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Keene Little : 8/29/2007 11:32:34 PM

Thursday's pivot tables: Link and Link

SPX continues to be a good representative index and as I had said near the close on Wednesday, it's a good setup to get short again. This 30-min chart shows the setup: Link A 5-wave decline this week followed by Wednesday's 3-wave bounce sets up another 5-wave decline.

The only way this won't happen is if this week's decline finished an odd flat correction. That would become more obvious if we see a little more rally followed by a consolidation and then another leg up (to create a 5-wave advance). Until that happens the upside risk here is for gap closure Thursday morning (SPX 1466.65, ES 1469.75) but it should start to sell off right away, maybe even with a gap down after the morning's economic reports.

The 60-min and daily charts show how this move fits in with the larger pattern: Link and Link

OI Technical Staff : 8/29/2007 9:59:59 PM

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Keene Little : 8/29/2007 4:06:36 PM

SPX closed right on its downtrend line from last Friday's high. It might do a quick pop up in the morning to close Tuesday's gap but if anything I'd expect a gap down from here. At any rate I like a short play against gap closure. Any higher than that and I'll step out of the way and see where it's going.

Jane Fox : 8/29/2007 4:04:21 PM

Tomorrow is full of economic reports:

8:30a.m. Initial Jobless Claims For Aug 25 Wk. Expected: +2K. Previous: -2K.

8:30a.m. 2Q GDP, Preliminary. Expected: +4%. Previous: +3.4%.

8:30a.m. 2Q Corporate Profits, Preliminary. Previous: +1.7%.

10:00a.m. July Help-Wanted Index. Previous: 26.

11:00a.m. Kansas City Fed Mfg Index. Previous: 10.

Jane Fox : 8/29/2007 4:02:57 PM

The NDX futures (NQ) is the only market to break its previous overnight high (cyan trendline). Link

Keene Little : 8/29/2007 4:00:30 PM

Still climbing into the close. What they hated yesterday they love today. Think maybe the senior traders came back in from the Hamptons to try and save their bonuses? A 2nd wave bounce, which this should be (or b-wave) will convince many that a bottom has been found and that we're headed for new highs. This bounce is undoubtedly pulling many bulls back in. Don't get sucked in. We're due another leg down and this is the setup for it.

Jane Fox : 8/29/2007 3:59:26 PM

Dateline WSJ - WASHINGTON -- The U.S. Federal Reserve is closely watching financial markets and is "prepared to act as needed" should market disruptions threaten the economy, Federal Reserve Chairman Ben Bernanke said in a letter to Sen. Charles Schumer (D., N.Y.) released Wednesday.

"I want to assure you that the Federal Reserve, in cooperation with other federal agencies, is closely monitoring developments in financial markets," Mr. Bernanke wrote in the letter, dated Aug. 27.

The Fed "has stated that it is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets," Mr. Bernanke wrote.

That was a repeat of the Fed's policy statement of Aug. 17 that accompanied its announcement of a half-percentage point cut in the discount rate, at which the Fed lends directly to banks, to 5.75%.

Economists widely expect the Fed to lower the federal funds rate, the rate at which banks lend to each other and the central bank's most powerful monetary-policy tool, when it meets next month. That target rate has stood at 5.25% for more than a year.

Mr. Bernanke told Mr. Schumer the Fed has already taken steps to boost liquidity. "In particular, our changes to our discount window program are designed to assure depositories of the availability of a backstop source of liquidity so that concerns about funding do not constrain them from extending credit and making markets," Mr. Bernanke wrote.

Jane Fox : 8/29/2007 3:58:38 PM

Well that was one nice little rally we have seen since about 1:30 this afternoon. I sort of expected this and alluded to it yesterday just before the close. Link

Keene Little : 8/29/2007 3:46:43 PM

ES also tapped its 62% retracement at 1465.25, on the nose.

Keene Little : 8/29/2007 3:44:28 PM

SPX is also approaching its downtrend line off the two highs on Friday and Monday, near 1463. It's now hitting its 62% retracement. It's a very good setup for a short play. Link

Linda Piazza : 8/29/2007 3:39:51 PM

What's happening overnight tonight? According to www.forexnews.com, Japan will release its July retail sales year-over-year rate. I don't know how important this will be, except that I do know that, for a while, the Japanese government thought that the Bank of Japan should not raise rates until consumer demand strengthened consistently.

Keene Little : 8/29/2007 3:40:48 PM

Gap fill from Tuesday is at ES 1469.75 so that's the upside risk here.

Keene Little : 8/29/2007 3:37:12 PM

SPX 1460 coming up. Watch to see if it stalls there and try a short play into tomorrow. Two equal legs up for ES is at 1463.25, which just got tagged.

Linda Piazza : 8/29/2007 3:35:00 PM

USD/yen continuing to make new highs for the day. It's moving back toward the 116-116.40 zone that caused it difficulty on Thursday-Monday. It's at 115.89 as I type. So far, it's still supporting the current equity move, but decide this afternoon if you want to hold longs overnight or take profits.

Tab Gilles : 8/29/2007 3:27:05 PM

What 2 sectors are enfuego now? Tech and China...here's an interesting stock that looks like it is ready to resume its climb up.

Global Sources (GSOL)Global Sources, Ltd., a business-to-business media company, provides information and integrated marketing services in the People's Republic of China. It engages in creating and hosting marketing Web sites that present suppliers' products and company information. Link Link Link

Linda Piazza : 8/29/2007 3:16:47 PM

SPX back at the 200-sma on daily chart.

Linda Piazza : 8/29/2007 3:16:18 PM

USD/yen just pulling back slightly from a new day's high, although it hasn't yet definitely cleared that resistance on a 30-minute close. Still, short-term bulls can at least take comfort from the new daily high and the holding of the 30-minute 9-ema's support on pullbacks. I wouldn't count on anything at all longer-term, however, and would advise guarding profits, as I did during yesterday's decline.

Linda Piazza : 8/29/2007 3:00:23 PM

That USD/yen resistance that I noted earlier is so far still holding. Here's a chart with my earlier annotations but with current values: Link

Linda Piazza : 8/29/2007 2:51:48 PM

Bond markets will close in about 10 minutes. That sometimes prompts a turn in the equity markets or an acceleration of the move underway. The second was what happened yesterday. Remain aware of such turns as you make your end-of-day decisions.

Linda Piazza : 8/29/2007 2:42:48 PM

And there's the SPX pushing past the neckline on its inverse or reverse H&S formation. Next resistance from 1453-1455.25 on 15-minute closes. I'm still watching the USD/yen, and it's at 115.58 as I type, testing the Keltner resistance on the 30-minute chart that's been holding it back on 30-minute closes, so it's not yet giving clear guidance as to the next short-term move, other than at pullbacks, it held its neckline support after confirming its own inverse H&S version earlier today.

Keene Little : 8/29/2007 2:37:37 PM

Looks like the 2nd leg up is on its way. Two equal legs up off yesterday's low is at SPX 1459.99, right where I had it projected on last night's 60-min chart ( Link ). After the impulsive move down from last week's high, this 3-wave bounce should be the setup for another leg down so use this bounce to get short around 1460 if the setup is looking good (bearish divergences on the short term charts).

Tab Gilles : 8/29/2007 2:34:33 PM

Several Charts to look at in the tech sector.

SMH Link

$GHA Link Link

$GSOYou can see the negative divergent top on this weekly chart Link

QQQQ Link Link

Jane Fox : 8/29/2007 2:11:32 PM

Well so far "The Story I am Sticking To" is playing out just about right. I figured we would have a retracement and that it would find support about at the August 6th lows. Now for the "Rest of The Story" to play out now the SPX needs to break the swing high made on August 8th. Seems like a tall order doesn't it? Link

Linda Piazza : 8/29/2007 2:10:06 PM

Another look to add to Jane's of the USD/yen: Link

Tab Gilles : 8/29/2007 2:09:06 PM

Weekly EIA Report Link

Keene Little : 8/29/2007 2:04:34 PM

NDX has now broken out of its down-channel

Linda Piazza : 8/29/2007 2:03:09 PM

Jane, that congruence doesn't look as if USD and euro currency moves against the yen have lost their relevance yet, does it? (See Jane's 1:55:09 post and her great charts.) However, I keep wondering what could change that intermarket relationship, trying not to rely to heavily on the currency moves to predict where equities could go. I'm not ready to give up watching currencies just yet, though!

Keene Little : 8/29/2007 1:59:01 PM

SPX could be breaking out now. The stronger index, NDX, hasn't done the same.

Jane Fox : 8/29/2007 1:57:59 PM

AD volume is now making new daily highs keeping the bears at bay but the VIX is not making new daily lows which should keep the bulls at bay so we remain "Stuck in the Middle."

Linda Piazza : 8/29/2007 1:56:40 PM

The SPX did not maintain the support of the 15-minute 9-ema, but it's so far done the next best thing (for those with short-term bullish hopes). It's maintained support on a Keltner channel line now at 1442.10, maintaining that support on 15-minute closes. It has not yet violated the right-shoulder level of the potential inverse H&S to any alarming degree. However, it needs to get back above that 9-ema (now at 1444.47) and stop descending or the potential for the inverse H&S to confirm may be undone. SPX at 1443.84 as I type.

Keene Little : 8/29/2007 1:56:03 PM

A push back above SPX 1445 would be an early signal that the pullback could be over. For now it's still stuck in its small down-channel from this morning's high.

Jane Fox : 8/29/2007 1:55:09 PM

Here is something of interest, a chart of the DAX and the USDJPY currency pair. Vedddyyy interesting. Link

Keene Little : 8/29/2007 1:54:53 PM

The bounces are still 3-wave moves and I'm not seeing much in the way of bullish divergences at the new lows in the pullback so I'm not enticed to get long yet but watching carefully.

Linda Piazza : 8/29/2007 1:53:56 PM

In response to Keene's post of 1:44:35, Tom Williams, author of MASTER THE MARKETS, wrote that no one in various studies had been able to determine exactly why trendlines worked. I think it's what Keene noted: herd mentality.

Keene Little : 8/29/2007 1:44:35 PM

Keene, I have another stupid question for you: I can understand what you are doing on the Monitor with wave counts, Fibs, trendlines, etc., but with millions of dollars moving in and out of the market at all times, HOW is the market attracted/repelled to/from these various levels? I know it doesn't happen perfectly all the time but it's still amazing to me how the market moves around the way it does. Regards, William

William, repeat after me--there is no stupid question except the one you're afraid to ask (wink). The answer to your question could be quite long but I'll use a short answer--herd mentality. It's of course more complicated than that but basically we collectively respond very similarly to the same signals. It's why you'll hear so much about being a contrarian. If it feels like the wrong play then it's probably the right one. When everyone is over on the same side of the boat (thinking the same way), the boat's going to tip over. When you're afraid of the trade you're about to make it's probably the right one. You get the idea. It's why so many people follow sentiment readings.

One of the reasons I like EW analysis is because the wave pattern is actually a study of human emotions which is very well reflected in the stock market. We have up and down cycles and those emotional swings (fear and greed being part of them) are reflected in our desire to buy and sell. So the market, with all its participants, swings back and forth following the same signals even if we don't always understand what we're reacting to.

A more simple explanation is that traders tend to watch the same support and resistance levels. Whether it's a trend line, price level, Fibonacci level or moving average, traders making the same trades is enough to move the market. And that is of course why it's so important to watch several of your favorite indicators so that you can have a heads up for where other traders might be influenced. The difficulty with too many indicators is that you get into analysis paralysis and never make a trading decision. You'll find your own groove in that respect.

Linda Piazza : 8/29/2007 1:40:25 PM

Reader Question: I keep hearing about time bomb butterflies, but I'm not sure what those are. Can you explain?

Response: I'd be glad to explain. I offered an explanation several days ago, but if this reader missed it, others probably did, too, so I'll update. I'm using this time of uncertainty to explore other options trades, managing a fewer number of condors than I usually trade (25 contracts on the SPX and 10 on the RUT). This is a good time to paper trade as I'm investigating other trades, but since this one is a "cheap time-bomb butterfly," I actually initiated it using real money.

As I explained last week, I heard about this speculative play on a CBOE webinar by Dan Sheridan. When volatility has exploded and the market moves big, traders might look at charts and decide that prices look likely to bounce up to fall down to some particular level. Especially if they're expecting a relief bounce, they might also be expecting a decrease in volatility. A decrease in volatility from a high level benefits (supposedly--something I'm testing with my cheap trade) butterflies, a type of combination play that consists of selling two options (either calls or puts) at a particular strike and then hedging by buying the wings (also either calls or puts, 1 contract each) an equal distance from the body. The maximum loss is the debit you pay for the butterfly. The maximum gain occurs if prices settle at the strike price of the sold options, as those are then worthless or nearly so, and you have one long option that's in the money.

Sometimes traders initiate these when they think markets are going to steady, so they'll set them up ATM. For example, with the OEX at 675 as I type, someone might sell two 675 calls, then hedge by buying a call above that strike and one below, but both equidistant from the 675 strike. How far out one goes with the wings depends on many factors. Since I don't trade butterflies, I don't pretend to a deep understanding of which distance would be best for which index or stock. I don't think this is necessary, but I do want to point out that the OEX example was not a trade suggestion. It's just an example.

The "cheap time-bomb butterfly" is a little different, though. This time, you're selling two OTM options, hoping that after a big move, prices will bounce around enough to hit the strike at which you sold the options, with volatility decreasing as that happens. I'll show you what I did with one of mine. With the SPY at 145.86 on 8/22, I actually initiated two of these butterflies, one to the upside and one to the downside. The downside one had a body at 143 (two sold September 143 puts) and wings at 145 (one 145 put bought) and 141 (one 141 put bought). I also used calls to initiate a butterfly with a body at 148. If the SPY were at 143 or 148 at option expiration, I would collect my maximum benefit from one of those butterflies. For example, if the SPX were at 143 at expiration, the 143 strike puts I sold would be worthless, or nearly so, as would the 141 one I bought, but the 145 one I bought would be worth $2.00 ($200 when multiplied by the 100 multiplier). I paid $53.86 for this, including commissions. Actually, the commissions were way too high for this single butterfly, but I wanted a small position and small cost to see what happens, so I could learn how these trades unfold through experience. If the cost had been higher, I would have paper traded it instead. I'm just learning, not trying to make money right now, and I don't want to put a lot of money at risk in the markets right now.

What has unfolded? As I mentioned Monday, the SPY did reach 148, my sold strike, the point at which I would obtain maximum profit if Monday had just happened to be option expiration. It wasn't though, and the combination play did not offer enough credit for me to do anything more than pay the commissions to exit. So, I'm still watching, waiting to see if either is hit at a time when I can collect something, but mostly just learning. That's all. I felt that the $116 or $117 I spent total was worth the tuition. My point in mentioning these was to indicate that I'm not trading much right now, instead using this time of uncertainty to learn and try out new trades, either actually initiating a cheap one with defined risk or else paper trading. I've pulled most of our money into cash, am trading fewer condors than I typically do, and am just hunkering down until I feel more certainty about what's happening with the markets.

Jane Fox : 8/29/2007 1:27:02 PM

HI Jane

What does jtHMA stand for? And how do you obtain these charts on q charts?


Dan I really do not know what jtHMA stands for but I do know it is a derivative of a moving average. I am not sure what the color change is based on but I do know it usually indicates a trend change.

I downloaded the indicator from the Tradestation forum and unfortunately QCharts does not have a jthMA but I do know of one subscriber who asked Meta Trader for it and is now available in MT.

Keene Little : 8/29/2007 1:20:52 PM

The pullback from this morning's high certianly has a bull-flag appearance to it so it continues to support the idea that we're going to get another leg up this afternoon. Draw a parallel down-channel for the pullback and buy the bottom of it or the break above it.

Keene Little : 8/29/2007 1:16:59 PM

A 38% retracement of today's rally for SPX is at 1443.28 so that's the first potential support level. A drop back down to the top of its parallel down-channel that it broke out of this morning would have SPX dropping to 1437. Before that is the 62% retracement at 1439.

Keene Little : 8/29/2007 1:04:56 PM

Ideally we'll see SPX pull back to 1439-1441 to set up the long play.

Keene Little : 8/29/2007 1:03:48 PM

The pullback from this morning's high is now large enough to consider it a correction of today's bounce. Keep an eye on the Fib retracement levels for today for support as an opportunity to try a long play for a 2nd leg up this afternoon.

Linda Piazza : 8/29/2007 12:52:18 PM

The SPX tested the 15-minute 9-ema, now at 1446.23, with this 15-minute candle having reached a low of 1446.45. Bulls would like to see this MA hold as support on 15-minute closes. If not, a deeper pullback to 1443 or perhaps even 1439-1440 might be in the works, according to that 15-minute Keltner chart. Resistance at 1449.50-1450.30 and then again in about four-point intervals. At least that's the way it's set up for now.

Linda Piazza : 8/29/2007 12:18:55 PM

The SPX's 15-minute 9-ema has now risen to 1445.88.

Linda Piazza : 8/29/2007 12:02:11 PM

On the SPX, it should be time for a pullback soon to the 15-minute 9-ema, now at about 1444.70, but still rising. As long as that support is maintained on 15-minute closes, short-term bulls should be somewhat reassured, if maybe still nervous. A pullback would fit into the formation of a right shoulder for a potential inverse (or reverse) head-and-shoulders formation, one that echoes the one that the USD/yen already formed and confirmed, but short-term bulls do want to see that 15-minute 9-ema support hold on 15-minute closes.

I'm still absolutely not trading this other than managing about 35 contracts of September condors, a smaller number than usual for me and a number I'm anxious to close out at any opportunity, and my little trial time-bomb butterflies because I'm still feeling some uncertainty about ultimate market direction. My purpose here is just to let you know what I see short-term for the benefit of those of you who are in trades, not to encourage a lot of trades. I'm thinking about sitting out the October option expiration cycle entirely unless I see a good setup. Condors are not good trades when volatility expands.

Keene Little : 8/29/2007 11:52:21 AM

SPX has made it to its target for two equal legs up (1448.68) and the wave pattern for the 2nd leg up looks complete. I would expect a pullback from here. NDX hasn't quite tagged its upside target (1933.59) but also looks ready for a pullback now.

Jane Fox : 8/29/2007 11:47:36 AM

I have replaced the TICK chart with the USDJPY currency pair and look at how it has the same shape as the AD volume HMMM. OK this is only one day but certainly something we need to watch. Link

Linda Piazza : 8/29/2007 11:45:31 AM

USD/yen now at 115.43, running into resistance shown on the 30-minute Keltner chart. As long as it maintains the 30-minute 9-ema on pullbacks, however, it's likely it will go on challenging that resistance. Link

Keene Little : 8/29/2007 11:18:48 AM

This SPX 30-min chart shows the Fib retracement levels for the recent decline and a Fib time projection based on that decline. It's a bit messy looking but it shows the expected larger 3-wave bounce into early tomorrow before another leg down: Link

If it's a 2nd wave correction (pink wave count), the typical price retracement is about 50% in 62% of the time it took for wave-1. That projects to near 1455 on Thursday morning. This is what I'm expecting but will be testing each leg of the move for evidence of a change.

Linda Piazza : 8/29/2007 11:14:13 AM

USD/yen now at 115.23, attempting a breakout above resistance on this 15-minute candle. It's pulled back from its 115.36 high during this same candle, however, with the outcome not settled yet. Still, this is positive overall, and perhaps at least corroborative of an equity attempt to bounce, if not yet proof that the bounce has lasting power.

Jane Fox : 8/29/2007 11:10:30 AM

Here is the overnight charts with a fib bracketed on yesterday's range. NDX futures have retraced 61.80%, Russell 2000 futures, almost 50%, DOW futures almost to 50% and SPX futures barely breaking above 38.20%. Link

Keene Little : 8/29/2007 11:08:37 AM

While I'm expecting a larger upward correction (in time if not price), it doesn't have to be. In other words the quick 3-wave bounce this morning, especially since it has retraced what would be considered a "normal" amount of the decline, could be all there will be to the correction. For that reason it's worth testing the short side on the next rollover. Therefore, watch those levels for two equal legs up for a potential short entry.

Keene Little : 8/29/2007 11:05:55 AM

NDX is the stronger index this morning and two equal legs up for that one is at 1933.59.

Jane Fox : 8/29/2007 11:05:52 AM

All markets are now making new daily highs. The VIX and AD volume combo is a very good set of predictors.

Keene Little : 8/29/2007 11:05:25 AM

SPX is breaking out the top of its parallel down-channel (1444.60). Two equal legs up from yesterday's low is at 1448.68 and that could lead to another pullback before proceeding higher again.

Jane Fox : 8/29/2007 11:00:00 AM

DOW to new daily highs now.

Linda Piazza : 8/29/2007 10:58:59 AM

USD/yen at 115.06, trying to break above that resistance--Keltner, historic, 10-sma--that stretches up to about 115.15 on 15-minute closes.

Jane Fox : 8/29/2007 10:56:24 AM

NDX breaks to a new daily high and the $RUT is testing its daily highs. I do think the DOW and SPX will follow suit.

Jane Fox : 8/29/2007 10:55:10 AM

Linda do you use the UDSJPY currency pair as an internal intraday, like I use the VIX?

Jane Fox : 8/29/2007 10:53:55 AM

Of course bulls need to keep their eye on the TRIN at 1.22. Not as easy to read as yesterday.

Jane Fox : 8/29/2007 10:51:35 AM

Ok now I see VIX to new daily lows and AD Volume to new daily highs that is enough evidence for me to say the bulls are winning this battle for control.

Jane Fox : 8/29/2007 10:49:35 AM

Interesting article on how we should be looking at Consumer Confidence. Link

Linda Piazza : 8/29/2007 10:38:15 AM

When I look at price charts alone, I see some signs that markets might try to bounce, at least. For example, I'm looking currently at the TRAN's 15-minute chart, since the TRAN tends to be one of those indices that can lead others. All day yesterday, the TRAN's 15-minute 9-ema was resistance on 15-minute closes. Today, except for a minor slip beneath it on the second 15-minute period, the closes have been on or slightly above that 9-ema. It's certainly not proof of any sticking power to a bounce attempt, especially since those 15-minute candles since the first one today have tiny bodies and some have relatively tall upper shadows, but it's at least a sign of a small improvement on a Keltner basis, at least, or an attempt to improve at any rate.

I am not, however, seeing the USD/yen able to break above what might be significant resistance, resistance I pointed out yesterday, too, so all I can see on balance is an attempt to bounce equities without a lot of assurance that a bounce will hold.

Jane Fox : 8/29/2007 10:34:52 AM

Yesterday was a get short and stay short day today I see nothing that would make me get into a trade.

Jane Fox : 8/29/2007 10:34:07 AM

AD volume is hovering at daily highs but not making new daily highs so another bullish sign but the TRIN is 1.16 - go figure.

Jane Fox : 8/29/2007 10:32:59 AM

Also the AD line is a very healthy +1523

Jane Fox : 8/29/2007 10:32:36 AM

I do see the VIX testing daily lows so I would not be short.

Jane Fox : 8/29/2007 10:32:14 AM

The VIX and S&P futures are totally out of sync today another anomaly that you do not see often. Link

Jane Fox : 8/29/2007 10:27:57 AM

Then each and every time the weekly turned from red to green you averaged into more exposure to the market.

Jane Fox : 8/29/2007 10:26:45 AM

I have shown this chart many times before but for any new subscribers I will show it again. This is the jtHMA on a monthly SPX chart. Looking back on it now wouldn't it have been wonderful to have gone long when it turned green back May 2003 or gone short when it turned red in October 2000. Link

Linda Piazza : 8/29/2007 10:24:51 AM

TNX now 45.10 (4.51%) and USD/yen now 114.94, rising again to test resistance from about 115.00-115.15.

Jane Fox : 8/29/2007 10:24:09 AM

Here are the jtHMA charts of the SPX. The jtHMA is an indicator that I like very much because it is so visual and very simple. I use it on the monthly, weekly, daily, 120 minute and 60 minute charts.

I will use the monthly and weekly charts for 401(k) market timing. As long as the monthly is green I will buy when the weekly is red and then turns back green. As you can see I will not average costing into anything quite yet. If the monthly turns red I will be in cash.

I use the weekly, daily, 120/60 minute for swing trades and to either buy the dip or sell a rally. If the weekly is green I will wait for the daily to turn red and then for the 120/60 minute to turn from red to green - this is a buying the dip. If the weekly is red I will wait for the daily to turn green then for the 120/60 to turn back red - this is a sell the rally. Link

Keene Little : 8/29/2007 10:21:08 AM

I'm still expecting another move higher today. It'll probably be a choppy day as it struggles to bounce. It's not my kind of day for trading but if anything I'd look to buy the dips today.

Linda Piazza : 8/29/2007 10:19:39 AM

TNX moves lower still, at 45.00 (4.5%) now for this ten-year yield. Since that can be perceived as a flight to safety, with bond yields moving opposite bond prices, that can be perceived as negative for equities. Mixed evidence today.

Linda Piazza : 8/29/2007 10:17:46 AM

USD/yen at 114.79. It's not really tanking, not even confirming the little potential double-top on the 15-minute chart, but it's also not pushing above that resistance I mentioned earlier. Still, given the overnight push higher and this relatively slight pullback, it's not exactly predicting a huge pullback on equities, either. At least not yet.

Jane Fox : 8/29/2007 10:15:12 AM

TRIN is now a bearish 1.20 - you don't see the TRIN move that much in a day very often.

Jane Fox : 8/29/2007 10:05:42 AM

The DOW's August 6th lows were broken yesterday and it is looking like that low may be resistance now. Link

Linda Piazza : 8/29/2007 10:04:24 AM

The USD/yen faces 10-sma resistance as well as significant intraday Keltner resistance, but has a potentially short-term bullish formation on its 15-minute chart. I'm going to post the chart, but first wanted to remind subscribers that my stance on the helpfulness of USD/yen movements in predicting equity movements is turning more cautious. So far, I still see it (and/or euro/yen movement) as working to predict or corroborate equity movements, but I can envision scenarios when the intermarket relationship changes. I'm not sure if they're at work yet. So far, the relationship holds, particularly with the RUT, but just remain open to the possibility that it will stop holding. Link

Jane Fox : 8/29/2007 10:03:10 AM

SPX's August 6th lows at 1427 are still in tack. This is about where you would expect the bulls to start pawing the ground and take a stand IF they are going to stage another attack at the highs made August 8th. Link

Linda Piazza : 8/29/2007 9:52:13 AM

I now see a repo in the amount of $5.250 billion through the Federal Reserve Bank of New York. It matures tomorrow. Since a $2 billion repo expires today, that's a net add of $3.250 billion for today, unless I've missed anything else expiring today.

Keene Little : 8/29/2007 9:41:41 AM

The downtrend line from Monday (top of the parallel down-channel we've been watching) is near SPX 1449 and that trend line will probably be the first line of resistance. Link

Linda Piazza : 8/29/2007 9:41:07 AM

USD/yen tests its 10-sma from the underside. USD/yen at 115.01 as I type.

Keene Little : 8/29/2007 9:38:47 AM

First resistance for SPX could be its downtrend line from July 19th near 1450. That's also a 38% retracement of its decline. Hopefully a pullback and then another leg higher today to give us a correction we can short.

Jane Fox : 8/29/2007 9:33:33 AM

TRIN is on the opposite side of 0 today at 0.58. This is a 180 from yesterday.

Jane Fox : 8/29/2007 9:32:26 AM

AD line is a healthy +818 but anything under +1000 these days does not mean much.

Jane Fox : 8/29/2007 9:28:47 AM

Crude is up and almost testing its PDH.

US$ is down and Gold is up so those two are in sync.

DAX is supporting the little rally we are seeing in the American Indexes. Link

Jane Fox : 8/29/2007 9:25:50 AM

The overnight session was a series of higher highs and lows which is telling me the trend is up. However, as you can see the rally has retraced only 38.20% of yesterday's range. That is just a reactionary bounce and nothing that should worry the bears. In any case keep your eye on the ON highs and lows for intraday resistance and support but especially the lows since they are the previous day lows as well. Link

Jane Fox : 8/29/2007 9:14:13 AM

CHICAGO (MarketWatch) -- The number of mortgage applications filed last week slipped 4.0% from the previous week, while the average interest rate on one-year adjustable-rate mortgages shot up, the Mortgage Bankers Association said Wednesday.

Also on a seasonally adjusted basis, applications for mortgages to purchase homes were down 4.0% on a week-to-week basis, according to the group's latest survey. And applications for loans to refinance existing mortgages were down 4.2% in the week ended Aug. 24.

The four-week moving average for all loans was up 0.3%.

Compared with the same week in 2006, the volume of applications rose an unadjusted 10.6%, the MBA's data showed.

Linda Piazza : 8/29/2007 8:43:10 AM

I see only $2.0 billion in repos expiring today. I'll check later today to see if the Fed replaces that through its temporary open market operations.

Linda Piazza : 8/29/2007 8:41:27 AM

I know it's hard sometimes to find time to read the daily newsletter, but Jim's Wrap last night is a must-read one. He details what some are calling a "Bin Laden" trade, a huge spread trade made in September options. Jim speculates on the various scenarios that could have led to that trade, including the need for a major institution to collect quick money in the order of billions of dollars. While that's a little less scary than the other scenario--something terrible planned for the September 11 anniversary--it's scary, too.

Keene Little : 8/29/2007 8:25:06 AM

Looks like we've got a nice start to the expected bounce today--equity futures look like they'll gap up. If you had been chasing your stop down at the end of the day with the downtrend line along the highs since 2:00 then the overnight bounce should have tagged your stop. From a short entry around ES 1478 and getting stopped out around 1442 that was 36-point trade ($1800/contract). Nicely done for anyone who followed along.

If you want to try a small long trade, we should get a bounce to correct the decline. I'll be watching the Fib retracement levels and the form of the bounce. Hopefully we'll get a nice 3-wave bounce back up to about a 50% retracement (SPX 1455.70, ES 1459.50). That would also be back up near the 30-min 100/130 moving averages. Because of the impulsive 5-wave decline from last Thursday's high we should get another leg down following the bounce and that should be another excellent short play (for Thursday or Friday).

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