Option Investor
Printer friendly version
  Jim Brown   8/5/2003,  4:49:33 PM
Cisco made earnings by buying back 3.7% of their shares, which reduced the outstanding shares to the point where they could squeeze in at their estimates. IBM is the master at this trick. It will not sit well with the market tomorrow.

  Jeff Bailey   8/5/2003,  4:10:33 PM
Cisco Systems (CSCO) $18.85 -2.12% ... lower at $18.19 after headline numbers.

  Jim Brown   8/5/2003,  4:07:22 PM
Cisco earnings 15 cents proforma (14 gap) compared to 15 cents estimate.

  Linda Piazza   8/5/2003,  3:55:49 PM
Not quite 10 for the official trade, Jim, but those traders taking me up on the suggestion to watch for a rollover at 496-498 captured that much.

  Linda Piazza   8/5/2003,  3:52:39 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We have closed the short/put Swing Trade at 486.81 (the price when the exit was posted to the Monitor). Our entry yesterday was 495.88, so we captured a 9.07 movement on the OEX.

  Jim Brown   8/5/2003,  3:49:40 PM
Good trade Linda! +9 OEX points is an excellent trade!

  Linda Piazza   8/5/2003,  3:49:02 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Exit now at 486.83. We may be shaving a couple of possible points off the gains, but there's too much chance of a short-covering bounce at the close.

  Linda Piazza   8/5/2003,  3:43:17 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
I'm going to following stops down fairly closely beginning now and will be exiting this play within a few minutes. Lower the stop to 488.75.

  Linda Piazza   8/5/2003,  3:40:26 PM
The OEX currently pauses at the 487.42-487.94 zone that had previously topped prices over the last year.

  Linda Piazza   8/5/2003,  3:37:51 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 489.50.

  Linda Piazza   8/5/2003,  3:36:40 PM
I guess everyone is waiting for market-on-close orders due in a few minutes, as the OEX appears to have paused. It has again formed a classic "b" distribution pattern on the five-minute charts, with the predicted outcome a downside breakdown. However, I think sentiment ahead of CSCO earnings is going to be a stronger driver than what we're seeing on the charts. (Note: as I typed, that "b" distribution pattern was being tested on the downside.)

  Linda Piazza   8/5/2003,  3:29:26 PM
For reference tomorrow morning, European markets closed as follows: The FTSE 100 closed up 20.90 points or 0.51%, at 4121.00; the CAC 40 closed up 45.61 points or 1.45%, at 3187.61; and the DAX closed up 33.05 points or 0.97%, at 3438.36.

  Linda Piazza   8/5/2003,  3:26:38 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 490.25.

  Jeff Bailey   8/5/2003,  3:22:59 PM
CNBC report on high demand for high-end luxury automobiles.... who says "tax cuts don't work?"

If you're thinking "it isn't the super wealthy" that is having difficulty right now, it's the every day Joe that the market is concerned about," then I would have to agree with you. S&P 500 Index (SPX.X) 969.48 -1.35% ... session lows and breaking back below WEEKLY S1 of 971.14 here.

  Linda Piazza   8/5/2003,  3:21:57 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 490.75. All traders should consider setting profit stops at 488.

  Jeff Bailey   8/5/2003,  3:17:57 PM
03:15 Update posted at this Link

  Linda Piazza   8/5/2003,  3:16:00 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 491.25. Some traders might consider taking profits beginning now as we have support layered at OEX 489, 488, and on down.

  Jane Fox   8/5/2003,  3:15:13 PM
Nice OEX trade Linda.

  Linda Piazza   8/5/2003,  3:12:03 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We're inching down the stop to OEX 491.75.

  Linda Piazza   8/5/2003,  3:05:31 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the stop to 492.25. The current formation on the OEX five-minute chart looks like a "b" distribution pattern (sharp drop that forms the stem of the "b" and then sideways consolidation at the base), with the likely break of that pattern to the downside. In case that doesn't happen, we want to keep ratcheting down the stop in case there's a pre-CSCO earnings pop at the close.

  Linda Piazza   8/5/2003,  3:00:03 PM
Who will be the most anxious to close trades today ahead of CSCO earnings, the bulls or the bears? It's difficult to say. The last few days' trading have created some negative scenarios for bulls to contemplate, but bears have garnered some gains over the last few days, too, and those bearish gains are hard-won ones since March.

  Linda Piazza   8/5/2003,  2:56:39 PM
Be prepared for volatility when the bond market closes in a few minutes.

  Ray Cummins   8/5/2003,  2:50:16 PM
Spreads/Combos & Premium-Selling -- E-Mail Replies

(condensed) Hi Ray, I read some comments on another site by one of the so-called option gurus about the use of "butterfly" spreads in a range-bound market. I am sure the name refers to something about these spreads but since I have never seen one, I was hoping you can tell me what they are used for. Also, do you ever have any of these plays in your section? WA

The "butterfly" spread is generally a neutral-outlook position that is a combination of both a bullish spread and a bearish spread. This strategy is designed primarily for the stock or index that will not experience much overall movement prior to expiration. It usually requires only a small investment and has a limited risk, but profits are limited as well. It can be costly in terms of commissions so you should consider trading this type of combination strategy with a low cost (discount) broker.

There are three strike prices involved in a butterfly spread and the risk-reward graphs (which some people might say are similar to the silhouette of a butterfly's wings) reflect the limited loss/limited profit outlook of the strategy. The position can be initiated with calls or puts or a combination of both, depending on the required characteristics of the spread and the forecast for the underlying market. The most important thing to know about a butterfly spread is that it generally requires "legging" (buying each option on an individual basis) into each side of the spread, in order to achieve a favorable risk/reward outlook. I'll talk more about this unique approach in an upcoming narrative but you can read about it now in chapter 10 of: Options As A Strategic Investment, by Larry McMillan (available in the OIN bookstore). Good Luck!

  Linda Piazza   8/5/2003,  2:48:38 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the exit to 492.75. We're in danger of getting taken out on a minor pop now, but we need to protect profits as the close of the day approaches.

  Jim Brown   8/5/2003,  2:39:54 PM
Monitor Alert - We had a server glitch that took us off the air for about 10 min. We apologize for the error.

  Linda Piazza   8/5/2003,  2:38:41 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 493.25. We'll be walking the stop down in increments now, letting a stop take us out with a profit at some point during the afternoon. If we're not stopped, we'll probably take our profits anyway ahead of CSCO earnings, so be planning your strategy.

  Mark Phillips   8/5/2003,  2:09:05 PM
AZO $80.88 (-1.26) After a feeble midday bounce, AZO is coming back to its low of the day. Yesterday's rebound from the 10-dma failed miserably and should we get any weakness in the final 2 hours, it is quite possible that our stop will be triggered. Clearly, with the weakness seen in the past few days, we don't want to consider new positions unless the stock can show enough life to get back over the 10-dma.

  Jeff Bailey   8/5/2003,  2:08:05 PM
VA Software (LNUX) $2.79 +45.3% ... stock higher today after IBM announces it will use LNUX's SourceForge Enterprise Edition 3.3 for its internal open source community. Terms of the deal have not been disclosed.

Red Hat (RHAT) $6.82 +2.5% sees sympathy trade higher.

  Jeff Bailey   8/5/2003,  2:04:38 PM
XM Satellite Radio (XMSR) $14.50 +5.68% .... one of 76 stocks on the NASDAQ making a new 52-week high today.

  Linda Piazza   8/5/2003,  1:59:33 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 494.75.

  Linda Piazza   8/5/2003,  1:55:55 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Cautious traders should exit all or partial positions here (OEX 491.60). I'm waiting a moment here before lowering our official stop, to see if there's a drop below 490.90. If not, I may decide to take us out of the trade ahead of CSCO earnings.

  Linda Piazza   8/5/2003,  1:51:12 PM
Here comes our test of the neckline on the OEX five-minute potential H&S formation.

  Linda Piazza   8/5/2003,  1:50:21 PM
The 30-minute and 60-minute oscillators aren't providing many clues to expected movements on the OEX. MACD has flattened underneath the signal line on the 30-minute chart and 21(3)3 stochastics have flattened there, too. So has RSI, and the picture is the same on the 60-minute charts. All during the rally, we had strongly trending markets with high ADX numbers, so that we couldn't trust those oscillators. Now we've got low ADX numbers, showing that we should be able to trust the oscillators, but they're inconclusive.

  James Brown   8/5/2003,  1:47:59 PM
Glad to hear that Alan!

  Linda Piazza   8/5/2003,  1:42:57 PM
Was that the push we've come to expect this time of day? I'm not sure, as it was certainly a tepid push. So far, it's stopped at the five-minute descending trendline off the highs since shortly after 3:00 yesterday afternoon, but I'm not yet convinced that was "the" push.

  Alan Knuckman   8/5/2003,  1:42:53 PM
James, Good to see you on the board. We try to provide basic commentary on both the T-Bond and T-Note futures every day. I was out fishing for a couple of days last week. Support and resistance numbers are provided for key trading levels. People can contact us at aknuckman@manfinancial.com to discuss any futures contracts that they may have questions about.

  Jeff Bailey   8/5/2003,  1:39:24 PM
James: per your 13:35:59 ... I responded to that one earlier this morning. My answer was "no," but sometimes will profile trades when a rather unique opportunity looks to be in the making. Example was 06/25/03 market monitor at 10:41:18 Link

  Linda Piazza   8/5/2003,  1:36:43 PM
Not me, James.

  James Brown   8/5/2003,  1:35:59 PM
Trying to wade through some email today and came across this one for the MM and FM commentators.

Do any of the commentators trade the Tbonds or Tnotes?
- Don


  Jeff Bailey   8/5/2003,  1:32:04 PM
01:00 Update posted at this Link

  Linda Piazza   8/5/2003,  1:31:37 PM
A reminder: The 1:35-1:55 push should arrive any moment, with that push taking the OEX up toward next support or down to next resistance. These are often stop-running pushes, with the move subsiding as quickly as it began, but not always. It's the reaction to the push that gives us information about the likely trading pattern for the afternoon.

  Linda Piazza   8/5/2003,  1:28:51 PM
Swing Trade Signals
The OEX is doing exactly what we would have expected it to do each step of the way since our entry yesterday, yet it's been an excruciating trade for many, I'm sure. We knew there would be a bounce and we knew where that bounce was most likely to occur. By early this morning, we knew how far up that bounce was likely to take the OEX (back to the shoulder area on the five-minute chart). We suspect that today's low is likely to be tested again, too, but it's all happening with terrible slowness. What we don't know is how the OEX will behave on this next test if that test does occur. Since the formation--a H&S--is inherently a bearish one, our assumption is that 491 will break but H&S's sometimes form second right shoulders before that neckline violation. The formations are sometimes rejected outright, and when they are, the relief felt by market participants often results in a strong upward move. I've been thinking about ratcheting the stop down further as the neckline is approached again, but that just means we're likely to be taken out on the slightest bounce with a minimal gain, if any. I think the better tactic is to again warn conservative traders to consider taking all or partial profits if 491.50 is hit, but not to ratchet down the official stop again until a sustained move below 490.80. If your opinion differs, please make decisions that appropriate for you. I would like to close this trade this afternoon, ahead of CSCO earnings.

  Linda Piazza   8/5/2003,  1:14:58 PM
Swing Trade Signals
I hesitated to lower the OEX stop to 495.25, but now that the right shoulder has begun rounding, we've had confirmation that the 494.50-494 shoulder-level zone should be resistance.

  Linda Piazza   8/5/2003,  1:12:01 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the stop to 495.25.

  Linda Piazza   8/5/2003,  1:07:34 PM
Swing Trade Signals
I've tuned to the one-minute chart now. The drop looks more impressive on that chart. With all seriousness, though, that possible right shoulder on the potential H&S on the five-minute OEX chart now takes on a round-over appearance. We're hopefully now looking for a retest of 491.20-491.80, the neckline area of the H&S. I wouldn't consider that neckline violated until a move below 490.80.

  Jeff Bailey   8/5/2003,  1:06:02 PM
10-year YIELD Alert! I'm covering this in the 01:00 Update, but 10-year YIELD ($TNX.X) higher by 10.9 basis points here at 4.44% and per 01:00 Update would be viewed as negative. US Dollar Index (dx00y) 96.24 +0.06% relatively unchange.

  James Brown   8/5/2003,  12:59:41 PM
Progressive Corp - PGR - Conservative bears have been waiting for a definitive move under the $65.00 level for more than two weeks. The stock has dipped under this level twice during this time period but it never stuck. Shares have been slipping lower on a steady diet of lower highs as sellers slowly chew up demand. Currently the stock is just a few cents under $65.00. This could be a new entry point shaping up for this current OI put play.

  Linda Piazza   8/5/2003,  12:56:54 PM
We got the move below OEX 493. Now will it hold?

  James Brown   8/5/2003,  12:55:36 PM
Fifth Third Bancorp - FITB - It must be a day for puts as our relative weakness play in the banking sector, FITB, is performing well. The chart shows the familiar hammer candlestick from Monday's session but like ATH's chart today there has been no follow through and the stock dropped quickly from the open this morning. Shares are currently down 1.94 percent.

  James Brown   8/5/2003,  12:51:36 PM
Black & Decker Corp - BDK Another OI put play, the decline in shares of BDK is starting to pick up speed, which is good news as shares can move somewhat slowly. Aggressive traders who took our alternate entry at a failed rally of $41.00 are looking pretty good. The stock is approaching what could be support at $38.00 so we'll be expecting a bounce soon. Traders can look for a failed rally under $40 to initiate new positions or momentum traders enter at current levels (or under the $38.00 mark).

  Linda Piazza   8/5/2003,  12:50:49 PM
Volume patterns have improved slightly, although they remain bearish. Those in bearish trades don't want to see a continuing improvement in the patterns, however. One pattern that's not improving is the relationship of new highs to new lows on the NYSE with 36 new highs now being matched up to a greater 51 new lows.

  James Brown   8/5/2003,  12:47:49 PM
Anthem Inc - ATH - Current OI Put play ATH is continuing to show some weakness. Yesterday's candle looks like everyone else's with a strong rebound from the intraday low. For ATH it was a rebound off its simple 100-dma. Thankfully, there was no follow through on the bounce today and the stock is down another 1.44 percent this morning.

  Linda Piazza   8/5/2003,  12:46:28 PM
Reader Question: Having taken the profit near 491, what would be a good re-entry point to buy puts again?

Response: First, give yourself a pat on the back for taking that profit. A profit is a profit and you saved yourself the agony of enduring all this midday grind that the rest of us have endured.

Determining a new entry is difficult. The SEC does not allow me to give individual advice, but I thought there might be others out there with the same question so it's an appropriate Market Monitor topic. Risk/reward has become weighted more heavily toward the risks as oscillators become more oversold. An aggressive trader with funds available for risky trades could consider a bearish entry on a break of 490.80, should that occur, but the target predicted by the five-minute H&S is only about 5 points below that level and the 487-488 level might provide support as it drops toward 484-485. CSCO earnings come after the bell, too, so aggressive traders should factor in the risk of a positive market response to the company's earnings or a run-up this afternoon as shorts cover ahead of those earnings. Dow 9000 is going to be difficult to crack, and that risk should also be a factor.

Those with even more tolerance for risks could enter on a break of 492.75 as that would break the most current uptrend and a rising wedge (usually bearish) on the five-minute chart, but there's that strong, strong support at 491. I would not suggest this entry, and would not suggest the other, either, unless you've got some cash you can afford to lose sitting around in that trading account. If not, just pat yourself on the back yet another time and do something fun for the afternoon while the rest of us sweat bullets.

  Linda Piazza   8/5/2003,  12:25:08 PM
We need the OEX to drop below 493 before we can start believing that it's rounding over that right shoulder on a possible H&S formation on the five-minute chart. Even then, we can't count on the neckline being violated since H&S formations sometimes fail. Still, we can feel more comfortable about the possibility if that right shoulder does begin rounding over, of course.

  Jeff Bailey   8/5/2003,  12:20:22 PM
10-year YIELD Chart ($TNX.X) .... I've received a lot of questions regarding 10-year YIELD and impact on equities. Here are some thoughts I've placed on the 10-year YIELD chart. Link

I'm thinking about the ranges discussed in last night's Index Trader wrap regarding equities, then observing 10-year YIELD in the scope of those ranges, with the SCENARIO that there is some concern regarding HIGHER YIELDS at this point after the recent unwinding of a bond trade gone bad.

Bond bulls has a SCENARIO that the Fed/Treasury was going to buy back longer-dated maturities. Things were going great for bond bull until early July. Now, bond market has unraveled a bit, and impact on stocks at this point is/may be the rather artificial rise in YIELD created by the bad trade in bonds having come unraveled.

  Linda Piazza   8/5/2003,  12:17:22 PM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The OEX rises to test this descending trendline from this morning. Link Conservative traders who did not take profits as suggested this morning when the OEX neared 491 might consider setting an alternative stop at 495.25, above the descending trendline and near the allowable top of the right shoulder area. Our official stop will remain 496.50.

  Jeff Bailey   8/5/2003,  12:00:29 PM
HMO Index (HMO.X) 723 -3.17% .... session lows and now approaching its rising 50-day SMA Link which is going to be a near-term critical level of support. BEARISH MACD cross below Signal, with Stochastics oversold on DAILY. Per 11:00 Update and comments on OHP, need an HMO.X bounce from 50-day is my thinking here.

  Linda Piazza   8/5/2003,  12:00:05 PM
Swing Trade Signals
If our current OEX Swing Trade were a day trade, I would have pulled us out of the play this morning when the OEX hit a low near 491, but this isn't a daytrade. Swing Trades are meant to capture movements that happen over the course of several days. That's why we have the wide stops. We don't want to be stopped out of a play that might end up being profitable on a short-lived surge up or down in the markets. When the OEX hit that low this morning and paused, I had already seen that left shoulder and head shape, and thought there was a potential for the OEX to bounce up to form a right shoulder, so I'm not dismayed that it has, although I would have preferred that it hadn't, of course. If that's what was happening, we didn't want to be stopped out ahead of the formation of a potential right shoulder and then another possible test of the neckline. If that all unfolds and if the OEX should break through the neckline, the target projects down to 485 or so, depending on where the neckline is drawn. Staying in to watch that possibility unfold means leaving a wide enough stop to allow the formation of the right shoulder without us being stopped out of the play. The risk is a move up to our stop, of course.

  Ray Cummins   8/5/2003,  11:57:08 AM
Spreads/Combos & Premium-Selling -- More E-Mail Replies

In Sunday's Naked Put section, you mentioned limiting losses to 20% of the initial investment. Would that mean that if I received .50 for the premium, I would buy it back if the cost goes up to .60 or more or does the stock price need to move by 20%? BJN

Actually, the percentage loss-limiting technique with "naked" puts is based on the collateral (or investment) required for the position.

Using an example -- the Research In Motion (NASDAQ:RIMM) play from 8/3/03:

With the stock at $27.28, the AUG-22.50 Put (RUL-TX) is trading at 0.35. Thus, the position requires collateral of approximately $650 per contract. If you sell 5 contracts of the AUG-22.50 Put, the total margin (investment) will be roughly $3250. Since 20% of $3250 is $650, the maximum amount of investment collateral allotted to this position should be no more than $3900. That equates to a stock price near $25, so the underlying issue has at least $2.25 of downside potential before an exit should be considered (based on this technique). Keep in mind, this is just a suggested exit point with regard to one particular "loss-limiting" strategy. It will not be appropriate for all positions due to differences in option premiums, the volatility and technical character of the underlying issue, and your personal trading style, experience level and risk tolerance. Hope that helps!

  Linda Piazza   8/5/2003,  11:50:49 AM
As of a few moments ago, volume patterns remained as bad as they were earlier, with adv:dec ratios at 12:18 for the NYSE and 11:17 for the Nasdaq, and with down volume more than double up volume on the NYSE and about 1.9 times up volume on the Nasdaq. New lows now outnumber new highs on the NYSE. These figures don't strong a strong trend toward more strength, but that doesn't mean we won't see it develop if the indices continue to climb.

  Linda Piazza   8/5/2003,  11:46:55 AM
Here's the OEX H&S formation I first mentioned when the OEX approached the neckline at 10:45 this morning. I think Jonathan has mentioned it, too, with reference to the ES. Link

  Linda Piazza   8/5/2003,  11:41:18 AM
Swing Trade Signals
An OEX move over 495.50 or so is probably going to negate the possibility of a H&S forming on the OEX, as I mentioned it might do in my 10:45 post, although the "allowable" limit for the right shoulder is open to interpretation. Bears want to see the OEX halted at or before that level. A break above that level will probably mean a test of the head level which may stop us out of our play, since the top of the head lies at 497.06. Make individual decisions accordingly.

  Linda Piazza   8/5/2003,  11:29:55 AM
I wanted to clarify my 11:03 post. Today's OEX action has seen the OEX form a series of bear flags as it trades up and down within a descending regression channel. That regression channel itself, however, could possibly be a bull flag (see my 9:53 post for a chart), although this morning it retraced more than half the flagpole, something it should not do before breaking to the upside. Therefore, I'm leaning slightly in favor of it not being a bull flag but just a run-of-the-mill descending regression channel that's going to carry the OEX down further. Without a breakdown below 490.90, however, bulls might gain more courage and push the OEX higher again.

  Linda Piazza   8/5/2003,  11:22:52 AM
Swing Trade Signals
What was that song from the 60's, "There's a kind of hush, all over the world tonight"? That's how watching the markets feels now, as I have the impression that both bears and bulls are hushed, riveted on minute movements in the markets. It's taking all my stamina not to close out our short/put Swing Trade for our minimal profit (after spreads and commissions) now, but that's based on a feeling that it's taking too long for markets to break through the next support and not on anything in particular I see on a technical basis. However, each trader should be making individual decisions about when to take profits and there's nothing wrong with taking those profits this morning and congratulating yourself for a good trade.

  Jeff Bailey   8/5/2003,  11:21:10 AM
11:00 Update posted at this Link

  Linda Piazza   8/5/2003,  11:09:22 AM
As of a few moments ago, adv:dec ratios were 11:18 on the NYSE and 11:17 on the Nasdaq. Down volume was 2.6 times up volume on the NYSE and 1.8 times up volume on the Nasdaq. New highs equaled new lows on the NYSE, continuing a trend we've seen lately, but new highs still outnumber new lows by a hefty 55:6 on the Nasdaq. Total volume was a light 332 million on the NYSE and 512 million on the Nasdaq.

  Ray Cummins   8/5/2003,  11:08:56 AM
Spreads/Combos & Premium-Selling -- E-Mail Replies

Hello, I just started reading the Spreads section and one thing I was confused by is the NET-CREDIT TARGET in your picks. Does this number refer to the price of the options together, such as a credit taken in when buying one call and selling another higher strike call? Thanks for your help! RE

Regarding entry prices for spreads: In the options markets, spreads can be traded as if they are a single position. This means that a spread is quoted with a "net" credit or debit (single bid/single offer). If it is a common spread such as vertical, calendar, or straddle/strangle, an order for both options (combined into one position) can often be entered and confirmed electronically using real-time quotes. If the spread is complex, involving several different options or positions with ratios, it will likely have to be entered by a broker. However the market-maker will always fill or post the position based on a composite price. Spread orders, like individual options orders, can also be submitted with qualifying instructions. The most frequent contingency orders are "market" and "limit" but other types of orders may include instructions specifying when or how it is to be executed.

Most of our readers (beginning spread players) place their orders for combination positions as a "net" credit or debit and that's why we list the entry targets for each candidate in this manner. These prices are just an opinion of what you should use as an initial "limit" for a spread order. They are almost always less than the straight Bid/Ask numbers (we do not pay "market" for spread orders) and usually you can expect to shave a minimum of $0.05-$0.15 off the spread price when opening/closing a position -- more or less depending on the price of the options, whether they are ITM or OTM, the time value in each option, the volatility of the stock, etc. Basically, I just try to give the novice trader an idea of where to start their trade, since the option prices are always different the next morning. Good Luck!

  Linda Piazza   8/5/2003,  11:03:13 AM
I'm seeing the same series of bear flags today on the OEX as Jane is seeing on the ES contract. I wouldn't be surprised to see the current bear flag carry the OEX all the way back up to that left shoulder area (494.25) before it broke down, although gains seem hard won this morning and the OEX currently moves down.

  Linda Piazza   8/5/2003,  10:45:17 AM
The OEX five-minute chart now has the look of a left shoulder and head of a H&S formation, with the OEX currently at the neckline. I always am alerted when I see that left shoulder and head and then the neckline is approached because there's now the possibility of a bounce up to the shoulder area to form that right shoulder, with the shoulder area at 494.25 or so. If the OEX does not soon fall below the neckline area at 491-490.80, that's what I would expect to happen.

  Linda Piazza   8/5/2003,  10:41:30 AM
Bears now want to see the OEX move below 491 and then 490.80, the next support.

  Jeff Bailey   8/5/2003,  10:41:08 AM
S&P Banks Index (BIX.X) 299.58 -0.93% ... moving to a session low here and now vulnerable to yesterday's lows. 10-year YIELD ($TNX.X) on the rise, gaining 3.7 basis points to 4.357% and moving above its DAILY Pivot.

This DIVERGENCE between banks/bonds looking negative for major market averages.

  Linda Piazza   8/5/2003,  10:39:23 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
OEX 491 approaching fast. Lower the stop to 496.50, and those who are so inclined should lower it to breakeven. Some might consider exiting all or part of their positions as this strong support is approached.

  Linda Piazza   8/5/2003,  10:37:22 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower the stop to 497.50.

  Linda Piazza   8/5/2003,  10:36:51 AM
The OEX is at a new day's low.

  Linda Piazza   8/5/2003,  10:35:35 AM
The OEX five-minute chart now shows a formation that looks like a bear flag forming after the quick drop. If so, it should probably break to the down somewhere before reaching 494.25, but these flag formations haven't been particularly reliable this morning. I would give that flag leeway up to the 494.60-494.80 area anyway, as that's the resistance implied by the ascending trendline that had begun forming yesterday.

  Linda Piazza   8/5/2003,  10:26:39 AM
The OEX now rises to test the violated ascending support line that began forming yesterday morning. This will be our first test of that broken support. That ascending trendline currently lies overhead at about 494.60-494.80, depending on how quickly the OEX tests it.

  Linda Piazza   8/5/2003,  10:23:06 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 498. I don't want to get taken out on a brief upswing, but we need to narrow the stop a bit now that we're so far below our entry.

  Mark Phillips   8/5/2003,  10:17:10 AM
MRK $54.46 (+0.33) How does the MEDCO spin off by MERCK affect the current put play on MRK? Is it bad news for us put holders?

I remember the Medco spinoff story making the rounds on several occasions -- seemingly every time I decide to initiate a trade in MRK! So here we go again and it looks like it is a done deal, as MRK will be spinning off Medco Health Solutions, its pharmacy benefits management company. The spinoff will be implemented in the form of a special tax-free dividend to shareholders, where they will receive 0.1206 shares of Medco Health for every share of MRK. The dividend will be payable on August 19th to shareholders of record as of August 12th.

While I see this as a potential benefit to shareholders, I'm not sure there is any material impact to our play, as there is no cash outlay taking place. However, terms of the spinoff dictate that Medco make cash payments totalling $2 billion back to MRK. I'm not adept at trying to decipher how all this will trickle down to the MRK's bottom line in the end, so I will regrettably have to take a pass on whether this has a material impact on our play. My perception is "No", so I'll leave the question out there for anyone else that wants to take a stab at it.

My final arbiter in issues of this nature is always price, and judging by the fact that the stock is only up 33 cents this morning, I would say the market has voted that it is a "no impact" development.

  Linda Piazza   8/5/2003,  10:15:51 AM
Swing Trade Signals
I'm watching for a few moments before lowering the stop again, but those uncomfortable with the current wide stop should lower stops now according to their own trading styles.

  Jeff Bailey   8/5/2003,  10:13:49 AM
Treasuries find YIELD inching into green on bond selling. S&P Banks Index (BIX.X) 300.34 -0.68% moves to session low and just under DAILY pivot which looks bearish for broader market. NDX/QQQ has been weak all morning in the Pivot.

  Linda Piazza   8/5/2003,  10:09:42 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
Lower stop to 498.50.

  Linda Piazza   8/5/2003,  10:08:27 AM
The OEX makes a new day's low.

  Linda Piazza   8/5/2003,  10:02:55 AM
The bull flag from my 9:53 post is now breaking to the upside. Still, the rise after the strong ISM number has so far been more subdued than I would have expected.

  Jeff Bailey   8/5/2003,  10:01:11 AM
July ISM Services comes in at 65.1 compared to economists' forecast of 58.0

INDU = 9,184, SPX = 982.48, OEX = 495.69, NDX = 1,262, QQQ = $31.41

  Linda Piazza   8/5/2003,  9:53:31 AM
Here's one view of what's happening on the OEX five-minute chart: Link That latest formation looks a bit like a bull flag, but if it is, it's not yet breaking to the upside. It just alerts us to pay attention to all possibilities.

  Linda Piazza   8/5/2003,  9:47:43 AM
The OEX has been bouncing this morning from the ascending trendline that began forming yesterday morning.

  Jeff Bailey   8/5/2003,  9:46:15 AM
S&P Banks Index (BIX.X) 300.96 -0.43% .... testing DAILY pivot of 300.40 as support early (I forget to change pivot colors in DAILY from red to green)

  Linda Piazza   8/5/2003,  9:38:48 AM
OEX bears next want to see the OEX drop below 493.50 and particularly 493, as that would get the OEX past next historical S/R and also below the ascending trendline that began forming about 10 yesterday morning.

  Linda Piazza   8/5/2003,  9:36:58 AM
The 50% retracement of the first five-minute OEX range lies at 494.87. Bears (including those of us in the current Swing Trade) want to see the OEX fail from any retest of this level in the usual first morning reversal. The first five-minute candle was not significantly larger than a typical five-minute candle, however, so that level may not prove particularly significant, either.

  Jeff Bailey   8/5/2003,  9:29:14 AM
Oxford Health (OHP) $42.32 Link ... reports Q2 (June) earnings of $0.85 per share, which was 5 cents better than forecast. OHP said revenues rose 11.4% year-over-year to $1.36 billion compared to consensus of $1.35 billion.Link

  Jeff Bailey   8/5/2003,  9:17:45 AM
09:00 Update posted at this Link

  Linda Piazza   8/5/2003,  9:14:19 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The Swing Trade Model is short/put the OEX from 495.88 with a stop at 500.90, but let's change that stop to 501. It's easier to remember and gives us an extra dime's distance from the resistance at 500.80. The entry was based on a move up to this resistance from the violated regression channel that formed beginning in the middle of July Link , the resistance of this violated long-term trendline shown in green Link , and this resistance from the violated rising trendline that formed beginning with the July 1 low Link . It's possible to draw this third trendline so that it crosses higher, near the 497.50 historical resistance. That higher version, cutting off many lower shadows, might be the most valid version. With futures up this morning, the OEX may be opening near that higher trendline.

The OEX closed below both its 21-dma and 50-dma's. The bullish case, however, consists of yesterday's bullish-looking candle, intraday oscillators that hint at continued upside, and possibly market psychology, although the last several day's trading should have damaged that market psychology.

  Linda Piazza   8/5/2003,  7:13:41 AM
Good morning. I mentioned yesterday morning that the 9380-9420 level was the next important support for the Nikkei, and that level got tested early in Tuesday's trading, with the Nikkei dipping slightly below 9380 in the first 30 minutes of trading. The 9380 level held for about 30 minutes, but the Nikkei soon dived and fell into the early afternoon, dropping as low as 9304.71 before climbing back toward the 9380 level. The Nikkei closed down 70.21 points or 0.74%, at 9382.58.

For the first time in more than two weeks of trading, foreign investors in Japanese stocks entered more sell orders than buy orders. The Japanese government upgraded its economic assessment, saying the economy was "overall flat," but that signs of change were seen and that the economy would likely improve if the U.S. economic condition also improved. Investors reportedly paid little attention to what was deemed an improved outlook. Honda Motors was hit by news of a recall of 247,019 of its 2002 and 2003 CR-V compact sports-utilities vehicles for transmission defects. Nissan also announced a recall of its 2003 Infiniti G35 sedans, with both Honda and Nissan stock prices declining. Toyota climbed ahead of its after-the-bell earnings, with those earnings then showing a Q1 9.7 percent drop in net profit.

A car maker was in focus in South Korea, too, with Hyundai Motor regaining some of its losses from Monday after the suicide of a top executive. South Korea's Kospi was one of the few Asian bourses to gain, with the Kospi rising 0.46%. The Taiwan Weighted dropped 2.19%, and Singapore's Straits Times dropped 1.86%. Hong Kong's Hang Seng dropped only 0.06%, however, and China's Shanghai Composite ended up flat.

Most European bourses trade up, perhaps reacting to the eurozone services PMI for July, which was a better-than-expected 50.2, up from June's 48.2. Germany, the world's third largest economy, still showed a decline. Insurer Aegon (AEG) draws attention today as a GE Commercial Finance buys most of Aegon's Transamerica Finance Corp. for a premium. Credit Suisse Group (CSR) reported better-than-expected Q2 results, sending its stock prices up in early trading today. As of this writing, the FTSE 100 trades up 11.20 points or 0.27%, to 4111.30; the CAC 40 trades up 24.29 points or 0.77%, to 3166.29; and the DAX trades up 4.47 points or 0.13%, to 3409.78.

  Jeff Bailey   8/4/2003,  1:34:57 AM
The Market Monitor has been archived. You may view it and any previous days here: Link

Disclaimer: Stocks discussed in the Market Monitor are for educational purposes only and any analysis is not meant to imply a recommendation for or against that stock. The analysts in this forum as on any other website are prohibited by the SEC from giving any specific advice to ANY individual trader. All information posted is for ALL readers and is not meant to be directed to any individual. Our analysts cannot answer any email questions regarding any specific stock. Please do not ask and please do not take offense if requests are denied.

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.


Market Monitor Archives