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Jeff Bailey : 8/23/2007 10:50:37 PM

YM Pivot Matrix for Friday at this Link

Jeff Bailey : 8/23/2007 10:42:48 PM

Thursday's official CBOT close was 13,265. (settlement was 13,261). Today's REGULAR SESSION high on YM was 13,335. Low was 13,202.

Jeff Bailey : 8/23/2007 10:36:33 PM

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

Trade Blotter of CLOSED MM Profiles (August) Link

Today's "bear" trade in the YM from 13,300 took place during today's e-CBOT outage. While DIA/INDU action prior to my 11:18:18 post would have had "hard targets" filled at 13,255 as INDU traded 13,219 at 11:12 AM EDT, for SEC reporting purposes, I will take my broker's quote of 13,272.

Jeff Bailey : 8/23/2007 10:10:14 PM

Swing trade put(s) raise target alert! ... for the two (2) Baidu.com BIDU Sep $150 Puts (BDQ-UJ) to $175.75 in the underlying.

Keene Little : 8/23/2007 10:01:35 PM

Friday's pivot tables: Link and Link

The pattern for SPX calls for a decline tomorrow but I'd like to see it start right away to keep the bearish wave pattern intact. The key level is Thursday's high but any rally above 1468 (78.6% retracement of Thursday's small decline) would start to look suspiciously bullish (it closed at 1462.70). Two equal legs up for the bounce on Thursday afternoon would be at 1466.24 so anything higher would have me watching from the sidelines. Link

So at most perhaps a quick early pop higher (like Thursday) and then selling needs to kick in. But ideally we'll see selling start right away so that we have a tradeable pattern to follow on Friday. If the decline gets going then I'll be looking for 1446 (two equal legs down) and then 1435 (2nd leg down = 162% of the 1st leg down) if it breaks below 1446. The lower target is also near a 38% retracement of the rally off the August 16th low. A down day on Friday would give us a reversal pattern on the daily chart: Link

As long as the RUT continues to show a clean EW pattern on its daily chart I'm going to use it because it could do a good job in telling us where the market is headed next. It may have completed its 2nd wave correction to the July-Aug decline with that big volatile A-B-C bounce off the August 6th low. Today's move left a bearish engulfing candle and it looks like a key reversal day (open higher, close lower than the previous day). If this wave count is correct then it's just starting the 3rd wave down and selling will intensify as it develops further. Link

OI Technical Staff : 8/23/2007 9:59:59 PM

The Market Monitor has been archived. You may view it and any previous days here: Link

Disclaimer: Stocks discussed in the Market Monitor are for educational purposes only and any analysis is not meant to imply a recommendation for or against that stock. The analysts in this forum as on any other website are prohibited by the SEC from giving any specific advice to ANY individual trader. All information posted is for ALL readers and is not meant to be directed to any individual. Our analysts cannot answer any email questions regarding any specific stock. Please do not ask and please do not take offense if requests are denied.

Results posted in the Market Monitor are hypothetical and OIN does not claim that any reader achieved these exact results. Due to the lag time between research, writing, posting, uploading, reading and execution there will be differences between the actual signal given and the fill achieved by the reader. Fills may be better or worse but in most cases they will be different. The writers will make every effort to give advance notice of intended signals and indicate potential price targets. Your individual results may vary depending on your activity level and aggressiveness. This forum is intended as an education service only. Trading involves risk and should not be attempted by anyone not ready to accept this risk. By acting on any signal in this forum you agree and personally accept this risk.

Jeff Bailey : 8/23/2007 6:42:34 PM

Bill Gross: Bush Needs To Rescue Homeowners ... CNNMoney.com Story Link

Jeff Bailey : 8/23/2007 6:39:33 PM

Rates on 30-year Mortgage Rates Sink ... AP Story Link

Jeff Bailey : 8/23/2007 6:29:53 PM

Did anyone listen to Dorsey/Wright's podcast from Monday?

The main technical note was the event that the NYSE Bullish % reversing up.

The first thing they do is review history.

Brief that they point out is that odds of a strong market advance is 50/50, and odds that the major index fall sharply back to test recent lows is also 50/50.

What Dorsey's institutional team perspective gives traders and investors is that we need to be playing "BOTH SIDES" right now. And POSITION size (risk management) should be SMALL!

Note the NH/NL ratios.

The 5-day NH/NL ratio that I developed is SHORT-TERM "buy," but the slower moving 10-day NH/NL ratio's are still in "O."

Yes, intra-day you saw the NASDAQ's 10-day NH/NL flicker green, but by the close, it couldn't hold.

The NH/NL ratio are NOT reversing up, or threatening to reverse up due to BULLISH leadership (new highs), but instead, have seen some NOTABLE lack of new lows.

What we DO NOT know, or observe this soon, is this ....

Are the LACK of new lows simply due to SHORT COVERING, or bears taking profits? Or is the lack of new lows BULLISH BARGAINS?

See the 50/50?


Now take yet ANOTHER retracement from the LONGER-TERM weaker RUT.X. Today's high of 802.57 and the 8/16/07 low.

Resulting 50% is 769.285.

RUT.X closed 768.83 on 8/16/07.

Do you see what begins to take place?

Supply and demand are in a battle.

From an institutional perspective, the SHORT-TERM time period would be the 7/13/07 high to 8/16/07 low. The VERY SHORT-TERM becomes TODAY'S HIGH, and the 8/16/07 low.

If I were "short the RUT.X," then I've got to think EVERY BEAR is at least targeting the backfill of that 8/16/07 close to 8/17/07 gap. And with the RUT.X able to hold a close above 796.24 yesterday, then a BEAR isn't likely to give too much room above today's highs.

Jeff Bailey : 8/23/2007 6:08:59 PM

Closing Internals found at this Link

Wow! What a "mess" at the close.

The rejuvinated RUT.X leads declines.

Selling in shorter-dated 13-week, go out 30-years and some buying.

Now look at the U.S. Market Watch and YrNet%, 20-dayNet% and 5-dayNet% for the major indices.

DIA/INDU trades 50% retracement of recent decline, but closes below.

SPY/SPX closes a smidge above its 50% retracement yesterday, but a smidge below today.

OEX closed just above its 50% retracement of recent decline yesterday, adds a smidge to the upside today.

NDX/QQQQ closed a smidge above its 50% retracement yesterday, a smidge below today.

RUT.X closed above its 50% retracement of recent decline, but 6 points below today.

I'm thinking "we're squared up," and next week could be WILD!

Jeff Bailey : 8/23/2007 5:14:53 PM

That wasn't too bad of a pricing that Morgan Stanley got considering recent bond market turmoil ... A 10-year offering at 1.65 bp over Treasuries?

10-year ($TNX.X) went out at 4.618%. Add 1.65. Get 6.268%.

Coupon was 6.25%, issue price was $99.856 for yield of 6.27%.

Jeff Bailey : 8/23/2007 4:56:50 PM

Closing U.S. Market Watch found at this Link

Jeff Bailey : 8/23/2007 4:43:43 PM

Out of Office: ... As mentioned previously. I will be out of the office from 8/25/07 to 09/03/07.

Tomorrow, I will update any changes to my current OPEN MM profiles.

I have been "focusing" a bit more on day trading YM futures this week, as I really don't want to initiate any further positions at this point in time.

Jeff Bailey : 8/23/2007 4:23:24 PM

If today were friday, the WEEKLY Pivot level for BIDU next week would be $169.77, $186.49, Piv= $196.72, $213.44, $223.67.

Jeff Bailey : 8/23/2007 4:16:22 PM

Baidu.com (BIDU) $203.21 -0.75% ... High/Low today was $206.95 / $196.73.

BDQ-UJ Low/High all exchanges was $0.37 / $0.46.

Implied Volatility 59.45

Just making some notes for next week.

What would BIDU have to trade at to get out of this mess break-even next week?

Keene Little : 8/23/2007 4:10:14 PM

The little dip and bounce into the close sets it up for an immediate move down tomorrow morning so short against this afternoon's high is the right place to be. As usual, and as seen last night, holding futures overnight is too risky in my book. Flat or a position in options is the better way in this market right now.

Jeff Bailey : 8/23/2007 4:05:55 PM

50% dynamic on YM 13,269

Jeff Bailey : 8/23/2007 4:05:17 PM

YM 13,255 ...

Jeff Bailey : 8/23/2007 4:02:37 PM

Google ... "the BIDU of the U.S.?"

Jeff Bailey : 8/23/2007 4:01:39 PM

Checking out GOOG's intra-day action. Also after breaking above short-term downward trend from 7/16/07 high to recent 8/09/07 relative high.

Keene Little : 8/23/2007 3:50:48 PM

Someone's trying hard to hold this market at the flat line for the close.

Jeff Bailey : 8/23/2007 3:42:30 PM

That afternoon high to 13,278 ... 5-points above DAILY 38.2% retracement.

Jeff Bailey : 8/23/2007 3:41:03 PM

From the long and short side of things Keene!

7-8 has been working great!

Jeff Bailey : 8/23/2007 3:38:33 PM

I'm thinking YM goes out around in here ...

Jeff Bailey : 8/23/2007 3:37:46 PM

YM 13,249 ...

Jeff Bailey : 8/23/2007 3:36:31 PM

YM short cover alert! 13,253

Keene Little : 8/23/2007 3:28:51 PM

Seems like a lot of work to get short today but hopefully you took some profits near today's low when the downtrend line was broken. Now I'm trying to reposition us short for what should be another leg down at least equal to today's, probably more.

Jeff Bailey : 8/23/2007 3:26:38 PM

YM short finger on the button alert! ... YM 13,267 ...

Keene Little : 8/23/2007 3:26:02 PM

SPX 1466.34 would be two equal legs up to try the next short play. This jump back up looks like a good c-wave of the a-b-c bounce off today's low.

Jeff Bailey : 8/23/2007 3:24:25 PM

YM Short alert! 13,274. Stop 13,286. Target 13,250.

Keene Little : 8/23/2007 3:22:40 PM

Nasty little spike back up. Looks like some money from our friends could be coming into the market at the end of the day. If the rally continues then I'll watch for two equal legs up to short it. Otherwise this is the test of the bounce high.

Jeff Bailey : 8/23/2007 3:19:46 PM

YM 13,248 ...

Jeff Bailey : 8/23/2007 3:17:45 PM

I've got a feeling that next week is going to be WILD!

Jeff Bailey : 8/23/2007 3:16:43 PM

03:03 Internals found at this Link

Keene Little : 8/23/2007 3:15:37 PM

Assuming for the moment that we'll get the next leg down from here, two equal legs down from this morning's high is at SPX 1445.48. If the 2nd leg down achieves 162% of the 1st then the dowside projection is to 1434.26. So those are our two downside projections for now. Stay short against this afternoon's high (should get a bounce back up to test it before the close).

Jeff Bailey : 8/23/2007 3:05:41 PM

03:03 Market Watch found at this Link

Jeff Bailey : 8/23/2007 3:02:27 PM

Might have seen selling of short-dated 13-week to fund Morgan's offering. Not "huge" offering, but could creat the knee-jerk from 13-week.

Jeff Bailey : 8/23/2007 3:00:36 PM

OK ... trader's that may be "keying" off of 13-week, understand the implications, reaction in relation to Morgan Stanley's debt pricing.

Jeff Bailey : 8/23/2007 2:59:37 PM

Morgan Stanley $1.5B Debt Sold, Yld 6.27%; Tsys +1.65BP.

Jeff Bailey : 8/23/2007 2:59:02 PM

This might be the news ...

Jeff Bailey : 8/23/2007 2:56:59 PM

Darned if that YM decline wasn't 7-8 points below DAILY 61.8% of 13,223.

Jeff Bailey : 8/23/2007 2:55:38 PM

So what is it? Banks having difficulty meeting cash requirement (withdrawals from accounts), or ICBA's update?

Jane Fox : 8/23/2007 2:51:42 PM

Markets have recovered a bit but they are still all under overnight and previous day lows. Link

Jeff Bailey : 8/23/2007 2:51:06 PM

ICBA: Community Bank Stability a Marked Contrast to Turbulent Mortgage Market

DJ- The Independent Community Bankers of America (ICBA) today said that in spite of turmoil in the credit markets, community banks are financially stable and healthy with money to lend to homeowners and small businesses. "Wall Street may be suffering but Main Street's community banks are in solid shape and open for business," said Camden Fine, ICBA president and CEO. "Community banks are the foundation of our nation's diversified financial system. A credit crunch like we're seeing now is exactly why the nation needs the community banking industry -- to ensure that credit remains consistently and widely available in good times and bad. Today, consumers and communities can continue to rely on community banks for their financial needs." "The community banks are weathering this latest crisis in the mortgage market because they are well run, highly capitalized and among the most highly regulated financial institutions in the country," said Fine. Fine noted that for the most part community banks have stayed away from risky subprime lending and have stuck to time-tested conforming mortgage products, which follow the generally conservative standards set by the federal government-sponsored enterprises. In addition, community banking is a relationship business. "We know our customers, we work with them to provide a range of services not just for today but also throughout their lifetimes," said Fine. "Community banks provide a stable and reliable source of mortgage money whether they sell mortgage loans into the secondary market or hold them on their own books. And they remain well-positioned to make the loans that small businesses and consumers need." About ICBA The Independent Community Bankers of America, the nation's voice for community banks, represents 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve.

Jeff Bailey : 8/23/2007 2:48:43 PM

Moody's Takes Action On the Notes Issued By Enhanced MBS Fund V Limited

Jeff Bailey : 8/23/2007 2:47:15 PM

Day trader DIVERGENCE Alert! Some DIVERGENCE ... 13-week yield SURGING ... up 14.5 bp at 3.710% ...

Yet YM 13,234 ...

Linda Piazza : 8/23/2007 2:42:48 PM

The TRAN still hasn't been able to climb back above its violated uptrend line from Friday's 10:45 fifteen-minute candle. The USD/yen is trying but also still hasn't broken back above its violated uptrend line from last Thursday's 12:45 fifteen-minute candle. Both do maintain their fifteen-minute 120-ema support, but their actions aren't instilling great confidence about the SPX, OEX or Dow's abilities to maintain their similar rising trendlines.

Jeff Bailey : 8/23/2007 2:41:32 PM

Pretty good sell program underway.

Keene Little : 8/23/2007 2:30:15 PM

Got a bit of a rollover here so keep risk tight and move your stop down to just above the high of the bounce. This is a quick test of resistance to see if it holds. A new high could carry some, even to a new high, so dont' take any more chances with this market than you need to.

Keene Little : 8/23/2007 2:14:34 PM

I just wanted to say that Marc Eckelberry really NAILED the low and buying opportunity last week, as well as saying he was short near the highs. I know you posted his remarks the other day, thanks!! Ted

I always welcome another set of eyeballs watching this market and offering their opinions for us all to consider. And if it's different than mine I really pay attention.

Keene Little : 8/23/2007 2:12:39 PM

Getting a quick strong bounce and at 1463 SPX is now up testing its downtrend line from July 19th as well as retesting its broken uptrend line from Monday. Short it here with a stop a few points above to see if it works.

Jeff Bailey : 8/23/2007 2:08:56 PM

A "14-point" phone call ...

Jeff Bailey : 8/23/2007 2:08:00 PM

I've got to make a phone call ...

Jeff Bailey : 8/23/2007 2:07:28 PM

DIA $132.18 ... INDU 13,227 ... YM 13,258

Keene Little : 8/23/2007 2:06:49 PM

There's a 38% correction for SPX at 1460.84. A pullback followed by another leg up would look better from a time standpoint but recognize that the minimum for a bounce has now been achieved and another leg down could start at any time.

Jeff Bailey : 8/23/2007 2:05:43 PM

I'd sure like to get another look at DIA $132.18 and INDU 13,227.

See just what kind of a fill I did get on YM.

Keene Little : 8/23/2007 2:04:54 PM

Keene, I shorted the RUT again at 800 today. I was targeting the 760 area but I noticed your charts pointing to under 740, 720. Do you think it can get that low?

You're probably refering to the RUT daily chart I used in last night's Wrap. The pattern in the RUT is one of the cleaner ones and it looks bearish from here. After a volatile 3-wave correction since its first low on August 6th, which should have completed its 2nd wave, it now looks ready for the next leg down which will be a 3rd wave as per the wave count I'm currently using--updated daily chart here: Link

We could get a more complex correction for the RUT but that won't be known until and if price chops around some more here. So until proven otherwise I'm saying the RUT is ready for a deep selloff from here to new lows.

Keene Little : 8/23/2007 1:51:45 PM

We got the break of the downtrend line so the first leg down is finished and now we're into the larger correction of it. I'll be watching now for a 3-wave bounce, hopefully a clean two-equal legs up, as an opportunity to get short again. Keep an eye on the Fib retracement levels as your guide to watch for the short play to set up. The downtrend line from July 19th is currently near 1463.60. A 50%-62% retracement gives us a target zone of 1463-1465 for the bounce this afternoon.

Jeff Bailey : 8/23/2007 1:47:13 PM

didn't hurt that 13-week reversed too.

Jeff Bailey : 8/23/2007 1:46:14 PM

Good "pick up" ... 7-8 from 13,210 ... session low was 13,202.

Not bad RISK, with potential REWARD to DAILY Pivot (give or take 7-8 points.)

13,248 - 7/8 = 13,240.

Jeff Bailey : 8/23/2007 1:44:37 PM

YM Long target alert! 13,240

Jeff Bailey : 8/23/2007 1:41:48 PM

YM day trader's 5-minute interval chart Link

Jeff Bailey : 8/23/2007 1:34:59 PM

YM Long alert! 13,211. Stop 13,200. Target 13,240.

Jane Fox : 8/23/2007 1:44:43 PM

The bulls have fumbled the ball and the bears have retrieved it and are running for a touchdown. Link

Jeff Bailey : 8/23/2007 1:30:37 PM

Olin Corp. (OLN) $20.63 -1.00% ... Now, this morning's "gap up" open and trade at $21.00 does trigger the "bullish triangle" pattern.

That's usually a VERY BULLISH pattern under "bull market" conditions (as depicted by major market bullish %).

However, as of last night, bullish % still not in what many would consider "bull" mode.

On the "alert," but not bull mode.

Keene Little : 8/23/2007 1:28:14 PM

This 5-min chart shows the two ossibilities that I see from here--possibly down as low ass 1445 if 1450 doesn't hold, or start a bigger bounce that breaks today's downtrend line. Play it accordingly. Link

Linda Piazza : 8/23/2007 1:26:26 PM

After breaking through a rising trendline off Friday's 10:45 low, the TRAN has been hugging Keltner support near 4845-4848. Attempts to bounce have so far been thwarted. Be careful if bullish the SPX, OEX or Dow if the TRAN doesn't bounce or falls soundly through this support. The TRAN tends to lead those other indices, or at least those other indices don't tend to move too far in one direction if the TRAN isn't going with them or is going the opposite direction.

Jeff Bailey : 8/23/2007 1:24:55 PM

Baidu.com (BIDU) $197.28 -3.64% ... now testing recently broken downward trend (7/26/07 high to 8/08/07 relative high). BDQ-UJ $0.30 x $0.50.

Keene Little : 8/23/2007 1:22:13 PM

The 5th wave down achieved 62% of the 1st wave (at 1454.22) so now I'm watching to see if today's trend line gets violated, currently near 1459. A rally above that level would say we're into the larger bounce. A drop back down from here could mean we're going to get an extended 5th wave (so below 1450) and perhaps tag the 1447 downside target. In any case, if it drops lower from here stay short and use today's downtrend line as your stop. Watch for 1447-1449 as potential support.

Jeff Bailey : 8/23/2007 1:19:15 PM

Now I'm thinking ... 7-8 points BELOW DAILY S1 is important intra-day.

Kind'a mixed flow of capital around Treasuries.

Jeff Bailey : 8/23/2007 1:16:41 PM

YM 13,228 ... did trade that 13,210 "note this level ..." Link

and DAILY S1 (regular session h/l/c).

Jeff Bailey : 8/23/2007 1:12:25 PM

01:00 Internals found at this Link

Jeff Bailey : 8/23/2007 1:03:10 PM

01:00 Market Watch found at this Link

Jeff Bailey : 8/23/2007 1:00:10 PM

Futures Pivot Calculations (educational): ... Snapshot as DIA traded $0.01 below its DAILY Pivot. Note YM relative to its DAILY Pivot (using regular session high/low and CBOT's official close) Link

About 7, or 8 points "off" on YM using REGULAR session.

About 15 points off if using YM's ALL SESSION High/Low from Wednesday.

Keene Little : 8/23/2007 12:49:26 PM

A drop to a new low from here would give us a 5-wave move down from this morning's high. The 5th wave would equal the 1st wave at 1450.66 and that's where I'd peel some money off the table on your short play. A bigger bounce from there back up to 1461-1464 (50%-62% retracement) would be typical.

Keene Little : 8/23/2007 12:44:43 PM

At 1460.60 SPX is about to test its downtrend line from this morning's high and retest its broken uptrend line from Monday. A rally above that could get more bullish so careful if you're short.

Keene Little : 8/23/2007 12:43:04 PM

Just below SPX 1451, yesterday's low, is the uptrend line from last Friday's pullback and the bottom of a parallel up-channel, currently near 1447 (and in between is its 10-dma near 1450). That would be another nice support area to consider a long play for a bounce. This assues SPX will stay below 1463 now until we see another leg down. Link

I've drawn in a price path I think the pullback over the next couple of days will take--this decline followed by a bounce back up to the downtrend line from July 19th and then another leg down into Monday.

Jeff Bailey : 8/23/2007 12:41:11 PM

My opinion on BAC investment in CFC ... "glad we closed puts at targert of $15.00!"

Jeff Bailey : 8/23/2007 12:36:47 PM

YM ... 13,235.

Jeff Bailey : 8/23/2007 12:36:23 PM

CBOT's e-Cbot up and running ...

Keene Little : 8/23/2007 12:36:08 PM

My opinion on the BAC investment in CFC is that it was engineered by the Fed and the Fed will bail out BAC if their investment turns sour.

Jeff Bailey : 8/23/2007 12:35:53 PM

DJ- Point Of View: Bank Of America Smelled Opportunity In Countrywide Deal

DJ- The foundation of any financial system is the confidence its participants have that it can function and that it can function efficiently. And when that confidence begins to wane, it can have far-reaching effects for individuals and companies around the world. This is of course what has happened in recent months as concerns about the mortgage meltdown in the U.S. have spread beyond our borders. Once thought of as just a problem for the mortgage securities market here, the billions of dollars lost as bad mortgages blew up has created recently a worldwide aversion to anything perceived risky. The easy money that financed acquisitions dried up. Healthy companies began to have difficulty tapping crucial short-term funds. The mortgage malaise spread from the junky subprime market to the good credit arena - meaning far fewer mortgages are being created, which means far fewer homes will be sold. And don't kid yourself about the importance of this - the housing market is a crucial part of the U.S. economy. So it was on Wednesday that two major confidence boosters took place. And the financial markets around the world have cheered loudly ever since: a handful of major banks took the symbolic step of borrowing from the Federal Reserve's discount window to show the institutions that are really in need of funds that it is more than okay to do so. And a major U.S. retail banking institution, Bank of America, took an equity stake in Countrywide Financial Corp., the nation's largest mortgage company that has recently faced a liquidity squeeze. Last week, an analyst at a major Wall Street firm even speculated that Countrywide could be pulled into bankruptcy. These two confidence boosters are very different, though. The banks going to the Fed clearly did so, perhaps with a little nudge from the Fed, to show the world it is fine to borrow from the discount window. They did so, albeit in small amounts, at a cost greater than where they could borrow elsewhere. Bank of America wasn't being quite so altruistic. It saw an incredible opportunity. And that of course is what being successful in the financial system is all about - making money and being smart about how you do it. Countrywide sold to Bank of America $2 billion of convertible preferred securities that carry an annual dividend of 7.25% and are convertible into Countrywide common shares at $18 a share. Countrywide's stock closed Wednesday at $21.82 (the equity infusion was announced a few hours after the market closed). Granted, to sell a big stake in a company you would likely need to sell it at a discount. And a company facing a liquidity problem needs to sell equity at an even steeper discount. By making these preferreds convertible at a price $3.82 below where Countrywide actually closed, Bank of America not only bought some healthy downside protection but bought the stock at a roughly 18% discount. And its $2 billion investment at $18 a share rather than $21.82 allows it, upon conversion, to effectively own more stock - roughly 20 million more shares (at the $18 conversion price, the preferreds would turn into about 111.11 million shares of Countrywide. Bank of America becomes a roughly 16% owner of Countrywide). In addition, Bank of America picks up a healthy annual dividend: about $145 million a year. It's actually worth a little more to Bank of America because the convertibles were structured as equity, not debt. Under tax rules, dividends received by one company from an investment in another are subject to more favorable tax treatment. If a company owns less than 20% of the stock in another company, it can exclude from its tax calculations 70% of the dividends it received. So, Bank of America gets $145 million in dividends from Countrywide. But under the dividends received deduction rules, it only has to report to the tax authorities 30% of that dividend income, or $43.5 million. So, at Bank of Americas roughly 33% tax rate, it pays taxes of $14.36 million. After tax, the investment provides income of $130.64 million. If this was interest income, Bank of America would have to pay taxes on the entire amount - roughly $47.85 million in taxes, leaving it with after-tax income of $97.15 million. By crafting this investment as a preferred stock rather than a bond results in more than $30 million of additional income for Bank of America. (The DRD, by the way, is meant to lessen what is effectively triple taxation. The company paying the dividend does so after it pays taxes. That dividend to the receiving company gets taxed as investment income as well. And then when the receiving company pays a dividend to its shareholders, it gets taxed again). The flip side of this, of course, is that this financing was more expensive for Countrywide. A company issuing debt can lower the amount of income it reports to the tax authorities by the amount of interest it pays out, effectively lowering its tax obligation. But dividends on equity securities, common or preferred, are paid out after taxes. So, no tax benefit. But Countrywide didn't really have a choice. Bank of America got another little concession to help protect its new investment in Countrywide. While Bank of America agreed not to increase its stake in Countrywide or to make a proposal to outright acquire the company, it did receive the right to be able to match any offer a third-party might make for Countrywide, according to a filing Thursday that Countrywide made with the Securities and Exchange Commission. With some much-needed cash in its pockets, Countrywide can go back to transforming its mortgage model to one that focuses primarily on underwriting high-quality mortgages. What this investment does is shore up its balance sheet and adds some punch to its capital position. What it doesn't do, of course, is remove the short-term risks that have been created in the marketplace - volatile mortgage pricing and lack of liquidity. And that's why Standard & Poor's Thursday left Countrywide on its credit watch list with negative implications.

Jane Fox : 8/23/2007 12:26:35 PM

Looks like $70.00 support it has now turned into resistance. Link

Jeff Bailey : 8/23/2007 12:26:09 PM

Countrywide Financial CEO: Bankruptcy Claims "Irresponsible" Journalism

Jeff Bailey : 8/23/2007 12:01:11 PM

CBOT's e-CBOT should be back online at approximately 12:30 PM EDT.

Keene Little : 8/23/2007 12:00:51 PM

SPX has broken below 1458 and in so doing has broken below the bottom of its wedge pattern, both good signs if you're short. Now continue to use the downtrend line from this morning's high to pull your stop down. We should see a consolidation soon (that lasts maybe about an hour) and then another leg down to give us a small 5-wave decline. Then it will be a good time to take some money off the table (maybe even take a small long position) while we wait to position short again for the next leg down later this afternoon.

Linda Piazza : 8/23/2007 12:00:33 PM

Since our move to a small Texas town, we've gotten to know the Time Warner people rather well. They're our best friends here, as they're out every few days trying to work on our modem or television controls or Internet connection. Earlier, I had been about to post that the TRAN looked as if it might decline to test support from about 4543-4548, just before the decided that my Internet connection needed to be rebalanced. In the interim, the TRAN did decline to that Keltner support. Now I'm watching it closely. This is support that has held on 15-minute closes since Monday morning. The TRAN has already broken through a rising trendline that began building Friday morning: now it needs to hold this support for those of you with short-term bullish hopes. As many of you know, I often watch the TRAN for guidance on what might happen with the SPX, OEX and Dow, as the TRAN sometimes leads or at least corroborates their movements.

Jeff Bailey : 8/23/2007 11:46:40 AM

Those YM traders that entered "hard" target should be filled at my initial target. INDU just traded DAILY Pivot. (regular session of course).

Linda Piazza : 8/23/2007 11:46:31 AM

The USD/yen has now dropped to 116.00, but the rising trendline building since last Thursday has now risen higher than that, so that this is a minor violation of that rising trendline. As I mentioned earlier, further potential support lies underneath, now at about 115.60-115.70.

Keene Little : 8/23/2007 11:46:24 AM

SPX is approaching 1458 so this is where you need to decide whether to hold on for more downside or take some money off the table. If there's to be more downside then I think the downtrend line from this morning's high should hold. That's currently near SPX 1464 and I'd lower my buy stop on ES to 1468 as a hedge against a short YM that you can't get out of yet. Let the short work for you but protect profits--that's the lesson from this whippy market.

Jeff Bailey : 8/23/2007 11:35:40 AM

A friend at every exchange Jane!

Jeff Bailey : 8/23/2007 11:35:10 AM

Just like the good old days when you had to call your broker to make a trade!

Jane Fox : 8/23/2007 11:33:20 AM

Jeff, if you were able to get out through your broker - that is excelllent. You have a good broker.

Jeff Bailey : 8/23/2007 11:31:10 AM

Jane! Yes ... broker confirm 13,272 cover on YM via telephone.

Keene Little : 8/23/2007 11:28:11 AM

ECBOT is unavailable for trading at the moment. That's why I recommended a level to buy ES for a hedge if ECBOT stays down.

Jane Fox : 8/23/2007 11:27:15 AM

If this happens to me I always do what Keene suggested - take a opposite position in another market so you neutralize big moves.

Jane Fox : 8/23/2007 11:25:59 AM

Jeff, so you are using the cash index to exit your YM short. But are you able to get out of that short?

Keene Little : 8/23/2007 11:25:40 AM

If you're short YM this morning I'd use ES 1472 as a buy stop to hedge the YM short (ES currently printing 1467).

Jeff Bailey : 8/23/2007 11:24:56 AM

CBOT feeds down ... must use cash INDU to make decisions on entry/exit (institutional computers do). INDU 13,237 and just above 19.1% dynamic.

Keene Little : 8/23/2007 11:24:42 AM

No YM quotes on QCharts either Jane. It's ECBOT.

Keene Little : 8/23/2007 11:23:54 AM

We're working our way down to the first level where you need to think about taking some profits off the table if you shorted against this morning's high. Two equal legs down is at SPX 1458 (ES 1460.25) and that's near the bottom of the wedge that I've been showing on the 30-min chart. If this is just a corrective pullback then SPX should find support there and start another leg up to a new high. I don't think that's what will happen but that's the risk if you're short. To reduce risk, now's a good time to lower your stop to just above the bounce high near 10:50 AM (SPX 1467.33, ES 1471.25). Any rally back above that level from here would leave a 3-wave (corrective) pullback.

Jane Fox : 8/23/2007 11:23:33 AM

Both Tradestation and IB have YM frozen here.

Jane Fox : 8/23/2007 11:22:38 AM

Jeff are you getting YM quotes?

Jeff Bailey : 8/23/2007 11:18:18 AM

YM short cover alert! ... INDU 13,227

Jane Fox : 8/23/2007 11:16:23 AM

The bulls have fumbled the ball and the bears are scrambling to pick it up.

Jane Fox : 8/23/2007 11:15:32 AM

VIX is not making new daily highs but it is climbing.

Jane Fox : 8/23/2007 11:14:40 AM

AD line as now fallen to +94 and making new daily lows as is the AD volume.

Jane Fox : 8/23/2007 11:12:33 AM

I am not getting quotes from the ECBOT.

Linda Piazza : 8/23/2007 11:03:11 AM

So far, the USD/yen maintains the rising trendline it began establishing last Thursday. That trendline is now at about 116.00. The USD/yen is at 116.29 as I type. A violation of that rising trendline might find first support in the 115.60-115.70 zone, however.

Jane Fox : 8/23/2007 10:55:05 AM

Here are the overnight charts. The Russell and NDX futures are trading below their overnight lows whereas the ES seems to have found support at its ON lows. Link

Keene Little : 8/23/2007 10:47:11 AM

The DOW is a little stronger today and gives me the impression it might have one more minor high to make in order to complete its wave count to the upside. There's a Fib projection at 13306 that it just missed this morning and another push up could tag that level and the top of its parallel up-channel from last Friday one more time. If it does then it too should be a good short there. But it may not give us that "one more high" so short against this morning's high is the right play on the DOW as well. If stopped out look to short it again at that resistance (or open up your stop just a tad more to accommodate that new high). Link

Jeff Bailey : 8/23/2007 10:42:56 AM

YM short alert here at 13,300. Stop 13,319. Target 13,255.

Keene Little : 8/23/2007 10:35:34 AM

The SPX 60-min chart now shows a nice shooting star candlestick at resistance which is a pretty strong reversal signal. A red candle for the next hour would confirm the signal. Conservatively speaking we should get at least a pullback to correct the rally off last Thursday's low and that would drop SPX back down to around 1420. A retest of last week's low could have it dipping further than 1420. More bearishly, the bounce off last Thursday's low may have finished and now we'll get a very strong decline started that takes us much lower much sooner. Link

One leg at a time until the answer to this question becomes clearer. For example, assuming we'll get the pullback from here, once it completes a 3-wave decline then it will be time to test the long side. Depending on how it goes from there should provide some clues as to whether another rally leg will start or if we'll instead continue the decline. And that's why I'm taking this one leg at a time until the larger pattern clears up some more. For now stay short against this morning's high.

Jeff Bailey : 8/23/2007 10:33:06 AM

EIA: Weekly Nat Gas Storage Table Link ... Build of 23 Bcf to 2,926 Bcf

Jeff Bailey : 8/23/2007 10:27:11 AM

Mortgage Job Losses Surpass 40,000 ... AP Story Link

Jane Fox : 8/23/2007 10:21:32 AM

US $ is down but not a great deal and seems to be finding some buyers at this support level. My guess is that this support will hold and that Gold will not retest its August 8th swing high. Link

Jane Fox : 8/23/2007 10:18:34 AM

Gold is finding some buyers today but it has not yet retested its August 8th swing high and it needs to break that high before I turn bullish on Gold. I have not yet looked at the chart of the US $ but I will go out on a limb and will say I bet it is down. Link

Jane Fox : 8/23/2007 10:14:06 AM

My goodness gracious the Russell futures are testing their Previous Day Lows (PDL). Link

Keene Little : 8/23/2007 10:08:54 AM

The move down from this morning's opening high looks impulsive and that means the current bounce should fail short of the high. Use it to try a short play against the high (post-9:30 high).

Jane Fox : 8/23/2007 10:04:29 AM

This chart of the DOW is not yet testing its August 8th swing high, it is not even testing its downward trendline although trendlines are subject to misinterpretation due to technicians drawing skills and I don't trust them implicitly. Link

Jeff Bailey : 8/23/2007 10:03:05 AM

10:00 Market Watch found at this Link

Linda Piazza : 8/23/2007 10:00:22 AM

The Fed has just added two more repos, one a $7.00 billion 12-day repo maturing September 4 and another a $3.25 billion repo maturing tomorrow. If my calculations are correct, that's a total $3.25 billion add for the day.

Jane Fox : 8/23/2007 9:58:09 AM

Here is the story that I am going to stick to. I think the $RUT will fail this test and fall but make a higher low and take another run at this resistance thus forming a reverse head and shoulders. I also think the next test of resistance will break through. Now should I write this on the chart and date it to see how good my crystal ball is .

Jane Fox : 8/23/2007 9:53:51 AM

The Russell 2000 is now testing its resistance from August 8th drum roll please!!!! Link

Linda Piazza : 8/23/2007 9:50:24 AM

The USD/yen approached the bottom of that resistance level I mentioned in an earlier post when it moved to the day's high of 117.09. It's pulled back, but at 116.29 as I type, it still maintains the rising trendline it began forming last Thursday. That trendline is currently located at about 115.89, I believe, if my estimation is correct.

Jeff Bailey : 8/23/2007 9:50:20 AM

Mexico's 3 Gulf Oil Ports Open

Jane Fox : 8/23/2007 9:48:43 AM

I see the VIX climbing to new daily highs and the AD line has fallen down to +713, still bullish but a lot less bullish than the open.

Jane Fox : 8/23/2007 9:46:52 AM

I would like to say that I second everything that Linda said in her 9:40 post. Cash is King right now and I will get back into the markets once the bulls prove to me they are back in control. That may not happen until well into September though and I am prepared to wait. I also have condors but I have Mike Parnos's Couch Potato Hedge fund trade them for me and I see that he is been very conservative as well.

Keene Little : 8/23/2007 9:44:27 AM

SPX has dropped back inside the pattern for a sell signal. Short against this morning's high should be the right play.

Jeff Bailey : 8/23/2007 9:44:06 AM

Fed Accepts $7 Billion in 12-Day RPs

Keene Little : 8/23/2007 9:43:44 AM

SPX 1470.80 appears it could be a tough Fib resistance line. If it drops back down now it will drop back inside its ascending wedge. I've redrawn the ascending wedge pattern and moved the EW count slightly to fit the pattern better and that's where the coincidence with the Fib projections shows the 1470.80 level as potentially important for an ending to the rally. Link

Jane Fox : 8/23/2007 9:41:51 AM

AD line is a bullish +1526 (over +1000 which seems to be normal of late) and the AD volume is climbing. TRIN at 0.73 so the bulls have the ball this morning.

Linda Piazza : 8/23/2007 9:40:46 AM

I'm not yet convinced that markets have stabilized. How am I personally addressing the concerns in the markets in my (and my husband's) personal portfolios? Several weeks ago, I had my husband move most of his 401K to cash. Because his former company was being sold, the process took longer than I wanted, but his 401K avoided taking much of a hit in the recent downturn and would have avoided any hit at all if he'd been able to exit without all the red tape. Now, our total portfolios are positioned with about 14 percent in balanced (about 45 percent in bond-related and 55 percent in equity-related) securities. About 4 percent is currently tied up in income-producing strategies, currently just condors, and this is far less than I typically have tied up in such strategies. Fortunately, because my sold strikes are so far away from the action, I've already been able to close out most of the bear call portions of those condors and am close to beginning to be able to do so on the bull put portions, at least on the RUT. A miniscule amount of our total portfolios, less than $200, is tied up in speculative trades (two of what Dan Sheridan calls "cheap time bomb butterflies"), a strategy I'm trying out with one OTM butterfly each side of the SPY's action yesterday. The rest is cash for now, as I'm positioning us to hunker down for a little while and see what happens before moving back into the markets. I'm using this time to experiment in other types of strategies, such as that time-bomb butterfly. This one, I actually placed with one butterfly on each side (2 sold options for the body, 1 for each wing, for each butterfly) because it's so cheap, but the other things I'm trying, I'll try on paper. I don't want to waste this time by doing nothing, but I especially don't want to waste our money, so I'll be listening to a lot of webinars, trying out paper trades whenever I can. I'm not even tempted into a speculative put or call right now, as options are so darned expensive, plumped up by all that extra volatility. Our investment needs are different than others, because my husband is retired and our primary need now is to preserve cash, but I thought it might be useful to point out that cash is sometimes a position and to let you know that I'm putting my money (or not putting it) where my mouth is. At some point, I'll start moving the portfolio back out of cash again, but not right now.

Jane Fox : 8/23/2007 9:36:44 AM

Markets got a nice little infusion of buyers early in the overnight session but they have lost it all now and are trading back at their overnight lows. Link

Jane Fox : 8/23/2007 9:34:14 AM

WASHINGTON (MarketWatch) -- First-time claims for state unemployment benefits fell slightly in the latest week, breaking three weeks of gains and continuing to signal a healthy U.S. labor market.

Initial claims for the week ended Aug. 18 fell by 2,000 to stand at 322,000, the lowest level since Aug. 4, the Labor Department reported Thursday.

The four-week average of those claims, meanwhile, rose by 4,750 to 317,750. The four-week average smoothes out distortions in the data caused by one-time events such as strikes or holidays

Jane Fox : 8/23/2007 9:32:46 AM

SAN FRANCISCO (MarketWatch) -- Bank of America Corp. invested $2 billion in Countrywide Financial Corp. on Wednesday in a move that could help the largest U.S. mortgage lender survive a crisis that's rocking the home loan industry.

Bank of America (BAC) invested $2 billion in nonvoting convertible preferred securities of Countrywide (CFC) that pay an annual interest rate of 7.25%. They can be converted into common stock at $18 a share. If that happens, Bank of America won't be able to trade the stock for 18 months after conversion, the two companies said in a statement.

Countrywide shares jumped 17% to $25.55 during late trading on Wednesday. The stock has been hammered this month as a broadening crisis in the mortgage business cut off the company's access to its usual sources of borrowing in the market

Keene Little : 8/23/2007 9:18:56 AM

The Fed is getting desperate and that should be worrisome to equity holders. Four major banks (JPM, BAC, C and WB) walked up to the discount window yesterday and borrowed billions, ostensibly to inject liquidity into the banking system. BAC then injects $2B into a dying company, CFC, and Wachovia upgrades them and futures rally in the overnight (low volume) session. You don't suppose that's where some of that borrowed money went do you? Nah, that would be crossing the line in market intervention.

And now the Fed announces that they're accepting mortgages (and their derivatives) as collateral in lending $7B to banks. As a taxpayer I'm not exactly happy that the government is bailing out failing banks because of the mistakes they made. Can it be any more obvious that Bernanke is panicking big time? And yet the market rallies. There is a huge disconnect here and all I can say is tread very carefully if you're long this market. Surprises will be to the downside now.

Linda Piazza : 8/23/2007 8:44:27 AM

The Federal Reserve has announced a $7.0 billion 14-day repo this morning, maturing September 6. If my calculations are correct and if no further repos are made, that still results in a $7.0 billion net draw for the day.

Linda Piazza : 8/23/2007 7:00:25 AM

$14.0 billion in repos mature today, if my calculations are correct, so any Fed infusion less than that will be a draw on liquidity. How will the Fed deal with this? I'm wondering. Not infusing the system might further prop up the USD against the yen, with any gains in the USD/yen typically being positive for equities lately. But the globe's equities have been pressured by two forces: the unwinding of the yen carry trade and the credit crunch, and a draw of that magnitude would negatively impact the credit crunch, I would think. Perhaps BAC's purchase of $2 billion in CFC's preferred stock relieves some of that credit crunch, too? Reports overnight were that some of the riskier investments were boosted across the globe as fears of a credit crunch lessened.

It's difficult to sort out the different forces impacting equities, isn't it? I don't pretend to know the answers, but I do know that none of us can afford to remain ignorant of those forces. That's why I began warning subscribers earlier in the week that what happened overnight in Japan last night could impact trades here in the U.S., so that you could make plans accordingly and at least understand the risk you were taking if you held overnight.

Do I think this bounce will continue long? I'm not at all sure that it will. I've noted, as have many others, that we should expect a sharp bounce, and we've been getting it, but we should temper our expectations for a prolonged bounce and see what happens. There is still way too much that could go wrong. Our main goal as traders these days should be to protect our trading capital.

Linda Piazza : 8/23/2007 6:46:57 AM

As you have probably surmised from a glance at the futures or the USD/yen value, the Bank of Japan held its key lending rate steady last night rather than raising it as it had been forecast to do as late as last week. Japanese government bonds dropped and the yen weakened against currencies such as the U.S. dollar. As most know by now, such action, prompting a rise in the dollar against the yen, relieves the pressure to dump equities in order to unwind the yen carry trade. The Nikkei closed higher by 2.61 percent or 415.68 points, and most other Asian bourses soared, too. The USD/yen's sharp rise overnight pushed it to 116.94 as I type, above a 38.2 percent retracement of its decline off the June high and below the 50 percent retracement at about 117.60. I anticipate that the 117.60 level may be strong resistance, but that resistance could begin kicking in anywhere in a band from about 117.20 to 118.30. Adding to the possible difficulty of pushing up through this resistance band could be the Bank of Japan's Governor Fukui's more-hawkish-than-anticipated post-meeting comments. However, many forces will combine to impact that decision: developments in the global credit crunch and the staunchness of the ECB's intention to hike rates, keeping the euro high against the yen, which would also relieve the pressure to dump equities in an unwinding of the yen carry trade. It is not an easy matter for the world's premier economists to determine what might happen next, and it certainly is not for the rest of us, particularly those of us like me, not steeped in economic theory. Go with the flow, but keep in mind some of these retracement levels and the need to protect profits.

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