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Keene Little : 10/18/2006 12:43:14 AM

In case you missed it I posted two charts (60-min and daily) for the NYSE after Tuesday's close (6:19 PM) which I think is a good index that shows how we're positioned for a potential high to our rally. I also posted similar charts for SPX and COMP. The NYSE charts show some potentially important Fib projections that were hit at 8695 on Monday and then the sharp drop Tuesday morning. It broke some important trend lines and back below the May high.

The afternoon bounce then stopped at those trend lines and just under the May high. It's set up for a kiss goodbye at resistance. Tomorrow will be the test for the market--a continuation higher will tell me Tuesday was just a brief sharp correction to the rally. But a sell off that starts almost immediately and takes out Tuesday's low will tell me that an important high is probably in place. Looking a little closer at Tuesday's action, this ES 10-min chart shows the drop and bounce. Link

After the sharp drop, which looks impulsive, it should mean another leg down is coming. The afternoon bounce is clearly a 3-wave corrective move thus far, labeled A-B-C on the chart. At 1378.50 it achieved two equal legs up (wave-A = wave-C) and looks very good for a completion of a 2nd wave bounce--sharp and quick (and designed to fool the bulls into thinking it was just a pullback that didn't damage the rally).

If that's it for the bounce then we'll get another leg down out of the gate on Wednesday. But if we see a small sideways consolidation followed by a move higher then it's likely we'll see a continuation of the rally this week. At the top of this bounce is where I showed several indices that stopped at resistance so Wednesday will be telling. The setup is for an immediate decline and head for new lows. If the bears don't capitalize on this setup then look for new highs yet to come.

Keene Little : 10/17/2006 11:22:59 PM

Wednesday's pivot tables: Link and Link

Jeff Bailey : 10/17/2006 10:16:35 PM

Not a bit of internal damage looks to have been done today. If you or I thought today's price action was strong after mid-morning trade, here's some PnF internals that show how strong demand remains.

According to Dorsey/Wright, the NYSE saw 102 issues rising on their charts and 39 falling. Folks, this isn't 102 stocks showing a gain, but 102 stocks where an "X" would have been charted versus 39 stocks where an "O" would have been charted. There were 4 new reversing higher buy signals given and 4 new reversing lower sell signals given for a net loss of 0. There were 24 upward reversals and 23 downward reversals (3-box reversals).

For the NASDAQ, 147 issues rose on their charts and 69 fell. There were 13 new reversing higher buy signals versus just 3 reversing lower sell signals for a net gain of 10. There were 29 upward reversals and 37 downward reversals (3-box reversals).

Optionable stocks saw 154 issues rising on their charts and 71 falling. There were 13 new buy signals given and 5 new sell signals given for a net gain of 8. There were 21 upward reversals and 42 downward.

OI Technical Staff : 10/17/2006 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 : 10/17/2006 8:02:18 PM

Open Positions Portfolio & Stock Watch Yesterday I mentioned that any negative news could easily start a selloff...today's PPI report did that. After hours reports from several tech stocks was mixed. Tomorrow's CPI is the next test. With most indicators giving over sold warnings profit taking was to be expected. Tomorrow wil more than likely be the pivot point as we approach OpEx this Friday. Apple reports that may provide some upside catalyst. Link

$NDX and several charts Still no definitive sell signal, although close and market is overbought. Link

Profunds UltraOTC (UOPIX) & Profunds Ultra SmallCap (UAPIX) Link Link

Keene Little : 10/17/2006 6:19:41 PM

The larger market, the NYSE, also shows a similar setup to SPX and NDX in that it had broken above its May high, the trendline across the two highs from Aug/early September and the trend line across the highs since mid-September. Today it dropped back below these lines and then bounced back up to it this afternoon. On the 60-min chart you can see the confluence of trend line resistance now just above 8660. So far it's looking like a throw-over followed by a potential kiss goodbye in the making. Link

I show a Fib projection on the 60-min chart at 8695.40 which is based on two equal A-B-C moves for this index from the low on September 11th. On this daily chart I show a Fib projection based on the two legs up from the June low--a larger A-B-C move--where the 2nd leg would have been equal to 162% of the 1st leg up (a common relationship) at 8696.93. Yesterday's high was 8694.39. Close enough for a top? We'll know more tomorrow. Link

Keene Little : 10/17/2006 5:55:55 PM

This 120-min chart for the COMP shows how price pulled sharply back from the top of its channel today but then found support at its midline. A drop below today's low would likely have it visiting the bottom of its channel, currently just under 2280. Until that happens this is a bullish looking chart in that price is holding in the upper half of the up-channel. Follow the trend if you're not trying to pick a top as I'm trying. Link

Keene Little : 10/17/2006 5:46:16 PM

NDX looks similar to SPX in that it dropped back below the top of its ascending wedge today (after a relatively big "throw-over") and then bounced up to it. Futures are showing a somewhat muted response to earnings so we'll see what happens tomorrow morning but a continuation lower from this afternoon's bounce would likely have this index heading for its uptrend line near 1668. But a recovery back above the line could see this head for new highs. Link

Jeff Bailey : 10/17/2006 4:56:35 PM

Closing Internals found at this Link

Keene Little : 10/17/2006 4:39:38 PM

The after-hours high for YM just hit 12031 which should stop people out of their YM short from this afternoon's bounce. The alternative was to raise your stop a little to account for overnight activity. I'll be watching early action tomorrow to see if I'd want to reenter a short. The stop on ES should still be at 1375 or perhaps move it a little higher as well. NQ and ER also remain under this afternoon's bounce high. Overnight activity is always a big unknown and not necessarily relevant to what the cash indices will do.

Tab Gilles : 10/17/2006 4:37:06 PM

Yahoo (YHOO)$23.55 down $0.63 (-2.63%) Earnings Q3 $0.11 came in at bottom of range.

Revenues 1.12B bottom of range

Jeff Bailey : 10/17/2006 4:34:58 PM

Closing U.S. Market Watch found at this

Tab Gilles : 10/17/2006 4:30:52 PM

INTEL (INTC) Up 70 cents in after-hours trading $21.58.

Intel Third-Quarter Revenue $8.7 Billion Tuesday October 17, 4:12 pm ET -- Operating income $1.4 billion -- EPS 22 cents -- Record mobile and server microprocessor unit shipments -- Over 6 million processors based on new Intel(R) Core(TM) microarchitecture shipped

Q4 2006 Outlook

Revenue: Expected to be between $9.1 billion and $9.7 billion. Gross margin: 50 percent, plus or minus a couple of points (51 percent, plus or minus a couple of points, excluding share-based compensation effects of approximately 1 percent). Expenses (R&D plus MG&A): Between $2.7 billion and $2.8 billion (between $2.5 billion and $2.6 billion excluding share-based compensation effects of approximately $250 million). In addition, the company expects restructuring charges of approximately $125 million. Net gains from equity investments and interest and other: Approximately $135 million. Tax rate: Approximately 30 percent. Depreciation: Between $1.1 billion and $1.2 billion. R&D for 2006: Approximately $5.9 billion (approximately $5.4 billion excluding share-based compensation effects of approximately $500 million). Capital spending for 2006: Between $5.7 billion and $5.9 billion, lower than the previous expectation primarily due to greater equipment reuse, productivity improvements and small timing changes.

Tab Gilles : 10/17/2006 4:18:08 PM

IBM IBM Reports 2006 Third-Quarter Results Tuesday October 17, 4:11 pm ET -- Diluted earnings of $1.45 per share from continuing operations, up 54 percent as reported, or 15 percent compared with $1.26 per diluted share from the third-quarter 2005, excluding a non-recurring item; -- Income from continuing operations of $2.2 billion, up 47 percent, or 9 percent, excluding the 2005 non-recurring item; -- Total revenues of $22.6 billion, up 5 percent as reported.

Jeff Bailey : 10/17/2006 4:13:13 PM

Buy Program Premium ... SPY $136.58 : YM 12,027

Tab Gilles : 10/17/2006 4:12:13 PM

Motorola (MOT) down 5% AHT Motorola Announces Record Third-Quarter Sales Tuesday October 17, 4:02 pm ET Third-Quarter Financial Highlights - Record quarterly sales of $10.6 billion, up 17 percent versus the year-ago quarter - GAAP earnings of $0.39 per share, including income of $0.10 per share from discontinued operations and charges of $0.05 per share from items highlighted below - Record handset shipments of 53.7 million units, up 39 percent versus the year-ago quarter - Global handset market share estimated at 22.4 percent, up 3.8 percentage points versus the year-ago quarter - Positive operating cash flow of $1.6 billion

Keene Little : 10/17/2006 4:07:22 PM

SPX is set up for a kiss goodbye as well. After breaking back below the top of its ascending wedge today it bounced back up to it and pulled back. A continuation lower will obviously look bearish and the uptrend line from September 22nd, currently just under 1357 (near today's low) will probably not offer much support. Link

Jeff Bailey : 10/17/2006 3:59:44 PM

U.S. Oil Fund (USO) $53.99 -1.33% ... 4-cents above its WEEKLY Pivot.

OPEC meets Wednesday/Thursday.

Keene Little : 10/17/2006 3:58:30 PM

Well, the setup is there for a dump on earnings/news. Now let's see if the pattern gets the follow through.

Jeff Bailey : 10/17/2006 3:58:27 PM

RUT.X 764.45 -0.65% ... only equity-based index in my pivot matrix to NOT trade its WEEKLY Pivot.

NDX/QQQQ, SMH and BIX.X do look like they might close below their WEEKLY Pivots.

Keene Little : 10/17/2006 3:50:51 PM

We should be ready for a small bounce into the close now.

Jeff Bailey : 10/17/2006 3:52:04 PM

Venezuela Budget Sets 2007 GDP Growth At 5%-6% (Finance Minister)

Venezuela's GDP To Grow Over 9% In 2006

Venezuela '07 Budget Has Inflation At Around 10%

Venezuela Govt Budget For 2007 Set At $53.5 Bln

Venezuela '07 Budget Assumes Oil Price Of $29/Bbl

Venezuela Budget Keeps Forex Rate Stable At VEB2,150/Dlr

Venezuela '07 Budget Puts Oil Production At 3.5 Mln B/D

Venezuela Non-Oil GDP To Grow 5% In 2007

Venezuela Oil GDP To Grow 6% In 2007

Jim Brown : 10/17/2006 3:47:40 PM

Reader Challenge Alert - Only 10 min left to email your guesses! This week's challenge will be to guess the close for the week on the Dow, Nasdaq and S&P. The prizes for each are as follows:

Dow - The Options Course, By George Fontanills: Link

S&P-500 - Demark on Day Trading Options, by Tom Demark: Link

Nasdaq - The Art of the Trade, by R.E. McMaster: Link

EACH GUESS STANDS ALONE - You do not have to guess on all three indexes but you can win all three books if you are either very good or very lucky. In fact, I will add a $1000 cash prize to anyone that successfully wins all three individual guesses.

You can guess anytime between NOW and the close of trading on Tuesday. All guesses must be sent to Jim@optioninvestor.com. Do not clog up the customer service mailbox. Send them directly to me.

Keene Little : 10/17/2006 3:45:31 PM

There's a good chance we'll get a leg down and then a bounce back up towards the high for the bounce (again I'll be looking for a 50-62% kind of retracement). It appears to me, assuming we just finished the correction to this morning's decline, that the market is set up for a disappointment to earnings or whatever other economic information we have tomorrow morning. It won't matter the numbers--it looks like we'll be ready for a swift decline tomorrow morning. A rally back above the last high will tell me that analysis is wrong.

Jim Brown : 10/17/2006 3:50:37 PM

Interesting population data out today. The US passed 300,000,000 this morning and it took 39 years to grow from 200,000,000. This is a drop in the bucket on the global stage. Consider this:

US daily population increase: 7,854
Global daily population gain: 259,200
Annual global population gain: 94,608,000
Global population as of 3:35PM: 6,657,043,714
Vehicles built annually: 147,000,000
Vehicles worldwide: 2,100,000,000
Annual oil demand growth: 1,734,000 mbpd

What about Peak Oil do people not understand? You can't add 94 million consumers per year and 147 million vehicles per year and expect demand to drop.

Keene Little : 10/17/2006 3:42:56 PM

OK, if you managed to grab a short on this bounce, hopefully near those last levels I just gave, your stop should immediately be moved down to just above the last high, so 2 ticks for ES gives us a 1375 stop and 3 ticks for YM gives us 12031. These trades have to work right away otherwise I want out of the way.

Keene Little : 10/17/2006 3:31:39 PM

Two equal legs up for YM is at 12029. Gap closure is at 12034. A 78.6% retracement is at 12026 so 12026-12034 is where I'd look for a shorting opportunity on that one. Two equal legs up for ES is at 1374.50. Both are nearing these levels as I type.

Keene Little : 10/17/2006 3:25:46 PM

Here's another piece to add to the market overbought category, thanks to Allen:

Adam Oliensis, The Agile Trader, writes:
The SPX has now closed above its 21-day moving average for 60 consecutive days. This condition has only 3 prior iterations during the past 23 years. Once in January 86 and then once each in 97 and 98.

... a period of consolidation has been likely to follow such an unabated trend. In 86 the consolidation was about a month long. In 97 the SPX immediately dipped to its 21-dma, then rallied for another 12 days before entering a 5-month consolidation. In 98 the consolidation was about 2 months long.

In 1964 the SPX was able to continue higher for another 2 months after having achieved this condition (60 straight closes above the 21-dma). But other than that one iteration, this condition has been a good marker for trend exhaustion (6 out of 8 times the trend has been over virtually immediately. Once the trend had one more push higher (1997) and once the trend had another 2 months in it (1964)).

Thanks for that info Allen. For reference, today's 21-dma is locatd at SPX 1341 and for the NYSE it's at 8496 (currently trading at 8649). I don't consider the DOW to be The market but for reference its 21-dma is at 11747.

Jeff Bailey : 10/17/2006 3:25:43 PM

5 new lows at the NYSE?

Just 19 at the NASDAQ?

Somebody needs to tell the market it needs to take some profits for a healthy pullback so it can ramp to the end of the year.

I don't anticipate any big news on Tuesday (FOMC) meeting, but it sure feels/looks like somebody does.

Jeff Bailey : 10/17/2006 3:22:50 PM

03:00 Internals found at this Link

Jim Brown : 10/17/2006 3:19:45 PM

Reader Challenge Alert - Only 45 min left to email your guesses! This week's challenge will be to guess the close for the week on the Dow, Nasdaq and S&P. The prizes for each are as follows:

Dow - The Options Course, By George Fontanills: Link

S&P-500 - Demark on Day Trading Options, by Tom Demark: Link

Nasdaq - The Art of the Trade, by R.E. McMaster: Link

EACH GUESS STANDS ALONE - You do not have to guess on all three indexes but you can win all three books if you are either very good or very lucky. In fact, I will add a $1000 cash prize to anyone that successfully wins all three individual guesses.

You can guess anytime between NOW and the close of trading on Tuesday. All guesses must be sent to Jim@optioninvestor.com. Do not clog up the customer service mailbox. Send them directly to me.

Jeff Bailey : 10/17/2006 3:15:11 PM

The other two spikes came on about 300,000 shares in an hour, then that was it.

Marc Eckelberry : 10/17/2006 3:11:50 PM

I want to thank everyone for the very supportive e-mails. I am taking a last minute trip to Mexico on a real-estate venture, and I will be back in town next week. Again, thank you.


Jeff Bailey : 10/17/2006 3:11:42 PM

This is the 3rd time this stock has traded this way. Will it be a "charm?"

Keene Little : 10/17/2006 3:11:35 PM

I've got several Fib projections and the 62% retracement for ES all in the 1373 area. It might be scary to short this bounce but that's what I'd recommend. A stop at 1375 should be proof enough that something more bullish is going on if stopped out there.

Jeff Bailey : 10/17/2006 3:10:53 PM

Overstock.com (OSTK) alert $18.94 +6.58% ...

Keene Little : 10/17/2006 3:05:24 PM

Drawing in a parallel up-channel for today's bounce shows the top of it at ES 1372.50. Watch for potential resistance here.

Jeff Bailey : 10/17/2006 3:03:11 PM

03:00 Market Watch found at this Link

Keene Little : 10/17/2006 3:00:34 PM

The banks (BIX) are reaching up to potential resistance in its bounce off today's low. After what looks like a clean 5-wave move down from last Friday's high it has now reached a 50% retracement. This is also just under yesterday afternoon's high of 397.65 which is labeled wave-(iv) on this chart. A correction often finds resistance at the 4th wave high. Therefore watch the banks for resistance here and a turn back down. Link

Jeff Bailey : 10/17/2006 2:56:58 PM

S&P Bank Index (BIX.X) 397.39 -0.01% ... has "clawed" its way back to unchanged.

Jane Fox : 10/17/2006 2:56:45 PM

EGads ER to new daily highs. What the heck!

Jeff Bailey : 10/17/2006 2:51:56 PM

CITIGROUP BUYS 20% OF AKBANK FOR $3.1B

DJ- Citigroup, continuing a push into fast-growing international markets, agrees to buy a 20% stake in Turkey's Akbank TAS for about $3.1 billion. Akbank has about $36 billion in assets and $23 billion in deposits.

C $50.04 -0.21% Link ...

Jeff Bailey : 10/17/2006 2:49:02 PM

METLIFE SELLS MANHATTAN APARTMENTS

DJ- Insurer agrees to sell Peter Cooper Village and Stuyvesant Town apartment complex to Tishman Speyer and the real-estate unit of BlackRock for $5.4 billion, with gain of $3 billion, net of income taxes, expected. Deal set to close in 4Q.

MET $57.08 -0.08% Link ...

Jeff Bailey : 10/17/2006 2:42:43 PM

US NAHB Oct. Housing Index 31 vs. 30 in September

DJ- The National Association of Home Builders' index for sales of new, single-family homes rose one point in October to 31, ending an eight-month string of declines, the association said Tuesday.

The increase this month followed an unrevised reading for September of 30, the lowest monthly index in over 15 years. The housing market index, compiled by the NAHB and Wells Fargo, is based on a survey of home construction industry perspectives on business.

"While the index remains at a low level, the single-point increase from September's reading suggests that builder attitudes for new-home sales may be stabilizing," said NAHB Chief Economist David Seiders. This reflects mortgage rates down from their summer highs, a decline in energy prices from recent peaks, rebounding consumer sentiment and a reasonably healthy job market, Seiders said.

NAHB President David Pressly said more than three-fourths of home builders of are offering aggressive sales incentives, and this strategy is working. "The market correction appears to be approaching the bottom in terms of sales volume, and we expect the supply-demand balance to improve considerably before long," he said.

Within the NAHB's housing market index, the component for present sales of single-family homes was unchanged in October at 32. But expectations for sales in the next six months rose four points 41, the NAHB said. The traffic of prospective buyers increased one point to 23.

Regionally, the NAHB housing market index grew in two regions and fell in the other two. The index was up five points to 33 in the Northeast and up four points to 20 in the Midwest. It declined one point to 37 in the South and fell five points to 32 in the West. The association attributed the sharp decline in the West to less affordable homes and a major withdrawal of investor activity.

The numbers are adjusted for seasonal variations.

The index was based on a survey of 364 home builders, who answer questions about sales prospects now and in the near-term. When the Housing Market Index is over 50, it means the number of builders who see "good" sales outnumber the number who see "poor" sales.

Jane Fox : 10/17/2006 2:41:38 PM

WE should be having a uberbearish day today but we are not which just goes to show how incredibly strong the bulls are. Link

Keene Little : 10/17/2006 2:36:30 PM

Is the bounce over? Tough to tell. Other than ER it was a relatively mild correction to the decline. It's possible we'll see this continue to chop its way higher into the end of the day. If it were to do that then it would make me think it's set up for a disappointment from tonight's earnings. If it drops to today's low and holds then perhaps just the opposite and we'll get an early rally tomorrow before heading for new lows.

The key thing for me so far is that it's looking like a corrective bounce which means the trend should be down, whether from here or a from little higher. If you're swing trading this and you're short from anywhere near yesterday's high I think holding for new lows is the right trade. The risk of course is that we'll rally to new highs and you'll give it all back.

Jeff Bailey : 10/17/2006 2:33:30 PM

Fed's Bies: Mortgage Credit Outlook Still Favorable

DJ- Federal Reserve Governor Susan Bies said Tuesday the outlook for U.S. mortgage credit quality remains favorable, although "modestly cautionary signs" are on the horizon, and delinquencies of subprime mortgages have ticked up.

"While we continue to expect that mortgage delinquencies will remain manageable, lenders should closely monitor future developments," Bies said in prepared remarks to an American Bankers Association conference in Phoenix.

In her prepared remarks, the Fed governor didn't discuss the economic outlook or monetary policy. She was scheduled to take questions from the audience.

Bies' speech addressed the broad outlines of risk management at financial institutions, noting that banks should adopt flexible, enterprise-wide risk management strategies.

On the real estate front in particular, Bies noted the recent uptick in subprime loan delinquencies was concentrated among exotic mortgage products, such as adjustable-rate subprime loans, likely because of interest rates resetting.

And Bies said some modest cautionary signals in the real estate market are cropping up. "Growth in housing may slow or stagnate while the debt service obligation continues to rise, as teaser rates expire and fully-indexed loan rates eventually catch up with increases in market rates," Bies said.

Jane Fox : 10/17/2006 2:19:23 PM

Sorry folks but the internals are still telling me this is not the time to go long.

Jim Brown : 10/17/2006 2:12:05 PM

I was stopped out of my ER short from yesterday from 774.80 when the ER rebounded above 766. No complaints.

Jane Fox : 10/17/2006 2:19:50 PM

Have you noticed how much more accurrate the internals (or how much more accurate I am) in predicting direction on bullish days. Once we enter a bear market this will reverse.

Jane Fox : 10/17/2006 2:06:45 PM

ER has now retraced 100% of its daily range. Amazing!

Jim Brown : 10/17/2006 2:04:26 PM

Reader Challenge Alert - Only two hours left to submit your entries for this week's challenge. This week's challenge will be to guess the close for the week on the Dow, Nasdaq and S&P. The prizes for each are as follows:

Dow - The Options Course, By George Fontanills: Link

S&P-500 - Demark on Day Trading Options, by Tom Demark: Link

Nasdaq - The Art of the Trade, by R.E. McMaster: Link

EACH GUESS STANDS ALONE - You do not have to guess on all three indexes but you can win all three books if you are either very good or very lucky. In fact, I will add a $1000 cash prize to anyone that successfully wins all three individual guesses.

You can guess anytime between NOW and the close of trading on Tuesday. All guesses must be sent to Jim@optioninvestor.com. Do not clog up the customer service mailbox. Send them directly to me.

Keene Little : 10/17/2006 2:01:38 PM

The dipsters are alive and well. If we've topped and the leg down this morning was just the first of many then this bounce will typically retrace 50-62% of the decline. It could even go higher as the market is manipulated higher in hopes of pulling in as many buyers as possible. The next leg down (again, assuming the top is in) is the "recognition" wave as the dipsters realize they've been duped and scatter like turkeys.

We'll have to see if this afternoon is spent in correcting today's decline in which case we'll potentially be set up for a hard down day tomorrow. But there are still 2 hours left for today and we could easily see this turn back down before the close. We're now close to a 50% retracement of the drop from yesterday's high.

Jeff Bailey : 10/17/2006 1:57:42 PM

SPY Option Montage at this Link ... Short interest is as of Sep 15.

Jeff Bailey : 10/17/2006 1:51:47 PM

SPY's October "Max Pain" looking more like $135.50 with today's October call/put action.

Jeff Bailey : 10/17/2006 1:48:06 PM

Wells Fargo (WFC) $36.40 +0.55% ... back above its WEEKLY Pivot ($36.30) after a direct hit at WEEKLY S2 ($35.76) this morning.

Keene Little : 10/17/2006 1:41:00 PM

In the "how overbought is this market" category, investorsintelligence.com keeps a whole slew of market indicators, many of which can be used to judge how overbought or oversold the market is. They have a proprietary indicator that's based on 29 different market measures and it oscillates between 0 and 100 for oversold and overbought, resp.

As of last Friday the reading was 89.7 which is the largest number in the past 6 years. This obviously can't be used for day-to-day trading but it is another warning flag for bulls. It is an indication that once a correction gets started it will probably be something that lasts for more than just a few days. Whether that correction happens this month or next we don't know, but obviously we're due.

Jeff Bailey : 10/17/2006 1:40:00 PM

Industry Losers ... Mobile Homes/RVs -3.36%, Computer Storage Devices -3.23%, Retail (Technology) -2.71%, Semiconductors -2.57%, Misc. Transportation -2.18%, Air Courier -2.15%, Coal -2.10%, Computer Networks -2.06%

Jeff Bailey : 10/17/2006 1:38:01 PM

Industry Winners ... Fish/Livestock +0.68%, Hotel/Motel +0.60%, Textiles/Non-Apparel +0.53%, Major Drugs +0.46%, Electric Utilities +0.45%, Motion Pictures +0.15%

Keene Little : 10/17/2006 1:35:00 PM

Interesting how those Fibs are lined up isn't it (today's 62% with the 38% of the total move down). Just goes to show how them there Fibs work so nicely.

Jane Fox : 10/17/2006 1:34:30 PM

That would make a difference wouldn't it. Problem solved.

Keene Little : 10/17/2006 1:33:24 PM

Oh, I just realized what you're looking at Jane (correct me if I'm wrong)--today's opening price and the low? I'm using yesterday's high and today's low.

Jane Fox : 10/17/2006 1:33:13 PM

Keene here is ER's chart with the fibs anchored on daily high and daily low. Link

Keene Little : 10/17/2006 1:30:55 PM

Speaking of NQ, its bounce was certainly predictable--off its uptrend line from October 3rd and its 30-min 130-pma. We've had a 3-wave bounce so far which says it's corrective. That might have been all of it or the current pullback will lead to another leg higher (at which time I'd look for two equal legs up to then get short). Link

Keene Little : 10/17/2006 1:30:39 PM

Jane, check to see if your anchor points are not aligned vertically--your 62% sounds like my 38%.

Jane Fox : 10/17/2006 1:28:55 PM

Keene I have anchors on daily highs and lows.

Jeff Bailey : 10/17/2006 1:27:30 PM

U.S. Oil Fund (USO) $53.74 -1.79% ... slips back below its WEEKLY Pivot ($53.95). Oil has NOT been able to hold a Tuesday close above its WEEKLY pivot for several months.

This is a continued test of mine.

Keene Little : 10/17/2006 1:25:58 PM

Jane, what retracements are you looking at? I have a 38% retracement so far (not even 38% yet for NQ).

Jane Fox : 10/17/2006 1:21:20 PM

Man alive I sure like to put myself out on a limb don't I?

Jane Fox : 10/17/2006 1:20:42 PM

I don't think it will hold though and think we will revisit daily lows at least.

Jane Fox : 10/17/2006 1:19:36 PM

All markets except YM have made more than a 61.80% retracement off the lows. Wow!

Jeff Bailey : 10/17/2006 1:16:41 PM

01:00 Internals found at this Link

Keene Little : 10/17/2006 1:09:36 PM

If ES makes it up past 1371 then next resistance is 1372, the bottom of this morning's gap down. Then 62% at 1372.75 and 50% of gap closure at 1374. So there's potentially tough resistance in the 1371-1374 area. Any push through this zone would likely mean gap closure.

Jane Fox : 10/17/2006 1:08:09 PM

SAN FRANCISCO (MarketWatch) -- Crude-oil futures fell Tuesday to touch a low near $59 a barrel on the eve of the release of U.S. data that are expected to show a rise in crude inventories and ahead of a special meeting of OPEC, which will likely result in a production cut from some of the world's key oil producers.

Meanwhile, natural-gas futures eased off the day's best level, but not before reaching their highest intraday level since mid-September on expectations for higher demand.

Jeff Bailey : 10/17/2006 1:07:59 PM

KBW Bank Index (BKX.X) $113.85 -0.17% ... back to trade WEEKLY S1.

BIX.X 396.77 -0.16% ...

SPY $136.22 -0.45% ...

VIX.X 11.67 +5.22% ...

Keene Little : 10/17/2006 1:05:40 PM

So much for that NAHB rumor. I see yields are not reacting to the news either (getting a little bounce but nothing much) so the drop in yields today is just the start of a correction that I expected to see. I'm still watching to see if this inverse H&S for yield sets up. Link

Jane Fox : 10/17/2006 1:03:30 PM

TICKS +1000

Jane Fox : 10/17/2006 1:03:24 PM

WASHINGTON (MarketWatch) - U.S. home builders' sentiment improved marginally in October, a sign the market may be "stabilizing, the National Association of Home Builders said Tuesday.

The NAHB/Wells Fargo housing market index rose 1 point to 31 in October. The index had fallen for nine months in a row to a 15-year of 30 in September.

The index measures home builders' attitudes about the market. The increase in October "suggests that builder attitudes for new-home sales may be stabilizing" at a low level, said David Seiders, chief economist for the home builders' industry group in Washington.

Builders are encouraged by lower mortgage rates, recent drops in energy prices and by their aggressive strategy of offering "substantial sales incentives," said David Pressly, a home builder from Statesville, S.C., who is president of the NAHB.

"This aggressive strategy is working," Pressly said.

Two of the three components of the NAHB index increased in October, while the third was steady. The index for single-family home sales was steady at 32. The expected sales index rose by four points to 41, and the buyers' traffic index rose one point to 23.

Jeff Bailey : 10/17/2006 1:02:41 PM

01:00 Market Watch found at this Link

Jane Fox : 10/17/2006 1:01:03 PM

* HOME BUILDERS' SENTIMENT 'STABLIZING,' NAHB SAYS
* HOME BUILDERS INDEX RISES IN 2 REGIONS, FALLS IN 2
* HOME BUILDERS' INDEX RISES 1 POINT TO 31

Jane Fox : 10/17/2006 12:58:31 PM

Remember the housing index out at 1:00EDT

Jeff Bailey : 10/17/2006 12:57:50 PM

MICROSOFT GIVING RIVALS FREE USE OF SOFTWARE

DJ- Software giant will provide cost-free, license-free technology that enables a single computer to run multiple operating systems at the same time, helping rival software companies' platforms work better with Windows operating system.

MSFT $28.36 -0.31% Link ...

Keene Little : 10/17/2006 12:57:49 PM

After the bounce off the low we've seen a very small pullback. If it proceeds higher from here and achieves two equal legs up in its bounce that gives us ES 1371 for an upside target. This is right on top of its 50% retracement and makes for a good spot to watch for a short play to set up.

Jeff Bailey : 10/17/2006 12:56:02 PM

EMC 3Q NET DROPS 33% Firm earns $283.7 million, or 13c a share, beating expectations by 1c. Revenue climbs 19% to $2.82 billion. EMC unveils restructuring plan that includes cutting 1,250 workers. CFO sees "good" demand in North America.

EMC $12.18 -5.06% Link

Jeff Bailey : 10/17/2006 12:52:35 PM

Keene (12:45:57) ... I think the synergies could last up to at least 4 years!

Jeff Bailey : 10/17/2006 12:49:16 PM

LEVEL 3 TO BUY BROADWING FOR $1.4B

DJ- Cash-and-stock deal values each share of Broadwing at $15.31, a 15% premium to yesterday's close. Broadwing's fiber-optic network is less than half the size of Level 3.

LVLT $5.54 +4.13% Link

BWNG $15.24 +14.75% Link ...

Keene Little : 10/17/2006 12:45:57 PM

Jeff, just noticed your note on Eli Lilly (12:32). Will that boost be temporary only? If it lasts longer than 4 hours would it then become a problem? Sorry, sick humor.

Jeff Bailey : 10/17/2006 12:44:32 PM

CONSUMER HOLIDAY GIFT SPENDING TO RISE

DJ- Consumers plan to spend nearly $800 on average, up 7% from last year, on Christmas gifts and trimmings this year, mostly at discount and department stores, survey says. Young adults mark department stores as top choice for first time.

Jeff Bailey : 10/17/2006 12:43:45 PM

LAND ROVER CHIEF PREDICTS RECORD SALES THIS YEAR

DJ- The head of Ford Motor Co.'s U.K.-based Land Rover unit predicts record sales for the brand this year and says he is skeptical the U.S. auto giant will sell the business, as some industry analysts say.

F $7.96 -1.48% Link ...

Jeff Bailey : 10/17/2006 12:39:50 PM

MERCK DIABETES DRUG GETS FDA OK

DJ- FDA approves Januvia DDP-4 inhibitor for type-2 diabetes. Analysts predict Januvia and Novartis' Galvus, which is awaiting approval, could reach more than $1 billion in annual sales by 2010 as long as no major safety issues emerge.

MRK $43.47 -0.66% Link

NVS $57.50 -0.06% Link ...

Jane Fox : 10/17/2006 12:38:39 PM

I find ER's chart interesting in that the 50% retracement is right at its PDL and a area that should be very good resistance. Link

Jane Fox : 10/17/2006 12:36:57 PM

Here is how the markets are trading compared to their respective PDRs and with a fib retracement anchored at daily highs and lows. Link

Jeff Bailey : 10/17/2006 12:35:59 PM

JOHNSON & JOHNSON 3Q NET CLIMBS 8.7%

DJ- Johnson & Johnson posts 3Q net of $2.76 billion, or 94c a share, as sales rise 7.9% to $13.29 billion. Excluding items, company earns 98c. Analysts expected EPS of 93c on revenue of $13.08 billion. CFO comfortable with posting '06 earnings of $3.72 to $3.74 a share.

JNJ $66.21 +1.95% Link ...

Jeff Bailey : 10/17/2006 12:32:51 PM

UNITED TECHNOLOGIES NET CLIMBS 21%

DJ- Conglomerate's 3Q earnings rise to $996 million, or 99c a share, 3c above expectations, as revenue climbs 12% to $12.16 billion. UTX raises 2006 EPS forecast to $3.65-$3.69 from $3.55-$3.65 and sees double-digit growth in 2007.

UTX $65.10 -2.53% Link ...

Jeff Bailey : 10/17/2006 12:30:50 PM

ELI LILLY TO BUY ICOS FOR $2.1B

DJ- Eli Lilly agrees to pay $32 a share in cash for its partner in the erectile-dysfunction drug Cialis. Bid represents an 18% premium to ICOS' closing price yesterday. Deal set to boost Lilly earnings starting in 2008.

LLY $57.54 -0.20% Link

ICOS $31.60 +16.51% Link

Keene Little : 10/17/2006 12:29:51 PM

It's looking like the leg down today is finished and now we're starting to correct it. Looking at a "normal" Fib retracement zone of 38-62% we get a target zone for YM at 11980 (38%), 11993 (50%) and then 12007 (62%). For ES watch 1369.50 (38%), 1371.25 (50%) and then 1372.75 (62%). I'm watching for at least a 3-wave bounce up into this Fib retracement zone as an opportunity to try a short play for a drop to new lows.

Jeff Bailey : 10/17/2006 12:28:48 PM

MERRILL LYNCH NET SOARS ON BLACKROCK

DJ- Net income doubles to $3.05 billion, or $3.17 a share, amid merger gain from combination of asset-management unit and BlackRock. Excluding gain, Merrill earns $2, trumping estimates. CFO says banking pipeline at record high.

MER $84.29 +0.21% Link

Jeff Bailey : 10/17/2006 12:26:48 PM

CHICAGO MERC TO BUY CBOT FOR $8B

DJ- Parent of the CME will acquire its cross-town rival in a deal that would give CME shareholders a 69% stake in the massive global derivatives exchange with combined daily trading volume approaching nine million contracts.

CME $514.77 +2.28% Link

BOT $151.67 +12.57% Link

Jeff Bailey : 10/17/2006 12:23:56 PM

Magnitude 5.8 Earthquake Hits South Of New Zealand

Keene Little : 10/17/2006 12:14:43 PM

There was a rumor this morning that the housing number (NAHB Housing Market Index) that will be released at 1:00 PM today is going to be dismal. The September number was 30 which was the lowest reading since 1991. The rumor was that the reading for October will be 20 which would be the lowest reading since about 1980-81. Apparently this rumor was at least partly responsible for the bond market getting goosed higher. The home builders index is down -1.4% today so it's not getting crushed but it could be a shock to the equity markets if we get that bad of a number.

Jane Fox : 10/17/2006 12:09:42 PM

* NYSE VOLUME 678.6M
* NYSE HAS 849 ADVANCERS
* NYSE HAS 2,291 DECLINERS
* NYSE HAS 127 ISSUES UNCHANGED
* NYSE HAS 51 ISSUES SETTING 52-WEEK HIGHS
* NYSE HAS 1 ISSUES SETTING 52-WEEK LOWS
* NASDAQ VOLUME 1.02B
* NASDAQ HAS 706 GAINERS
* NASDAQ HAS 2,164 LOSERS
* NASDAQ HAS 127 ISSUES UNCHANGED
* NASDAQ HAS 43 ISSUES SETTING 52-WEEK HIGHS
* NASDAQ HAS 16 ISSUES SETTING 52-WEEK LOWS

Jeff Bailey : 10/17/2006 12:07:51 PM

Swing trade put filled alert with SPY $135.80.

Jane Fox : 10/17/2006 12:10:02 PM

Figured this had to happen eventually - TICKS +800.

Jeff Bailey : 10/17/2006 12:06:23 PM

SPY October "Max Pain" theory was $134 ($1 increments) at last night's close.

Keene Little : 10/17/2006 12:06:06 PM

While the high of last week's consolidation is near DOW 11870 it's at YM 11940 and that's where YM is currently finding some support. The 30-min 130-pma is also at YM 11939.

Jeff Bailey : 10/17/2006 12:04:59 PM

Disclosure: I currently hold a bearish position in the SPY

Jeff Bailey : 10/17/2006 12:04:37 PM

Swing trade put alert ... for one (1) of the S&P Depository Receipts SPY Nov. $136 Puts (SFB-WF) at a LIMIT price of $1.65 (currently $1.60 x $1.70).

SPY $135.73 -0.81% ...

Will not rule out the selling of out the money Oct. $133, or $134 covered puts if given a chance.

Jane Fox : 10/17/2006 12:04:20 PM

TRIN has hit a highs of 2.26 so far today and is still hanging around 2.27 as I type. This should be scary for the bears.

Jane Fox : 10/17/2006 12:01:56 PM

VIX was slow today - sometimes it is - but it is now confirming ES's new daily lows. This has been your typical get short and stay short day.

Jeff Bailey : 10/17/2006 11:57:13 AM

KBW Bank Sector Index (BKX.X) 60-minute interval chart with QCharts' WEEKLY Pivot Levels turned on. Same chart shown in Monday's Market Wrap, but 60-minute intervals now. Link

Keene Little : 10/17/2006 11:51:26 AM

ES is currently finding support at its 30-min 100-pma at 1365.00. But the short term pattern could use another new low before seeing a larger bounce.

Keene Little : 10/17/2006 11:49:17 AM

After touching its 200-dma yesterday the SOX is down -3.0% today. These big moves after hitting tough resistance across many indices and sectors is what's telling me we might have seen the end of the rally. It'll take a corrective bounce and then new lows that break longer term uptrend lines over the next several days to confirm that but so far that's what I'm seeing develop here.

Keene Little : 10/17/2006 11:45:17 AM

The Trannies are getting knocked back pretty hard today--down 112 here (-2.4%). This comes after bouncing up to the top of what looks like a bear flag on the daily chart.

Keene Little : 10/17/2006 11:41:25 AM

ES might not make it down to 1362 but I like that level for support for a long play if it gets there. And if that doesn't hold then the market is probably in trouble today.

Jeff Bailey : 10/17/2006 11:32:54 AM

Should be plenty of shorts waiting to cover at BIX.X 393.

Jeff Bailey : 10/17/2006 11:31:04 AM

S&P Banks Index (BIX.X) with WEEKLY/MONTHLY Pivot retracement and 05/08/06 relative high at this Link

Jane Fox : 10/17/2006 11:25:04 AM

* NYSE MOST ACTIVE STOCKS: LU EMC MOT F ALA
* NASDAQ MOST ACTIVE STOCKS: QQQQ LVLT INTC YHOO SUNW

Jeff Bailey : 10/17/2006 11:24:59 AM

11:05 Internals found at this Link

Jane Fox : 10/17/2006 11:24:26 AM

ES is now making new daily lows without the VIX - another indication of how strong the bears are today.

Keene Little : 10/17/2006 11:24:10 AM

We're now starting to hit some potentially strong support levels so I'd watch for a bounce to develop soon. If we get no bounce then this could end up an ugly day.

Jeff Bailey : 10/17/2006 11:15:45 AM

SPY $135.88 -0.60% ... gets a trade at WEEKLY Pivot.

BIX.X 396.23 -0.30% ... tests WEEKLY S1 from underneath.

VIX.X 11.84 +6.76% ... juuust above WEEKLY R1.

Jane Fox : 10/17/2006 11:12:36 AM

The very oversold TRIN has not given us a tradable retracement which should tell you the bears are quite strong today as noted by the falling AD volume and AD line. So we have conflicting internals and when that happens what happens to price? It doesn't do anything.

Keene Little : 10/17/2006 11:11:24 AM

Right below the 10-dma for the DOW is the top of last week's congestion before rallying out of it--about 11870. So any drop to the 11870-11880 (cash) level will likely be bought. That's only 20-30 points lower so I wouldn't chase it lower at this point unless you like scalping in and out quickly.

Jane Fox : 10/17/2006 11:10:47 AM

Don't you just love the VIX. It has been telling us all day that ES's daily lows will hold and hold they have.

Keene Little : 10/17/2006 11:08:04 AM

The DOW has now broken below Friday's low which obviously confirms that that leg up is finished. This strongly supports the idea that we've seen a top to the rally. Proof will be a break below its uptrend line at 11883 (cash). Also located there is the 30-min 100-pma at 11885. Its 10-dma is just below that at 11878.

Jeff Bailey : 10/17/2006 11:07:53 AM

11:05 Market Watch found at this Link

Jane Fox : 10/17/2006 11:02:17 AM

TRIN up to 2.1 now!

Jane Fox : 10/17/2006 11:01:10 AM

WE have a conflict in the internals. A trin at 1.96 should have given us a nice tradable bounce but the AD volume continued to make new daily lows and has kept us stuck in the mire.

Jane Fox : 10/17/2006 10:58:55 AM

If anyone is going to the futures summit in Las Vegas on Nov 15 and 16th please let me know. I am going and I would love to meet some of the readers. Denise, a very active trader and OIN subscriber, is graciously allowing me to stay with her in her timeshare right on the strip. A great big thank you to Denise.

Keene Little : 10/17/2006 10:57:17 AM

The little bounce here doesn't have much going for it. I think we'll see a drop to the support levels I mentioned below.

Jane Fox : 10/17/2006 10:54:01 AM

VIX is falling but so is AD volume and (gulp) my rule is never go long with AD volume making new daily lows. I guess this is one exception but as you can see price is not going anywhere is it?

Jane Fox : 10/17/2006 10:52:29 AM

I don't like the internals for a long but the TRIN does not get this high very often.

Jane Fox : 10/17/2006 10:51:58 AM

TRIN has hit a high of 1.96 and I think it may be time to try a long here with a stop 2 ticks below daily lows.

Tab Gilles : 10/17/2006 10:48:29 AM

Earnings & Fed Two things are driving this market Earnings and Federal Reserve. With oil falling it took away the Federal Reserve's reason for inflation and interest rates, also a stronger dollar. The markets have been on fire. Now they've become overbought (as I've highlighted) and todday's PPI report put water on that fire. CPI tomorrow. Don't forget that this is OpEx week and traditionally there has been one bad day in OpEx week...today looks like that day.

With several tech stocks reporting this week and the inflation reports we're going to get this "tug-of-war" move. Question is which will win?

Jim Brown : 10/17/2006 10:48:02 AM

Reader Challenge - This week's challenge will be to guess the close for the week on the Dow, Nasdaq and S&P. The prizes for each are as follows:

Dow - The Options Course, By George Fontanills: Link

S&P-500 - Demark on Day Trading Options, by Tom Demark: Link

Nasdaq - The Art of the Trade, by R.E. McMaster: Link

EACH GUESS STANDS ALONE - You do not have to guess on all three indexes but you can win all three books if you are either very good or very lucky. In fact, I will add a $1000 cash prize to anyone that successfully wins all three individual guesses.

You can guess anytime between NOW and the close of trading on Tuesday. All guesses must be sent to Jim@optioninvestor.com. Do not clog up the customer service mailbox. Send them directly to me.

Keene Little : 10/17/2006 10:44:12 AM

Support for ES is in the 1362-1365 area by its 30-min 100 and 130-pma's. Its 10-dma is at 1363.50 so right in the middle of that range. I'd think about a scalp long play from there and we'll then see what kind of bounce develops, or not.

Keene Little : 10/17/2006 10:40:34 AM

NQ is nearing its uptrend line from October 3rd, just above 1711. This is also where its 30-min 130-pma is located which has provided support to previous pullbacks. And its 10-dma is just above 1711.25.

Keene Little : 10/17/2006 10:35:37 AM

We've got some short term bullish divergences beginning to appear so we shouldn't be far from a more significant bounce. The only caveat is if the Boyz are driving this in which case they may just try to bury it and get some panic selling started. That's not how I'd bet though.

Jeff Bailey : 10/17/2006 10:31:48 AM

Biotech is rock'n with BTK.X 732.46 +1.85% Link ... has gone "straight up" since break above 200-day SMA. Bar chart Link ... Yep... "still waiting" for that pullback kiss of 200-day for an entry. (frown)

Jane Fox : 10/17/2006 10:30:51 AM

... But ad line and volume continue to tell me there is very little upside from here.

Jane Fox : 10/17/2006 10:29:46 AM

VIX continues to tell me ES's daily lows will hold for now.

Keene Little : 10/17/2006 10:27:22 AM

The brokers index continues to trade very well technically. After briefly breaking back above its broken uptrend line from May 2005, as it did briefly in July, and then dropping back below it last week, the retest of that trend line has now failed. In addition to that resistance it stopped at the 62% retracement of last week's sharp decline, which was also a previous pullback low and the bottom of its gap down.

I showed the daily chart yesterday and said I liked a short play on the brokers. Today's sharp drop looks like the start of the next leg down. In my opinion a strong bearish statement was made here by the brokers in not confirming the bullishness seen in the DOW (not to mention the Transports not confirming either). Link

Jeff Bailey : 10/17/2006 10:28:04 AM

December Copper (hg06z) has been on the rise, currently $3.51 -1.95% (50-day SMA $3.44)

December Gold (gc06z) $595.00 -0.58% (50-day SMA $610.45) ...

Jeff Bailey : 10/17/2006 10:23:43 AM

Gold and copper equity traders may want to take note of FCX's assumptions for average prices of copper and gold when forecasting sales. Other miners may use similar figures.

FCX using $3.25/pound for copper and $575/ounce for gold in Q4 2006.

Tab Gilles : 10/17/2006 10:23:46 AM

Intel (INTC) Tested $22 level and is pulling back to 19.1% Fibonacci Retracement. Reports earnings today. Still within uptrend channel. Note 50/200 ma on daily and 10/40-ema on weekly. If earnings are positive and guidance bullish this pullback has been an opportunity to buy. Apple reports tomorrow- which now uses INTC chips. Link Link Link

Jane Fox : 10/17/2006 10:20:53 AM

So far ES's daily lows have held on. Time to go long? The internals don't think so.

Jeff Bailey : 10/17/2006 10:20:13 AM

Freeport McMoran (FCX) $56.59 -2.41% Link ... Earnings Press Release Link

Jeff Bailey : 10/17/2006 10:15:25 AM

WELLS FARGO 3Q NET RISES 11%

DJ- Financial-services firm reports net income of $2.19 billion, or 64c a share, 1c ahead of analysts' mean estimate, while 5% revenue increase to $8.93 billion falls slightly below estimates. Regional banking drives results.

WFC $36.01 -0.52% Link ... Earnings Press Release Link

Keene Little : 10/17/2006 10:14:11 AM

Are they really going to leave the DOW only 3 points shy of 12K? The Cheerleading Network would be so disappointed having to put away their party hats. I'm still way early on that call but so far yesterday's high has me thinking, as per my earlier post below (12:30 AM), that that could have been it.

The drop from yesterday's high is very sharp and makes it too difficult to count the waves inside it (to determine when a 5-wave move down is complete and then expect a bounce). I'll want to see a bounce that corrects this drop to see if it remains a corrective one. In the meantime watch for some short term bullish divergences to build as an opportunity to scalp a long play. The dipsters will still look at this as an opportunity to get long.

Jane Fox : 10/17/2006 10:13:14 AM

ES is trying to test its daily lows but the VIX is not testing daily highs so I think the daily lows will hold for now. Like Keene said we may have to endure a retracement before we see lower lows.

Jeff Bailey : 10/17/2006 10:11:14 AM

FOREIGN BUYS OF US SECURITIES AT RECORD

DJ- Net foreign purchases of U.S. securities reach an all-time high of $116.8 billion in August. Foreign net purchases of U.S. Treasury notes and bonds soar to $46.3 billion, while agency-debt purchases hit $31.3 billion.

Jane Fox : 10/17/2006 10:10:50 AM

The internals are telling me there are lower lows in store for us today.

Jeff Bailey : 10/17/2006 10:06:33 AM

Current OPEN MM Profiles that I've made and Watch List at this Link

Jane Fox : 10/17/2006 10:02:50 AM

See the difference between today's AD line and volume compared to the last three days. Link

Jeff Bailey : 10/17/2006 10:02:28 AM

10:00 Market Watch found at this Link

Jane Fox : 10/17/2006 9:52:06 AM

Egads if JIm held on to his ER short from 775 he is looking pretty this morning. WEll Jim is not looking pretty but his trade is.

Keene Little : 10/17/2006 9:52:30 AM

At some point soon we'll probably get a sharp bounce that might even close this morning's gaps. Even though I think a high of importance is in, it will not be a straight run south, especially during opex. First resistance for a bounce will be the bottom of the gaps and then a 50% retracement of the gaps.

The one thing I think bears will have going for them, and this is just a guess, is opex related activities from the mega-banks' trading teams. They may have been loading up on cheap October put options and they'll want to see some panic in the streets so that they can clean up. Then they can lift the market back up next week and into the end of the month.

Jane Fox : 10/17/2006 9:47:41 AM

If you are a bear you want the VIX and the TRIN climbing and above their PDH (green trendline) and you want the AD volume falling and below the PDL (blue trendline). This is called clarity. Link

Jane Fox : 10/17/2006 9:42:35 AM

Bears have frim control of the ball this morning. Link

Jane Fox : 10/17/2006 9:37:50 AM

We just may be setting up a get short and stay short kind of day.

Jane Fox : 10/17/2006 9:36:08 AM

VIX well above its PDR and TRIN at 1.33.

Jane Fox : 10/17/2006 9:35:09 AM

Be careful bulls AD line is -1097 and AD volume below 0 and falling.

Keene Little : 10/17/2006 9:34:05 AM

The size of the drop this morning tells me the leg up from Oct 11th is very likely finished. The larger pattern tells me if that leg is finished then there's a good chance the whole rally is finished. I would not be a buyer of dips today but would instead be testing the short side on bounces. I think we'll see a trend change today. I could easily be way too early on that call but that's my best guess here.

Jane Fox : 10/17/2006 9:26:03 AM

WASHINGTON (MarketWatch) - The U.S. industrial sector slowed sharply in September, capping the worst quarter in a year, the Federal Reserve said Tuesday.

Industrial production from the nation's factories, mines and utilities dropped 0.6% in September, the biggest decline since the previous September, when Hurricane Katrina disrupted the economy.

Manufacturing output fell 0.3% in September, utility output sank 4.4% and mining output rose 0.7%.

The capacity utilization rate for the industrial sector fell to 81.9% from 82.5%, an indication of lessening inflationary pressures from potential bottlenecks.

Economists were expecting industrial production to fall 0.1%. They expected capacity utilization to fall to 82.2%.

For the third quarter, industrial production rose at an annual rate of 3.6%, the slowest in a year, and down sharply from the 6.6% rise in the second quarter.

The decline in output was widespread through manufacturing. The production of consumer goods fell 0.9%, while production of business equipment dropped 0.2%. Production of nonindustrial supplies fell 0.6%.

The output of durable goods fell 0.4%, with big declines in wood products, minerals, motor vehicles, furniture and electrical equipment.

Production in nondurable-goods industries fell 0.2%

Jane Fox : 10/17/2006 9:20:01 AM

* Q3 INDUSTRIAL PRODUCTION UP 3.6% ANNUALIZED
* SEPT. CAPACITY UTILIZATION FALLS TO 81.9% V. 82.2% SEEN
* SEPT. INDUSTRIAL PRODUCTION DOWN 0.6% V. -0.1% EXPECTED

Keene Little : 10/17/2006 9:15:00 AM

Merrill Lynch had a strong gain from their trading department, eh? Well surprise, surprise as Gomer Pyle would say.

Jane Fox : 10/17/2006 9:12:08 AM

Keene will love this story. Dateline WSJ - Merrill Lynch & Co. said net income more than doubled due to a big gain from its recent merger with fund manager BlackRock. Results at the firm were strong nonetheless, as the firm weathered a difficult interest-rate and market environment with strong gains in trading.

Jane Fox : 10/17/2006 9:10:28 AM

* AUG. PRIVATE BUYERS OF U.S. ASSETS $89.4 BILLION
* AUG. OFFICIAL BUYERS OF U.S. ASSETS $30.1 BILLION
* AUG. NET CAPITAL INFLOWS $116.8 BILLION

Jane Fox : 10/17/2006 9:07:51 AM

Just like everyone else I believe ES needs to burn off this overbot condition and the PPI data may be the "reason" it needs to do just that. OK so then how do we know if the retracement is a normal retracement or something more sinister? First of all the support from the May highs should hold (~1353). IF that does not hold the next line of defense will be the swing low made at ~1336, which sort of coincides with the 50EMA. There is a lot of support under this market and the bears would have to be very strong to overcome it all. Link

Jane Fox : 10/17/2006 8:58:59 AM

Gold broke out of its bullish wedge but is now finding resistance at its 200 and 50EMAs. Gold has huge resistance to break through here and I will stand aside this market until I see if it can clear it. I was bullish on Gold for the shortterm and expected it to make it at least to resistance, although I thought it could make it back to the 615-616 resistance. Notice the MACD has not even broken 0 yet. Link

Jane Fox : 10/17/2006 8:53:32 AM

I expect Natural Gas' incredible run over the last few days to at least pause here. I looked at the charts yesterday and had an order setup to buy but then thought of how volatile this market traded and didn't execute it. Oh well! Link

Jane Fox : 10/17/2006 8:48:28 AM

Market did not like the PPI data. ES broke its PDL, NQ has tagged its PDL and found support and YM is peaking just below its PDL but seems to be hanging on. Link

Jane Fox : 10/17/2006 8:43:03 AM

WASHINGTON (MarketWatch) - Wholesale prices plunged 1.3% in September as the price of energy goods tumbled at the fastest rate in 20 years the government said Tuesday.

It was the biggest decline in the seasonally adjusted producer price index in three years, the Labor Department reported.

Meanwhile, the core producer price index, which excludes food and energy costs, rose a surprising 0.6%, the most since January 2005, as the prices of motor vehicles jumped at the fastest rate in more than 15 years.

Economists were taken by surprise. They expected a smaller 0.7% decline in the headline PPI, and also expected a smaller 0.2% gain in the core PPI.

The PPI had risen 0.1% in August, while core prices had fallen two months in a row.

The mixed inflation reports shows the dramatic impact of falling crude oil prices, but also shows persistent inflation at the producer level that won't let the Federal Reserve breath easy. Producer prices are up 0.9% in the past year, while core prices are up 1.2%.

The Labor Department will report on the consumer price index on Wednesday. Economists expect headline inflation to fall 0.3% while core prices are expected to rise 0.2%

Jane Fox : 10/17/2006 8:41:41 AM

Dateline WSJ - Chicago Mercantile Exchange Holdings Inc. is set to buy CBOT Holdings Inc., creating a massive global derivatives exchange with combined daily trading volume approaching nine million contracts.

The deal calls for a swap of 0.3006 shares of Chicago Mercantile Class A common stock for each CBOT Class A common share. The deal is valued at about $8 billion.

CBOT shareholders can also elect to receive the cash equivalent to the value of the exchange ratio based on a ten-day average of closing prices for Chicago Mercantile shares at the time of the merger, but the cash portion of the total consideration will be limited to $3 billion.

Upon completion of the deal, Chicago Mercantile stockholders will own about 69% of the combined company with CBOT's shareholders owning the remaining 31% stake.

Terrence A. Duffy, chairman of CME, will become chairman of the combined company, to be called CME Group Inc. Charles P. Carey, chairman of CBOT, will be the vice-chairman of the combined organization. Craig Donohue will be the CEO of the company. The deal is expected to close by mid-2007.

Jim Brown : 10/17/2006 6:26:38 AM

Reader Challenge - This week's challenge will be to guess the close for the week on the Dow, Nasdaq and S&P. The prizes for each are as follows:

Dow - The Options Course, By George Fontanills: Link

S&P-500 - Demark on Day Trading Options, by Tom Demark: Link

Nasdaq - The Art of the Trade, by R.E. McMaster: Link

EACH GUESS STANDS ALONE - You do not have to guess on all three indexes but you can win all three books if you are either very good or very lucky. In fact, I will add a $1000 cash prize to anyone that successfully wins all three individual guesses.

You can guess anytime between NOW and the close of trading on Tuesday. All guesses must be sent to Jim@optioninvestor.com. Do not clog up the customer service mailbox. Send them directly to me.

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