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Keene Little : 5/18/2007 12:16:49 AM

End of day re-post of analysis done on the DOW, which has enough warnings right here to caution us that a high might have been put in on Thursday. As much as I'd like to see it chop its way a little higher to finish the ascending wedge pattern, it would be easy enough to call complete.

Considering how close we are (I think) to a major high for the market I think it's worth reviewing where we are. Starting with the weekly chart of the DOW that I've shown before, showing the 40-week cycle since 2000, we're still within the turn window which has been hit +/- a week or two at each 40-week turn: Link

This shows a couple of things of interest. First, the Fib projection at 13493 is for two equal legs up from March 2003 (measured moves like this are often good turning points and the fact that it's happening during the 40-week cycle could be significant). Second, the low-to-low-to-high cycle often marks a significant turning point for the market. Third, the rally this year is on less volume than last year--negative divergence. Fourth, weekly oscillators are in overbought (but have not hinted of turning down yet). Fifth, the move up from October 2005 is a 5-wave move and is therefore due at least a correction once it completes.

That 5th wave shown on the weekly chart (the move up from March) is shown in more detail on this daily chart: Link It looks to be forming an ascending wedge (albeit a sharply higher one) which is common for a 5th wave. The wave count within this 5th wave shows us it's in the 5th of the 5th wave and is showing negative divergence against the previous high on May 9th, which confirms we're in the final 5th wave. The daily candlestick is a spinning top doji and after the string of white candles this is a warning of an impending change in direction.

Now looking at the 5th of the 5th wave up on the 60-min chart, one can see that it too is forming its own ascending wedge: Link Again this is very common to see at the end of a long bull run. The EW count inside these wedges is often difficult to count because it can either morph into a larger pattern that keeps pushing higher or it can end sooner than you think and surprise to the downside.

As of Thursday's close I can adequately call the pattern finished. It doesn't mean it is but it does mean any break down below 13364 (and even its uptrend line before that near 13450), would be a sell signal as it would mean the high is probably in. Get short and hang on in that case. At any rate, we're getting close if not already there. Button up those stops on long positions.

Here's an interesting chart, courtesy Astrikos from MarketTells that I've marked up. It shows the new price highs vs. the cumulative advance-decline line. In the highlighted circles in February we didn't have much of a negative divergence (it's there but you have to squint to see it). Link

But now we're seeing a more obvious negative divergence and the cumulative a-d line has broken its uptrend line whereas price has not. This is usually a very good heads up indicator that it won't be long before price also breaks down. The ascending wedge patterns that I've been showing should have a little more upside to go but we're getting very close now (measured in hours or days and not a lot of points) to what I think will be a major high for the market.

Keene Little : 5/18/2007 12:11:37 AM

Friday's pivot tables: Link and Link

60-min chart updates:
SPX is similar to the DOW in that it looks like it has higher to go inside its ascending wedge pattern but could count as complete as of Thursday's high. A break of its uptrend line, confirmed with a drop below 1500, would say we've seen the high. Until then you should stick with the trend but recognize it's probably very late in the game. Link
NDX is a mess and could literally go anywhere from here. There's no good setup but it will likley lead any break down. Link
RUT still has a potentially very bearish wave count so it needs to get back above 820 to negate it. A drop below 813 would be a sell signal. Link

OI Technical Staff : 5/17/2007 9:59:59 PM

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Keene Little : 5/17/2007 6:53:24 PM

Considering how close we are (I think) to a major high for the market I think it's worth reviewing where we are. Starting with the weekly chart of the DOW that I've shown before, showing the 40-week cycle since 2000, we're still within the turn window which has been hit +/- a week or two at each 40-week turn: Link

This shows a couple of things of interest. First, the Fib projection at 13493 is for two equal legs up from March 2003 (measured moves like this are often good turning points and the fact that it's happening during the 40-week cycle could be significant). Second, the low-to-low-to-high cycle often marks a significant turning point for the market. Third, the rally this year is on less volume than last year--negative divergence. Fourth, weekly oscillators are in overbought (but have not hinted of turning down yet). Fifth, the move up from October 2005 is a 5-wave move and is therefore due at least a correction once it completes.

That 5th wave shown on the weekly chart (the move up from March) is shown in more detail on this daily chart: Link It looks to be forming an ascending wedge (albeit a sharply higher one) which is common for a 5th wave. The wave count within this 5th wave shows us it's in the 5th of the 5th wave and is showing negative divergence against the previous high on May 9th, which confirms we're in the final 5th wave. The daily candlestick is a spinning top doji and after the string of white candles this is a warning of an impending change in direction.

Now looking at the 5th of the 5th wave up on the 60-min chart, one can see that it too is forming its own ascending wedge: Link Again this is very common to see at the end of a long bull run. The EW count inside these wedges is often difficult to count because it can either morph into a larger pattern that keeps pushing higher or it can end sooner than you think.

As of Thursday's close I can adequately call the pattern finished. It doesn't mean it is but it does mean any break down below 13364 (and even its uptrend line before that near 13450), would be a sell signal as it would mean the high is probably in. Get short and hang on in that case. At any rate, we're getting close if not already there. Button up those stops on long positions.

Jeff Bailey : 5/17/2007 6:20:19 PM

Testimony of Federal Reserve Chairman Ben Bernanke (2/28/07) ... Before the Committee on the Budget, U.S. House of Representatives Link

Jeff Bailey : 5/17/2007 6:13:20 PM

Budget of U.S. Govt. FY 2008 ... Source: Office Of Management And Budget Link

Jeff Bailey : 5/17/2007 6:06:15 PM

US Senate Approves Budget Plan In 52-To-40 Vote

DJ (partial) - Over the objections of the White House and GOP lawmakers, the U.S. Congress on Thursday approved a $2.9 trillion budget blueprint for fiscal year 2008.

The Senate passed the budget plan in a narrow 52-to-40 vote immediately after the House signed off on the measure in a 214-to-209 vote.

The non-binding five-year budget plan sets the parameters for tax and spending legislation for the remainder of the year, seeking to balance the budget by 2012.

The plan provides $954 billion in discretionary spending in 2008, or about $20 billion more than President George W. Bush had proposed.

The remaining two-thirds of the annual budget would go to fund federal entitlement programs and interest on the federal debt.

Overall, the 2008 budget blueprint seeks to put the country on track for a budget surplus of $41 billion in 2012.

Jeff Bailey : 5/17/2007 5:24:32 PM

Closing Internals found at this Link

Keene Little : 5/17/2007 5:21:32 PM

Friday's pivot tables: Link and Link

Jeff Bailey : 5/17/2007 5:15:58 PM

June Unleaded (rb07m) settled up $0.0996, or 4.26% at $2.4366.

Keene Little : 5/17/2007 5:14:58 PM

Here's an interesting chart, courtesy Astrikos from MarketTells that I've marked up. It shows the new price highs vs. the cumulative advance-decline line. In the highlighted circles in February we didn't have much of a negative divergence (it's there but you have to squint to see it). Link

But now we're seeing a more obvious negative divergence and the cumulative a-d line has broken its uptrend line whereas price has not. This is usually a very good heads up indicator that it won't be long before price also breaks down. The ascending wedge patterns that I've been showing should have a little more upside to go but we're getting very close now (measured in days and not a lot of points) to what I think will be a major high for the market.

Jeff Bailey : 5/17/2007 5:14:08 PM

June Crude Oil (cl07m) settled up $2.31, or +3.69% at $64.86.

Jeff Bailey : 5/17/2007 5:12:05 PM

Closing U.S. Market Watch found at this Link

Jim Brown : 5/17/2007 4:55:42 PM

Jeff, I am long the TOL Jan-2009 $35 LEAPS. Plenty of time for this housing problem to evaporate.

Jeff Bailey : 5/17/2007 4:48:55 PM

Jim! Were you the buyer of those TOL Jun $32.50 Calls today? Or the seller of the Jun $30 Puts?

Jeff Bailey : 5/17/2007 4:46:03 PM

National Fire News Link

Keene Little : 5/17/2007 4:44:49 PM

Good point Jeff. I know a lot of our pine is from the south. Certainly driving by all the pulp mills reminds you of that fact! Should go see how paper products are doing.

Jeff Bailey : 5/17/2007 4:42:21 PM

Keene! Don't forget that big fire in Florida.

Keene Little : 5/17/2007 4:25:55 PM

Look how lumber was giving us a heads up for the home builders. With the warmer weather we can expect to see higher build levels which of course increases the demand for lumber. How the higher build schedule plays out in the excess home inventory department remains to be seen. Link

After a 5-wave move down from the January high this was due for a correction so now I'll be watching for a Fib retracement, in what should be some kind of 3-wave bounce or sideways consolidation, before tipping back over.

Keene Little : 5/17/2007 4:18:45 PM

Here's an updated daily chart of the home builders that I used in last night's Wrap. With the rally above 625 today it looks like we should get some follow through to the upside towards the 660 area. Link

Jim Brown : 5/17/2007 4:16:57 PM

Jane you should have followed my ER short in my 3:30:34 post. (grin)

Jeff Bailey : 5/17/2007 4:13:31 PM

Jim (03:25:54) ... Well, DJUSHB up 6.2% since Friday 13th close, TOL up just 3.28% from same benchmark.

NVR has been weak recently and TOL bulls would like to see it whip higher after OP-Ex.

Keene Little : 5/17/2007 4:13:59 PM

Even though GOOG is also in the middle of recent price action, and could go either way, I'd have to lean to the bearish side on this one. It has bounced back up to its broken uptrend line from August 2004 and left a little shooting star candlestick today. A red candle tomorrow would confirm the small reversal signal. It takes a break below 457 to confirm the bearish count and above 493 to put it on the bullish path. Daily chart: Link

Keene Little : 5/17/2007 4:12:46 PM

CME remains in the middle of a pattern that could lterally go either way. It found support at the mid-line of its down-channel from the January high but the key levels at 497 to the downside and 544 to the upside are too far away to make for any good recommendations from here. If forced to trade this one I'd be long with a stop below its recent low at 515.50. 120-min chart: Link

Jane Fox : 5/17/2007 4:04:44 PM

Economic Reports for tomorrow include:

10:00a.m. Mid-May Reuters/Univ Mich Index.87.1. Expected: 87.0. Previous: 87.1.

Jeff Bailey : 5/17/2007 3:59:40 PM

SENATORS REACH IMMIGRATION DEAL

DJ- Key senators and the White House reach agreement on an immigration overhaul that would grant quick legal status to millions of illegal immigrants already in the U.S. and fortify the border.

Jeff Bailey : 5/17/2007 3:57:44 PM

Copper Closes Sharply Lower Second Day In Row

DJ- A combination of bearish fundamental influences ganged up to knock copper futures sharply lower Thursday, with recent long liquidation continuing, analysts said.

The most-active July copper contract tumbled 11.60 cents to settle at $3.3065 per pound on the New York Mercantile Exchange. This comes one day after an 11.50-cent fall.

"We have fallen to (an) extent already where people are reluctant to step in front of it," said Tim Evans, an analyst with Citi Futures Research. "It's a little bit of a falling knife and they're afraid of how much further it may drop.

"It does look as if the news flow from the last couple of days has shifted to a pretty steady diet of bearish developments. We had the upturn in the U.S. dollar. We've had some deliveries into the London Metal Exchange. There are some real indications that China is pretty well supplied, at least for now, and it's hard to tell when they might work off their ... stock and be a buyer again."

Evans also cited Wednesday's weak U.S. housing data, with building permits declining sharply even though there was a modest rise in housing starts last month. And he pointed to an overnight report from the International Copper Study Group forecasting a 270,000-metric-ton global surplus this year and 520,000 surplus next year.

On top of all of this, the market is entering a period when demand tends to slow on a seasonal basis, Evans explained. Much of the building wire and other copper-related products used for the U.S. construction season is purchased in the spring.

Keene Little : 5/17/2007 3:54:43 PM

Gold (and silver) has followed through on the break of its uptrend from October so now it's a question where it might find support. If the pullback is just part of a larger choppy move higher (not my preferred wave count) then GLD could find support around a Fib projection for this move down just above 64. Not shown but it's currently finding support at the 62% retracement of the March-April rally (64.95). The bounce off that Fib retracement looks corrective and should lead to lower lows. Link

As depicted by the bearish wave count, GLD should drop to its uptrend line from July 2005, currently near 62.75 before getting a little larger bounce, in time if not price. There are no bullish divergences setting up on the daily chart that would suggest we should be looking for a low in gold.

Jeff Bailey : 5/17/2007 3:50:01 PM

21-day SMA alert ... Dow Jones Home Construction (DJUSHB) 633.85 +2.05% ...

Jim Brown : 5/17/2007 3:47:32 PM

Looks like it is going to be a fight to keep the Dow in the green so they can keep the streak alive.

Jeff Bailey : 5/17/2007 3:44:13 PM

Bullish swing trade long sell partial alert ... at trend, lets sell a portion (100 shares for $10k=Full) of Olin Corp. (OLN) at the bid of $18.93

Jeff Bailey : 5/17/2007 3:39:34 PM

CNBC - Reporting: Main terminal at LAX closed due to suspicious package.

Keene Little : 5/17/2007 3:38:08 PM

Speaking of the RUT, now with the bounce off today's low I'm raising a key level for it up to the low near 813. The RUT remains bullish above that, bearish below. A break above 820 is now needed to confirm the bullish wave count. Link

Keene Little : 5/17/2007 3:35:45 PM

Jim, now you know why my head is spinning watching what the techs are up to. Right now I'm finding it easier to track the progress in SPX and the DOW. Even the RUT is clearer right now.

Jim Brown : 5/17/2007 3:32:53 PM

Keene, that NDX chart has so many lines in different directions it looks like that Kansas town after the tornado. (grin)

Jeff Bailey : 5/17/2007 3:30:41 PM

IBM $105.90 +0.02% ...

Jane Fox : 5/17/2007 3:30:57 PM

I have been stopped on my long but am not short.

Keene Little : 5/17/2007 3:30:16 PM

So far NDX hasn't done anything yet to negate the very bearish wave count setup in its decline from May 9th high so it's possible this one is getting ready up for a major fall. But that's a lower odds play in my opinion which leaves the short term bullish setup as my preferred wave count. I just can't quite figure out if it's going to consolidate sideways for a little longer first. Have I mentioned to watch out for the chop? Link

Jeff Bailey : 5/17/2007 3:30:16 PM

IBM CFO: Softare Can Drive Close to 50% of Profit By 2010

DJ- International Business Machines Corp. (IBM) Chief Financial Officer Mark Loughridge said Thursday software is becoming a more important driver of profit.

Speaking during an investor meeting broadcast over the Internet, Loughridge said that by 2010 software could represent almost 50% of the company's profit. "Software is a big part of our ongoing program to improve margins and drive higher value spaces," said the executive.

The CFO noted IBM is evaluating an accelerated share repurchase.

Jim Brown : 5/17/2007 3:30:34 PM

Jane, you are on your own on that ER long. I reversed to a short again as we head into the close.

Jim Brown : 5/17/2007 3:29:22 PM

I am also short BZH and I can't believe it keeps finding a bid with the Justice Dept, FBI, SEC and various Attorney General's breathing down their neck on a dozen different problems.

Jim Brown : 5/17/2007 3:25:54 PM

Jeff, I am long TOLL with you and it is nice to see a rebound in the face of continuing subprime news.

Jim Brown : 5/17/2007 3:24:10 PM

Crude just hit $65 for a +$2.45 gain for the day.

Jane Fox : 5/17/2007 3:23:51 PM

CCI got to +200 and although price didn't fall much it certainaly quit climbing.

Jeff Bailey : 5/17/2007 3:23:22 PM

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

Jim Brown : 5/17/2007 3:22:54 PM

With the Nasdaq still negative for the day and decent resistance at ER 822 I am going to exit my long and see if we get an end of day roll over and another chance to get short the ER again.

Keene Little : 5/17/2007 3:19:45 PM

Same setup on SPX. The trend line along recent highs, what looks like the top of its ascending wedge, is currently near 1519.30. From there the pattern would look best with another choppy sideways/down correction followed by a final new high next week. A rally above 1522 at any time would be a lot more bullish but stay aware of its 1527 closing high in March 2000. Link

Jim Brown : 5/17/2007 3:18:58 PM

Nasdaq has come to a dead stop at the 100 period (exp) on the 30 min chart. Could be trouble for the longs if this resistance does not break. Link

Jeff Bailey : 5/17/2007 3:16:53 PM

03:05 Internals found at this Link

Jane Fox : 5/17/2007 3:13:41 PM

Congratulations Jim.

Jim Brown : 5/17/2007 3:13:29 PM

LOL Jane, I agree, when the profit numbers start to grow big I always end up tightening my stop too tight to avoid giving it back. After being stopped only to watch it run away from me the next day I always kick myself but cash in hand is always better than speculative cash in the future.

On the husband note, my 40 year anniversary is coming up next month. Seems like a very long time but after 30 years it starts getting easier.

Keene Little : 5/17/2007 3:11:29 PM

The coming high in the DOW should lead to another small choppy pullback before heading higher again. The trend line along the highs since March is currently near 13545. As labeled in dark red, it's possible this high will finish the pattern and down we go but the green wave count is my preferred count at the moment. It's looking more and more like 13600 or so could be the ultimate upside target maybe as early as Monday. Link

Jane Fox : 5/17/2007 3:09:57 PM

Shore is nice having someone else talk about ER in here. Gets lonely.

Jane Fox : 5/17/2007 3:09:30 PM

ER's PDH is 822.40.

Jim Brown : 5/17/2007 3:09:02 PM

822 on the ER could be a challenge

Jane Fox : 5/17/2007 3:08:48 PM

Jim, I could have never held on to a trade that long. Heck I sometimes wonder how I have held to my husband as long as I have. :)

Jane Fox : 5/17/2007 3:07:43 PM

... but tighten my stop.

Jeff Bailey : 5/17/2007 3:07:22 PM

03:05 Market Watch found at this Link

Jane Fox : 5/17/2007 3:07:15 PM

ER's CCI just hit +200 (overbot) and was why I bailed on my long YM yesterday - way too early. I will hold on to my ER long today.

Jim Brown : 5/17/2007 3:06:08 PM

Jane, you were talking about feeling funny trading the YM but everyone could have made a lot of money over the last 6 weeks getting long above the 100 period (30 min) and just hanging on. Isn't hindsight wonderful?

Jeff Bailey : 5/17/2007 3:05:31 PM

S&P 500 (SPX.X) 1,517.13 +0.19% ... new multi-year high!

Jane Fox : 5/17/2007 3:05:20 PM

I would not base any of my trades on this yet but the DAX futures certainly made new highs before YM did. Link

Jane Fox : 5/17/2007 3:03:34 PM

All day the TRIN was telling us there was more volume going into the Advancers than the decliners and that is usually bullish. Not always but usually. Link

Jim Brown : 5/17/2007 3:02:03 PM

Master of disaster maybe but definitely not a master at anything else.

Jeff Bailey : 5/17/2007 3:01:36 PM

VIX.X 13.31 -1.40% ...

Jeff Bailey : 5/17/2007 3:01:22 PM

BIX.X 407.01 +0.11% ...

Jane Fox : 5/17/2007 3:00:50 PM

Love having a master on my side Jim. :)

Jeff Bailey : 5/17/2007 3:00:49 PM

Swing trade put exit alert ... for the S&P Depository Receipts SPY July $150 Puts (SYH-ST) at the bid of $2.25.

SPY $151.81 +0.13%

Jim Brown : 5/17/2007 2:59:45 PM

Ditto Jane, I switched from ER short to ER long about 818.

Jane Fox : 5/17/2007 2:59:17 PM

Felt wierd trading YM yesterday.

Jane Fox : 5/17/2007 2:59:30 PM

Since I like to trade ER I am long ER here.

Jeff Bailey : 5/17/2007 2:59:00 PM

Hey... cl07m on fire above its 150-day SMA.

Jim Brown : 5/17/2007 2:58:55 PM

If you go to Google and type in "Greenspan ARMS" you will get hundreds of references to that speech where the media DEFINITELY twisted his context. They hammered him big time.

Jane Fox : 5/17/2007 2:58:32 PM

Of course when you have an AD line below -500 you will not get much follow through on long positions. If long you will need wide stops. Just the nature of the markets on days like this. Link

Jeff Bailey : 5/17/2007 2:57:33 PM

Nice "pop" in oil today.

Keene Little : 5/17/2007 2:56:01 PM

I think a reader's response was correct in which he said Greenspan's speech was historically correct advice that was badly timed. Sorry, but I can't help but believe Greenspan knew EXACTLY what he was doing. I didn't say he was stupid. I said he wasn't watching out for the interests of the people the government is supposed to protect. Just another example of the tight link between the major banks and the government.

Jim Brown : 5/17/2007 2:55:42 PM

Looks like the ascending wedge in the S&P is about to break to the upside. The Russell continues to be an anchor but it appears its restraining grip on the big cap averages is slipping.

Jane Fox : 5/17/2007 2:54:41 PM

These are telling you should not be short. Link

Jeff Bailey : 5/17/2007 2:53:58 PM

Dow Industrials (INDU) 13,505 ... new record high!

Jim Brown : 5/17/2007 2:53:31 PM

Greenspan was in Denver this week speaking at a 400 person private event held by an investment bank. Since he gets a six figure fee for an appearance it boggles my mind to think it could ever be worth the money. First it is always difficult to understand him and second he normally speakes in generalities that could mean anything. I could think of better ways to spend $100K or more to entertain conference attendees over lunch. Back in 2000 we explored the possibility of having him speak at a 700 person OptionInvestor seminar in Denver. At the time he was only getting $25K and I thought then it was $20K too much.

Jeff Bailey : 5/17/2007 2:52:06 PM

Keene ... you're reporting the media's interpretation and their "twisting."

Keene Little : 5/17/2007 2:51:54 PM

The RUT has broken its downtrend line from this morning's high, came back for a test and is bouncing again. So it appears that we're not going to get the minor new low. The DOW and SPX are threatening to break out as well.

Jeff Bailey : 5/17/2007 2:50:18 PM

That's what most impartial Fed watchers believe Jim.

Jeff Bailey : 5/17/2007 2:49:27 PM

YM Long exit alert 13,531

Keene Little : 5/17/2007 2:45:14 PM

Jeff, you may think I "twist the facts" about this Greenspan thing but I simply report my observations and simply refuse to put him up on a pedestal where you'd like to keep him.

Jim Brown : 5/17/2007 2:43:22 PM

I actually don't think Greenspan was recommending ARMS but simply stating a fact that over the past Decade they would have saved money. He was crucified in the press at the time for "recommending" ARMS but I don't think it was really a recommendation. Just my opinion.

Keene Little : 5/17/2007 2:43:40 PM

There was a well-stated comment I read from someone who was being challenged about Greenspan's 2004 speech:

Aside from God, Allen Greenspan was pretty well situated to know whether fixed rates or ARMs would be the better pay off. Since he had already decided in a long term series of Fed rate hikes, his little historical lesson was "good" advice poorly timed. With respect to markets that's refered to as bad advice.

This is why I think Greenspan knew better and his primary interest seems to have been to protect the banking system and get people to go out and help keep the economic pump primed by refinancing and pulling money out of their home equity accounts. I think this will come back to haunt us.

Jeff Bailey : 5/17/2007 2:40:33 PM

Thanks for clearing that up Jim (again). I had posted it months ago. Indeed, the Fed's research was correct.

Jane Fox : 5/17/2007 2:31:26 PM

No sorry not yet I am using a line chart and need to switch it a bar chart.

Jane Fox : 5/17/2007 2:30:48 PM

And YM makes a new daily high following the DAX.

Jeff Bailey : 5/17/2007 2:27:35 PM

YM long alert here at 13,520 , stop 13,509. Target 13,560.

Jane Fox : 5/17/2007 2:26:58 PM

That speech of Greenspan's certainly was not his finest hour and very much out of character. I happen to be Greenspan fan.

Jim Brown : 5/17/2007 2:25:45 PM

Partial text of Greenspan's Feb-23rd speech suggesting home owners could benefit from ARMS.

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.

Full text here: Link

Jane Fox : 5/17/2007 2:23:39 PM

Now the DAX is breaking to new daily highs and I will watch to see if YM follows suit.

Jeff Bailey : 5/17/2007 2:19:12 PM

INDU 13,481 ... may be closer to 13,500 and 13,450.

Jeff Bailey : 5/17/2007 2:18:10 PM

YM short stop alert ... 13,516

Keene Little : 5/17/2007 2:10:33 PM

So far the day has turned into a typical opex Thursday--quiet and consolidating. I'm wondering if we'll get the price breakout before the end of the day or have to wait until tomorrow. A late-day rally wouldn't surprise me--keep all the bears back in their caves.

Jeff Bailey : 5/17/2007 1:53:30 PM

GM: GMAC ResCap Losses Have 'Hit The Bottom'

Jeff Bailey : 5/17/2007 1:50:21 PM

General Motors (GM) $31.66 -0.25% ...

Jeff Bailey : 5/17/2007 1:49:57 PM

GM Doesn't See Auto Industry Going Private

DJ- Three days after Chrysler Group struck a deal to be acquired by private-equity giant Cerberus Capital Management, General Motors Corp. (GM) Chief Executive Rick Wagoner said Thursday he "(doesn't) see a mad rush to privatize in the auto industry."

Wagoner said, however, that he does expect to see further consolidation in the auto industry, even though recent efforts have been largely unsuccessful. GM, in particular has struggled on that front, unwinding alliances with Japanese companies and backing out of an alliance with Italy's Fiat SpA (FIA) in recent years.

The GM CEO, answering questions following an address to the Inforum women's club here, said he sees opportunities for GMAC, the financing arm in which GM sold a majority stake last year to Cerberus, to "work together" with Chrysler Financial.

Wagoner said it was "premature" to say how closely Chrysler Financial and GMAC could collaborate, though he noted that GM, which still has a 49% stake in GMAC, has some "input" in determining how much collaboration there will be between the two lending companies.

Keene Little : 5/17/2007 1:42:17 PM

You can see on that RUT 5-min chart a beautiful example of a 5-wave move up from Wednesday's low. That's the reason I'm expecting at least another leg higher. The corrective pullback from yesterday's high confirms that the trend is up. But if Wednesday's low is taken out then that negates the bullish setup here.

Jane Fox : 5/17/2007 1:40:43 PM

Gold just may be finding a little support from the highs made last December at 655.00. Link

Keene Little : 5/17/2007 1:39:31 PM

If the RUT pushes higher from here and breaks the downtrend line from yesterday morning, confirmed with a break above 818, then the pullback is finished and up we go.

Keene Little : 5/17/2007 1:38:08 PM

I'm getting that sideways feeling in the DOW and SPX which needs one more pullback before ready to launch another rally leg. For the RUT (and NDX) it could be another minor new low: Link

Jane Fox : 5/17/2007 1:37:36 PM

YM's new daily low didn't last too long did it?

Jeff Bailey : 5/17/2007 1:32:51 PM

YM 13,511 ... not going to happen.

Jeff Bailey : 5/17/2007 1:32:04 PM

YM 13,509

Jeff Bailey : 5/17/2007 1:31:23 PM

YM 13,505 ... 1-point above WEEKLY R2 and bears desparate for some type of long liquidation here.

Jeff Bailey : 5/17/2007 1:29:48 PM

01:10 Internals found at this Link

Keene Little : 5/17/2007 1:26:01 PM

The RUT is chopping its way lower today but that's the key--it's chopping lower. That should mean we'll get another rally leg out of this. It's continuing to hold above the bottom of its descending wedge and we could see another minor dip lower before it's set up to rally out of this. Any break back below 811 would negate the bullish setup. Link

Jeff Bailey : 5/17/2007 1:12:37 PM

01:10 Market Watch found at this Link

Jeff Bailey : 5/17/2007 1:10:23 PM

YM short adjust stop alert ... just a smidge to 13,516 (from 13,510)

Jane Fox : 5/17/2007 1:06:09 PM

Sure looks like RUT's support is going to break. Link

Jane Fox : 5/17/2007 1:03:42 PM

YM's new daily was by 1 tick. Too funny!

Jane Fox : 5/17/2007 1:02:39 PM

DAX is 7514 so let's see if does as well. DAX intraday low is 7507.

Jane Fox : 5/17/2007 1:01:57 PM

And YM makes a new daily low - WOW!

Jeff Bailey : 5/17/2007 1:01:31 PM

BIX.X 406.52 (unch) ... cross bearish fingers that today's comments don't ignite further rally.

Jeff Bailey : 5/17/2007 1:00:24 PM

YM short alert ... here at 13,495. Tight, tight stop at 13,510. Target 13,451.

Jeff Bailey : 5/17/2007 12:57:23 PM

Countrywide Prices Debt Offer; Buyback of 23 million shares AP Story Link

Jeff Bailey : 5/17/2007 12:56:09 PM

Countrywide Financial (CFC) $41.62 +3.19% ... HUUUUGE volume.

Keene Little : 5/17/2007 12:52:44 PM

BTW, the semis look like they could start a bounce at any time now, maybe one more minor new low.

Jeff Bailey : 5/17/2007 12:52:43 PM

Sunoco (SUN) $74.01 +0.74% ... wild action last 5 mintues.

Keene Little : 5/17/2007 12:51:01 PM

After what looked like a completed 5-wave move up from its March low I had mentioned last night that it appears the rally in the semis could be over. And by that I mean really over. The next big move out of its long consolidation pattern from the 2002 low will be to new lows. If true this does not bode well for techs which in turn does not bode well for the broader market. The move down from Monday's high now looks impulsive. The 5-wave move down should set up a bounce but it says the new trend is now down. Link

Jane Fox : 5/17/2007 12:46:26 PM

Oh my goodness you are not going to tell me YM is about to test daily LOWS. Nah that couldn't happen could it?

Jeff Bailey : 5/17/2007 12:46:05 PM

Israeli Tanks Enter N. Gaza DJ- Some Israeli tanks moved inside Gaza Thursday, Palestinian residents said.

They said the tanks crossed about 200 meters into northern Gaza, in an area where they have operated frequently in the past. No clashes were reported.

The Israeli military had no immediate comment.

Israel has begun military operations against Gaza militants who have fired dozens of rockets at Israel in the past three days. Up to now the operations have been confined to airstrikes.

Jeff Bailey : 5/17/2007 12:44:25 PM

US Oil Fund (AMEX:USO) $49.57 +2.14% ...

Jeff Bailey : 5/17/2007 12:43:56 PM

DJ- Israeli Tanks Have Entered N. Gaza

Jane Fox : 5/17/2007 12:43:02 PM

Yet the TRIN is a bullish 0.68.

Jane Fox : 5/17/2007 12:42:41 PM

AD line and volume are quite bearish. Link

Jeff Bailey : 5/17/2007 12:38:05 PM

S&P Banks Index (BIX.X) also tapping against its MONTHLY R1 here. 60-minute interval chart Link

Keene Little : 5/17/2007 12:37:45 PM

Here's a little closer view of the weekly TNX chart showing the move back up has barely gotten started. If at any time the uptrend line from June 2003 is broken, which would probably happen if last week's low is taken out, then that would be a strong indication that the Fed is getting closer to reducing rates. Until then I continue to believe the Fed has done a fine job painting itself into a corner. Link

Jane Fox : 5/17/2007 12:37:09 PM

Wouldn't be long here for sure.

Jane Fox : 5/17/2007 12:36:56 PM

VIX to new daily highs and that is always bearish.

Jane Fox : 5/17/2007 12:36:27 PM

TICKS just hit a -1027.

Keene Little : 5/17/2007 12:27:01 PM

As Linda and Jeff have commented, we've got an important move in the 10-year yield. Here's my updated daily chart showing what I've been expecting would happen--a break of its downtrend line as it heads at least up to 4.975% for two equal legs up from last December's low (and where it will bump into the downtrend line from January 2000). Link

This is the weekly chart I showed back in the beginning of March which I still think has a good possibility--this calls for the 10-year yield to top out around 5.4% this year before heading to new lows over the next few years (as the Fed panics and hammers rates lower). Link

Jeff Bailey : 5/17/2007 12:24:28 PM

SPX 60-minute interval chart with MONTHLY/WEEKLY Pivot retracement at this Link

Jeff Bailey : 5/17/2007 12:19:18 PM

S&P 500 Index (SPX.X) 1,512.60 -0.10% ... after another kiss of MONTHLY R1.

Tense moments for those trading Fed policy after Friday, April 13th afternoon test of MONTHLY R1 at 1,452.

Jeff Bailey : 5/17/2007 12:10:49 PM

10-year Treasury Yield ($TNX.X) up 3.2 bp at 4.740%. Breaks above bar chart downward trend from 6/28/06 high of 5.245% to recent relative high yield of 4.906% from 1/26/07. At current yield, has retraced 38.2% of its torrid 6/28/06 to 12/01/06 yield decline.

Jeff Bailey : 5/17/2007 12:06:31 PM

Philadelphia Fed Report (May'07) at this Link

Keene Little : 5/17/2007 12:03:41 PM

This is the picture of what I just described for SPX. It would be a good setup if SPX drops down to the Fib projection at 1507.22 which happens to fall right on top of the 50% retracement of yesterday's rally. It would be a good setup to get long. Link

Jeff Bailey : 5/17/2007 12:02:04 PM

Consensus was 3.0

Jeff Bailey : 5/17/2007 12:01:43 PM

Philadelphia Fed May Business Index 4.2 vs. April's 0.2

Keene Little : 5/17/2007 11:57:43 AM

DOW and SPX spiked up and now quickly reversed so it looks like an ending to the small ascending wedge patterns I mentioned. So far the pattern this morning looks like we had wave-a down, the choppy push back up was wave-b and now we'll get a sharper drop in wave-c. The downside projection for that kind of move would get SPX down to 1507. From there we should start another choppy rally leg higher.

Jane Fox : 5/17/2007 11:55:51 AM

... adn brought the VIX to new daily lows

Jane Fox : 5/17/2007 11:55:22 AM

That last little rally got the TICKS up to +1093

Jane Fox : 5/17/2007 11:52:42 AM

Yawn, YM makes another all time high. Link

Jeff Bailey : 5/17/2007 11:51:03 AM

50-day SMA alert ... Toll Brother (TOL) $28.69 +1.80% ...

Jeff Bailey : 5/17/2007 11:50:19 AM

Olin Corp. (OLN) 19.00 +0.84% ... "X gets the square." Threatens a break above bearish resistance trend.

Jane Fox : 5/17/2007 11:49:18 AM

And the DAX follows the DOW to new daily highs so if you trade the DAX then I think you could make some money but using the DAX to trade the Dow so far has not worked.

Keene Little : 5/17/2007 11:45:02 AM

The pattern on the DOW and SPX 5-min charts this morning looks like a small ascending wedge, with bearish divergence on MACD. This looks like it could lead to another leg down. The alternative is that it's getting ready to bust a move to the upside--a break to a new high that holds should take off otherwise look for another pullback.

Jeff Bailey : 5/17/2007 11:40:30 AM

Full Text of Chairman Ben Bernanke (May 17,2007) Link

Jeff Bailey : 5/17/2007 11:37:05 AM

Blackstone To Acquire Alliance Data for $6.4B

DJ- Blackstone Group has another notch for its belt, acquiring marketing-services and data-processing concern Alliance Data Systems Corp. (ADS) for about $6.4 billion.

The private-equity firm is paying $81.75 a share, a 30% premium to Wednesday's closing price of Alliance Data. Including debt assumption, the takeover is valued at $7.8 billion.

Alliance Data Chairman and Chief Executive Mike Parks said the deal "will benefit our clients now and in the future."

Dallas-based Alliance Data manages mostly "opt-in" marketing programs. The company in December agreed to acquire direct marketer Abacus from DoubleClick Inc., a deal that give Alliance Data access to reams of names, addresses and consumer information suitable for generating sales leads.

Alliance Data is "becoming more of a marketing company than a processing company," said Canaccord Adams analyst Colin Gillis at the time. "This is yet another signal of them executing on that strategy."

ADS $78.46 +24.61% ...

Jeff Bailey : 5/17/2007 11:32:10 AM

DJ Survey- University of Michigan Prelim May Sentiment Seen 87.0

Jeff Bailey : 5/17/2007 11:16:51 AM

11:00 Internals found at this Link

Note: It would take a closing measure of 64.00% for the NASDAQ's 10-day NH/NL ratio to reverse into column of "O"

Jane Fox : 5/17/2007 11:06:11 AM

Here is the Smith Open Number system. ER is +1, ES a +10 and YM is of course a +10. Link

Jeff Bailey : 5/17/2007 11:02:56 AM

11:00 Market Watch found at this Link

Jane Fox : 5/17/2007 11:00:19 AM

The US $ is certainly trying to make a comeback. MACD is peeking above 0 for the first time since Feb. Link

Keene Little : 5/17/2007 10:54:12 AM

The RUT is a lot closer to yesterday's low and makes for an easier play but unfortunately it's been the weakest index and not my first choice for going long. SPX 1505 is a better level to watch for that index but that's still a good drop from here if trying a long. I'd like to see SPX around 1508 to set up a better long play on that one.

Jeff Bailey : 5/17/2007 10:55:20 AM

Al! Is that the speech from February 2004?

My email is jeffoption@comcast.net

Keene Little : 5/17/2007 10:51:50 AM

NDX and RUT have given us another leg down in their pullbacks for a 3-wave correction. It should be good for a long play. The stop needs to be below yesterday's low so measure your risk based on that.

Jane Fox : 5/17/2007 10:50:39 AM

I have been watching the DAX to see if it can be used as a leading indicator to the DOW. Yesterday it looked like it was following the DOW but here is an interesting tidbit, the DAX just made new daily lows. How I will watch to see if the DOW does as well. Link

Jane Fox : 5/17/2007 10:45:09 AM

TRIN is a bullish 0.65 and making new daily lows yet ER and NQ are making new lows as well. HMMMM

Keene Little : 5/17/2007 10:35:40 AM

Thanks to Al for links to two articles addressing Jeff's request for information relating to Greenspan: Link and Link

There are any number of articles available addressing Greenspan's comments in February of 2004 supporting the use of ARM's. Apparently Jeff would prefer to ignore those in favor of Greenspan's more recent back peddaling on the issue.

Jeff Bailey : 5/17/2007 10:33:18 AM

Folks ... that was September of 2005. It is as if Mr. Greenspan had a "crystal ball."

Yes, I have a positive opinion of Mr. Greenspan.

Jeff Bailey : 5/17/2007 10:23:25 AM

Remarks by Chairman Alan Greenspan - Mortgage banking - (To the American Bankers Association) 9/26/05)

Source: The Federal Reserve Board Link

The apparent froth in housing markets may have spilled over into mortgage markets. The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other, more-exotic forms of adjustable-rate mortgages, are developments that bear close scrutiny. To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is adding to the pressures in the marketplace.

Over the past few years, a great deal of attention has focused on the growing range of loan choices available to mortgage borrowers. The menu, as you know, now features a long list of novel mortgage products, not only interest-only mortgages but also mortgages with forty-year amortization schedules and option ARMs, which allow for a limited amount of negative amortization. These products could be cause for some concern both because they expose borrowers to more interest-rate and house-price risk than the standard thirty-year, fixed-rate mortgage and because they are seen as vehicles that enable marginally qualified, highly leveraged borrowers to purchase homes at inflated prices. In the event of widespread cooling in house prices, these borrowers, and the institutions that service them, could be exposed to significant losses.

Keene Little : 5/17/2007 10:17:53 AM

Jeff, I stand by my statement. You've consistently had a positive opinion of Greenspan and have spun his words to make him look good. You and I clearly disagree about what he said and we'll leave it at that.

Jane Fox : 5/17/2007 10:14:58 AM

WASHINGTON (MarketWatch) -- The U.S. index of leading economic indicators fell a worse-than-expected 0.5% in April, the Conference Board said Thursday.

"The data may be pointing to slower economic conditions this summer," said Ken Goldstein, an economist for the research group.

Economists had expected the index to fall 0.2%, according to a survey conducted by MarketWatch

Jeff Bailey : 5/17/2007 10:11:49 AM

Keene: Could you please post what speech the Fed ever gave that "blessed" adjustable rate mortgages?

I've posted Mr. Greenspans speech(es) in the past that simply stated a FACT regarding his observations on ARMs (which you've twisted over the years), but I've never seen a speech, or Fed comment that "blessed" ARMs.

Keene Little : 5/17/2007 10:09:48 AM

Continue to exercise caution with these moves. It's possible we're going to get another leg down as part of a pullback correction. Keep in mind we're still in a pattern known for whipsaws.

Jeff Bailey : 5/17/2007 10:03:03 AM

10:00 Market Watch found at this Link

Keene Little : 5/17/2007 9:56:44 AM

The uptrend line for SPX is near 1505 so I would expect any pullback today to stay at or above that line. This should resolve to the upside as it chops higher. Assuming we'll get the new high as depicted on the 60-min chart, the only question will be whether it's the last one or not. Link

Jeff Bailey : 5/17/2007 9:55:15 AM

Dell Computer (DELL) $26.46 +2.16% ... retraces 80.9% of its Nov'07-Mar'08 decline.

Keene Little : 5/17/2007 9:54:13 AM

As I had mentioned in last night's Wrap, the subprime problems are just the tip of the iceberg. These same kinds of hearings will soon be discussing all the "creative" financing techniques that have been used to inflate the credit bubble, with the Fed's blessing just as they looked the other way when they knew what was going on in the subprime market, all the while telling people to use adjustable rate mortgages.

Now we've got convenant-lite loans to businesses, toggle bonds for leveraged buyouts, borrowing more just to pay interest--it will all come collapsing back down and the hand wringing and finger pointing will start with Congress asking "how could this happen?" Tch, tch on all of them is all I have to say.

Jeff Bailey : 5/17/2007 9:48:57 AM

June Unleaded (rb07m) $2.39 +2.13% ... challenges all-time contract high.

Jeff Bailey : 5/17/2007 9:47:58 AM

Bernanke: (contd)

Accounting Rules May Complicate Loan Work-Out Deals

Rugulators Must Walk 'Fine Line' On Subprime

Fighting Bad Lending May Take More Than Disclosures

Fed Considering 'All Its Options' On Subprime

Any New Subprime Policy Should Be 'Sharply Drawn'

Growth In Subprime Market 'Has Been Dramatic'

Some Originators Have Contributed To Subprime Woes

Jeff Bailey : 5/17/2007 9:41:05 AM

J.C. Penney Raises Profit Outlook ... AP Story Link

JCP $78.50 +3.68% ...

Jane Fox : 5/17/2007 9:37:50 AM

WASHINGTON (MarketWatch) - The slowdown in the housing market probably has further to run, but it won't have a significant impact on the rest of the economy, Federal Reserve Chairman Ben Bernanke said Thursday.

Addressing a conference on bank structure at the Chicago Federal Reserve Bank, Bernanke promised that the Fed and other federal bank regulators have actively looking at tightening up the rules for mortgage lending to prevent the kinds of abuses that have been seen in the past few years.

Jeff Bailey : 5/17/2007 9:36:48 AM

S. Korean Fin Minister: GDP Growth Expected Around 4.5% in 2007

Jeff Bailey : 5/17/2007 9:32:27 AM

Bernanke: Sees Delinquencies, Foreclosures Up in '07, '08

No Big Subprime Spillover Seen Into Economy

Housing An 'Important Source' Of Economic Slowdown

Latest Housing Data Suggests Further Stepdown In 1Q

Subprime Will Be 'Some Restraint' On Home Buying

Keene Little : 5/17/2007 9:16:17 AM

After a fairly clean 5-wave move up off yesterday's mid-morning low we're due a pullback and it appears we'll get one starting right away this morning. We should get something in the 38%-62% retracement area before bottoming (hopefully in a nice 3-wave pullback) and then turn higher again. The lows near 3:00 yesterday afternoon make for good initial downside targets for the pullback. Bottom line is keep an eye on the uptrend lines since they should hold.

Jane Fox : 5/17/2007 9:06:43 AM

So much for the ominous gravestone doji made on Tuesday. Link

Jane Fox : 5/17/2007 9:03:27 AM

Amazing how the 20EMA (magenta MA) was support for the entire rally from July 2006 until we had the huge drop on Feb 27. However, once SPX got was able to trade back above this MA it has been support again. Link

Jane Fox : 5/17/2007 8:58:22 AM

The $RUT has given us a very clear picture as to where its support will be, right at its March highs Link

Jane Fox : 5/17/2007 8:50:13 AM

Linda thank you for that heads up.

Jane Fox : 5/17/2007 8:49:27 AM

Well my goodness the odds were that the overnight range would break to the upside but it has broken to the downside. This is a very good indicator that we may have a bearish day today. Link

Linda Piazza : 5/17/2007 8:49:08 AM

I can sign in for only a moment this morning, but I wanted to point out that this morning's jobless numbers sent ten-year yields (TNX) above the descending trendline that had been forming since late June, 2006. Does that date seem significant to you? That's right: that's the same time period that equities have been rallying off last summer's low. We can't always note a one-on-one inverse relationship or an immediate one because the relationship of equities/bond yields/currency/commodities is a complex one, but this may be somewhat troublesome to equity bulls. Just be careful, particularly with FOMC Chairman addressing the sub-prime issue about the time the market opens.

Jane Fox : 5/17/2007 8:47:17 AM

And here are the charts that I just love. Look at how ES and the VIX mirror one another. Anyone who trades ES should always keep their eye on the VIX. Link

Jane Fox : 5/17/2007 8:45:28 AM

The AD line was not overly bullish yesterday and the late day rally was not enough to get it to new daily highs but take a look at the AD volume and you will see why the TRIN was falling and making new daily lows. Link

Jane Fox : 5/17/2007 8:41:13 AM

For a Goldbug this chart of Gold is hard to look at but alas Gold is now breaking its PDLs (big sad face). Crude seems to be hovering in its PDR but has made a higher high and low which should help Gold a wee bit.

I have started watching the DAX to see if I can use it as an internal but so far I have seen the Dow lead the DAX and not the other way around which I was suspecting. Link

Jane Fox : 5/17/2007 8:34:51 AM

WASHINGTON (MarketWatch) - The number of new filings for state unemployment benefits fell by 5,000 in the week ended May 5, the fifth straight decline, bringing claims to their lowest level since early January, the Labor Department said Thursday.

Economists had been expecting initial claims to rise to about 310,000.

First-time claims fell a revised 8,000 to 298,000 in the previous week, compared with the initial estimate of a drop of 9,000 to 297,000. The four-week average of initial claims fell 12,000 to 305,500. This marked the lowest level since the week ended April 15, 2006.

The four-week average is considered a better gauge of underlying trends than the weekly number because it smoothes out one-time events, such as weather or holidays

Jane Fox : 5/17/2007 8:31:51 AM

Sideways move at daily, weekly, yearly, previous day highs (pick one) is bullish and the odds are that this pattern will break to the upside. Link

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