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OI Technical Staff : 1/26/2007 9:59:59 PM

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Jane Fox : 1/26/2007 3:23:06 PM

SAN FRANCISCO (MarketWatch) -- Google Inc. and News Corp. could be heading for a legal showdown after News Corp.'s Twentieth Century Fox served Google's YouTube online video site with a subpoena demanding the identity of a person who uploaded pirated episodes of the Fox televsion network shows "24" and "The Simpsons."

A subpoena filed Jan. 18 with the U.S. District Court for the Northern District of California demanded that YouTube give up the names of the person or persons who posted the season premiere of "24" online prior to its debut on Fox, as well as 12 episodes from "The Simpsons."

The subpoena was filed by Jane Sunderland, vice president of content production for News Corp.'s (NWS) Twentieth Century Fox. In a statement, YouTube said it was cooperating with Fox's request.

Jane Fox : 1/26/2007 3:15:44 PM

TICKS are going crazy.

Jane Fox : 1/26/2007 3:10:52 PM

ER to new daily highs.

Jane Fox : 1/26/2007 3:09:43 PM

DAVOS, Switzerland (MarketWatch) -- New York Stock Exchange CEO John Thain said New York would regain its footing against London, Hong Kong and other competitors in financial services once authorities act to scale back some of the more onerous provisions of the Sarbanes-Oxley law.

Speaking at a panel discussion on risks in financial markets Friday at the World Economic Forum, Thain dismissed a story in the Financial Times in which a senior Lehman Brothers official said New York can only hope to staunch the bleeding.

"The United States has a great history of overreacting and then coming back," Thain said.

Jane Fox : 1/26/2007 2:50:16 PM

Since the morning move, it has been a tough day to trade.

Keene Little : 1/26/2007 2:49:42 PM

ES has held above its uptrend line from November and it's looking like we could get a bounce now. As the EW count shows on this chart, the high on Wednesday was THE high and we've now started a new trend to the downside. Link

But, and this is a big but, there's still the possibility that the rally to new highs is not yet finished. The move down from Wednesday's high could have completed a correction from the high on January 17th (labeled wave-A) as a funky a-b-c correction. Without getting into the gory details of a potential wave count for that possibility it means we should expect a sharp rally from here to a new high.

That would be considered my alternate wave count and I mention it to keep the bears on their toes here. What bears want to see is a bounce back into the Fib 38%-62% retracement zone (1431.25 to 1437.25) and then a sharp drop below today's low. That would be convincing evidence that we have indeed made a trend change to the downside. Until that kind of move happens, stay cautious.

And with that I'm off to my next meeting. Good luck the rest of the day and have a great weekend.

Jane Fox : 1/26/2007 2:21:12 PM

TICKs just hit another +1000.

Keene Little : 1/26/2007 2:19:32 PM

I think the line by Gramley, "And I think the most important conclusion to draw from that is that concerns that home prices would fall out of bed have largely been alleviated", is going to come back to haunt him.

Jane Fox : 1/26/2007 2:18:53 PM

AD volume continues to make new daily lows and VIX is hovering around daily highs so this is not the time to be long. On the other hand the internals are not printing smooth lines making price choppy so not the time to be short either. After two very good trading days and a good trading morning I think I will put away my trading mouse for now.

Keene Little : 1/26/2007 2:14:11 PM

I'm back. It looks like ES is trying to break its downtrend line from yesterday and the lows of the day are being met with bullish divergences. It shouldn't be long before we see a larger bounce develop.

Jane Fox : 1/26/2007 1:07:52 PM

Gramley: "I don't think the drag from housing is over yet. I think we're getting closer to the bottom. Sales have basically been going sideways for five months. Inventories are no longer rising. Applications for loans to purchase houses are going back up again now. And I think the most important conclusion to draw from that is that concerns that home prices would fall out of bed have largely been alleviated."

Jane Fox : 1/26/2007 1:06:49 PM

Gramley: "We might see a little pickup in the fourth quarter, because growth is going to strengthen in the fourth quarter, but the real issue will be what happens next spring, when we begin to come out of this period of slower growth more or less on a permanent basis. GDP growth in the fourth quarter, by most people's reckoning, will probably be close to 3.5%, but we might slip back again in the first quarter because you really can't expect net exports to contribute as much [to growth] every quarter as it will in the fourth quarter. And consumer spending is quite strong in the fourth quarter, and that is not likely to continue at that pace either. So we could drop back to maybe a 2.5% growth rate in the first quarter. So we won't know much before late summer or early fall whether or not productivity growth is rebounding."

Jane Fox : 1/26/2007 1:06:29 PM

Gramley: "Well, I would think at this next meeting absolutely nothing. I think the statement also will be very very similar to what it was before in the sense that they will still offer hope that core inflation will moderate, but they will consider that the risks are on the high side and that their bias is still towards tightening.

Jane Fox : 1/26/2007 1:06:16 PM

WASHINGTON (MarketWatch) -- Former Fed governor Lyle Gramley says the next move by the Federal Reserve will be to hike interest rates. Gramley, a governor on the Federal Reserve Board from 1980-1985, believes the economy is out of the woods and should settle into a sustainable moderate growth path this spring.

We spoke to him on Jan. 24 to get his outlook for monetary policy as the Fed prepares to meet next week on Jan. 30 and 31 to set interest rate policy. Following is the transcript of the interview.

Keene Little : 1/26/2007 11:52:03 AM

I had expected (hoped) it would be a slow day on Friday and scheduled a couple of meetings that I have to attend. I'm getting ready to leave for my first one and hope to be back in about 2 hours for a quick look before running off to a lunch meeting. The sellers are not letting up on the equities and the downtrend lines are still not being threatened. As long as that stays true then stay on the short side. If the downtrend lines break it will then be time to scalp the long side. Be back in a bit.

Keene Little : 1/26/2007 11:45:25 AM

Thinking the same thing Marc.

Keene Little : 1/26/2007 11:44:57 AM

Speaking of interest rates, I had mentioned in Wednesday's Wrap and then again yesterday on the Monitor that I thought TNX (10-year yield) could find resistance at its 200-dma at 4.85%. Yesterday it rallied up through that level and basically did a gap n crap today after the durable goods numbers (a drop n pop in bonds).

I'm not sure where interest rates are headed longer term. But for now TNX has bounced off the December low and has achieved two equal legs up at 4.899% as shown on this updated chart. The daily oscillators look topped out and ready to roll back over. Now we'll see if the 200-dma acts as support. Link

I had mentioned that the higher interest rates are going to attract money back into bonds so any buying pressure from here could continue to rally the 10-year Note for at least a little while and get the TNX to give us a pullback which I'm expecting when I look at its chart. I think long ZN is the right trade for now.

Marc Eckelberry : 1/26/2007 11:43:01 AM

And it sure seems like 4.85% is the line in the sand.

Marc Eckelberry : 1/26/2007 11:06:22 AM

The only thing that matters now are interest rates. If you are not trading using ZN, you are going to get confused. Clarity lies in what the market fundamentally cares about after yesterday.

Keene Little : 1/26/2007 11:01:45 AM

SPX closed December at 1417.65 and the DOW closed at 12462. I'm still wondering if the Boyz are going to keep these in the green for the month of January. With 4 more days left in the month it will be interesting to see how this plays out. Assuming for now that the market has topped and we got the first wave down then we're due a 2nd wave bounce to correct this decline. If it manages to take into Tuesday to finish the correction then we should see the DOW and SPX stay in the green for the month. That bounce would also be an ideal setup for a short play.

Jane Fox : 1/26/2007 11:01:36 AM

... if so then start taking profits or at least lowering your stop.

Jane Fox : 1/26/2007 10:53:04 AM

Did you get short ES at around the 1427.50 - 1428.00 zone?

Jane Fox : 1/26/2007 10:40:28 AM

TICKS +1000 again. EGads, Wednesday TICKs were +1000, yesterday -1000 and now again today they are +1000. Makes for good trading though.

Keene Little : 1/26/2007 10:40:09 AM

With SPX so far successfully testing its uptrend line from November (tagged it to the penny at 1417.80) I'd say that's the important low for now. Any bounce that fails and drops back below that level will be bearish. At that point any retest of it from underneath is one you'll want to short.

In the meantime, we're still due a correction of the decline. The downtrend line for SPX is near 1425 (ES 1430) so until that breaks we're still in a downtrend. Assuming it will break, a retest of it will be an opportunity to try a scalp long.

Jane Fox : 1/26/2007 10:31:17 AM

ES's 50% retracement of its daily intraday range and its PDL are sitting at 1427.50 - 1428.00 so I would think a very good spot to get short this market, if it reaches this level of course. Link

Jane Fox : 1/26/2007 10:25:48 AM

If you take a long position don't think you will be able to hold it all day. These are not bullish. Link

Jane Fox : 1/26/2007 10:23:39 AM

Rescue team has arrived TICKS +1000

Jane Fox : 1/26/2007 10:21:39 AM

WASHINGTON (MarketWatch) - U.S. sales of new homes jumped by 4.8% in December to a seasonally adjusted annual rate of 1.12 million, the highest level since April, the Commerce Department reported Friday.

Warm weather, low interest rates and aggressive discounting by builders boosted sales far beyond the 1.07 million rate expected by economists surveyed by MarketWatch.

Sales in November were also revised higher to a 1.069 million pace from 1.047 million earlier. Sales have risen in four of the past five months after bottoming at a 979,000 annual pace in July.

Compared with December 2005, December 2006 sales were down 11%.

Jane Fox : 1/26/2007 10:11:40 AM

PDLs are history and are now probably resistance. Link

Jane Fox : 1/26/2007 10:10:03 AM

When the AD volume started to climb a bit and the TICKs hit +800, the VIX didn't even blink and kept charging upwards.

Keene Little : 1/26/2007 10:08:05 AM

The DOW has broken below the bottom of its wedge 12472 so now we'll see if it's just an under-throw or a real break.

Keene Little : 1/26/2007 10:06:51 AM

SPX has now joined OEX in breaking Monday's low at 1420.40. Next support is just under 1418, which just got tagged as I'm typing.

Jane Fox : 1/26/2007 10:01:22 AM

Now I am seeing some buying - TICKs +800. AD volume has turned up.

Jane Fox : 1/26/2007 9:56:55 AM

I do not see anything that would convince me to be long yet. Maybe later but not yet.

Jane Fox : 1/26/2007 10:07:43 AM

VIX and AD volume are saying "Don't even think long" but the TRIN is once again making me cautious. Link

Keene Little : 1/26/2007 9:49:05 AM

The same trend line for SPX is near 1418. That would take it below Monday's low and signal a confirmation that we've likely put in a top. But the uptrend line will probably still provide support if it gets there.

Jane Fox : 1/26/2007 9:48:56 AM

Well so much for PDLs been support!

Jane Fox : 1/26/2007 9:48:00 AM

ES now testing its PDL so the only market to not test PDLs is YM - so far.

Keene Little : 1/26/2007 9:47:37 AM

On the YM chart I posted below I showed the support line from November. It should be noted that that line for the DOW (more important than on the futures) is lower at 12472 so about another 30 points below the current price.

Jane Fox : 1/26/2007 9:46:42 AM

ER is now testing its PDL and I think we may see some support here, at least for a while.

Keene Little : 1/26/2007 9:45:43 AM

The downtrend lines from yesterday's highs in the DOW and SPX held on the quick bounce up this morning. So that's our line to watch. Any break now above the early high and we should see a continuation higher. Until then the sellers are still in control.

Jane Fox : 1/26/2007 9:45:34 AM

Once again the TRIN is not confirming the other internals, which have turned somewhat bearish. The TRIN is under 1 and making new daily lows - go figure. It printed under 1 most of the day yesterday as well. HMMM

Jane Fox : 1/26/2007 9:41:40 AM

NQ is now testing its PDL.

Keene Little : 1/26/2007 9:37:46 AM

Yesterday afternoon dropped a little further than I thought it would and was thinking it was setting up for a bounce to correct the decline. As we've seen in rallies, once a trend gets going it seems there are very few corrections to it, and the corrections are very shallow. We're still due a correction and I wouldn't be surprised if today ends up being a consolidation kind of day. That would be good for the bears since it would mean a continuation lower next week. A sharp rebound today would bring into question where it's headed next.

Jane Fox : 1/26/2007 9:34:32 AM

AD line is +431 and climbing as is the AD volume. Certainly a bullishness to the open now lets see if the bulls can retrace even 50% of yesterday's selling.

Jane Fox : 1/26/2007 9:24:07 AM

Here is McMillan's weekly commentary that came out yesterday. - After Wednesday's clear upside breakout, it seemed as if the bearish case was dead -- that the bulls had finally taken charge, moving $SPX above 1430 to new 6-year highs, and dragging many other indices with it. However, the picture changed dramatically after today's huge market decline. $SPX crashed back through what should have been support at 1430. Looking at the chart of $SPX (Figure 1), the highs at 1440 are now resistance, while the lows at 1408 should provide support. There is a chance that the recent support at 1420 might hold (and that is also where the 20-day moving average currently is), but for that to be true, the market would have to do a quick about-face again.

The equity-only put-call ratios are mixed. The weighted ratio just recently rolled over to a buy signal, which wasn't a terrific prediction, while the standard ratio continues to drift sideways on a sell signal. Recall that the standard ratio was affected somewhat by dividend arbitrage in the last month, but that doesn't prevent a buy signal from occurring -- yet none has.

Market breadth has been skittish as well. It expands tremendously when the market rallies, and collapses just as much when the market declines. One can't really draw any conclusion from this data, other than to certify that there's a herd mentality at work these days, so everyone tries to buy or sell at once. Very little independent thinking, it seems; but that's what the world of massive hedge fund and institutional domination looks like.

The volatility indices fell to nearly all-time lows this week, before shooting higher today as the market declined. We all know that when $VIX is 'too low,' the market is subject to some selling. However, the last few times that $VIX has bounced higher from the 10 level, any declines were short-lived. We continue to view $VIX as generally being in a trading range between roughly 10 and 13 (it closed today at 11.22). If it were to rise above there, then a true sell signal would be unleashed.

In summary, we know that one day doesn't make a market certainly not the upside breakout on Wednesday, and likely not the big decline on Thursday. But Thursday's decline certainly was a surprise to the bulls. From a technical viewpoint, the failed upside breakout is usually a very negative formation. As a result, it certainly looks like the lower end of the range ($SPX 1408) will be tested. If that does not hold, a full-fledged bearish leg could emerge. But for now, let's call it a trading range and see if the support can hold.

Jane Fox : 1/26/2007 9:20:18 AM

Gold peaked above its resistance but did not close above resistance and in doing so has made a very bearish doji. Link

Jane Fox : 1/26/2007 9:17:28 AM

US $ has made ssome very nice gains this year and added to those gains overnight. THis of course in turn puts downward pressure on Gold. I will show a chart of Gold later and how it turned right at resistance.

TBonds are downright bearish and this of course puts upward pressure on the yield and that is never good for the equity market. Link

Keene Little : 1/26/2007 9:17:07 AM

So far the uptrend line from the end of November (bottom of the ascending wedge) supported YM as we see a continuation of its bounce off it yesterday afternoon. Yesterday's low and then Monday's low need to break in order to get some confirmation that Wednesday's high was it. Otherwise there's still the possibility that this is going to chop its way higher into next week. Link

Jane Fox : 1/26/2007 9:09:29 AM

Overnight sessions are usually quite quiet and last night was no exception. The higher highs, however, do say the open will have a bullishness to it but as you can see the bulls have their work cut out for them and there is a lot of territory to cover to even the score back at PDHs. Link

Jane Fox : 1/26/2007 8:48:56 AM

Microsoft Corp. (MSFT) late Thursday reported a 28% drop in quarterly profit as the world's largest software company was hurt by the delayed release of Vista, the newest version of its flagship Windows program.

Jane Fox : 1/26/2007 8:48:31 AM

KB Home (KBH)is the target of a formal probe by the Securities and Exchange Commission into the company's stock-option grants, the company said in a SEC filing. KB Home had previously disclosed an informal inquiry by the SEC into the grants.

Jane Fox : 1/26/2007 8:47:21 AM

NEW YORK (MarketWatch) -- Crude-oil futures edged higher early Friday, as temperatures in the northeastern U.S. fell far below zero and forecasters said it may be the coldest day this winter.

Crude for March delivery was last up 35 cents at $54.58 a barrel in electronic trade. The contract closed lower Thursday, tracking a steep decline in natural-gas futures. Natural gas fell after data showed a hefty decline in inventories in the latest week during a spell of cold weather but analysts concluded it's unlikely to put much of a dent in supplies which are ample after what's been a very mild winter.

Crude has found a footing after the near $2 correction of the prior session, said analysts at research firm Action Economics.

"Forecasts for continued below-normal temperatures in the U.S. Northeast and chilly weather in northern Europe underpinned the market," they said.

Jane Fox : 1/26/2007 8:46:43 AM

WASHINGTON (MarketWatch) - Orders for durable goods jumped by 3.1% in December, led by stronger demand for airplanes and capital equipment, the Commerce Department reported Friday.

Orders for new durable manufactured goods were up in most sectors, from autos to machinery. The report confirms other data showing the manufacturing sector regained momentum as the year ended after a soft patch earlier in the fall.

The gain was in line with economists' expectations of a 3.5% gain, after taking into account a small upward gain to November's orders to 2.2%.

Excluding the 4.8% gain for transportation goods, orders rose 2.3%, the first increase since September and the best showing since March.

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