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  Linda Piazza   12/8/200,  3:59:56 PM
Today's bullish OEX candle nearly engulfed Friday's bearish candle, which in turn had nearly engulfed Thursday's bullish candle. At the end of the day, the OEX has remained within the recent consolidation band, possibly an orthodox broadening formation. With oscillators turning up again, a new high would not be impossible, but unless that new high breaks cleanly through strong overhead support, it still would remain within the broadening confines of that typically bearish formation at the top of the OEX's rise.

 
 
  Jim Brown   12/8/200,  3:54:38 PM
TXN will be doing a mid quarter update after the close. Call is 5:30, press release sometime after the close.

 
 
  James Brown   12/8/200,  3:51:06 PM
The rally in shares of Freeport Mcmoran (FCX) is absolutely incredible and is showing no signs of stopping. This is a gold and copper mining operation. If you like trading gold stocks keep an eye on this one for a pull back.

 
 
  James Brown   12/8/200,  3:40:17 PM
Breaking out to new highs...software maker Intuit Inc (INTU) is up 3.33% and breaking out above MAJOR resistance at $51.50-51.75 dating back to January 2003. Shares have failed at this level half a dozen times and the push today could have shorts on the run.

 
 
  Jeff Bailey   12/8/200,  3:36:21 PM
Humana Inc. (HUM) quick bar chart I worked up. Link

 
 
  Linda Piazza   12/8/200,  3:35:14 PM
As Jeff has taught us to note in the past, it's often important to correlate OEX behavior with that of the BIX. The BIX's behavior since Friday hinted that the OEX could show more strength than looked likely. Early this morning, I wondered whether the BIX's building strength would propel the OEX up, too, or if the weakness in the SOX would drag it down, with both indices sometimes serving as leading indicators for the OEX. Until the BIX and the SOX got in gear together, I thought it more likely that we'd see chop rather than a sustained movement one direction or the other. The SOX looked very oversold on a 30-minute basis, as I mentioned, so it had seemed possible that the SOX would bounce, too. I just didn't (and don't) expect it to get very far. "Very far" could include being stopped at the current level as it approaches 500-503 S/R or up a bit higher, near the 30-minute 100-pma at 512.87.

 
 
  Linda Piazza   12/8/200,  3:24:45 PM
The OEX has climbed into the 527-529 resistance zone. Above this lies the 531-533 zone. Last week's and today's test of the 30-minute 100/130-pma's and their success at serving as support would seem to change this to a buy-the-dip tenor, and daily oscillators hook back up as if in affirmation. That daily chart still shows a broadening formation at the top of a climb, however, and those types of broadening formations are not typically bullish formations. Because it's a broadening formation, however, the OEX could still hit a new high and remain within the formation. That means that there's reason to be cautious in bullish positions, even though it's possible that the OEX could reach a new high. No wonder everyone is confused.

 
 
  Jeff Bailey   12/8/200,  3:18:18 PM
Humana (HUM) $22.73 +1.88% Link ... Company saying this afternoon that it is now in the process of reevaluating 2004 guidance for 2004 earnings in light of recently signed Medicare bill. HUM saying the specific impact of Medicare reform legislation upon 2004 earnings will not be determinable until the first quarter of 2004.

From the looks of the Pnf chart and today's reaction, looks to be bullish revisions. HUM's PnF chart has been bullish with vertical count hinting at ... $30.50.

 
 
  Ray Cummins   12/8/200,  3:14:50 PM
Spreads/Combos & Premium-Selling -- Strategy Selection

Linda mentioned (14:53 post) having a bear-call "credit" spread on the OEX in her portfolio and indeed, that is a great technique for markets with a volatile character and a range-bound price pattern. Recall that a credit spread is an options strategy which allows traders to have time decay work in their favor while maintaining an acceptable risk/reward outlook. With that concept in mind, a credit spread trader normally uses front-month options as the time decay effect reduces an option's premium most rapidly in the final month prior to expiration. This time-value "erosion" benefits credit spreads and other premium-selling strategies, assuming no change in the other variables that affect option pricing -- underlying security price, volatility, dividends, or interest rates. In addition, traders who participate in credit-spreads often use index-based options such as S&P 100 (OEX) because they contain premiums similar to options on individual stocks while providing an underlying instrument less prone to huge, gapping moves.

 
 
  Jeff Bailey   12/8/200,  3:10:45 PM
Dyax Corporation (DYAX) $6.45 +4.2% ... Hey Jeff: Did you pick up a little DYAX today?

No I didn't. I've been working on my top-10 picks list today. Can't believe it is the end of the year already. DYAX was a stock we quickly discussed in this weekends Ask the Analyst column Link . Pretty thinly traded, but I really like these kinds of patterns in more liquid stocks.

 
 
  Linda Piazza   12/8/200,  3:07:38 PM
It's not all blue sky ahead. This OEX trendline is now being tested: Link

 
 
  Jim Brown   12/8/200,  3:05:37 PM
Amazing drop in the VXO and the TRIN. This buy program is dramatically changing the market internals and setting up a potential ramp into 10,000. Pretty bullish for the day before a potentially negative Fed meeting. Link

 
 
  Linda Piazza   12/8/200,  3:03:16 PM
Here's something to keep on the radar screen. The BIX adds to its gains, moving above its converging 21-, 100-, and 130-dma's. Thirty-minute oscillators show strength, too. Link I've been watching this strength build for several days, but the SOX weakness always worked against it.

 
 
  Ray Cummins   12/8/200,  2:56:10 PM
Spreads/Combos & Premium-Selling -- Portfolio Activity: Kmart Holdings (NASDAQ:KMRT)

Another victim of the recent retail slump is KMRT, an issue that was offered as a bullish "premium-selling" candidate last week. At that time, a few popular members of the retail group were still hitting new highs for the year but KMRT caused a waterslide in the sector by posting a 21% drop in overall sales while same-store sales, a key industry benchmark, fell 8%. The news was a catalyst for a sharp sell-off Friday and now the issue appears destined for the $25 range. Conservative traders should have closed the (bullish) position when the stock price moved through the sold (put) strike at $30, however there may be a brief rebound as the issue tests support near the 50-EDMA ($25.50).

 
 
  James Brown   12/8/200,  2:53:55 PM
Drooling over a flat-screen LCD Television? A Reuters article is suggesting that prices could drop by 30% in 2004.

 
 
  Linda Piazza   12/8/200,  2:53:19 PM
Zoom, zoom. It's disgusting, isn't it, as the OEX zooms from resistance to support and back again, with the band not broad enough to trade unless you want to throw a whole lot of contracts at the movement and risk a whole lot of money for a small possible gain. It's not so disgusting if you're sitting in a bear call credit spread, however, comfortably letting time decay do its work. Such a spread still requires you to have a bias--in this case a bearish-to-flat bias.

 
 
  Jeff Bailey   12/8/200,  2:51:23 PM
QQQ $34.99 -0.14% ... here's 10-minute interval chart of QQQ, which allows for observation of December 1 relative high and developing downward trend, which has not yet been tested. Link

 
 
  Jim Brown   12/8/200,  2:46:43 PM
I was writing my long term market view today for the end of year special and there are so many negatives stacking up for next year the bulls are going to have a major wall of worry to climb. Then we have 2005 for desert and the negatives double as the calendar flips to 2005. Bulls better enjoy these gains over the next month.

 
 
  Jonathan Levinson   12/8/200,  2:45:25 PM
The put to call ratio is up to .99, VXO down to 17.05. Ten year bonds down 3.2 bps, Feb gold up 1.20 at 408.50, HUI -2.27 and XAU -1.26.

 
 
  James Brown   12/8/200,  2:40:16 PM
Once bitten twice shy? A couple of weeks ago Golden West Financial Corp (GDW) had produced a nice, clean breakdown below support at $100 after an incredible run higher. There was no follow through on the technical breakdown and shares drifted back towards the $103 level. Now the stock may have put in a double-top at $103 and Friday's close under $100 again and below its mid-November low looked very tempting even though its simple 50-dma was just below. Surprise, surprise... traders bought the dip and GDW is back to the $101 region. This might be worth watching for a move above $103 or a drop below its 50-dma near 98.50.

 
 
  James Brown   12/8/200,  2:35:56 PM
Dow component American Express (AXP) has been struggling with a trend of lower highs since peaking at $49.00 in October. The stock's simple 30-dma is now in on the act, pressing shares for the last several sessions. AXP's P&F chart has produced a high-pole warning.

 
 
  Jim Brown   12/8/200,  2:34:49 PM
The marker internals are weakening but the VXO is still falling. There is no fear despite the current levels. Link

 
 
  Ray Cummins   12/8/200,  2:33:13 PM
Spreads/Combos & Premium-Selling -- Portfolio Activity: Michael's Stores (NYSE:MIK)

MIK has been on the watch-list in our (bull-put) credit spreads portfolio for two weeks and if Friday's move below the sold (put) strike at $45 did not get your attention, today's drop to a 2-month low certainly suggests an early-exit trade. MIK shares are down $1.51 at $43.33 and the issue has "plunge" potential to the $40 range. Our position was closed Friday but there may be another exit or adjustment opportunity (bounce?) when the issue tests the 50-DEMA near $41.50.

 
 
  James Brown   12/8/200,  2:31:43 PM
Biotech giant Amgen (AMGN), largest component in the BTK biotech index, has failed yet again at the $60 level and is retesting late November's low at $57.10. Traders bearish on the group might want to watch the $57.00 mark as a trigger for new positions.

 
 
  James Brown   12/8/200,  2:28:54 PM
Last week I mentioned Eli Lilly (LLY) in the monitor as it slowly drifted toward the bottom of its rising channel. The inflection point was support at $68.00 as we waited for a bounce from the channel or a breakdown through support. It appears the bulls are winning. Today's bounce looks very tempting and bullish traders could use it as an entry point for new positions. More conservative traders might want to wait for LLY to clear the $70 mark first.

 
 
  Linda Piazza   12/8/200,  2:27:07 PM
The OEX turns down from its test of the resistance first depicted in my 10:09 post this morning. It now faces the known 523.50-524 S/R zone.

 
 
  Jeff Bailey   12/8/200,  2:24:59 PM
QQQ $34.83 -0.6% ... back near morning/session lows and 5-MRT RED #2.

 
 
  Linda Piazza   12/8/200,  2:18:34 PM
I keep expanding the bottom portions of my intraday charts, trying to decipher whether the 30-minute MACD is still turning up or is flattening or whether the five-minute version has yet made a bearish cross. The truth of the matter is, though, that the OEX remains stuck between strong support and strong resistance. Even the daily oscillators provide mixed evidence. I just see chop and more chop, and I'm not really even tempted to enter a pure options directional play right now, with the likelihood that the position would get chopped to death while options premium leaked away. I'm happy tracking the bear call credit spread I priced late Thursday, although these positions don't need someone to babysit them as closely as pure directional plays do. I'm just watching the small fluctuations.

 
 
  Ray Cummins   12/8/200,  2:18:30 PM
Spreads/Combos & Premium-Selling -- Portfolio Activity: Cabot Micro (NASDAQ:CCMP)

A recent favorite in our bearish (call-credit) spreads portfolio is testing a 5-month nadir near $50 and may be headed lower if the technology rally does not resume in the near term. CCMP is down $2.35 at $49.87 and with the previous (FEB-MAY) trading-range top near $45, that area looks like a good target for put buyers. Better yet, a short-term "premium-selling" position (sell call) or a bearish spread, near the December high at $55, should offer reasonable risk/reward for speculative traders.

 
 
  Ray Cummins   12/8/200,  2:02:38 PM
Spreads/Combos & Premium-Selling -- Portfolio Activity: CV Therapeutics (NASDAQ:CVTX)

Another big loser in today's session is CV Therapeutics. The stock is down $3.67 at $12.09 after the U.S. Food and Drug Administration raised concerns in memos posted on the agency's Web site in advance of Tuesday's meeting of an advisory panel that will decide whether the drug, Ranexa, should be approved. The memos emphasized a potential health risk called QT prolongation, or a delay in the time it takes the heart to electrically recharge itself. The problem can lead to fatal heart arrhythmias and in the past has caused the FDA to reject medicines or delay their approvals. The announcement sent CVTX shares tumbling and our bearish "premium-selling" positions should comfortably expire at maximum profit.

 
 
  Linda Piazza   12/8/200,  2:01:15 PM
The nested five-minute Keltner channels show support now gathering between 524.60-524.80.

Meanwhile, the SOX struggles to stay above the confirmation level of its double-top formation and above its 50-dma. The SOX daily candle, so far, is a doji, a possible reversal signal, but we still have lots of time ahead before the markets close and that candle can still become much more bearish.

 
 
  James Brown   12/8/200,  1:49:23 PM
Current OI put play, Panera Bread (PNRA), has now broken support at $35.00 and looks very weak but traders may have to worry about an oversold bounce. Watch your stops.

 
 
  Jane Fox   12/8/200,  1:46:58 PM
Massachusetts Financial Services Co. is the latest company to be investigated by the SEC for possible regulatory action for its mutual-funds trading practices. Sun Life, MFS's parent company, said regulators alleged that the disclosure in certain of MFS fund prospectuses concerning market timing was "false and misleading, and breach of fiduciary duty."

 
 
  Linda Piazza   12/8/200,  1:42:58 PM
Something sure has to give. The OEX is jammed between next strong resistance and next strong support, in the form of the 30-minute 100/130-pma's, at 523.94 and 523.26 respectively.

 
 
  Jonathan Levinson   12/8/200,  1:42:17 PM
The put to call ratio is down to .95, not falling quickly enough, and the VVXO is 17.27. The persistence of the high p/c ratio and the failure of the VXO to drop when the indices rise indicates that there are many bears shorting these moves, which could provide fuel for the next squeeze higher. It's going to come down to whoever blinks first, but these numbers have me somewhat nervous of another beartrap.

 
 
  James Brown   12/8/200,  1:41:50 PM
Right on target...shares of Kohl's (KSS), a current OI put play, have rolled over at its simple 10-dma - a level of resistance for the past several weeks. Shares are down 2.68%.

 
 
  James Brown   12/8/200,  1:39:53 PM
Over the weekend we suggested that the pull back to $65 in shares of Zimmer Holdings (ZMH) was an entry point but we'd like to see signs of a bounce. We got it. The stock is up 1.8% to the $67 mark.

 
 
  Linda Piazza   12/8/200,  1:39:44 PM
The OEX is again jammed underneath the same resistance depicted in the 30-minute chart linked to my 10:09 post. The 30-minute MACD, momentum, and CCI turn up, but RSI, always quicker to react, tries to hook down. Depending on how thickly you draw the rising resistance line (broken support from late last week), the OEX is either at that resistance or slightly above it.

 
 
  James Brown   12/8/200,  1:34:34 PM
QLogic Corp (QLGC), a candidate on this weekend's watch list, has sunk below the $52.50 level and is toying with a breakdown under $52.00. The stock broke its simple 50-dma on Friday. Traders looking for a put play might want to watch QLGC for a move under $52.00, which should break its short-term trendline of lower lows from early November. The 200-dma near $47.50 looks like a decent profit target.

 
 
  Linda Piazza   12/8/200,  1:28:26 PM
Reader Question: In my 13:08 post, I referred to the equilibrium setting up on the nested five-minute Keltner channels, and said that although such a condition could continue across many five-minute bars, that it "usually preceded a big move." A reader wrote OK... which way is your bias? Up???

Response: Yep, but I'm not sure whether that up move will be the real move or the false breakout. The OEX soon faces the same resistance that's been holding it back all day. I think we have to see a breakout above 525.25 before we can safely say that up is the direction for the afternoon. Note: This is a pretty safe "prediction" since the OEX has already begun to move, but that movement occurred after I began preparing this post. The OEX has bumped above that resistance line, but now shows a tendency to pull back, so we'll have to see if the move is sustained. I agree with Jim's post on the Futures Side that the markets feel heavy, but those 30-minute oscillators have been wanting to move up for a couple of days now, too, so I expect at least an attempt before a rollover. I wouldn't be playing the upside myself, however.

 
 
  James Brown   12/8/200,  1:25:27 PM
Investors are not responding to McDonald's (MCD) November sales numbers. November same-store sales are up 6.4% while overall sales are up 14.9% yet the stock is down on the session. Shares of MCD have a five-month long trendline of higher lows where the stock has bounced numerous times. Bullish traders could try and buy the bounce from support, which should coincide with the $25.00 level.

 
 
  James Brown   12/8/200,  1:20:11 PM
Another candidate with tempting relative strength is Ingersoll-Rand (IR). Shares hit new highs not seen since 1999 last week and were able to maintain them. Now the stock is inching higher again and looks ready to breakout over the $64 mark.

 
 
  James Brown   12/8/200,  1:16:38 PM
One stock I've been watching recently is Textron (TXT). Shares have slowly been creeping higher from its mid-November dip to $47.50. Late last week it closed over resistance at $51.00. Now the stock is hitting another one-year high on an upgrade by Smith Barney to a "hold" but shares do have some old resistance from April 2002 at the $53.60 region.

 
 
  Linda Piazza   12/8/200,  1:08:12 PM
The nested five-minute Keltner channels line up with their central lines tracking toward each other, showing the OEX temporarily having achieved equilibrium between support and resistance. Although that condition can persist through many five-minute bars, it usually precedes a big move. The trouble is that many false breakouts may come before that equilibrium can be broken.

 
 
  Linda Piazza   12/8/200,  12:35:59 PM
As we move into the midday lull, the SOX continues to show weakness. It is now only about 7 points above its 50-dma at 489.69. Although the SOX sometimes overshoots that moving average, sometimes for a couple of days, it's bounced fairly reliably from this average since March. As it approaches that average, the daily 5(3)3 stochastics approach levels indicating oversold conditions, but they haven't yet turned up. ADX lines threaten a bearish cross. So, past history with respect to that 50-dma and oscillators that approach oversold levels hint that it's possible the SOX could find support near the current level, while the ADX hints that the SOX could fall through that support. It should be noted, too, that SOX bulls have another reason to defend this current level. A SOX decline below the 11/21 low of 494.73 would confirm a double top on the SOX daily chart, with a downside of almost 40 points. Bulls have special reason to defend this level. Be wary of a stop-running push below that confirmation level, however, with the SOX then finding support at or near its 50-dma and climbing from there, just after drawing in all the shorts.

I'm not sure what will happen, but I would certainly expect at least a tepid bounce attempt from this level or from slightly lower, perhaps after a period of consolidation here. With bearish divergence having shown up on several oscillators on the daily chart, I don't think I'd be expecting higher highs on the SOX, however. I'd be thinking more of a rollover.

 
 
  James Brown   12/8/200,  12:25:34 PM
The news wires are reporting a survey saying online sales are up 25%, which is great news since general expectations were just 10%.

Forrester research actually predicts holiday sales this year to rise 42% to $12.2 billion (-Reuters), but like a number of analysts are concerned that profitability is slipping.

To be more competitive and lure in more customers online retailers are in a cut-throat price war with deep discounts and low-cost or free shipping, especially when it comes to toys.

Shares of Amazon.com (AMZN) are feeling the pressure today, down 2.5% but holding at support of $50.00.

 
 
  James Brown   12/8/200,  12:15:29 PM
Approaching support... shares of Network Appliance (NTAP) have seen some selling today but they are up off their lows for the session at $20.88. The stock has a $2 gap from August and it looks like it might try and fill it. The top of the gap, near $20.00 is current support while the bottom of the gap is its next support level at $18, which just happens to be underpinned by its 200-dma.

 
 
  Jonathan Levinson   12/8/200,  12:14:45 PM
Feb gold has been Steve-McQueened back to just below its highs, currently up 1.10 at 408.40. HUI is -.42 at 252.18, XAU -.88 to 110.45.

 
 
  James Brown   12/8/200,  12:10:52 PM
Merrill Lynch and Raymond James are both offering JetBlue Airways (JBLU) a helping hand with its dead-cat bounce. JBLU is up 6.5% today after MER upgraded it to a "buy" and Raymond James upgraded it to an "out perform" on valuation. JBLU remains below the bottom of its gap from Friday, which is typically seen as a support/resistance level.

 
 
  Linda Piazza   12/8/200,  12:09:04 PM
The OEX heads toward that 523.50-524 S/R zone again. Overhead 524.90-525 is lining up as significant resistance. This is not lining up to be a fun day, however, but it's certainly one in which we can learn something about the market's support and resistance zones, and that may help us in the future.

 
 
  James Brown   12/8/200,  12:05:09 PM
Over the weekend we put Factset Research (FDS) on the watch list. Shares have been in a descending pattern since peaking in September and by last Friday was resting against support at its 200-dma for the second time in two weeks. This morning has brought a technical breakdown below that support at its 200-dma and the $40.00 mark but the stock has not yet broken its intraday low from November 21st at $39.50. This looks like an entry point for bearish play. Next support appears to be $35-36, which coincides with support on its P&F chart.

 
 
  Ray Cummins   12/8/200,  12:01:22 PM
Spreads/Combos & Premium-Selling -- Portfolio Activity: CERN

One of our recent bearish candidates took a hit today after the company reported some bad news. Cerner (NASDAQ:CERN), which is down $4.13 at $37.66, announced that while it continues to be a finalist in all three of the remaining regions, it was not selected in either the North East or London regions. The statement said, "We obviously are disappointed by the announcement...a piece of feedback that we received indicated that Cerner not only met or exceeded the rigorous technical requirements that were set forth, but also was the clear choice of the clinician community. In the end, we are left to assume that other factors were determining." That's terrible news for investors but great news for traders who sold calls in the issue after last week's bearish recommendation on CERN in the "Premium-Selling" section of the OIN.

 
 
  Linda Piazza   12/8/200,  11:48:28 AM
So is that a bull flag on the OEX five-minute chart or isn't it? It's getting a bit long in the tooth to consider it a classic bull flag. The words that have been coming to me this morning are "chop" and "churn," and nothing so far is changing that impression. A scan of various indices shows them battling against each other, some trying to show strength and some showing nothing but weakness. Until that's resolved, I think that chopping, churning motion may continue.

 
 
  Ray Cummins   12/8/200,  11:26:22 AM
Spreads/Combos & Premium-Selling -- E-mail Replies

Regarding "Auto-Execution":

Hello HL...First, it is important to understand there are differences among the exchanges' ability to provide liquidity enhancements, including the size of guaranteed auto-executions. In addition, all of the options exchanges (CBOE, PHLX, AMEX, PSE & ISE) have rules and policies regarding the kinds of options orders and activities that are prohibited from entry onto their automatic customer order execution systems. From a historical viewpoint, the function of "auto-execution" came to pass when options on popular (mostly NASDAQ and large-cap) stocks began trading in larger volumes and there were delays in filling all the orders, due to the limited capability of manual order-input systems. In recent years, the advent of computerized order routing has changed the way stock and option exchanges do business and now the CBOE claims that, "with few exceptions, public customer market or marketable limit orders of up to twenty contracts can now be filled automatically in seconds using CBOE’s proprietary system. Through RAES, public customer orders are executed instantaneously at the market price, and confirmation is immediately returned." The automated system has certainly improved the retail trader's ability to execute orders during periods of heavy volume and if you want a better explanation of the auto-execution process, I suggest you inquire to the CBOE (or any other exchange). The have all become much more customer-oriented in recent years and I am sure they will answer your question completely. Have a great day!

 
 
  Jim Brown   12/8/200,  11:22:55 AM
Dow components MMM, UTX, JNJ, BA and GM are leading the gainers list and helping keep the Dow in the 9900 range. SBC, CAT and MCD lead the lowers but the biggest loser is only 32 cents.

 
 
  Ray Cummins   12/8/200,  11:21:44 AM
Spreads/Combos & Premium-Selling -- E-mail Replies

Attn: OIN...I took the trial and was amazed at all the different picks and strategies so I just signed up for the full-time subscription. One question I had was about a trading term I saw in an article. It referred to "auto-execution" of an option order and I assume this means that a computer makes the trade automatically without the use of a floor broker. If so, who am I trading options with? Other people or exchanges/brokers? Thanks for any information you can tell me about this system! HL

 
 
  Linda Piazza   12/8/200,  11:14:09 AM
The OEX now tests the 523.50-524 S/R zone. This zone is lent more significance because about 524 is the 50% retracement of this morning's climb. If that pullback was some sort of measured accumulation pattern, such as a bull flag, then the OEX needs to find support right here and climb again. The current action is arguing against that interpretation.

 
 
  Linda Piazza   12/8/200,  11:07:27 AM
While we could have been calmly watching the OEX's gyrations this morning, the 135/140 bear call credit spread I priced Thursday afternoon would now be slightly profitable. We wouldn't want to exit that spread this soon, especially not for a nickel's profit, but I'm just benchmarking the difference between what we would be experiencing as buyers of puts on Thursday afternoon versus what we would be experiencing if we'd entered this position. A sustained rally would of course cause more concern, but as options expiration approaches, the time premium decay should accelerate, helping that hypothetical position. That time premium and this morning's move above Friday's closing level would have adversely affected a put position we might have entered on Thursday evening. That position would likely be losing money although the OEX remains below Thursday's close. Time premium decay would have been working against us in that case.

 
 
  Jim Brown   12/8/200,  11:05:27 AM
Dow back over 9900 on the "bullish" Fed survey.

 
 
  Jim Brown   12/8/200,  11:04:40 AM
The first review of the Kansas City Fed Survey I read said it was a bullish report that indicated the manufacturing conditions were improving in the district. Duh!

With the headline number dropping from 28 to 6, new orders dropping to 14 from 29 and shipments falling from 29 to -1, I fail to see the bullish aspect.

 
 
  Mark Phillips   12/8/200,  11:00:00 AM
UTX There's our breakout! We've been waiting for UTX to finally crack the $88 resistance level for over a week and it looks like the bulls are making a solid attempt at that breakout this morning. Price is surging through the $88.50 level, and that is taking the stock above the mid-line of its rising channel as well. Lower risk entries have been offered up at lower levels for the past couple weeks and traders that took those lower entries should now have stops raised to no lower than $85.70, which should have those positions at break even or better. That leaves the aggressive players, and traders with that profile can use this current breakout as a secondary entry point looking for a reasonably quick rally towards the top of the channel, now at $92.

 
 
  Ray Cummins   12/8/200,  10:57:28 AM
Spreads/Combos & Premium-Selling -- E-mail Replies

Hello RC...I am glad you have joined us for another year of information and resources in the world of option trading. We are already working on some changes and additions that should improve the OIN and its usefulness to subscribers in 2004.

Your thoughts on bear-call spreads are appropriate; the strategy is a recognized by most experts as a favorable alternative to uncovered (call) options. As you mentioned, the premiums (or credits) are not much less when using out-of-the-money options and given the reduced margin requirements, the potential return on investment is generally better with limited-risk spreads. Of course, there are a few situations where a "naked" call may be a better approach but I suggest you always look for an alternate strategy when considering positions that have the potential for unlimited loss. Remember, it's not so much the winners that make you a success in this unique game but rather how well you limit drawdowns in the losing plays. Hope that helps!

 
 
  Mark Phillips   12/8/200,  10:54:52 AM
KSS $45.69 (-1.66) The perfect rollover? After last week's bounce, shares of retailer KSS are back on the defensive this morning afer a near-perfect rollover at the 10-dma resistance. It certainly looks like a setup for another retest of the $44-45 support area and the first hint of a bounce in that area should be used for harvesting gains in the play. KSS may continue lower from there and aggressive traders can certainly hold on for lower levels. But with the FOMC meeting tomorrow, the conservative approach would definitely be to harvest gains now and then possibly look for a re-entry at a higher level after the fact.

 
 
  Linda Piazza   12/8/200,  10:54:45 AM
Are we due for more chop? The BIX climbs back above its 30-minute 100-pma this morning, with oscillators turning up. In contrast, the SOX hasn't yet been able to pull itself off the floor. It's very oversold on a 30-minute basis, but will now face resistance as soon as it tries to rise. Each of these indices sometimes acts as a leading indicator for the OEX. If the BIX builds on its strength and the SOX bounces to relieve oversold pressure, I could see the OEX gaining, too, but if they continue to work against each other, that scenario might predict more chop.

 
 
  Ray Cummins   12/8/200,  10:52:59 AM
Spreads/Combos & Premium-Selling -- E-mail Replies

Hello Ray...I just renewed my yearly OI subscription and want to thank you for helping me to a better sophomore options year than 2002 (freshman) altho' Dec is not over yet. I have been contemplating using bear-call spreads as an option in the coming return of the bear market to take advantage of a downturn in stock price. I have a fear of naked calls and your recent piece on bull-put spreads as a conservative play on naked-put writing caused me to ask this question now. If INTC, for example, is at 29 and you think its headed down how 'bout a 25-30 bear call spread for $2 or $3 premium and buy the short call back for less $ as INTC falls? I understand the bear call spread a good deal out of the money -- with lots less premium -- but this variation on the theme intrigues me. I understand it's a bit riskier but the premiums seem better with not a lot more risk. Let me know what you think if you have time. Thanks...RC

 
 
  Jeff Bailey   12/8/200,  10:48:18 AM
QQQ $35.00 -0.11% ... here's the QQQ daily interval chart with updated WEEKLY pivot retracement and levels. This may help trader with identifying downside swing trade target of $34.67. Link

 
 
  Linda Piazza   12/8/200,  10:47:07 AM
The OEX falls back below the violated support from last week, but as it falls back, the five-minute chart now suggests the possibility that what we're seeing is a bull flag pullback ahead of resistance. I hesitate to say too much, however, as much depends on the reaction to the release of economic numbers in a few minutes, a reaction that will be sentiment-driven to some degree and perhaps not amenable to predictions made by the patterns setting up now.

 
 
  Jeff Bailey   12/8/200,  10:37:54 AM
QQQ $35.02 -0.07% .... should we see QQQ lose Friday's low of $34.96, could see the QQQ begin its decline to today's correlative DAILY S2 and WEEKLY S1 of $34.63.

Swing trade bear from Friday's entry at 01:30:42 .... Update here would have me making following adjustments.... lower target from original profile of $34.80 to $34.67, but keep stop at $35.55 as profile right now.

 
 
  Jonathan Levinson   12/8/200,  10:37:44 AM
The put to call ratio has just printed another neutral .72.

 
 
  Jeff Bailey   12/8/200,  10:31:58 AM
Pivot Matrix for today is at this Link

It was also posted in Friday's Market Monitor.

 
 
  Linda Piazza   12/8/200,  10:29:25 AM
The OEX continues to oscillate around the bullish #2 on the 5MRT system. As it does, TRIN also sets up into a coiling pattern, but VXO breaks higher. It looks as if the markets may be doing their typical pre-economics-number-release thing, butting up just underneath resistance or hovering just above support into the release of the number, ready to zoom up or zoom down.

 
 
  Jeff Bailey   12/8/200,  10:20:44 AM
Advanced Auto Parts (AAP) $80.76 +0.06% .... In this weekend's Ask the Analyst column we discussed AAP as a bullish trading idea. I showed a retracement using the bullish vertical count, but also mentioned the use of "fitted retracement". Here's the same chart shown in this weekends column, but with fitted retracement added. Sure looks like the PINK (fitted) is in play right now. Link

If we think about how Mr. Auriana builds a position, where is the Kaufmann fund most likely looking to further build a bullish position? Here at $80.80, or on a pullback near $77? If no pullback into $77, then where? I'd think on a daily close above $83.20.

 
 
  Jonathan Levinson   12/8/200,  10:11:21 AM
The put to call ratio is neutral at .70, VXO +.23 at 17.57, and ten year bonds are moving sideways, -.04%.

 
 
  Jane Fox   12/8/200,  10:09:42 AM
A 40-year-old Cleveland steel mill is being torn down but will be loaded lock, stock and furnace onto a boat bound for China, where new owners in Shenyang, a town near Beijing, will reassemble it. This is win/win for both countries for in the U.S. there are too many steel mills but in China there are not enough modern steel mills to produce the amount of steel needed to build the country's growing infrastructure and meet growing demand for cars and washing machines.

 
 
  Linda Piazza   12/8/200,  10:09:19 AM
Here's what I see right now on the OEX 30-minute chart: Link

 
 
  Jeff Bailey   12/8/200,  10:01:46 AM
QQQ $35.14 +0.28% ... here's intra-day chart of QQQ. Late Friday noted correlative resistance at $35.37, but Q's find early morning resistance at upward trend from March lows. Link

 
 
  Jonathan Levinson   12/8/200,  9:56:54 AM
The Fed had 3B expiring today, and has just added 6.5B via 3-day repo, for a generous 3.5B net addition.

 
 
  Linda Piazza   12/8/200,  9:55:49 AM
Here's a look at something that's been happening over and over for months, frustrating traders and whipsawing them out of their positions: Link

 
 
  Jane Fox   12/8/200,  9:50:41 AM
Last month Putnam sent a letter to the Boilermakers Union, Local 5 in New York, giving it 60 days to find a new investment manager of the union's 401(k)-style retirement plan. The union members are among the more savvy users of market timing, the rapid trading of mutual-fund shares. From 2000 to 2003, 10 market-timing members of the boilermakers union made more than $4 million in profits through 2,672 trades of Putnam international funds.

 
 
  Linda Piazza   12/8/200,  9:49:00 AM
The OEX finds resistance at last week's broken support and at the bullish #2 on the 5MRT system.

 
 
  Linda Piazza   12/8/200,  9:46:20 AM
The weekend's time decay has worked its magic. Earlier this morning, it was already possible to exit at breakeven the 135/140 bear call credit spread that I priced late Thursday. (I priced it, but didn't enter the position myself. This is just benchmarking what's happening with the position.) This is true even though I priced the spread as if the bought call were being bought at the ask and the sold call were being sold at the bid without shaving off even an nickel, and did it again that way this morning. It's also true even though the OEX was higher this morning than it was at Friday's close and this is a bearish play. If we'd been in a bear call credit spread, we'd have been able to sleep easily while holding that position open over the weekend.

The current quick rise has changed the pricing somewhat, so that exiting the position now would incur a small loss if nothing had been shaved off the combination position when entered or added to the position when sold. Still, the $0.15 loss is nothing compared to what would have been experienced by someone holding a put over the weekend and then seeing the OEX gain more than 2 points in early trading, and time premium decay has only just begun for this position.

 
 
  Jane Fox   12/8/200,  9:41:00 AM
Freddie Mac (FRE) has named Richard Syron, a former head of the American Stock Exchange, as its new chairman and CEO. However, analysts caution that Mr. Syron has limited experience in managing Freddie Mac's complex business, while others questioned whether he has been tough enough in the past in reining in corporate excess at other institutions.

 
 
  Jeff Bailey   12/8/200,  9:38:57 AM
CKE Restaurants (CKR) $6.84 +1.18% ... started at near-term and long-term outperform at Whitaker Securities.

 
 
  Linda Piazza   12/8/200,  9:36:04 AM
The first five minutes of trade, the OEX saw a high of 524.21 and a low of 523.51. The midpoint of that first five-minute range lies at 523.86. The OEX is currently above that midpoint, showing strength in the earliest trading, but it soon faces last week's broken support from 524.60-525.

 
 
  Jeff Bailey   12/8/200,  9:27:55 AM
Advanced Fibre Communications (AFCI) $21.10 Link ... pre-market trade at $20.50 after Pacific Growth says it believes AFCI lost its bid to become SBC Communications' (SBC) $24.39 Link lead vendor, with Alcatel (NYSE:ALA) $12.96 Link likely becoming sole source.

Pacific Growth saying that while this would be a negative for AFCI, investors should remember Verizon has selected AFCI for FTTP and considering the company's dominant market share position, Pacific Growth feels opportunities are vast. Still, Pacific Growth says investors in AFCI should be prepared for significant changes to analysts forecasts and price volatility in AFCI.

 
 
  Jeff Bailey   12/8/200,  9:17:21 AM
09:00 Update posted at this Link

 
 
  Linda Piazza   12/8/200,  8:54:16 AM
Friday the OEX slipped below the midline of its rising regression channel, but managed a close just above the 10-dma. Daily 5(3)3 stochastics are in full bearish roll. RSI at first accompanied those stochastics, but showed a tendency to flatten in Friday's trading. MACD and 21(3)3 stochastics hint at a possible rollover, but MACD has not yet completed its bearish cross and the stochastics have not yet turned down out of territory indicating overbought conditions. The commitment to the downside has not been completed, then, according to this evidence. This is backed up by the close between the 30-minute 100- and 130-pma's, and just above the 60-minute versions, at 522.05 and 521.37 respectively. Several important daily moving averages also gather between 520-518.

Futures dropped in reaction to the weakness in Japan and Europe, but they didn't exactly plummet, which again backs up the theory that the markets may not yet be fully committed to the downside. On the OEX, then, it's possible that the OEX could drop into the next support zone or even stay near Friday's levels, consolidating above or within the 30-minute 100/130-pma's while those 30-minute oscillators finally turn up, as they threatened to do all day Friday. Like Jim in this weekend's wrap, I expect the rest of this year to prove difficult for all but aggressive traders. Thursday evening, I began tracking a 135/140 bear call credit spread, with that spread being available at a $0.95/contract credit Thursday evening. My growing impression has been that this type of trade may be safer, although perhaps more boring, for the time being. I'll take boring over multiple small losses any day, however, and that's what choppy trading conditions often produce.

 
 
  Linda Piazza   12/8/200,  7:12:34 AM
Good morning. The Nikkei plummeted in overnight trading, falling 328.12 points or 3.16%, to close at 10,045.34, about 30 points off the low of the day. The story throughout Asia concentrated on the dollar's weakness, with Asian exporters being hit hard as the dollar weakened against the yen. Tech and autos were particularly hard hit, but banks plummeted, too. As I mentioned last week, investors in the Japanese markets are probably also jittery ahead of a government decision to send troops to Iraq and this week's tankan survey on Friday. Monday saw the release of economic data that some call the economy-watchers index. That index is a diffusion index of economic confidence for the services sector. It fell below the boom-or-bust 50 mark, to 48.3. Other economic numbers to be released this week include Tuesday's release of the revised GDP data for the July-September quarter and October's machinery orders.

With exports such an important part of the Asian economy, most other Asian bourses traded down, too. The Taiwan Weighted dropped 0.90% and South Korea's Kospi dropped 0.58%. Singapore's Straits Times declined 0.79% and Hong Kong's Hang Seng dropped 1.11%. China's Shanghai Composite lost 1.00%.

Most European bourses currently trade lower, too, with the weak dollar being cited as the prime reason for the declines. As with Asian markets, European exporters, banks, and some automakers fell. Of special interest might be the U.K.'s decision to consider switching an important 10-year contract to run Britain's Inland Revenue's tax and national insurance computer systems from EDS and Accenture to Cap Gemini Ernst and Young and Fujitsu. An article in the Financial Times speculated that the change may occur because of the government's displeasure with the way Fujitsu and EDS handled tax credit problems, and that the change may signal that other changes in other contracts may be considered, too.

Currently, the FTSE has fallen 22.10 points or 0.51%, to 4344.90. The CAC 40 has dropped 32.50 points or 0.94%, to 3424.64. The DAX has fallen 55.82 points or 1.45%, to 3785.91.

 
 
  OI Technical Staff   12/7/200,  9:45:18 PM
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