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Jeff Bailey : 9/29/2007 1:19:47 AM

Rockies Win Streak Ends At 11 and with just 2 games left they're still 2-games out. Now the Rockies need to win out, but they also need help from the Brewers.

Should the Rockies miss the playoffs, there will surely be thoughts about the ONE, or TWO GAMES they should have won, which could have made the difference.

Trade Blotter of CLOSED Trades at this Link

As I look back, the "ONE that got away" was certainly the Bidu.com put (BDQ-UJ).

However! One thing I've alway tried to teach and preach is ACCOUNT MANAGEMENT. You can have $800.00 of your $10,000 trading account "go poof" and still end up with a gain for a month, or a "small loss."

Yes, a different picture if we had HELD the GOP-IX ($20.10/contract at expiration), or the GOP-IW ($30.00 at expiration), but when you're "behind" and see some damage down the road (BDQ-UJ) you have to make decisions to try and assure profitability.

It's like the "sacrifice" fly in order to score the runner from third to either take the one-run lead, or get even in the game in order to push it to extra innings. The player that hit the sacrifice fly gets the hi-five from the dugout, as does the player that scored. Each did their job in order for the team to have a shot at winning.

What you DO NOT want to do is have a $1,000 loss for a $10,000 trading account ($2,000 for $20,000) and start swinging for the fence.

Believe me! Having managed individual accounts for a living, that's what traders and investors that then let me manage their money did to take their $100,000 account to $50,000 in a year do.

Buy, buy, buy weakness and get stop loss, loss, loss. Or sell, sell, sell strength and get stop loss, loss, loss.

Then they get ONE trade that looks like "I got it right!" and they start to claw their way back, but they don't manage the trade as it relates to their account. Suddenly, the trade starts to move back against them.

The next thing you know, a $500 gain becomes a $100 gain, then a "no gain" and sometimes a LOSS! All for the sake of "squeezing blood from the turnip, that might have helped the account."

When you get UP (profitable) on your opponent, THEN swing for the fence from time to time.

That's what we're doing with the GoldCorp (GG) call now.

The GG-AE "helped" our account this MONTH. When we SOLD, we realized a GAIN!

With the Current OPEN MM Profile GG-AZ, we've still got exposure to an equivalent 100 shares, and as you can see, these buggers can move (UP and DOWN) in quick fashion.

Do you want 9 sluggers on your baseball team, that have averages of 0.196, but lead the league in home runs?

Or do you want 2 sluggers that can rack up the dingers, with runners on base, where 6 players average 0.290 or better during the season?

The 9th player? In the National League, that's your pitcher. Maybe your "ace." What do you think about the "safety" play and JNJ? Bugger didn't budge during the decline. Currently the JNJ-JL are $5.80. It would have done its job. I pulled JNJ for middle-reliever CME and the CNM-JX. Wise "pitching change?" You make the decision and live with it. Hey, Clint Hurdle has made some very BAD pitching changes during the season. New guy come in and serves up a 3-run dinger. Hey, some work out, some don't, but that's what analysis is about. JNJ probably wasn't, isn't going to set an account on fire. It's not going to blow it up either.

Managing an account isn't throwing darts and hoping they stick.

In my trade blotter, you see the "Risk Managed $10K Full Position." While the Q3 total of $3,570.44 looks less than the 1,000 share per trade result of $13,001.63, we've had weeks, or MONTHS where that 1,000 share column is a BIG RED, while the RISK MANAGED would have shown a GAIN!

In September, most of my profiles were OPTION specific, and since I'm trying to run the MM Profiles based on a $10,000 account, there aren't a lot of "stock specific" profiles.

CDE was an initial 1/2 position ($10,000 * 0.5 = $5,000.00) that we traded there. The "miners" were just starting to find a bid and as you may have seen some thought "it has gotten away!"

What tends to happen when the "larger priced stocks" have moved 10% to 20% in a short amount of time, is the smaller stocks start to find a bid from the retail crowd. You can play it, but where you want to stick is with the more institutional names. Institutions tend to BUILD positions over time. Yes, they'll gobble them up 10% to 20%, but that's usually not what they're looking for over the course of 2, or 3 quarters. Even years.

While I try and point out "how/what institutions are doing," YOU and I are NOT institutions. Here in the MM, some of us that trade for a living need CASH FLOW from the account to pay the bills.

For some, shorting strength or trying to buy weakness is a "game," and analagous to gambling. That's OK if it is just funny money, but for most of us (I hope) that's not what we're here for.

I want to WIN on a CONSISTENT basis.

I wouldn't mind getting rich overnight, but other than a run like BIDU has had, getting rich overnight, or in a week, or in a month isn't something you find too often.

The YM trades ... I don't get the time to trade the YM in the MM like I want to. However, what I hope day and SWING traders will gather during a trade is the target, the stop, and the adjustment of the stop as it relates to LEVELS being traded. There's NO WAY I'm going suggest a $10,000 account trader swing trade a YM/ES/ER as there's too much leverage and too much that can "go wrong" overnight.

When you LOOK at the INDU/SPX/RUT with MONTHLY retracement, I'd think the day trader's DAILY Pivot Levels would be seen as equal. That is, for a SWING trader, a MONTHLY, or WEEKLY Pivot retracement, is equivalent to a day trader's DAILY Pivot Retracement.

By day trading an index, it allows for quick observations of "why" the index is doing this/that as either the dollar, bond yield, oil, VIX, whatever, is influencing, or not influencing trade.

If you don't do some of this on a DAILY basis, then a week or two, or a month or two goes buy before you see the 5DyNet%, 20DyNet%, even the YrNet% changes have lightbulbs going on.

Remember when the RUT was usually the FIRST to set a new high? Then it wasn't.

On a DAILY Basis, what index tends to be the one that sets the new daily low when things are red, even modestly red?

One of the TOUGHEST questions I continue to get is ... are we headed for a recession?

Folks, I say YES! At some point, we'll have a recession. But we didn't have one this quarter (3-months).

MM Profiles $3,570.44 (excluding commissions) on a $10,000 account. Does it MATTER if we're headed for, or in a recession?

Some chatter I've heard ... Stocks are RISING because China is going to buy up U.S. companies and dominate the world!

Yep, that Blackstone announcement really gets the ball rolling there. Link

Chew on that one! China "ownes" the U.S. Treasury debt. What's going to happen when they sell it all? Buy up all the premium U.S.-based technology companies and banks of course!

Jeff Bailey : 9/28/2007 11:14:47 PM

Closing U.S. Market Watch found at this Link

OI Technical Staff : 9/28/2007 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.

Keene Little : 9/28/2007 7:12:50 PM

Monday's pivot tables: Link and Link

Jeff Bailey : 9/28/2007 6:18:28 PM

Seeing Keene's take on "no USO Link available to short."

My take ... no overhead supply, entire thing is short and probably 98.8% of shorts are at a loss.

Reason for it to go down?

Maybe futures are HUGE long? If not, be disciplined!

Love all the talk regarding commodity and futures trading though ... CME, ICE, NMX

It was back in early, then mid-March in the MM and we'd been shorting BIDU with success. Found out there weren't any shares to short in BIDU and we really played some defense with tightening of stops.

What does the short interest in USO tell a technician?

Crazy to be short on technical basis. MUST be some BIG BETS on recession.

Jeff Bailey : 9/28/2007 6:01:13 PM

Last 3 MONTHLY Pivot Matrix found at this Link

Quarterly are prior three months.

If your account grew by MORE than 1.6% the last three months, you probably beat MOST fund managers! MOST fund managers hands are tied as they run "buy side" portfolios (no/very little shorting).

If your account grew by MORE than 3.6% this MONTH, boo-ya to ya!

Jeff Bailey : 9/28/2007 5:30:31 PM

Closing Internals found at this Link

Jeff Bailey : 9/28/2007 5:17:40 PM

Still looking for the dead cat bounce top and trying to short it?

If we're headed for a "recession," then market participants are going to SELL FIRST, what they STARTED SELLING, or GETTING OUT OF, several WEEKS ago.

When you go back to the food buffet for seconds, are you going to select some more steak that had you rolling your eyes to the back of your head, or the macaroni and cheese that you spit out in the napkin after the first bite?

Heck, if they haven't gotten out of NDX/QQQQ and let it trade a new MULTI-YEAR high this week, then what about NEXT WEEK, or NEXT MONTH?

Aha! We get NEW weekly and monthly pivots at today's close.

One DAY, one WEEK and one MONTH at a time.

If your "closer" is blowing save after save opportunity, then pull him and switch things up!

What did the INDU/SPX/OEX/NDX/SMH/BIX/RUT/TNX/DXY/VIX/TRIN do THIS WEEK? (or last week and the week before)

"All you/I have to do is" LOOK for REPEAT of recent history, or DIVERGENCE!

IF the NDX/QQQQ were to fall 3% next week, but the RUT gain 1%, is the weakness in the NDX/QQQQ "recession?"

Nope ... likely a good "buy the pullback" opportunity for another jam-session back higher, with OVERHEAD supply non-esistant.

Keene Little : 9/28/2007 4:26:20 PM

Is it just a coincidence that NQ closed right at 2114.50, right on today's downtrend line? Needed to make sure both sides are kept guessing. It should make for a quick move on Monday morning one way or the other.

Jeff Bailey : 9/28/2007 4:16:56 PM

YM 13,994 ... "paint brush" ...

Jane Fox : 9/28/2007 4:09:55 PM

Economic Reports for Monday include:

10:00a.m. Sep ISM Manufacturing Business Index. Previous: 52.9.

Jeff Bailey : 9/28/2007 4:25:33 PM

DAILY / WEEKLY / MONTHLY Index Pivot Matrix at this Link

Per Keene's 02;53:41 and my 03:35:15

In the DAILY, I've highlighted in "YELLOW" how things traded TODAY (for 9/28/07).

What the PIVOT Levels do is simply place "things" in a RANGE relative to how they traded (high/low/close) the prior DAY, WEEK, MONTH.

Remember a couple of WEEK's ago, when the YM (DIA/INDU) did something it hadn't done for several week? Trade a DAILY R2 two times in the SAME week? That was SEVERAL hundred points below where we are.

For TRIN ... Remember that it resets itself every day. What it is trying to measure in the amount of BUY volume vs. SELL volume for NYSE-listed stocks. It is not perpetual. Each day is a new day. VIX on the other hand is rather perpetual. A trader goes home with a CALL, or PUT position, he/she has it the next day, week, even month.

The REASON we want TRIN on a WEEKLY is "just in case" the BUYING drives TRIN below a DAILY S2. What's the NEXT LEVEL in context to the PRIOR WEEK? Same for a "just in case" the SELLING drives TRIN above a DAILY R2.

OK! Now look at the WEEKLY and the MONTHLY.

In the WEEKLY, what's the STRONGEST? NDX/QQQQ as they at least saw a trade at WEEKLY R1! Keep shorting and hope you get "the high?" No, that's the retail trader's game. Keep losing money, hoping you eventually get a decline.

So why would I even THINK about shorting the YM/DIA/INDU today, and not the ER/IWM/RUT?

Because I don't trade the ER. However, I do believe that WEAKNESS tends to lead WEAKNESS, or can "pull strength lower."

Look at the MONTHLY! NDX/QQQQ did NOT trade MONTHLY Pivot. Why? BUYERS evidently outnumbered SELLERS.

Keene Little : 9/28/2007 4:05:33 PM

Right after the cash market closed NQ spiked up above its downtrend line from this morning's high, at 2114.50, to 2116 and I'm sure nailed several stops up there. It dropped right back down below the line (2113.50 as I type). These are the games they're playing.

Jane Fox : 9/28/2007 4:02:47 PM

Here are the charts of S&P futures and the VIX. No mistaken these two trade in sync. Link

Keene Little : 9/28/2007 4:02:45 PM

Trying to discern today's move and its larger implication is at best just a guess. The move down today so far fits as just a corrective 3-wave pullback. Whether that develops into a larger decline on Monday can't be known. We could be developing a 1-2, 1-2 wave count to the downside today which would mean a mini flush on Monday. But the 3-wave pullback today could lead to an immediate rally on Monday although I think that's a lower-odds probability at this point (based on the breaking of uptrend lines and what that should mean for the larger EW pattern).

So I'm sticking with the price depictions I showed yesterday for SPX--I'm looking for a deeper pullback at a minimum to possible support at the uptrend line from August 16th, currently near 1504. If we've been in a large sideways consolidation since the Sept 19th high then we can expect a rally off support next week and into October to new all-time highs. That uptrend line will be critical. A break of it should usher in some strong selling as we start the next large decline. It's simply too early to guess which way we'll go. Link

Linda Piazza : 9/28/2007 3:54:12 PM

My appointment took longer than I anticipated. I return to see that the TRAN was not able to break to the upside and instead dropped toward but not through Keltner support that's now at 4813.65. It's essentially still chopping around. Just the kind of day to be anticipated today.

Jane Fox : 9/28/2007 3:38:22 PM

I would like to respond to Keene's post at 2:53. I watch the VIX very closely as you all know and used to watch the TRIN until I realized that you need to use the TRIN in very general terms unless it is extreme then you need to use it as a contrarian internal. I will use the TRIN in relation to where it has been during the day that is say new daily highs or lows but if its say making new daily highs and under 1 then it is not as bearish as if it were making new daily highs above 1. In any case I find the VIX much more useful.

If the VIX is bearish I will not be long no matter what any other internal is telling me. If the VIX is bullish I will not be short not matter what. I have that much faith in the VIX.

But once you add the AD volume to the VIX you have some dynamite indicators. IMHO.

Keene Little : 9/28/2007 3:37:34 PM

If you want to manage your short play a little more closely, use a downtrend line from this morning's high as a guide for your stop. For SPX that line is currently near 1529 (ES 1541.50). This might help you avoid some of the whipsaws that this market has enjoyed doing to traders (on both sides). But the price is that you'll give more back if stopped out.

If we've started a new leg down then that downtrend line should not be violated. But if the 3-wave move down today is just part of a larger correction (in which case you don't want to hang around short for more than quick moves) then price will very likely bounce right back above that downtrend line.

Jeff Bailey : 9/28/2007 3:35:13 PM

VIX.X is nothing more than an indicator that measures the relationship between call buyers/puts sellers (bullish option strategy) and call sellers/put buyers (bearish option strategy).

TRIN ... Each day, it is "reset" and 1.00 is a "waterline."

Where the PIVOT levels come in handy is the (what is the significance and what number does it attempt to predict selling or buying?)

So ... If we can put EVERYTHING (INDU/DIA/YM, SPX/SPY/ES, RUT/IWM/ER) with a RANGE (daily, weekly is about it for TRIN) then the TRIN "levels" can be significant.

Here, I'll show you in the DAILY Pivot Matrix.

However, also see you 11:00, 01:15 and 03:00 Internals where I've given you "Pivot Waterlines" or the DAILY and WEEKLY Pivots.

So far today, I'm showing TRIN's high/low has been 1.44 / 0.92

Jeff Bailey : 9/28/2007 3:22:44 PM

03:00 Internals found at this Link

Jeff Bailey : 9/28/2007 3:13:50 PM

YM short target alert! 13,955 ... YM 13,945 here.

Jane Fox : 9/28/2007 3:08:44 PM

Linda has been talking about the USDJPY currency pair no longer working as an internal. Today we have the DAX hovering at daily lows and the USDJPY hovering at daily lows, totally opposite to what I have seen in recent days so maybe she is on to something here.

Notice how the VIX and AD volume are in sync - bearish. Link

Jeff Bailey : 9/28/2007 3:08:29 PM

RUT.X 807.09 -0.85% ... at session low. "Has to give in" if YM is going to hit day trader's target. WEAKNESS needs to lead.

Jeff Bailey : 9/28/2007 3:07:28 PM

YM short lower stop alert! ... to 13,974.

YM 13,965

Keene Little : 9/28/2007 3:06:54 PM

My stop on my ES short has been lowered to 1540, two ticks above the last bounce. If it survives I'll leave it there and hold short over the weekend. If we get a drop into the close I'm going to take some money off the table at 1533 (two equal legs down at 1532.75).

Jeff Bailey : 9/28/2007 3:05:59 PM

I think what Kelly was asking about is in U.S. Market Watch (USO vs. cl07x)

Jeff Bailey : 9/28/2007 3:04:04 PM

03:00 Market Watch found at this Link

Jeff Bailey : 9/28/2007 2:59:04 PM

Bond market closes in just over 2-minutes. If they're selling bonds to ramp stocks higher to the close ....

Jeff Bailey : 9/28/2007 2:57:59 PM

YM short lower stop alert ... to break even 13,981.

YM 13,969 ...

Jeff Bailey : 9/28/2007 2:56:24 PM

RUT.X ... set to test session low.

Jeff Bailey : 9/28/2007 2:55:53 PM

YM short lower stop alert ... to 13,988.

YM 13,971

Keene Little : 9/28/2007 2:53:41 PM

I think Jeff Bailey posted something about the VIX and TRIN. When I worked on the floor of the NYSE a $2 broker told me about it. What is the significance and at what number does it attempt to predict selling or buying? For ex., is over $1 more volatile or less then $1? What is the relationship between the VIX and TRIN too?

I don't watch the VIX and TRIN intraday enough to be able to comment on this question. Jane or Jeff, perhaps you can jump in and take a stab at answering Gregory's question. Thanks.

Jeff Bailey : 9/28/2007 2:45:41 PM

YM 13,988 ... even VXO.X 17.82 +6.38% and sits on DAILY R2.

Jeff Bailey : 9/28/2007 2:42:00 PM

YM 13,983 ....

Jeff Bailey : 9/28/2007 2:40:16 PM

CNBC's Rick Santelli mentioning bond's intra-day reversal. He tied it with decline in dollar.

Jeff Bailey : 9/28/2007 2:37:49 PM

GM $37.113 +1.83% ... has been kind'a "wild" last 30-minutes. Coiling like a rattle snake that's been stepped on ...

Jeff Bailey : 9/28/2007 2:35:05 PM

VIX.X 17.74 +4.35% ... best levels of session here.

Jeff Bailey : 9/28/2007 2:34:07 PM

See how the RUT.X "bounced" back up to 61.8% dynamic (812.11) then slips back 809.39 here?

YM made session high 14,008, now back below DAILY Pivot and resting on 50% dynamic 13,973.

Keene Little : 9/28/2007 2:30:02 PM

I'm not managing my short play tightly since I'm planning (OK, hoping) to see another leg down that at least matches this morning's drop. I am bringing my stop down to 1542.25 to now pay for commissions and buy a latte. I'll lower it further after the first larger drop and bounce but for now my downside target is two equal legs down (SPX 1521.5, ES 1532.75) where I'd like to peel some off the table and possibly let the rest ride.

Jeff Bailey : 9/28/2007 2:28:28 PM

YM short ... ... place stop at 13,998, target 13,955.

Jeff Bailey : 9/28/2007 2:27:30 PM

YM Short Alert! 13,981 here. Stop 13,

Jeff Bailey : 9/28/2007 2:18:04 PM

VIX.X 17.66 +3.88% ... TRIN 1.13

Jeff Bailey : 9/28/2007 2:17:18 PM

Pretty good reversal taking place in Treasurys alert!

Keene Little : 9/28/2007 2:14:23 PM

With the drop to a lower low now in the bounce, lower your stop on a short play to just above the high of the bounce, so for ES I've lowered it to 1543.50, 3 ticks to a new high.

Jeff Bailey : 9/28/2007 2:05:56 PM

Email Question: ... Why isnt USO tracking oil? Is it the exchange rate? By the way, good call on CME and GOOG. I rode along with u - stay focused!
thnx Kelly

Reply ... Excellent question, and indeed, the USO does tend to "lag" the futures markets. I can't say that I know the reason why (cost to carry/store) or like you say, the exchange rate.

I haven't tracked Brent Crude in order to "know" if there might be some type of differential between NYMEX and Brent crude oil futures (exchange rate?) differential.

If somebody knows, it might be helpful!

Hmmmm .... I bet Linda would love to know if there was. What if the "difference" narrowed between USO and NYMEX/BRENT started to shift, and signaled a reversal in the dollar?

Keene Little : 9/28/2007 2:03:15 PM

I like a short here (ES 1542.50) with a stop at 1545.50.

Jane Fox : 9/28/2007 2:02:44 PM

NEW YORK (MarketWatch) -- Gold futures rallied to a 27-year high on Friday, receiving a boost from continued dollar weakness which saw the U.S. currency fall to another record low against the euro.

Gold for December delivery surged $11, or 1.5%, at $750.90 an ounce on the New York Mercantile Exchange. The contract earlier hit an intraday high of $752.50, a new 27-year high.

The record intraday all-time high for a benchmark gold futures contract on Nymex stands at $875 from Jan. 21, 1980.

"Gold is returning to its historical attribute as a monetary instrument," said Peter Spina, an analyst at GoldSeek.com. "With the U.S. dollar falling to new lows, capital is looking for a preservation of wealth asset. As foreign currencies become more expensive and suspect themselves, gold is quickly becoming an asset choice."

Keene Little : 9/28/2007 1:54:44 PM

We could get one more minor poke higher to finish the bounce (if it's not already finished).

Jeff Bailey : 9/28/2007 1:54:22 PM

Email Question (contd 01:15:25) ... Here's the "Stock A" from 9/12/07. Actually Barry, this is the relative strength chart of the INDU vs. RUT.X Link

Here it is now, same 5-point box Link

Here was "Stock B", which was the relative strength chart of the RUT Vs. the INDU Link

The month of May is "5" and June is "6" on the PnF charts.

Here's an updated chart, same 0.50 box size Link

Analysis: In early May (5) the relative strength of the RUT Vs. the INDU was 62.00. Currently it is 58.36.

Conclusion: The RUT is WEAKER today RELATIVE to the INDU than it was in early May.

On May 1, the INDU closed 13,136. Currently trading 13,900. So +5.8%.

On May 1, the RUT closed 816.25. Currently trading 811.33. So -0.60%.

Linda Piazza : 9/28/2007 1:41:22 PM

I have to be away for about an hour this afternoon.

Jane Fox : 9/28/2007 1:35:34 PM

Dateline WSJ - United Auto Workers local leaders from factories across the nation unanimously approved the union's historic new contract with General Motors Corp., the president of a UAW local said Friday.

"It had more than I thought we'd get," said Chris "Tiny" Sherwood, president of a UAW local in Lansing, Mich. "I think the membership will buy it."

Jeff Bailey : 9/28/2007 1:33:27 PM

01:15 Internals found at this Link

Linda Piazza : 9/28/2007 1:27:35 PM

The TRAN is at 4847.48, approaching that 4861-4863 zone that has been resistance since Wednesday. The Keltner chart suggests that resistance may be a bit higher, too, at 4866.08 on 15-minute closes. Basically, then, the TRAN still churns around between resistance and support. Watch because the TRAN's move was a first heads-up that other indices might attempt a bounce, but there's really nothing of particular significance happening yet.

Keene Little : 9/28/2007 1:22:35 PM

SPX is getting close to its 1530 area for the short play setup. The DOW is back up retesting its broken uptrend line from Sept 10th. So any failure here makes for a good short play.

Jeff Bailey : 9/28/2007 1:20:24 PM

01:15 Market Watch found at this Link

Linda Piazza : 9/28/2007 1:17:13 PM

As you know, I've been watching carefully for times when I think the USDJPY is less useful a predictor of what's happening than it has been in the past. Today is one of those times. It has been useful, in that it showed us right away this morning not to trust the initial early moves higher. It had dropped lower during the overnight session. Right now, it's showing us that there's an undertow that might keep indices from moving too high because the USDJPY is weak. But nothing in the shape of today's USDJPY chart correlates well with that seen on the usual indices where the shape is usually more congruent. So, look at the USDJPY today, but understand that it might be relegated to the status of any old breadth indicator rather than the strong predictor that it sometimes is . . . unless indices just crater this afternoon. Then I'll have to reassess and decide it was just leading by a bit more than it typically does.

Keene Little : 9/28/2007 1:08:22 PM

I was wondering if someone would mind discussing the chart for a specific symbol, APA. It looks extended to me and wondering if it is setting up for a short? Also, how serious is the divergence in relative strength vs price since May for the major averages? Thanks

APA has been in a nice up-channel since the end of August as shown on this 60-min chart: Link . So the easy answer to your question is to wait for a break down from the channel before shorting it. On the daily chart the rally from the August low is very steep and therefore looks vulnerable to a steep correction at a minimum (I think worse).

The new high is showing negative divergence as it stalls under the mid line of the up-channel. This is potentially bearish right here and I'd be tempted to stick my toe in the water and try shorting it now. Keep your stop relatively tight (Jeff's comment about the $93 bullish vertical count looks like a good possibility, especially if it does a small pullback first) and then wait to see if it starts to drop correctively or impulsively. A sharp drop below the uptrend line would obviously be a good sign if you're already short.

As to your question regarding relative strength I'm assuming you're talking about RSI (relative strengh is different). This weekly chart of SPX shows the negative divergence of RSI against the new price highs this year: Link

We saw the same thing from about November 2006 through the February 2007 high (which finally led to a big correction) so this is clearly not a market timing tool. It simply gives you a heads up that something is not right with the rally and that's what's had me looking for other signs of an impending top vs. looking at this as the start of a new bull market run into next year.

Linda Piazza : 9/28/2007 1:08:00 PM

I did want to post a thought from my Wrap last night for those Dow bulls who might not read my Wraps. The Dow has done a better job than the SPX at reestablishing that old pattern of posting a strong gain, trending sideways a few days, dipping to the 10-sma, springing up from that support and posting another big gain as it repeats the cycle. However, that effort has jammed prices up near a rising price channel that it's been establishing. It's also, of course, approaching the 7/17 intraday high of 14021.95 and the 7/19 closing high of 1400.41.

Last night, I wanted Dow bulls to begin considering whether they want to hold Dow calls over the weekend with top-of-the-channel tests sometimes prompting pullbacks toward the 10-sma or perhaps further. I don't have a crystal ball here and I don't know what's going to happen, but many feel that big caps have been benefiting from end-of-quarter buying, buying that might or might not end next week. Resistance is being tested. That previous bullish pattern, even if it's being reestablished, will soon call for another sideways movement and dip to the 10-sma. What if the Dow does pull back through that rising channel, just a normal move through the channel toward support? Can your position weather that, plus the weekend's leaking away of option premium?

You'll have to balance your decision against the risk you're taking if you close the position and take your profits home for the weekend: that's the risk that the Dow will burst up through that channel and July highs resistance zone and you won't be participating.

Jeff Bailey : 9/28/2007 1:15:25 PM

Apache Corp. (APA) $90.35 -0.20% ... PnF chart Link

Email Question ... I was wondering if someone would mind discussing the chart for a specific symbol, APA. It looks extended to me and wondering if it is setting up for a short? Also, how serious is the divergence in relative strength vs price since May for the major averages? Thanks

Jeff's Reply: ... APA gave a reversing higher double top buy signal at $79 and then began to violate downward trend at $80.

After a 3-box reversal, APA then gave another double top buy signal at $81. At $83, APA broke above MAJOR resistance and triggered the powerful spread triple top buy signal. Just recently, APA broke to a 52-week high at $90 and gave another double top buy signal and is nearings its bullish vertical count of $93.

I count four (4) buys and zero (0) sells.

Linda Piazza : 9/28/2007 12:57:04 PM

You know, there's just not much to say about the markets today and I'm leery about making too many posts that would-be bulls would interpret as a sign to jump into a new bullish play and would-be bears would interpret in favor of the plays they want to open. As per my Wrap last night, I saw some signs yesterday that some indices just weren't following through on bullish patterns they had tried to reestablish and that even yesterday's breakout star, the NDX, looked as if it might need a pullback. "Pullback" is different than "steep decline," however. My expectation for today was that we would see an attempt to hold indices steady as much as possible. So far, that's what we're getting.

Jeff Bailey : 9/28/2007 12:49:30 PM

Barry! Just seeing your question regarding Apache (APA) as possible short. No overhead supply. Bullish vertical count to $93.00 (might be achieved, exceeded, or never met).

Gosh there's got to be something that's more out of favor.

Jeff Bailey : 9/28/2007 12:44:28 PM

Fair value for the S&P 500 Today is $11.64.

Keene Little : 9/28/2007 12:41:20 PM

Approximate futures premium over cash (December futures):

YM -- +80
ES -- +11.25
NQ -- +21.75
ER -- +4.70

Jane Fox : 9/28/2007 12:38:23 PM

Buuuutttt although the AD volume is making new daily lows the AD ratio is not. Does this mean the selling is abating and that the bulls are lurking. Not enough info yet.

Keene Little : 9/28/2007 12:37:55 PM

Picking the index "in the middle" this morning, SPX would have two equal legs up now off this morning's low at 1530. This is right on top of the 62% retracement of this morning's drop so I like that level for a setup to get short. We may instead see more of a sideways consolidation to chew up time instead. But if we get the rally leg then look to short it.

Jane Fox : 9/28/2007 12:37:03 PM

Linda that new USDJPY low supports the VIX's new daily highs. This is not bullish folks.

Linda Piazza : 9/28/2007 12:32:44 PM

Hmmm. TRAN getting a little boost here. At 4839.14, it's still in its chop zone between the 15-minute 120-ema at 4826.12 and the 4861-4863 resistance zone, but maybe watch this if it rises far enough to test that resistance. Nothing big yet, but certainly worth watching.

Linda Piazza : 9/28/2007 12:30:12 PM

New low of the day on the USDJPY. It's at 114.71 with the new 114.68 low touching Keltner support. It's in danger of sliding toward 114.50. Equity bulls want to see it instead close 15-minute periods above 114.90 to make that slide lower less likely.

Keene Little : 9/28/2007 12:23:29 PM

What do you all think about a longer term short here on oil, wheat, and soybeans? Thanks

Barry, I answered that very generally in my last comment on commodities but let's take a look at the CRX.X, the Morgan Stanley Commodity index. I don't follow the soft commodities (wheat, corn, soybeans, coffee, etc.) so I can't comment on your specific question. But the commodity index could help answer your question (from my perspective at least).

The weekly chart shows a parabolic rise in the index so the first question is whether or not this is sustainable. Looks like another bubble waiting to be popped to me: Link The trend line along the highs since 2003 is not far above and would be the place I'd expect this index to hit a wall.

But if commodities are in a blow-off move higher, which I think they are, then poking above the upper trend line would be typical. The EW count of the move up from August also supports stair-stepping a little higher yet: Link

I also show where a 127%-138% projection off the previous decline provides an upside target in the 860 area. If we see this kind of stair-step higher into October that is accompanied by bearish divergences then I think you'll have yourself a very nice longer term short play setting up.

Jeff Bailey : 9/28/2007 12:42:50 PM

Choose One (from 9/13/07 MM) ... Today might be a good day to quickly update the "Choose One" position from the 09/13/07 MM, and may also be of help as it relates to "As good/bad as everthing is...".

Here are the actual "mystery" stocks (A and B) you had to choose from, but you had to choose a pair with a call/put of each. Link

The reason I made you "chose a pair" is to keep perma bears and perma bulls from really selecting their emotional bias, instead implementing a discipline of observation and rationalizing strength/weakness.

Since 09/13/07 I'd say the "story" hasn't really changed "credit crunch, recession, etc. etc."

The DIA itself is up 4.16% (excluding dividend) and the IWM itself is up 3.98% (excluding dividend).

It would have been, and has been my analysis, based on observation the last few months, that the DIA is STRONGER than the IWM.

I would have chosen the Stock A Call and the Stock B Put combination, as it is my belief, based on years of observation, that STRENGTH leads in an advance, and WEAKNESS "lags," or leads in a decline.

Hmmm .... but not that much is it?

Now look at the OPTION positions you had to chose from. And the impact that the "plunge" in volatility (VIX.X) may have had.

Heck! We've seen that in my MM Profiles with the DIA Dec $144 Call (DAZ-LN), DIA +$3.65 from profile on 8/07/07 (so some TIME has eroded), but the DECLINE in VOLATILITY has had the most impact. On 8/07/07 the VIX.X closed 21.56.

Linda Piazza : 9/28/2007 12:20:10 PM

USDJPY now at 114.74, having drifted down to test the descending Keltner support that's now at 114.68-114.80 on 15-minute closes. The previous low of the day was 114.69. Performance needs to improve or a test of 114.50 can't be ruled out.

Jane Fox : 9/28/2007 12:14:29 PM

VIX is hovering at daily highs and is even making small new daily highs. This should keep you from taking a long position.

Jane Fox : 9/28/2007 12:09:51 PM

What do you all think about a longer term short here on oil, wheat, and soybeans? Thanks

Barry, I do think that Oil should be falling but I live by the credo "Follow the Charts" and the charts are NOT telling me crude will fall. Then one has to realize that my credo holds true more for the indexes than a market that has so many geopolitical influences. Then you have to think if those outside influences were in affect today then we should be seeing evidence of them in the charts. So I get back to just, "Follow the charts."

To make a long story short the charts are telling us to be long crude.

As far as the markets for wheat and soybeans I'm not sure I even know the symbols for those markets. I will go look for them and report back.

Jeff Bailey : 9/28/2007 11:59:56 AM

Yes ... the small caps are generally more "domestic," or derive the bulk of their revenue/earnings from here at home.

Keene Little : 9/28/2007 11:58:42 AM

Tried to short USO at TD Ameritrade and no shares available to short. Is that telling?

Very interesting Barry. I guess there are just a few trying to short the oil market. The spike up in commodities in general, gold included, looks to be running out of steam (negative divergences showing up) and the drop could be steep.

Jeff Bailey : 9/28/2007 11:58:21 AM

What major index that you and I follow "used to be a leader of strength," that over the last three months has been a "laggared," and even a "leader of weakness?"

Linda Piazza : 9/28/2007 11:57:50 AM

The USDJPY's 15-minute 9-ema is still providing resistance, at least so far. That leaves open the possibility that this currency pair will slide down again toward 114.75-114.82. Equity bulls would prefer to see it close 15-minute periods above that 9-ema, at 114.97. The USDJPY is at 114.92 as I type.

Jeff Bailey : 9/28/2007 11:56:41 AM

I can see that being true, the "U.S. equity indexes reflecting the global economy," but NOT the "markets are wrong" part.

The markets are NEVER wrong.

Jeff Bailey : 9/28/2007 11:55:27 AM

Interesting comment ... "The market is wrong." Then followed by "The U.S. equity indexes are a reflection of the GLOBAL economy, not the U.S. economy."

Jeff Bailey : 9/28/2007 11:47:39 AM

Looks like market participants want to paint the $HUI.X to 400.00 today.

Keene Little : 9/28/2007 11:46:02 AM

The DOW would retest its broken uptrend line from Tuesday with a retest of yesterday's late-day high.

Keene Little : 9/28/2007 11:45:03 AM

The DOW is bouncing higher than NDX (SPX in between) which supports my contention that we're going to start seeing rotation out of techs and into the blue chips. Banks are pulling SPX down.

Jane Fox : 9/28/2007 11:43:21 AM

As well the AD line and volume are still both below 0. I would be using rallies to get short.

Jane Fox : 9/28/2007 11:42:46 AM

VIX to new daily highs should have the bulls concerned.

Linda Piazza : 9/28/2007 11:37:20 AM

So far, the TRAN has maintained support at its 15-minute 120-ema, at least on 15-minute closes. It's been maintaining that support since Wednesday morning, and it's had multiple tests of the support. So we have potential support on 15-minute closes at that 120-ema, now at 4825.44 and resistance near 4861-4863. The TRAN is at 4830.91 as I type, chopping around wtihin that congestion zone. If the TRAN does break this support, next support is at 4804.13 on 15-minute closes. A break below that, that isn't quickly reversed risks a retest of Tuesday's 4734.75 low.

Keene Little : 9/28/2007 11:31:45 AM

Looking at the 5-min chart of NDX, the bounce looks too small as compared to the sharp drop (in both time and price). This is subjective but what it tells me is that we may be in for a little longer and higher choppy bounce to correct that quick decline. So it's worth shorting this after a 3-wave bounce but recognize it may not be finished and you'll have to try it again a little higher.

Keene Little : 9/28/2007 11:27:58 AM

NQ 2115.50, ES 1541 and YM 13978 is where the bounce would have two equal legs up.

Keene Little : 9/28/2007 11:25:55 AM

We're now approaching two equal legs up in the bounce off this morning's low so watch for failure of the bounce soon to try a short.

Jeff Bailey : 9/28/2007 11:25:30 AM

Current OPEN MM Profiles that I've made and Watch List found at this Link

The IQQ-UT expires at today's close. Will move it into trade blotter at end of day.

Jeff Bailey : 9/28/2007 11:17:50 AM

11:00 Internals found at this Link

Linda Piazza : 9/28/2007 11:10:46 AM

USDJPY dropped to and beneath the overnight low. It's bounced back to retest that overnight low from the bottom. It's now at 114.96, with the 9-ema at 115.04, and that 9-ema now potential resistance on 15-minute closes. Bulls need to see it back above that resistance to make less likely the chance that it will decline again toward 114.85.

Jeff Bailey : 9/28/2007 11:03:41 AM

11:00 Market Watch found at this Link

Keene Little : 9/28/2007 10:58:57 AM

NDX 2085 is the next important support level as that's the trend line along previous highs where it found support on its pullback to 2080 on Wednesday: Link

In the meantime the bounce that we're getting now should be a good opportunity to get short for another leg down. Hopefully we'll get a clean 3-wave bounce to set up it up.

Jane Fox : 9/28/2007 10:43:21 AM

AD line just hit at low of -731 quite the reversal of fortunes and if you got that selloff good for you.

Keene Little : 9/28/2007 10:39:17 AM

A retest of a broken trend line is one of my favorite trade entries. You can see how well it worked this morning on that NDX retest: Link The stop can immediately be brought to breakeven and let the trade ride for free now.

Linda Piazza : 9/28/2007 10:39:12 AM

The MID has fallen heavily, too. This was my reasoning behind telling anyone in a short-term bullish MID trade early this morning, when the MID was up at 890-891, that it was time to begin taking some positions off the table, locking in gains. At 885.41, it's now at or slightly below potential support--Keltner and rising trendline--but attempting to bounce back above it. Not sure whether it will be succesful or not, but the MID may now begin finding resistance at its 9-ema on this chart, which is now at 887.75. Bulls want to see it break above that potential resistance again.

Keene Little : 9/28/2007 10:36:00 AM

Correction to my last post, a break below DOW 13868 would confirm the break of its uptrend line and we now have that confirmation. Any retest of the broken uptrend line (may not get it) would be an automatic short play.

Keene Little : 9/28/2007 10:30:54 AM

SPX is breaking down. The DOW has also been wedging itself into a tight little corner this week. A break of its uptrend line from Sept 10th, by the wave count I have on it, would say the rally off the August 16th low is complete and we'll now start the next major decline. A break below 13855 is needed to confirm. Link

Jeff Bailey : 9/28/2007 10:29:53 AM

Did just get a sell program premium at YM 13,970

Jeff Bailey : 9/28/2007 10:29:07 AM

Exxon/Mobil (XOM) $93.27 +0.32% ... after a kiss of its prior 52-week high from 7/23/07.

Linda Piazza : 9/28/2007 10:28:26 AM

The TRAN had another try at the 4861-4863 zone this morning, a zone that it's now tested three times since Wednesday morning. It's falling back heavily from that test. Bulls in the SPX, OEX and Dow don't want to see it close a 15-minute period below Keltner support now at 4804.62 because that would represent a breakdown situation and might prompt a retest of Tuesday's low. It's at 4830.48 as I type, approaching 4824.94 support.

Jeff Bailey : 9/28/2007 10:26:53 AM

VIX 17.44

Jeff Bailey : 9/28/2007 10:26:42 AM

YM Long Stopped Alert! ... 13,970

Jeff Bailey : 9/28/2007 10:25:22 AM

YM 13,978

Jeff Bailey : 9/28/2007 10:25:08 AM

VIX.X 17.34 ... need call buyers/put sellers here.

Linda Piazza : 9/28/2007 10:23:40 AM

USDJPY at 115.10. There's light support in this zone, but it's still vulnerable to the overnight low at 114.99 and maybe even to sliding-lower Keltner support from 114.93-114.98. Equity bulls don't want to see it drop much lower than that.

Keene Little : 9/28/2007 10:19:19 AM

SPX has now dropped to its uptrend line from Tuesday. This is the bottom of its ascending wedge pattern that I'm watching (the one with the 1540 upside target) because a break of this trend line would tell me that the rally is finished. SPX 1529 needs to hold.

Linda Piazza : 9/28/2007 10:13:09 AM

The MID is now falling back from Keltner resistance. Here's the chart: Link This is why I love Keltner channels so much. They give upside (or downside targets) but also show you where support or resistance is likely to lie. Notice that although the MID has dropped back inside the channel and was finding resistance at the upper channel line (long candle shadows show that although prices pierced it they couldn't stay above it), the MID so far maintains 15-minute closes at the 9-ema, the thin red line. As long as it's doing that, momentum might still send it up to retest resistance again.

Jeff Bailey : 9/28/2007 10:08:23 AM

10:05 Market Watch found at this Link

Jane Fox : 9/28/2007 10:03:07 AM

WASHINGTON (MarketWatch) - Spending on nonresidential construction projects jumped 2.3% in August, offsetting the 18th consecutive decline in spending on housing, the Commerce Department said Friday.

Total seasonally adjusted outlays on construction projects rose 0.2% in August, stronger than the 0.2% decline expected by economists.

Construction spending fell a revised 0.5% in July.

Total outlays are down 1.7% compared with a year ago, due to the collapse of home building.

Jane Fox : 9/28/2007 10:01:09 AM

AD line got to a whopping +534 (tongue in check here) but has retreated back to +388. There is not a lot to go on yet.

Linda Piazza : 9/28/2007 9:59:17 AM

USDJPY can't even maintain values in the bullish upper half of its Keltner channels on the 15-minute chart. It's at 115.16 as I type, having jumped up to test mid-channel 120-ema S/R and fallen back from that. As long as it's in the lower half of these channels, it's vulnerable to a retest of the overnight low at 114.99.

Jane Fox : 9/28/2007 9:57:15 AM

Well that was nice little burst of buying but I see the DAX is now to new daily lows (based on a 9:30 open) and that USDJPY is not far behind. Did I say I thought today would be difficult to trade?

Linda Piazza : 9/28/2007 9:56:21 AM

MID down to 890.25, showing what I meant about these Keltner targets sometimes being resistance on 15-minute closes. I'm always skeptical of a breakout above Keltner channels that occurs in the first 15-minutes of trading or in the last 15-minutes. However, this first 15-minute period is far from ended and it may be that the MID breaks out yet. Still, I'd be protective of any short-term profits here, as I said earlier.

I did not call a MID play, if you're wondering. I was using the MID yesterday as a sort of indicator of bullishness, because the MID and the RUT tend to react more in concert with the USDJPY than some other indices. They're momentum indices, a bit, too, so show us where the momentum might be. However, I know from past experience that even though I was using the MID that way, some subscribers might have leaped on a MID play anyway, and I'm just pinpointing what I see this morning. I'm also pinpointing it because I'm still using the MID the way I did yesterday. And now I'm watching it to see if the early momentum is going to wane. My impression last night was that big money would just try to hold indices where they are, but that volume patterns (low for recent periods) hinted that there might not be a lot of enthusiasm behind the gains and they might be related to window dressing.

Jeff Bailey : 9/28/2007 9:55:42 AM

VIX.X ... 10-minute interval chart at this Link

Keene Little : 9/28/2007 9:54:03 AM

I've still got an upside target for SPX at 1540 so a general market rally could also rally the techs further but right now NDX is back up for a potential retest of its broken uptrend line from Tuesday: Link

Linda Piazza : 9/28/2007 9:52:00 AM

The Fed has announced a repo of $4.750 billion, leaving an $0.250 billion net drain for the day so far.

Jane Fox : 9/28/2007 9:55:20 AM

Here is crude and the other reason Gold is so strong. I think the price of crude is affecting Gold more than the US$ lately. Link

Jane Fox : 9/28/2007 9:50:21 AM

And here is why Gold is so strong. Well at least one of the reasons, the other is strong Crude. Link

Linda Piazza : 9/28/2007 9:50:19 AM

The MID has hit yesterday's 889.60-ish Keltner target and then some. That target moved up to 890.16 this morning, but the MID has so far exceeded that, and is at 891.10 as I type, showing that momentum in these midcaps is strong this morning. If you had been in a short-term MID options play, now is the time to begin taking some off the table, however, locking in some of your gains. While momentum might continue to be strong, these targets often also serve as resistance on 15-minute closes.

Jeff Bailey : 9/28/2007 9:49:55 AM

YM ... 10-minute interval chart at this Link ... will follow with a VIX.X, but I think the "destiny" trade setup is in play.

Jane Fox : 9/28/2007 9:49:20 AM

Oh my goodness look at Gold. I was looking for a retracement back to about $700 before I went long but I'm afraid that will not happen. Link

Jeff Bailey : 9/28/2007 9:43:45 AM

YM Long Alert! here at 13,994. Stop goes 13,970. Target 14,080.

Jane Fox : 9/28/2007 9:43:32 AM

I see the DAX and USDJPY spiking.

Jane Fox : 9/28/2007 9:43:00 AM

Well that was short lived. Going to be another difficult day to trade I'm afraid.

Jane Fox : 9/28/2007 9:39:10 AM

Bulls are starting to wake up here. AD line is now +227, VIX to new daily lows, AD volume ratio to new daily highs and both the DAX and USDJPY are to new daily highs as well.

Linda Piazza : 9/28/2007 9:38:36 AM

USDJPY has slipped further. Although it's climbing in the last few minutes, it's now at 115.17 and has been finding resistance at it's 9-ema on that chart, with that now just above the current level. It needs to climb above that, but in particular, above the 120-ema, now at 115.26, on 15-minute closes.

Jane Fox : 9/28/2007 9:33:30 AM

Not surprisingly the AD line is neutral at -22.

Keene Little : 9/28/2007 9:28:11 AM

Techs (NQ) in particular had a negative overnight session but then from the 6:00 AM low they got pushed upward to the flat line (easy to do in the low volume premarket). But any premarket manipulation might not hold after the cash market opens.

Jane Fox : 9/28/2007 9:27:25 AM

Needless to say the NAZ futures broke through its September 19th highs days ago and has gone to make new yearly highs. Seems the SPX is the laggard here. Link

Jane Fox : 9/28/2007 9:25:35 AM

The DOW has already broken its September 19th swing high and seems bound and determined to tag its yearly highs before it takes a breather. Link

Jane Fox : 9/28/2007 9:23:15 AM

Here is a daily chart of the SPX and a classic example of resistance turned to support. I fully expect the September 19th swing high at 1540 to break but when I look at the MACD it makes me think the retracement off that swing high should have been a little deeper to build up the momentum for a nice clean break. We may just get a tag of that swing high and another retracement that could take us a deeper. Link

Jane Fox : 9/28/2007 9:19:36 AM

With all the news out at 8:30 one would think the overnight session would have been a tad more volatile although if you look closely the NDX futures (NQ) did retrace all of the gains it made yesterday. Link

Jane Fox : 9/28/2007 9:12:13 AM

Dateline WSJ - WASHINGTON -- The income of Americans grew less than expected during August, but their spending surged and a key gauge of inflation receded.

A price index for personal consumption expenditures fell 0.1% in August compared to the prior month. The index increased by 0.1% in July. The PCE price index excluding food and energy, or core PCE, rose 0.1% a sixth straight month.

Compared with a year earlier, the PCE price index climbed 1.8% in August. The year-over-year climb in July was 2.1%. The PCE price index excluding food and energy, year over year, rose 1.8% in August -- the lowest rate since 1.8% in February 2004. It rose 1.9% in July this year.

The Federal Reserve watches the year-over-year PCE price index excluding food and energy closely for signs of problematic inflation. The central bank's preferred range for this core gauge is considered to be 1.0% to 2.0%.

Personal income increased at a seasonally adjusted rate of 0.3% compared to the month before, the Commerce Department said Friday. The increase, while a bit disappointing, came despite an earlier, weak report on U.S. employment for the month that had non-farm payrolls down by 4,000 jobs. Personal income increased 0.5% in July, which was unrevised.

Jane Fox : 9/28/2007 9:09:29 AM

ANNANDALE, Va. (MarketWatch) -- Little noticed in the wake of the Federal Reserve's rate cuts one week ago is how much steeper the yield curve has become.

That usually would be taken to mean that the risk of a recession has lessened. I think it is significant that it hasn't received more attention.

The yield curve, of course, refers to the difference between shorter-term and longer-term interest rates. Normally, shorter-term rates are lower. Now and then, however, the situation becomes reversed; on these relatively rare occasions, the yield curve is said to be "inverted."

An inverted yield curve is one of the leading economic indicators of an imminent recession. How likely? One answer is provided by a paper written a decade ago by Arturo Estrella, an economist at the Federal Reserve Bank of New York, and Frederic Mishkin, a Columbia University professor who joined the board of the Federal Reserve last year. They constructed an econometric model that, for various levels of the yield curve, calculates the probability of a recession occurring within 12 months.

According to their model, the probabilities of a recession grew to between 30% and 40% during 2006. According to that same model, those odds now stand at less than 10%.

Jane Fox : 9/28/2007 9:07:26 AM

LONDON (MarketWatch) -- Former Federal Reserve Chairman Alan Greenspan said Friday that the chances of a U.S. recession have increased as the housing market slump has hit consumer spending power, though he added the odds "are still less than 50-50."

His comments followed an increasingly bearish assessment of the global economy by Goldman Sachs, whose chief economist Jim O'Neill now puts the chances of a Japanese recession at nearly two-in-three.

Speaking on the BBC's Today program, Greenspan accepted his outlook "is less optimistic than one would like."

"I think the probabilities have risen, but I'm scarcely at a point where I'm forecasting that we're about to experience significant recessions either in the U.S. or Britain," Greenspan said.

Jane Fox : 9/28/2007 9:06:25 AM

WASHINGTON (MarketWatch) -- Boosted by good deals on the auto lots and steady prices for consumer goods, U.S. real consumer spending increased 0.6% in August, the fastest growth in two years, the Commerce Department reported Friday.

Inflation-adjusted spending on durable goods rose 2.8%, the biggest increase in two years. Read the full government report.

Automakers went all out in August to move cars and trucks off the lots. Earlier in the month, the government reported that motor vehicle sales had increased 2.8% in August.

Consumer prices fell 0.1% on the month, the government said. Prices for durable goods fell 0.4%, while prices of nondurable goods fell 0.5%. Prices for services rose 0.2%.

Core consumer price inflation, which excludes food and energy prices, rose 0.1% in August as expected, bringing core inflation over the past year down to 1.8%, the lowest since early 2004, and within the Federal Reserve's comfort zone of 1% to 2%.

Linda Piazza : 9/28/2007 8:47:20 AM

As I warned in my Wrap last night, the action in the USDJPY yesterday wasn't an all-out confirmation of equity gains. After breaking out of a bull flag, it hit Keltner resistance I had pinpointed and turned back. I was concerned because, by the close, the USDJPY had dropped back inside that bull flag formation that it had topped earlier in the day. Overnight--and I do consider overnight action important in this currency pair because Japan's markets are open then--the USDJPY slipped lower. About 4:30-5:00 this morning, it rose into another retest of that flag's resistance and it failed to break above it again. The USDJPY is at 115.28 as I type.

Linda Piazza : 9/28/2007 8:41:27 AM

The Fed has $5.000 billion in repos maturing today, a far cry from yesterday's $49.000 billion. I'll let you know what's been added, if anything, at the regular 9:40 add period.

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