Option Investor

Daily Newsletter, Wednesday, 11/05/2008

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Table of Contents

  1. Market Wrap
  2. In Play Updates and Reviews

Market Wrap

This is our moment, this is our time!

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While Asian markets finished Wednesday's session higher, European and U.S. equity markets traded lower after a historic presidential election.

It was a moment and a time for bulls to take profits as economic data and earnings remained lackluster.

US Market Watch -

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The closing ticks on the U.S. Market Watch don't tell the entire story, but by the close, when the U.S. voted "blue" (democrat), the markets saw red by the close.

Yes, the Dow Jones U.S. Home Construction Index (DJUSHB) started out fractionally lower, but by mid-session was up better than 4.00%, which gives pause to the thought that market participants were very disappointed in the election outcome.

Pulte Home (NYSE:PHM) $10.66 -5.66% (see last Wednesday's Wrap) participated in the sector's gains early as it neared the $12.50 level with a session best $11.91, but in the recent market environment "be careful my pretty, don't eat it so quick, too much of this cooking, could make you sick," I thought it best to raise bullish stops rather aggressively to the $11.50 level in order to protect such handsome gains.

Pulte Home (PHM) - Daily Intervals (~11:30 AM EST)

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This is the same chart we looked at in PHM last week, but I did add the PINK retracement in recent OptionInvestor.com Market Monitor observations so that we could tie this stock in with the DJUSHB and give technical reason for raising a stop.

It's been a volatile market of late, and when you've got gains of +10%, it's hard to not protect it. I think a lot of market participants are doing the same.

Add in a less than spectacular Mortgage Banker's Association weekly survey, which revealed a weak purchases index, and there was plenty of "reason" to protect gains in the builders.

MBA's Weekly Application Survey Table -

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The MBA said its seasonally adjusted Purchases Index fell 13.9% to a reading of 260.9. The gains in the DJUSHB and PHM in early morning trade seemed almost "too good to be true!"

The MBA said the average contract interest rate for a 30-year fixed-rate mortgage increased to 6.47% from the prior week's average of 6.26%.

The "242.20 +1.4%" was the level the DJUSHB was trading just as I posted the above table in the Market Monitor at 09:37 PM EST this morning. That's when we really started to raise our stop gain in PHM.

All I hope to do with the above commentary is give an example of what I think traders are doing, or should be doing with some of their trade management. It should also instill the "easy come and easy go" for bullish and bearish biased traders.

You don't think there weren't some SHORTS in PHM in early October than saw $12 to $8, then right back to $12 do you?

Anyhow, the MBA purchases data was NOT what I think a bull wanted to see.

Wednesday's Global Economic Calendar -

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In recent week's I've noted that the yen's strength has seemingly coincided with some VERY BEARISH trade in Japan's Nikkei-225 ($NIKK), which actually posted a +4.46% gain today.

Go back up to the U.S. Market Watch and you'll see the Yen CurrencyShares (FXY) $101.57 +1.69% having a strong session today.

I want us to be a bit careful as to what we do read, or do NOT read into today's equity action as to Obama's win.

There were some gains in Asia the last couple of weeks and they didn't get "sold," (Wednesday) and despite today's gain for the yen, the Nikkei-225 held gains.

I'm going to try and show you how I'm tying some of this together with the Pivot Levels, where it sure seems like institutional computers are feeding off this relationship.

As it pertains to economic data here in the U.S., the ADP Non-Farm Employment Change showed U.S. private employers cut 157K jobs in October, suggesting Friday's more comprehensive non-farm payrolls will show weakness.

Consensus for Friday's non-farm is -200K, which would be further weakness from October's -150K.

Stocks did recoup some of the opening session losses at 10:00 AM on the release of the ISM non-manufacturing.

Thirteen (13) industries reported contraction (Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Management of Companies & Support Services; Accommodation & Food Services; Construction; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Educational Services; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; Information; and Wholesale Trade).

Only three (3) industries reported growth in October according to the NMI composite index. Listed in order are: Other Services; Health Care & Social Assistance; and Utilities.

The only item I gleaned from the report that seemed positive was that some wholesale trade respondents said they saw a "general pick-up in business in spite of all the bad economic global news."

But no sooner had the S&P 500 Index (SPX.X) rebounded back to its QUARTERLY S2 (996.26) and MONTHLY Pivot (991.86) did we get the weekly EIA Inventory data at 10:30 AM.

S&P 500 (SPX.X) - 15-min intervals

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Hang in here with me. QUARTERLY S2 and MONTHLY Pivot. We'll get to my "tie" with the Yen, and even the Market Volatility Index (VIX.X) in a moment.

Just want to show you a "zoomed in" 15-minute interval chart.

IF McCain had won the election (some believe Republicans a bit more "pro business") then yesterday's close may have hinted of some market bias. Still, HUMANS must have kept the SPX from trading WKLY R1 (1,016.50).

Election results know, economic data revealed, SPX can't get back above QRTRLY S2 (996.25).

I placed the "cursor box" at the 10:30-10:45 interval. That's when the EIA data was released.

EIA Inventory/Refinery Data - Market Monitor Observations

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I'm showing some of my comments/observations from this morning. I should say that there was nothing I saw as "unusual" or notable in the EIA inventory data today. A slight dropoff in demand (crude oil inputs), but that's about it.

You can go back up to the U.S. Market Watch and see how things changed from there.

OK, I've got to get a move on, or I'll miss deadline, but here's the FXY (yen).

Yen CurrencyShares (FXY) - Daily Intervals

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Some analysts are thinking/saying that the STRENGTH in the Yen is a "flight to safety" signal, and it looks like it. I would also note that the BOJ has their key interest rate at 0.30% and they can only cut to 0.00%.

BOJ's Shirakawa had little "positive" to say in regards to economic trends. He also said he thought the BOJ needed to be careful in lowering rates too aggressively.

That's a bit perplexing to me, consider their rates are at 0.30%.

So, perhaps the Yen just so strong as market participants figure rates there can't go too much lower. Often time, currencies move in UNISON with monetary policy.

Again, yen is just above "par" with the U.S. $, but Yen seems to be moving COUNTER-TREND to U.S. stocks.

SPX - 60-minute interval chart

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Keep an eye on the FXY and this chart of the SPX. IF the yen just hanging out, or near $105 and SPX dips back near 880-ish, look LONG the SPX, perhaps all major U.S. equity averages.

Do you see how today, BULLS simply may have wanted to "lock in" what they had? Didn't get the further break higher, so take some profit.

Bears could have pressed the issue to, with a tight stop above the QRTRLY Pivot/MNTHLY Pivot overlap.

We had a nice BULL trade in the DIA on 10/28/08.

Sometimes the MARKET gives us a 2nd shot.

In Play Updates and Reviews

Sell-off Too Sharp for ETFs

Play Editor's Note: Extremely early this morning in Jim's Intraday Blog he suggested a "sell-the-news" event in the market today. Readers of this column shouldn't be surprised since we have been expecting a pull back. Granted I wasn't expecting a one-day 500-point sell-off. There could be some follow through tomorrow. I'm still thinking we should buy the dips but wait for signs of a bounce first.

BULLISH Play Updates

Alcoa Inc. - AA - close: 11.80 change: -0.50 stop: 10.45

AA lost about 4% on Wednesday but it wasn't enough to hit our entry point in the $11.50-11.00 zone. That could happen tomorrow. We'll start with a stop loss at $10.45. If triggered our target is $14.85.

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          01/08/09 (unconfirmed)    
Average Daily Volume:      24.2 million     

American Express - AXP - close: 27.83 change: -1.99 stop: 24.75

Financial stocks were some of the worst performers today. Shares of AXP gave up 6.6% and hit an intraday low of $27.58. We recently adjusted our suggested entry point to buy AXP to $26.50-25.50. We'll stay with that strategy for now although you don't have to buy the first dip. Instead consider waiting and watching for a bounce first. Our target is $31.75.

Picked on November xx at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00  			
Earnings Date          10/20/08 (confirmed) 	
Average Daily Volume:      19.4 million   

BB&T Corp. - BBT - close: 33.55 change: -2.60 stop: 31.75

BBT, which had been looking pretty strong, was really hammered hard today with a 7.19% drop. Shares fell through several moving averages and what should have been short-term support at $34.00. Our suggested entry point to buy BBT was the $34.00-33.75 zone so the play is now open. We are urging caution here as BBT was plunging lower into the closing bell. It looks like the stock could trade in the $33.00-32.50 zone tomorrow morning. Wait for a bounce first before considering new entry points. Our target is $39.90. FYI: Readers should note that BBT has been rumored to be a merger candidate in recent weeks.


Picked on November 05 at $34.00 *triggered      	
Change since picked:     - 0.45 	  
Earnings Date          10/16/08 (confirmed) 
Average Daily Volume:      10.5 million  	

BHP Billiton - BHP - close: 40.36 change: -2.41 stop: 35.99

BHP spiked to $44.15 before reversing today. The stock remains extended from its late October bounce. We are only making one change to our strategy.

Our plan is suggesting readers buy BHP on a dip into the $37.75-37.00 zone with a stop loss at $36.45. Our one change is to move the stop loss to $35.99 so it's under the simple 10-dma. Our first target will become $44.00. The P&F chart's bullish target has risen from $63 to $72.

Picked on November xx at $xx.xx <-- see TRIGGER	 
Change since picked:     + 0.00	  
Earnings Date          10/30/08 (unconfirmed)
Average Daily Volume:       6.7 million  

Broadcom - BRCM - close: 17.06 change: -0.63 stop: 16.60 *new*

BRCM is still consolidating sideways but its momentum is definitely waning. More conservative traders will want to consider a tighter stop near $17.00 or just exiting altogether. We are upping our stop loss to $16.60. We're not suggesting new positions. Currently our target is $18.45 near the simple 50-dma.

Picked on October 24 at $16.10 *triggered 10/24 
Change since picked:    + 0.96 	  
Earnings Date         10/21/08 (confirmed) 
Average Daily Volume:       14 million 

CIENA Corp. - CIEN - close: 8.66 change: -0.51 stop: 8.49

CIEN continues to inch closer toward what should be short-term support around $8.50. Readers could use a bounce from the $8.50 region as a new entry point for longs but keep a tight stop loss. We don't see any changes from our previous comments.

We have two targets. The first target is $11.75. Our secondary target is $13.85. This play might take a few weeks to reach its conclusion. FYI: The P&F chart is bullish with a $15.00 target.

Picked on November 03 at $ 9.00 *triggered 11/03	
Change since picked:     - 0.34	  
Earnings Date          12/11/08 (unconfirmed) 	 
Average Daily Volume:       5.9 million 

Ingersoll-Rand - IR - close: 17.91 change: -0.81 stop: 16.99

IR actually rallied to a new two-week high this morning before succumbing to the market-wide profit taking. We are still tempted to buy the dip today but readers might want to raise their stop loss toward $17.50 instead. Our target is the $22.00 mark. More aggressive traders may want to aim higher, say the $25-26 zone.

Picked on October 31 at $18.65 	 
Change since picked:    - 0.74  	 
Earnings Date         10/24/08 (confirmed)
Average Daily Volume:      4.8 million     

Lam-Research - LRCX - close: 23.03 change: -1.74 stop: 19.95

LRCX was looking very short-term overbought so it's not surprising to see a 7% decline today. We don't see any changes from our previous comments.

Our plan is to buy a dip in the $22.00-21.00 zone. More conservative traders may want to use a stop loss closer to $21.00. We're adjusting the target to $25.85.

Picked on November xx at $xx.xx <-- see TRIGGER	
Change since picked:     + 0.00	  
Earnings Date          10/22/08 (confirmed)
Average Daily Volume:       4.0 million   

Nat. Oilwell - NOV - close: 29.92 change: -3.00 stop: 27.25

NOV completely erased yesterday's gains. The stock lost more than 9% today and closed under what should have been round-number support at $30.00. We're still waiting for NOV to hit our entry point, which is a dip in the $29.50-29.00 zone. You don't have to buy the first decline so consider waiting for signs of a bounce first.

If triggered our first target is $34.50. Our second target is $39.00. The Point & Figure chart has turned bullish with a $54 target.

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          02/05/09 (unconfirmed)    
Average Daily Volume:      13.5 million     

Nucor - NUE - close: 35.50 change: -4.16 stop: 33.75

There was a reason why we didn't want to chase NUE around $40. The stock got clobbered today and ended with a 10.5% loss. We wanted to buy the dip and shares hit our entry zone today.

The plan was to buy NUE in the $36.50-34.50 zone. Currently NUE is right in the middle of that range. If you haven't opened positions yet you might get a chance to buy NUE near $34.50 tomorrow. Now that the play is open we have two targets. Our first target is $41.00. Our second target is $44.75.


Picked on November 05 at $36.50 *triggered     	
Change since picked:     - 1.00	  
Earnings Date          01/22/09 (unconfirmed) 
Average Daily Volume:       9.7 million   

Wal-Mart - WMT - close: 54.13 change: -2.00 stop: 53.90

Watch out! The action in WMT today doesn't bode well for the future. The stock only lost 3.5% versus a 5.2% drop in the S&P 500. Yet shares broke down under its 200-dma, exponential 200-dma and the $55.00 level. WMT is now testing what should be short-term support around $54.00 but I wouldn't put a lot of confidence in it. Expect to be stopped out tomorrow at $53.90.

Picked on October 29 at $56.25 *triggered 
Change since picked:    - 2.14	 
Earnings Date         11/13/08 (unconfirmed) 
Average Daily Volume:       25 million   


Ultra(Long) Real Estate - URE - cls: 9.99 change: -1.50 stop: 9.75

We were counting on URE's volatility to propel this ETF higher but shares were extremely weak late in the session and hit an intraday low of $9.11.

We recently changed our plan to buy a dip in the $10.50-10.00 zone. Previously it was buy a dip in the $10.00-9.75 zone. Today's decline opened the play but the sharp afternoon sell-off hit our adjusted stop loss at $9.75 closing it.

There appears to be some screwy numbers showing up around the closing bell. Most services are listing $9.99 as URE's closing price. An intraday chart shows URE closing around $9.25 and trading around $9.30 in after hours markets.

FYI: The URE is an exchange-traded fund (ETF) that typically moves twice the daily performance of the Dow Jones Real Estate index.


Picked on November 05 at $10.50 *triggered /stopped 9.75
Change since picked:     - 0.51	  
Earnings Date          00/00/00 	  
Average Daily Volume:       1.6 million  

Ultra Financials ProShares - UYG - cls: 9.37 chg: -1.57 stop: 9.25

The UYG is another volatile ETF and the equity proved it today. Financials were some of the worst performing stocks today and the UYG dove more than 14% albeit on low volume.

Our plan was to buy a dip in the $9.85-9.65 zone, which UYG hit this afternoon. Unfortunately, the UYG just kept falling and hit our stop loss at $9.25 before the day was over.

A rebound over $10.00 might be a bullish entry point but trade cautiously!

FYI: The Ultra Financials ProShares is an exchange traded fund (ETF) that typically moves twice the daily performance of the Dow Jones Financial index.


Picked on November 05 at $ 9.85 *triggered /stopped 9.25
Change since picked:     - 0.48   			
Earnings Date          00/00/00 
Average Daily Volume:       114 million     


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