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Jeff Bailey : 10/28/2006 2:49:43 AM

I'm done. And I too have made my points.

However, the "dead horse" has been beaten for years (the Fed is out to get everybody, or only help a chosen few) and I'd be willing to bet that that horse will never sleep.

Keene Little : 10/28/2006 12:09:43 AM

I'm done. I've made my point and I'm not going to beat a dead horse. Have fun. Good night.

Keene Little : 10/28/2006 12:06:22 AM

Following up on our discussion from Friday about Greenspan, his recommendation to use more aggressive lending practices such as ARMs in 2004 (you can read his speech in Jeff's post below), and the ensuing trouble people find themselves in, I received plenty of email responses about that exchange. Jeff was on the side of Greenspan and the banks (his post at 1:28 PM on Friday) saying it was unfair for consumers to blame the Fed and banks for their borrowing troubles and I'm on the side that the Fed and banks have a fiduciary responsibility to its citizens/customers.

The responses from readers, who are themselves more financially savvy than the average citizen, were overwhelmingly critical of Greenspan and his irresponsible recommendation back in 2004. As reader Joe commented, "I also think one should look at Greenspan's comment in light that he said them just a few months before raising the discount rate, or when the discount was at it's lows ex-9/11. Obviously we were at or near a low for a fixed rate mortgage, and at this time it would greatly benefit the major banks if they were writing more adjustable rate loans versus committing to 15 and 30 year fixed rates at these levels."

When we look at the link between the Fed, SEC and the primary dealers which allowed the mega banks to trade their own capital "risk free" with the influx of Fed dollars (to help them get profitable again after a big bank failure scare back in 2001-2002, assumed to be JPM at the time) one has to wonder what the Fed and bankers are up to.

I can certainly guess that the scheme with the banks has nothing to do with the health and well-being of the average citizen. Their whole ploy depended on the gullibility and naivety of the people getting into these aggressive loans. And now the people are paying the price and the Fed is trying to lay the blame on the banks for their aggressive tactics. In the end we all could pay a terrible price as the housing crisis worsens, one which has been helped by the Fed's easy money policy.

Jeff Bailey : 10/28/2006 2:41:27 AM

A Needed Response/Editorial to Friday's (03:05:30 PM EDT) ... Coming soon! The FACTS, and the "rest of the story" as it relates to Mr. Greenspan's credit union speech addressing existing homeowners in the context of 2004 housing prices and past, then current, and FUTURE trends in interest rates.

Remarks By Chairman Alan Greenspan - Source: The Federal Reserve Board (In its entirety) Link

Keene's 03:05:30 PM Post ... I (Jeff Bailey) didn't receive Joe's email that I (Jeff Bailey) am "missing the point."

But here are some points that I feel some are missing. Perhaps points are missed due to a negative bias toward Mr. Greenspan, and perhaps other Fed policy makers. I (Jeff Bailey) have disclosed my negative bias towards some company's CEO's (ORCL, AMD), where I would never own a share of stock in that company. I understand my bias and how to control it.

In Mr. Greenspan's closing comments (Mitigating Homeowner Payment Shocks), he states...

"One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the "option adjusted spread" on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners' annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.

American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

And now, the moment I'm sure you've all been waiting for. My editorial!

Once you've read the full text of Mr. Greenspan's remarks at the Credit Union National Association 2004 Government Affairs Conference it may (or maybe not) become apparent that many of the bits and pieces you read on the more popular "Google search" blogger pages, which may get the old "cut and paste," or regurgitated in portions, have been taken out of context.

Any blogger that is dedicated toward Fed critique, may also have a bias. Cut this little piece of Fed commentary, then build into it what the blogger wants.

It is my observation that Mr. Greenspan notes RISK and was clearly addressing current time homeowners that had experience a rise in home value and homeowner equity. Can you, or I refinance what we do not yet own?

Certainly not! And that tidbit is usually left out of blogger, or "Fed critique" commentary. The Washington Post, New York Times, and many other media outlets tend to leave out some very important portions of Mr. Greenspan's remarks.

Mr. Greenspan was clearly addressing debt service ratios when suggesting to lenders that they offer greater mortgage product alternatives to the traditional fixed-rate mortgage.

So, now that you know the full story/context of Mr. Greenspan's comments regarding ARMs, and begin to understand his constant discussion of RISK and past, or future interest rate moves, and the impact on ARMs' future rates and impact to the consumer, only then can Keene drop the thought, or continuous montra, that Mr. Greenspan was telling existing homeowners let alone prospective homeowners to "go with an ARM."

Once Mr. Greenspan's name is "cleared," and the facts presented, we can move to the next step.

The Brokers and the Lenders

Some of you may, or may not know that that a mortgage broker does not currently need a government license, in order to sell somebody this financial product (a mortgage, 1st, or 2nd). I need to stress the broker versus the lender. As it is the broker that is the primary, if not many times the ONLY contact that consumers ever have when considering refinancing, or originating a mortgage loan.

The broker is often thought of as the bank or lending institution, but that is not the case. A broker is simply a "middleman" that brings the bank/lender together with the consumer. He/she is compensated with a commission and takes NO RISK.

Are banks or the institutions underwiting the mortgages, that the broker has solicited in a big scheme together, with soul purpose of taking the consumer to the cleaners?

Certainly not! The bank or lender is the BIGGEST RISK TAKER in the entire process! If you have a mortgage, who owns your house? The bank owns it! You, the borrower, has SHIFTED YOUR RISK, to the BANK! And for that RISK, the BANK will want to be compensated in the form of interest, for the money they've loaned.

So now that you KNOW that it makes no sense for the bank or lender to be in "cahoots" with the Fed, we can put that dead horse to rest. A dead horse mind you, that comes to life at least once a month, if not every FOMC meeting!

Brokers

Now that you are thinking rational and have some facts, what about the broker?

Hold on! I know what you're thinking. But there are GOOD brokers and there are not so good brokers.

In the financial services industry (equities, mutual funds, bonds, options, etc) I have held multiple securities licences that I had to take and pass tests on, then complete continued education on in order to keep up to date with all the new products and derivatives that come about. I've worked side-by-side with "good" and "not so good" stock brokers, or financial investment advisors as they're called these days. Some are, or were in it for just a commission, others broker not only chose the profession in order to make a living, but to HELP the consumer, or investor in stocks, bonds, mutual funds, etc.

But as things stand now, mortgage brokers are not overseen by any federal body, but are regulated on a state-by-state basis, and their "regulations" vary widely. The state of Colorado does NOT currently have any regulations for mortgage brokers.

And who is, or has been one of the most outspoken proponents for Federal regulation of the mortgage industry as a whole? Are you Greenspan crytics sitting down? Yes. Mr. Greenspan himself.

Mr. Greenspan realizes that banks/lenders have become paper pushers to an extent. Hey! I've got all the documents from the broker and the consumer that I need. I (the bank/lender) can't be certain this is the "right loan" for the consumer, but everything meets my (the lender's) RISK requirements.

Mr. Greenspan understands (as do I, Jeff Bailey) that many of the so-called "exotic" mortgages are too complex for an average person to understand.

Believe me (Jeff Bailey)... I understand! I just went through the process of buying a home, dealing with 5 different brokers, three different lenders and was presented with at least 12 different "types" of arrangements.

Even then I found out some things at my closing I didn't really know prior to the final signature on the bottom line.

Yep! "You mean this 30-year interest only isn't really a 30-year interest only and it turns into a principal/interest at year 15 to 30?"

Keene! Do I sound like an "average consumer" when it comes to understanding what type of mortgage I thought I really thought I was getting?

Bottom Line!

OK ... maybe I am "stupid" and just like most consumers when it comes to understanding that a "30-year fixed interest only" is industry jargon for "15-years interest only, then same interest rate, but begin paying principal at 16-30 years."

What an idiot I was. As my broker explained to me ... "Jeff, do you think it makes sense that the bank/lender was going to loan you that much money for 30 years, and never have their principal returned to them?"

Gulp! Maybe when it comes to understanding mortgage loans, I'm not as smart as Keene thinks I am? Or, maybe, just maybe, we're not as smart as Mr. Greenspan, or Mr. Bernanke, but since some don't like either of them to begin with, then it is a great conspiracy that they should be out to get us?

When I signed on the bottom line that day, I was FULLY AWARE of what I was signing. The most likely truth is that my broker did fully explain to me what would take place after 15-years on the "30-year fixed interest only," but after a day of stock market coverage and number crunching on option pricings, I wan't fully focused on what she was saying.

And this brings me to my final point.

BUYER BEWARE. Have you heard that before? Maybe 5th grade? Even junior high?

It is a tough pill for me (Jeff Bailey) to swallow to think, or BELIEVE that the "average consumers" that are financing or refinancing are so dumb, or so easily duped into signing on the bottom line of a legal and binding document, that they can blame Mr. Greenspan, or the banking systems for their stupidity.

But that seems to be the trend doesn't it? Smoke that cigarrette, but sue the heck out of the company that warns you not to smoke it.

Drink yourself until you can't see straight, but blame the establishment that served you the 20 drinks, then allowed you to get in your car and crash your car into a tree.

Yes, there may be a few people that sign up for an adjustable rate mortgage (ARM) that don't undestand "adjustable" means moving, but it is the "low monthly payment" and their REFUSAL to even THINK OF RISK that still has them signing on the bottom line. All the "average consumer" really wants to think about is REWARD in the form of a low monthly payment, and how somebody else duped them into signing up when they got on the wrong side of move.

Sounds familiar doesn't it? Always somebody manipulating things. It has to be, because it doesn't MATCH MY SCENARIO of how things SHOULD BE. If you don't think the stock market should be going down, but should be going up instead, then it is all a conspiracy that has the stock market going down. If you don't think the stock market should be going up, but should be falling, then it is all a conpiracy, or some form of manipulation.

I may not be as smart as you think I am when it comes to what a "30-year fixed rate interest only" mortgage is, but I'm not as stupid as some might think I am when it comes to what Mr. Greenspan has said, when he said it, and to whom he was addressing.

And hopefully, you're not either. Not after reading Mr. Greenspans full commentary at the Credit Union National Association 2004 Governmental Affairs Conference

OI Technical Staff : 10/27/2006 9:59:59 PM

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Jim Brown : 10/27/2006 8:49:55 PM

TSCM - TheStreet.com - Wish I had shorted it on Wednesday. Max Magee, with Indie Research had this to say about their earnings.

TheStreet.com, which we profiled in our article about financial data companies, also reported earnings today, and, as we had expected, the reaction was negative. TheStreet.com did in fact meet EPS estimates and beat the revenue consensus, but its subscription revenue growth was disappointing: up just 3% sequentially. As a result, the company is saying that it plans to shift to a new model that emphasizes advertising revenue over subscription revenue.

In our article, we raised the red flag about the potential for subscriber softness, pointing to plummeting ratings for Jim Cramer's "Mad Money" TV show as an indicator that subscriber interest in TheStreet.com might be waning as well. This proved to be the case. Meanwhile, the company has boosted its free content in order to pursue an ad-supported model, but as competitors in the space have found, in spite of the enthusiasm for online media right now, relying on ad revenue can be risky. For this reason, the shift of focus away from steady subscription revenue is making investors uneasy.

TSCM lost -26% after earnings and closed at the low on Friday.

Jeff Bailey : 10/27/2006 8:24:32 PM

Hmmm ... several weeks ago I did note how much of a problem I was having as it relates to finding a contractor to fix some things up on my recently purchased home here in Denver, CO. He's coming on Saturday and Sunday!

Jeff Bailey : 10/27/2006 8:24:06 PM

Looks like a "bull run" in the Mile High City, the City by the Bay, and the Windy City. Meanwhile a trend of lower prices along the east coast with Boston bucking the trend.

Washington DC might be looking at a slight shift in power this November?

I'll bet the Miami Herald has some articles that would make the Denver Post's seem positive!

Jeff Bailey : 10/27/2006 8:04:08 PM

August CME Housing Futures Changes from 10/27/06 Last to 09/15/06 Last... Composite lower -1.04%.

Boston higher +0.84%, Chicago higher +1.02%, Denver higher +1.36%, Las Vegas flat-to-higher +0.37%, Los Angeles flat-to-higher +0.15%, Miami lower -1.62%, New York Metro lower -1.09%, San Diego flat-to-higher +0.26%, San Franciso higher +1.09%, Washington DC flat-to-lower -0.26%.

Note: Tabulations don't reflect any time value deterioration.

Jeff Bailey : 10/27/2006 7:44:12 PM

CME May07 and Aug07 Regional Housing Futures from 09/15/06.

May07 Link

Aug07 Link

Jeff Bailey : 10/27/2006 7:36:13 PM

CME May07 and Aug07 Regional Housing Futures at today's close ...

May07 Link

Aug07 Link

Jeff Bailey : 10/27/2006 6:53:13 PM

NYMEX SCREEN CRUDE TRADE POWERS AHEAD

DJ- New York Mercantile Exchange's foray into electronic crude oil trading continues to power ahead, with screen volume on the 134-year-old exchange beating open outcry, or floor trading, for nine of the past 10 sessions.

Jeff Bailey : 10/27/2006 6:50:25 PM

$450M BEING PUT TOWARD CLEAN COAL RESEARCH

DJ- U.S. Energy Secretary Samuel Bodman announces $450 million in grants over the next decade to further research into technology that would lessen the environmental impacts of coal use.

Jeff Bailey : 10/27/2006 6:48:09 PM

UNITED, AMERICAN, DELTA HIKE SOME FARES

DJ- Citing high fuel prices, United Airlines increases fares by $6 per round trip on flights to some markets served by low-cost carriers; American Airlines matches the move, with Delta following.

Jeff Bailey : 10/27/2006 6:37:43 PM

Last Ford Taurus Rolls Off Assembly Line

DJ- The last Taurus sedan rolled off the assembly line on Friday and 1,950 jobs went with it.

The Atlanta Assembly Plant, which had been producing cars since Harry S. Truman was president and the birth of Rock n' Roll, was closed, leaving workers wondering where their next paycheck would come from.

The nation's second-biggest automaker announced 10 months ago that it would close the plant as part of a reorganization plan to boost Ford Motor Co.'s (F) profits. Friday's milestone concluded 21 years of making the popular sedan, with sales of more than seven million vehicles.

In the last five years, the plant was ranked as one of the top 10 most productive assembly lines in North America.

"The Atlanta plant and the employees there had a great run - the vehicles they built there were very important to the company," said Ford spokeswoman Anne Marie Gattari. "Unfortunately, we're in a transition period where we are working to align our capacity with the customer demand and as a result we have to idle several assembly plants."

The workers who lost their jobs could choose among eight separation, educational and retirement packages. It is unclear how many will work at other Ford plants, Gattari said

"It'll be OK," said John Rape, 35, of Zebulon, who worked for Ford's chassis department and motor line since January 1995.

Then after a moment, he added: "It hasn't sunk in yet. Wait until Monday morning when I wake up and don't have anywhere to go."

S.L. Stephens, president of UAW Local 882, said about 300 to 400 workers have taken jobs at a Ford plant in Louisville, Ky. Other workers, like Laura Darsey, 43, who lives in Griffin, said she will stay in Georgia, despite being offered a Ford job elsewhere.

"I'm not going to chase them to keep a job," she said.

On Monday, Ford announced a third-quarter loss of $5.8 billion - its largest quarterly loss in more than 14 years.

It said the third-quarter loss came from the costs of its massive restructuring plan aimed at reshaping the company and cutting expenses so it can compete better against lower-cost rivals from overseas.

Company officials predicted things would be even worse in the fourth quarter.

The last Taurus went to Chick-fil-A restaurant chain founder Truett Cathy, who has credited the success of his first restaurant in Hapeville to business from the plant's workers.

"I received it with mixed emotion," said Cathy, as he spoke at the restaurant across the street from the plant.

He plans to put the sedan in the auto museum of his chain's corporate headquarters in Atlanta, where he has other Ford vehicles, including a Model T.

At the Chick-fil-A restaurant near the plant, General Manager Kevin Moss estimated the restaurant would lose up to 15% of its business with the plant gone. He said he was hopeful that new industry moving into the area would help make up for the loss.

"We've known about this for a while and been planning for it," Moss said.

But the loyal customers from Ford will be missed, he said. One worker even came to the restaurant earlier in the day and handed out thank-you cards to workers there.

Jeff Bailey : 10/27/2006 6:17:50 PM

Today's Money Flows at this Link

Jeff Bailey : 10/27/2006 4:55:49 PM

I was wondering the same thing Keene ... today's A/D lines almost identical to 10/17/06, 10/06/06 and 09/22/06

Jeff Bailey : 10/27/2006 4:27:33 PM

USO ... WEEKLY Pivot Levels for next week... $50.41, $52.20, Piv= $53.51, $55.30, $56.61.

Jeff Bailey : 10/27/2006 4:25:36 PM

U.S. Oil Fund (USO) goes out at $54.00, its first Friday close above a WEEKLY Pivot since, well.... since 09/29/06. The ONLY pattern of diverging strength that week 09/25-09/29 that I'm able to pick up on is that USO traded above its WEEKLY R1 for more than hour this week.

Remember? (see 09/28/06 MM al_rt)

Jeff Bailey : 10/27/2006 4:19:25 PM

30-year YIELD ($TYX.X) Link ... fell 4.5 bp to 4.796%

Jeff Bailey : 10/27/2006 4:19:20 PM

Oh My! 10-year YIELD ($TNX.X) Link ... plunged 4.6 bp to close 4.675%.

Hang in there Marilou and Patrick! Get that ARM under control.

Keene Little : 10/27/2006 4:13:41 PM

The SPX has the same pattern and it too stopped and parked itself on its uptrend line from September 22nd, leaving an even more bullish dragonfly doji on support. I love the way these indices get parked right on support--will it break on Monday or will it bounce? Stay tuned. Have a great weekend and I'll see you Monday. (I may post a couple more charts if I find something interesting). Link

Keene Little : 10/27/2006 4:09:52 PM

The DOW has pulled back to its uptrend line from September 22nd, leaving a bullish hammer doji at support on its 60-min chart. The top could be in as of yesterday but it's too early to tell. With the choppy climb this month it could easily continue on that path upward. So far the pullback is only a corrective 3-wave decline. I would need to see an impulsive 5-wave decline which would also be a break of its up-channel from September. Look for a bounce on Monday. Link

Jane Fox : 10/27/2006 4:02:34 PM

Economic Calendar for Monday Oct 30th

8:30a.m. Sept Personal Income. Consensus: +0.4%. Previous: +0.3%.

8:30a.m. Sept Personal Spending. Consensus: +0.2% .Previous: +0.1%.

10:30a.m. Oct Dallas Fed Mfg Production Index. Previous: 11.1.

12:00p.m. Sept Chicago Fed Mfg Index. Previous: -0.6%.

Keene Little : 10/27/2006 4:01:02 PM

It looks like a few shorts are worried about that spike back up on Monday--taking their profits before the weekend. Smart move I think.

Jeff Bailey : 10/27/2006 3:59:38 PM

Bullish swing trade long 1/4 position ... for the U.S. Oil Fund (AMEX:USO) $54.04 +0.72% here. Stop $53.25, target $57

Keene Little : 10/27/2006 4:00:16 PM

GS down -2.5% today. Brokers are down -1.1%. Weakness in Jeff's beloved brokers and banks could be telling us something. But I think it's not going to be easy for the bears. At least a spike back up on Monday, if not a move to a new high, would be a typical topping pattern.

Keene Little : 10/27/2006 3:48:26 PM

YM is close to its uptrend line from October 3rd at 12100. That one could actually set up a nice bounce on Monday.

Jeff Bailey : 10/27/2006 3:37:04 PM

AGP $34.54 +5.24% ... session low so far $34.01, and bounce high 5-minute close has been $34.73.

Jeff Bailey : 10/27/2006 3:35:32 PM

5-MRT methodology for day traders ... count the levels on a 5-minute CLOSE. Simply say to yourself ... once it finds a close above/below this level, it SHOULD NOT find a close below/above 2-levels lower/higher.

Keene Little : 10/27/2006 3:33:16 PM

If we get a sharper 3-wave bounce off the uptrend line, that gives us ES 1386.25 for an upside target. If it instead motors along sideways/up into the close then I'd look for an immediate move lower on Monday and then a bounce back up to correct today's decline.

Jeff Bailey : 10/27/2006 3:28:31 PM

AGP $34.76 ... Red #3

Keene Little : 10/27/2006 3:28:29 PM

More from someone who is savvy in both real estate AND financing. She's the exception in the general populace (thanks for email Denise):

as a real estate broker of apx. 30 years -- hearing Greenspan suggest alternative mortgage plans, and specifically ARMS or adjustable rate mortgages.....I thought he was plain NUTS! There is one important caveat however....if a homebuyer or an investor is financially savvy, and planning use of the property and the mortgage, (ie: is refinancing often as I and other investors do), for a shorter period of time such as 3-5 years, then the use of interest only adjustables --which fix the rate 3-10 years..can often be a better choice, due to the lower initial payments achieved. Think of it like buying options-- buying a block of the best money available for a specific time. In areas where appreciation of real estate is healthy..this has worked well. The crystal ball remains cloudy as to how much of a pull back real estate will have..but overall..it appears to be a safe strategy, when one has sufficient equity in a property. The highest risk of course would be buying now with interest only and zero down should prices continue downward greatly and one needs to sell in 1-2 years ...

Jeff Bailey : 10/27/2006 3:26:34 PM

AGP $34.61 ... 19.1% dynamic

Jeff Bailey : 10/27/2006 3:20:27 PM

AGP $34.47 ... Red #4.

Jane Fox : 10/27/2006 3:19:24 PM

AD volume to new daily lows so I don't think the bears have too much to worry about.

Jane Fox : 10/27/2006 3:18:24 PM

It amazes me sometimes how previous day levels come into play on the ES chart. Link

Jane Fox : 10/27/2006 3:15:31 PM

WASHINGTON (MarketWatch) -- The investigative arm of Congress will undertake a review of the Securities and Exchange Commission's enforcement practices in the wake of a senator's concerns about the agency's handling of an insider-trading case.

The Government Accountability Office agreed last week to investigate the agency's enforcement and examinations divisions at the request of Sen. Charles Grassley, R-Iowa.

"We have accepted requests from Sen. Grassley...to look at SEC enforcement issues," said GAO spokesman Paul Anderson. Grassley is chairman of the Senate Finance Committee.

Grassley has raised questions about the SEC's handling of an insider trading probe involving Pequot Capital Management, a big hedge fund.

Pequot was first reported to be under investigation in June, after former SEC attorney Gary Aguirre complained that he was fired last September when his probe led him to John Mack, a major fund-raiser for President Bush and now head of Morgan Stanley.

Jeff Bailey : 10/27/2006 3:13:52 PM

Sector Winners ... HMO +1.59%

Sector Losers DJUSHB -2.63%, SMH -2.47%, OIH -2.17%, MSH -1.76%

Keene Little : 10/27/2006 3:13:38 PM

ES is getting the bounce off the uptrend line from October 3rd at 1382. Now I'm watching to see if it consolidates on top of the line or if we get a sharper bounce back up. If we see a consolidation followed by another new low we'll have an impulsive decline today that takes out the October uptrend. That would be bearish.

But so far we have only a 3-wave move down to that support line and by that measure it was a good place to go long. If you did go long at the uptrend line, use a new daily low for your stop.

Keene Little : 10/27/2006 3:05:30 PM

Here's a take on Jeff's earlier comment about Greenspan and his 2004 statement. Couldn't agree more:

"Terrible to think that CONSUMERS want to place all the blame on Mr. Greenspan and bankers." J. Bailey

Jeff misses the point. Here we have what some call the sharpest financial mind in the world at the time, saying that banks should "provide(d )greater mortgage product alternatives" when fixed rates are near historical lows and suggesting that consumers take them. I could see such a statement at historical highs...but lows?? That's irresponsible! Jeff, you, me...we can see our way through these matters. Many can't. Many will lose their homes as well as their credit rating costing them higher borrowing cost in the future. Joe

Jim Brown : 10/27/2006 2:59:59 PM

Reader Challenge Plays - The following are the plays submitted by readers for this weeks challenge. The prices listed are for reference only. The actual prices we will use in the contest will be the closing prices for this Friday and next Friday. I will update all the entry points this weekend to reflect the official prices.

I congratulate everyone that submitted plays. It takes extra effort to step out from the crowd and put your bias and ego on the line even if it is on an anonymous basis. Now you know how the Option Investor staff feels every time they pick a play knowing thousands of readers could invest their hard earned money on it.

*********************

Reader Challenge Play from reader JK

Buy Google (GOOG) NOV-$500 Put GOP-WO
I believe the post earnings rally is way overblown. Even if Google eventually does hit that $600 target I think the risk in the short term is for some profit taking. The market is also over extended and selling in the broader market could pressure Google even more. In the money puts provide good leverage but that leverage works both ways. If GOOG does more higher the premium will evaporate quickly. This is not a fire and forget position.

Reader Challenge Play from reader FP

Buy SanDisk (SNDK) JAN-07-$50 Call SWF-AJ
The stock got hit badly on it earnings release on Oct 19th. I believe the stock is oversold based on the revenue and guidance the CEO gave us. The charts have bottomed and are turning up. I believe the stock will move back up to the resistance level around $55 in the near future.

Reader Challenge Play from reader MT

Buy SPX Bull Call Spread Weekly at the offer

SPX 1385 Call JXD-JQ 3.30 3.70
SPX 1400 Call JXD-JU 0.10 0.40

1385/1400 Call spread 4.10 net debit
SPX has broken over short-term resistance and a continued run could easily pass 1400.

Reader Challenge Play from reader GG

Buy NEM JAN $45 PUT NEM-MI
Jim, as you know I trade gold frequently. I like the NEM JAN 45 PUTS as the P&F chart is showing a P.O. of $26.00. Symbol is NEMMI. The stock is facing heavy resistance at 45-46, and support at 40-43, and 38. I would trade it down to 39.00 with a stop at 47.50.

Reader Challenge Play from reader DB

SELL SPX NOV $1350 CALL SXY-KJ

Sell naked 10 of the Nov SPX 1350 Call SXY KJ.

The market has had good news and "gooder" news for three months and is 6% above its 200 DMA. Due for a 2% pull back at any bad news.

Election posturing of the market should end before the election, i.e. next week. Any bad news is going to send some over stuffed bulls to the exits with as much cash as they can carry.

This should be good for a quick gain for this naked position. It is far enough ITM that a drop of 25 points will yield about 50%. If market continues up the risk side is about 10 points. I would stop it at a negative 10.

Normally I would not do this trade naked but would buy insurance at 1410. With the market going as hot as it is I might not do this trade at all but this is my game trade.

Just call me the last short standing. Uh-Oh is that a bull horn I feel in my back?

Reader Challenge Play from reader GR

SPX PUT Debit Spread

Buy SPX NOV 1390 PUT SXY-WR $14.20
Sell SPX NOV 1350 PUT SXY-WJ $2.70

Strategy is the market is very overextended and expect some retracement, the long put delta will increase as the SPX drops thus increasing the long put value. The short Put is placed for protection in case the SPX doesn't cooperate but will also limit the gains although not as much since it has a lower delta.

The problem with shorting this market is everyone has been expecting a reasonable correction since summer and I am becoming more convinced it will not happen this year, especially in front of the elections.

Reader Challenge Play from reader WR

BUY Ford (F) NOV $9.00 CALL F-KL
Ford Motor Car Co. (F) is about to fill its gap down on Sept 15th. The stock's recovery since then has not been hampered by poor earnings results and has received a Goldman upgrade to boot. The quarter's bad news is out and the stock refuses to retreat, a good sign. I prefer the Nov $9.00 calls, F-KL, currently asked at $.15. Look for a quick run to above $9.50 for the stock and more than a triple on the call.

Reader Challenge Play from reader AW

BUY OEX NOV 660 CALL OEY-KL
Well, since we are going for percentages here, I am suggesting a lottery play on the OEX looking for a 10 plus point spike up before the election. Buy Nov 660 call OEYKL, now $.90. This has 5x potential. This would equal an SPX top of 1400-1405.

Reader Challenge Play from reader WO

BUY BOOM NOV 35 CALL QCB-KG
Trade: Buy BOOM Nov 35 call (QCBKG) This is a very aggressive, short-term trade intended to parlay an earnings run and short squeeze on Dynamic Materials Corp (BOOM).

BOOM has a niche and near monopoly position in the business of explosion-welded clad metal plates for use in the construction of corrosion resistant pressure vessels and heat exchangers. Its products are used in the oil and gas industry as well as shipbuilding, power generation and industrial refrigeration.

BOOM has a very small float with about 20% sold short. It reports earnings on November 1. A good report could drive this stock up to the level of $37.00.

From a technical perspective, the short-term stochastic (5,3,3) is moving up, but still has plenty of upside room before becoming overbought. OBV is also moving up but not near a top.

Reader Challenge Play from reader NM

BUY US Steel (X) DEC 55 PUT X-XK

Motive: Q3 earnings due Oct 31. Expecting downturn. $70 is strong resistance.

Reader Challenge Play from reader WL

SELL QQQQ DEC 43 CALLS QQQ-KQ
My option play for the challenge is: sell 10 lots QQQQ 43 calls (QQQ-KQ) --try to sell at target of 55 to 65 cents. I sold some at 65 cents at 3:50 on Thursday, October 26th. I believe the market will pull back to around 42 back by next Friday.

Reader Challenge Play from reader KK

BUY SYY NOV 35 CALL SYY-KG

My reasoning is:
1) The overall market trend is strongly bullish, and I think it would be difficult to turn the battleship around in one week;
2) It's a big-cap name, which is very much in favor these days;
3) Sysco is only modestly higher than it was at the beginning of September;
4) Since gasoline prices have come down sharply in the last couple months, the consumer probably feels like Howard Hughes and wants to go out and spend some of it at restaurants and ball games;
5) A catalyst is preferred, so I chose a company that reports earnings next week;
6) I am looking for maximum volatility, so I chose a front-month, out-of-the-money strike;
7) That knucklehead Cramer mentioned them very briefly yesterday, and he seems to love buying the tops--so if they have good earnings, I'm betting he'll be all over it !

Reader Challenge Play from reader JS

BUY AMZN NOV 40 PUT ZQN-WH
The Amazon earnings bounce was way out of proportion to the news and was prompted by surprised short sellers scrambling to exit their shorts on the surprise beat. Earnings continue to slow while sales are growing. You can't be everything to everybody and make a profit. $19 million in profits, down from $30 million in Q3-2005, is not very much profit when compared to the $2.31 billion in sales. That is .008%.

Eventually Amazon is going to fail and the +$6 bounce this week is going to be a tempting target if the market rolls over. $39 is strong resistance and a possible failure point. I am using the in-the-money November puts to get 100% of any decline while my risk is only $2.15 at Thursday's close.

Reader Challenge Play from reader SB

BUY PCU NOV 50 PUT PCU-WJ
Despite strong copper prices PCU has been hit with a month long strike at Mexico's largest copper mine, Cananea, and a 3-month strike at another mine called La Caridad. Both are now over but the impact should hit their Q3 earnings due out any day now.

Reader Challenge Play from reader DW

BUY CME NOV 480 PUT CNM-WP
Due to extreme overbought condition across all markets as well as a possible sell the news event post FOMC I believe the markets as well as most stocks will have some profit taking/corrections.

CME posted good earnings on Tuesday, but not blow out. Prior earnings have resulted in sell offs rather than rallies. That in combination with the stock at or above most analysts price targets, and a planned acquisition of CBOT (BOT) could put downward pressure on the stock. In addition, the recent breakout of previous all time highs around the $508 level was reversed with rather large volume back below the break out point. Stock has been weak relative to other issues the last couple of days and had increasing selling volume into the close on Wednesday after the FOMC meeting.

Initial target of approximately $450-$455, with a possible target of even $420-$425 depending on the severity of the market pullback.

Reader Challenge Play from reader JB

BUY TIE NOV 30 CALL TIE-KF
Timet is a manufacturer of titanium and specialty metal products. ATI, another company in their sector blew away earnings on Wednesday. Earnings of $1.58 compared to .87 in the prior year and 1.36 estimate by analysts. TIE has heavy insider buying and will report earnings sometime in the next week.

I can't find the exact date but it should be any day. With TIE at 32 the 35 call is too far out of the money for me. I would rather buy the ITM call and get full delta.

Marc Eckelberry : 10/27/2006 2:58:38 PM

Gold has resistance at downtrend line now 602.50. That line has not been broken to the uspide since May. We are very close and pushing against it. Lots if stops above that and gold bears must be feeling the heat. We could fall back from here, but I'm betting we crack that level today. Watch 200 ema 600.90.

Jeff Bailey : 10/27/2006 2:58:29 PM

Please be assured ... I do NOT trade against my profiles (even as a hedge trader) when I can tell for certain that subscribers aren't interested in the trade. Today, I was POSITIVE I was the only trader buying $1.10 in the calls. I was the only trader buying them at $1.10 this morning.

Jeff Bailey : 10/27/2006 2:54:10 PM

SPY $137.81 -0.78% ... 30-minute interval chart at this Link

Jeff Bailey : 10/27/2006 2:45:35 PM

SPY $137.81 -0.67% ...

Jeff Bailey : 10/27/2006 2:44:59 PM

Oh my! ;)

Jane Fox : 10/27/2006 2:38:16 PM

Oh my oh my take a look at our ducks! Link

Jane Fox : 10/27/2006 2:35:51 PM

Opps looks like the MACD was lying. Interesting to see a bullish not work out.

Marc Eckelberry : 10/27/2006 2:34:26 PM

The lower GDP will keep a lid on the dollar, so don't get complicated on that one either.

Marc Eckelberry : 10/27/2006 2:33:13 PM

Little run for the exits. ES 1382 is must hold as is NQ 1728. As for gold, sorry guys, it is a major buy (and more so every day). The inverse head and shoulder is playing out and we are now back above 200 ema. A close above 601 seals it. Target is still 650 zone. Don't get too complicated on this one. Oil has confirmed major support above 60 and it's off to the races with commodities.

Keene Little : 10/27/2006 2:33:03 PM

In addition to the uptrend line from October 3rd at 1382 its 30-min 100-pma, which has been supporting this rally's pullbacks, is at 1382.25.

Jeff Bailey : 10/27/2006 2:28:04 PM

Covering an underlying day trade short in AGP $34.10 here.

Keene Little : 10/27/2006 2:25:00 PM

YM is testing its uptrend lines at 12140. It tends to under-throw these so it's still possible the trend lines will hold here. Otherwise look for 12100 as the next uptren dline from Oct 11th.

Jeff Bailey : 10/27/2006 2:18:31 PM

AGP $34.07 +3.80% ... red #5

Keene Little : 10/27/2006 2:13:52 PM

As a public service reminder, don't forget to turn your clocks back an hour Saturday night. Unless you live in places like AZ that don't change their daylight savings times.

Jim Brown : 10/27/2006 2:13:13 PM

The November natural gas contract expires today

Jeff Bailey : 10/27/2006 2:13:58 PM

Hey ... after RIO bearishness Keene, don't be sorry. ;)

Jane Fox : 10/27/2006 2:10:14 PM

What the heck is happening to Natural GAS, it seems to be in a freefall.

Jeff Bailey : 10/27/2006 2:05:50 PM

The USO and December Crude just about pinned that little head/should pattern didn't it? Right back at weekly pivot on both.

Jane Fox : 10/27/2006 2:05:29 PM

BAsed on these charts an ES long could be a higher than 50/50 chance. Notice the nice little MACD divergence. Link

Jane Fox : 10/27/2006 2:02:11 PM

Here is a look at Gold's 3 most important relationships. Crude is saying bearish on Gold because it is still below its 12 weekly EMA. The US$ is saying bullish on Gold because it is now below the 7 weekly EMA. The Swiss franc is saying bullish on gold because it is now above the 5 weekly EMA. HMMMM getting really interesting. Link

Keene Little : 10/27/2006 2:00:04 PM

I see gold differently right here. After breaking its short term uptrend line from the October 6th low, it has bounced back up to it, leaving a bearish divergence on its 60-min chart. My guess is further downside, at least for the short term. Sorry Jeff. But if it just consolidates sideways for a day or two then I would look for higher. Link

Keene Little : 10/27/2006 1:55:09 PM

The short term pattern I showed earlier this morning that called for a new high has been busted. The break below this morning's low and the uptrend line from Monday says yesterday's high was it for this week's run up. Now the question becomes what to make of this decline. For now it could all still be part of the move higher from early October. Link

It takes a break below ES 1380 to suggest something even more bearish may be starting. But for now, just maybe, yesterday's high could have been it. There are lots of support levels below us before the bears have anything over the bulls though. First one to watch is 1383.75 (two equal legs down) and then the uptrend line at 1382.

Jeff Bailey : 10/27/2006 1:55:01 PM

Could use the help Jane! ... BGO $4.32 +0.93% ...

Jane Fox : 10/27/2006 1:54:36 PM

Of course you never want to go long Gold without looking at the US $. This chart is not as bearish as I would like it to be. Link

Jane Fox : 10/27/2006 1:51:20 PM

May be time to take a long position in GLD. Link

Jane Fox : 10/27/2006 1:45:04 PM

... however notice that the VIX did not test its daily high when ES tested its daily lows soooooo you know what that means - no follow through! Don't you just hate those words.

Jane Fox : 10/27/2006 1:44:05 PM

There certainly seems to be a bear creeping into this house. Link

Jeff Bailey : 10/27/2006 1:42:41 PM

The Bear Is in Your House Link

Keene Little : 10/27/2006 1:41:32 PM

That same uptrend line from October 11th for ES is a bit lower at 1382.

Keene Little : 10/27/2006 1:39:59 PM

YM 12140 is also the uptrend line from the October 11th low.

Keene Little : 10/27/2006 1:38:28 PM

YM has more of a sideways triangle going on since Wednesday, the bottom of which is near 12140 so watch for support there.

Jeff Bailey : 10/27/2006 1:38:16 PM

I think a "good ticket" for the upcoming elections would be a Greenspan/Bernanke ticket.

Keene Little : 10/27/2006 1:37:41 PM

ES has now broken its uptrend line from Monday. This morning's bounce was a bear flag after all. Now watch for two equal legs down from yesterday's high--ES 1383.75.

Jeff Bailey : 10/27/2006 1:35:37 PM

I know you do Keene. You and others stated that clearly in the fall of 2005 when the banking industry was set to colapse.

Keene Little : 10/27/2006 1:35:14 PM

We who know better have a responsibility to watch out for the less fortunate. Bankers and other corporate leaders have a moral responsibility that they've shirked. Shame on them. Uh oh, I'm starting to sound like Marc (wink). I'll get off my soap box now. Thank you for listening.

Keene Little : 10/27/2006 1:32:02 PM

Jeff, you understand financial risks and rewards. Unfortunately we have a lot of seniors and poorly educated people that haven't a clue about finances and wouldn't know how to make that assessment. Those are the people that will get hurt and yes, your darned tootin' I blame Greenspand and the greedy bankers, big time.

Jeff Bailey : 10/27/2006 1:28:46 PM

I looked at a lot of different mortgages Keene on my most recent home purchase. Just have to assess RISK and REWARD.

Similar to investing/trading, you can't just look at the potential REWARD, you have to look at the RISK and you can't just look at the RISK, you have to measure it against the REWARD.

Terrible to think that CONSUMERS want to place all the blame on Mr. Greenspan and bankers.

Keene Little : 10/27/2006 1:27:24 PM

ES is testing its uptrend line from Monday again, this time at 1388.75, a point higher than this morning.

Jim Brown : 10/27/2006 1:26:59 PM

Reader Challenge Alert I am going to post all the reader plays again at 3:PM for those readers that did not see them last night. This will give everybody a chanec to enter any plays they like before the close. If you want a head start go back and look at the first posts in the monitor this morning.

Keene Little : 10/27/2006 1:26:36 PM

Hark! What is this I see? Is that a selling spike? Will wonders never cease.

Keene Little : 10/27/2006 1:25:37 PM

And the banks don't care. They simply package up their loan portfolios and sell them to hedge funds and the like. They limit their exposure to these bad loans this way. There's got to be a payback somewhere in here for them.

Jeff Bailey : 10/27/2006 1:25:17 PM

Refinance Your Mortgage Alert! ... while this is a repeat from my earliest June 2003 when the benchmark 10-year YIELD traded below 3.25% and then again per Mr. Greenspan's spring of 2004 note of how benefical ARMS had been to the economy and housing market. (those comments have been twisted to a great degree)

Keene Little : 10/27/2006 1:23:28 PM

I remember that story Jeff. It's heart breaking to think of the number of people in the exact same predicament. Good honest folks getting shafted by greedy bankers is the only way I can classify it.

Jeff Bailey : 10/27/2006 1:18:03 PM

Option ARMs: a ticking bomb? ... Denverpost.com article Link

Jane Fox : 10/27/2006 1:16:40 PM

So what we end up with is a market getting pushed and pulled into a straight line sideways.

Jane Fox : 10/27/2006 1:15:45 PM

Whereas there are telling me new daily lows are not just around the corner. Link

Jane Fox : 10/27/2006 1:14:48 PM

These are telling me new yearly highs will NOT be made today. Link

Keene Little : 10/27/2006 1:10:03 PM

The creation of all that money by the Fed brings a whole new meaning to the phrase "don't fight the Fed".

Jeff Bailey : 10/27/2006 1:09:31 PM

And while it feels like fall outsie, it even sounds like the fall of 2005 and spring of 2004 in this morning's MM!

Keene Little : 10/27/2006 12:56:54 PM

I had mentioned in my Wrap last night that it would be nice to be able to measure the amount of cash being generated by the Fed. Since they stopped reporting M-3 in March we haven't been able to see what they're doing. Thanks to Joe for sending me a link to nowandfutures.com where they've been able to recreate M-3 (minus the Eurodollar component which they say could create a maximum 3% error). Here's the chart they've created from the numbers they are digging out of the Fed's money reports. Link

As you can see the rate of growth in the money supply continues to grow. The light blue line is the rate of change and it is now above 10% and approaching the rate back in 2002. What is the Fed worried about that they're pumping so much money into the economy? And is it any surprise they're worried about inflation? They're helping inflate it! Also, look at the spike up to a new high in October. This has clearly goosed the stock market with all this fresh out-of-thin-air money coming in.

Jane Fox : 10/27/2006 12:53:24 PM

Many were perplexed by Greenspan's statement about mortgage rates back in 2004 and I thought he was totally off base. I am a Greenspan fan and I saw that statement out of character for him. (12:34 post)

Jeff Bailey : 10/27/2006 12:48:28 PM

For AGP ... if it is to go out at its high of day, first sign would be strength back above $36.05.

Jeff Bailey : 10/27/2006 12:41:05 PM

Swing trade bullish call filled alert at $1.10 with AGP $34.76

Keene Little : 10/27/2006 12:34:22 PM

Interesting quote sent to me (thanks Joe):

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

Greenspan Feb 23, 2004. The 30 year rate was 5.46, 15 year mortgage 4.78%

And now the Fed is chastising the banks for aggressive lending practices. Yea, OK. Considering the trouble that non-financially savvy home owners (including many retired couples who refinanced) are in and the spike in foreclosures, I'd say that was not a particularly good piece of advice from the Fed chairman. Many people are locked into drastically increasing mortgage payments and can't get out because of prepayment penalty clauses. Enron's executives had nothing over these bankers. And years from now I suspect Greenspan's halo will be a bit tarnished.

Jeff Bailey : 10/27/2006 12:20:57 PM

AGP-KG $1.10 x $1.20

Jeff Bailey : 10/27/2006 12:20:34 PM

AGP at Red #2

Jeff Bailey : 10/27/2006 12:18:40 PM

AGP $35.23 +7.34% ... 5-minute interval chart with "5-MRT" ... Dynamic would be pulled lower now Link

Jeff Bailey : 10/27/2006 12:15:03 PM

Alcoa (AA) $28.50 +3.22% ... on fire!

Keene Little : 10/27/2006 12:08:00 PM

NQ is chopping sideways and ES is chopping lower. So far both look like they could resolve to the upside.

Jeff Bailey : 10/27/2006 12:01:37 PM

Bullish swing trade call setup alert ... Let's place a DAY order to buy two (2) of the AGP Nov. $35 Calls (AGP-KG) for a LIMIT price of $1.10. No stop, target $3.00.

Jeff Bailey : 10/27/2006 11:53:59 AM

AGP $36.12 +10.05% ... The AGP Nov $35 Calls (AGP-KG) currently $1.55 x $2.00

Low/high has been $1.60/$2.35 with 49 contracts traded.

Jane Fox : 10/27/2006 11:53:33 AM

This is a get out and stay out kind of day. Link

Keene Little : 10/27/2006 11:46:31 AM

VIX also closed its gap. I've got some very mixed signals across various time frames and as Jane observed, her ducks are wandering aimlessly. Unless you're into quick 1-2 points scalps, I don't see much here to recommend at the moment.

Keene Little : 10/27/2006 11:43:35 AM

ES 1392 is a 62% retracement of this morning's drop. 1392.50 is gap closure and 1392.75 is whree the 2nd leg up will equal 162% of the 1st leg up in the bounce. Therefore it could be tough resistance between 1392 and 1393. If it can get past there then we should see new highs coming.

Jeff Bailey : 10/27/2006 11:23:56 AM

Slap a "dynamic" retracement on AGP as well as your "5-MRT" ... stock should go out at/near high of the day.

Keene Little : 10/27/2006 11:22:46 AM

Speaking of ER, notice how it is marching up underneath its previously broken uptrend line from October 3rd. This is usually not bullish since it often breaks free of the trend line and heads for new lows. Link

Keene Little : 10/27/2006 11:20:16 AM

YM has closed its gap with ES and NQ not far behind. ER had closed its gap earlier before pulling back and is holding in negative territory.

Jeff Bailey : 10/27/2006 11:20:04 AM

Bull Market Results (ie bullish %) ... a Purdue University study of "Pointy Finger" chart patterns revealed the BULLISH TRIANGLE pattern was profitable 71.4% of the time for an average gain of 30.9% in approximately 5.4 months.

Useful for options? (ie strike and time)

Jane Fox : 10/27/2006 11:20:02 AM

VIX to new daily lows again confirming ES's new daily highs but the AD volume is telling me we will not have too much follow through.

Jeff Bailey : 10/27/2006 11:15:20 AM

HMO Components with Dorsey/Wright's Sector class, trend, Relative Strength and Patterns at this Link

Jane Fox : 10/27/2006 11:13:44 AM

VIX making new daily lows says to stay away from shorts but the AD volume at daily lows says stay away from longs. When the ducks are not in a row that means the market will do nothing.

Keene Little : 10/27/2006 11:10:19 AM

They're just inching this higher, more so for the DOW than the others. Getting yet again another record high today would be very good for the weekend papers.

Jeff Bailey : 10/27/2006 11:08:09 AM

Oh My! ... AGP $36.87 +12.34% ... After Tuesday's "Poiny Finger" bullish triangle pattern.

Keene Little : 10/27/2006 10:59:42 AM

VIX is now dropping into this morning's gap up so that suggests ES and YM will climb up into their gaps. How am I doing Jane? The a-d volume is looking pretty anemic though.

Keene Little : 10/27/2006 10:56:41 AM

After the initial sell off we've got a stare-fest going on. We have to wait to see who blinks first.

Jeff Bailey : 10/27/2006 10:51:47 AM

HMO Index (HMO.X) 1,856.14 +2.51% Link ... surging to record highs and breaking out of nice little 9-month base.

Jane Fox : 10/27/2006 10:48:19 AM

VIX to new daily lows so don;t be thinking short.

Jeff Bailey : 10/27/2006 10:45:57 AM

Broker/Dealer Index (XBD.X) 235.49 -0.27% ... 60-minute interval chart with QCharts' WEEKLY Pivot Levels and Keene's 21.4% and 78.6% retracement levels. Also note the "Bank of America" free commission gap. Link

The XBD is an EQUAL weighted index in that each stock has the same weight. Just like the "Pointy Finger" bullish %.

Keene Little : 10/27/2006 10:44:47 AM

If this is just a corrective bounce that will lead to lower prices, two equal legs up in the bounce is at ES 1390.75 and YM 12177.

Keene Little : 10/27/2006 10:40:33 AM

ES and YM are hitting the bottom of this morning's gaps so that's first resistance for the bulls to break.

Keene Little : 10/27/2006 10:39:10 AM

It sure looks like a bear flag though...

Keene Little : 10/27/2006 10:37:35 AM

Big question here is whether this morning's consolidation near the lows is a bearish continuation pattern or instead preparation for another assault on the highs. I've seen too many of these consolidations act as launching pads so I'm not betting on the downside. If and when the uptrend lines start to break then I'll look to short the bounces but until then we're still in dipster mode.

Jane Fox : 10/27/2006 10:35:18 AM

Oh ah by the way TICKS +800 YAWN!!!

Jane Fox : 10/27/2006 10:30:42 AM

AS you can see the VIX was not confirming the bearish AD volume so what does the market do - nadda!

Jeff Bailey : 10/27/2006 10:29:19 AM

LEH $77.41 -1.27% ... WEEKLY Pivot here $77.45, WEEKLY R1 $78.45, WEEKLY S1 $76.01.

Jeff Bailey : 10/27/2006 10:28:05 AM

BGO $4.30 +0.46% ... Below WEEKLY Pivot $4.37 (kissed yesterday), WEEKLY S1 $4.11.

Jeff Bailey : 10/27/2006 10:26:53 AM

OATS $18.48 -1.01% ... under WEEKLY R1 $18.77 (kissed yesterday) and above WEEKLY Pivot $17.86.

Jeff Bailey : 10/27/2006 10:25:44 AM

UPS $75.01 -0.58% ... just above its WEEKLY Pivot of $74.81.

Jeff Bailey : 10/27/2006 10:25:05 AM

SPY $138.32 -0.33% ... Trades WEEKLY R2.

Jane Fox : 10/27/2006 10:22:46 AM

TRIn to new daily highs at 1.53 as the AD volume makes new daily lows. This is bearish but I need the VIX to get on board before I will try a short.

Jeff Bailey : 10/27/2006 10:20:43 AM

U.S. Oil Fund (USO) alert $53.41 -0.44% ... see MM commentary from this week. Trades WEEKLY Pivot here.

Jeff Bailey : 10/27/2006 10:19:39 AM

NYSE NH/NL Ratio Chart as of last night's measures at this Link ... 10-day NH/NL Ratio "buy signals" on 07/07/06, 07/28/06 and 08/22/06.

Keene Little : 10/27/2006 10:15:13 AM

The bulls are hanging on here. If you're trying to scalp a long out of this your stop should now be a couple of ticks to a new daily low. It could be a choppy ride higher, especially if it's goign to be the last leg up (from distribution along the way).

Jane Fox : 10/27/2006 10:00:32 AM

Al, my Tradestation is working fine this morning but I do agree with your statement. (email from reader)

Keene Little : 10/27/2006 9:59:35 AM

A chart similar to the SPX chart I showed earlier shows that ES found support at the uptrend line from Monday that is drawn through the post-FOMC spike down, at 1386.75. This level needs to hold otherwise the wave count could be considered complete at yesterday's high. Assuming it holds and we get renewed buying, another run up towards 1398 should be next. Link

Jane Fox : 10/27/2006 9:58:32 AM

Bulls are saying duck schmucks this morning.

Jane Fox : 10/27/2006 9:52:42 AM

Quick glance at our ducks. ARe they in a row? Yup! Link

Jeff Bailey : 10/27/2006 9:43:11 AM

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

Keene Little : 10/27/2006 9:38:31 AM

The typical behavior has been an early push lower followed by renewed buying so we'll get to see if that continues today or if instead we get a break in that pattern.

Jane Fox : 10/27/2006 9:37:13 AM

VIX now making a new daily high and so far as I can see we have the bears in control. How long that will stay is anyone's guess.

Jane Fox : 10/27/2006 9:36:32 AM

VIX opens mid range to its PDR but the TRIN is well above its PDH.

Jane Fox : 10/27/2006 9:33:02 AM

AD line -677 and AD volume under 0 and falling.

Keene Little : 10/27/2006 9:25:17 AM

The uptrend line from Monday for ES is near 1389 which is the premarket low. As long as that holds I'd guess that we're going to see this rally press higher again. The Fibs for the last(?) leg up in ES is at, drum roll please, 1398. That is of course at that "fat-fingered" trade from last Sunday night.

Jane Fox : 10/27/2006 9:27:27 AM

Here is McMillan's weekly commentary. - Once again, the trend remains positive, as the technical indicators have correctly refused to give sell signals. If you look at the chart of $SPX, you will see just how uniform its increase has been since the July bottom. The same effect can be seen on the equity-only put-call charts (Figures 2 and 3). While this uniform rise in $SPX has been taking place, the technical indicators have more or less remained static at least for the last two months. This continues to produce a market that is short-term overbought and intermediate-term bullish. As is obviously the case, a market can continue to rise while it is overbought. It's only when actual sell signals arise that one would want to alter the bullish stance, and that has not yet happened.

$SPX has created many support levels on its way up: 1360, 1340, 1325, and 1290 stand out as the major ones. These should mitigate damage during corrections -- and also act as more serious warnings signs should they give way during any correction. At this point, we can't predict a correction, but one can materialize quickly. Take 1997 as a case in point: the market had been rallying during most of October, but then in 4-1/2 trading days, $SPX fell a whopping 117 points, before turning around on the last day. Within a month, it was at new highs, but the damage done by such a swift and deep correction was catastrophic to some. Hence, when we say that severe overbought conditions can produce swift, but short-lived corrections, it might sound rather benign. But it isn't. So it's important to take partial profits, roll your options up, and keep tightening your trailing stops as this market continues to rise.

The equity-only put-call ratios are bullish. You can see from Figures 2 & 3, that they both made new relative lows recently. A downtrend in the put-call ratio is bullish. While some of the other broad- based ratios are getting quite overbought, these two stalwarts are not as they remain fairly high on their charts. Hence, these are intermediate- term bullish.

The most overbought indicators are market breadth and volatility indices. Breadth (advances minus declines) continues to be positive on most days, and has resided in overbought territory for quite some time now.

The volatility indices are very low. Simplistically, $VIX is overbought. That doesn't mean the market can't continue to advance, but if $VIX climbs above 12, and especially if it climbs above 14, those would be negative developments. In summary, one has to remain long this market, but should realize that prices don't rise unabated. A short-term correction is now a high- probability event, but the intermediate term bullish case is intact..

Keene Little : 10/27/2006 9:20:20 AM

This morning's data shows a slowing economy and yet the PCE price gauge rose 2.3%. This PCE is one of the important numbers for the Fed and it's higher than they want to see. They'll want to raise rates to control that. But the slowing economy will only be aggravated by rising interest rates. Stagflation anyone? But shh, don't tell the bulls. They're having too much fun telling themselves that everything's just fine. When recognition hits it may not be pretty.

In the meantime if this morning's dip holds, this is the short term pattern that I can see playing out here. A dip to the uptrend line from Monday, currently just below SPX 1385, and then another rally leg which might, possibly, could finish off this rally for good. Upside target for two equal legs up from October 11th is at 1392.29. Link

Jane Fox : 10/27/2006 9:05:25 AM

Dateline WSj - Construction spending is expected to decline next year for the first time since 1991. According to a McGraw-Hill report, the value of new building will fall 1% to $668 billion, mostly due to a 5% slide in single-family-home construction but also reflecting an expected drop in new stores and shopping centers.

Jane Fox : 10/27/2006 9:02:24 AM

The Equity markets did not like the 8:30 GDP data but did not sell off as much I would have expected and I think the selloff is mostly over now. Does that mean will have another bullish day? Considering the bullishness we have seen over the last month, I think the probabilities are in your favor that we will. I don't see that anything has changed to put a stop to the buying.

This is all really quite sad because the longer we go without a correction the harder that correction will be. This kind of environment is not good for traders, investors or even spread traders. It is not good for anyone. Link

Jane Fox : 10/27/2006 8:50:40 AM

Dateline WSJ - U.S. economic growth slowed during the summer to its lowest growth rate in three years amid a slump in the housing sector. Spending on housing fell to its lowest rate since 1991.

Gross domestic product increased at a seasonally adjusted 1.6% annual rate July through September, the Commerce Department said Friday in its first of three readings on third-quarter GDP.

The gain was weaker than the second quarter's 2.6% rate and the first quarter's roaring 5.6% pace. It was the lowest rate of growth since the 1.2% recorded in the first three months of 2003. Economists had expected a much higher growth rate of 2.2% for the third quarter, according to a survey by Dow Jones Newswires and CNBC.

The report showed that inflation gauges eased. The government's price index for personal-consumption expenditures climbed 2.5%, after rising 4% in the second quarter. Excluding volatile food and energy components, the PCE price gauge rose 2.3%, after a 2.7% increase. The price index for gross domestic purchases, which measures prices paid by U.S. residents, climbed 2%, after a 4% gain. The chain-weighted GDP price index increased 1.8%, after rising 3.3%.

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