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  Linda Piazza   9/5/2003,  4:01:48 PM
The OEX ends the week with a three-candle formation that resembles an evening-star formation, although it's not classic in its formation. It did form, however, under that nearly year-long resistance from 1998, so I do give it some credence. Again, I don't expect the OEX to crater, but I do think it perhaps needs to retreat to 504-508 and test the support from its bull flag formation. The weekly candle is a regular run-of-the-mill bullish candle, however, so perhaps the OEX isn't yet ready to retreat.

  Linda Piazza   9/5/2003,  3:43:26 PM
The OEX is now back to the bottom of the recent congestion zone. It has also retraced 38.2% of the drop that began at 11:55, and appears to be accelerating its gains.

  Linda Piazza   9/5/2003,  3:39:30 PM
The OEX 30-minute 21-pma now is rounding over, and now crosses at 514.67.

  Linda Piazza   9/5/2003,  3:38:15 PM
Me, too, Jane. No trades for the OEX Swing Trade model. And, yippee, because I suspect they would have all been stopped if I'd called any. We had some absolutely good looking short/put possibilities, and none would have worked. I picked a good week to decide to do more real-time testing.

  Linda Piazza   9/5/2003,  3:16:33 PM
The OEX now tests the bottom support of that possible bear flag.

  Linda Piazza   9/5/2003,  3:08:46 PM
The current OEX five-minute patterns appears to be a bear flag, but we're entering a time period when anything can happen and we've seen a lot of these break to the upside this week.

  Linda Piazza   9/5/2003,  2:54:42 PM
Reader Question: Appreciate your comments. Do you have time for a short term look at RUT.

Response: Thanks, and I'd be glad to look at the Russell 2000. This chart is rather messy because I wanted to include both Bollinger bands and the regression channel in which the Russell has been traveling. I've indicated some levels you might watch. Link

I noticed that the Russell appears to be retreating from both the upper BB and the upper channel line before it reached them, a sign of short-term weakness, but it's done that before and then reversed and followed those lines upward, so we can't make too much of this yet. The stochastics show possible bearish divergence (equal highs while price traveled higher), but again I would consider that a sign of only short-term weakness as yet.

Seeing the resistance represented by that upper red line on the weekly chart, though, my guess would be that the Russell needs to retreat and regroup before making a charge at that strong resistance, or else that it will hit it and maybe pop just above it, and then perhaps retreat and regroup. With the MA's rising strongly beneath the current price, it doesn't appear as yet that the Russell is doing anything other than snaking back and forth in that channel as it rises, but a pullback somewhere around here would be natural.

However, the Russell has already far exceeded the minimal target predicted by the double bottom on its weekly chart, and it's done so without stopping to do much regrouping. I snapped a regression channel on the Russell's rally range, and found that a 25% retracement would take it down to 475, near the bottom red support line I've drawn. It seems reasonable to think then, that the Russell might retreat all the way to the bottom of that channel, either beginning now or after it's make a last try at that overhead resistance. A 38.2% retracement would take it to about 452, also near a site of obvious historical S/R. The bullish tenor of the Russell would not be damaged by such a retreat. Of course, if you've got some call options, their value might be damaged while the Russell retreats!

If you're considering playing the downside, that's a trickier endeavor than waiting for a pullback and going long--at least as the chart characteristics show up now. A strong stock or index may not retrace the expected amount and bearish-looking oscillators may be signaling only a brief pullback or perhaps only consolidation at the current level. Daily ADX measures 32.27, so this is a trending rather than range-bound market, of course. The problem, of course, in making predictions about the downside is that all these characteristics can change as the Russell retreats and by the time it reaches the bottom of the channel, the chart might look very different. That's how it appears now, however.

  James Brown   9/5/2003,  2:30:54 PM
The 3:00 PM ET update is posted. Link

  Linda Piazza   9/5/2003,  2:27:25 PM
The OEX is finding support at the bottom of that gap between Tuesday's close and Wednesday's open. Now the test will be whether the top of that gap is now resistance, and whether the OEX is able to climb back above 512 again.

  Linda Piazza   9/5/2003,  2:15:13 PM
The OEX is now inside the Wednesday morning gap. Tuesday's close was 510.97, so it's possible this gap support could produce another brief pause or bounce attempt. I really think the OEX is headed down toward 508, so I'm not sure that gap level would hold, but being that this is a Friday afternoon, anything could happen. That's why I didn't call the signal.

  James Brown   9/5/2003,  2:12:31 PM
Express Scripts - ESRX - Shares of ESRX, a current OI put play, have fallen through support at $60 and is trying hard to break support at its 200-dma near $58.50.

  Linda Piazza   9/5/2003,  2:07:36 PM
Didn't Jim predict last night that today could be a 200-point day? The Dow has traded a 119.5 point range so far. Only 80.5 more points to go, Jim, if markets continue down. A whole lot more if they decide to bounce.

  Linda Piazza   9/5/2003,  1:38:24 PM
We're nearing that 1:45 time period when we usually get our S/R test.

  Linda Piazza   9/5/2003,  1:30:02 PM
Looks like we have another distribution pattern on the five-minute OEX chart and it looks as if it's about to test the bottom support again.

  James Brown   9/5/2003,  1:26:08 PM
The 01:00 PM Update is posted. Link

  Linda Piazza   9/5/2003,  1:17:16 PM
The OEX did settle into a distribution pattern after the first quick five-minute plunge, a "b" distribution pattern. It was quickly broken. Such patterns usually occur about midway in a drop, and the second five-minute drop to a low of 511.66 just about exactly met that parameter. That means it was time for a bounce again, but now that 512.75-513 level should be resistance and 515 should hold above that, if 513 doesn't. We'll see, though.

  James Brown   9/5/2003,  1:09:27 PM
Yesterday I noticed Merrill Lynch upgrading some broadcasting/cable stocks. NTL Inc (NTLI) was not one of them but it is still a big winner for the month of September. Shares have rallied strongly from the $40 level to breakout over resistance of $45. It is currently trading at $47. The next stop appears to be $50 but I am not inclined to chase it but this might be another stock worth watching.

  James Brown   9/5/2003,  1:03:44 PM
Dow Components Only 7 of the 30 Dow Industrial components are in the green right now. Leading the index to the downside is Boeing Co (BA) -2.1%, Wal-Mart (WMT) -1.9%, United Technologies (UTX) -1.7% and Hewlett Packard (HPQ) -1.8%. The strongest components are AT&T (T) +1.46%, Merck (MRK) +1.1% and Intel (INTC) +0.97%.

  Linda Piazza   9/5/2003,  12:58:44 PM
That was a big drop on the OEX five-minute chart. If it's for "keepsies," then we should see some sort of measured distribution pattern that moves the OEX up, but does not retrace more than half the plunge. That 50% mark comes at 515.10, handily enough just below the 30-minute 21-pma and/or 18-pma.

  Linda Piazza   9/5/2003,  12:55:26 PM
Remember yesterday when I mentioned how important OEX 517.50-518 had been through most of 1998? I placed a line at the level of the greatest touches during 1998. Here it is, marked on a current OEX daily chart, showing how the OEX has traded in relationship to that level this week. It's the thick horizontal blue line at the top of the chart: Link

  Linda Piazza   9/5/2003,  12:49:35 PM
On the 30-minute OEX chart, the OEX has again drifted below the 21-pma (and the 18-pma, for those using that MA). CCI dropped below zero. The MACD histogram is registering a negative number, even if it's only slightly negative. These should be signals to go short, with the expectation that the OEX would drop to the bottom of the 1.35% envelop and/or the 30-minute 100-pma, both near 508. However, these trades have not worked for about three weeks now and I'm always wary of short/put plays entered on a Friday afternoon, as there's been such a tendency over the last year to go up on Friday afternoons. That means that this trade would have worked magnificently, but this week we're just testing the entry signals anyway.

  Linda Piazza   9/5/2003,  12:43:43 PM
Jim, from where I sit, we've been going sideways for about 18 hours now. (See Jim's 12:29 post on the Futures Monitor. In fact, it's been so long that I had time to count the hourly candles.) I've kind of forgotten what it feels like for the markets to do anything else, but it sure keeps looking as if they're going to fall.

  Linda Piazza   9/5/2003,  12:39:57 PM
Once again, the OEX challenges its 30-minute 21-pma, currently at 515.36, with the OEX just slightly below that level. While I wouldn't characterize this moving average as rolling over yet, it has certainly flattened from its previous steep ascent.

  James Brown   9/5/2003,  12:32:49 PM
New multi-year High: XAU The XAU gold & silver index's intraday high today broke the old high from April 1998. The daily chart is suggesting the index is near the top of its rising channel but it might be able to make it to 95 before rolling over (assuming it stays within the channel). I could just be imagining things but staring at the monthly chart of the XAU almost, I repeat almost, looks like a reverse head-and-shoulders pattern. I don't count myself as one of them but I guess goldbugs can dream too.

  James Brown   9/5/2003,  12:24:08 PM
I agree, Jane. Pretty interesting performance so far but we still have more than three weeks to go.

  James Brown   9/5/2003,  12:22:09 PM
Breakout Alert. The DRG drug index has been the big loser since mid June as money rotated out of drugs and into techs. Now we are seeing a breakout through the top of its descending channel in conjunction with a breakout through the 310 level and its simple 200-dma. There may be some strong candidates for new bullish plays in this sector that offer better risk/reward ratios than the current market leaders. If the techs start to slow down or see profit taking, bulls could rotate money back into drugs as the sector plays catch up.

  James Brown   9/5/2003,  12:12:59 PM
Jane, I am guessing there are plenty of bulls hoping for a pull back in JBLU so they can jump on momemtum rocket higher. Although the stock is SO extended now the bear in me is growling "short it at $60". Since it's rather unhealthy to pick a top before the markets do, I'll just watch. The XAL is up again today making it one incredible week for the airlines.

  Linda Piazza   9/5/2003,  12:07:29 PM
If you study the OEX five-minute chart just right, you can kind of see an inverse H&S building with a neckline at about 516.70. It's not a great-looking formation and so far, the OEX keeps retreating from the neckline area. Although these are usually bottoming formations, they do sometimes show up as continuation patterns. Now that I've said that, I want to say that I don't trust many chart formations this week, and I have even less faith in chart formations on a five-minute chart, and even less on anything showing up on a Friday afternoon, because the decisions being made in offices across the investing world about a weekend stance might not yet be showing up on those five-minute charts and might undo anything that appears to be showing up there now.

  Linda Piazza   9/5/2003,  12:01:51 PM
As of a few minutes ago, both the NYSE and the Nasdaq showed advancers leading decliners, but not by big margins in either case: less than 100 more issues advancing than declining on the NYSE, and a 16:13 ratio on the Nasdaq. Up volume was 1.4 times down volume on the NYSE and a much heftier 3.4 times down volume on the Nasdaq. Total volume was 576 million on the NYSE and 825 million on the Nasdaq. So far today, there are only 12 new lows, matched against almost 400 new highs.

  Jane Fox   9/5/2003,  11:54:16 AM
James JBLU up another 1.90 today to 59.06. Sure would like to see just a little pullback.

  Linda Piazza   9/5/2003,  11:28:23 AM
The OEX just broke above the series of lower highs it had been forming since Yesterday afternoon, with that trendline now at about 516.20. It's falling back as I type, so I'm not sure if this was a fake-out of if the break is real. With the Nasdaq showing strength and the DJI not, it's going to be difficult for the OEX to move much either direction until those two get their acts together.

  Linda Piazza   9/5/2003,  11:19:53 AM
When they're writing the economics texts that cover this period in the markets, they're going to have to think hard when they decide whether to tag this the "year of the failed bearish wedges" or "the year of the never-ending symmetrical triangles." On the five-minute chart, the OEX sets up another symmetrical triangle.

  James Brown   9/5/2003,  11:16:20 AM
Goldman Sachs - GS - Current OI call play, GS, is actually bouncing higher off the $90 level despite weakness in the XBD broker/dealer index. Investors are shrugging off the SEC scandal news yesterday and the stock is approaching its 52-week high.

  James Brown   9/5/2003,  11:10:51 AM
The 11:00 AM ET update is posted Link

  James Brown   9/5/2003,  10:51:39 AM
Next Thursday is September 11th. Could that be a big enough psychological reason to seeing more sustained profit taking next week?

  Linda Piazza   9/5/2003,  10:43:57 AM
The OEX tests that 30-minute 21-dma again, with that average at 515.11. The 30-minute lower Bollinger band crosses at 513.50, and the 30-minute 1.35% lower envelope boundary crosses at 508.15, with the 30-minute 100-pma just below that at 507.17. Thirty-minute oscillators are beginning to hint that this could be "the real thing," and that the flattening central average really is predicting a loss of strength, but that's exactly what those oscillators have been hinting for three or four days now. Just in case they're not telling the truth any more than they have for the last several days, the 30-minute upper BB crosses at 516.78, and the upper 1.35% envelope boundary lies at 522.

  Linda Piazza   9/5/2003,  10:32:28 AM
Since about 2:00 ET yesterday afternoon, the OEX has established a trend of lower highs. That trendline now lies at about 516.30, and it appears the OEX will soon test it again.

  Linda Piazza   9/5/2003,  10:28:17 AM
Another question to add to that posted in my 10:16 post: Thirty-minute ADX had been increasing since last Friday as the OEX moved up, and was above 40 as those possible bearish entries first began appearing, showing a strong (bullish) 30-minute trend in place. However, +DI began dropping Wednesday morning and ADX began dropping yesterday afternoon. After a market has been trending, as indicated by the ADX, at what point can we safely enter going the counter direction?

I haven't chosen an official bearish entry this week, despite the numerous possible sell signals setting up, because these are just the kind of situations I wanted to test--situations when the OEX climbs the envelope rather than bounces up from or falls away from it, and situations in which it just oscillates around the central average. Until I ironed out these matters to the best of my ability--and we're never going to be able to complete protect against these kinds of things happening--I didn't want to pull readers into trades that might or might not work. Actually, in most cases I've studied, once the central average begins flattening as it's doing now, the OEX does eventually fall toward the bottom of the envelope, but sometimes it has a spurt or two upward toward that upper envelope boundary before doing so. What we really want to do, though, is to capture those moves when the OEX goes from one side of the envelope to the other without it taking so long to do so that the time-decay causes us to lose money even after the OEX has gone our direction.

  James Brown   9/5/2003,  10:23:44 AM
Omnicom - OMC - Current call play, OMC, is showing some strength with a fresh 52-week high of its own.

  James Brown   9/5/2003,  10:20:32 AM
Best Buy - BBY - Shares of BBY are bouncing with new 52-week highs today. The company came out yesterday and pre-announced better Q2 revenues and raised their earnings outlook. It will be interesting to see if it can trade above $54.00, which has been historical resistance since July of 1999.

  Linda Piazza   9/5/2003,  10:16:36 AM
Here are some considerations I'm watching as I try to determine when we should take entry signals and when we should let them pass: Link

  James Brown   9/5/2003,  10:14:32 AM
ImClone Systems - IMCL - No thanks to Sam Waksal & Martha Stewart shares of IMCL are hitting new 52-week highs (+4.3% to $45.40). There isn't much in the way of resistance until the $70 level but the weekly chart hints at possible resistance at $50 and $55.

  James Brown   9/5/2003,  10:04:52 AM
Nortel Networks - NT - Bubble-days darling NT is making big gains again. The stock is up 25% in three sessions after announcing a $1 billion multi-year deal with Verizon Wireless. Post-announcement the stock has seen a couple of upgrades as big volume drives the stock from $3.20 to $4.00.

  James Brown   9/5/2003,  10:00:28 AM
Advanced Mirco Devices - AMD - Shares of AMD are hitting new 52-week highs this morning. The stock is up more than 53% since August 15th in an analyst-upgrade inspired ramp up prior to its September launch for its new line of chips.

  Linda Piazza   9/5/2003,  9:55:34 AM
The OEX retraced 61.83% of the first five-minute range. So far. That level lies at about 514.97.

  James Brown   9/5/2003,  9:53:54 AM
Looking at the major sector indices and there's a lot of red. Only the SOX semiconductor index, BIX banking index, DRG drug index, XAL airlines index and XAU gold & silver index are in the green.

  Linda Piazza   9/5/2003,  9:53:09 AM
Larry Kudlow was just chatting with Labor Secretary Elaine Chao, commenting that the Labor Department statistics weren't picking up on a new source of strength: family-run small businesses. I know a young family that's just embarked on such a source of strength. One of the wage-earners was employed in IT, lost the job in 2000, and spent the ensuing next couple of years in a series of dead-end jobs that dead-ended, working 60-80 hour weeks at low pay just to keep the family going. Knowing himself to be a hard worker, he gave up a couple of weeks ago and began his own landscaping business with a single six-month contract to lean upon. That's the "new source of strength."

With that said, however, I remember reading once that job losses are still growing as a recovery begins. Since I'm not an economist and haven't studied these matters in depth, I'm reserving judgment, but keeping that statement in the back of my mind.

  Linda Piazza   9/5/2003,  9:39:46 AM
Today's first five-minute OEX range certainly spanned a larger-than-normal range, and so we can watch retracement levels as benchmarks in early trading. The 50% retracement of the first five-minute move lies at 514.74. Bulls want to drive the OEX safely back over this level. Because that first candle spanned such a large distance, it might be helpful to watch the 38.2% retracement, too. That lies at 514.50.

  Linda Piazza   9/5/2003,  9:37:59 AM
The OEX has now dropped beneath the 30-minute 21-pma. Whether using Bollinger bands or a percentage envelope surrounding a central average, theory now says that the OEX should now move toward the bottom BB (which it has done already) or the bottom envelope, but first the OEX has to sustain this level below the 21-dma, currently near 515. There's also horizontal support for the OEX between 512.70 and 513. Looks like we're headed there soon and we'll see how the OEX acts near that level. This is also the level of the bottom BB on the 30-minute chart. The 1.35% envelope lies down at 508, however.

  James Brown   9/5/2003,  9:36:46 AM
Allied Capital - ALD - ALD is getting double-teamed by USB and MER this morning. Merrill Lynch is downgrading ALD from "buy" to "neutral". USB is cutting ALD to "market perform".

  James Brown   9/5/2003,  9:33:55 AM
Associated Press is saying a Halliburton (HAL) affiliated worker has been shot dead in Iraq.

  Linda Piazza   9/5/2003,  9:31:39 AM
James just mentioned WMT's downgrade. As I've been scanning the SSS figures released this week, some stores are mentioning those tax checks as being behind strong back-to-school sales. That includes sales for computer-related hardware and software, too. That started me wondering this morning how sustainable the recent uptick in demand is going to be in those areas.

  James Brown   9/5/2003,  9:30:18 AM
Downgrades by UBS. UBS is downgrading both HCA and HMA from "buy" to "neutral". Both are in the healthcare facilities industry.

  James Brown   9/5/2003,  9:27:05 AM
Downgraded - WMT - Bank of America (BAC) is downgrading WMT from "buy" to "neutral". BAC suspects that same store sales can't keep up the current pace.

  James Brown   9/5/2003,  9:11:20 AM
The 09:00 AM ET update is posted. Link

  Linda Piazza   9/5/2003,  6:43:23 AM
Good morning. With Intel (INTC), Chartered Semiconductor (CHRT), and Cypress Semiconductor (CY) all noting varying degrees of improved demand yesterday, our futures climbed and the Nikkei opened 53 points higher than its previous day's close. As has been true of the Nikkei lately, however, early trading proved volatile. Although semiconductor-related shares initially gained, many in the telecommunications sector fell after cell-phone maker NTT DoCoMo said mobile-phone subscriptions may decline throughout the industry in the second half of the year. Before the morning session had elapsed, the Nikkei had gone negative, and it stayed that way most of the afternoon except for a brief bounce as the afternoon session opened and another at the close of trading. The Nikkei closed up 3.82 points or 0.04%, at 10,650.77. This represented a more than 300-point gain since last Friday's close, but all those gains were garnered on Monday, and the Nikkei closed the week about 20 points under Monday's close.

At the end of the day, tech performance had been mixed, telecoms had remained weak, banks had fallen, and auto makers remained strong. Economic numbers released in Japan showed July's leading index of economic indicators at 77.8, rising for the third month in a row, but July household spending falling 4.2 percent. A blurb on one news ticker read, "Japan manufacturers most profitable in a decade."

Other Asian bourses were mixed, although more closed higher than lower. The Taiwan Weighted closed up 0.24%, and Singapore's Straits Times added 0.47%. Hong Kong's Hang Seng climbed 0.29%. South Korea's Kospi lost 0.34%, however, and China's Shanghai Composite lost 1.10%.

Most European bourses currently trade down. July's German Industrial Production rose a much better-than-expected 2.4% month-over-month, the first increase in six months. Not only were our Fed Governors out pounding the pavements yesterday: the ECB also spoke of a recovery that's likely to begin at the end of this year and gain momentum next year. In a discussion on CNBC Europe in the wee hours this morning, that statement was met with some skepticism, with the commentators essentially saying that the ECB "doesn't get it." The commentators spoke of stagnation rather than growth and said that the ECB's lack of movement has forced countries to take steps on their own.

So far this morning in Europe, oil companies lose ground, reacting to the decline in oil prices, and some insurers have dropped, reacting to Royal & Sun Alliance's statement yesterday that it would hold a rights offering. As of this writing, the FTSE 100 had lost 8.30 points and traded at 4240.50. The CAC 40 lost 21.21 points and traded at 3388.70, and the DAX had lost 33.49 points and traded at 3635.18.

  OI Technical Staff   9/5/2003,  2:17:09 AM
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