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OI Technical Staff : 5/25/2007 9:59:59 PM

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Jeff Bailey : 5/25/2007 8:57:18 PM

True Meaning of Memorial Day ... Link

Jeff Bailey : 5/25/2007 8:49:01 PM

Closing U.S. Market Watch found at this Link

Keene Little : 5/25/2007 5:18:12 PM

Tuesday's pivot tables: Link Link

Say goodnight Gracie. Hope everyone has a great 3-day weekend. May you be blessed with nice weather, good friends and loving families. Remember our troops.

Keene Little : 5/25/2007 4:41:12 PM

At least everyone seems to be singing off the same sheet of music here. The RUT maintains upside potential to 836-837 by its Fibs and trend line. This one actually looks like a very nice setup to get short if it rallies to that level. Link

Keene Little : 5/25/2007 4:31:01 PM

Two equal legs up for NDX is at 1901.91 and the 62% Fib projection for the 2nd leg is at 1894.10. I'm showing price will top out at the broken uptrend line for a kiss goodbye and then fly south for the winter (in S. America). Notice that on these I'm showing a pop higher on Tuesday before we get a sell off. Just be aware of the possibility that the corrective rally topped out this afternoon and we'll see some selling out of the gates. Link

Keene Little : 5/25/2007 4:24:47 PM

Same picture for the DOW (this one is a 30-min chart)--two equal legs up for its bounce off yesterday's low is at 13542 but that shorter term pattern I just showed (4:00) where it tagged the lower Fib target at 13507 has me wondering if the rally is done. We'll find out early on Tuesday. A drop below 13450 is the heads up and a break below 13424 means stay on the short side. Link

Keene Little : 5/25/2007 4:15:04 PM

I'll continue to show the upside potential for the bounce in SPX to get up to 1522 although I'm currently having my doubts that it will get that high. A drop back below 1510 would be a bearish heads up and a drop back below 1505 would say hold onto your, um, hats for a fast move on the southbound train. Link

Jane Fox : 5/25/2007 4:07:24 PM

Everyone have a great Memorial Day weekend and stay safe. C U all on Tuesday.

Keene Little : 5/25/2007 4:00:37 PM

Oftentimes a c-wave will form an ascending or descending wedge--it'll have the requisite 5 waves but each of those 5 waves will be a corrective 3-wave (or more complex) move and the whole thing will have overlapping highs and lows. This DOW chart shows such a possibility and it just tagged the Fib projection for wave-C = 62% of wave-A (for a truncated finish, which is a lower high for the end of wave-C). This one actually has me thinking it's ready to drop first thing Tuesday. I think I'll take a few puts home with me after all. Just in case. Link

Keene Little : 5/25/2007 3:43:22 PM

Correction to my last post--resistance for NDX by its broken uptrend line from March is just under 1895 by the close. If it were to get parked there I'd pick up a few of those QQQQ puts. Otherwise I think it'll be a smarter idea to let the weekend go and pick this up on Tuesday.

Keene Little : 5/25/2007 3:28:38 PM

So far SPX is obediently following the green-brick road on the chart I posted earlier. NDX is a little more bullish and could still make it up to that 1900 resistance level by the close, in which case I doubt SPX will stay stuck in this sideways triangle pattern. But if SPX rallies a little higher, based on its weakish climb, I'd be willing to bet it will not get up to 1522 before topping out. Link

Jane Fox : 5/25/2007 3:18:17 PM

I have been watching these internals for a long time and when they get like this it is a "Get long and hang on" day. I know it is a Friday before a long weekend but what is driving the internals to these levels and keeping price from shooting for the sky.

Jane Fox : 5/25/2007 3:15:26 PM

We have a first here folks. This setup is about as bullish as you can get and price is just not going anywhere. Link

Keene Little : 5/25/2007 3:08:04 PM

Using that long term weekly view of SMH I'd say the best the bulls can hope for is that it finds support at the bottom of the triangle, near 30, and then blast higher in a large c-wave up to create a larger A-B-C rally off the 2002 low. That would in fact be very bullish and it would mean a strong rally into next year. It could happen and it'll be interesting to see what kind of drop we get to 30 (assuming of course it will) that should provide some clues in this regard (whether it's impulsive or another 3-wave decline).

Keene Little : 5/25/2007 3:02:43 PM

As a review for those who haven't seen the 50,000 foot view of SMH, and again why I'm bearish the semis (and the whole market), this weekly chart shows price action since the 2000 high (using log scale to keep price action since 2002 looking like something other than a flat line). Link

After the sharp drop into the 2002 low does the pattern look familiar now? Since it's too big to be a 4th wave it's very likely a b-wave. So wave-A down into 2002, triangle b-wave into the May high and now we're due wave-C down which will drop below the October 2002 low. You can see the tiny little over-throw above the top of the triangle and then the drop inside--sell signal #1.

There are very few people out there who are ready to see this happen. In fact, sadly, quite the opposite. I have quite a few friends and family members who are "buy and holders" and waiting for techs to recover. I'm not being pessimistic here--I'm just listening to the market and following these patterns which, as you can see, work on all time frames.

Keene Little : 5/25/2007 2:46:29 PM

Back to my discussion of triangle patterns--I'll use the weekly chart of SMH to show why I've been bearish the semis since they topped out this month: Link

After the rally leg from July 2006 the semis went comatose and traded sideways in a triangle pattern. Since it can't be a 4th wave it looked better as a b-wave. That meant the leg out of the triangle--in the direction of the move into it--is wave-C and my expectation was that once it completed we'd see a reversal that completely retraces that A-B-C move up from July 2006.

I don't show it on this chart, but it completed a nice 5-wave move up from March and achieved the minimum Fib projection at 37.43 (wave-C = 62% of wave-A). SMH was a short against its May high the moment it rolled over, and still is.

Keene Little : 5/25/2007 2:36:05 PM

Assuming we get ndx 1900 which qqqq put do you like? I'm looking at 46 and 47. Leaning towards 46.

If we get the NDX 1900 setup I'm thinking it should be a quick play where I'd take profits quickly. It should play out next week so you could even go with a June put although I like to buy a lot more time just to be safe (this market typically takes a lot longer to play out than expected), especially considering you'd have the option over the long weekend.

So maybe August/September and close to ATM so 46 or 47 would be a good choice. Since the expectation here is that it will be a fast move, slightly OTM (46) will get you a higher rate of return (but is riskier). The play would have to work right away otherwise I'd exit the play by say Wednesday at the latest if we didn't start getting an immediate decline next week. It would be a busted setup and there's no sense sitting in a shriveling option.

Keene Little : 5/25/2007 2:23:12 PM

I'm just playing with ideas today because, well, I'm bored. I learned long ago to not trade the Friday before a holiday and so far I don't regret that decision. Linda said it all last night--many traders give up a lot (all?) of their profits the day after a big move by getting caught in the choppy consolidation that typically follows.

So here's another idea if we see price just chop sideways into today's close, which would be bullish for another leg up: Link It's common to see b-waves form sideways triangles (4th waves are the other common time you'll see these). So if we get this kind of triangle consolidation into the end of the day, and perhaps into Tuesday morning, then I'll be looking for the next leg up to finish the A-B-C 2nd wave bounce.

What's nice about these triangles is that they set up the last move. If it's a 4th wave consolidation get ready for one more leg up (5th wave) before a reversal. If it's a b-wave consolidation, as pictured on the chart, get ready for one more leg up (wave-C) and a reversal. For this reason triangles are great trading patterns--play the break out of the triangle in the direction of the move into the triangle and then get ready to reverse directions after a 5-wave move completes.

Jane Fox : 5/25/2007 2:15:14 PM

McMillan's weekly commentary - A tired market finally succumbed to some selling on Thursday. Now everyone wonders how much -- if any -- more is to come. At this point, it's too soon to say that the bull is dead. A review of the indicators shows that they haven't turned bearish yet, but with continued downside action, they will.

$SPX pulled back today to its general support area. There are several support areas in the 1500-1510 area: the 20-day moving average, the uptrend line that has defined this rally since early March, the Chandelier stop (a volatility-based type of moving average, which we often use to set our trailing stops), and finally the chart support at almost exactly 1500 -- where several daily bars bottomed in early May. We expect $SPX to find support in this area somewhere.

If $SPX were to close below 1500, that would be a major violation of short-term support. In reality, though, the May lows at 1490 represent the final demarcation line. If that level is violated, then a more serious, intermediate-term decline would probably be in the cards. It should also be noted that the steepness of the uptrend in $SPX since early March was unsustainable. It's amazing it has lasted as long as it has. However, that doesn't necessarily mean that the bullish leg is finished. Rather, a pullback towards that 1490 support area, followed by another rise in the market, would define a less steep trendline while still leaving the intermediate-term bullish case intact.

There are some seasonal bullish patterns at work now, as well. With Memorial Day approaching, the market usually has a positive tone at the end of this week, and with May month-end occurring next week, that is usually bullish as well. So, these may contribute to firming the support in the 1500-1510 range.

What makes the situation more potentially bearish from an intermediate-term point of view is the fact that the equity-only put-call ratios are nearing sell signals. In fact, during this week, our computer analyses "declared" a sell signal from the weighted ratio. The standard ratio is not far behind. In the past, the weighted ratio has sometimes generated early sell signals, but this is certainly something to be wary of.

Market breadth has generated sell signals, as of today's decline. We use breadth signals as confirming indicators, and in that regard, they are important and meaningful at this time.

Finally, the volatility indices ($VIX and $VXO) have remained surprisingly subdued. They continue to bounce around in the 12-14 range, but have not really begun to trend upward -- something that usually accompanies a more serious market correction. The $VIX futures are worth watching, too. At this point, they are creeping higher with $VIX -- which is somewhat bearish.

In summary, the indicators are beginning to turn bearish for the first time since late February. The sell signals in breadth and the equity-only put-call ratios are a clear warning sign. However, as long as $SPX remains above the 1500 support level, we would not "pull the plug." Even then, it would take a close below 1490 before one could think in terms of an intermediate-term decline.

Jane Fox : 5/25/2007 2:38:38 PM

Internals remain very strong and are giving the bears a really hard time. Link

Jane Fox : 5/25/2007 2:01:43 PM

Interestingly the DAX is not confirming the bearishness in the DOW. Does this mean that little selloff we had yesterday is all but over? Stay tuned for the "Rest of the Story" next week. Link

Linda Piazza : 5/25/2007 2:01:29 PM

Last night, I concluded my Wrap with the following SPX 30-minute nested Keltner chart: Link

Here's an updated one. Link

I just don't see any strong clues as to afternoon direction. That doesn't mean that there won't be a strong move but just that the charts aren't telegraphing what it might be, if there is one in store.

Keene Little : 5/25/2007 2:00:49 PM

Keep in mind that b-waves, like 2nd waves, are nicknamed "sucker" waves. In this case, if we're still in what will become a larger b-wave pullback from this morning's high then it could suck in a lot of bears hoping for a continuation lower. It can even make a minor new low and still be part of a larger upward correction. The initial 3-wave decline off this morning's high tells me we either completed the pullback or any further decline will be just a larger b-wave pullback even if it drops to a minor new low. So don't go getting all bearish on it.

Keene Little : 5/25/2007 1:53:46 PM

The risk for bulls here is that this morning's bounce, which was just a 3-wave move, could have completed the 2nd wave correction. It would be very short in time (to match the smaller degree 2nd wave bounce yesterday) and I can't say I like it but a new low below yesterday's could get serious. But if that happens then keep an eye on the RUT which has its uptrend line from March currently near 820 which would only be a minor new low (but still a good drop from here). Link

Keene Little : 5/25/2007 1:46:35 PM

Going back to the deja vu all over again question, the chart of MER is not encouraging for the bulls. After a small bounce this morning it quickly dropped to a new low and is continuing to press lower. As goes Mother... Link

Keene Little : 5/25/2007 1:20:54 PM

NDX has obviously broken up and out of its down-channel (bull flag) so if it too can keep rallying now, while the Fib projection for the next leg up is to 1901.56 (equality) it's interesting that its broken uptrend line that I showed on its 30-min chart (12:52) is at round number resistance of 1900 right at the end of the day. If they park it there for the close I'd take home a few QQQQ puts on that one as well.

Keene Little : 5/25/2007 1:14:03 PM

Could this be deja vu all over again? How negative would it be if the mkts sold off again?

This is a very good question especially in light of how quickly the market bounced and then immediately sold off yesterday morning. I had been expecting that bounce but I had not been expecting it to only last 30 seconds (OK, I exaggerate a smidge). So the idea that the current bounce, which I believe is one larger degree 2nd wave bounce, could be over in a hurry and down we go. Therefore a sell off this afternoon could be serious.

But typically 2nd wave corrections take about 62% of the time of the 1st wave. So if I project this out (using SPX) you can see we should be looking for the end of the 2nd wave correction around the end of today or the beginning of Tuesday (Monday is closed): Link The bold green vertical line is the 62% projection in time from yesterday's low.

Could this mean we'll get a nasty market surprise over the weekend? Who knows but this is an interesting setup if it plays out this way. A close around SPX 1522 today would have me taking home a few put options just in case.

Keene Little : 5/25/2007 12:52:13 PM

Looking at the NDX 2-min chart shows it too is in what looks like a bull flag--overlapping highs and lows within a down-channel: Link Once price breaks up and out of the channel I'll then use the pullback low to make a price projection to the upside for wave-C. Since c-waves are 5-wave moves I'll then watch it carefully to complete that pattern as a guide to zero in on where the top of the bounce will be.

For example, right now the projection for the c-wave would be up to 1901.56 for two equal legs up. That would put it between a 50% and 62% retracement of this week's decline and also back above the broken uptrend line from March. Link

The first Fib projection is where wave-C = 62% of wave-A and that's just under 1894 and coincides with that trend line later today. That's another possibility for the end of the bounce and would say strong selling would start immediately next week. These are all speculative thoughts as I wait for a bit more clarity but this shows how I'm leaning at the moment.

Jane Fox : 5/25/2007 12:42:02 PM

Here are the charts I use to create the jtHMA spreadsheet. As long as the monthly and weekly are green I will take "buy the dip" setups. A "buy the dip" setup is the daily/120 minute/60 minute charts turn red then go long when the 60 minute turns back green. This gives you a very clear spot to enter and should also a very clear place to put a stop because it would create a swing low on the daily charts. Link

Jane Fox : 5/25/2007 12:33:56 PM

AD line hit a high of +1771 at 10:45EDT and has now fallen to uner +1000. Link

Jane Fox : 5/25/2007 12:30:55 PM

ES and YM are +3 and ER is +6 so if you want to go short I would use ES or YM. Link

Keene Little : 5/25/2007 12:29:50 PM

Here's my latest thought on the decline and today's bounce. This SPX 30-min chart shows an idea that calls today's bounce the 1st leg up in an A-B-C bounce with wave-A the move up to this morning's high, the drop back down here as wave-B and we need wave-C up to a new high for the bounce. Link

If I assume this dip drops down to around 1510 (62% retracement), which may happen as I type, and then starts the next leg up then two equal legs up is at 1522. That would be a 62% retracement of this week's decline. It also says next week could be a down week, just the opposite of what most are probably thinking (for the normally bullish end-of-month run). In fact this wave count calls for a very strong sell off next week as wave-3.

Keene Little : 5/25/2007 12:15:52 PM

The 1511 area would be the next potential support area I would have identified for the pullback--the 50% retracement and it's where the 2nd leg down from today's high is 162% of the 1st leg down. When I see the Fibs line up like that it's often more significant. I've drawn a new down-channel to see if the top of it acts as resistance on a bounce. Link

Keene Little : 5/25/2007 12:12:46 PM

SPX just broke below the bottom of that flag pattern I showed so now we've got something more bearish here. It just tagged a 50% retracement at 1511.30 and if that doesn't hold then watch a 62% retracement at 1509.85.

Keene Little : 5/25/2007 12:10:39 PM

The 2nd part of your question is whether today's consolidation will lead to new lows. At this point that's not the way I'm leaning. Right now it appears, as per that SPX 2-min chart I just posted, that we're going to either head higher from here or get a larger corrective pullback that takes us into the afternoon (a larger bull flag if you will). I'll post some thoughts on SPX and NDX in this respect in just a bit.

Keene Little : 5/25/2007 12:06:25 PM

I would like you to illustrate a bear flag for me, since you offered. Also, re we presently experiencing the "small choppy consolidation today would indicate a minor new low is coming before it gets a bigger bounce" or is that out now?

First up is a bull flag (just the opposite of a bear flag). A flag corrects the previous move so in this case we had a the rally off yesterday's low and a choppy pullback is correcting it. Draw a downtrend line and then attach a parallel line to the low of the early part of the pullback. Then watch for price to find support at the bottom of the channel, which is happening as I type so watch for support around SPX 1512.74, a 38% retracement of the rally. Link

Jane Fox : 5/25/2007 11:41:55 AM

I wouldn't be trying to short today. Link

Keene Little : 5/25/2007 10:53:17 AM

Help a beginner out. Is the wave count based on the Fib?

There are usually very good Fib relationships between the waves but the wave count is based on price movements that follow certain patterns that repeat in different time frames (so they're fractals of each other). An impulsive move consists of 5 waves and corrections to those impulsive moves consist of 3 waves (but can become more complex). If the corrections become more complex then the highs and lows will overlap, hence the choppy appearance. Think of bear and bull flags or sideways triangles.

So when a 5-wave move completes it will be followed by a correction and then resume in the direction of the 5-wave move. The exception is when the 5-wave move is the completion of an a-b-c correction since the c-wave will always be a 5-wave move. It can get confusing and takes a bit of time to grasp but it's really no different than any other technical study we try to understand.

Jane Fox : 5/25/2007 10:35:45 AM

Bulls have the ball AND field position today. Link

Keene Little : 5/25/2007 10:31:33 AM

Answering Paul's question (10:10) a little further, one of the reasons for the differences in the bounce projections is due to the possibility that they're on slighly different wave counts for the move down. Since the DOW made a new high yesterday it means the wave count to the downside has to start at yesterday's high and that raises the possibility that it only completed its 3rd wave down at yesterday's low. A small choppy consolidation today would indicate a minor new low is coming before it gets a bigger bounce.

But NDX and RUT have cleaner wave counts at the moment and show a greater likelihood that yesterday's lows completed a 5-wave move (for a larger degree 1st wave down). That means they're set up for a larger bounce. The difference between the indices is what has me wondering what might be playing out in the DOW and why I started thinking about the possibility for a new high in the DOW while NDX and RUT get a big bounce to a lower high.

I don't want to make this too complicated but I'm just sharing some thoughts as to what might be occurring here. The bottom line is that tops can be very choppy and form more of a rolling top than a sharp one. Intermarket divergences (new highs in some and not in others) are very common. You should be prepared for some confusing signals and those potential intermarket divergences until a new downtrend is firmly established.

Jane Fox : 5/25/2007 10:22:36 AM

Maybe the TRIN was talking to us yesterday.

Jane Fox : 5/25/2007 10:22:14 AM

Internals very bullish today. Link

Keene Little : 5/25/2007 10:10:45 AM

Your pre mkt charts show the rut and the spx moving up 62% but, the dow and spx (all 4 have been moving together) are only moving up to a shorter leg. How can that happen? Do you think it will? Which is more likely?

It's of course all speculation so either the DOW and SPX rally more or NDX and RUT rally less, or they all rally to new highs! Or they don't rally at all and crater. Sorry to be flippant but you get my drift.

The interesting thing is that we're seeing a divergence between the larger caps (DOW and SPX) and the smaller high-beta stocks (NDX and RUT). That could help explain how we'll see a difference between retracements. But I was thinking (wondering) if the DOW might actually rally to another new high and not be followed by the others (as it did briefly yesterday). Topping action is always choppy and full of whipsaws so anything goes here.

Sorry to be so vague but it's the best I can do here. It's going to be more important to watch the bounce progress and make some projections off it. As we get closer to the top of the bounce I hope to be able to get a lot closer to figuring out where it could stop, for each of the indices.

Keene Little : 5/25/2007 9:56:58 AM

I'm just speculating here as I watch the market do nothing, but a spike down on home sales news at 10:00 could be a good opportunity to buy it. You stop has to be below yesterday's low though and that makes it a little higher on the risk scale, especially for futures traders.

Keene Little : 5/25/2007 9:45:20 AM

Another minor high here could complete a small 5-wave advance off yesterday's low in which case watch for a little larger pullback next (so be careful about chasing this higher if we get a minor new high). The pullback may not close the gaps today (might have to wait until next week) so watch for a typical 38%-62% retracement of the bounce off yesterday's low for a long play to set up.

Jane Fox : 5/25/2007 9:24:39 AM

The DOW isn't even testing its 20EMA and its 50EMA is a long ways off. Even on our down days the DOW is remains our stronger market. Link

Jane Fox : 5/25/2007 9:22:37 AM

SPX is now testing its 20EMA but I think the more important test will be the 50EMA (Gold MA) when/if this market makes it down that far. That MACD divergence is starting to play out now isn't it? Link

Jane Fox : 5/25/2007 9:20:14 AM

Russell Cash index has retreated back to its trading range and I do not expect it to make a move back out of it today. We have the Bond Market closing early today and I suspect most traders will leave about the same time. Link

Jane Fox : 5/25/2007 9:17:34 AM

NEW YORK (MarketWatch) -- Gold futures rose Friday, after tumbling 1.4% in the previous session, as news reports that North Korea has test-fired several missiles boosted the metal's appeal as a safe-haven investment.

Gold for June delivery gained $3.40 to $656.70 an ounce on the New York Mercantile Exchange. On Thursday, gold dropped $9.30, or 1.4%, to close at $653.30 an ounce, marking its lowest closing level since March 15.

North Korea test-fired a number of missiles towards the Sea of Japan, the BBC reported Friday. South Korea's defense ministry said that the tests appeared to be part of a routine military exercise, the BBC said.

Keene Little : 5/25/2007 9:14:48 AM

Equity futures have had a nice steady rise since yesterday's close. Nothing big but fairly steady. I wouldn't be at all surprised to see this morning's gaps get closed (as part of the chop that Linda talked about in her Wrap last night) but we should see a generally bullish bias today and into next week. Look to buy the dips but be prepared for a choppy, potentially lazy, trading day today. The day before a 3-day weekend is generally not a great day to trade but tends to be bullish.

Jane Fox : 5/25/2007 8:59:16 AM

The Greenback is falling giving a little bit of a lift to that shining commodity, Gold. .

The DAX is showing a pattern of higher highs and lows just like the American markets. Link

Jane Fox : 5/25/2007 8:52:49 AM

A series of higher highs and lows is the definition of an uptrend but the overnight pattern is starting to look like a bear flag.

We have a further round of housing data out today. Existing-home sales figures due out at 10 a.m. EDT, economists expect sales in April to slip to 6.11 million, from 6.12 million Link

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