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  OI Technical Staff   12/7/200,  9:59:12 PM

Click here for bonus info: Link

 
 
  Linda Piazza   12/7/200,  9:57:45 PM
Several times today, the OEX challenged the top of a rectangular consolidation pattern in which it had traded since noon Monday. It never broke through the top of that formation, however, so never triggered an upside play even if there had been those traders brave enough to risk such a play. Instead, the OEX broke through the bottom.

When the OEX broke below 563.50 today, it also confirmed a H&S on its 15-minute chart. That set up a potential downside target in the 559.50 area, a target that was corroborated by a 559.50-ish downside target set up by the 15-minute Keltner channels. The OEX has already negated a potential inverse H&S and confirmed and met the target of a smaller regular H&S. Still, the previous choppy trading since Monday's open and all those competing formations created much doubt about whether the OEX could meet that downside target. Those who plunged in with bearish entries on the break were doing so with closed eyes and faith that the OEX would go lower, but they better have entered quickly or the opportunity was gone. The precipitous drop showed something different was occurring this time, instead of the minimal confirmation, immediate halt and test of the broken trendline and then sideways trading that had characterized other formation breaks. There may be some follow-through tomorrow morning down toward that downside target, but we'll look at how overseas markets perform and how our futures react to their performance before we make too many decisions.

What then, though, if that downside target is met? The OEX remains within its broadening formation on the daily chart, and those formations are notorious for producing choppy trading conditions. Typically these formations establish the top trendline with two higher highs, but the third approach generally does not reach the top trendline before prices roll down again and eventually break through the lower trendline. These formations have performed in anything but the typical manner for almost two years, though, breaking to the upside as often as they do to the downside, or seeming to do so. The OEX won't break out of that formation until it moves below 555 to the downside or about 571.20 to the upside, but even those numbers remain suspect because the whole idea is that the formation broadens.

Several chart characteristics point to bounce potential from 559-561.25, with the OEX already within that zone, so a bounce is possible at any time. There's a possibility that, if the formation is going to behave as it traditionally did, the OEX will not see 571.20 or higher, but instead would roll down short of that attempt. Today's testing of the 567.75-568 zone could have qualified as a failed test, but I'm not certain, keeping that notoriously choppy behavior of this normally topping formation in mind. Because of the precipitous nature of the decline today and because these were traditionally topping formations, the tendency is to decide ahead of time that OEX 555 is going to break. However, last Wednesday's climb would have counted as precipitous, too. That's the way these formations work, and trading can become even more volatile prior to a breakout one direction or the other. Because of that precipitousness, the bearish divergence on the last swing high on the daily chart, the traditional patterns of broadening formations, and other evidence, the preponderance of evidence still has to go toward a sell-the-rallies approach, I think, but let's see what develops overnight. When the OEX stops declining and rises into some sort of measured distribution pattern such as a bear flag, we'll snap Fib levels and compare them to other known S/R levels and see where a rollover might occur.

 
 
  Jeff Bailey   12/7/200,  7:47:09 PM
Pivot Matrix for tomorrow at this Link

For the BIX.X, I mention "Yield curve," Traders/investors with QCharts, or charting service where you can look at 5-day and 10-day NET CHANGE (not percentage, but net change to show basis point move) look at the 5, 10 and 30. Will discuss in this evening's Index Trader Wrap, but most likely the reason for BIX.X weakness.

As crazy as this may sound, may well be caused by the weakness in oil prices, and broader market equity bulls may want to see OIL PRICES RISE for awhile. $43-$44 would be fine.

 
 
  Jeff Bailey   12/7/200,  6:36:49 PM
Closing Internals at this Link

Huge volume at the NASDAQ

 
 
  Jeff Bailey   12/7/200,  6:26:16 PM
Najarian brothers .... trying to spoil the MRK short. MRK $28.15 ....

 
 
  Jim Brown   12/7/200,  4:31:02 PM
Alert - TXN update - 25 to 27 cents per share rev $3.02B - Narrowed range but no real change in earnings. Rev guidance only slightly better.

Prior guidance in October was a profit of 24-28 cents on revenue of $2.96-$3.2 billion. Analyst estimates are for 26 cents and $3.1 billion

 
 
  Jeff Bailey   12/7/200,  4:09:58 PM
Current OPEN MM Profiles at this Link

Today's activity ....

Have now raised bullish stop for the two (2) SIRI March $5 calls (SIRI) to $3.75. (or $8.75 in the underlying stock).

Swing trade long 1,000 shares (based on $10,000.00 being full position, should be just under 1/3 bullish) for CMGI, Inc. (CMGI) at the offer of $2.82, stop $2.43, targeting $4.50.

Day trade short (carrying overnight) for Merck (MRK) at the bid of $28.06, have lowered stop to break even, with target of $27.75.

 
 
  Linda Piazza   12/7/200,  3:59:50 PM
The OEX appears that it will end the day near the 561.23 level that marks the 38.2% retracement of the bear-market decline.

 
 
  Jeff Bailey   12/7/200,  3:58:10 PM
Bearish day trade hold over alert .... for Merck (NYSE:MRK) $27.88 -0.85% .... let's hold this day trade overnight. INDU 10,455 -0.87% looks like it wants to settle out at WEEKLY S1, but if we see some weakness tomorrow, with SPX toward its WEEKLY S1, the MRK WKLY S1 of $27.70 should be in play.

 
 
  Linda Piazza   12/7/200,  3:50:50 PM
Next Keltner resistance for the OEX can be found at 562.22 and 562.70-562.90. Resistance lines haven't really firmed up since the last little dip, so it's difficult to evaluate whether they will hold or not.

 
 
  Linda Piazza   12/7/200,  3:42:19 PM
The BIX is at 370.46, currently below its 30-dma at 371.51. It so far remains above 370 and the 11/22 low of 369.74, a confirmation level for a double-top-ish formation. The second high was actually a slightly lower high, but only by about $0.50.

 
 
  Linda Piazza   12/7/200,  3:36:17 PM
Jane has taught us to pay attention to TRIN's trend, as it might not be the absolute value of the TRIN alone but also its trend that matters. That's certainly true today, isn't it? The TRIN's level hasn't been particularly high, but as Jane noted earlier on the Futures side, the TRIN has been climbing since mid-morning.

 
 
  Linda Piazza   12/7/200,  3:32:17 PM
As you're planning whether to hold overnight or not, remember that steep decline in the advdec line. I've seen similar advdec levels that saw small follow-through the next day and then a bounce because sellers were exhausted. This happened after the 11/19 drop of the advdec line into the sub -3000 levels, for example. The pattern was different on 10/12, however, with a late-day bounce (in the OEX, at least) followed by steeper declines beginning again the next day. There's no one set pattern, then, but with the OEX still inside that broadening formation on the daily chart, I'd at least be aware that this can sometimes be a bullish sign from a contrarian standpoint. I personally think there must be a number of weak hands still left in the market, so that sellers won't be exhausted by today's declines, but I also am a firm believer that the OEX can and might do just about anything while it's inside that broadening formation, including zooming back up to test the top trendline just when bears think all is safe. Just factor this into your decision.

 
 
  James Brown   12/7/200,  3:28:28 PM
High flying Cameco Corp (CCJ) is seeing an acceleration in its sell-off. Shares just broke round-number support at the $90.00 mark and its MACD is in a sell signal. Volume is pretty heavy today.

 
 
  Jeff Bailey   12/7/200,  3:26:24 PM
Bearish day trade lower stop alert ... for Merck (MRK) $27.97 -0.49% .... to break even.

 
 
  Linda Piazza   12/7/200,  3:25:08 PM
The OEX works its way down, but continues to do so reluctantly. Bears need to see the drop accelerate again to scare away bulls who want to buy the dips.

 
 
  Jonathan Levinson   12/7/200,  3:21:00 PM
QQQQ just failed from a lower high- couldn't clear 39.75. A restest of the session low is 2 cents away with R2K futures hitting new lows now.

 
 
  Jeff Bailey   12/7/200,  3:16:12 PM
Swing trade raise bullish stop alert .... for the SIRI March $5 calls (QXO-CA) to $3.75.

SIRI $9.34 +15% ....

 
 
  Linda Piazza   12/7/200,  3:14:39 PM
So far, the OEX's 15-minute Keltner chart configuration still shows the OEX vulnerable to 559.80-560, but it's reluctant to move below 562. If the OEX can maintain support above 562 long enough, bulls will decide this is a buying opportunity. I wouldn't, heading off Jeff's question. Smile. Seriously, the drop was precipitous, the OEX has already approached the top of its broadening formation twice, and any pop higher this afternoon is going to bring the OEX right back up to the bottom of that consolidation zone from the last two days. Being a nervous trader whose main fault is taking profits too soon, though, I advise conservative traders who are sitting on profits to consider taking at least partial profits soon if the bears can't send the OEX lower. In this choppy trading environment, too-small profits might be better than none. If you consider taking partial profits or full ones, be aware that you're still risking something, and that's not participating in any further bearish gains. The advdec line is still headed down, so if it's leading the markets anywhere, it's leading them down. The OEX should break to the downside in that climate, and the trend of the advdec line has been a fair indicator the last few days, but this environment is a risky one and bears can't have much cushion.

 
 
  Jeff Bailey   12/7/200,  3:14:04 PM
03:00 Internals at this Link VIX.X / TRIN observations

 
 
  Jonathan Levinson   12/7/200,  3:09:34 PM
Here's the retest of 39.72-.75.

 
 
  Linda Piazza   12/7/200,  3:04:58 PM
The advdec line is diving, too, reaching levels not seen since 11/19.

 
 
  Jeff Bailey   12/7/200,  3:04:02 PM
03:00 Market Watch at this Link

 
 
  Jonathan Levinson   12/7/200,  3:00:45 PM
39.72 has just cracked. If this is the push to 39.40, then QQQQ should not see north of 39.72-.75.

 
 
  Jeff Bailey   12/7/200,  3:00:13 PM
Amex Gold Bugs ($HUI.X) 219.81 -2.14% .... session lows and losing important near-term 220 support.

 
 
  Linda Piazza   12/7/200,  2:59:54 PM
The TRAN tips slowly over, negating its potential inverse H&S, but not yet reaching a new low of the day.

 
 
  Jonathan Levinson   12/7/200,  2:56:34 PM
Current session low is 39.75, 3 cents north of key 39.72 support. The bounces have so far been weak, but bears need to break this level next to get a shot at 39.40. A short cycle bounce is due, and it might be too much for bears to hope for a collapse from here.

 
 
  Linda Piazza   12/7/200,  2:56:03 PM
The OEX remains between 563.75-ish resistance and 562.00-562.50 support, still working out which way this consolidation pattern will be resolved.

 
 
  Jeff Bailey   12/7/200,  2:49:15 PM
Bearish day trade short alert .... for Merck (MRK) $28.06 here, stop $28.17, target $27.75 by the close.

Need a tight stop bearish trade, as INDU has already tested its WEEKLY S1.

 
 
  Linda Piazza   12/7/200,  2:48:44 PM
The TRAN climbs off its low of the day, with the shape of that climb looking like a messy inverse H&S, and with the TRAN looking in danger of tipping over beneath the appropriate right-shoulder level.

 
 
  Linda Piazza   12/7/200,  2:47:00 PM
The OEX still consolidates beneath resistance and above support.

 
 
  Linda Piazza   12/7/200,  2:37:15 PM
The OEX's pattern at the bottom of its decline has broadened. Is this a "b" distribution pattern likely to break to the downside? An inverse H&S trying to set up? Whatever it is, it's setting up below the descending trendline drawn off the 12/02 low on the 13:15 candle and the 12/06 lows. That gives a more bearish interpretation to the form, while the fact that it's forming above 562.00-562.50 support lends a more bullish interpretation. The truth is that it's forming beneath resistance and above support as bulls and bears sort out which group is going to prevail next. A move above 564 would tend to give more credence to the bullish interpretation, but would just move the OEX back inside a zone likely to be choppy. A move below 562.75 but more strongly below 562 would lend itself to a more bearish interpretation, suggesting that the 559-560 downside target remained doable.

 
 
  Jeff Bailey   12/7/200,  2:27:25 PM
Current OPEN MM Profiles at this Link

 
 
  Linda Piazza   12/7/200,  2:25:29 PM
The TRAN bounces up to test 3691.25 potential resistance.

 
 
  Linda Piazza   12/7/200,  2:22:45 PM
The OEX bounced from 562.00-562.50 support, up to face resistance at 563.50-563.60.

 
 
  Jonathan Levinson   12/7/200,  2:20:46 PM
Session low for Nymex crude at 41.425, down 3.61%. QQQQ has bounced to 39.90 here, testing former support from below.

 
 
  Jonathan Levinson   12/7/200,  2:13:44 PM
Here's the test of 39.80 QQQQ with session lows across the board. 39.72 is next support, followed by 39.40. Gold is hitting a session low as well at 453.3.

 
 
  Linda Piazza   12/7/200,  2:12:00 PM
The OEX's bear flag broke down and did so quickly, with a new low on the OEX. We have the 562-562.50 potential support below us on the OEX, but the 15-minute Keltner chart now sets a 559.97 downside target. Remember that the OEX remains within that broadening formation on the daily chart, however, and be cautious with all plays, bearish as well as bullish.

 
 
  Jeff Bailey   12/7/200,  2:11:14 PM
02:00 Internals at this Link

 
 
  Linda Piazza   12/7/200,  2:06:09 PM
So far, the OEX's climb has a bear-flag look to it, so I've snapped a Fib bracket on the decline. A 38.2% retracement lies at about 564.71 and a 50% retracement at 565.30, with OEX bears wanting to see prices break to the downside out of that flag before the OEX reaches much higher than that 50% mark.

 
 
  Jeff Bailey   12/7/200,  2:02:29 PM
02:00 Market Watch at this Link

 
 
  Linda Piazza   12/7/200,  1:59:03 PM
The TRAN now looks vulnerable to 3665-3675, with that amount of throw-under about equal to the throw-over we saw above the descending regression channel earlier.

Scanning other indices, I see that the BIX has continued its drop fro earlier today, now testing the 30-dma at 371.54, with the BIX at 371.50. The BIX is not so far away from a 369.74 confirmation level for a double-top formation, but that also means that we can expect this level to be defended. OEX bulls would not like to see that double-top-ish formation confirmed.

 
 
  Jonathan Levinson   12/7/200,  1:51:29 PM
Stepping away for 20 minutes here.

 
 
  Jeff Bailey   12/7/200,  1:50:55 PM
Travelzoo (TZOO) $89.89 -5.73% Link ... a "tax gain" candidate for bulls. Really got whacked from $96.00 to $91.00 in 5-minute of trade.

 
 
  Jeff Bailey   12/7/200,  1:46:06 PM
There was another sell program premium found at approx. 01:32 PM EST.

Quick benchmark had the SPX at 1,184, with QQQ falling from $40.02.

 
 
  Linda Piazza   12/7/200,  1:42:32 PM
The OEX has now confirmed the largest of the H&S's that I was watching with its drop below 563.75-564. That sets up a potential downside target of 559.50, in line with the 560-ish downside target now set up on the OEX's 15-minute Keltner chart. However, the OEX is bouncing right back up to that trendline--springing right back up to it--and market bears will want to see it round down again instead of move back above that neckline. Please remember that the OEX is still inside the broadening formation on the daily chart and that choppy conditions may still prevail.

If the OEX should now drop out of that formation (currently, on a drop below 555.25, so not today, probably, even if it's eventually going to do it), it will have met the traditional behavior of such a formation--two top touches and then a decline to and through the bottom expanding trendline. We're a long, long way from that happening yet, however. I just haven't seen one of these work the way it's supposed to work for a while now and find the speculation interesting.

 
 
  Linda Piazza   12/7/200,  1:35:45 PM
Perhaps of interest only to me, the advdec line has exceeded the downside target predicted by its H&S formation. I'm interested in whether measures such as TRIN and the advdec line also adhere to the formations and targets predicted by standard technical analysis. At any rate, the drop in the advdec line is not good for market bulls.

 
 
  Jonathan Levinson   12/7/200,  1:35:40 PM
The drop has steepened after a failed bounce to 40.08. 40.00 is new resistance, above which 40.08-.12. Below 39.88, 39.80 and 39.72 are key support. Below 39.72, there's little support until 39.40.

 
 
  Linda Piazza   12/7/200,  1:32:24 PM
The OEX printed a doji at the bottom of the decline on its 15-minute chart during the last 15-minute period, just above 564. It's clinging to last 15-minute Keltner support before the 560.25 level, but various charting methods show potential support in this 563.50-564 zone for the OEX, so we should perhaps expect at least a tepid bounce attempt, if not more. The OEX's drop has been so quick that resistance hasn't had time to firm yet, but a retest of 565.50 wouldn't be unexpected. First, though, the OEX has to steady and its steadying is tentative at best. It's not climbing from that doji's close.

 
 
  Jonathan Levinson   12/7/200,  1:27:59 PM
40.12-40.15 QQQQ should act as new resistance.

 
 
  Linda Piazza   12/7/200,  1:27:08 PM
The TRAN approaches the bottom of its descending regression channel, with the bottom of that channel now at about 3686.50 and the TRAN at 3690.70 as I type. The TRAN has fallen beneath the 61.8% retracement of the rally that began 12/01, but is trying to reclaim that 3691.24 retracement level--has as I typed. The TRAN's trading pattern over the last few days has shown some correspondence to these particular Fib levels, so we can perhaps expect a bounce attempt now, perhaps up to retest 3700-3702.

 
 
  Jonathan Levinson   12/7/200,  1:24:43 PM
The miners got whacked along with the broader market there, with HUI now down 1.87% at 220.43 and XAU -1.05% at 101.32. Gold is down .46% at 453.70.

 
 
  Linda Piazza   12/7/200,  1:22:50 PM
Here's an OEX 15-minute chart showing a new and larger descending regression channel, with the OEX having now approached the bottom of that channel: Link

 
 
  James Brown   12/7/200,  1:22:30 PM
Fossil Inc (FOSL) is seeing some follow through on yesterday's breakdown under the 200-dma.

 
 
  Linda Piazza   12/7/200,  1:18:21 PM
The OEX has now exceeded the downside target predicted by the fall out of the rectangular consolidation pattern into which it had settled at noon yesterday.

 
 
  Linda Piazza   12/7/200,  1:15:10 PM
The TRAN is at 3698.84 as I type, testing 3700.

 
 
  Jonathan Levinson   12/7/200,  1:15:07 PM
This is the steepest drop we've seen in many sessions.

 
 
  Jeff Bailey   12/7/200,  1:14:55 PM
Sell Program Premium .... SPX 1,184.73, QQQQ $40.02

 
 
  Linda Piazza   12/7/200,  1:13:23 PM
The TRAN is back inside its supposed bull flag, but I'm going to demote that flag now to a regular descending regression channel. A breakout above a bull flag should not have acted as this breakout acted. At 3702.54, the TRAN tests the 3700 level again, and I suspect that one of these tests is going to see the TRAN fall beneath that and stay beneath it. Once the TRAN tried an upside break and that failed, it may try a downside one. It may not be this test at which it breaks 3700, however.

 
 
  Linda Piazza   12/7/200,  1:10:54 PM
If you exclude a couple of hours yesterday when the OEX traded beneath the neckline, the neckline of a possible H&S on the OEX's fifteen-minute chart les at 565.50. I'm not inclined to exclude anything when trading is choppy, but if you include that dip and make the neckline a descending one, it crosses at about 563.50. In that case, the right shoulder would be out of proportion a bit, so that's not perfect, either.

 
 
  Jonathan Levinson   12/7/200,  1:08:26 PM
The current drop overshot the lower channel band at 40.20, bounced back and appears to be failing. Below 40.12, there's support at 39.95 and ligher support at 40.00. 39.60 QQQQ is the rising trendline support from the past several weeks on the 30 and 60 min charts, with confluence suport starting at 39.72. Above that level, the benefit of the doubt goes to the bulls, but below 39.60, the bias will shift to the downside.

 
 
  Linda Piazza   12/7/200,  1:08:04 PM
The OEX has dropped to the bottom of the range into which it settled about noon yesterday. The bottom of that tight range is at 565.88, but there's 15-minute mid-channel Keltner support just below that, in the 565.75 range.

 
 
  Jeff Bailey   12/7/200,  1:05:12 PM
01:00 Internals at this Link

 
 
  Jonathan Levinson   12/7/200,  1:01:49 PM
30 min channel support is in play at 40.20, but unless the price jumps back above 40.30 within the next 5 minutes or so, that channel support level will begin declining.

 
 
  Jonathan Levinson   12/7/200,  12:59:05 PM
Bonds continue to float along the unchanged line, with TNX now down .8 bps at 4.234%.

 
 
  Linda Piazza   12/7/200,  12:55:29 PM
The TRAN heads straight down toward the bull flag's top trendline, near 3713. This is not the action that market bulls wanted to see. Meanwhile, the advdec line drops, too, toward a test of its neckline for its H&S formation, if such a thing has validity.

 
 
  Jonathan Levinson   12/7/200,  12:55:09 PM
Here's a downside pennant break for QQQQ intraday. 40.31 should now hold as resistance, targeting nexst support at 40.25, then every 5 cents to 40.12-.15.

 
 
  Jeff Bailey   12/7/200,  12:53:37 PM
12:50 Market Watch at this Link

 
 
  Linda Piazza   12/7/200,  12:52:02 PM
The TRAN's drop from its test of 3730 has been a quick one and not a corrective-looking drop.

 
 
  Linda Piazza   12/7/200,  12:50:37 PM
The OEX turned down within that rectangular consolidation pattern and is now back at the middle of that formation.

 
 
  Jonathan Levinson   12/7/200,  12:50:21 PM
QQQQ is coiling itself into a pennant with higher lows and lower highs. The apex appears to have narrowed to 40.31-40.41, and a high volume break of either should give us at least some short term direction.

 
 
  Linda Piazza   12/7/200,  12:47:25 PM
Careful bulls, the advdec line has a bit of a H&S look to it. I'm trying to ignore that formation because the head was formed early in today's session, but . . .

 
 
  James Brown   12/7/200,  12:46:55 PM
Congrats on the weight loss, Marc.

As tempting as that burger might look I don't eat burgers either (and don't get Jim started on how bad they are for you!)

 
 
  James Brown   12/7/200,  12:45:18 PM
Dow-component Alcoa (AA) is slipping 1.2% and testing support at the $32 level. The stock is breaking its three-month up trend of higher lows.

 
 
  Linda Piazza   12/7/200,  12:44:36 PM
The TRAN pulls back from the 3730 resistance. It may find at least temporary support at 3720, although 3723 might also be support. Firmer support is back at the bull flag, at 3713.

 
 
  Marc Eckelberry   12/7/200,  12:37:23 PM
I went vegetarian six months ago, lost 8 pounds. Still miss the burgers though. Anyone see the documentary "Super Size Me"?

 
 
  Jonathan Levinson   12/7/200,  12:33:11 PM
Not nice, James. My own lunch just developed an inferiority complex.

 
 
  James Brown   12/7/200,  12:29:52 PM
A few weeks ago we mentioned that Hardee's was planning to launch a new "Monster" burger with 1,420 calories. Well the launch has begun but shares of CKE Resteraunts (CKR) are down 2.2% and testing support at the $12.00 level and its 50-dma.

Here's an image of the Monster Burger: Link

 
 
  Jonathan Levinson   12/7/200,  12:29:30 PM
QQQQ just broke the previous high and failed at 40.42. The short cycle oscillators are choppy but have just turned up for a new upphase within the sideways 30 and 60 min channels. "Chop" remains the prognosis until either 40.55 or 40.15 get broken.

 
 
  Linda Piazza   12/7/200,  12:27:46 PM
So far, the OEX again finds resistance at the top of the rectangular consolidation band in which it's traded since about noon yesterday.

 
 
  Linda Piazza   12/7/200,  12:23:20 PM
The TRAN hits next potential resistance at 3730.

 
 
  Jeff Bailey   12/7/200,  12:22:24 PM
Bullish swing trade long alert .... taking 1,000 shares of CMGI (CMGI) at the offer of $2.82 +13.4% Link , stop $2.43, target $4.50 for my MM profiles.

 
 
  James Brown   12/7/200,  12:19:56 PM
The DFI defense index is down about 0.5% following Goldman Sachs downgrade of the aerospace/defense sector from "neutral" to "cautious". The group does look very overbought and extended near all-time highs.

The DFI's MACD is producing a new sell signal today.

 
 
  Jeff Bailey   12/7/200,  12:17:20 PM
12:00 Internals at this Link

 
 
  Linda Piazza   12/7/200,  12:17:18 PM
Once again, the OEX tests the top of that narrower rectangular consolidation band in which the OEX has traded since about noon yesterday. This morning's high was 567.84, and the OEX is currently at 567.71. A new high will confirm the inverse H&S we've been watching (among many formations, some bullish and some bearish). As I said this morning, that might suggest a test of the top of the broadening formation, with that just above 571. Upper Keltner resistance on the 15-minute chart is at 571.12, suggesting some correlation.

Here's a problem. Traditionally, broadening formations saw two touches to form the upper trendline. On the third approach, prices typically fell short and then tumbled, breaking through the lower support. That action was pretty bankable once the formation set up. Over the last two years, we've seen a number of these "bearish" formations break to the upside, and if sentiment is strong enough today, that will happen again, but it's working against the traditional pattern that would see the OEX fall short of 571.12. TRIN supports a neutral to bullish scenario, but I frankly don't like the sideways trade that the OEX performed after it broke out of its descending regression channel. It's okay to rise, dip back to retest broken resistance and see if it's support and then climb again, but the OEX rose, dipped back, and then has meandered, forming that sideways rectangular pattern. Anyway, we'll soon see what happens as the OEX tests that top.

 
 
  James Brown   12/7/200,  12:15:31 PM
Overstock.com (OSTK) is down about 5.6% to $71.76 after Legg Mason (LM) cut the stock to a "hold" this morning.

 
 
  James Brown   12/7/200,  12:11:38 PM
Dow-component Caterpillar (CAT) has announced a deal to buy a minority stake in the Chinese company Shandong SEM Machinery. CAT will then have options to buy the rest of the company after two years.

CAT is up 1.79% to $92.20.

 
 
  James Brown   12/7/200,  12:09:04 PM
Yankee Candle Co (YCC) is up again, hitting new all-time highs on news the company will buy back $100 million of its stock. The company has 47 million shares outstanding.

 
 
  Linda Piazza   12/7/200,  12:08:48 PM
The TRAN now climbs above 3717-3718, solidifying its breakout above the descending regression channel, a probable bull flag. Market bulls now want to see a new high for the TRAN, although they should remember that soon after achieving a new high, the TRAN approaches its May 1999 high of 3797.05.

 
 
  James Brown   12/7/200,  12:05:54 PM
Guidant (GDT) is up 5.4% to $72.50 and gapping above resistance at $70.00 on rumors that Dow-component Johnson & Johnson (JNJ) is planning to acquire the company. GDT still under resistance from March.

 
 
  James Brown   12/7/200,  12:03:30 PM
The rocket-like trajectory of Sirius Satellite Radio (SIRI) is up another 8.2% today at $8.77. The stock is nearing new three-year highs. Today's gain appears to be generated by news that Toyota is going to offer SIRI radios in some of its models.

In the last two sessions three analyst firms have downgraded the stock. Smith Barney has labeled it a "sell".

Shares of SIRI are up more than 100% in the last 3 1/2 weeks.

 
 
  Linda Piazza   12/7/200,  12:01:44 PM
The TRAN attempts an upside break out of its ascending regression channel, a possible bull flag. It's had a 15-minute close above that channel, but hasn't confirmed by moving above the 3717-3718 S/R level. On a day like this, I'm not going to trust one lonely small-bodied candle sitting on a trendline just below resistance.

 
 
  James Brown   12/7/200,  11:57:51 AM
Video chipmaker NVDAis up 8.8% on big volume on news it plans to launch a new chip that Sony has chosen for its new PlayStation console. One analyst firm has upgraded the stock to a "buy" this morning.

 
 
  Jonathan Levinson   12/7/200,  11:56:15 AM
Bonds continue to hover around unchanged, TNX currently up .8 bps at 4.248%. 4.26% is confluence resistance immediately above.

 
 
  Linda Piazza   12/7/200,  11:52:38 AM
Here's a chart I posted earlier today, complete with the original annotations with some of the formations on that chart now defunct (H&S defined by red hats, for example), but what I really wanted you to notice was the rectangular range defined by the top blue horizontal trendline and the bottom red horizontal trendline. Link That's part of a wider range that narrowed down into this one. Right now, the OEX is in the middle of that range, and the middle-of-the-range level is no place from which to enter a new position. A break out of this range suggests an almost two-point move in the direction of the breakout, not much opportunity to profit unless the move carries further than that.

Bulls will note that the OEX broke out of a descending regression channel to the upside, consolidated in a formation that came down to retest the broken resistance of that channel, and so an upside break out of the rectangular range represents a successful end to that consolidation. Bears will note that the OEX is in a broadening formation on the daily chart, usually a topping formation, and that the original top of that rectangular range was nearer 569, so a breakout above 567.75 does not constitute a real breakout. Each would have a valid point, although we should not count on the broadening formation being resolved to the downside until it is.

 
 
  Jonathan Levinson   12/7/200,  11:49:07 AM
Session low for Nymex crude here at 41.975, down 2.33%. Looks like the markets are back to anticipating a friendly OPEC meeting this week.

 
 
  Jeff Bailey   12/7/200,  11:48:57 AM
52-week high alert .... for the Broker/Dealer Index (XBD.X) 149.36 +0.78% Link ... as it challenges both its reverse head/shoulder objective and February 2004 highs.

On Tuesday, December 14, Lehman Brothers (LEH) $85.92 +0.26% Link kicks off the sector's earnings. Consensus is for EPS of $1.68 versus year ago $1.71.

 
 
  Linda Piazza   12/7/200,  11:47:09 AM
I just noticed that the Nikkei closed beneath its 50-dma again today. I'm not certain how much relevance that average has for the Nikkei, though, as it's been trading rather readily back and forth across that range as it trades within an ever-tightening range since August. One average that does appear to have some relevance is the 75-ema. When doing research for one of my Asia/Europe articles, I came across a quotation from a fund manager who was mentioning the 75-ema. That caught my attention because of my interest in the 72-ema and its correspondence on some of our charts. A chart of the Nikkei shows an unusual number of daily opens, closes, highs or lows along that 75-ema. Monday, for example, the Nikkei gapped lower to open right at the 72-ema and then declined from there, with today's declines adding to those begun when the Nikkei gapped below that average. Currently the 75-ema for the Nikkei is at 11,026.85, so we can assume some resistance at that level. It's curious the way that the Nikkei gaps above or below that average at the open, however.

 
 
  James Brown   12/7/200,  11:41:40 AM
Kana Software (KANA) is up 13.6% on five times the average volume this morning. The stock is breaking out over significant resistance at the $2.00 level. Watch for technical resistance overhead at the exponential and simple 200-dma's at 2.32 and 2.45 respectively.

 
 
  Linda Piazza   12/7/200,  11:35:55 AM
The SOX has currently pulled back from its test of 450 this morning, with a high of 451.31 and the current level at 447.77.

 
 
  Linda Piazza   12/7/200,  11:33:02 AM
Back. The OEX is currently in the middle of the 565.90-567.75-ish rectangular range into which it settled yesterday afternoon.

 
 
  Jonathan Levinson   12/7/200,  11:31:58 AM
And now a bounce from a higher low. QQQQ is net unchanged from yesterday's 1PM levels, and this whole zone between 40.50 and 40.15 remains a chop zone. It will either prove to be distribution or accumulation, but until there's a decisive break of either the range top or bottom, it will remain a dangerous, frustrating area.

 
 
  Jonathan Levinson   12/7/200,  11:22:41 AM
QQQQ just failed at a lower high below 720-tick SMA resistance at 40.37. Look for a retest of 40.25 support here, below which 40.20 and 40.15 are next support. 40.12-.15 is the stronger line.

 
 
  Jonathan Levinson   12/7/200,  11:09:04 AM
Nymex crude is holding a 1.4% loss here at 42.375, while gold remains lower by .54% at 454.60. HUI is down .56% at 223.36, XAU -.2% at 102.2. This is the first time in what seems like a long time that the miners are not underperforming the metal, even if on a purely intraday basis.

 
 
  Linda Piazza   12/7/200,  11:08:55 AM
The OEX retests its five-minute 100/130-ema's, with those averages at 566.64 and 566.60, respectively. The OEX has again been oscillating around these averages without a clean break either direction.

I'm stepping away for a few minutes.

 
 
  Jeff Bailey   12/7/200,  11:05:59 AM
11:00 Internals at this Link

Yesterday's internals at this Link

 
 
  Jeff Bailey   12/7/200,  10:58:59 AM
10:55 Market Watch at this Link

 
 
  Linda Piazza   12/7/200,  10:58:56 AM
The OEX will encounter 15-minute Kletner support near 565.50. A drop much below that would negate the potential inverse H&S I displayed earlier, while the OEX may need a drop down to slightly below 564 to confirm the biggest regular H&S, seen on the 15-minute chart. That H&S has a right shoulder that's growing a little out of proportion.

Generally, on an intraday basis, the OEX is trading in a rectangular band that extends roughly from 565.50-569, with one incursion above the top and one below the bottom of that range, just to trap a few bulls and bears. That upper band line has dropped since Friday to about 567.80. Will the next break of that range be a trap, too? Could be, or it could be the big move we've all waited to see. I honestly can find nothing on the charts that says definitively one way or the other.

 
 
  Jonathan Levinson   12/7/200,  10:55:26 AM
30 min channel support for QQQQ has risen to 40.27 and is only now stalling in its rise. If bears can hold the price below 40.30 for another 5 minutes, the cycle will roll over for an overdue downphase. The short cycles are rolled over and half way into their downphase, and QQQQ looks good for a a rtest of the 40.17 afternoon low yesterday if the price remains below 40.30.

 
 
  Jeff Bailey   12/7/200,  10:54:52 AM
Consumer Credit ... later today, at 03:00 PM EST, October consumer credit forecasted to inrease by $6.0 billion, after $9.8 billion in September.

October is historically strong.

Revolving credit forecasted at $4.0 billion ($6.2 billion in Sep.)

Nonrevolving credit forecasted at $3.5 billion ($3.7 billion in Sep.)

 
 
  Linda Piazza   12/7/200,  10:52:25 AM
The TRAN tests 3700 again, at 3700.85 as I type. In the first few minutes of trading, it hit a low of 3699.91.

 
 
  Linda Piazza   12/7/200,  10:47:38 AM
The OEX drops below the triangle that it had formed, accompanied by similar drops in the SOX and TRAN and some other indices. The TRAN quickly finds at least temporary support, however, just above 3700, and that may be the story of the morning. Each breakout, upside or downside, may quickly find support or resistance.

 
 
  Linda Piazza   12/7/200,  10:42:29 AM
Everything's coiling into triangles now: the TRAN, the OEX, Nasdaq, SOX, etc.

 
 
  Jane Fox   12/7/200,  10:41:07 AM
Linda I do agree (Linda's post at 10:25) that the trend of the AD line is helpful. I usually adjust the daily high to accommodate for the AD line always having to "start" the day at 0 so the AD line's daily highs currently sit right at yesterday's daily highs but the McClellan Oscillator, which I use to determine a bullish or bearish AD line, has flopped back and for all day. A break of the AD line's daily highs would probably made the McClellan Oscillator cross to bullish so I have my alerts set.

 
 
  Jeff Bailey   12/7/200,  10:29:09 AM
VIX.X 13.07 -0.9% .... DAILY Pivot Levels .... 12.77, 12.94, Piv = 13.17, 13.34, 13.57.

 
 
  Jonathan Levinson   12/7/200,  10:26:14 AM
NEW YORK (CBS.MW) -- New York State Attorney General will run for governor in 2006, according to several reports including the Associated Press. Spitzer has been active in prosecutions during his tenure as attorney general, tackling Wall Street research abuses and the insurance and mutual fund industries.

 
 
  Linda Piazza   12/7/200,  10:25:58 AM
I don't know if Jane would agree, but the trend of the advdec line has been helpful to me lately. That line is now dropping as I type, but if you look at the advdec line since about 11:00 yesterday, it's still on a generally upward slope, looking as if it's coming back now to test the ascending trendline. Mixed evidence again, at least for me. If you look at just today's action, it's coiling, as is the VXO.

 
 
  Jeff Bailey   12/7/200,  10:21:18 AM
Bullish swing trade raise stop alert .... for the SIRI Mar. $5 calls (QXO-CA) to $3.20 from $2.80. (this would be $8.20 in the underlying shares of SIRI)

 
 
  Jeff Bailey   12/7/200,  10:18:11 AM
Sirius Satellite Radio (SIRI) "X" gets another square .... $9.00 +11.12%. Link

 
 
  Jeff Bailey   12/7/200,  10:16:30 AM
Current OPEN MM Profiles at this Link

 
 
  Jonathan Levinson   12/7/200,  10:15:58 AM
30 min channel resistance is currently up to 40.55, while 60 min channel resistance is 40.50 and has just held on the first test at the session high for QQQQ.

 
 
  Linda Piazza   12/7/200,  10:15:35 AM
The OEX tests the neckline of the inverse H&S displayed on the chart linked to my 10:04 post. Need I add that this is also the right-shoulder area for a larger regular H&S that was too big to show on that chart, so that it's difficult to judge whether we should expect a push through that neckline or a rollover at the shoulder? A 15-minute close above 567.79 would seem to confirm the inverse H&S, and would seem to set up a test of the top, ascending trendline of the broadening formation, with that top trendline now at just over 571, but we've seen some strange trading behavior, and I wouldn't bet the whole farm on such an upside play if the formation is confirmed. By the way, I'm just as skeptical of the bearish formations right now. TRIN seems to support the bullish plays more than the bearish ones right now, but we saw how quickly the TRIN changed sides, too, yesterday.

 
 
  Linda Piazza   12/7/200,  10:04:17 AM
Here are just a few of the conflicting formations that can be found on an OEX's short-term chart, color-coded so that you can hopefully pick them out a little better: Link Broaden the time frame, and you can find more. What are you going to believe when you see this? What I believe is that bears and bulls haven't sorted out who has primacy just yet, as is common in a broadening formation, and this is just going to be a mess to trade for a while. The trouble is that if you decide to wait it out until this gets sort out, you may miss the real movement, but the primary goal of any trader is not to have an account decimated while you get chopped to pieces trying to trade each of these formations. There's always another trade.

 
 
  Jonathan Levinson   12/7/200,  10:01:47 AM
The Fed has just announced a 4B overnight repo, which drains a net 2.25B against the 6.25B overnight repo expiring.

 
 
  Jonathan Levinson   12/7/200,  9:55:33 AM
QQQQ is holding its pattern of lower highs since yesterday at 2:45PM, but needs to stay below 40.35 to respect the descending trendline. Next resistance is just above at 40.37, and we can view that 2 cent range as a confluence zone. Yesterday's high of 40.42 is next above that level.

 
 
  Linda Piazza   12/7/200,  9:55:00 AM
Shortly after the open, the OEX moved below the five-minute 100/130-ema's, confirming a neckline break of a small H&S at the same time. Those averages are now at 566.58 and 566.54, respectively, with the OEX moving up to test them. OEX bears want to see the OEX roll down from below those averages, falling below the low of the day again, confirming yet-another H&S (there are more) and hopefully negating the inverse H&S that's still a possibly valid formation. Chart to follow.

 
 
  Linda Piazza   12/7/200,  9:50:58 AM
The TRAN is now at 3703.90, trying to steady at the 50% retracement of the rally that began 12/01, at 3702.09. This is also near mid-channel support on the 15-minute Keltner chart, showing strong correlation between two different types of analysis. We know that 3700 can be expected to provide round-number support, too. If the TRAN is unsuccessful at finding support here, the bottom of the channel is now near the 61.8% retracement, at about 3690.24, and that would be expected to be next possible support. Market bulls would prefer that the TRAN steady above 3700, however.

 
 
  Linda Piazza   12/7/200,  9:44:04 AM
Unfortunately, this kind of confusing action is indicative of a broadening formation, such as that seen on top of the OEX's climb on its daily chart.

 
 
  Linda Piazza   12/7/200,  9:41:07 AM
The OEX has now confirmed the small H&S on the top of its three-minute chart, downside target about 565.60. However, it's now at a level of some S/R over the last few days and it may bounce anywhere from the current level down to that 565.60-ish level. Unfortunately, that's not below the appropriate right-shoulder level for the competing inverse H&S on the five- and seven-minute charts, so this action does not yet negate that potential inverse H&S.

 
 
  Linda Piazza   12/7/200,  9:36:06 AM
The SOX headed lower, breaking below a trendline off yesterday's first morning low, but now it heads right back up to test that trendline, at just under 448.

 
 
  Linda Piazza   12/7/200,  9:35:13 AM
The TRAN heads lower this morning, at 3704.27 as I type.

 
 
  Jonathan Levinson   12/7/200,  9:34:20 AM
QQQQ is retesting 40.28 support, resuming yesterday's closing range between 40.22 and 40.38. Breaking 40.28 as I type to a session low of 40.25. 30 min channel support is currently 40.25, but will begin to decline if price doesn't bounce immediately.

 
 
  Linda Piazza   12/7/200,  9:32:24 AM
The OEX opens and sits at the flat-line level.

 
 
  Jeff Bailey   12/7/200,  9:22:47 AM
Swing trade raise bullish stop alert .... will raise the bullish stop on the SIRI Mar. $5 calls (QXO-CA) to $2.80. (This would be $7.80 in the underlying shares of SIRI)

SIRI higher at $8.56 .... inks deal with Toyota

 
 
  Jonathan Levinson   12/7/200,  9:10:47 AM
QQQQ is trading 40.34 here, ten year bonds swinging back to positive while CAD and Euro futures hold their gains, with CAD down slightly following the announcement.

 
 
  Mark Davis   12/7/200,  9:10:10 AM
Point well taken Jonathan. If the US dollar made the cover of Time or Newsweek with a "sky is falling" type article it would be time to back up the dump truck. Maybe the Economist only rates a small wheelbarrow. (grin)

 
 
  Jonathan Levinson   12/7/200,  9:09:07 AM
Bank of Canada leaves rates unchanged:

OTTAWA—The Bank of Canada today announced that it is maintaining its target for the overnight rate at 2 1/2 per cent. The operating band for the overnight rate is unchanged, and the Bank Rate remains at 2 3/4 per cent.

Information received since the October Monetary Policy Report (MPR) suggests that economic activity in Canada has been broadly in line with the Bank's expectations, with core inflation remaining below the 2 per cent inflation target. Although oil prices have declined, global economic growth prospects have moderated slightly. The U.S. dollar has depreciated further against major floating currencies, including the Canadian dollar. If exchange rates were to persist at current levels, and if all other economic and financial factors were to remain unchanged, there would be a dampening effect on aggregate demand for Canadian goods and services.

In light of these considerations, the Bank decided to leave the target for the overnight rate unchanged. With the overnight rate at 2 1/2 per cent, a considerable amount of monetary stimulus remains in the Canadian economy. As well, the underlying trends in the global economy continue to point to solid economic growth. Accordingly, the Bank will be paying close attention to the prospects for factors that affect pressures on capacity and, hence, inflation. [...]

Link

 
 
  Jonathan Levinson   12/7/200,  9:00:38 AM
Mark, I was just thinking and, as many others no doubt are, hoping the same thing. However, the Economist is a business/economics publication. I believe that the headline indicator requires that it be a "mainstream" publication- by which we'd be waiting to see the story make the cover of Time or Newsweek, that sort of thing.

 
 
  Mark Davis   12/7/200,  8:59:21 AM
Jonathan I wonder if the US dollar making the cover of The Economist is equivalent to the Stock Market making the cover of Business Week, i.e. a contrary indicator.

 
 
  Linda Piazza   12/7/200,  8:57:50 AM
In my 00:23 post last night, I showed that the OEX was caught in a difficult-to-trade broadening or megaphone shape. I had hoped we'd see a breakout or breakdown in overseas equities markets, currency markets or futures markets to help guide us this morning when thinking about the OEX. The Nikkei did reject 11,000 again and dive below the important 10,900 S/R level, but our futures barely reacted. This morning, some European equity markets climb, but when viewed on a five-day chart, they're either coiling or climbing back to test broken support (CAC 40 and FTSE 100). The dollar weakened overnight with crude prices weakening at about the same time, with the weakening in crude accounting at least in part to the climb in European bourses and our futures. Now currency markets consolidate, with the direction of the dollar's breakout uncertain as yet, and the climb in our equity futures might be called modest. The ES 1193-ish area has again been rejected, at least temporarily, even though that "rejection" might be called modest, too.

A modest gain in the OEX at the open will probably bring it up to test the right-shoulder area for the latest in a series of potential H&S's, but also to test the neckline area for the latest in a series of potential inverse H&S's. Do you see the quandary? OEX 567.75-568 defines both, and over the last couple of days, we've seen one formation after another confirmed, only to see prices reverse or just amble around for a while. From this vantage point, I still see difficult trading conditions. Hopefully, after the market opens, we'll see some sorting out of factors and will have more guidance.

 
 
  Jeff Bailey   12/7/200,  8:50:07 AM
The word "crisis" in Chinese is composed of two characters: the first, the symbol of danger; the second, opportunity.

 
 
  Jonathan Levinson   12/7/200,  8:43:55 AM
The cover story of this month's The Economist:

THE dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted. If America keeps on spending and borrowing at its present pace, the dollar will eventually lose its mighty status in international finance. And that would hurt: the privilege of being able to print the world's reserve currency, a privilege which is now at risk, allows America to borrow cheaply, and thus to spend much more than it earns, on far better terms than are available to others. Imagine you could write cheques that were accepted as payment but never cashed. That is what it amounts to. If you had been granted that ability, you might take care to hang on to it. America is taking no such care, and may come to regret it.

Story at this Link

 
 
  Jonathan Levinson   12/7/200,  8:32:12 AM
Q3 Productvity missed by .2%, but there's little reaction from the futures so far, TNX up .2 bps at 4.242%, equities holding their gains, gold up 40 cents at 456.20 and euros up .32% at 1.3463.

 
 
  Jonathan Levinson   12/7/200,  8:30:35 AM
Headlines:

8:30am U.S. Q3 FACTORY PRODUCTIVITY REVISED UP 4.6% VS. 4.3%

8:30am U.S. Q3 NONFINANCIAL PRODUCTIVITY UP 4.2% VS UP 3.3% Q2

8:30am U.S. Q3 PRODUCTIVITY REVISED TO UP 1.8% VS.1.9% PREV

 
 
  Jonathan Levinson   12/7/200,  7:58:14 AM
Equities are higher, ES trading 1192.25, NQ 1623, YM 10566 and QQQQ +.04 to 40.31. Gold is up 20 cents to 456, silver +.016 to 7.979, euros and CAD futures also green and Nymex crude -.25 at 42.725.

We await the 8:30 release of Q3 productivity, est. 2%.

 
 
  Linda Piazza   12/7/200,  7:24:52 AM
Good morning. Ahead of Japan's GDP number tomorrow, the Nikkei and most other Asian markets declined overnight. In contrast, most European markets trade in positive territory, but gains are capped by a decline in miners in the U.K. and a decline in insurers in Europe, and weakness in the dollar. Our futures held steady while Asian markets declined, and then climbed modestly when European markets did. As of 7:12 EST, gold was down $0.40 and crude, down $0.33. More detail about Asian and European markets follows in succeeding paragraphs.

The Nikkei opened near the flat-line level, hit 11,000 for a few minutes about mid-morning, and then headed down. It closed near the low of the day, down 108.33 points or 0.99%, at 10,873.63. Exporters declined as crude prices climbed again during the Asian session, ahead of a downturn in crude prices as European markets opened. Drug manufacturers suffered from Merrill Lynch's downgrade of Pfizer. Banking stocks were mostly lower, but autos were mixed. Some mentioned fear of tomorrow's Japanese Q3 GDP number, to be released before the market opens, as a prime reason behind the declines.

Most other Asian markets declined. The Taiwan Weighted gained 0.10%, but South Korea's market was hit by a stronger won against the dollar, with the Kospi declining 1.11%. Singapore's Straits Times fell 0.79%. In Hong Kong, China's PC maker Lenovo Group was suspended from trading for the second day in a row amid speculation that the company discusses a possible acquisition with a major international company, with some rumors suggesting that major company may be IBM. The Hang Seng fell 0.15%. China's Shanghai Composite declined 1.19%.

In contrast to Asian markets, most European markets trade in positive territory. The dollar's weakness in overnight trading may be capping gains, however. In the U.K., gains are limited due to a Merrill Lynch downgrade of several U.K. miners. Germany's ZEW indicator of economic sentiment surprised to the upside, with December's number climbing to 14.4 against November's 13.9. Insurers turn down after a jury decision that the World Trade Center attacks were two separate events, a decision that increases payouts for those companies if upheld. Germany's Allianz seeks to overturn the verdict. In stock-specific news, Credit Suisse detailed restructuring plans that will include fully integrating CSFB and spinning off its Winterthur unit rather than selling it. BNP Paribas declined after announcing that it would buy Citigroup's Swiss banking unit.

As of 7:12 EST, the FTSE 100 traded higher by 7.60 points or 0.16%, at 4,730.40. The CAC 40 traded higher by 22.97 points or 0.61%, at 3,790.36. The DAX traded higher by 26.78 points or 0.64%, at 4,220.69.

 
 
  Linda Piazza   12/6/200,  12:23:37 AM
Broadening formations typically form at the top of a climb. They're also typically resolved to the downside, although don't tell that to anyone watching them over the last two years. They're notoriously difficult to trade. This difficulty comes from two reasons. First, they're formed when trading becomes emotion-based, such as it probably is now when bulls see indices overcoming some important bear-market levels and believe markets will ultimately go higher, and bears see some signature developments in sentiment indices and other factors that lead them to believe that markets should break down. Emotion-based trading is not particularly amenable to technical analysis, and the competing bullish and bearish formations we've been seeing, the confirmations followed by sideways trading, and the quick reversals lately are all typical. The second reason that broadening formations are so difficult is that each breakout to a new high or a new low is met by a reversal as the formation broadens: Link

Traders are left with a difficult decision. Do they not trade until there's a clear breakout or breakdown, or enter risky plays? Those willing to accept the risk could enter at bounces away from the upper or lower trendline, continuing such tactics until there's a clear breakout. The trouble with that tactic is that by the time the trendlines are clearly established, you may be seeing the last touch before such a breakout. Even if a trader is right about direction and entry, trading can be choppy within these formations.

The OEX appears to be moving down through the formation again after Friday's touch to establish the top trendline. If it's moving down, it may find at least temporary support near 565.45 or again at 564, if the OEX drops below the first level. I could point out a number of potential formations (new H&S on the three-minute chart, neckline now a penny or two below Monday's close; new potential H&S on the 15-minute chart, neckline at about 564 with the three-minute version forming the top of the right shoulder; potential inverse H&S, neckline at about 567.90), but you get the picture. It's a mixed-up picture that provides enough information to confirm any bias or to refute it. What are you going to trust? If you've got a bias, you're going to trust the formation that fits it, but if you're sincerely just trying to look at the charts without bias, it's clear that bears and bulls still battle it out with no clear winner as yet.

Tomorrow, I'll continue to post my observations, but be aware that each pattern confirmation can be followed by a reversal. I want to see how overseas markets behave and how our futures react before I attempt even a tentative guess as to likely direction or non-direction. I'd like to see a breakout or breakdown in overseas market, futures markets and/or currency markets before I even believe we'll see a directional movement. As I type, that's not happening, with the Nikkei lower, but not much lower.

 
 
  OI Technical Staff   12/6/200,  12:21:37 AM
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