate. Thanks.

Mercury Interactive (MERQ) $30.36 +1.27 As I mentioned in the closing commentary, I didn't like the repeated test of support, rather than resistance. I put a caveat in the drop for traders who wanted to hold the play, which I would not have done if I thought there was no chance. That game plan highlighted keeping an eye on the $28 support level. However, if I wouldn't recommend new entries, which I wouldn't here, with the resistance at $32, then I chose to drop it. I realize that our readers do not always close plays along with us and that's why I put additional info in the closing write-up and will continue to address questions about those plays on the Monitor.

  Jeff Bailey   12/20/02,  12:02:10 PM
Several questions today regarding price action with no news on a stock. I can't answer any of them and most likely answer to most is OPTION EXPIRATION where some positions get final squaring.

  Jeff Bailey   12/20/02,  12:00:08 PM
Good comment/observation and one of the reasons I've said before that holding options into, or so near expiration is difficult and can test the nerves. Hi Jeff, Happy Holidays! I find it quite interesting that Qlgc gapped up to the 37 - 37.50 area without a significant pull back. This has all the makings of OP Exp pegging at around the 37.50 area. Max pain for those who yesterday had significant gains and on the gap up this morning had it pretty much wiped out. I have the 40 puts and did not close them yesterday and was forced to today at a lower price. Win some lose some.

Trader is exactly right. Holding so close to expiration really can be a win some/lose some trade. It also makes a day like today, "non-eventful" and can't read much into the market's action. The trader didn't close out the QLGC puts because he thought QLGC was a "strong stock," but closed out because of risk into expiration when the move went against him. Good decision to at least close out and NOT risk the expiration.

  Jonathan Levinson   12/20/02,  11:53:21 AM
Any way to hold gold - the shiny metal type - in a qualified IRA?

This is becoming a popular question. Being a Canuckistani national, I can only extrapolate from our own RRSP rules. I own CEF shares, which are the closest thing to owning gold certificates, etc., as CEF is a mere warehouse for precious metals. I believe that they hold 50 oz of silver for each oz of gold. This security moves very closely to the metals themselves, unlike miners, which move in tandem with the HUI and XAU. I have never purchased a gold contract, futures, or certificates, and so do not know about those. David Morgan, a precious metals analyst who I respect very much, spoke highly of CEF many months ago and is close to the manager of CEF, with whom he is on a first-name basis. Morgan referred to CEF as one of the best ways of owning gold and silver without actually taking physical possession. I have personally verified none of those facts, but I own a position in CEF.A on the TSX, and my family, on my recommendation, owns bigger positions. A bullion dealer could advise you as to the feasibility of buying actual gold certificates in your IRA, though I personally like having some silver too. Silver, as we know, is significantly underpriced and overshorted relative to gold.

  Mike Parnos   12/20/02,  11:45:00 AM
Good Morning Everyone
Well, it's that day. It happens every month more regularly than PMS. Option expiration Friday is when it all hits the fan.

That's a problem (as is every other trading day) for the daytraders who are plastered to the computer all day long, sweating every tick or two minute bar. I always thought a two minute bar was a saloon where it took less than two minutes to get your drink. Oh well.

Do you see CPTI traders sweating? Hell no. It takes too much effort to perspire. Our profits are secure for this month. Check out this Sunday's column for a breakdown of last month's trades and our portfolio ideas for the January expiration cycle. Save your perspiration for watching those Jane Fonda aerobics videos or other worthy endeavors.

  John Seckinger   12/20/02,  11:41:53 AM
For those who missed it, Senator Trent Lott said today he won't try to remain as majority leader, "in the interest of pursuing the best possible agenda for the future of our country." I watched his interview on BET, and I do believe that stepping down is the right decision for our country.

  Steven Price   12/20/02,  11:40:44 AM
Swing Trade Signals
We certainly seem to be holding the morning's gain and we could be seeing support here for the next leg up. I would keep an eye on SPX 895 in particular for a resistance break, as this morning's move topped out at 894.20. The next SPX resistance above that level is 900, with yesterday's high at 899.

Current levels Dow 8461/OEX 453.73/SPX 893.00/COMP 1367

  Jeff Bailey   12/20/02,  11:36:03 AM
The 11:00 AM Intraday Update has been posted. Link

  Jonathan Levinson   12/20/02,  11:35:50 AM
Actually, scratch that. It appears that the COMPX has achieved the elusive holy grail of economics, efficient price. The COMPX has achieved efficiency at 1364. No further trading is needed- close down the exchange!

  Jonathan Levinson   12/20/02,  11:32:56 AM
Reader JB wants to know if I see a descending bullish wedge on the COMPX 60 min. I do, in fact, although it's imperfect. In fact, today's gap up open broke a descending wedge to the upside, as it should. Zooming out, the longer formation looks potentially like a bull flag, but it's imperfect. The daily chart shows my problem in identifying the formation clearly- it seems like a rounding wedge. Do I see potential upside for the rest of December? Yes. However, I'm confused enough by the mixed signals to simply watch the indicators and the moving averages, and keep the patterns in the back of my mind. Good eye, JB!

  John Seckinger   12/20/02,  11:31:51 AM
Note: Volatility Index lower by 5.73% to 32.57. I am starting to see the Bollinger Bands compressing on shorter timeframes, so we should get a move in the near term.

  Linda Piazza   12/20/02,  11:12:38 AM
Jonathan just mentioned that gap on the COMPX. It looks as if the 1360 area he pointed out several days ago might once again be an important area to watch. One of the reasons I look at 10-day intraday charts is that those levels from days ago can again become significant. A congestion area from the previous week can show up as support or resistance, for example. It doesn't seem coincidental, then, that the COMPX happened to gap to that specific level this morning.

  John Seckinger   12/20/02,  11:09:42 AM
Inefficiency, then flat line. That seems to be the Dow since the first few minutes of trading. What to go on? The biggest pullback so far took the Dow to 8426, which is certainly better than the 8412 area profiled earlier (50% retracement of first 5-minutes). I would look at the Dow and say the apex is at 8455. Above there, maybe this market can get to 8480 and near 8515 (solid intermediate level). In conclusion, it looks like a lot of traders may want to sell this market; however, the market hasn't done anything yet to say that makes sense. Weakness under 8426 might be a start.

  Jonathan Levinson   12/20/02,  11:04:04 AM
This morning's gap support on the COMPX is putting in an impressive show so far, though the longer intraday stochastics are crossing down or trying to, with the 30 minute 5(3) confirmed and the 60 minute rolling over but not crossed. We do NOT anticipate signals from our indicators- it doesn't pay. Neverthless, precious metals are off their lows of the day, but showing little strength, while yields are off their highs. The TRINQ at .44 is low but not extremely so, and the QQV is down .86, also off its lows. This lull may well be just a pullback as the extreme overbought readings work themselves off- the high p/c ratio today supports that. Bears need to be careful. If this is the beginning of the downside, so be it. But if we revisit the day highs from here, the markets will be less overbought this time around, and risk to the upside will have increased. In other words, be careful.

  Steven Price   12/20/02,  11:00:41 AM
The Semiconductor Index (SOX) has failed to hold the 300 level, ticking just barely underneath at 299.71. I'd have liked to see a rally through 310 to help things to the bullish side, especially with recent resistance at 307. Tha fact that we are not heading quickly toward yesterday's highs before the Iraq announcement tells me that there is still some fear out there and yesterday morning's economic data (along with Oracle's earnings) are not really helping the bounce.

  Linda Piazza   12/20/02,  10:59:26 AM
In John's 10:36 post, he mentioned supply problems due the Iraq situation and the strike in Venezuela. Those problems may actually be helping Valero Energy (VLO), a stock I've been following this last week. Although I consider myself a technical trader and focused on this stock because of favorable chart characteristics for a potential call play (to recap, a reverse H&S with neckline at 37.50, a move above the 200-dma, and a P&F buy signal), I noticed comments about VLO acquiring new fuel buyers in Central America and the Caribbean due to the strike in Venezuela. This leading independent U.S. refiner said that the strike's only impact has been to improve the company's margins. Of course, if the strike is helping VLO now, a resolution to that strike might see prices impacted negatively, although other fundamentals point to strength in the company. This is just something to consider for those of you who might also be following this company.

At 36.26, up .46, VLO looks ready to challenge that 37.50 neckline again after consolidating for a couple of days. As I have mentioned before, when VLO last pushed through the neckline and past a resistance line at 38 on the P&F chart, sellers immediately stepped in and pushed prices back down. (5)(3) daily stochastics now look bearish. A formation that took months to complete might take a similar time to hit targets, so those stochastics might cycle up and down several times over the course of the play. The idea is for the stock to consolidate while the stochastics cycle down and then for prices to rise again as stochastics cycle back up. I would not consider a new entry until VLO pushed through that P&F resistance. Due to the situation in Venezuela, I would be conservative on entries and on the percentage of my account I invested in a call play. Disclosure: I hold calls in this stock.

  Steven Price   12/20/02,  10:55:05 AM
Swing Trade Signals
As our other writers have pointed out, the rally seems to to stalled. The COMP failure at the 1367 mark was significant, but we haven't really turned back to the downside either. I'm starting to think things are looking bullish with the support, especially considering the Santa Claus-rally numbers I referred to in last night's Swing Trade Wrap. However, I'm hesitant to open a new position ahead of the weekend with the Iraq developments still churning. I might re-up on another bounce from 8300, but for the moment I'll wait for something that really grabs me.

  Mark Phillips   12/20/02,  10:43:00 AM
Another Volatile Morning Typical of expiration Fridays, we opened with a bang and the bulls are trying to continue their upward push. So far, they haven't met with much success, as demonstrated by the OI playlist.

Of the plays we're following, MMM and ROOM are really catching my attention this morning. MMM is up $1.86 as of this writing and trading near the top of its range today. But isn't it interesting that the high trade was $122.48, 2-cents below our stop that we ratcheted down to $122.50 last night. Trading in ROOM is similarly curious, as even with the 2% gain today, the stock is still pinned beneath the $60 level. Up until yesterday, that level was acting like pretty solid support, but not any more.

Things could certainly change later in the day, but with it being an expiration Friday, I won't be holding my breath for any big changes between now and the closing bell.

  John Seckinger   12/20/02,  10:36:26 AM
There is a WSJ report that says OPEC may not be able to make up for lost supply due to problems in Iraq & the strike in Venezuela. Feb Crude Oil is fractionally higher at 30.18. In other news, Greenspan's said last night that he thought business spending could be helped by geopolitical uncertainty easing. Additionally, StL Fed Pres Poole says that deflation is unlikely, and that consumer spending will be 3% in '03.

  Linda Piazza   12/20/02,  10:33:10 AM
What happens next? So far, the COMPX has struggled with the 38.2% retracement at 1367 and the 50-dma at 1372.70 (exponential, according to stockcharts.com). The NDX moved briefly above its 50-dma, fell back, but continues to test it. Unless I missed it, the other indices never got close. However, volume patterns are still positive, the $TICK is still positive, $TRIN and $TRINQ show buying. Gold is down, yields are up, Jonathan mentioned the slight net infusion from the Feds. VIX is down, although VXN is up. I can't see a clear direction yet.

  Jeff Bailey   12/20/02,  10:28:03 AM
Red Hat (RHAT) $6.03 -2% ... Company announced that co-founder and director, Bob Young, will terminate his 10b5-1 trading plans effective today. Young will then enter into one or more block trades totaling in the aggregate of up to 3 million shares.

RHAT shows avg daily volume of 848,000 share volume per day. 37 insiders have sold approx. 600K shares (3.2% of insider shares) in last 6 months.

  Jonathan Levinson   12/20/02,  10:27:22 AM
The CBOE put to call ratio at 1.05 should be telling bears to be quick on their stops. Gold is now sitting at 340/oz, with HUI down 3.8 on the day to 136.39, and XAU down 1.21 to 73.26. I feel like Gollom watching his beloved right sink and groaning "My preciousssss". A consolidation at these levels would be very bullish for precious metals, and it's really a question of where the selling gets supported with buying from the next wave of strong hands.

  Jonathan Levinson   12/20/02,  10:15:52 AM
Nice trade, Steven.

  Steven Price   12/20/02,  10:13:50 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The LONG signal was stopped out when the Dow traded 8449 at 10:12:32

  John Seckinger   12/20/02,  10:12:06 AM
Not a coincidence (to me, at least) that the Dow is still at 8457, the high during the first five minutes. It is amazing how these two levels come into play so often. The Dow is at the exact middle of it Bollinger Band (60-minute chart), which is resistance but could reverse roles on a solid break through. Gold is lower, and bonds are weakening; both supportive of equities but most of that appears priced in.

  Linda Piazza   12/20/02,  10:08:00 AM
In earliest trading, adv/dec figures show buying, with 2.22 on NYSE issues and a more modest 1.21 on Nasdaq issues. Up/down volume runs almost 5 to 1 on both NYSE shares and Nasdaq shares. Jonathan has been covering the $TRINQ, but I thought I'd mention that the $TRIN is .49.

  Jonathan Levinson   12/20/02,  10:03:40 AM
The fed has announced a 6 day repo in the amount of 3B. I guess Al Green has completed his holiday shopping and is spreading the wealth around. I'll be surprised if this money finds its way into equities, particularly given his and Bernanke's comments about the fed buying 30 year bonds to keep the yield under control. This, however, is the baldest of speculation on my part.

  Steven Price   12/20/02,  10:03:30 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I see no reason to let a gain slip away, so I'm raising the stop to Dow 8449.

Exit the LONG position at Dow 8449. The COMP is struggling with the previous support level at 1367 and we can always get back in on a pullback.

  Jonathan Levinson   12/20/02,  10:01:04 AM
hello jonathan great day. is it true that if the market opens up on triple witching friday, that it will close up. no matter what it does thru. the day?

I haven't heard that one, and I don't have the means to backtest that hypothesis with any ease- if anyone else does, I'd be curious to know about it. I don't tend to trade on "rules" like this, and don't recommend it, unless we can establish it on historical data. Simple rules such as this tend to get known by the market quickly and become unsafe to use.

  Steven Price   12/20/02,  9:58:20 AM
Swing Trade Signals
We are taki8ng another run at the days highs. If we fail here, I may take some chips off the table, but if we break through we'll let it run.

  John Seckinger   12/20/02,  9:54:14 AM
As noted in the futures wrap, the key pivotal levels for me to the upside is 8515 in the Dow (for YM) and 900 in SPX (for ES). Looking elsewhere, the 30-year did fall from the 111'00 resistance level and is now down '08 ticks at 110'20. A move under 110'14 should help stocks.

  Jonathan Levinson   12/20/02,  9:51:06 AM
There are no repo expiries today, and so any repos announced today will constitute yet another net shopping spree for the fed's 22 primary dealers. We await the morning announcement.

  Steven Price   12/20/02,  9:49:50 AM
Semiconductor Index (SOX) The SOX got a boost back over 300 and is trading 302. I heard a note on CNBC yesterday moring that the SOX had correlated to the SPX on a greater than 2.5% drop on 53 of 55 days in the last year. Yesterday saw the SOX lose less than a point on a big down reversal for the broader indices. Was that our clue that we could get a bounce today?

  Linda Piazza   12/20/02,  9:49:16 AM
In addition to the support levels John and Steven mentioned, you might also watch one possible resistance level: the overhead 50-dma's (exp). They are as follows, according to stockcharts.com: DJI: 8513.28, COMPX 1372.70, NDX 1021.17, OEX 456.93, and S&P 500 898.86. As of this writing, the COMPX and NDX appeared to have tested their 50-dma's and fallen back a bit, but the other indices had not yet tested their 50-dma's. The COMPX appears ready to test that level again.

  Steven Price   12/20/02,  9:41:27 AM
Swing Trade Signals
I like the move back over 8400 and 8450, but the rally has faded some and is currently finding support at Dow 8440/SPX 890. Current levels are Dow 8443/OEX 452.98/SPX 891.29/COMP 1363

  Linda Piazza   12/20/02,  9:39:21 AM
Holiday Trading Schedule:

Equity Market Schedule, according to NYSE and Nasdaq Press Releases: Tuesday, December 24: Early closing at 1:00 EST; Wednesday, December 25, and Wednesday, January 1: Closed

Bond Market Recommended Closings (The Bond Market Association points out that these are recommendations only, as each member firm can decide for itself whether its fixed-income department will remain open for trading):

Tuesday, December 24, and Tuesday, December 31: Early closing at 2:00 EST; Wednesday, December 25, and Wednesday, January 1: Closed.

  John Seckinger   12/20/02,  9:36:52 AM
Clearly a nice 5-minute range that we can work with in the Dow; from 8367 to 8445. Ideally for bulls, 8445 becomes support. Moreover, if there is some weakness, the Dow doesn't pull back more than 8412, which is the 50% retracement of the day's range.

  Jonathan Levinson   12/20/02,  9:36:15 AM
The TRINQ corrected pretty quickly but has now fallen to .23, in extreme overbought territory for the COMPX. It's pure green across my screen, except for HUI and XAU, which are getting beaten up today. QQV is down 1.08 already, a big move this early, though bond yields aren't up as much as I'd expect. Is this a fake or the real thing? The market sure can pack a lot of action into the first five minutes of trading.

  Jonathan Levinson   12/20/02,  9:31:05 AM
10 point gap up open on the Nasgap to 1364, TRINQ an astounding .03! Bad print? QQV + .75.

  Steven Price   12/20/02,  9:27:17 AM
Swing Trade Signals
Given the recent volatile trading ranges, I'm going to leave the curent stop at Dow 8240 for the moment. I'll let the open shake out and then decide whether or not to adjust.

  Jeff Bailey   12/20/02,  9:27:13 AM
The 9:00 AM Intraday Update has been posted. Link

  Jeff Bailey   12/20/02,  9:26:25 AM
Scholastic Corp. (SCHL) $39.57... Only earnings on today's calendar. Reports EPS of $1.85 which was $0.06 below consensus. Stock down $3.27, or 8.2% at $36.30.Link

Stock looks defensive after breaking bullish support trend, triple-bottom sell at $41, spread-triple-bottom sell at $40. BIG looking head/shoulder top on weekly bar chart with neckline at $35.00

  Steven Price   12/20/02,  9:22:04 AM
Swing Trade Signals
We are long a full position this morning after adding to the 1/2 position yesterday afternoon at Dow 8350. We're getting a bump following the GDP release, with Dow and S&P futures pointing up this morning. While it's not a huge rally, we'll take it.

  Jonathan Levinson   12/20/02,  9:16:44 AM
Today is the first ever quadruple witching with single stock futures added to the mix.

  Linda Piazza   12/20/02,  9:15:29 AM
As the opening of the U.S. equity markets approaches, European markets trade near the middle of their ranges for the day. The FTSE 100 is up .52%, the CAC 40 is up .77%, and the DAX is up .60%. The DAX remains under the psychologically important 3000 level, at 2979.28.

  Jonathan Levinson   12/20/02,  9:04:40 AM
Al Green addressed the Economic Club of New York yesterday. For those interested in monetary policy, gold, inflation/deflation and reflation, this is a must read: Link

  Jonathan Levinson   12/20/02,  8:58:42 AM
Citigroup, CSFB, Eight Other Firms Reach $1 Billion Settlement, People Say

Citigroup Inc., Credit Suisse First Boston and eight of the other largest securities firms agreed to pay about $1 billion to settle claims they misled investors with stock recommendations to win investment banking contracts, people familiar with the situation said.

It's a good thing that Bloomberg specified that the statement was made by "People", and not some other loquatious life form. Nevertheless, it appears that crime can pay if it's done at the highest levels. Anyone care to bet whether the investors who were victimized by their shenanigans will see one nickel of that settlement? Citigroup is trading up 50 cents on the news in premarket trading. In other news, George Soros has been fined some pocket change, 2.3M, for insider trading. Here's the Link

  Jonathan Levinson   12/20/02,  8:37:23 AM
It's looking like Steven got a beautiful entry yesterday on that partial long position. Bonds are getting sold this morning, with FVX +5 bps, TNX +4.3 and TYX +2.5. Gold got sold this morning and is currently trading just north of 342/oz, while the US Dollar Index is holding its gains from yesterday, currently 103.55. QQQ is trading up .19 to 25.25 on Island ECN.

  Linda Piazza   12/20/02,  6:52:06 AM
In a welcome change of pace, I can report major European markets up this morning. Despite an unexpectedly deep 1.7% drop in French consumer spending and expectations by one economist that France's unemployment rate might rise to 9.3% by the middle of next year, the CAC 40 is up .55% as of this writing. The FTSE 100 is up .85%, and the German DAX is up by .57%. The DAX does, however, remain under the psychologically important 3000, currently trading at 2978.27. The Nikkei also traded up, closing .23% higher.

In company-specific news, Prudential Financial Inc. agreed to buy Swedish savings product group Skandia's U.S. unit. Standard & Poors cut Skandia's rating in October, but Prudential expects the demand for savings products to improve.

  Jim Brown   12/20/02,  5:23:05 AM
End of year renewal special - The end of year special has been posted and those readers who want to lock in the cheapest rate possible with a ton of freebies should check it out! Click here: Link

  John Seckinger   12/20/02,  5:22:17 AM
The Futures Trader Wrap has been posted: Link

  Steven Price   12/20/02,  5:21:57 AM
The Swing Trade Game Plan has been posted: Link

  Jim Brown   12/20/02,  5:21:32 AM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link


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