Option Investor
Printer friendly version
  Jeff Bailey   3/18/03,  9:37:41 PM
Suitable for Reader's Digest? .... Jeff: I just heard a news report that France would join the war, but no one said whose side.

I think it was reported that France would join the U.S. if Iraq used chemical weapons. Disclosure: I believe my mother's side of the family has some French heritage.

  Jim Brown   3/18/03,  9:19:49 PM
Enjoy your newsletter tonight because tomorrow may be a little difficult. The city of Centennial Colorado where we have our offices has been shut down by a blizzard like the one in New York last month. We currently have between 28-36 inches of snow with up to 4 feet in some areas another 36 hrs of snow on the way. Accumulations are expected to be 4-6 feet depending on the temperature and the area.

All roads other than major highways are impassable and the city is closed. With it currently snowing 3-4 inches an hour there is no way any employees are going to be able to get to the office tomorrow. Many of us have alternate offices at home and the market monitor will not be hindered. The evening newsletter may be very skinny. Intraday updates may run late.

Thanks to the beauty of the Internet, business will go on. Now where did I put that sled?

  Jeff Bailey   3/18/03,  6:37:43 PM
Bull Confirmed Today's action had the broader S&P 500 Bullish % ($BPSPX) reversing back up into "bull confirmed" status. This should have the offensive team back on the field. Link

  John Beyer   3/18/03,  5:04:07 PM
MSFT up in after hours slightly on news. As I stated in my bio I'm a tech bull and MSFT is one of my key tracking stocks. The MSFT news was to announce their MSN focus on broadband business. This could be MSN's year, I've thought this for, oh let's see, two years, so I'm not mortgaging the ranch to buy MSFT. But! Chip equipment companies that I track were up today and that's is exciting to me. Can't share the tick symbols right now but keep watching and maybe I'll let some slip. Pharms did nicely again today. ABT, AFFX, OHP, THC all doing nicely, and my favorite financial services companies continue to climb. Will that continue when earnings warnings start, we'll see. But if I were a rich man I'd be stocking up on C, WM, and JMP. These are just some idle musings while I procastinate before shoveling snow. Until tomorrow.

  Mark Phillips   3/18/03,  3:57:00 PM
With the markets looking to close out with a whimper, I'm going to make this my last post of the day, and the final comment on the issue I raised early this morning. I just got this email, and thought I would share it, as it most succinctly states the dominant theme of the emails I have received throughout the day.

I've been reading OI for some 4 years now, I take the different opinions from the staff, and the great technicals that OI presents and develop my own strategy. Most times I do not even trade O.I. picks - but roll out my own with the Stats and information presented by OI. as with any trader - some win and some lose.

Example: trading simple tops and bottoms in AMGN for 3 years - because Option Investor taught me how to do it. AMGN is not a stock you see on the O.I. pick list every month, but that does not mean the trade is not there. But most of all, only OI gives me all the information I, or I think anyone needs to develop "A educated evaluation of each situation". Many news letters give us the stats, But only OI provides the how to analyst to work with. Many thanks to the OI staff , just keep doing what your doing. Rich

  Linda Piazza   3/18/03,  3:54:31 PM
I'm not in the office, but we've also been watching for the possibility of reverse H&S formations on indices and on such equities as CSCO, although if CSCO is forming a reverse H&S, it will be one with multiple right shoulders, as does sometimes happen. My concern about the potential of a reverse H&S lies with the behavior of the TRAN. Going into February, the TRAN had one of the best-defined reverse H&S setups among the indices, and it seemed to be forming that right shoulder. The right shoulder can be seen at the level of the horizontal line that supported prices through late January and early February. Link The TRAN broke through those levels and fell below October lows. Does that imply that other indices also will not fulfill their reverse H&S potentials? I'm not sure, but I'm sure watching. I've been watching since early in the year, as confirmations of reverse H&S would be one setup I would play from the bullish side.

  Jonathan Levinson   3/18/03,  3:46:14 PM
I see nothing bearish in the lack of any meaningful pullback today. In fact, other than the mysterious volatility and put to call activity, and the upward tilt to the formation on the 10 minute COMPX candle formation, I see little bearish at all at the moment, other than the standard "too far too fast" reaction that I've grown used to this year.

  Steven Price   3/18/03,  3:45:00 PM
Steve, My observation of the weekly Dow Jones chart shows a Reverse Head & Shoulder Pattern developing, with a 10900 objective. Comments welcomed. --Tab

Jeff has been talking about this in the office for the past couple of weeks. I think there is some validity to the observation with the shoulders at the July and March lows and the head at the October low. The neckline would be around 9000, so we still have a ways to go. However, after that call on WEL, who am I to argue with Jeff (GRIN)? My concern is that we don't really know what to expect after the invasion and if the economy fails to improve afterward, even with lower oil prices, 9000 will be tough to crack. (There I go again trading what I think, not what I see).

  Linda Piazza   3/18/03,  3:39:46 PM
This is an interesting moment for the OEX. At 437.74 as I type, it's currently testing the support of a short-term regression channel on the five-minute chart and challenging the longer-term rising wedge on the 60-minute chart. Because that rising wedge has been rising all day, of course, the OEX would now be breaking out of that wedge with a move below 436-436.50. It's on tests of support and actions after a break of support that we learn the most about the strength or weakness of a security. We may not see a break today. As I mentioned earlier, the 5(3)3 stochastic's behavior may indicate that a bounce from support will be attempted.

  Jonathan Levinson   3/18/03,  3:27:14 PM
The five year bond closed at its lows of the day, FVX +1.1 bps. As an irrelevant aside to equity traders, I expect Al Green to try to prop bonds at some points, as Bernanke said they would, but where that will be is beyond my knowledge. The COMPX continues to trade just under its highs of the day, and for the first time today, the QQV is negative. The VXN is still near its highs, which is interesting, but for all my efforts, I cannot figure out the relationship between the COMPX and NDX volatility indices and the put to call ratio. At least I know when I'm confused, but it's little comfort at the moment. The TICK.NQ is bullish at +159, and while we've had no strong rally today, there's been no pullback of any significance. Topping pattern or consolidation? That's the big question for today.

  Linda Piazza   3/18/03,  3:22:29 PM
Currently at 35.34, the VIX is near the low of the day, moving below the simple 200-dma. A number of other MA's sit below the current level, so this might be another opportunity for us to gauge whether it's useful to watch the VIX's behavior in relationship to its MA's.

  Linda Piazza   3/18/03,  3:18:43 PM
CSCO has been doing battle with its exponential 200-dma today. Currently at 14.07, CSCO trades right above that 14.05 average. CSCO has had a habit of popping above its 200-dma's (both) for a few days or a couple of weeks, but then moving back down again. OBV began rising in October, but then leveled off and has been sloping slightly down since early January. That slope has been so gentle that it's difficult to qualify it as important as yet. Daily RSI, however, has been making a series of lower highs and appears to be rolling over again. Daily 21(3)3 stochastics also have been making a series of lower highs, but have not rolled yet rolled over in this move up from oversold toward overbought. Daily MACD has also been making a series of lower highs, but currently tries to move up above zero.

  Jeff Bailey   3/18/03,  3:17:49 PM
Geron Corp. (GERN) $4.08 +135% .... this biotech is today's biggest market gainer after it announced positive telomerase data for cancer. On March 6th, company announced it had granted a non-exclusive license to PanCel Corp to utilize GERN's human telomerase reverse transciptase technology for the replicative immortalization of human pancreatic islet cells. For the non-exclusive rights, GERN received up-front payments of cash and equity, and will recieve a share of proceeds from any future product sales.

  Linda Piazza   3/18/03,  3:06:49 PM
Astute readers have pointed out that it's possible to look at the OEX 60-minute chart (and that on other indices, as well) and draw several versions of a rising wedge or even to draw regression channels. Almost all of us agree, however, on the lower supporting trendline, whether it be that of a rising wedge with various permutations of a top line or a regression channel. As the OEX trends sideways and begins to take on a rounding-over appearance, it comes closer to testing the supporting line again. I note that the faster 5(3)3 stochastics have moved down further since the Fed announcement, but still try to round up, now from the 41.80 level. The longer-term 21(3)3 still remain overbought. When stochastic evidence is mixed like this, we're often in for more chop or rangebound trading. That might predict that the OEX will stay in that formation, perhaps attempting a bounce off the rising trendline. I will note, however, that the usual technical tools are not as reliable when sentiment plays such a strong part in market movements.

  Linda Piazza   3/18/03,  2:57:06 PM
Currently at 2121.11, the Dow Jones Transportation Index has now risen to test the bottom of the 2122 range that was support during the late January/early February consolidation. I neglected to note earlier, too, that today's move up in the transports carried this index above its flattening 21-dma, currently at 2054.91. If the transports are successful in their test of that former support, the next test is 2170-2210, a confluence of moving averages and historical S/R. For several months now, the transports have often tested important S/R or MA's before the other averages, with the TRAN's behavior after those tests being a leading indicator of what might happen with other indices, so these tests might be important to watch.

  Jonathan Levinson   3/18/03,  2:49:22 PM
Although Al Green, The Master of the Universe, cannot comment today to the surprise of the markets, little has changed since the announcement, with the markets still trading within today's range. FVX is +8.9 bps, TRINQ 1.1, TICK.NQ -46, XAU, HUI, QQV and VXN all holding their gains and little changed during the past two hours.

  Linda Piazza   3/18/03,  2:39:44 PM
The VIX remains negative, currently registering 36.01.

  Linda Piazza   3/18/03,  2:32:34 PM
The post-Fed-announcement high for the OEX has been 439.29, falling short of the daily high of 440.66, the OEX exponential 100-dma at 440.90, 440-442 resistance, and the monthly R1 at 439.60. So far. Trading at 436.97 as I type, the OEX will soon test 60-minute supporting trendline that has formed one side of the rising wedge on that chart, if it continues falling. It looks as if a violation would require a close below 435.50-435 to break to the downside of that wedge, but be watchful for a bounce from that supporting line, too.

  Jonathan Levinson   3/18/03,  2:19:49 PM
The statement from the fed is at this Link

  Jonathan Levinson   3/18/03,  2:16:17 PM
Fed leaves rates unchanged, says cannot characterize balance of risks.

  Linda Piazza   3/18/03,  2:12:38 PM
I note that while the OEX has been trading in such a tight range today that the daily candle is so far a doji, the 60-minute 5(3)3 stochastics have cycled down and are attempting to hinge at 52.59, halfway between oversold and overbought. This might be viewed as bullish for the OEX to hold prices while these stochs cycled down. The 21(3)3's remain fully overbought and have been so for twenty-four 60-minute candles. Those longer-term stochastics will have to cycle back down at some time, but the shorter-term looks as there may be at least one more attempt at a push up before the longer-term starts down.

  Jonathan Levinson   3/18/03,  2:09:08 PM
FVX is back off its highs, now up 8.4 bps on the day. TRINQ up to 1.1, TICK.NQ still strong at +182, and, of course, QQV and VXN holding their gains.

  Linda Piazza   3/18/03,  2:07:45 PM
We should be just minutes away from the FOMC announcement. Remember that markets tend to gyrate a bit after that announcement, even when traders widely expect the result that is announced, so don't base any trading decisions on the first bolt out of the gate.

  Kent Barton   3/18/03,  1:59:30 PM
GSO.X software index (110.80 -0.18): Trading in negative territory, following this morning's test of the late-January high at 111.45. The index rallied 14% in just four days, so at this point some profit-taking and consolidation could be expected. If that turns out to be the case the bulls will be looking for support to emerge at the February highs near 107. Meanwhile, sector leader MSFT ($25.95 +0.01) has moved above its 200-dma but now seems to be struggling with the 100-dma at $26.10.

  Steven Price   3/18/03,  1:57:47 PM
Swing Trade Signals
Dow breaks 8200, which was the neckiline breakdown the way I had its H&S drawn a couple of months ago. Some traders will point to 8300 as the neckline break, which coincides with bearish resistance. If we break SPX 870, however (also bearish resistance), we could really get rolling. Note that a trade of 8350 and 875 would be required for a complete bearish resistance breakthrough. 8300 was strong support last fall and summer, so it could act as resistance again now.

  Jeff Bailey   3/18/03,  1:56:11 PM
01:00 Update posted at this Link

  Jonathan Levinson   3/18/03,  1:51:59 PM
FVX is higher again, now +10.1 bps, and it looks like it's gaining some traction in equities, with, QQQ trading 26.84, MSFT maing a HOD, and the COMPX a few cents below its high, currently 1396.

  Linda Piazza   3/18/03,  1:47:26 PM
The DAX closed up 73.46 points or 2.95% at 2560, in about the middle of its 2491-2625 range for the day.

  Jonathan Levinson   3/18/03,  1:44:45 PM
Looks like some action is taking place today at the Marriner S. Eccles Building: Link

  Linda Piazza   3/18/03,  1:44:34 PM
Volume patterns show advancers and decliners in a dead heat on both the NYSE and Nasdaq-traded issues. Up volume remains ahead of down volume on the NYSE, while down volume leads on the Nasdaq. New highs lead on both. Total volume is 895 million shares on the NYSE and 987 million on the Nasdaq.

  Jonathan Levinson   3/18/03,  1:36:33 PM
Unfortunately, I don't think the news will have much to do with the price of the markets, though news will continue to be the scapegoat/reason to which the price gets attributed. The Thursday rally was credited with peace. Before that the decline had been blamed on the war. Since then the rally has been called the "War Rally", and now they're saying it's the "Brief War Rally". The fact is that the market had become oversold near a support level heading into opex week, while bonds were topping, commodities were beginning to correct, and gold was pulling back. The US Dollar Index was also setting new lows and was quite oversold. The bounce was to be expected. The sheer force of the bounce was completely unexpected to myself and most with whom I correspond. But the fact that no one can tell at this point whether war is bullish or bearish for the markets makes gaming the news very tricky business indeed.

  Steven Price   3/18/03,  1:31:38 PM
Couple of thoughts: If oil fields begin burning, won't that spike the oil futures? If the inverse relationship between oil futures and equities holds, should we then expect a drop in the market? If Saddam is going to stand his ground, doesn't that mean he likely has those weapons of mass destruction and is planning to use them? If that is the case, the war may not go as quickly as expected and that could also lead to a reversal lower?

Right now we aren't seeing any real signs of weakness, especially with Jonathan's observations on the yields, but I think we need to be aware of the problems we could face hoping for a quick resolution.

  Jonathan Levinson   3/18/03,  1:26:54 PM
FVX continues higher still, now +9.2 bps. The TICK.NQ continues higher, +59 now.

  Steven Price   3/18/03,  1:15:17 PM
Heard a blip on CNBC about a drop in oil from $31 to $24 saving Americans enough to equal a 1% increase in GDP. I posted this chart in last night's wrap and it the relationship can traced back for quite some time. I have posted the relative charts several times over the past few months and the consistency is pretty amazing. Link

  Jonathan Levinson   3/18/03,  1:06:48 PM
Selling in bonds is accelerating, with FVX now +7.4 bps. The TRINQ is sliding, down to 1.06, TICK.NQ up to -28. QQV and VXN are holding their gains. The COMPX has been trading along the lower ascending trendline from the afternoon of the 12th, although this line is not straight at this point, keeling over slightly. The stochastics are edging back up again. It seems like we can expect more of the same into the fed announcement.

  Linda Piazza   3/18/03,  1:05:42 PM
I've been reading what Pring and Meyers have to say about rising wedges this morning, reviewing old technical analysis texts. (See my 11:51 post on the rising wedge on the OEX 60-minute chart.) What they have to say and what I had noticed on my own is behind my reluctance to trade on the bullish side just yet. Remember that this wedge began forming on March 12, as the OEX began moving off its recent lows. The movement prior to the formation of the wedge had been a decline. Here's what Pring says: A rising wedge is a temporary interruption of a falling trend . . . Rising wedges are fairly common as bear market rallies. Following their completion, prices usually break very sharply, especially if volume picks up noticeably on the downside. That observation and my own keep me from trading this new short-term trend on the bullish side, since I tend to stay in trades for days or weeks. The OEX rise has been too sharp to continue at this current rate, so it's only natural that it will at some time break out of that rising wedge. I'll want to see how the OEX behaves when it breaks from that rising wedge on the 60-minute chart. Perhaps it will break sharply, or perhaps it will only move sideways for a while, consolidating before another move up, but the tendency of markets to break hard out of rising wedges keeps me from betting on the consolidation scenario just yet. The factor that keeps me from jumping on bearish trades is the rising volume during the formation of the wedge. Volume would normally contract during the formation of a bearish rising wedge. Just as with corporations of late, if I have no clarity into the future, I'm unlikely to bet with my money.

  Jeff Bailey   3/18/03,  12:54:05 PM
March Fed Funds Futures (ff03h) 98.765 .... MARKET expecting no change in interest rates (100-98.765 = 1.235%) at conclusion of today's FOMC meeting. Might give 15% chance based on March futures.

  Linda Piazza   3/18/03,  12:37:56 PM
Gold up, dollar up; VIX down, VXN up; bond yields up; down volume leading on the Nasdaq, up volume leading on the NYSE; more decliners than advancers, more new highs than new lows: when intermarket relationships are this mixed up, with some being bullish for equities and some being bearish for equities, I tend to stay out of the market until at least most of them align themselves one direction or the other.

  Jonathan Levinson   3/18/03,  12:35:31 PM
I'm hoping that Steve will have an opinion on this, but here goes: The put to call ratio is very low, and seems impervious to market swings relative to its behavior on other days. The QQV and VXN are also quite high, despite the strong call volume. It tells me that calls are being bought "at any price" today. So, are market makers reeling in their short call positions? Are they buying calls to hedge against further upside? Or are the bulls simply "rabid" right now, speculating on further upside? Just trying to make sense of what the options market is trying to tell us this morning.

  Jeff Bailey   3/18/03,  12:19:50 PM
SBC Communications (SBC) $21.27 -2.16% ... took partial bearish in SBC today to offset bullish position in Dow Diamonds (DIA). SBC is weaker Dow component, with some downside potential to bearish vertical count of $6. Link

The above chart shows retracement technique I like to use of anchoring top of retracement to a relative high, then dragging base of retracement to a bearish vertical count. Thinking is "if it's going there, then what levels might be traded."

  Jonathan Levinson   3/18/03,  12:05:11 PM
The FVX seems to have stabilized here around a 4.4 bps gain on the day. The TRINQ is back to 1.29, TICK.NQ -198. QQV is up 1.03 to 43.01, near its highs of the year, as is VXN at 48.86. I continue to watch the bear flag on the 10 minute chart, wondering if it's acting as a consolidation/continuation pattern here, or a topping pattern. Yes or no, higher or lower- the markets are as undecided as I am, and so the pattern continues. The put to call ratio is sticking below .60, and gold is holding its gains. The indecision I'm feeling is registering in the 10(5) stochastics, which are beginning to slide sideways intraday.

  Linda Piazza   3/18/03,  12:01:44 PM
The Dow Jones Transportation Index currently trades positive and has moved above the 2090 July low to challenge the resistance between 2100-2120. This is the level that appeared to be forming a right shoulder of a reverse H&S formation before the support broke and the TRAN fell last week to a multi-year low. The TRAN now trades at 2106.90

  Linda Piazza   3/18/03,  11:58:01 AM
Secretary of State Colin Powell states that 30 countries will take part in the "coalition of the willing."

  Linda Piazza   3/18/03,  11:51:29 AM
I'm using a simple 60-minute bar chart to illustrate the formation setting up on the OEX: Link This type of rising wedge is typically bearish. If the OEX breaks down out of this formation, that breakdown and retracement will give bullish and bearish traders alike the opportunity to assess the strength of the rally. A brief pullback while stochastics cycle back to oversold would uphold the bullish sentiment. I think we often learn more about the strength of a movement on the pullback than we do on the original move.

  Linda Piazza   3/18/03,  11:42:15 AM
Currently at 365.17, the Russell 2000 has been holding steady today just above the 364.60 level that was resistance from February 18 until the Russell finally fell away from that level and dipped to last week's low.

  Jeff Bailey   3/18/03,  11:41:10 AM
11:00 Update has been posted at this Link

  Mark Phillips   3/18/03,  11:38:33 AM
After two hours of watching this volatile, choppy range, I've come to the conclusion that this is what we're stuck with until after the FOMC meeting this afternoon. My measure of market breadth (advancing vs. declining volume) has been flooping around both sides of the flat line so far today, although it's looking more bullish than bearish right now. Now entering the lunchtime lull, which doesn't really end until 1:30pm ET and that time will see us only 45 minutes ahead of the FOMC. Looking for nothing significant to happen until 2:15pm ET.

  Linda Piazza   3/18/03,  11:36:57 AM
The VIX is down today, currently down .41, and measuring 36.05.

  Linda Piazza   3/18/03,  11:34:27 AM
The FTSE 100 closed up 12.60 points, more than 60 points off its high, and the CAC 40 closed down 43.85 points, more than 100 points off its high. The DAX still trades, and currently is up 45.69 points.

  Jonathan Levinson   3/18/03,  11:34:13 AM
The put to call ratio has edged up to .58. FVX up stongly to a gian of 4.6 bps now. TRINQ 1.27 but the TICK.NQ is now positive, +99. It feels like energy is building for another attempt on the highs. Only the put to call ratio, and the higher QQV and VXN volatility readings are bearish.

  Linda Piazza   3/18/03,  11:25:27 AM
The OEX has been oscillating around its five-minute 21-pma this morning, sometimes moving above it and sometimes moving below it, so that crossovers of this moving average haven't been as sound an indicator as they've been in previous sessions. Currently trading at 437.88, the OEX sits right on that moving average.

  Linda Piazza   3/18/03,  11:22:53 AM
Most volume patterns are somewhat neutral to negative this morning, with adv/dec ratios of .83 on the NYSE-traded issues and .92 on the Nasdaq-traded issues. Up volume is slightly ahead of down volume on the NYSE, but down volume is 1.4 times up volume on the Nasdaq. None of these numbers is strongly negative, however, and new highs outnumber new lows on both the NYSE and Nasdaq. Total volume is 496 million shares on the NYSE and 601 million on the Nasdaq.

  Steven Price   3/18/03,  11:22:17 AM
Swing Trade Signals
Back when I drew my original H&S pattern in January, I had the neckline break coming at 8200. So far that has been resistance on all bounces since breaking down. I highlighted the 8150-8160 area because that is where the Dow lost steam previously, but after this morning's failed rallies I am wondering if the better trade is not a short with a stop above 8200 (as aggressive bears that took my alternate stop suggestion should still be in). I think the play would be for only a pullback, now that we have seen an upturn in bullish %. If I were absolutlely sure, I'd be stepping back in, which I am not, but those are my thoughts on today's action.

  Jonathan Levinson   3/18/03,  11:21:07 AM
Spot gold is up 3.10 to 339.60, and this strength is seen in HUI and XAU as well, up 1.87 and 1.27 respectively. Bonds are being sold, with FVX +2.9 bps now. Equities are essentially flat, with the COMPX down 8 points, QQQ off by 5 cents. The put to call ratio is holding its low levels at .56 for this latest half hour. There's indecision in the markets here, and the longer it lasts while holding current levels, the stronger it will look to me. The strength in gold and the low readings on the p/c ratio are the most bearish signs I'm currently seeing.

  Jonathan Levinson   3/18/03,  11:14:19 AM
Looking at the status for today - No addition but some expiring. Two questions:

When FED doesn't add, it could mean status quo for bond market. However, the day of no addition but some expiration, then selling in bonds. This gives an up bias. Looking to 2/20/03 - the day of an attack perhaps, as looks today a rally.

On the other hand addition by FED it would imply buying in bonds and a negative bias.

You're close with your analysis, but the relationship between equities and bonds is not as direct as you're portraying it. When the fed drains, liquidity is drained from bonds, causing yields to rise. We often see this occur during rallies, on a shift from treasuries to either corporate bonds or equities themselves. However, the rise in yields does not necessarily cause equities to rise, and nor does the selling in treasuries. I use this as a leading indicator, but it's by no means a direct relationship. Indeed, the draining of money from the markets by the fed is not bullish for bonds or stocks. The only way I could see such being the case is if the selling sparked by the fed's draining causes an exodus in bonds- for example, if today, more than 1.5B in treasuries gets sold. In that case, the liquidity freed up by those "additional" sales will be available to other assets, such as equities.

  Jeff Bailey   3/18/03,  11:06:14 AM
Panera Bread (PNRA) $29.53 -0.7% .... not certain, but was comparing p/f chart of PNRA against Wheat futures. In September, Wheat spike to highs, while PNRA fell to a low near $25. I see a lot of triple-bottom sell signals in the various Kansas City Wheat futures contracts and they've been finding resistance at every rally to bearish resistance trends and look lower still.

PNRA has been showing some volume spikes in recent weeks in the $25-$28 zone and rallies strong to test 50-day SMA yesterday. Might be a bullish play on falling wheat commodity, which might help bottom line at PNRA. Link

  Steven Price   3/18/03,  11:05:35 AM
Nice catch Linda! I removed MO from the Watch List last night since we got the breakdown Mark and I were looking for below $35, but hopefully some of our readers got in on that breakdown.

  Linda Piazza   3/18/03,  11:02:42 AM
Is this the reason Altria Group (MO) was the only Dow component to end the day in the red yesteday? NEW YORK, March 18 (Reuters) - The U.S. Justice Department, alleging a half-century of "fraudulent" and dangerous market practices, is demanding that the nation's biggest cigarette makers be ordered to forfeit $289 billion in profits, the New York Times reported on Tuesday.

  Jim Brown   3/18/03,  11:01:47 AM
France announced they will join the Iraq war effort if Iraq weapons are used. I assume they mean used against us not if we use them against Iraq. (grin) Think about this. France was stuffed at the UN and they risk being left out of the reconstruction effort and the loss of their $48 billion Totale Fina contract with Iraq. France's quandary "how do we get back in now that they have slammed the door on our UN stand?" Ah Yes, Iraq is going to use the chemical weapons we all know they have so we can take a global stand with our partners if they use them. This make us look like the good guys we are without looking like we reversed our UN stand. We might even get to keep our contract.

Good plan but we are on to you!!!

  Jeff Bailey   3/18/03,  10:56:10 AM
Dow Jones Reports ... France will join war effort in Iraq, if chemical weapons are used.

  Linda Piazza   3/18/03,  10:51:03 AM
At 439.22, the OEX again moves toward the day's high of 440.37, near the grouped resistance levels I mentioned in this morning's post. Here's a recap: the OEX exponential 100-dma is located at 440.90, in the area of strong 440-442 resistance. The monthly R1 is 439.60. Bulls want to see the OEX pushed above this 440-442 zone. Note: the OEX dropped back to 438.65 as I typed.

  Steven Price   3/18/03,  10:50:50 AM
What do you think of LLY action today?

LLY $55.80 +0.50 I don't particularly like the move back over $56 this morning, but it is struggling there right now. I see that as the most recent breakdown level and if it closes above it, I'd probably let this put play go. As I type, it has traded on either side of that number 5 times, so the bears are doing their best to keep a lid on it right now.

  Jeff Bailey   3/18/03,  10:48:56 AM
Wheat futures ... I know we don't do a lot of commodity futures in this section, but with heavy wet snow here in Denver and eastern prarie and into Kansas, I will note that many of the wheat contracts have been giving triple-bottom sell signals in their futures contracts.

  Linda Piazza   3/18/03,  10:47:45 AM
Mark's late-night post was particularly interesting to me, since I'd just last night gone back and re-read some of my own posts, making sure that I had made my own position clear, worried that some traders might not be differentiating between my position-type trades and trades that might be appropriate for shorter-term traders. Here's a post from a few days ago: What's your trading style? I'm hearing from a lot of traders planning to front-run an expected rally today, a tactic that can work well when close support levels exist and positions can be exited as soon as those supports are violated. It's not my style, however, as I prefer that markets show me the direction they're going. If I wait, I miss the first part of the movement, of course, but I take some risk out of the entries. I'm a position trader who stays in trades for days or even weeks, and I want to know the intermediate trend, not the short-term trend. Know your own style when you make trading decisions. A decision that would be right for me might not be right for you, and your entry might not be right for me. Here's another excerpt from the last few days: Since I'm a position player who stays in plays over days or weeks, I want to be on the right side of the intermediate-term and long-term movements, and I just wasn't sure that "up" was the right side for anything but the short-term period. I'm still not entering bullish plays in my personal portfolio, but that doesn't mean that I won't be happy to trade the bullish side, too, as soon as long-term descending trendlines are violated to the upside. Over the last few days, we've been pointing out bullish developments every time they occur--movements over important moving averages and historical resistances--for the benefit of those readers who do trade short-term movements. This short-term rally may turn into a longer-term rally. I hope it does. Until I'm sure it will, I'll stand aside, just as I stood aside from participation in bullish plays in January. That was the right decision for me, but some of you were profiting wildly on short-term plays while I was standing aside. As you read and evaluate our input, keep your own trading style in mind.

  Steven Price   3/18/03,  10:38:54 AM
Swing Trade Signals
Chiming in on Mark's debate, I will say that while I have been talking for the past couple of weeks in my wraps about the risks shifting away from the bears favor with extended bullish percents and the approach of H&S objectives, I too was slow to change my thinking. I got caught up in the poor economic numbers and the poor performance in the European markets and thought that all of these indications would be an anchor on the markets. In hindsight, picking a bottom at those H&S objectives (Dow 7500, OEX 400, SPX 790) would have been the lower risk trade and if I had traded what I saw - a reversal - it could have been good for an awfully big gain. I think the recent activity just highlights the "trade what you see" philosophy. While I still can't justify why we got a reallocation at the point we did, given the poor economic outlook, the patterns certainly indicated a turnaround and if I had simply stuck to the charts and not considered my bias about the world around me, I may have been much quicker to consider the bullish side.

  Jonathan Levinson   3/18/03,  10:35:41 AM
The descending upper trendline on the daily COMPX candles is being challenged here. Just above at 1415 is the descending 200 day EMA. The 200 day EMA was briefly violated at the beginning of December before price turned back down. The strength this morning and the shallowness of the pullback looks decidedly bullish, while the low p/c ratio (latest reading .54) shows that many have the same idea. The p/c ratio can go lower, but this is among the lowest of the year and is a bearish contrarian indicator. I would not be surprised to see rangebound chop today.

The fed has announced "no action" today, and yesterday's 1.5B overnight repo will expire unrefunded for a 1.5B drain.

  Jeff Bailey   3/18/03,  10:32:17 AM
Dow Industrials (INDU) 8,182 +0.49% ... best levels of the session (+40) and showing some strength within the MONTHLY matix with a break above its MONTHLY R1 of 8,152. S&P 100 Index (OEX.X) 440 +0.33% just now trading its MONTHLY R1 of 439.60.

  Linda Piazza   3/18/03,  10:27:04 AM
The SOX fell to 317.08, thirty-one cents above its simple 200-dma, before rebounding to current levels. This would be a successful test of the simple 200-dma. It currently tests yesterday's high of 325.76, with the SOX currently trading at 324.34. Bulls want to see the SOX pushed above yesterday's high.

  Linda Piazza   3/18/03,  10:23:54 AM
For those who are asking, the FOMC statement is usually issued at 2:15 ET. No change in interest rates is expected, but many will be interested in the bias statement.

  Jeff Bailey   3/18/03,  10:22:21 AM
Forest Labs (FRX) $52.05 +3.04% ... trade at $52.00 gets conventional p/f chart back on a buy signal. This has initial bullish vertical count of $61.00. Link

  Mark Phillips   3/18/03,  10:16:37 AM
To say my late-night post elicited a flood of email would be an understatement of galactic proportions, and I have to say I am pleased with ALL of the input. Thanks to all of you for writing in with your thoughts on the issue.

Proving the diversity of our readership, the responses run the gamut, from gentle reminders that we've been a bit slow to jump on the bullish bandwagon, to some rather strong statements that the orignal emailer was totally off base. That's what makes a market, lots of differing viewpoints. Here are two of the emails showing the two sides of the debate:

I have to agree, if you guys were my only source, I would have not got in the merket yet since the last bottom. I have been surprised, and wondered about staying around. Basicly you have all came out bearish, after I have read you. I was feelig sorry for those entering puts. I see where you are pointing out some bullish things, but overall the majority have been calling bearish, is how I saw it. Seems like Jim B. got bullish a little early, then dropprd it. BUT I listend to Ralph Bloch, Bob Brinker, and Real Money. But your site did help find the last bottoms supports, which I had written down. You guys seem to have fallen to fear. thanks for listening.

I'm speechless after reading that e-mail!...I think calls were being recommended on the monitor through-out the day on MONDAY!....I was stuck bearish, with the deer-in-the-headlights syndrome on MONDAY!...Who's fault was that?...MINE! If that reader would go back and READ all the trader plans, everyone was telling bears to be careful! Nobody, expected such a fierce rally...If we had...we would ALL be rich!!!

Both of these readers hit on what I think is the central point in this whole debate -- we're all responsible for our own trading decisions. Hopefully it isn't a surprise to you that all of us writers are going to be wrong from time to time. It's just a fact of life. But we do endeavor to provide as clear a picture as possible of what we see. Then it is up to the reader to decide what to do with those viewpoints, forming their own opinion of market action and acting on trade recommendations within that context. Thanks again for all the feedback!

  Jeff Bailey   3/18/03,  10:10:40 AM
Forest Labs (FRX) $51.75 +2.45% ... stock on the move higher and triggers upside alert at $51.50. Move looks bullish.

This was "action point" for new bullish entries based on unconventional $0.50 box where we wanted stock to "prove itself" with trade at $51.50. Link

  Steven Price   3/18/03,  10:10:34 AM
Swing Trade Signals
Did Saddam just relent? Not sure what gave us the bounce, but I may have spoken too soon about the breakdown. The bounce takes us back near even, but we are finding some resistance and remain negative.

  Jonathan Levinson   3/18/03,  10:05:51 AM
The 1380 COMPX level continues to exert its hold on the price, coinciding with the descending trendline on the daily candles from the Dec high. The TRINQ at 1.51 and TICK.NQ -244 show net selling pressure, but it's moderate. FVX down .3 bps tells us the same thing. We have no announcement from the fed yet, but it's due shortly. The opening put to call ratio at .56 portends further weakness, but this is clearly a critical point- its resolution will help us determine where the market wants to go today.

  Jeff Bailey   3/18/03,  10:04:04 AM
Central European Distribution (CEDC) $27.92 +7.01% ... getting upside alert here on this "interesting name." Made note the Brean Murray believed that the reduction in Poland's excise tax might have the desirable effect of returning black market liquour sales to the legal channel, and that CEDC could be major beneficiary of this type of shift. The firm went on to say that it estimates that CEDC's volume is trending roughly 20% ahead of expectations. Link

Look for the trade at $23, to be a "shake out" and move at $28.00 to be bullish. Similar perhaps to that found in December on dip at $15.00 before stock reversed strong to the upside.

Note... stock does NOT currently trade options.

  Steven Price   3/18/03,  10:00:49 AM
Swing Trade Signals
Looks like my stop was about 5 points too tight. The Dow break back under 8100 looks bearish and aggressive bears are looking good here.

  Linda Piazza   3/18/03,  10:00:46 AM
The Dow Jones Transportation Index trades at 2089.46 as I type, just below its July 2090.39 intraday low.

  Linda Piazza   3/18/03,  9:57:11 AM
Currently at 317.79, the SOX trades a little more than a point above its 316.15 simple 200-dma. We may be seeing our first important test this morning.

  Steven Price   3/18/03,  9:54:17 AM
With the fade off the morning highs, I am thinking we may have seen some exhaustion and could be in a holding pattern ahead of the Fed meeting and the Saddam deadline. While common sense tells me it would be time to retrace some recent gains, the upturn in bullish percents has me wondering if we should be looking to buy a pullback. I have a hard time seeing an entry right here, but I'm less convinced about going long after what looks like at least a short term reversal top. Yields are dropping and the SPX has fallen back below 860.

  Jeff Bailey   3/18/03,  9:52:46 AM
Boots&Coots (WEL) $1.99 +65% ... stock has broken above both MONTHLY and WEEKLY R2s. Today's DAILY R1 $1.86 and R2 $2.52. I've had to roll up retracement from $3.50 to $0.06. This gives us 50% at $1.78, 61.8% at $2.18, 80.9% at $2.84. Those that took partial profits off table yesterday can either "let it ride" or snug a stop up under 38.2% retracement of $1.37.

  Linda Piazza   3/18/03,  9:49:27 AM
This morning, the SOX trades between its simple 200-dma at 316.17 and its exponential 200-dma at 337.98. Yesterday, the SOX closed over its simple 200-dma for the first time since May of last year. In May, however, the SOX had several closes over that simple 200-dma before testing and failing to move over the exponential 200-dma, and then falling back below the simple 200-dma, too. In December of last year, the SOX tested and failed to close over the exponential 200-dma. It might be key to watch how the SOX behaves near that exponential 200-dma if the SOX should continue to rise today. If it continues to fall, as it is doing now, watch the simple 200-dma for clues.

  Steven Price   3/18/03,  9:43:10 AM
Swing Trade Signals
Looks like I picked the top with my 8180 stop - high on the day is Dow 8184.

  Jeff Bailey   3/18/03,  9:41:20 AM
Treasuries mixed mixed in early going with selling in the shorter-dated 5-year, fractional selling in 10-year and buying in 30-year. This will have the YIELD curve flattening a bit, and should keep a bid under stocks as long as it continues.

5-year YIELD ($FVX.X) 2.8% here and trying to get back above its upward trend from the October lows, but should it fade toward buying and YIELD slip back under 2.786%, which was morning low, then equities could undercome some profit taking.

  Steven Price   3/18/03,  9:39:29 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out on the 1/4 short position when the Dow traded 8180 at 9:35:26.

We are pulling back slightly from that level and those traders using the more agggressive stop over 8200 may still havea chance for success. However, 8160 was a significant level and with an upturn in bullish percents in the Dow and NDX, I'd be leaning long if the SPX can get back over 870.

  Jeff Bailey   3/18/03,  9:36:17 AM
09:00 Update posted at this Link

  Steven Price   3/18/03,  9:36:09 AM
ZMH $49.40 (+0.43) We closed this OI call play last night to harvest some gains. However, with $49 out of the way those traders raising stops and hanging on should watch the action as we approach $50 and possibly tighten further if we stall at that level. We recommended a stop of $47.60 in last night's newsletter for those still holding.

  Linda Piazza   3/18/03,  9:32:50 AM
Handily enough, the OEX exponential 100-dma is located at 440.90, in the area of strong 440-442 resistance. For those of you who prefer numbers based on pivot analysis, the only correspondence I see near that number is the monthly R1 at 439.60. Those three factors--important MA, historical resistance, and resistance determined though pivot analysis converge in that area.

  Jonathan Levinson   3/18/03,  9:32:10 AM
Flat open on the COMPX at 1392, TRINQ .58, QQV +1.07 to 42.75, TICK.NQ -141.

  Steven Price   3/18/03,  9:29:36 AM
Swing Trade Signals
After the pullback in futures it looks close as to whether we will be stopped out on the open. As I have said, traders with more aggressive risk profiles may want to raise the stop above Dow 8200 to give the SPX just a little more room.

  Linda Piazza   3/18/03,  9:12:39 AM
European markets now trade well off their morning highs, with the CAC 40 now in the red. Currently, the FTSE 100 is up 22.60 points, the CAC is down 14.33 points, and the DAX is up 68.13 points.

  Jonathan Levinson   3/18/03,  9:09:00 AM
While QQQ is now down 25 cents off its morning highs, it remains above yesterday's close by 15 cents, still signalling a strong open. Yields have fallen lower, with TNX now in the red and FVX +.2 bps.

  Jonathan Levinson   3/18/03,  8:55:54 AM
The housing starts data was the worst one month drop in 9 years. Here are the details: Link

  Jonathan Levinson   3/18/03,  8:50:00 AM
Gold is up to 337 now, and while there is selling in bonds as expected, it's considerably lighter than I would have guessed before 8AM, with FVX +1.7 bps, TNX +.7 bps and TYX -1.2 bps.

  Jonathan Levinson   3/18/03,  8:44:10 AM
It appears that the housing starts data at 8:30 took some of the wind out of the markets' sails, with QQQ trading down 20 cents to 26.81. Housing starts fell 11% in Feb to an annual rate of 1.62 million.

  Steven Price   3/18/03,  8:36:41 AM
Swing Trade Signals
We are currently short a 1/4 position with a stop at Dow 8180. If we are stopped out and the SPX crosses 875, I would be leaning long at that time. I expect to be stopped out now on the open and I am glad I initiated only a 1/4 position. There is bearish resistance in the SPX at 870 (although that appears in danger at this time) and the Dow at 8300 and the OEX at 442.50 on the PnF charts and those levels could be a challenge. A trade to SPX 875 would be a full breakthrough of bearish resistance. Because the Dow reached 8150 before the SPX reached 868, aggresive tradres can try a more lenient stop, around 8230, to allow for the SPX to fail at the January bounce ceiling (868), which at the time correlated to Dow 8150-8160. I am hesitant to go long less than 48 hours before the start of war, knowing that any terrorist retaliation could send the markets tumbling. I would recommend long positions for aggressive traders only and for the moment I will leave this as a suggestion rather than a signal. Trading with a 2-3 day window when we are about to invade another country is the highest risk proposition I can imagine, knowing ahead of time that it is likely to happen. If Saddam were to flee, then we could see a tremendous rally. Basically, this is an extremely difficult market and I'd prefer to enter near strong resistance or support, as I did yesterday just below Dow 8150. That 8300 level where we find bearish resistance in the Dow is also a level of formerly strong support, so it should be pivotal if reached.

Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Set stops at Dow 8180.

  Jonathan Levinson   3/18/03,  7:58:00 AM
The US Dollar Index peaked on a spike above 101.40 and is now trading just below that level. Spot gold is trading down 1.50 to 335.00, and futures are sharply higher with SPX trading 872.10 and NDX 1089. QQQ is trading 26.99. I expect to see renewed selling in bonds when they open at 8:30 EST.

The bullish percent indices, BPCOMPQ and BPNDX, have both given buy signals, not at all surprisingly given the strength the rallies we've seen over the past week. In keeping with Jeff's football analogy from about a year ago or so, the bulls now have the ball. That said, the 200 day EMA will be a formidable resistance to clear, this is a dangerous environment in which to be staking out fresh positions. As the TRINQ has been telling us for a week, there is a very strong, continuous imbalance in market breadth to the buy side. This makes the market unacceptably dangerous for bears, and risky for bulls hoping for continued upside, as the imbalance could correct itself at any time. Bulls and bears alike expect a pullback, or at least a shallow basing period such as we saw yesterday. As long as the BPNDX and BPCOMPX are moving up, these dips should be bought to the long side.

This is what the charts say. Geopolitical and economic risks are another story entirely, but to repeat, price is the final arbiter.

  Linda Piazza   3/18/03,  7:46:05 AM
Blair currently addresses the British Parliament, meeting to vote on whether to back the U.S. move against Iraq. He details Iraq's previous decade of omissions in its "full and final" weapons reports. Today, Turkey's cabinet is to discuss allowing U.S. troops to use their bases.

  Linda Piazza   3/18/03,  7:16:43 AM
Good morning. By now, we all know Bush's 48-hour ultimatum to Saddam Hussein and his sons, so let's turn our attention to the markets' reaction. The first markets to react were the Asian markets, of course, and those markets rallied. Hopes of a quick resolution to the war drove crude oil prices lower and powered equities higher. Exporters, airlines, and telecoms, some of Monday's biggest losers, were Tuesday's biggest gainers. The Nikkei closed up 82 points or 1%, at 7954.46. Earlier in the day, however, the Nikkei had traded as high as 8081.17 before falling to its lowest level at the close.

European markets surged, helped by the release of a January Eurozone economic number that showed that industrial production increased 1.1% from December's number. February's Eurozone annualized inflation rose to 2.4% from January's 2.2%, however. Of more help than the Eurozone industrial production number was the slump in crude oil prices and the attendant hope that the engagement with Iraq will be brief. The ongoing rallies are broad based, but chemical-maker BASF also benefits from an earnings report that showed it returning to profit and Germany's Wella gains from the news that Procter and Gamble will buy the company. As of this writing, the FTSE 100 had climbed 44 points or 1.18%, the CAC 40 was up 49.39 points or 1.74%, and the DAX had climbed 113.99 points or 4.58%. The DAX has just managed to spike over 2600 for the second time in today's trading, and currently trades at 2601.11.

Articles discussing today's gains in the European markets spoke of a buying panic after recent sharp gains. EU representatives were meeting today to discuss humanitarian assistance to Iraq, but discussions did not extend to monetary help to rebuild Iraq. The sentiment was "you broke it; you fix it," according to one commentator.

  Mark Phillips   3/18/03,  3:47:12 AM
Finally, the wind is gone, and my connectivity is back to what it should be! Ah, what a relief. After getting everything back up tonight, the email came streaming in as the server caught me up with all that I missed during the day. After going through the bulk of that email, I came across one that really troubled me. I want to share an excerpt with all of you in hopes you can tell me if my perceptions are wrong.

You people have responsibility to your readers to tell them the truth. Did they have a two million person conference call to take the market up. Call everybody you know and ask them if they would have bought calls at 8:00am est this morning. Not one of you was commited to the upside. And the market went up 250 points.

First off, I think every contributor in this forum takes their responsibility to honestly share our views about what we see in the market. It would be self-defeating to do otherwise, as we soon wouldn't have the luxury of subscribers tuning in to share our thoughts.

While I think it is a safe bet that none of us saw Monday's 300+ point ramp coming until it was pretty much over, there are (at least in my mind) a lot of things that have happened in the past couple weeks that certainly painted the picture that a big bullish reversal could be lurking just around the corner. First and foremost was the achievement of the bearish price targets forecasted by the Head & Shoulders patterns that Steve has been talking about for months now. He pointed out last week that with the achievement of those targets could very well shift the action to the upside.

Jeff Bailey has been talking about the increasing level of risk that bears have been assuming in the market due to the depressed levels of bullish percent. On March 5th, he recommended a 1/4 bullish position in the DOW and upped that to a 1/2 position in the Monitor on Monday.

While I can't say that I've been all-fired bullish until the past couple days, I think the LEAPs column speaks for itself. There are currently 10 plays listed there, 7 in the Portfolio and 3 on the Watch List and ALL of them are bullish. As a matter of fact, those Portfolio plays are now performing quite nicely, don't you think?

I think most of us have gone overboard in the past couple weeks pointing out the elevated levels of risk associated with the uncertainties surrounding the Iraq situation. I know Steve, Jeff and Jonathan have pointed it out, and I've been doing the same thing for the past 3 weeks at the end of my LEAPS commentary.

I know this is only one email, and it may not be typical of the majority of the readers. But it raises the concern for me that perhaps I'm not being clear in describing my thoughts on the market. If that's the case, then clearly a course correction is in order. So I'd like to open this up for comments from all of you. If you have any thoughts on the topic, I'd certainly like to hear from you. Send me an email with "Clarity" in the subject line. I may post some of the responses later today, or just compile a summary. The end result I'm going for, is to provide the best information I am able. Thanks for your help!


Market Monitor Archives