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Keene Little : 8/19/2007 10:41:34 PM

Monday's pivot tables: Link and Link

SPX, DOW and NDX have very similar looking charts at this point so I'm just showing the SPX 60-min chart here to show the two potential price patterns that I see at the moment: Link

The big bounce last week messed up the EW pattern a bit and I need to see some additional price action to determine what's playing out here. If it continues rallying right away on Monday then the bounce off last Thursday's low will become impulsive and will look at least like the pink wave count--it shouldn't get very high on Monday before pulling back and setting up the next rally leg.

If the market drops right away on Monday then it's possible we're going to get a very significant drop so take any early decline seriously, especially if it drops back below the broken downtrend lines from August 8th.

The RUT has been showing a stronger wave pattern (it wasn't dropping as sharply as the others) and has looked relatively bullish. But the bounce off the August 6th low hit the level where it had two equal legs up (at 796.12) so it's possible its correction pattern is finished. So again, any early decline on Monday could get serious. Otherwise an early rally should be followed by a pullback before setting up another rally leg: Link

For those who think the Fed has come to the rescue by injecting cash and knocking back their discount rate, and even if they start dropping the Fed rate, this chart of the SPX is a gentle reminder that the Fed really doesn't influence the stock market but instead follows it: Link

This is a weekly chart going back to just before the market peak in 2000. The Fed started dropping rates in January 2001 (a surprise cut that made for a huge spike up in the stock market) and they kept cutting all the way through the October 2002 bottom. The Fed's drop in interest rates at best caused very short term spikes in the market as the shorts ran for cover. Then the Fed started raising rates in June 2004 but it certainly didn't choke off the recovery.

So beware those who say the market won't crash as long as the Fed continues to offer the Greenspan put. They'll be just as ineffective as they've always been.

OI Technical Staff : 8/19/2007 9:59:59 PM

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