Option Investor
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  Jim Brown   12/24/02,  6:16:34 PM
End of year renewal special - The end of year special this year has been a hit and those readers who want to lock in the cheapest rate possible with a ton of freebies should check it out! Click here: Link

  Jeff Bailey   12/24/02,  6:11:32 PM
Forest Labs (FRX) $100.13 +0.57% ... stock's back above $100 and today's trade at $100 has stock back on a buy signal, with bullish count at $115 currently. Link

May be some shorts in this one after gap down on 12/06/02 and BIG volume of 13.2 million shares. Stock hasn't seen much more than 10-cent decline below that 12/06/02 low and may hint that bulls were looking for the pullback to get long ahead of January/February FDA announcement on Alzheimer's drug. Hearing that if approved, market for this FRX drug (combination of memantine and donepezil) could be a "blockbuster" type drug and push the $5 billion sales levels. If so, would "dwarf" FRX's Celexa, which launched the company into the drug sector spotlight.

Could see an end of year "gap fill" to $108, perhaps new highs, then some potential "tax gain" selling early part of January. Time table for FDA ruling on Alzheimer's drug somewhere in mid-February is my guess.Link

Setting upside alert at $101.25, which would be break above 21-day SMA and MACD crossing above signal and zero level.

  Jeff Bailey   12/24/02,  4:51:07 PM
Happy Holidays! to all of you subscribers that sent me a bunch of e-mail today with kind thoughts. I thought I'd reply via this forum as a bit of a time saver. Thank you very much. Be safe and see you back here Thursday morning.

  Jeff Bailey   12/24/02,  4:16:37 PM
Per 01:00 Intra-day Update and 10-minute interval chart there.

IF, and I say if, NYSE Composite ($NYA.X) were to seek out the bearish objective from the head/shoulder pattern in 10-minute chart. A "step back" and look at the NYSE Comp. p/f chart Link shows key near-term support just above the 460 level. A trade at 460 is BIG negative should it take place. Link

We will note a triple-bottom sell signal in the NYSE Comp. at 470 back in September (after red 9). A quick look at the NYSE Bullish % ($BPNYA) Link may tell the story. Don't want to be long the markets when the NYSE gives a triple-bottom sell signal and bullish % reverses lower. Current bullish % reading for this VERY broad indicator is "bull confirmed" at 49.79 and would still take a reversal reading of 44% to reverse to "bull correction" status.

  Jeff Bailey   12/24/02,  2:38:52 PM
The 1:00 PM Intraday Update has been posted. Link

  Jeff Bailey   12/24/02,  1:18:27 PM
Markets are closed ....

Dow Industrials (INDU) 8,448.11 -45 points (-0.53%)

S&P 500 (SPX.X) 892.47 -4.9 points (-0.54%)

NASDAQ Comp. (COMPX) 1,372 -9.23 points (-0.66%)

NASDAQ-100 (NDX.X) 1,023 -8.9 points (-0.86%)

Russell 2000 (RUT.X) 388 -1.6 points (-0.41%)

  Jeff Bailey   12/24/02,  1:12:47 PM
Here were the 3-charts of Dow, IBM and PG I tried to show earlier. These are what was happening and not updated to their close.

Dow Industrials Link

IBM Link

PG Link

  Jeff Bailey   12/24/02,  1:02:08 PM
IBM $79.76 -0.62% ... couldn't hold my 50% retracement on short-term basis and this a bit "negative" is my thinking. Will get those 10-minute charts from earlier up as IT departement says I should now be able to upload them.

  Linda Piazza   12/24/02,  1:01:00 PM
To all of you who celebrate Christmas, Merry Christmas! To those of you who do not celebrate this holiday, enjoy your time away from the markets! Spend time with people who matter, regroup, and rejoin us all on Thursday.

  Jeff Bailey   12/24/02,  12:59:46 PM
Dow Industrials (INDU) 8,447 -0.53% ... "sharp" move lower into the close. Going to test late-morning lows of 8,444.

  Linda Piazza   12/24/02,  12:57:29 PM
As I look at the COMPX's action today, I note that prices did not move above the gap from last Tuesday's close to Wednesday's open, nor into the gap from Thursday's close down to Wednesday's open of the week before last. Those gaps provided resistance in today's action and might prove pivotal in future action, too.

  Mark Phillips   12/24/02,  12:56:51 PM
THQI $12.47 (+0.25)

Hi Mark What do you think about THQI? It has been going down until today and this morning it was downgraded following a negative preannouncement. Thanks for your expert analysis

Expert analysis, huh? You know what they say...flattery will get you everywhere! I know I just signed off for the day, but thought I'd squeeze in one more post before hitting the egg nog.

Looking at the daily chart on THQI, we can see the persistent downtrend since May, as the stock posts one lower high and lower low after another. The persistent deterioration in the On Balance Volume (OBV) with a complete breakdown again over the past few days shows the investor flight away from the stock. Link Given the near-term oversold nature, we could have another rebound in the making, but I'd look for that to fail again at a lower level than the last bounce, probably in the $15-16 area.

Note the PnF chart is not looking good for the bulls, with the most recent Sell signal yielding a price target of $0. Regardless of what analysts or fundamentals might be saying about the stock, I would avoid it from the long side, based purely on the technical picture. Link

And now I'm gone for the Holiday! Merry Christmas to All!!

  Steven Price   12/24/02,  12:55:13 PM
Swing Trade Signals
Looks like a slow end to an uneventful day. I'm leaning long heading into Thursday, with the support in the Dow 8450 range, but I'm just not seeing enough momentum in either direction to put a position on here with time decay in a slow holiday week. In a perfect world, we'd get another dip to around 8400 on which to enter long, but we may have to settle for a move back over 8500.

  Linda Piazza   12/24/02,  12:48:15 PM
I was just thinking about the report overnight that the Japanese exporters such as Canon and Sony had led the Nikkei higher. If you missed my comments earlier this morning, Canon is expected to post better-than-expected earnings, and most exporters will do better when the dollar falls in relationship to the yen, as had happened overnight. We've all been talking about dismal holiday sales, but I started wondering about those better-than-expected earnings. If earnings are going to be better than predicted, perhaps big money might be paying attention and seeing something in these stocks that we're not seeing. As other writers have mentioned doing, I took a look at on-balance volume for Canon and Sony. It doesn't look at if institutional players are putting their cash into bets of recoveries in these two stocks, at least. Here are the weekly charts, showing on-balance volume: Link Link

  Mark Phillips   12/24/02,  12:33:55 PM
As we move into the final 30 minutes of trading, volume is really drying up to a trickle. The important price moves seem to have already taken place for the day, and I'm going to pack it in for the day. I'll be taking a day off on Thursday, so will see you all again on Friday. Wishing the happiest and safest of holidays to all who tuned in today.

  Jeff Bailey   12/24/02,  12:33:05 PM
Dow Indu 8,472 ... traded my 8,475 stop. Traders here in market monitor that are watching their trades and not stopped, watch Dow closely here. Should it "edge"lower into the 8,465 level, then close out there and not risk rebound back high. Recent little high at 8,480 under this morning's low, so recent lows late morning could still be vulnerable.

  Linda Piazza   12/24/02,  12:32:48 PM
Jonathan must not have completed his shopping yet. He sent this along to the readers, asking me to post it:

The repos are spare change to the aged-but-groovy Al Green, and there are no other expiries today. But, given the low volume today, 500M should have more impact-perhaps, just enough to keep the floor from falling out on the poor retail numbers.

Please wish everyone, readers and staff, all my best for Christmas. Don't drink and drive. If you eat way too much, drink water and think of me. And, thanks for a wonderful year. See you on Thursday.

  John Seckinger   12/24/02,  12:26:24 PM
Well, the Dow did turn the 8460 level into support and, in theory, should not go back below these levels by session's end. Rejecting levels under the H&S neckline should be positive for bulls during the last 40 minutes. To me, a close back near 8515 would be encouraging heading into Thursday. As posted earlier, the possibility of a rebound in the dollar could underpin equities for more than just the short term. Look for a move above 104.25 as confirmation. I wish we had a full session with good volume, but you have to use what the market gives you.

  Linda Piazza   12/24/02,  12:26:18 PM
Having just remembered a report he heard earlier on CNBC, my husband came in and mentioned that the report concluded that 80-year-old women do better on memory tests when they drink coffee. My birthday is tomorrow. Think he's telling me something? John S. may think so, after I wrote him yesterday about discrepancies I was seeing in cash S&P and the ES contract, forgetting that my futures quotes were delayed. Now, where did I put that cup of coffee?

  Jeff Bailey   12/24/02,  12:20:47 PM
My Links not working My links to Dow chart, IBM and PG not working. IT department is looking into this.

  Jeff Bailey   12/24/02,  12:15:17 PM
Intl. Business Machines (IBM) $79.98 -0.37% .... based on 10-minute chart, perhaps very similar to Dow. Link

May be "key stock" for traders to correlate with the Dow Industrials (INDU).

  Steven Price   12/24/02,  12:09:27 PM
Swing Trade Signals
Agressive traders can look to play a bounce off support between Dow 8440-8450, which mirrors support of Friday morning. If I wasn't looking at only an hour left in the day and then a day off tomorrow, I might put on a 1/4 long position and then look to average down if we break back to the 8350-8400 range.

Current levels Dow 8462/OEX 454/SPX 894.11/COMP 1377

  Steven Price   12/24/02,  12:00:28 PM
Hi Steve, When you say "watcing the 5-year and 10-year treasury notes", what are the symbols for these? And between the 5-year and 10-year notes, which one would have more infulence on the market? Thanks. Tvan

The symbols I am using are March futures TY03H (ten-year) and FV03H (five-year)and the 30-year symbol is US03H. I personally like the ten year as an average measure of sentiment for the bond/equity markets.

  John Seckinger   12/24/02,  11:56:33 AM
Despite the recent slow down, it is still a nice day to watch for patterns via retracement analysis, regression channels, or Bollinger Bands. Every day is a good learning experience. With about an hour until the close, I see the Dow trying to get above the mid-point of its short-term Bollinger Bands (8460); moreover, traders are trying to use the 8460 area as a kind of 'inflection' point between two ranges as seen on a bar chart. Using regression analysis from the 8550 area on a five-minute chart, prices are still within the channel and this confirms resistance just above. Will this resistance suddenly turn into support?

  Linda Piazza   12/24/02,  11:56:22 AM
Response, Part II:

CSCO: Cisco's picture is different. Here, the (5)(3) stochastics are definitely trending upward. RSI is a little difficult to interpret, since it appears to be flattening just under the 50 mark, but since it's flattening just below a descending trendline forming in the RSI since mid-November, I give that a bearish interpretation. Volume increased a bit early this week as CSCO rebounded from the previous week's low--something you don't want to see in a bearish play. Cisco is above its 50-ema at 13.26, and that could provide some support now. Resistance lies just overhead at the 13.60 area, backed up by the 22-ema at 13.62, but is strongest at the 200-ema at 14.24. So far, today, the 22-ema has contained the price, but that rising (5)(3) stochastic worries me. It may mean nothing more than consolidation, but the (21)(3) daily stochastic is also turning up. The (5)(3) should be overbought by the time that 200-ema is reached, but that may mean you're in the play while it moves against you and premium decays, and I'm not sure that the (21)(3) will be signalling overbought levels by that time. On the weekly chart, CSCO moved above the descending trendline that had formed from mid-November and this latest move down appeared to be a test of that trendline, which should now provide support. We'll soon find out, as the weekly (5)(3) stochastic has turned down. Weekly RSI also broke out in a bullish fashion from its consolidation. These two signs on the weekly chart (price breaking above the descending trendline and RSI breaking out of consolidation) should make it hard going to push CSCO too low, as should the support offered by the bullish 10-week/30-week MA crossover. Both these averages are grouped just under CSCO's current prices, perhaps providing support. Here's the daily chart: Link

  Linda Piazza   12/24/02,  11:55:24 AM
Reader Question: I really appreciate your detailed analysis of the technicals of individual stocks. I would appreciate the same for TYC and CSCO. I have puts in both.

Response: This reader writes because he's experienced enough to be worried about how premium decay might affect his positions over the holiday. Great idea to examine this issue as we approach the last hour and a half of today's shortened trading day! This is especially important as both of these are on a P&F buy signal. It's sometimes possible to trade against the P&F buy signal and be profitable, but be aware that you're trading against trend.

First, Tyco: On the daily chart, both (5)(3) and (21)(3) stochastics are in levels that show oversold conditions, but they haven't yet begun to turn up. I like the fact that TYC today has dropped below the 50-ema and this week it dropped below that 16-17.50 consolidation range. Link The bearish resistance line shown above on the TYC P&F chart, and the grouped 50-ema and 22-dma on the bar chart at 16.02 and 16.52, respectively, may pressure it, so that a retest of the 14.50-15.00 level may be in store. The RSI still has room to move down, too, indicating that the selling might not yet be done. MACD still looks bearish as it heads down toward the zero level. Link There's no guarantee, even with these bearish signs, that TYC will continue down. When both the (5)(3) and (21)(3) stochastics show oversold conditions, I'm always on the alert for a retest of resistance, especially considering that P&F buy signal. Weekly RSI and MACD are a bit hard to read right now, as both appear to be flattening, but since the weekly MACD had been moving up and now is flattening, I give that a slightly bearish interpretation. On-balance volume shows no signs of rebounding.

  Steven Price   12/24/02,  11:45:14 AM
Re: SMH On 60 min chart, it is a bear flag. Should we wait until it brakes up $24 to go long? Thanks CLS

Semiconductor Holders (SMH): $23.68 (-0.05) There is recent resistance at $24, so a move over that level would be a lower risk entry. The next likely resistance from there will be the 50-dma of $24.96/$25.00. that pattern on the 60 min. chart could also be seen as a bullish triangle, with a rising bottom and a flat top at $24, which would also support long entry over $24.

  Jeff Bailey   12/24/02,  11:43:32 AM
Procter & Gamble (PG) $87.25 -0.50% ... stock was actually trading positive when Dow broke below 8,465. PG got "whacked" not long after. Here's a PG chart with similar retracement on 10-minute chart that a shorter-term trader might use to correlate Dow/PG levels of trade. Link

See Dow's chart (11:31:52)

  Steven Price   12/24/02,  11:33:13 AM
Swing Trade Signals
One thing bulls need to watch out for is action in the treasuries. The 5-year and 10-year notes have both ticked above recent resistance, indicating a cash flow back into bonds. A rollover in the bond market would certainly help the equity bulls and confirm a bounce off Dow 8450.

Current levels Dow 8459/SPX 894.01/OEX 454.13/COMP 1378.49

  Jeff Bailey   12/24/02,  11:31:52 AM
Here's a Dow chart on 10-minute interval with retracement. Here too, some good correlation with today's break of 8,465, which serves as neckline on this short-term time. Link

If trader's are going to push lower, then should find resistance at/near the 38.2% retracement.

  John Seckinger   12/24/02,  11:23:57 AM
With analysts cutting earnings estimates on Wal-Mart and Tiffany & Co., some predict this could be the worst season in 30 years. The Bank of Tokyo-Mitsubishi weekly sales figures is at an anemic 1.5 percent increase over last year, the smallest gain since 1970. On the other hand, the National Retail Federation is looking for a 4% figure. The NRF looks at total holiday sales when calculating its forecast, while others including BTM focus on sales only at large chains.

  Jeff Bailey   12/24/02,  11:21:05 AM
The 11:00 AM Intraday Update has been posted. Link

  Steven Price   12/24/02,  11:18:14 AM
Could you please check into the SMH? How strong the support on $23 is? On daily chart, $23 looks like to act as neckline and $26 as shoulder. Do you suggest to go long around $23-23.50 now? Thanks CLS

Semiconductor Holders (SMH) $23.61 (-0.12) The SMH certainly could be forming a H&S pattern. However, the right shoulder looks pretty sloppy. With recent support in the $22.50-$23 range I like your idea of playing a bounce off of $23-$23.50. I'd place a stop at $22, or a more conservative stop at $22.50. With the SOX back over 300, abounce in the sector after the recent sell-off could certainly come from this level. However, there is still enough downside potential if we break below $22.50 to keep a tight stop.

  Mark Phillips   12/24/02,  11:11:39 AM
ACS $52.07 (+1.18) What's this? Just noticed, ACS is looking pretty strong today and poking its nose above the highs of the past 2 days. This is actually impressive in light of the rather poor action in the broader market. Bulls with a bent towards trading momentum, can use the current move as a higher risk entry, with the understanding that they are bucking the broader market trend. With volume likely to be thin for the rest of this week, my personal preference would be to wait for another mild dip back to the $50.50-51.00 area. A bounce from there would confirm that area of support and make risk much easier to manage.

  Steven Price   12/24/02,  11:05:34 AM
I knew I, I mean my friend, could rely on our readers! So far the most frequent suggestions have been for diamonds and spa days!

  John Seckinger   12/24/02,  11:03:39 AM
I called my friend who works at the CBOT to wish him Happy Holidays, but we end up talking about coupon shortening in December paper (read: reason to buy bonds) and a hedge fund we both know that is excited about buying 5-year notes (read: bearish on stocks, probably). I tell him that if the Dow looked strong, coupons would be mostly bought in the 2-year sector and this is a play off a downdraft in stocks. He agreed. If the Dow does get back above 8464 area (not that far away) I will put on a neutral stance.

  Steven Price   12/24/02,  10:59:41 AM
Swing Trade Signals
I like Jeff's target of Dow 8387 for my bounce entry (GRIN)

  Linda Piazza   12/24/02,  10:59:40 AM
If Jonathan were able to post, I'm sure he'd mention that 3-day Fed repo of $4.25 billion today. Yesterday's $3.75 billion repo was a one-day repo, expiring today, so that leaves a net infusion of $500 million, if no other repos were expiring today. Jonathan would probably count that as petty cash. (Not for his personal account, I'm sure, but as net infusions go!) I haven't been keeping a running total, as Jonathan does, but a scan of the site showed no other repos maturing today. If readers know of any, let me know, and I'll post the number.

  Mark Phillips   12/24/02,  10:55:09 AM
ROOM $58.24 (-1.07) Seems I've been doing a daily update on ROOM in this forum lately. But like they say, you've got to go where the action is. It's been an interesting round trip over the past few days, with the stock rallying up to $60, failing there yesterday and presenting us with a solid entry point (which we talked about at the time), and now back near the $58 level that provided support last week. Kudos to those of you that entered on the rollover near $60, as the play appears to be rapidly moving in our favor. Traders still looking to enter the play will want to wait for a break below last week's low ($57.75) on strong volume (unlikely today!) to enter the trade. Either that, or another failed rally below the $60 level. Remember, the PnF chart is forecasting a sizable decline (bearish price target of $44), and once below last week's lows, there really isn't much for support until reaching the 200-dma near $53, and then strong chart support in the $50-52 area.

  Jeff Bailey   12/24/02,  10:55:08 AM
Dow Industrials (INDU) 8,541 -0.49% ... I like Dow short/put on break of 8,445, target 8,387, stop 8,475.

  Steven Price   12/24/02,  10:54:49 AM
I have this, um...friend, yeah, a friend who has yet to pick up a gift for his wife. While the big gift was already deliverd and installed, that friend is in search of something smaller and particularly thoughtful. Suggestions for this, um, friend, are welcome.

  Ray Cummins   12/24/02,  10:54:23 AM
FDX Straddle Question - Part II

Exit Techniques: One approach is to sell both sides of the straddle when a certain profit or loss percentage is reached. Another technique involves a methodical study of the daily movement of the underlying issue, so it can be used to your advantage to exit each individual option in a timely and efficient manner. Probably the worst method is to simply hold on until expiration, garnering whatever "in-the-money" value remains on the third Friday in January (1/17/03).

Determining how and when to exit a straddle is a matter of personal preference but in most cases, if the underlying issue performs poorly, or with less volatility than expected after a specific event, the play should be liquidated before time-value decay significantly erodes the overall value of the position. If you are going to use sell-stops for a downside exit strategy, most professional traders suggest that you risk no more than 60% of the straddle price. For example, if you pay $10 for a straddle, the overall credit for the position could decline $6, to a price of $4, before the trading stops would be hit. The use of a percentage-loss limit is designed to keep you from staying around for the last swell of time decay, especially in those cases where the stock is very near the strike price. Remember, time decay accelerates significantly in the final month of an option's life, and then again in the final week, so you should probably consider a hasty departure if the issue hasn't moved much by then...

  Linda Piazza   12/24/02,  10:51:05 AM
With an anemic 149 million shares traded on the NYSE and 219 million on the Nasdaq, I wouldn't draw too many conclusions from today's volume patterns, but here they are: New highs outnumber new lows on both indices, although they're fairly even. Adv/dec figures (ratio method) are 1.02 for the NYSE and .73 for the Nasdaq-traded issues. However, up/down volume shows down volume at almost 2 times up volume on the NYSE, while up volume is slightly ahead on the Nasdaq.

  Steven Price   12/24/02,  10:50:58 AM
Swing Trade Signals
Boredom has definitely set in and my guess is that traders who came in for the open have started filing out the doors. That being said, we broke back below 8450 in the Dow and yesterday's support level of 894 in the SPX. The Dow has come back over that level and aggressive traders can play a bounce here with a small position, but that 8500 resistance level looks pretty solid based on yesterday afternoon and this morning's action. I'm still waiting to play support closer to the 8350-8400 range for a higher percentage entry.

Current levels Dow 8457/OEX 454.08/SPX 893.66/COMP 1378.69

  Jim Brown   12/24/02,  10:48:29 AM
We just got our retest of Dow 8450 and the TRIN is still rocketing skyward at 2.25, which indicates very oversold. It is likely the very low volume is impacting the number but at these ranges it would normally be suggesting a bounce soon.

  Ray Cummins   12/24/02,  10:46:10 AM
Straddle Trading -- Exit Strategies

Reader Question: I have a Jan straddle on FDX. Volatility has decreased and both calls and puts are trading below fair value. It is after the earnings report and the volatility never went up much and is now below where I put the trade on. How would you evaluate the options of sell the calls, sell the puts, or just get out of the trade.

Regarding the FDX straddle: A quick glance at the chart suggests the maximum trading range for FDX over the last few months has been approximately $12. A more conservative assessment of the price channel for the issue would be in the $10 range and for the near-term, a trader could anticipate a maximum movement of $4-$6 for any 30-day period. The historical volatility for FDX is as follows: 20D HV =27, 50D HV = 29, 100D HV = 39. As you mentioned, the current price of the JAN-$55 (ATM) options is well below the theoretical value, thus there is low expected volatility in the underlying. The company's quarterly earnings report (12/18) generated a brief spike to the upside, but there was little follow-through and with the relatively solid resistance near $55-$56, the potential for extended bullish activity seems remote.

Since you did not mention your positions, I'll assume you have both calls and puts at $55. In addition, I'll take for granted you are familiar with the basic concepts of option pricing such as time value and premium decay. Since the holiday season will quickly erode each option's premium and there is little reason to expect a large move in the underlying in the coming weeks, it seems appropriate to begin devising an exit strategy.

  John Seckinger   12/24/02,  10:44:52 AM
Looking at a 30-minute chart of the Dow, it seems as though we just broke a neckline of a H&S formation that had a neckine at the 19.1% retracement level of 8464 (Note: 19.1% is half of the popular 38.2%, and the retracement is from the high above 9000 to the bounce at 8327). With that said, for me I will need a period close above 8464 before getting too bullish.

  Mark Phillips   12/24/02,  10:42:04 AM
Be Careful What You Say! Somebody is likely to take you literally!! Regarding my 10:21 post, I received the following reader email...

it's a sign...I'm buying tricon global! (ticker:YUM)

Hmmm...I know the reader was just yanking my chain, but let's take a look just the same. While there is nothing compelling about trading either direction on YUM, I do like the way the stock has been consolidating over the past 2 months. Lower highs and higher lows, have painted a neutral wedge with a ceiling near $24 and a floor near $22.50. As that range tightens, the likelihood of a breakout move increases, with odds favoring a downside move, which would be a continuation of the trend prior to this consolidation. Note that the PnF chart is still bearish, with a current bearish vertical count of $11. It would take a trade of $26 to generate a PnF Buy signal, negating the current bearish signal. On the downside, we need to see a trade at $20 to give a triple bottom Sell and reinforce the current bearish tone in the stock. Link

  Jim Brown   12/24/02,  10:39:23 AM
I envy all the readers with snow today. All we have received lately in Denver was a couple dustings, which are gone by noon. The mountains have been blessed with yards of snow already but Denver hasn't seen real moisture in weeks. No white Christmas here with the six day forecast sunny and mild. (highs 45-55 for Friday) It is official. Boredom has set in when we resort to weather forecasts for filler. (grin)

  Jeff Bailey   12/24/02,  10:38:50 AM
Citigroup (C) and JP Morgan (JPM) Both are Dow laggards with -2% losses and impacting negative trade in the Dow. Don't see any news to explain action, but may have some exposure to UAL leases similar to Disney's announcement this morning.

  Ray Cummins   12/24/02,  10:38:46 AM
Spreads/Combos - Goldman Sachs Position

Kudos to Mark P. and Jim for that candidate as the issue certainly appears to be headed south in the near-term! The Spreads/Combos section also recently offered a bearish spread (JAN85C/80C) in GS and it is trading at maximum profit.

  Linda Piazza   12/24/02,  10:38:08 AM
I'm with Mark. (See his 10:21 post.) So why watch the markets today if you're not going to trade? Today's a good day to watch for resistance or support levels that might come into play in trading later this week or next week. Getting a feel for how your favored stock or index trades in light volume helps you to find profitable trades in the future or avoid unprofitable ones. If you're new to trading and want to see how premium decay might have affected a potential trade, paper trade several OTM options today and recheck the price about mid-morning on Thursday to see how prices were affected. (Option prices tend to be a bit inflated during the early-morning volatility.) Plan to recheck the prices Monday, after the weekend's premium decay, and then next Thursday, after the New Years' holiday. This will help you plan next year's holiday trades.

  John Seckinger   12/24/02,  10:34:02 AM
Was on the phone with Bailey (again), and explaining one of my theories. I take 50% of the day's range and, if the 50% area is penetrated to the upside, I look for a test of the opening level (in this case 8491 in the Dow) BEFORE the 50% level is re-tested. At the time, 50% was 8477. The Dow cleared 8477 and then did NOT hit 8491 before coming back to 8477. Failure, and the objective is for a drop to new lows. When there is a good range in the Dow, this pattern can be effective.

  Mark Phillips   12/24/02,  10:31:12 AM
GS $69.42 (-1.23) -Alright, here's one that is actually worth mentioning. Both Jim and I highlighted this Brokerage stock as a high-odds short over the weekend. I was looking for Friday's rebound attempt to get a bit of follow-through and then fail in the $74-75 area. No such luck. The slide got started yesterday and GS cracked the $70 level this morning and is continuing to slide lower. Apparently it didn't take investors as long as I expected to figure out that last week's legal settlement just paves the way for a long list of class action suits whose eventual price tag will likely dwarf that of last week's $1.4 billion settlement.

Those looking for exposure to the bearish trade on a shorter term basis can look to enter on signs of resistance now at the $70 level. Those looking to play GS as a LEAP Put like we talked about over the weekend will want to wait for a possible post-holiday bounce before venturing into the play. It may not come to pass, but I'd rather wait for the better entry as risk is so much easier to manage. Remember, it is preferable to miss an opportunity than to take one that you later wish you had let pass by.

  Jim Brown   12/24/02,  10:30:45 AM
Jim, We went into the Best Buy store in KC (north of the river) on Friday of last week at about 2:30 pm and the store was so packed there was a line of about 50 people waiting to check out. Some of them were carrying very large items. Due to lack of time, we put our measly little items back on the shelves and hit the door, only to return yesterday (when we had more time) and it was twice as bad! On the other hand, the Circuit City about two blocks away was ok with traffic, but nowhere near as packed as Best Buy. Our observation from this vantage point is that Wal Mart has been soft, the local large mall has been desolute, you could shoot a gun off (Bailey variety) and probably not hit anyone in Circuit City but that Best Buy has been doing extremely well. Happy Holidays from the heartland! RHD

The two times I visited BBY over the last two weeks there was no wait and I had my choice of registers. When I drove though the parking lot on Saturday it was standing room only with nary a spot. Circuit City had about 10 cars three blocks away. I would short the stock (CC) but at $6.99 there is not much future in it.

  Jim Brown   12/24/02,  10:27:34 AM
We are rapidly approaching the 60-minute mark for the day. We have already seen all the volume that matters and the late morning paralysis is starting to take hold. My charts are starting to run at speeds resembling stopped clocks. The current range of 8450-8500 has probably trapped the Dow for the rest of the day. Push your chair far enough away from the computer so that when you fall asleep your head does not hit the keyboard and launch an unintended trade.

  Ray Cummins   12/24/02,  10:25:19 AM
Spreads/Combos/Premium Selling - No News Is Good News?

Market Movers: Very little activity in the portfolio this morning (as expected) and for spread/combination traders, that's generally a good thing. The majority of positions are doing well as we head into the last week of 2002 and barring any major events, the January expiration period will be profitable.

On a side note: I went shopping yesterday...trying to do my best to help the retailers. From what I saw, Christmas Eve will have to be the "Superbowl" of shopping days to recover this season. Lets hope I am being overly pessimistic -- for the market's sake. Any portfolio/trading questions? Send them to ray@OptionInvestor.com

  Linda Piazza   12/24/02,  10:24:13 AM
At 281.72 as of this writing, the S&P Banking Index also trades just under its 50-dma (exp) at 282.76. A strong push above this average for the BIX and the transportation index (still trading just below its 50-ema of 2315.71 as of this writing) would be viewed positively, but both indices would soon face further resistance at their 22-ema's of 289.55 and 2328.25, respectively.

  Mark Phillips   12/24/02,  10:21:47 AM
Santa may be in the process of checking his list for who's been naughty or nice, but for the most part, investors seem content to have hit the snooze button for a few more hours of sugar plums dancing in their heads. Looking at the OI Play List, my own personal Watch List and the LEAPS play lists, I'm hard-pressed to point out a singel meaningful development this morning. But then that's what we expected, isn't it? I'm sure glad my own business plan dictates no trading this week, as any other action plan would likely be foiled by the lack of market action and have me feeling frustrated. To the contrary, I'm watching the lack of meaningful action with detached amusement, rather than any expectations. To be honest, my mind is on the delicious feasts that will be presented over the next couple days! YUM!!

  Jim Brown   12/24/02,  10:17:28 AM
With the SPX/OEX back at the end of day resistance levels from yesterday we are going to get our real test of pre-holiday strength. The early morning weakness may have evaporated but we are far from any strength. If the markets are going to roll over this is the level to expect it. Dow 8490, Compx 1382, SPX 897, OEX 456.

  Steven Price   12/24/02,  10:14:51 AM
Swing Trade Signals
COMP turned green briefly and the Dow/OEX/SPX are down only fractionally. I wouldn't be closing long positions at this point as it looks like that other leg down lost whatever steam it had. The Dow still has 8500 to contend with and the SPX has 900 sitting above, which was reistance on yesterday's bounce attempt.

Current levels Dow 8486/SPX 896.46/OEX 455.54/COMP 1381.52

  Linda Piazza   12/24/02,  10:13:19 AM
MSFT is now positive, up $0.06 for the day. Having MSFT in the news today brings up something I've been meaning to mention for those of you who are relatively new to trading options. Why is it important to consider your trading style when looking at charts? About ten days ago, an experienced trader wrote pointing out some bullish signs on Microsoft: a bullish 50-dma/200-dma crossover and support at its August top, for example. Answering in the Monitor, I also noted the bullish 20-week/30-week MA crossover, a confirmation of a double-bottom pattern, and the fact that volume decreased as MSFT fell. Despite these bullish signs, however, I concluded in the Monitor that this wouldn’t fit my trading parameters for a bullish play, pointing out that at that time, MACD was still very bearish on daily chart, RSI was bearish on the weekly chart, and the weekly (5)(3) stochastic was rolling. I saw possible overhead resistance at 50-dma and the 10-week MA, and pointed out some historical resistance at 53.75, 55, and 55.50. MSFT was on a P&F sell signal. With that P&F sell signal, the bearish cast of the indicators on the weekly charts, and all those clustered overhead MA's, I felt that MSFT might not be able to push above that resistance. I did, however, point out to the reader that if the trade fit his parameters, he’d settled on a sound stop that would get him out with a minimal loss if MSFT fell instead of consolidated. Here’s the current chart: Link

Two observations jump out: 1. Just as I feared, MSFT was not able to push above that gathered resistance. 2. Among the consolidating candles over the last seven trading days are several big white candles. Those big white candles represent days when a daytrader could have benefited from a bullish trade in MSFT. One of them occurred the Monday after I’d written about MSFT in the Monitor. However, as I’ve mentioned in the Monitor, I don’t often daytrade. A swing trader would have seen premium decay over the last week while MSFT consolidated, and a bullish trade would not have been a great idea for that type of trader. Keep your trading style in mind as you view charts or study the analysis you might read in the Monitor.

Note: the weekly (5)(3) stochastic has now cycled down to a level showing that MSFT is oversold, but that weekly stochastic has not yet turned back up. Weekly RSI appears to be turning back up, while weekly MACD is a bit difficult to interpret right now. Daily (5)(3) stochastics have turned back up.

  Jim Brown   12/24/02,  10:12:48 AM
I just got a "computer problem, can't post" message from Jonathan that was relayed thorough another OIN reader. Sure Jonathan!! You just needed to run out to the mall for a couple last minute purchases maybe? The dog ate your homework excuse had already been used and now you have to resort to drawing readers into your schemes? (big grin) Let us know what the traffic was like when you get back!

  Jim Brown   12/24/02,  10:08:08 AM
Fry's parking lot was overflowing yesterday, but the mass in the lot did not match the moola in the till. Salespeople confirmed that while the store (there is only one in Austin) was experiencing heavy traffic, the actual purchasing was light. Some thought (hoped) the real buying would occur today.

Since Target's parking lot was also full last night at 10:00, but it reported disappointing sales this morning, the high PLI ("Parking Lot Index") for Best Buy may be deceptive. BBY may very well surprise to the downside.

Further anecdotal bread crumbs: a large multi-location retail nursery put approximately 600 Christmas trees in its parking lot with a "Free Christmas Tree" sign at the close of business yesterday, because it had been unable to sell them.

Merry Christmas and Happy New Year to you, yours and everyone at OI/Premier. John

Did you just hear the "man in the mall" report on CNBC. The reporter said there were 40 men in line to make purchases at Tiffany's this morning when the store opened. Those males were making their annual mall migration on the last shopping day before Christmas as I speculated in my late night monitor post. I doubt they can bring the retail sales back from the brink but the last minute buying frenzy will keep clerks busy.

  Linda Piazza   12/24/02,  10:05:48 AM
Looking for signs of strength or weakness in key sectors, I noticed that the Dow Jones Transportation Index, currently at 2313.09, has dipped below its 50-dma (exp) at 2315.71 after closing above this level yesterday.

  John Seckinger   12/24/02,  10:00:46 AM
One pattern I love to see is a WEEKLY divergence in the RSI, bullish or bearish. Currently, I am seeing a Weekly Bullish Divergence in the Dollar. I am comparing current weekly RSI readings with lows set on July 14th. I do consider this one of the stronger patterns (seen in March, October, and December), and it makes me nervous about expecting more weakness in the Greenback.

  Steven Price   12/24/02,  9:59:56 AM
Swing Trade Signals
With the Dow once again bouncing above 8450, I'm leaning bullish from here. Yesterday's afternoon bounce found resistance at 8500 and if we get another failure at that level, may faith in a bounce from 8450 may be shaken.

Current levels: Dow 8473/OEX 454.91/SPX 895.18/COMP 1380.84

  Jim Brown   12/24/02,  9:54:59 AM
Quieter than Santa a green candle is beginning to appear on the Dow and the TRIN is actually increasing. Currently at 1.53 it is indicating oversold conditions and coupled with a couple green candles on the 2 min A/D chart it shows that a few buyers may actually be awake today. The QQQ has suddenly spiked to the high of the day. Here comes Santa Claus, here comes Santa Claus. (grin) If you are still bullish now would be the time to go long as all the internals just popped into the green. Just remember the outlook for next week could be much different. A better plan may be to just complete last minute shopping instead.

  Linda Piazza   12/24/02,  9:54:07 AM
The Nikkei closed up 1.25% overnight, helped by exporters Canon (up 4.7%), Sony (1.4%), and Nintendo (up 8%). Canon was up on expectations of greater-than-expected earnings, but the dollar's one-month low against the yen also helped these exporters.

  Jeff Bailey   12/24/02,  9:52:49 AM
Equities holding in well considering this morning's downside surprise from durable goods orders. Sector action is broadly negative, but marginally so, with only Retail down more than 1% (big negative in my book).

On the upside is Software (GSO.X) 107.05 +0.10%, Drug (DRG.X) 303.10 +0.4% and Airline (XAL.X) 37.87 +0.5%.

  Steven Price   12/24/02,  9:52:16 AM
Costco (COST) $27.28 (-0.11) OI put play COST has held support at $27, in spite of negative retail news yesterday and this morning regarding Target (TGT) and Federated (FD). Given the recent support, I would look for a breakdown below $27 for short entries.

  Jim Brown   12/24/02,  9:47:30 AM
Internals are still negative and there is no indication we will see a bounce. The A/D line is negative at -1110 and declining volume is increasing. It is very unusual to have a negative day on Christmas Eve despite negative economics and global news. Normally the bulls prevail but they have their work cut out for them today.

  Linda Piazza   12/24/02,  9:47:26 AM
Yesterday's breakout in the COMPX occurred from consolidation in the 1360-1370 area. Bullish traders want to see the COMPX stay above 1370.

  John Seckinger   12/24/02,  9:47:07 AM
The Utility Index (UTY) is slightly lower for the second consecutive session, but more importantly has failed to hit 260 over the last few days. This index, on a daily chart, has built a nice wedge pattern with a breakout signal given at 260. P&F charts has a buy signal already given when the index hit 256; however, I think a move above 260 is more important. If bids do develop, watch to see if the UTY index can pull stocks higher.

  Steven Price   12/24/02,  9:44:56 AM
Swing Trade Signals
The pullback so far looks pretty mild, but given the repeated failures to close above the 50-dma in the broader indices sends up a red flag and tells me we may still get another leg down. Current 50-dmas are Dow 8537/SPX 901.57/OEX 459.19

Current Levels: Dow 8468/SPX 894.64/OEX 454.55/COMP 1378.47

  Jim Brown   12/24/02,  9:42:10 AM
That was a pretty wimpy bounce off the opening drop this morning. A drop below the earlier low of 8460 will now setup a negative trend very unlike normal holiday weeks. It is best you turn the TV to a cartoon channel and spare the children the rest of the possible carnage today.

  Jeff Bailey   12/24/02,  9:39:52 AM
Qwest Communications (Q) $5.89 +2.98% ... upgraded by Soundview to "outperform" from "neutral" after the company's successful debt exchange offering and the acceptance into 9 of 14 states for long distnace approval. Link

The debt exchange offering was announced back on November 20th where the company commenced a private offering to exchange $12.9 billion of outstanding debt securities of Qwest Capital funding. The new securities included roughly $4 billion of new senior subordinated notes of Qwest Services Corp.

  John Seckinger   12/24/02,  9:39:35 AM
Interesting side note: The US Treasury has asked Congress to raise the debt limit, since the current level will be reached by Mid-February. The Treasury says it is necessary due to the economic slowdown and war on terrorism.

  Linda Piazza   12/24/02,  9:39:24 AM
MSFT down $0.11, bouncing a bit from its lows, after a judge ruled that the company must distribute Sun Microsystems' Java programming language, pending the resolution of the antitrust suit between the two companies.

  Jim Brown   12/24/02,  9:37:36 AM
Chinese Internet stocks NTES and SOHU continue to attract buyers after a report on their profitability and future outlook was made public last night. The slight pull back on profit taking this morning may be the entry point for the week. (grin) These rockets have not seen red candles very often.

  Jim Brown   12/24/02,  9:35:08 AM
If you are following the editors play from Sunday you already know that GS broke $70 this morning. This is a put play that expects GS to trade in the $60 range over the next 90 days. Link

  John Seckinger   12/24/02,  9:34:04 AM
The 30-year bond (ZB03H) is higher by '24 ticks at 111'19 and breaking out to the upside. The next level of resistance is at 112'08. Higher prices and lower yields within the bond contract should keep equities under some pressure this morning.

  Jim Brown   12/24/02,  9:30:37 AM
Looks like we are going to get another chance to retest Dow 8450 again at the open. The markets just can't get a break. Economics just keep sliding down the slope of hope with mixed messages day after day. The Durable Goods numbers are today's example. Retail Sales seem to be getting even worse with several analysts claiming this is the worst year since 1991. Of course Monitor readers knew this three weeks ago.

Most of the activity today is going to occur in the next 60 minutes and then the concrete will start to set. I am turning neutral after today's news and no longer expect that we will reach 8750 before rolling over after Christmas.

  Jeff Bailey   12/24/02,  9:29:27 AM
Disney (DIS) $16.63 .... says it sees Q1 charge of $83 million or $0.04 per share for write offs related to UAL aircraft lease investment. The company said it will take the write down in Q1 as it does not expect to recover losses during UAL's bankruptcy proceedings. Link

  Jeff Bailey   12/24/02,  9:28:42 AM
The 9:00 AM Intraday Update has been posted. Link

  Steven Price   12/24/02,  9:24:18 AM
Swing Trade Signals
I am not planning on entering a position in the abbreviated session, but if we get a bounce in the 8350-8400 range, I may dip in from the long side. Any premium buying today will have only a few hours to work in our favor before 1 1/2 days of time decay set in, so traders weary of that decay may also want to sit this one out. A move over Dow 8550 certainly looks bullish, but with heavy resistance around 8625 and then 8750-8800, I'm not sure the risk/reward is worth it when considering the holiday decay. Another move to support around 8350-8400 gives us a little more profit potential, however, balancing the risks more in our favor.

  Linda Piazza   12/24/02,  8:45:23 AM
Durable goods numbers released at 8:30 ET this morning were as follows: U.S. Nov. Durable Goods orders fell 1.4%. Predictions had been for a rise of 0.9%. Ex-Defense orders were down 3.2%. Futures traded positive ahead of the relase of these numbers, then turned negative.

  Linda Piazza   12/24/02,  7:33:20 AM
Nearing their early closings today, the FTSE 100 traded up 0.19% and the CAC 40 traded down -0.66%. The German DAX was closed today. In the U.K., telecom regulator Offtel halved the rates British Telecom could charge for wholesale broadband access and also trimmed 20% from the prices British Telecom could charge for rental. Offtel backdated these changes to August 2001. Initially, British Telecom fell, but recovered and appears to be ending the day nearly flat. Hopes for last-minute shopping blitz in the U.K. may not materialize, as U.K. market researcher Footfall Index catalogued 7% fewer shoppers in the last weekend before Christmas than were counted last year. Trading higher in the U.K. were oil stocks.

  Jim Brown   12/24/02,  2:59:25 AM
In the town of Perfect the shopping is all done. - The stockings are all hung by the chimney with care in hopes that St Nich will soon be there. All the children are tucked snug in their beds with visions of Xbox dancing in their heads. All the presents are carefully wrapped and mom and dad are taking some time off Tuesday to catch up on a quiet romantic lunch and a movie.

As they say in the commercials we don't live in Perfect and most of us are not even close to that scenario today. Retailers will get one last chance on Tuesday to sell at full retail price as the male shopping day has finally arrived. Women will avoid the malls to keep from being trampled by the hordes of males trying to compress four weeks of careful thought, planning and love into a few hours of mindless panic once they realize every gift they may have considered during the football commercials has been sold out for weeks. But as hunter-gathers we will persevere and whatever gadget, trinket, toy, diamond ring or Mercedes we come up with the recipient will smile and say it was exactly what they wanted. The female of the species knows this is required to protect the fragile ego of the male and let them think they are firmly in control. Males will puff up with pride on the outside while knowing full well inside that they barely escaped alive and it was only blind luck that they stumbled over a suitable gift. They resolve to make next year different and start early to find that perfect item for everybody on the list. Surely there will be much more selection on Dec-23rd, 2003.

For those dads with small children Tuesday night will bring round the clock feats of assembling magic as glittering toys take shape out of brown cardboard boxes. Moms will be starting their own assembly job on the wonderful meals that kids will remember wistfully after they are married and suffering through the early years of forming a new family.

Trading should be an afterthought on Tuesday morning. Only the hard core need attend. Volume buyers will be harder to find than Chicken Dance Elmos. Nobody expects any major market moves on Tuesday but odds are good we will end the shortened session positive.

If you have any holiday stories suitable for printing on the monitor please pass them on and we will do our best to entertain everyone that has nothing better to do that stare at a computer screen on Christmas eve morning.

  Steven Price   12/24/02,  2:13:09 AM
No Swing Trade Game Plan Tonight - Steve is on vacation.

  John Seckinger   12/24/02,  2:11:17 AM
The Futures Trader Wrap has been posted: Link

  Jim Brown   12/24/02,  2:10:43 AM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link


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