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Daily Newsletter, Wednesday, 09/14/2005

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Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Felt and looked like a triple witch

Stocks slid lower by the closing bell on what I believe was largely some pre-quarterly options/futures expiration-related trade. And while I don't have the time to go back through some of my Dow Diamonds (DIA) $105.57 -0.50% options open interest work from Tuesday's Market Monitor, which suggested a lower trade into the $105.00 strike, or today's SPX/SPY and NDX/QQQQ options work, as well as volatility measures (VIX.X) action, which also suggested a lower trade coming at today's mid-session, traders are welcome to review my Market Monitor postings and decide for themselves if some trickery and "manipulation" was in play today.

But let's get to some meat and gravy, where economic data released before the opening bell had August retail sales falling 2.1%, which was weaker than economists' forecast for a 1.2% decline. Excluding automobile sales, which fell 12%, a 1% gain was stronger than the 0.6% forecast. With gasoline prices rising the data showed retail sales were up 4.4%, which actually gives an "artificial lift" to the total August retail numbers.

All-told, retail sales are up 7.9% on a year-over-year basis.

From the above intra-day table, you can see how stocks opened mixed.

Yes! Fellow analyst Jonathan Levinson made note that the August retail sales decline of 2.1% was the biggest monthly decline in sales since November 2001. And after robust numbers in June and July, attributed to auto sales, we can perhaps see how consumers took early advantage of General Motors', Ford's and Daimler Chrysler's recent sales incentive "family plans" the prior two-months, to have August's auto sales falling 12%.

Yes! Higher gasoline prices also give a "negative boost" to the August retail sales figures. Send gasoline prices up 30% or more and that will take cash out of consumers' pockets, which could have been spent elsewhere, say at Wal-Mart (WMT) $44.70 -0.82%, and the retail sales data for August gets skewed.

Again, when I look at today's hour-by-hour time intervals, I don't see a massively "negative reaction" to the retail sales figures. It would be my intra-day assessment that market participants were saying, "the auto/gasoline data is just too complicated" to make a firm decision on for now.

Then at 09:15 AM EDT, additional economic data was released with August industrial production up 0.1%, which was also below economists' forecast for a 0.2% gain. Capacity utilization, which measures just how much of the nations total manufacturing capacity is being utilized and can be used as one gauge for inflation caused by bottlenecks, was inline with the 79.8% consensus.

Now, one thing I want to mention real quick is that there was some very confusing trade at the opening bell, and took about an hour to get cleared up.

I haven't read any news items on this, but was something I saw and think I found an explanation for.

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Shares of NASDAQ-100 (NDX.X) 1,589.63 -1.10% component Celgene Corp. (CELG) $54.77 3.51% were halted for trade before the opening bell with news pending regarding an FDA advisory panel vote on the company's oncology drug Revlimid. What looks to have taken place was that a "bad tick" to $0.20 on CELG had the Biotechnology Index (BTK.X) 639.88 -0.81% dropping precipitously to 604.40 in early trade. You see, CELG is a component of the NDX/QQQQ and I also saw some great disparity in the NDX falling much lower than its tracker QQQQ.

Computers don't "rationalize" this type of action, and while the BTK.X trades to as low as 604.40 were eventually discarded, I do believe its lower trade error also had the NDX.X looking like it was plunging to 1,592 in the opening 30-minutes of trade. The QQQQ, which trades like a stock, could well have been pressured to $39.49 (good heavens, the biotechs are getting pounded, sell the QQQQQ!), but it didn't fall nearly as far as it should have, based on the BTK.X and NDX.X action.

I mention this for those traders that may hold BTK.X options with stops attached. They may have been inadvertently triggered.

Here's an intra-day (5-minute interval) to try and make things clear. Again, the focus is for traders that DO have Biotechnology Index (BTK.X) option positions with stops attached, or perhaps a trigger for new entries. Check your account, and make sure you didn't inadvertently get filled on a trade that really didn't happen. For the NDX.X, you'll see it doesn't really matter, as the NDX.X did eventually fall below its first 30-minutes of trade. Meanwhile, you'll see (with DAILY Pivot Levels displayed) the disparity between the NDX/QQQQ.

BTK.X / NDX.X / QQQQ Montage - 5-minute intervals

My main point here is to make sure that traders that may have had any trade triggers for a BTK.X trade immediately check your brokerage accounts. ESPECAILLY if you are a NAKED call/put seller. The above montage can be used if you need to prove to your broker/dealer that the trade was in error. Computerized trading is great, but computers don't try to rationalize levels, they simply execute instructions.

Can an options/futures expiration have impact on trade? Today I set up a SHORT in the QQQQ at $39.47 with a target to $39.05 based entirely on some option open interest, VIX.X action (not VXN.X action) and TRIN measures, where it looks to me like there may be some "Max Pain Theory" gravitation toward $39.25 in the QQQQ at Friday's close. You can review my observations in today's Market Monitor.

Things went way too similar to what I presented to traders (except for a trade at target of $39.05 at this point) for today's trade to not have been partially attributed to this week's Triple-Witching expiration.

U.S. Market Watch - 09/14/05 Close

As if today's opening BTK.X action didn't put a little wrench in the opening trade for the NDX.X, the weekly EIA crude oil, gasoline and distillate reading weren't what most had expected after Hurricane Katrina hit Louisiana gulf refiners and producers. Many believe the figures will be adjusted next week.

At 10:30 AM EDT, the EIA said crude oil inventories fell by 6.5 million barrels to 308.3 million barrels, but it was a 1.8 million barrel INCREASE in gasoline inventories, with many gulf area refiners having been shut offline after Katrina that seemed confusing. Distillate inventories fell by 1.1 million barrels.

We saw energy futures trade rather choppy when the data was released, as trader's scratched their heads in wonderment.

However, as the session unfolded, October Crude Oil futures (cl05v) gained $1.98, or 3.14% to settle at $65.09, while October Unleaded futures (hu05v) settled up $0.08, or 4.38% at $1.937. Meanwhile, October Heating Oil futures (ho05v) settled up $0.085, or 4.6% at $1.925. (see lower portion of Market Watch).

This higher energy trade certainly didn't help the broader averages today, but the NDX/QQQQ intra-day charts, didn't really fade lower until late in the session.

Are oil prices having a negative impact on the economy, or portions of the economy?

Yes!

After tonight's closing bell, commercial airlines Delta (DAL) $0.71 -8.97% and Northwest Airlines (NWAC) $1.87 19.10% announced that they were filing for Chapter 11 Bankruptcy protection. It was widely expected that Delta was about to file for Chapter 11, but it wasn't for certain the Northwest was going to file for Chapter 11. In tonight's extended session, Northwest's shares fell to $0.85.

Hey, there's at least two "transportation-like" stocks that won't weigh on the Airline Index (XAL.X) 42.57 -0.53% and Dow Transports (TRAN) 3,584 -0.19% much longer! Survival of the fittest.

I tried to short some NWAC in my personal account just after 03:00 PM EDT today, but my broker/dealer (Ameritrade) didn't have any stock to loan for a short.

NYSE Composite (NYA.X) - Daily Intervals

While energy stocks have contributed to gains among those stocks listed on the "big board," or the NYSE, it hasn't all been energy. How in the heck can such a broad market be trading all-time highs if oil prices are a killer?

Traders and investors will "benchmark." After a nice rally in late August, and initial aftermath of Katrina, that low will be watched over-time as traders and investors still contemplate what economic POSITIVES and NEGATIVES Katrina will have on the economy.

Securities Broker/Dealer Index (XBD.X) - Daily Intervals

Shares of Lehman Brothers (LEH) $112.41 0.11% jumped as high as $115.00 today, but finished soft after reporting strong quarterly earnings. We can see some similarity between the brokers and the NYSE composite. It hasn't all been oil.

There are market axioms that the markets will trade as strong as the brokers. This has been "the leading strength group" among the financials, and while the brokers look extended, they haven't shown sign that financial markets are collapsing.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
RDC NLS

New Long Plays

Rowan Cos - RDC - close: 36.31 chg: +0.92 stop: 34.95

Company Description:
Rowan Companies, Inc. is a major provider of international and domestic offshore contract drilling services. The Company also operates a mini-steel mill, a manufacturing facility that produces heavy equipment for the mining and transportation industries, and a drilling products division that has designed or built about one-third of all mobile offshore jack-up drilling rigs, including all 24 operated by the Company. (source: company press release or website)

Why We Like It:
We have wanted to add some energy exposure to the PremierInvestor play list and RDC makes the list tonight. Analysts have been pretty positive on the stock lately with many expecting the company to benefit greatly from rising prices for its jack-up drilling rigs in the Gulf of Mexico as the U.S. oil industry tries to recover from hurricane Katrina. Shares of RDC have been rising in a relatively steady fashion and the recent dip appears to be ending. We want to buy the bounce here following today's 2.5% gain, which was inspired by another analyst upgrade. Our target is the $39.50-40.00 range. More conservative traders may want to wait for a move over $36.65-36.75 to confirm the bounce before initiating new long positions.

Annotated chart:

Picked on September 14 at $36.31
Change since picked: + 0.00
Earnings Date 11/01/05 (unconfirmed)
Average Daily Volume: 2.1 million
 

New Short Plays

Nautilus Inc. - NLS - close: 23.80 chg: -1.65 stop: 26.10

Company Description:
Headquartered in Vancouver, Wash., Nautilus, Inc. helps people achieve a fit and healthy lifestyle through proper exercise, rest and nutrition. With a brand portfolio that includes Nautilus, Bowflex, SchwinnFitness, StairMaster, Trimline and PEARL iZUMi, Nautilus manufactures and markets a complete line of innovative health and fitness products through direct, commercial, retail, specialty and international channels. The Company was formed in 1986 and had sales of $524 million in 2004. It has 1,400 employees and operations in Washington, Colorado, Oklahoma, Texas, Illinois, Virginia, Canada, Switzerland, Germany, United Kingdom, Italy, China, and other locations around the world. (source: company press release or website)

Why We Like It:
Shares of NLS have been climbing in a wide, rising channel for about two years but it looks like a trend change is in the works. The stock broke down under major support near the $24.80 level and its simple and exponential 200-dma's on very big volume today. Technicals are bearish and its MACD indicator just produced a new sell signal. The stock had actually been caught in a trading range between $25 and $26.50 the last several weeks as NLS tried to form a new base near support. This breakdown from is long-term channel and its trading range looks very bearish indeed. Our target is the $20.50-20.00 range before its late October earnings report.

Picked on September 14 at $23.80
Change since picked: + 0.00
Earnings Date 10/25/05 (unconfirmed)
Average Daily Volume: 363 thousand
 

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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