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  Jeff Bailey   1/22/03,  10:01:03 PM
Bullish % Updates Today's action saw reversals in both the very narrow Dow Industrials Bullish % ($BPINDU) Link and the broader, yet still rather narrow NASDAQ-100 Bullish % ($BPNDX) Link .

Observations points are the January periods (red 1) and "just like that" the NASDAQ-100 bullish % looks striking similar to that found this time last year. A NASDAQ-100 Bullish % reading of 58% would be "bear confirmed." Last year, similar setup in the NASDAQ-100 Bullish % saw it falling to 28% by early February (after red 2). This combined with recent observations of breadth decline in the NASDAQ Composite new highs/new lows category has QQQ and NDX looking very short/put. Outlined what to look for in tonight's Index Trader Wrap.

 
 
  Jeff Bailey   1/22/03,  6:12:30 PM
Pivot Analysis Matrix for tomorrow at this Link

Today's trade saw some significant resistance in the SPX 890 on two separate tests, with a third attempt at 02:20 PM EST falling short at 888.65 and sold hard into the close. This 890 level now falls between tomorrow's daily R1 and R2 levels. SPX 890 is also S1 from the weekly pivot analysis, which actually serves as resistance.

With the Dow Industrials closing below its weekly S2 of 8,361 today, it's my view that the other major indexes are at risk to their weekly S2 levels.

 
 
  Linda Piazza   1/22/03,  6:06:14 PM
Reader Question: I know you like to study candle shapes. Today's final COMPX candle looks very like a gravestone doji to me - not perfect, cause it has a tiny tail. I have an idea about how to interpret one of these in an uptrend. But when it appears at the bottom of a string of red candles,like now, do you treat it as an inverted hammer, i.e., bullish bottom reversal signal with confirmation of higher white candle next day? Does it merely signify more indecision? Or underline the lack of demand? What do you think this candle might foretell in this context.

Response: Great question, Debby! Ever since Jonathan mentioned the formation of the gravestone doji, I’ve been asking myself the same questions you’re asking, pouring over Nison's book to see if I could find similar setups. I did find some instances, but the best one was on the COMPX daily chart itself, on October 9, the day before the markets began to climb again toward the November highs. Link

There are some major differences between that October 9 gravestone doji and this one, though. If you know about candlesticks, as you obviously do, you also know about the eight-to-ten session pattern, where a decline is usually marked by eight to ten sessions (not necessarily consecutive) in which a candle's low is lower than the previous candle's low. That had happened in October, but it hasn't happened with this current descent. In addition, that October gravestone doji was preceded by a regular doji, itself a sign of indecision.

I didn't find a consistent pattern in the candles that could be expected to follow a gravestone doji that occurs while prices are falling rather than at the end of a rally. Often, the next day's candle was a white one, but it might have been a white one whose body formed below the gravestone doji rather than above it, for example. The fact that today's opening and the closing were so close together (as demonstrated by the formation of that doji), that bulls drove the prices up but bears were able to drive them back down (as indicated by the upper shadow) indicates some indecision or stalemate in the market. That might suggest some consolidation if not a brief bounce. This possibility is perhaps augmented by the doji's formation at 1360, an area that proved pivotal in the formation of the July and September shoulders of a previous H&S formation.

Nison himself suggests looking at other indicators, too, and the oversold levels indicated by the 5(3)3 daily stochastics perhaps point to a consolidation or an attempt at a bounce. The bearish MACD and the bearish roll in the 21(5)3 daily stochastics perhaps indicate that there's more likelihood of a consolidation or a brief bounce than of a long upturn such as that seen in October. In October, the MACD was flattening in oversold levels rather than just turning over and moving through the zero level. These are just guesses and perhaps are colored by my original thought that bulls would try to defend that H&S neckline in the COMPX, but that longer-term oscillators point to more weakness. We'll soon see how successful that attempt will be.

 
 
  Linda Piazza   1/22/03,  4:24:41 PM
Confessions of a Daytrader (well, swingtrader, actually, but daytrader sounds more interesting): Here are my notes last night on what I thought might happen today on the OEX: While the 5(3)3 stochastics indicate oversold conditions, the longer-length 21(5)3 stochastics are just now beginning to roll, predicting that any upturn should be short-lived. With that in mind, I have two possible scenarios: One would be a quick drop tomorrow to the 444-446 area. From there, I might expect to see a bounce, which would probably then fail under the 22- and 50-dma's, around the 458-461 areas. I would then expect the 440 area to be tested in the next few days or week as the 5(3)3 daily stochastics cycle down again. Another possible scenario would be a move up tomorrow morning (before falling to the 444-446 area), with the OEX also failing near the 458-461 area.

It didn’t happen exactly that way. While the OEX did climb early this morning, it reached only the 452 area, in the middle of the range I expected before rolling over. Later in the day, it tested that 452 area again. Perhaps that would have been a good entry, but I didn’t want to sit out a possible rise to 458-461 after entering at 452. The 60-minute 5(3)3 stochastics were still pointed up a the time. The end-of-day fall brought the OEX right down to the area from which I had originally thought there might be a bounce. So, while it was a frustrating day and I knew the OEX would fall eventually, no trade fit my parameters for entering. I wanted a rollover at higher resistance. Daytraders might have profited greatly from today’s moves, but I tend to hold trades several days or weeks. Even with trades of that length, timing does matter.

 
 
  Jeff Bailey   1/22/03,  4:20:37 PM
Citrix Systems (CTXS) $12.85 ... stock trading higher at $13.29 after reporting Q4 EPS of $0.23, which was 9-cents better than consensus. Company said revenues fell 5.8% year-over-year to $148.8 million, but well above consensus for $124.5 million. Gave guidance for Q1 of $0.11-$0.13 on revenues of $120-$130 million, compared to current estimates of $0.12 per share and revenues of $122.1 million.

 
 
  Jeff Bailey   1/22/03,  4:01:01 PM
Computer Associates (CA) $13.50 -9.6% ... hammered lower from $14.80 to current levels just before the bell. Looks as if company released earnings before the bell "by accident" as they were slated to report earning after the close.

 
 
  Jeff Bailey   1/22/03,  3:57:25 PM
The 3:15 PM Intraday Update has been posted. Link

 
 
  Jonathan Levinson   1/22/03,  3:56:24 PM
The daily candle on the COMPX looks like a gravestone hammer to me.

 
 
  Jonathan Levinson   1/22/03,  3:44:37 PM
Linda, although I know nothing about, these prevalent technical difficulties are apparently associated with the Mercury Retrograde, which ends within the next day or two.

 
 
  Linda Piazza   1/22/03,  3:41:26 PM
I'm having difficulty with mail and other Internet activities today. I just talked to my daughter, who lives in a different Texas city, but who also has broadband access, and she's having difficulties, too. I'm trying to respond to my mail as quickly as the connection allows and appreciate your patience.

 
 
  Jonathan Levinson   1/22/03,  3:41:11 PM
Speaking of erasing gains, the COMPX has now completed a round trip to within a few cents of its low of the day. It went nowhere, but it sure was an exciting ride!

 
 
  Linda Piazza   1/22/03,  3:37:12 PM
Currently 31.89, the VIX moved briefly above 32 to a high of 32.21. Its 200-ema sits above at 32.50.

 
 
  Mark Wnetrzak   1/22/03,  3:35:39 PM
Email Question: Covered-Puts

Mark,
Thanks for all of your great covered call ideas. I am growing my roth IRA month by month mostly by using your picks. I am wondering though if there is a bear market equivalent to writing covered-calls? It seems like there should be but I can't seem to figure it out myself. Thanks for all of your work.
DJ

Hello DJ. The Covered Put sale is a bearish strategy where an investor sells a put and is also short the underlying stock. This creates a position with limited profit (and unlimited loss potential) as long as the stock stays below the sold strike price of the put. This strategy is equivalent to a "naked call" write except that the covered put writer must pay out any dividend that is issued on the "short" stock. Another drawback is the short-sale up-tick rule which could hinder entering a covered put position. By comparison, a naked call usually has more time value premium than that of a put, and a naked-call writer pays less commissions. It is a very difficult strategy and is generally little used as it appears inferior to just selling naked-calls.

 
 
  Jonathan Levinson   1/22/03,  3:32:40 PM
The rapid elimination of 9 COMPX points was good for a .23 rise in the TRINQ to .73, which is at the middle of neutral bullish territory. The TICK.NQ is at -561 showing broad selling. The put to call ratio made it up to .68. A visit to the low of the day is not out of the question from here.

 
 
  Linda Piazza   1/22/03,  3:32:39 PM
After testing and falling beneath its 200-ema, CSCO now tests its simple 50-dma at 14.029.

 
 
  Linda Piazza   1/22/03,  3:29:55 PM
When asked on CNBC just now whether Lucent has “turned the corner,” Patricia Russo, CEO of Lucent, replied, “I wouldn’t say we’ve turned the corner, but we’re making progress.” I don’t know, but that doesn’t sound particularly encouraging to me.

 
 
  Jonathan Levinson   1/22/03,  3:24:14 PM
While the COMPX remains up a touch, the INDU has now erased 2003's gains.

 
 
  Kent Barton   1/22/03,  3:22:56 PM
Boston Scientific (BSX) $45.04 +0.98: Shares of BSX are bouncing back by 2.2%, following Tuesday's wild, news-driven session. Q-charts users should note the daily chart is incorrectly showing that BSX (a long play on PI) rallied up to $50.00 yesterday. This was a bad tick. The high for Tuesday was $46.81. Technically, it's nice to see that the stock has rebounded from the bottom of its ascending regression channel. We'll now be looking for shares to rise off the $45.00 level and move towards the multi-month highs.

 
 
  Linda Piazza   1/22/03,  3:21:10 PM
Speaking of bearish kisses, there's now been one on the NDX 5(3)3 hourly chart. Prices came up and tested the middle line in the Bollinger band and appear to be turning down from there, confirming weakness in this index.

Other bearish kisses threaten on the other indices, too. I certainly didn't need to build a possible scenario for a bounce in the OEX so far this afternoon, as that hourly stochastic cycled up quickly while prices stayed far away from the middle line of the BB bands. Although the scenario for a possible bounce was meant as a "what if" exercise to help manage risk and not a prediction of strength in the OEX, it's still helpful to build and then readjust these scenarios as market action unfolds. They're theories and like all theories, scientific or otherwise, need to be adjusted if evidence proves them wrong. Now it's time to watch to see if those hourly 5(3)3 stochastics do kiss and then roll over or redraw themselves and move back up again. Whether they roll over or move back up, however, the fact that prices stayed in the trading range while the 5(3)3 stochastic moved up looks bearish.

 
 
  Jeff Bailey   1/22/03,  3:18:18 PM
Hotels.com (ROOM) $45.50 +2% ... looking short/put here, stop just above at $46.75 and target $44.25 near-term.

 
 
  John Seckinger   1/22/03,  3:14:14 PM
For over thirty minutes (or six five-minute periods), the Dow has not closed either above 8361 or below 8341 within this short timeframe. However, what the Dow did do is hit the 38.2% retracement from the low in October to the high early in December (8338). The 50% area comes in at 8120. Does this mean bounce? It definitely could. We should know soon.

 
 
  Jonathan Levinson   1/22/03,  3:13:39 PM
Let's just call it rangebound. The COMPX is trading 1370 even, with treasury bonds closed near their highs of the day, and precious metals holding most of their gains. There seems to be little direction, with the COMPX up a whopping 5 or 6 points on the day. The put to call ratio remains in the mid .60s, the TRINQ just below .50.

 
 
  Linda Piazza   1/22/03,  3:06:49 PM
Revisiting some of the market-moving stocks I studied this morning, I note that CSCO, currently trading at 14.15, has now fallen beneath its 200-ema, now at about 14.21. This points out how helpful it can be to wait for a close over key levels before drawing too many conclusions. At the end of the day, a test and failure from the 200-ema might look quite different from a close over that level, for example. Either action is still within reach for CSCO, although there’s now been a bearish kiss on the 60-minute 5(3)3 stochastics.

 
 
  Linda Piazza   1/22/03,  2:59:08 PM
After several readers noted a precipitous fall in VXGN today, I’ve been searching for a reason behind the drop this morning. On the boards, rumors have it that there might have been problems with approvals for one of the company’s vaccines, but the company’s site doesn’t offer any confirmation and I cannot find confirmation anywhere else, either. That may be the reason there’s been a bit of a rebound.

What do you do you have a position in a stock and there’s a sudden, unexplained drop or rise? What action should you take? Honor your stops. As has happened several times recently, with readers involved in bearish or bullish trades, matters often resolve themselves within a day or two when the company makes an announcement. Someone knew ahead of time. Thinly traded stocks can be unduly (and sometimes maliciously) affected by rumors, but if technical damage has been done to your position, then your original premise for entering the trade has probably been proved false anyway.

 
 
  Mark Phillips   1/22/03,  2:49:12 PM
AZO $61.60 (-2.10) I've talked about this one recently, due to it breaking strongly below its long-term ascending trendline. Since that weak bounce in early January, AZO has fallen back under the trendline and has been particularly weak over the past few weeks, getting hammered again this week and now trading below $62 for the first time since late July. Based on the dramatic deterioration in the On Balance Volume and the PnF chart Link giving a new Sell signal with a tentative price target of $50, I'm expecting that $60 support to give way. A break under that level will have the bears leaning more heavily on the stock and I would expect to see it fall into the $46-48 area. Just another example of the advantages of trading those stocks with which we are familiar. Until that breakdown occurs though, we still need to be on the lookout for an oversold rebound, possibly to the $65-66 area.

Disclosure: I currently hold Feb $70 puts on AZO.

 
 
  John Seckinger   1/22/03,  2:48:04 PM
I am sure that as soon as I say that "things look technically horrible for the Dow," the blue chips will get a bid back to 8380. This is a range; when things look horrible at the bottom and great at the top. Using fitted retracements, a five-minute CLOSE above 8361 or below 8341 could set the mood for the last hour of trading. Above 8361 and things could get quiet, while under 8341 and maybe we will get that test of near 8300.

 
 
  Jonathan Levinson   1/22/03,  2:43:36 PM
The US Dollar Index at 100.19 is looking like it's forming a bearish descending triangle on the 10 minute chart. HUI and XAU seem to like it, +2.40 and 1.62 respectively.

 
 
  Jonathan Levinson   1/22/03,  2:41:23 PM
The most recent put to call ratio has come in at .63. The COMPX remains in its ascending wedge, and the FVX has dropped to 2.873%, down 6.3 bps on the day. Not bullish. But the COMPX's ability to levitate is. Keeping my eye on the lower trendline of the rising wedge on the 10 minute COMPX, which appears to be failing as I type.

 
 
  Jonathan Levinson   1/22/03,  2:31:24 PM
An interesting press release for those interested in the precious metals fund CEF (Central Fund of Canada) at this Link

 
 
  Ray Cummins   1/22/03,  2:25:39 PM
Spreads/Combos -- Notable Events

Shares of University of Phoenix Online (NASDAQ:UOPX) have been hit with significant selling pressure during the past two sessions after some negative comments by Barron's. Among other things, the article mentioned increased competition in the industry, inflated valuation of the company's shares and recent "heavy" insider selling. Today's sharp declines took the issue below the sold (call) strike in our bullish spread (FEB-$30C/$35C), thus conservative traders are encouraged to consider an early exit or adjustment in the position.

 
 
  Jeff Bailey   1/22/03,  2:24:38 PM
American Electric Power (AEP) $27.75 +5.64% ... stock jumps sharply in last 10-minutes to $28 after saying it declares $0.60 quarterly dividend.

 
 
  John Seckinger   1/22/03,  2:21:57 PM
The range continues in the Dow, and the last relative low at 8369 ended the short series of lower lows and lower highs within a five-minute chart. Does this mean that the 8425 high will be taken out (set at 13:10)? It might; however, the lack of direction and mixed signals today shouldn't be telling if this area is taken out. The 30-year remains firm (higher by '16 ticks at 111'28), and should mean that there are some equity shorts involved that might begin to square positions (read: slighly higher equity prices). A hard day to read.

 
 
  Kent Barton   1/22/03,  2:11:07 PM
Front-month crude oil futures (cl03g) are moving to fresh relative highs today, currently trading above $34.00/barrel. This comes in spite of news that Venezuelan tanker captains would end their strike, helping to boost the country's exports. The oil market seems to be focusing instead on the steady beat of war drums from the White House.

Meanwhile, the OIX.X (oil index) and OSX.X (oil service index) both traded multi-week lows today after Sclumberger (SLB) reported earnings that were 5 cents less than analyst expectations.

 
 
  Linda Piazza   1/22/03,  2:09:04 PM
At 31.63 as of this writing, the VIX has moved down from its day’s high of 32.02.

 
 
  Jeff Bailey   1/22/03,  1:57:40 PM
Dow Industrials (INDU) 8,385 -0.68% .... coming back for yet another test of 8,380, which is today's S1 support. Continues to be the "lagging" index. Recovery in past hour of 8,425 not even close to the daily PIVOT of 8,502.

Looking defensive yet again and most likely weighs on the SPX, OEX and NDX.

 
 
  Jonathan Levinson   1/22/03,  1:56:57 PM
The put to call ratio has continued to fall, with its last reading at .65. The QQV has risen to 37.21, down a mere .81. If this rise on the COMPX makes it past the 1380 zone, I'll be surprised to see 1400 on this move. The TICK.NQ didn't stay positive for long, and is currently showing solid selling at -391, while the TRINQ remains low at .39. Lots of buying in a small number of issues- not the recipe for a sustainable rally to this observer.

 
 
  Jeff Bailey   1/22/03,  1:49:33 PM
The 1:00 PM Intraday Update has been posted. Link

 
 
  John Seckinger   1/22/03,  1:48:49 PM
On a daily chart of the XAU, I can see a large "P" formation and an apex just underneath the 78 level. Prices fell from this apex, but now look to reject the recent sell-off and could force shorts to cover while getting longs involved as well. Please see chart: Link

 
 
  Jonathan Levinson   1/22/03,  1:30:54 PM
The COMPX appears to be forming a rising wedge on the 10 minute chart, but is bumping its head against the formidable 1380 (1377-1382) confluence zone. A break below 1374 should be a violation of the rising lower trendline.

 
 
  Linda Piazza   1/22/03,  1:17:32 PM
On the OEX 60-minute chart, both lines of the 5(3)3 stochastics have now turned up, while the 10(5)3 stochastics also tries to hinge up. Candlesticks show a white candle forming, the third candle of what could be considered a rough morning-star pattern on the hourly chart. Although the current hour is not completed and that candle could change radically before it does, a trader could begin to consider a scenario for a bounce. How high would the OEX go? Often, weak stocks or indices turn down from the average that forms the middle of the Bollinger bands. What about the daily 5(3)3 stochastic? That’s trying to hinge up, too. The mid-line of the daily BB lies at 459.96. I also note that the simple 22-dma and 50-dma come in near 458 and 461. If my premise is that the OEX is weak (as the MACD and 21(5)3 stochastics seem to predict), I would expect it to roll over again near 459.96, and perhaps even a bit lower as the mid-point of the BB on the hourly chart is near 456. If I were in a bearish trade on the OEX, developing that scenario would allow me to assess whether I wanted to hold onto my position through the bounce.

 
 
  John Seckinger   1/22/03,  1:13:11 PM
Using fitted retracements on the Dow, traders can "stack" one retracement range on top of another in case the market rallies. As always, I (as well as Jeff) like to wait until there is a five-minute close either above or below these defined levels before calling it a confirmation. See chart of today's action: Link

 
 
  Jonathan Levinson   1/22/03,  1:03:15 PM
Latest put to call ratio at .68.

 
 
  Jonathan Levinson   1/22/03,  1:00:13 PM
Yields remain weak with FVX -5 bps, the TRINQ remains low at .33, QQV is near its lows -1.31 on the day, and the TICK.NQ is at -81. The last put to call ratio came in at .71, next reading due in a few minutes. This bounce remains suspect at these levels, but then, QQQ is up over 50 cents intraday so far.

 
 
  Mark Phillips   1/22/03,  12:57:26 PM
Good morning Mark: XMSR 5.03 +.08 (1.60%), broke out over the 4.00 resistance, is next resistance at 6.00, fundamentals have been positive the last week, your comments on MM are appreciated.

Wow! There has been a fair amount of positive news on this stock over the past week or so, from impressive penetration via GM vehicle sales with the Satellite Radio installed, to $25 million in new funding committments. Then yesterday, the company announced expectations to ship more than 80,000 units of the XM SKYFi "boom box" in the first half of 2003, as subscriber growth continues to accelerate.

That installment of good news yesterday propelled the stock through the $4 level, and actually through the $5 level today, generating a strong PnF Buy signal. Link We need to be careful though, as the stock is right now bumping up against the bearish resistance line ($5.50) and the 200-dma ($5.36). While a breakout is certainly a possibility, the risk-reward for new entries at current levels is not favorable in my opinion.

That said, the longer-term picture is turning more favorable (in large part due to the improving fundamentals). While the $6 level will indeed present signficant overhead resistance, the PnF chart is currently pointing to $7 as the eventual bullish price target. It may not be achieved (or may be exceeded), but at least that gives us a target to use when gauging risk and reward.

I've never traded this stock and I don't follow it closely, but based on the analysis above, I'd look to initiate new bullish positions on a dip and rebound from the $3.50-4.00 area, setting stops just below $3, looking for the 50-dma ($2.95) to provide strong support.

 
 
  Ray Cummins   1/22/03,  12:52:49 PM
Spreads/Combos -- Readers Write

Hello Ray...How did you work out b/e on the Synopsis (NASDAQ:SNPS) debit spread?...Thank you.

SNPS - Synopsys $40.00 on 1/19/03
PLAY (conservative - bearish/debit spread):
BUY PUT FEB-50.00 YPQ-NJ OI=30 A=$10.20
SELL PUT FEB-45.00 YPQ-NI OI=236 B=$5.50
INITIAL NET-DEBIT TARGET = $4.50 to $4.60

MAXIMUM PROFIT = LONG PUT MINUS SHORT PUT MINUS INITIAL DEBIT
MAXIMUM PROFIT = $50.00 - $45.00 - $4.60 = $0.40
BREAK-EVEN PRICE = LONG STRIKE MINUS INITIAL DEBIT
BREAK-EVEN PRICE = $50.00 - $4.60 = $45.40
RETURN ON INVESTMENT(max) = PROFIT DIVIDED BY INITIAL DEBIT
RETURN ON INVESTMENT(max) = $0.40 / $4.60 = 8%

Here is a link with further explanation of the strategy: Link

 
 
  Jeff Bailey   1/22/03,  12:51:06 PM
QQQ $25.47 +1.6% ... breaking to intra-day high here and should help spur a rally. Dow Indu (INDU) 8,407 -0.42% recent pullback to today's S1 of 8,380 getting a bounce and should be able to challenge day's high of 8,444. Bulls look for Dow "confirming" strength above 8,480 after that.

 
 
  Linda Piazza   1/22/03,  12:48:44 PM
On the Nasdaq, the adv/dec ratio improved slightly from earlier this morning, with the ratio now reading at .74, up from the .69 seen earlier today. While up volume still outranks down volume, the proportion isn’t nearly as strong as it was earlier, with up volume being 1.8 times down volume. Earlier today, it was 2.43 times down volume. New lows continue to outnumber new highs, but not by much with the new highs numbering 47 while the new lows numbering 50.

On the NYSE, the adv/dec ratio remains fairly steady, currently at .66 and down slightly from the .69 also seen there earlier today. Down volume comes in at 1.6 times up volume, but new highs still outrank new lows, by a 57:47 ratio.

 
 
  John Seckinger   1/22/03,  12:43:36 PM
If weakness develops, now is as good a time as any (8388). Why? Because bulls might be relaxing here as Bush talks and the Dow is above 8380. Moreover, another small wave higher from current levels might really then cap the range and make it even harder to trade. With that said, look for longs to liquidate on a five-minute close under 8380. From the bullish side, a five-minute close above 8412 could spark a short-covering rally and be the catalyst for a move just above 8444 (read: hitting stops). In conclusion, today is a hard day to get a good feel for the market(s).

 
 
  Jeff Bailey   1/22/03,  12:40:12 PM
Bank of America (BAC) $70.75 +0.02% ... stock jumps 30-cent in past 5-minutes after announcing 130 million share buyback.

 
 
  John Seckinger   1/22/03,  12:12:31 PM
Turning to the corporate bond area, the GE bonds I spoke about yesterday (not issued from GE Capital, which got my attention) are going to be priced tomorrow at roughly 115 basis points over Treasuries (pretty narrow, so should be good for shares of GE - down 0.26 at 23.80). There are $6.1 bln worth of bonds allotted for already. In other supply news, Italy raised their deal to $3 billion and should also be priced tomorrow. So, with supply concerns looming in the bond pits, how is the 30- and 10-year higher by '17 and '11.5 ticks, respectively? Flows out of mortgages are part of it, but traders may like the +115 spread and not as aggressively hedging in the Treasury market.

 
 
  Jonathan Levinson   1/22/03,  12:08:49 PM
The put to call ratio has reached .73, with the TRINQ still very low at .32, TICK.NQ -203, QQV creeping back up at -.53 on the day, FVX lower -5.2 bps on the day.

 
 
  Linda Piazza   1/22/03,  12:05:23 PM
VLO update: Those who did not exit the Valero Energy play last week should note that VLO currently trades at 35.40, below its simple 200-dma at 35.65. and just below the exponential 200-dma at 35.50. Still below is the simple 50-dma at 35.22. If Valero should violate these levels on a closing basis, a trader should re-evaluate the trade. VLO remains on a P&F buy signal. It reports earnings on January 28, so the decision to hold or close positions should also factor in that information.

 
 
  Jeff Bailey   1/22/03,  11:46:23 AM
The 11:00 AM intraday update has been posted. Link

 
 
  Jonathan Levinson   1/22/03,  11:45:15 AM
Spot gold hits 360/oz. "The lunatic fringe" as CNBC referred to us gold investors a few weeks ago adds to its profits.

 
 
  Linda Piazza   1/22/03,  11:42:29 AM
News sources report that the EU zone inflation rate has come in at 2.3%, above the 2% mandated by EU rules.

 
 
  Linda Piazza   1/22/03,  11:33:18 AM
Still watching key stocks for signs of market direction today, I note that GE has moved below 24 and currently trades at 23.78. Scanning the daily chart for intraday lows, I see that November lows were 23.53, and the July low was 23.02. This isn’t trading advice on GE, but rather a look at how another key stock performs today. A fall beneath that 23.00-23.50 area would mean a retest of October lows for GE, and perhaps for the broader markets. Everywhere I look, markets and stocks seemed poised at key points.

 
 
  Jonathan Levinson   1/22/03,  11:33:16 AM
I enjoy reading your commentary on GOLD etc. I wanted to know what would be a simple way to play GOLD and OIL related volatility from options perspective. Also, your thoughts on OIL prices if the fears of war with IRAQ come true ?

I'm not current on oil equities or whether the XOI has options, but gold can be played via options on either the XAU, or a good unhedged miner such as GG, or via futures contracts on the COMEX. The usual strategies could be employed to either sell premium or build hedged positions using these vehicles.

If a fight with Iraq occurs, I doubt if such would be bearish for oil. As with all the commodities, there is a confluence of bullish factors at this point in time. We have an accomodative, inflative fed concerned about avoiding a global deflation, along with significant event risk, toppy bond markets and stock markets, and devaluation fiat currencies, and this on a worldwide basis. When paper securities begin to appear an iffy buy, that's when commodities rally, as we've been seeing. I doubt if an attack on Iraq would do anything to ease this bullish bias in the short term, whether for oil or gold. To hear the talkies on CNBC writeoff the rise in gold to "war fears" is just laughable. War with Iraq wasn't that high up the agenda back when gold was busting through 250/oz. For oil, an attack on Iraq might either free up more supply or restrict it. But in the meantime, I believe that the rise in oil seen yesterday tells the whole story.

 
 
  John Seckinger   1/22/03,  11:30:20 AM
Thinking outloud: It is one of those days when it certainly appears like a range; however, the rebound from 8380 never got back to the opening level in the Dow at 8444 (read: failure). With support at 8380 most likely going to fail, do you sell weakness if we are in a range? I would rather sell strength; however, the market didn't rally to good resistance levels. Let us hope 8380 becomes strong resistance and we can then look for an extended move lower.

 
 
  Linda Piazza   1/22/03,  11:21:17 AM
An interesting development in the volume patterns occurs this morning as new lows outnumber new highs on the Nasdaq and are nearly equal to new highs on the NYSE. I had been noting during the January rally that there was a divergence in volume patterns, with new highs skyrocketing versus new lows, while adv/dec and up/down volume patterns didn’t seem to be confirming that strength. Not able to find literature as to whether adv/dec patterns or new highs/new lows tended lead the markets, I had been noting the divergence and waiting to see what developed. Although one shouldn’t draw too many conclusions from a single test of a theory, it appears for now that any divergence signals trouble during a rally.

One further note: up volume still outpaces down volume on the Nasdaq this morning, with up volume being 2.43 times down volume.

 
 
  Linda Piazza   1/22/03,  11:13:34 AM
Looking underneath the surface of the market, I note that CSCO, trading at 14.25 as of this writing, is testing its exponential 200-dma at 14.25. It’s above its simple 50-dma at 14.03 and 200-dma at 13.62. Overhead, resistance lies at 14.75, 15, and at the reverse H&S neckline at about 15.50. (That’s a rising neckline, so will move higher.) I caution readers not to draw too many conclusions from a brief intraday move above that 200-ema, rather than a close above that level. Some technicians even want to see two days of closes above a key level or MA, or a 3-5% move above that level.

 
 
  Mark Phillips   1/22/03,  11:12:06 AM
Now that the opening volatility has eased somewhat and the initial upward surge appears to be fading, it's time to look at individual plays, both bullish and bearish.

Looking at the OI Call list, there isn't much to get the bulls excited on either CI (muddling around just below $45) or RJR (drifting along near its lows just below $46). On the other hand, OCR is looking pretty solid after rebounding from the $25.50 level (just above the 10-dma at $25.44). Entries taken near the lows this morning are looking good, while more conservative players will want to wait for a move back over $26 before playing.

On the put side, we want to see which plays failed to participate in this mild lift. With the exception of CTAS (up nearly 3% on the day), things are looking pretty good for the bears.

ASD fractionally broke the $66 level and is holding just barely above the lows of the day. No strength there, as of yet.

CTSH is down more than 1%, trading a new recent low today and looking to test the 200-dma ($57.99) later today. While no strength is seen yet, be on the lookout for a bounce from that 200-dma.

KSS is in the red, but just barely so, as it continues to find buying intererest just under the $54 level. As mentioned in last night's update, chasing the stock lower isn't the preferred entry. I personally would lean towards entry on a failed rally in the $55.50-56.00 range.

ERTS is still looking a bit on the strong side following the favorable comments from Lehmann and Piper Jaffray yesterday. After a rebound from the $49 level this morning, we're seeing an attempt to move through yesterday's intraday highs at $50.21. Traders looking for an aggressive entry will want to monitor the stock near the 20-dma, which is just below $51 right now. A rollover from that area would make for a favorable risk/reward, with stops set at $52.

GS is struggling this morning as well, drifting along just below $71, but not showing much weakness either. After the last week's action, an oversold rebound is not out of the question. Such a rebound will set up a favorable entry on a rollover below the $73-74 resistance level.

 
 
  John Seckinger   1/22/03,  11:11:27 AM
The war premium in Gold sent spot prices to $360.25 an ounce, its highest since March 1997. Also interesting is that platinum, widely used in jewelry, is at its highest level in 17 years.

 
 
  Jonathan Levinson   1/22/03,  11:04:34 AM
The put to call ratio has edged down to .72 now, while the TRINQ is low at .28 and the TICK.NQ bearish at -182. Is a negative TICK.NQ combined with a very low TRINQ showing distribution on the COMPX? I believe so but am not sure. The QQV is now down 1.36, yet the five year yield really isn't joining the party, currently down 3.6 bps. It's taking a lot of buying to keep the COMPX at this level, yet on balance there are more declining than advancing, and the ADVDECV line seems to be toppy for the moment. A break below John's 25.21 pivot should bring the lows of the day back into target, but we're not there yet, still above the 25.27-.31 s/r level.

 
 
  Jeff Bailey   1/22/03,  11:04:19 AM
S&P 500 Index (SPX.X) 887.16 -0.05% ... per last night's Index Trader Wrap Link , we see SPX session high of 889.74, a penny shy of our weekly retracement derived from pivot analysis of 889.75. As such, this becomes near-term level of resistance. If SPX can close 889.75 today, then has rally potential to 903.50 and 912 levels respective.

 
 
  Jeff Bailey   1/22/03,  10:57:55 AM
NASDAQ-100 (NDX.X) 1,017.35 +0.84% ... Traded today's S1 of 1,003, then rebounded strong to trade above day's pivot of 1,016. If NDX finds support here and takes out intra-day high of 1,022, then look for major indexes to trade positive into today's close. NDX looks to be the "leadership" index for strength in recent sessions on relative basis as Dow, SPX and OEX have traded their S2 levels in recent sessions, but NDX less willing. As such, traders may monitor NDX for strength that pulls other indexes along.

 
 
  Linda Piazza   1/22/03,  10:53:39 AM
At 31.35 currently, the VIX stands near its opening and in the approximate middle of its range today.

 
 
  John Seckinger   1/22/03,  10:47:01 AM
The range continues in the Dow, but the 8380 area did act as solid support (intra-day low at 8379). The Utilities Index (UTY) is lower by 1.21% at 251.19, but not having an immediate affect on stocks. The Greenback came extremely close to the 100 level (100.06), and currency traders are most likely short covering back to 100.31. In other news, The American Bankers Association is forecasting a 20% chance of a recession in 2003, as well as a 0.8% rise in GDP for the Fourth Quarter of 2002. The Association also predicts a budget deficit of $260 bln, a 5.2% rise in non-residential investment in 2003 versus a decline of 1.9% in 2002, and a 25 bp hike by the Fed in July '03.

 
 
  Jonathan Levinson   1/22/03,  10:34:08 AM
The put to call ratio has dropped from .89 to .77 on this rise. TRINQ at .26 and TICK.NQ just turned positive at +4. QQV is -1.02 at 37 even.

 
 
  Linda Piazza   1/22/03,  10:26:54 AM
Since the SOX often leads the market, the SOX’s behavior today might be a good indicator to watch. Also, the potential H&S formation appears more clearly defined on the SOX daily chart. Depending on how you draw the neckline (how thickly you draw the line, whether you include shadows, etc.), that neckline crosses anywhere from 282 to 287. Bulls might be expected to defend that neckline area—or make an attempt to do so. On a move up, there’s the psychological resistance at 300 just ahead. Just above that, at about 311, lies the 22-dma (simple). Currently, there’s a kiss of the 5(3)3 daily stochastics, but they haven’t done more than hinge up a bit. 21(5)3 stochastics still cycle down, with room to go. Hourly 5(3)3 stochastics are turned down, moving into territory indicating oversold conditions.

 
 
  Jonathan Levinson   1/22/03,  10:22:14 AM
We've seen a high of 25.27 on the Qubes, which is just below the 25.28-25.31 level we saw working as a key s/r zone yesterday. Note that 25.21 (John's pivot) is also seeing a good deal of action this morning.

 
 
  Jonathan Levinson   1/22/03,  10:07:49 AM
The Fed has just announced an overnight repo in the amount of 14.5B. This is a net drain of 1.5B. However, it's still 14.5B of potential liquidity sloshing around the markets today. Caution bears. And, caution again: the opening put to call ratio was .89.

 
 
  John Seckinger   1/22/03,  10:06:39 AM
I was a little surprised we didn't get more selling on the open; therefore, I will most likely wait until the 8380 is taken out before expecting more red candles. The pivot is higher at 8502, and resistance before this area comes in at 8444 (session high) and 8476.

 
 
  Linda Piazza   1/22/03,  10:04:09 AM
It's often appropriate to look beyond the S&P’s, Dow, and COMPX. Yesterday, I put up a Q-chart snapshot of the Russell 2000, showing that the Russell was close to violating its H&S neckline. Smaller caps might be showing the worst technical damage. Here’s a snapshot of the Wilshire 5000, perhaps the most encompassing of our markets. As I mentioned yesterday, there’s always room to argue over H&S necklines, but this chart shows why I think bulls might be defending current price levels today. It’s not a given that they’ll succeed, of course, as chart signals currently hint that they’ll ultimately fail, but this might be an appropriate level for a bounce while oscillators move up a bit and work off the oversold conditions. Link

 
 
  Jonathan Levinson   1/22/03,  9:59:27 AM
Remember that Al Green has to let a big one fly just to break even. Any repo of less than 16B will be subtracted from 16B to determine the net drain on the market today. No announcement yet.

 
 
  Jonathan Levinson   1/22/03,  9:55:42 AM
No time to discuss this here, but the different stochastics settings allow you to measure overbought/oversold of different cycles or waves. The 5(3) setting is so short that it measures "wavelets". 10(5) measures over a longer wavelength, and so on. Experiment with different settings and observe how the different settings correlate to price action, timing of buy and sell signals, etc.

 
 
  Linda Piazza   1/22/03,  9:52:00 AM
Concerning the reader’s comment in Jonathan's 9:11 post that the daily stochastics are in oversold territory, I offer the observation that not all stochastics readings are oversold. While the shorter-term 5(3)3 stochastics are in oversold territory, longer-term daily stochastics are just now turning down. What that says to me is that there’s a possibility for a weak bounce (and perhaps better entry) while the 5(3)3 stochastics try to cycle back up, but the longer-term stochastics readings and the MACD action indicate that the bounce might be weak and not expected to punch through overhead resistance. Like Jonathan, I’m wary of entering new short positions here unless you’re willing and able to weather the pain your account could take while/if the markets bounce. Of course, there's a risk in not entering now, too, as the markets could continue to plunge while those 5(3)3 stochastics remain pinned in oversold territory. There's always another opportunity waiting, however.

 
 
  John Seckinger   1/22/03,  9:50:41 AM
The 30-year bond is currently higher by '13 ticks at 111'25, and showing a green candle for the eighth consecutive session. The next area of solid resistance is not seen until the 112'16 to 112'24 area. Support is felt from 111'03 to the 111'16 area. With that said, look for longs to have tight stops on positions and shorts to possibly wait until either an explosive move higher or a break under 111. Note: In theory, cash should leave stocks and enter bonds - sending prices higher.

 
 
  Jonathan Levinson   1/22/03,  9:41:08 AM
The TRINQ is down to .40 on this rise, QQV still +.36, and FVX off its lows a bit at 3.5 bps on the day currently.

 
 
  John Seckinger   1/22/03,  9:39:52 AM
After the first five minutes of trading, the range in the Dow is from 8444 to 8412. Not exactly a wide area. Nevertheless, we are under the pivot of 8502 and support isn't found until 8380 (S1). Aggressive traders can anchor a retracement off the high of 8444 and put the 19.1% level at 8412. This would then show next support at, well, 8380.

 
 
  John Seckinger   1/22/03,  9:33:31 AM
Intra-day Pivot/Levels for Wednesday (01/22/02)...

INDU : S2= 8316, S1= 8380, P= 8502 , R1= 8565 , R2= 8687

SPX : S2= 875, S1= 881, P= 894, R1= 900, R2= 912

OEX : S2= 444, S1= 447, P= 453 , R1= 457, R2=463

NDX : S2= 996, S1=1003 , P= 1016, R1=1022 , R2=1035

QQQ : S2= 24.68, S1= 24.87, P= 25.21 , R1= 25.40, R2= 26.74

 
 
  Jonathan Levinson   1/22/03,  9:31:47 AM
4 point gap down open on the COMPX to 1360, TRINQ .36, QQV flat.

 
 
  Jeff Bailey   1/22/03,  9:31:31 AM
The 9:00 AM Intraday Update has been posted. Link

 
 
  Jonathan Levinson   1/22/03,  9:11:47 AM
My only concern is the very oversold stochastics reading I get on daily. I was leaning toward shorting QQQ today. Should the oversold stoch be much concern?

It depends on your timeframe. It's looking like the COMPX will gap down at the open, which means that entries off the open will be riskier. Better to wait for a bounce, preferably a failure of COMPX 1370. I'm not confident in initiating positions here because, as you note, there's been a solid few days of selling.

 
 
  Linda Piazza   1/22/03,  8:49:52 AM
European markets continue to tumble, with a 1.93% drop in the FTSE 100, a 2.31% drop in the CAC 40, and a 2.81% drop in the DAX. The DAX has now dropped below the 2800 level.

 
 
  Jonathan Levinson   1/22/03,  8:47:54 AM
Zooming out for a moment to the daily QQQ chart, I see a number of not-bullish indications. The 5 day SMA crossed the 13 day SMA yesterday- looking back over the chart, this has been a decend signal in the past. The 28(3) stochastic has yet to cross, but it appears imminent. Never anticipate signals! OK. But it sure is close :) The MacD has just given a bearish cross and the histogram has just gone negative. I'll post the chart below. Last thing? The p/c ratio closed at a very low .52 reading yesterday. Bearish.

Link

 
 
  Jonathan Levinson   1/22/03,  8:38:08 AM
Nothing bullish in the bond market's open, with FVX -4 bps, TNX -3.8 bps and TYX -2.9 bps.

 
 
  Jonathan Levinson   1/22/03,  8:24:04 AM
Gold broke 360/oz last night and is currently back at 359/oz.

 
 
  Jonathan Levinson   1/22/03,  8:23:30 AM
The US Dollar Index (dx00y) reversed its decline last night just below 100.15, and is now trading at 100.31. Futures are down, however, with QQQ trading 24.88 and bringing into view the possibility of Jeff's 23.82 target discussed in the Index Trader Wrap last night. The Indominable Al Green has yesterday's massive $16B repo expiring today, and so any lesser amount added with leave the markets with a net drain. Yet another word about the repo. 16B might be the largest overnight repo I've yet seen. However, we note that yields didn't collapse and stocks didn't rally. There's no way to know what was done with the money, if anything. It could have been left in the fed's 22 primary dealers' accounts without entering the markets at all. This is why traders need to be aware of the fed's activity as a measure of potential bias for the markets that day, but not as a direct trading indicator. Because of the plethora of markets into which these funds can be invested, it's possible only to guess at the destination of the fed's open market operations funds announced each day. I follow them closely to help me assess the risk of my positions. Yesterday, the existance of a 16B blank cheque made shorts riskier, and so I kept a closer eye on the day's highs. I would have closed shorts on the setting of a higher high after the opening pop, and fortunately for my short positions, it never came.

 
 
  Jonathan Levinson   1/22/03,  7:39:17 AM
J.P. Morgan Has Second Loss in Five Quarters on Costs for Enron, Lawsuits

J.P. Morgan Chase & Co. lost $387 million in the fourth quarter after the second-biggest U.S. bank wrote off losses related to bankrupt energy trader Enron Corp. and set aside money to cover the cost of lawsuits.

Link

 
 
  Linda Piazza   1/22/03,  7:30:00 AM
Good Morning! In Asian markets overnight, the strengthening yen, increasing crude oil prices, and worries about the economic impact of a war with Iraq hit exporters. Already struggling, Asian markets dipped further after it was learned that a 7.8 Richter-scale earthquake hit the Mexican state of Colima yesterday. News reports currently number the death toll under 30, but expect that number to rise as rural areas are searched. The Nikkei closed down 1.12%. In other Asian news, SK Telecom unexpectedly announced a drop in Q4 profit.

European markets extended their losses this morning, with the FTSE 100 down 1.01%, the CAC 40 down 1.73%, and the DAX down 2.06%. Today’s drop sees the CAC 40 join the DAX in slipping beneath the psychologically important 3000 level, with the CAC 40 currently at 2940 and the DAX currently at 2811.50. Insurers led the declines after Assicurazioni Generali announced earnings that included write downs of its stock investments, resulting in a net loss. Analysts feel that other insurers may also suffer from disastrous stock investments. In company-specific news, the world’s largest maker of circuit breakers, Schneider Electric, fell after announcing Q4 sales that fell 8.5%. Motorola, however, rose in early trading even though it guided analysts lower for Q1. Market participants seemed more impressed with the company’s ability to post net income for two quarters in a row. Also in company-specific news, Safeway may have a sixth bidder.

 
 
  Steven Price   1/21/03,  12:40:13 AM
The Swing Trade Game Plan has been posted: Link

 
 
  Jeff Bailey   1/21/03,  12:39:47 AM
The Index Trader Wrap has been posted: Link

 
 
  John Seckinger   1/21/03,  12:38:56 AM
The Futures Trader Wrap has been posted: Link

 
 
  Jim Brown   1/21/03,  12:38:30 AM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link

Disclaimer: Results posted in the Market Monitor are hypothetical and OIN does not claim that any reader achieved these exact results. Due to the lag time between research, writing, posting, uploading, reading and execution there will be differences between the actual signal given and the fill achieved by the reader. Fills may be better or worse but in many cases they will be different. The writers will make every effort to give advance notice of intended signals and indicate potential price targets. Your individual results may vary depending on your activity level and aggressiveness. This forum is intended as an education service only. Trading involves risk and should not be attempted by anyone not ready to accept this risk. By acting on any signal in this forum you agree and personally accept this risk.

 
 

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