Option Investor
Archive
HAVING TROUBLE PRINTING?
Printer friendly version
Jeff Bailey : 10/24/2005 12:57:27 AM

Last 3 Week's Pivot Matrix found at this Link

Jeff Bailey : 10/24/2005 12:52:40 AM

Weekly / Monthly Pivot Matrix found at this Link

Jeff Bailey : 10/24/2005 12:16:33 AM

Tab (09:57:20) ... It is my analysis (based on observation) that the 10-year and 30-year Treasury YIELDS have been rising to curb inflation, which is in unison with current Fed activity.

Will the Fed continue to raise rates when Fed Chairman Greenspan leaves?

Probably so, unless new reads on housing prices, energy prices and broader commodity prices abate. At the FOMC's last meeting, only one committee member voted against the 25 basis point increase in the federal funds target (Mr. Mark Olson) to 3.75%.

January 06 Fed Fund Futures (ff06f) currently trade 95.78, so roughly 88% of two more 25 bp rate hikes.

Note: I do hope traders/investors recognized my remarks (Coincidence) about Mr. Greenspan being responsible for the October 1987 crash were tongue-in-cheek. I have long been a proponent of Mr. Greenspan and Fed policy.

Has the Fed made mistakes in the past? Yes, I believe so. Here is an article I wrote, that Gold-eagle.com picked up, which I first wrote for OptionInvestor.com. Article at this Link

Gold on spot market recently changed hands at $464.90. Too loose, too tight, or just right?

Coninuous Gold Contract ($GOLD) Link (conventional 2-point box scale)

Recent History Gold traded above the $400 level in late November, 2003. The Fed bagan raising rates from 1.0% to 1.25% in late June 2004. A "steady and measured pace."

Jeff Bailey : 10/23/2005 10:49:15 PM

Australian 3Q Final PPI rises 1.5% vs. 2Q and 3.4% from a year earlier.

All Ordinaries ($AORD) Link down 8.4 points, or -0.19% at 4,316.80.

Jeff Bailey : 10/23/2005 10:45:30 PM

Mini-sized Dow futures (ym05z) ... up 5 at 10,245.

Jeff Bailey : 10/23/2005 10:45:25 PM

Hurricane Wilma ... DJ - Hurricane Wilma strengthens to Category 3.

OI Technical Staff : 10/23/2005 9:59:59 PM

The Market Monitor has been archived. You may view it and any previous days here: Link

Disclaimer: Stocks discussed in the Market Monitor are for educational purposes only and any analysis is not meant to imply a recommendation for or against that stock. The analysts in this forum as on any other website are prohibited by the SEC from giving any specific advice to ANY individual trader. All information posted is for ALL readers and is not meant to be directed to any individual. Our analysts cannot answer any email questions regarding any specific stock. Please do not ask and please do not take offense if requests are denied.

Results posted in the Market Monitor are hypothetical and OIN does not claim that any reader achieved these exact results. Due to the lag time between research, writing, posting, uploading, reading and execution there will be differences between the actual signal given and the fill achieved by the reader. Fills may be better or worse but in most cases they will be different. The writers will make every effort to give advance notice of intended signals and indicate potential price targets. Your individual results may vary depending on your activity level and aggressiveness. This forum is intended as an education service only. Trading involves risk and should not be attempted by anyone not ready to accept this risk. By acting on any signal in this forum you agree and personally accept this risk.

Tab Gilles : 10/23/2005 9:57:20 PM

Jeff, excellent points brought up [4:26:42 PM post] Here some charts I'd brought up on MM last year, $INDU/$TRAN/$TNX. Looking at a period where rates rose and the DJIA was rangebound, then as rates decline the DJIA entered a bull market. My question is....are rates rising to curb inflation or to end the real estate (ATM) boom? Also, will the Fed continue raising rates when Fed Chairman Greenspan leaves? Link Link Link

Jeff Bailey : 10/23/2005 9:52:23 PM

Mini-sized Dow futures (ym05z) higher by 5 points at 10,245.

U.S. Dollar Index (dx00y) 90.31 +0.44% ...

Jeff Bailey : 10/23/2005 9:52:15 PM

Program Trading Levels for Monday ... HL Camp & Company has their computers set for program buying at $+4.49 and set for program selling at $+1.99.

Jeff Bailey : 10/23/2005 5:11:18 PM

Hurricane Wilma DJ - The NHC said Wilma remains "category 2" storm, but lower SW Florida residents should plan on Wilma reaching "category 3" upon landfal. NHC forecasting Wilma to produce 9' to 17' storm surge.

Jeff Bailey : 10/23/2005 5:08:29 PM

Global Politics ... DJ - Exit poll shows socialist Kaczynski leading pro-market Tusk in presidential runoff.

Jeff Bailey : 10/23/2005 4:26:42 PM

Q4 Program Trading Curbs at this Link

Understand that trading curbs restrict computerized trading. Computers do not rationalize, thus the need for curbs and "up-tick" rule.

However, program trading buy/sell premiums can still be generated when "curbs are in" as futures and cash market humans are still active participants.

Curbs for this quarter are based on a 150-point move from the prior session's close for the Dow Industrials (INDU).

Circuit Breakers and Collars explanation found at this Link

Jeff Bailey : 10/23/2005 4:10:46 PM

Black Monday 10/19/87 ... Took place on the Monday following the 3rd Friday. That was then, this is now calendar Link

The stock market didn't just "crash" and find its end on October 19, 1987. Crisis can equal opportunity. For bears and bulls!

There are some eerie similarities, if not coincidences today, which were found roughly 18 years ago.

Coincidence: Market Monitor subscribers may have enjoyed some of this week's commentary regarding Fed Chairman Alan Greenspan as he sets to retire. Yes! Mr. Greenspan was just starting his career as the head of the U.S. central bank in 1987. Certainly he was responsible for what was about to happen on "Black Monday." Some believe Mr. Greenspan has a self serving agenda as he sets to retire. It would be fitting for the markets to crash just prior to his retirement.

History:When history is reviewed, it was shortly after October 12 that major brokerage houses and Federal banking and stock exchange heads began contemplating the sudden and inexplicable 200-point decline prior to October 19.

Equity market losses weren't confined to U.S. markets on 10/19/87 (Australia -45.8%, Canada -22.5%, Hong Kong -45.8%, United Kingdom -26.4%) and several macroeconomic factors were cited for the sudden decline.

One factor cited most was longer-term Treasury YIELDS that had started 1987 at 7.6% had climbed to 10%, where this high YIELD may have become so lucrative to investors that they fled stocks looking for yield. Here's a present day chart of the 30-year Treasury YIELD Link where yield stands at 4.609% having started the year (2005) out at 4.822%.

Note: Longer-term rates are lower-to-unchanged than they were at the beginning of this year!

(Question I Have: When did Mr. Greenspan observe publicly that homeowners would have saved a fortune had they used adjustable rate mortgages?(see 10/18/2005 08:59:18)

Some believe complex hedges and program trading algorithms sent the equity markets plunging, with the Dow Industrials recording its largest percentage decline in a single day. Note: Trading curbs were put in place late Thursday (10/20/05)

Not unlike present day (10/21/05), the U.S. trade deficit was rising in 1987. In October of 1987 the value of the U.S. dollar began to decline sharply. Note: Of late (10/21/05) the dollar has been rising. Point and figure chart of the U.S. Dollar Index at this Link

Now that we have some further background and thoughts on what may have been contributing factors to the "Crash of 87" let's take a look at the Dow Industrials during that time period.

Here's a point and figure chart of the Dow Industrials dating back to 1985 thru early 1991. Look what happened in just a very short period of time from 10/12/87 to 10/20/87. Think about those that may have taken a drastic last step, when all they worked for, had come to an end.

PnF Chart of INDU (1986-1990) at this Link

A 20% decline from current trade of 10,215 would have the INDU falling to 8,172. With some understanding of history and "key dates," I've marked those dates on the PnF chart of the INDU.

Current Analysis: Longer-term Treasury YIELDS are BELOW where they began the year. Nowhere near 10%! This week, I was monitoring our junk bond Pacholder High Yield (PHF) $8.89 +1.60% Link for bullish entry point as it's SEC YIELD ($0.075 dividend per month / $0.90 dividend per year) did equate to 10% intra-day on Thursday! The dollar has been gaining strength of late. Very different than that found leading up to, and during the Crash of 87. Now we have something to monitor for! (longer-term yield action relative to junk bond yield, as well as dollar action)

Now let's take a look at how the Dow Industrials (INDU) look today, and envision what a "Crash of 87," or "Black Monday" might look like if similar to October 1987.

Present day chart of the Dow Industrials at this Link

Analysis: The INDU has given two consecutive "sell signals" at 10,500 and 10,350. On Tuesday, a large block sell trade in shares of Exxon Mobil $55.37 near the $58.00 level helped see the INDU reverse from 10,450. First sign of "Crash 87" repeat would be a trade at 10,150 where trader would want to be monitoring YIELD action and DOLLAR action. Further weakness to 10,050 would be testing important 10,050 support. Here, program trading curbs would be triggered, and curbs would be put in place. It would then be a trade at 10,000 and a spread triple bottom sell signal (see October 1987 crash pattern recognition) that would be the likely alert to a "Crash of 1987" repeating.

After analyzing the "Crash of 1987" I would have to say it is highly unlikely that history should repeat on Monday. However, we now have a better idea of what to be alert to (YIELD action, Dollar action, INDU action).

Dow Diamonds (DIA) 102.14 Link (INDU = 10,215) November Option Chain found at this Link

Remember! The "Crash of 1987" was quick and lasted just a few days. There was great opportunity from not only the bear side, but the bull side!

Market Monitor Archives