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Keene Little : 10/16/2007 11:39:28 PM

Wednesday's pivot tables: Link and Link

At the end of the day I showed on a 30-min SPX chart a potential H&S topping pattern that has played out sinc Oct 5th: Link . The neckline is currently near 1545 and I've mentioned before that a rally above 1550 would negate the bearish wave pattern as well as the H&S pattern so watch to see how price plays out tomorrow. One of the bearish things on this chart is the break of uptrend lines and then failures at their retests.

This 60-min chart shows a potential bullish descending wedge for price action since last week's high: . Whether we see another bounce and low before it finishes, or rallies directly out of it is the question tonight. Conversely another bounce could lead to a hard drop through the bottom of the pattern or it could just drop from straight from here (don't rely on the overnight futures in this regard). I show only two possibilities in this regard.

I've got 1550 to the upside and 1525 (approximately) to the downside as the key levels. In between we could see some volatile chop and whipsaws so be careful.

Adding to the bearish feel about things here is what's happening to the RUT. It has broken down from its rising wedge after failing a retest of the July high: Link . Dropping back down to 800 before getting a bigger bounce but the entire rising wedge should be retraced relatively quickly, so back to 760 (or a little higher at its uptrend line from 2004).

OI Technical Staff : 10/16/2007 9:59:59 PM

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Keene Little : 10/16/2007 5:19:51 PM

Anyone care to comment on the possible diamond reversal pattern forming on the SPX and other indices [over the past few days]?

Unfortunately even after squinting real hard I can't see a diamond top on the SPX (which is a good representative index) mainly because the right side of it broke down too quickly and didn't give us enough "touches" on trend lines. However I can make out a H&S topping pattern as shown on this 30-min chart: Link

The interesting thing about the downside price objective out of this pattern (measure the head to the neckline and then project from the neckline break) is at 1516 which is close to the start of the rising wedge pattern from Sept 25th near 1510. So that's the bearish view of things here and requires SPX stay below 1550 if it bounces tomorrow.

The bullish view is that the pullback from the Oct 11th high has formed a bullish descending wedge. This pattern requires SPX to stay above the 1530 area (not precise) on any dip from here and then start a strong rally. So we're narrowing the important range for SPX as we try to get some clues as to where it's headed next. In between 1530 and 1550 we could see a lot of volatility and whipsaws so continue to exercise a little more caution than usual this week.

Keene Little : 10/16/2007 4:43:23 PM

Nice pop in the after-hours futures. One thing to keep in mind (this is a warning about chasing futures higher in after-hours)--I've lost count how many times there is a bullish response following the after-hours earnings releases, especially INTC for whatever reason, to then be completely reversed and have a negative opening (or gap n crap) the following morning. I'd almost be tempted to short this after-hours pop but that's a risky play.

Keene Little : 10/16/2007 4:35:52 PM

It's been a while since I've posted anything on CME. It's too early to make a call yet on this one. It found resistance at the trend line along the two previous highs in July and August but the last high looked very strong and showed no negative diverences. The negative divergences are Not needed to mark a high but it makes it riskier calling a high without them. So the bullish wave count (green) calls the last high as wave-3 and we'd currently be in a 4th wave correction with wave-5 up to a new high yet to come: Link

Depending on the pullback, if there is to be another move higher, the projection for it will come from the size of the 1st wave so just guessing right now I'd say CME could make it up to the $650 area. Not until it drops below $570 (green wave-1 high) would the bullish pattern be negated so the bears have a lot of work to do before they can claim any victories on this one.

Jeff Bailey : 10/16/2007 4:29:35 PM

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

Jeff Bailey : 10/16/2007 4:20:21 PM

Nope ... YHOO Finance on VLO Link ... $148/share.

Jane Fox : 10/16/2007 4:20:00 PM

Tomorrow's economic reports include

7:00a.m. MBA Mortgage Application Survey. Previous: +2.4%.

8:30a.m. Sep Housing Starts. Expected: -3.9%. Previous: -2.6%.

8:30a.m. Sep Consumer Price Index. Expected: +0.3%. Previous: -0.1%.

8:30a.m. Sep CPI, Ex-Food & Energy. Expected: +0.2%. Previous: +0.2%.

Jeff Bailey : 10/16/2007 4:16:39 PM

VLO looks "cheap" ... Sales/Share $142 ??? That can't be correct.

Jeff Bailey : 10/16/2007 4:15:20 PM

Can really see why "gross margins" so important to technology stocks if that the case (value= 1.5-times sales/share.)

Jeff Bailey : 10/16/2007 4:11:32 PM

Fundamental analyst on CNBC saying "value" by his measure is 1.5-time sales.

QCharts users can use the Sales/Share, then multiply by 1.5.

Keene Little : 10/16/2007 4:07:15 PM

Looking for some guidance from one of our high flyers, GOOG, it's not providing any good clues yet either. This is an updated chart to the one I showed last Friday and the wave count shows GOOG topped out last week where it hit the top of its up-channel for price action since early September and the top of its larger price channel from 2006: Link

It dropped down to the bottom of its steeper channel today, the uptrend line from Sept 18th, but hasn't broken it yet. Therefore the bulls are still alive. It takes a break below 596, and preferably below 580, to suggest the top is in fact in. But so far, with an EW pattern that can satisfactorily be counted as complete and daily oscillators rolling over, a drop to a new low below today's should be a good sell signal.

Jeff Bailey : 10/16/2007 4:01:37 PM

IWM $81.98 -1.05% ... threatens a close under the $82 strike. IOW-VZ $0.07 x $0.10 and look'n "poof"

Jeff Bailey : 10/16/2007 4:00:18 PM

Dow Chem (DOW) $45.10 -1.52% ... nears the $45 strike. Those DOW-VI $0.40 x $0.50.

Keene Little : 10/16/2007 3:55:42 PM

Heading into the close here, if forced to pick a trade I'd go long for a pop out of this afternoon's consolidation pattern. It might only be good for a pop though, maybe up to DOW 14K/SPX 1550. It's still a bit of a coin toss.

Jeff Bailey : 10/16/2007 3:52:24 PM

S&P Revises Delta Airlines Outlook To Positive

DAL $20.10 +0.50% ...

Linda Piazza : 10/16/2007 3:46:35 PM

Since yesterday morning, the SPX has continued to find resistance on tests of its 10-minute 45-ema, now at 1542.25. No change so far in tenor, although there's certainly been an effort to breach that resistance, an effort that might continue into the close. The 10-minute chart shows that nearby resistance and support are currently about equally matched.

Jeff Bailey : 10/16/2007 3:46:05 PM

NRG ... Jan $35 and $40 calls active.

Keene Little : 10/16/2007 3:45:48 PM

SPX and the DOW almost escaped their bull flag patterns on that last blast higher but got smacked on their heads and dropped back down. It was a valiant effort but no go yet.

Jeff Bailey : 10/16/2007 3:44:30 PM

CREE Nov. $30 put/calls active.

Jeff Bailey : 10/16/2007 3:42:31 PM

Cisco Systems: Confirms Police Raid At Brazilian Offices

CSCO $32.27 -1.58% ...

Jeff Bailey : 10/16/2007 3:41:14 PM

Iraq Asks US State Dept. To Pull Blackwater Out Of Iraq

Keene Little : 10/16/2007 3:30:40 PM

Can this latest setup happen tomorrow or is it today or not at all?

I'll assume by your question you're asking about the setup I just showed on the DOW 30-min chart. Interestingly, if it slowly chops its way lower, but only marginally lower, and by the close rests at the bottom of its declining wedge pattern (which is bullish if it's the right interpretation) then we'll be left guessing as to what's next. It would be fitting considering the earnings that are coming out tonight (along with the CPI and housing numbers coming out tomorrow morning).

Or price might park itself right at the top of the declining wedge. The next move from either of these positions would then be a coin toss--it will either blast higher out of the declining wedge or it will drop sharply lower through the bottom of it. I doubt it would go dribbling out sideways tomorrow morning. Sounds like a strangle play in the making here--October puts and calls, no stop, lottery play.

Linda Piazza : 10/16/2007 3:28:31 PM

SPX testing the resistance of the 10-minute 9-ema at 1539.04.

Jane Fox : 10/16/2007 3:23:05 PM

AD volume is making new daily lows but the VIX is not making new daily highs so short positions will not have any follow-through.

Keene Little : 10/16/2007 3:22:50 PM

That last dip had SPX touching the bottom of its flag so the bulls need to get up and go now otherwise they could lose this. Maybe one more minor new low but more than that and it would turn more bearish. In the meantime, if you're short, pull your stop down closer.

Keene Little : 10/16/2007 3:13:05 PM

Here's the bullish setup that I showed last night on the DOW 60-min chart, zooming in a little closer with the 30-min chart: Link

The uptrend line from August is currently near the 13869 Fib projection and the trend line along recent lows is just below that. Watch for a possible throw-under below both lines and then a reversal. Notice the potential bullish divergence on MACD. That's what the bulls will want to see (or even better, for the uptrend line to hold). Bears want to see the DOW drop hard through 13850 and not look back. Or a drop below the uptrend line and then a failed retest of it. Let price show us the way and then trade accordingly.

Jeff Bailey : 10/16/2007 3:10:28 PM

IWM $81.96 -1.07% ... a new session low would be $81.87.

Jeff Bailey : 10/16/2007 3:09:47 PM

SPY $153.57 ... after new session low of $153.47.

Linda Piazza : 10/16/2007 3:08:34 PM

SPX Keltner support on 10-minute closes near 1537, then at 1533.45-1534.32. Analogous OEX support just below the current 716.94 and then at 714.95-715.60 on 10-minute closes.

Jeff Bailey : 10/16/2007 3:04:30 PM

VIX.X 19.96 +3.68% ...

Jeff Bailey : 10/16/2007 3:04:15 PM

VXO.X 19.97 +2.72% ...

Jeff Bailey : 10/16/2007 3:03:48 PM

Altria (MO) $70.87 +0.71% ...

Jeff Bailey : 10/16/2007 3:03:14 PM

Swing trade call alert! ... for one (1) of the Altria MO Dec. $70 Calls (MO-LN) at the offer of $2.94.

No stop for now, target $80.00.

Keene Little : 10/16/2007 3:00:13 PM

If you're short the SPX or DOW, look at the 5-min or 10-min chart and the decline since this morning's high. Draw a parallel down-channel (either mentally or on the chart) for that pullback and you can see the overlapping wave structure and this is what makes it look like a bull flag. The wave count for this move, if it's to set up another rally leg, calls for one more minor new low to the bottom of the flag.

It could drop sharply out of the flag (which would obviously be bearish) or it could be the end of the pullback and a stronger rally leg will follow. So decide whether you want to take some money off the table, pull your stop down closer, or just let 'er rip, come hell or high water. Right now I'd be leaning towards a bullish resolution out of this pattern but as I said, a break below it will likely be a flush.

Linda Piazza : 10/16/2007 2:56:05 PM

First Keltner support held for the SPX and OEX. It looks now as if we've got a pin-them-to-the-numbers type of reaction ahead of the after-hours reports, but I don't entirely trust that reaction. Bond markets will close in a few minutes and that sometimes changes the tenor of the markets. I should have noted earlier, however, that when you're making those end-of-day decisions, factor in what you'll do if this pin-them-to-the-numbers reaction continues into the close.

Jeff Bailey : 10/16/2007 2:55:17 PM

XLF $34.12 -2.01% ... trying to hold that $34 strike.

Jeff Bailey : 10/16/2007 2:54:26 PM

EWJ $14.10 -1.74% ... just off a new session low of $14.07.

Jeff Bailey : 10/16/2007 2:52:22 PM

SPY 153.92 -0.70% ... I'm showing session low came at $153.55 earlier this morning.

Linda Piazza : 10/16/2007 2:48:51 PM

I'm sure others have mentioned this today, but as we move toward the last hour of the day, I wanted to remind subscribers that after-hours reporting companies include IBM, YHOO and INTC, I believe. If you were in bearish positions since say last Thursday and sitting on big profits, would you be tempted to book at least part of those profits? If you had been long for several weeks and were eyeing the way that prices are hovering near the lows of the day, would you be tempted to take profit?

What I'm saying is that there's much potential for shorts to cover and longs to sell, and a battle may ensue in the last hour. I don't have any idea how such a battle will be resolved if it happens, but it could be exacerbated by soon-to-expire options activity. Decide soon how you want to handle the end-of-day decisions and start taking action accordingly. If you're in a bearish positions, for example, and know that you want to close by the end of the day, set a stop that allows you some profit and let price action take you out when that stop is hit.

Keene Little : 10/16/2007 2:41:28 PM

The new low for SPX means you can lower your stop on a short play down to just above the last bounce high at 1542.89 (ES 1552.75). Trail your stop down with the downtrend line from this morning's high as a way to keep your stop a little tighter.

Jeff Bailey : 10/16/2007 2:40:12 PM

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

Linda Piazza : 10/16/2007 2:33:33 PM

As the Keltner support softens(my 2:11:16 post), the SPX is drifting lower again but it hasn't created a new low and there's not a lot of corroboration from other sources of a decline (USDJPY, VIX) as yet. Support at 1537.90 on 10-minute closes, then at 1534.88 and 1533.16. Analogous levels on the OEX: 707.18, 715.81 and 714.76.

Jeff Bailey : 10/16/2007 2:30:38 PM

Citigroup (C) $45.02 -2.63% ... another couple of pennies and "O gets the square"

Keene Little : 10/16/2007 2:28:29 PM

Price continues to chop up and down and that's making it less likely now that we'll get another leg higher this afternoon. That means either a continuation sideways for the rest of the day or chop our way lower. More bearishly we could suddenly drop hard as the lower highs and lower lows since this morning's high could be setting up a more bearish wave count to the downside.

Flat or short would be my recommendation for this afternoon and keep your stop just above the high near 1:00 PM. If we then get another lower low you can lower your stop to the most recent bounce high.

Linda Piazza : 10/16/2007 2:18:40 PM

The USDJPY is now at 116.74. A climb above 116.86 would argue against the bearish-right-triangle formation on its intraday charts.

Keene Little : 10/16/2007 2:15:52 PM

The Trannies, one of the indices not confirming the DOW's rally off the August low, had a bearish setup last week that I showed: Link . The throw-over above the ascending triangle (a continuation pattern in this case) followed by a break back inside the pattern created a sell signal. It has since broken below the bottom of the pattern: Link

That break created sell signal #2. A bounce back up to its broken uptrend line (near 4860 which is near its 50-dma) for a retest would create sell signal #3 if the retest fails. Note though that statistics show only a 50% chance of a pullback to the broken trend line.

The only thing I don't like about the pattern of the decline from last week is that it's very corrective looking (overlapping highs and lows). A rally back above 4950 would negate the immediate bearish setup but only for a little while since the larger pattern remains bearish.

Jeff Bailey : 10/16/2007 2:13:04 PM

NYMEX to Change Margins for Crude Oil, Related Futures Contracts ... NYMEX Press Release Link

Linda Piazza : 10/16/2007 2:11:16 PM

No stop-running move as traders return from lunch. The way the SPX's 10-minute Keltner chart is now arrayed, support looks as if it's softening. That may mean another push lower, although a 10-minute close above about 1543.94 would change that outlook. Analogous resistance on the OEX is 719.89 on 10-minute closes.

Jeff Bailey : 10/16/2007 2:11:31 PM

CNBC reporting NYMEX set to raise margin requirement on front-month crude.

This would be an attempt to take leveraged speculators out of the market.

Jeff Bailey : 10/16/2007 1:51:19 PM

Kind'a interesting just how many securities/relationships are right at/near their September 28 closes.

Jeff Bailey : 10/16/2007 1:49:57 PM

EWJ-WO $0.85 x $0.95. ... wasn't much premium when we bought them, isn't a lot now despite rise in VIX.X since bearish profile.

Jeff Bailey : 10/16/2007 1:48:43 PM

Gosh Linda! I had looked earlier in MM and hadn't seen a $/yen observation.

Sounds like I might get EWJ $14.00 on just a little more $/yen weakness.

Keene Little : 10/16/2007 1:48:29 PM

Price is chopping around today so trading should be very short term oriented if you're trading at all. The pullback from this morning's high is just a 3-wave pullback so another push higher for the day looks like a good possibility. Two equal legs up for a larger a-b-c bounce off this morning's low would be at SPX 1547.51 so maybe a 6-pt rally from here. The other possibility is we'll just consolidate sideways between today's highs and lows.

Jane Fox : 10/16/2007 1:47:44 PM

I would like to chime on Keene's 1:21 post. Actually the VIX is not bearish today, it is hovering closer to daily lows than to highs so although it is not bullish it is certainly not bearish.

Jeff Bailey : 10/16/2007 1:45:02 PM

USD/JPY 116.69 ... session low has been 116.44, which is enough for a 3-box reversal back lower.

iShares Japan (EWJ) $14.11 -1.67% ... so close, yet so far from $14.00 target. Session low has been $14.09.

USJ/JPY PnF chart Link

Linda Piazza : 10/16/2007 1:33:41 PM

The USDJPY is now at 116.59. So far, it still hasn't been able to produce a higher high on its 10- and 15-minute charts, so there's still a potential bearish right triangle on that chart, with support at about 116.43. It hasn't broken through to either the upside or the downside, so it would be premature to call a direction for this currency pair just yet.

Keene Little : 10/16/2007 1:21:50 PM

Keene, I am curious how you could even consider a long here with the VIX and A/D line so negative and the XLF breaking below the uptrend line and testing the 50 day EMA. Won't the SPX have a tough time rallying without the financials?

Lest I be considered a permabear (wink), I'm trying to show both sides of the market and let price lead the way. I'm pointing out what a bullish move could look like and where it needs to rally above to prove the bulls will likely drive this higher. Also, a new low with bullish divergences could be a bullish setup. Those are the things I'm watching for to let me know I need to change my bearish opinion of this market.

In the meantime I think you can tell by my other posts about the BIX, XBD and MER this morning that I'm bearish the market. I do not like the upside but it doesn't mean I can stop watching for bullish potential. Any time you're in a trade always look for where or why you're wrong. Only in that way will you be prepared to stop yourself out when the market is not doing what you think it should be doing.

Jane Fox : 10/16/2007 1:19:32 PM

SAN FRANCISCO (MarketWatch) -- Crude-oil futures rocketed briefly above $88 a barrel Tuesday for the first time as mounting concerns over a possible Turkish incursion into northern Iraq and tight U.S. crude supplies heading into the winter kept upward pressure on the energy sector.

The benchmark light, sweet crude contract for November delivery hit a record $88.20 a barrel on the New York Mercantile Exchange, snapping back from a brief bout of profit-taking earlier in the session. The advance did not hold, however, and crude slipped back to $87.85 a barrel, up $1.72, or 2%, as traders locked in some of the steep gains.

Jane Fox : 10/16/2007 1:07:35 PM

AD volume is now making new daily highs but I do not see this bringing the market down to new daily lows because the AD ratio is not making new daily lows and VIX is still relatively low.

Jeff Bailey : 10/16/2007 1:05:55 PM

Dow Jones Home Construction (DJUSHB) 358.14 -2.12% ...

Jeff Bailey : 10/16/2007 1:05:05 PM

NAHB Oct. Housing Index (update)

DJ- The confidence of U.S. home builders has been shaken to its lowest point since records began 22 years ago, a housing trade group said Tuesday.

The National Association of Home Builders' index for sales of new, single-family homes decreased to 18 this month from 20 in September. Builders are worried about mortgage market problems and bloated inventory.

The reading was the lowest since the series began in January 1985, the NAHB said.

"Builders in the field are reporting that, while their special sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values," said NAHB President Brian Catalde, a home builder from El Segundo, Calif.

NAHB chief economist David Seiders said many prospective buyers may have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes.

Within the NAHB's housing market index, the component for present sales of single-family homes slid to 18 in October from 20 in September.

The traffic of prospective buyers fell to 15 from 17.

Expectations for sales in the next six months held steady at 26, the NAHB said. "Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead," Seiders said. "Indeed, NAHB's housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year."

The index in October was based on a survey of 362 home builders, who answer questions about sales prospects now and in the near term. When the Housing Market Index exceeds 50, it means the number of builders who see "good" sales outnumber the number who see "poor" sales. The numbers used in compiling the index are adjusted for seasonal variations.

Jane Fox : 10/16/2007 1:02:51 PM

WASHINGTON (MarketWatch) -- U.S. home builders grew even more pessimistic in October, hit by a triple whammy of tight credit, abundant supply of homes for sale and falling prices.

The seasonally adjusted housing market index fell to a record low of 18 in October from 20 in September, the National Association of Home Builders reported Tuesday. It's the lowest reading in the index since its inception in 1985. Read more at the NAHB Web site.

Despite special sales incentives, "many buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values," said Brian Catalde, president of the NAHB. Home values are down 3.9% in the past year in 20 cities covered by the Case-Shiller home price index.

Jeff Bailey : 10/16/2007 1:02:49 PM

NAHB Oct. Housing Index 18 Vs. 20 in September

Jane Fox : 10/16/2007 12:55:20 PM

EGADS crude hit a high of $88.14 so far today. Link

Keene Little : 10/16/2007 12:54:39 PM

This RUT 60-min chart shows the bearish wave count (dark red) which calls for a sharp selloff once the current bounce is finished. The short term bullish setup (pink) calls for another rally, either from here or after a minor new low (which should find support around the trend line along recent lows). Link

The bulls want to see a rally back above 830 and back above its broken uptrend line from August and the bears want to see a break below that trend line along recent lows (more than a throw-under head fake break), so right now a break below 820 without bullish divergences showing up on the chart.

Jane Fox : 10/16/2007 12:51:39 PM

Here are the jtHMA charts of Gold. Not quite as nice as the Crude charts but it did get you in at about $746.00. Link

Jane Fox : 10/16/2007 12:51:58 PM

Here are the Crude jtHMA charts and where I posted the system went long, around $80.50 Link

Linda Piazza : 10/16/2007 12:44:33 PM

Boring, isn't it? The SPX's 10-minute chart is still set up to show about equal likelihoods of the SPX rising to 1545.20 or dropping to 1536.52. It seems to me, though, that if bears don't marshal some strength, bulls are going to gain some courage. I don't see anything on the charts yet to show me that a bounce attempt is more likely than another dip, however.

Jeff Bailey : 10/16/2007 12:30:09 PM

Dow Transports (TRAN) 4,846.18 -0.87% ... WEEKLY S1 right here at 4,845. 60-minute interval chart has its 200-pd SMA here too.

Jeff Bailey : 10/16/2007 12:26:35 PM

Baker Hughes (BHI) $99.93 +1.45% ... did indeed trade par today ($100). Would sure like to have those BHI-AR calls back from 9/13/07.

Linda Piazza : 10/16/2007 12:16:35 PM

After testing its overnight high, the USDJPY has climbed. It's now at 116.63, but so far it's still producing lower highs since about 3:30 EST this morning. That presents the possibility of a bearish right triangle forming, something that equity bulls don't want to see confirmed by a steep decline through the 116.40-ish zone. Equity bears, of course, want to see that happen.

In another look at a different indicator, the VIX has mostly maintained that 19.76 support, but it's also finding resistance at each test of the 10-minute 9-ema, now at about 19.97, with the VIX now rising to 19.95.

Jeff Bailey : 10/16/2007 12:10:53 PM

NDX.X 2,163.67 +0.22% ... pretty much pinned between MONTHLY R1 (2,147) and WEEKLY Pivot (2,167) so far today.

Linda Piazza : 10/16/2007 12:05:50 PM

The SPX Keltner resistance that was just above 1546 (see my 11:37:23 post) held on 10-minute closes and now the SPX is back below the 10-minute 9-ema again. The way the chart is currently set up, however, gives about equal probability to a retest of the resistance just tested, now at 1545.83 on 10-minute closes or the support tested earlier, now at about 1537.70 on 10-minute closes. SPX at 1542.30 as I type.

Keene Little : 10/16/2007 12:03:21 PM

Hi Keene, I'm lost - Can't tell where we are in the EW scheme of things - Please enlighten. Thanks.

Did you catch the two scenarios that I laid out last night (bottom of today's posts), one using the DOW chart and the other using SPX? The SPX chart is the more bearish setup and calls the decline from last week in the early stages of a strong 3rd wave down (which would have started with this morning's drop so short against yesterday afternoon's high).

But the DOW points to the possibility that we're towards the end of the pullback pattern for a 4th wave which points to new all-time highs later this month. The jury is still out and the key level for the bears is a break below DOW 13800/SPX 1530. Until those levels break we should assume for now that the bullish trend is still intact. A break above yesterday afternoon's highs (DOW 13986/SPX 1550) would be a bullish statement.

Jeff Bailey : 10/16/2007 11:51:59 AM

Permian Basin Trust (PBT) $15.63 +0.64% ... sits on WEEKLY R2 ($15.60)

Jeff Bailey : 10/16/2007 11:51:14 AM

PetroChina (PTR) $232.22 -1.78% ...

Jeff Bailey : 10/16/2007 11:50:13 AM

US Oil Fund (AMEX:USO) $67.06 +1.83% ... sticks its head above WKLY R2 ($66.86).

Jeff Bailey : 10/16/2007 11:48:32 AM

Paulson Urges Action On Housing Crisis ... AP Story Link

Jeff Bailey : 10/16/2007 11:46:46 AM

StreetTracks Gold (GLD) $75.30 +0.21% ... gets green. WEEKLY R1 $75.06 with WEEKLY R2 just ahead at $75.98.

Jeff Bailey : 10/16/2007 11:43:06 AM

Yep .... Coeur D' Alene (CDE) $3.83 -1.79% ...

Jeff Bailey : 10/16/2007 11:42:21 AM

GoldCorp (GG) $32.64 -1.38% ...

Jeff Bailey : 10/16/2007 11:41:44 AM

US Dollar Index (DXY) 78.24 +0.19% (30-minute delayed) ... session high just shy of WEEKLY Pivot (78.35).

Jane Fox : 10/16/2007 11:40:21 AM

Looks like the VIX nailed the bottom again today (my 11:10 post).

Jeff Bailey : 10/16/2007 11:39:23 AM

VIX.X 19.87 +3.22% ... session high has been 20.74.

Jeff Bailey : 10/16/2007 11:38:22 AM

Gett'n some green on the Market Watch screen.

Jeff Bailey : 10/16/2007 11:37:59 AM

SPY $154.40 -0.39% ... session low has been $153.55.

Jane Fox : 10/16/2007 11:37:33 AM

NQ to new daily highs.

Linda Piazza : 10/16/2007 11:37:23 AM

The SPX, at 1544.22 as I type, is testing the descending trendline off Monday's high. This trendline has only two touch points so far, so I'm not sure how valid it is. Next resistance is at 1546.33 on the 10-minute chart.

Keene Little : 10/16/2007 11:37:12 AM

Gold alert! For the past few weeks I've been pointing to an upside Fib projection for gold at 771.40 where its A-B-C rally pattern from October 2006 would have equality in the two legs up. In overnight trading gold tagged 772 and then dropped $14 from that high to this morning's low. Link

It will be interesting to see where it closes today and what kind of candlestick it leaves (such as a shooting star) after what looks like a throw-over finish above its rising wedge pattern. Gold has bounced back up this morning--YG (the gold e-mini) is currently trading 765 and looks like a good short against the 772 high.

Jeff Bailey : 10/16/2007 11:36:16 AM

XLF $34.33 -1.40% ... a couple of weeks ago (10/01/07), perma-bears were shorting this area. MONTHLY Pivot ($34.18) finds some buyers today. Will monitor.

Linda Piazza : 10/16/2007 11:35:13 AM

I also mentioned yesterday that, unlike some other indices, the TRAN has not fallen below its version of its rising trendline off the summer's lows. It did this morning, but it's pushing up now to retest that trendline. I mentioned yesterday that i's possible to draw several versions of the trendline for the TRAN, so I'm using its 50-sma as a proxy for the trendline level. At 4860.41 as I type, the TRAN is only a touch above that 50-sma but well off its 4818.36 low of the day. The point of all this? From here to 4880 (another version of the trendline crossing there), you should be watchful for a potential TRAN rollover as a first potential negative sign for the SPX, OEX and Dow. A strong punch up through those levels would look better for the bulls.

Jane Fox : 10/16/2007 11:30:52 AM

WASHINGTON (MarketWatch) -- The nation's industrial output increased at the fastest pace in a year during the third quarter but lost momentum at the end, the Federal Reserve reported Tuesday.

Output of the nation's factories, mines and utilities increased by 0.1% in September, softened by a drop in production of motor vehicles, the Fed said. Output was flat in August.

Output increased at a 4% annual rate in the third quarter, the best growth in a year.

"Solid third-quarter growth in the factory sector partly reflects strength in capital goods exports," wrote economists at Action Economics. "The gains likely also reflect continued gains in domestic investment spending that are good news as we enter the new quarter."

Linda Piazza : 10/16/2007 11:29:38 AM

Yesterday, I kept mentioning the 19.76-20.00 resistance area for the VIX. This morning, I see potential next Keltner support for the VIX at 19.76 for the VIX on 15-minute closes, if it loses the 20.00-ish support. VIX at 20.06 as I type.

Jane Fox : 10/16/2007 11:29:14 AM

Dateline WSJ - WASHINGTON -- U.S. Treasury Secretary Henry Paulson offered a sobering view Tuesday of the pressure the housing market was having across the country, saying the decline stood "as the most significant current risk to our economy."

Mr. Paulson even acknowledged that problems in credit, mortgage, and housing markets were much more severe than anticipated.

"The ongoing housing correction is not ending as quickly as it might have appeared late last year," he said in a speech to Georgetown University Law Center, according to prepared remarks. "And it now looks like it will continue to adversely impact our economy, our capital markets, and many homeowners for some time yet."

Housing prices have flattened or fallen in many parts of the country, as homeowners with adjustable rate prime and subprime mortgages have found it increasingly hard to make their monthly payments. The market's problems have impacted everyone from low-income homeowners to huge Wall Street banks.

Jeff Bailey : 10/16/2007 11:18:06 AM

KPS Capital Announces Agreement To Buy Metals Business of Olin Corp.

KPS Press Release Link

OLN $23.54 +4.25% ...

Linda Piazza : 10/16/2007 11:14:16 AM

The SPX and OEX have risen to test their 9-ema's on their 15-minute charts. So far, both are holding as resistance, although their hold is tenuous for now and RSI hasn't risen far enough to speculate on whether the bounce is finished yet. VIX has dropped, although bears might gain some reassurance from its hold of 20.00 when tested a few minutes ago, at least for now. I'm watching the USDJPY being pressured down toward the overnight low of 116.43, coming within a couple of cents of that level during the previous 15-minute period, but not hitting a new low yet. It's not participating much in the bounce--in the bears' favor--but it also has resisted that new LOD--not in the bears' favor.

Keene Little : 10/16/2007 11:12:49 AM

Brokers (XBD) a week ago: Link and today: Link . It's looking to me like the ducks are lining up under the direction of the bears.

Jane Fox : 10/16/2007 11:10:23 AM

The VIX just made a new daily low but the S&P futures did not make a new daily high so I think we have a bottom here.

Keene Little : 10/16/2007 11:07:44 AM

Keeping an eye on Mother Merrill (MER) shows the possibility for a bounce off the bottom of its consolidation pattern. Here's what I showed last week: Link and here's where it is today and what I think will happen (break down): Link

But again, we could first see a little bounce off support and even another bounce back up towards its downtrend line before tipping over for good. The bottom line is this sideways triangle pattern is a high-odds short setup as it's very likely a continuation pattern following the May-Aug decline.

Keene Little : 10/16/2007 10:58:13 AM

A week ago I showed the daily chart of the banking index (BIX) and pointed out it was hitting resistance at its 100-dma at 379 and very close to its downtrend line from May at 380. I thought it was a good place to short the banks but pointed out the upside risk to about 388: Link

Since then the banks have dropped off sharply and have now broken the uptrend line from August. The bearish confirmation will be a break of its last low at 349.84 and this morning's low so far is 349.84: Link . Can't get much closer than that. I think it's a matter of when not if that level will break but we could see a little bounce off that support level first.

Linda Piazza : 10/16/2007 10:58:10 AM

SPX 15-minute 9-ema now at 1541.57, with that potential resistance on 15-minute closes. Resistance above that at 1542.96. The OEX's 15-minute 9-ema is at 719.03 with further resistance just above that on 15-minute closes.

Jane Fox : 10/16/2007 10:54:44 AM

With an AD line at -1473 and AD volume falling I would not be long here.

Jeff Bailey : 10/16/2007 10:53:32 AM

BP's CEO: Lower Carbon Energy A "Business Opportunity"

Oil Prices Driven By Lack Of Oil Industry Capacity.

Jane Fox : 10/16/2007 10:52:24 AM

Crude hit a high of 87.97 today and should take a breather at least back to $83.00/bl. Link

Jeff Bailey : 10/16/2007 10:50:26 AM

Alcatel-Lucent (ALU) $9.36 -3.90% ...

Jeff Bailey : 10/16/2007 10:49:57 AM


DJ- Swedish telecoms equipment maker plunges nearly 30% after stunning the market by warning of lower-than-expected results in the 3Q due largely to a fall in mobile network sales. CEO says Italy, U.K. and U.S. weakness behind profit warning. Group now expects sales of SEK43.5 billion and an operating income of SEK5.6 billion for the quarter. News sends shockwaves through the sector, with shares in Alcatel-Lucent also dropping.

ERIC $31.07 -24.08% ...

Jeff Bailey : 10/16/2007 10:48:35 AM


DJ- Nation's largest home builder sees fiscal 4Q orders slide 39% as its cancellation rate continues to surge and challenging conditions are expected to persist.

DHI $13.17 -3.01% ...

Jane Fox : 10/16/2007 10:47:48 AM

SPX is now testing support at 1540 but I would like to see it return to at least its 50EMA and maybe 1500 but I don't think it will get there. Link

Jeff Bailey : 10/16/2007 10:47:40 AM


DJ- China Citic Bank is interested in buying a stake in the troubled U.S. brokerage, says China Banking Regulatory Commission Vice Chairman Jiang Dingzhi, adding there hasn't been any 'material progress.'

BSC $123.60 +2.43% ...

Jeff Bailey : 10/16/2007 10:46:42 AM


DJ- Airline posts net income of $220 million, or 56c a share. Revenue rises 10% to $5.23 billion. Analysts expected EPS of 42c on revenue of $5.1 billion. Operating margin more than doubles to 8.7%.

DAL $19.71 -1.45% ...

Linda Piazza : 10/16/2007 10:45:55 AM

SPX threatening to break down on the 15-minute chart, too, but it hasn't quite done it yet. If it doesn't, a pop back up to the 9-ema on that chart, now at 1542.01 could occur instead.

Jeff Bailey : 10/16/2007 10:45:31 AM


DJ- Net foreign disposal of long-maturity U.S. securities is $85.5 billion in August, following sales of $2.7 billion in July. Excluding such non-market flows, net selling of long-term U.S. securities would have totaled $69.3 billion in August.

Jeff Bailey : 10/16/2007 10:44:50 AM


DJ- Nymex crude oil continues to barrel higher, touching a new intraday record $87.97 a barrel as concerns over Turkey and Iraq continue to provide support for prices, while fears of a tight supply picture remain a driver of recent strength.

Jane Fox : 10/16/2007 10:44:42 AM

AD volume continues to make new daily lows and I used to say if the AD volume is making new daily lows it is a "Get short and stay short" type of day. I have adjusted that statement now because I have noticed the AD ratio will tell me when the AD volume is about to turn around and I do see the AD ratio is not making new daily lows. The other part of this puzzle is the very important VIX and it is hovering mid range and not talking to me at all. This is a good time to sit back and just watch. We had some very good trading this morning and that may be all we get today.

Jeff Bailey : 10/16/2007 10:43:42 AM


DJ- Iraq's vice president urges Turkey not to stage a cross-border offensive to fight separatist Kurdish rebels based in Iraq and called for diplomacy to solve the problem.

Jeff Bailey : 10/16/2007 10:43:10 AM


DJ- Officials from the Organization of Petroleum Exporting Countries say that the group is supplying world oil markets with plenty of crude and will provide more if customers ask, adding however that they haven't received any such requests.

Jeff Bailey : 10/16/2007 10:42:13 AM


DJ- Bank posts net income of $1.18 billion, or 67c a share. Net revenue increases 3.2% to $3.53 billion. Analysts expected earnings of 66c a share on revenue of $3.55 billion. Return on equity falls to 23.3%, and its credit-loss provisions jump 47%.

USB $32.34 -0.52% ...

Jeff Bailey : 10/16/2007 10:41:10 AM


DJ- Supermarket retailer posts net earnings of $148 million, or 69c a share, a penny better than expected, despite acquisition costs and one less week during the earnings period. Sales slip 5% to $10.16 billion.

SVU $36.84 +4.54% ...

Jeff Bailey : 10/16/2007 10:39:56 AM


DJ- Bank posts net income of $2.28 billion, or 68c a share, as revenue jumps 10% to $9.85 billion. Credit-loss provisions soar 46% to $892 million. Return on equity falls to 19.1% from 20%. Wall Street expected EPS of 70c.

WFC $34.33 -4.50% ...

Jeff Bailey : 10/16/2007 10:38:30 AM


DJ- Earnings slip to $2.55 billion, or 88c a share, amid layoff costs. Excluding restructuring charges, earnings are $1.06 a share, topping Wall Street estimates of 99c. Total sales jump 13% to $15 billion.

JNJ $65.31 -0.51% ...

Keene Little : 10/16/2007 10:38:06 AM

I'm not showing enough bullish divergences on my 30 and 60-min charts, for the DOW and SPX at these new lows, to interest me yet in the long side. Selling the bounces looks like the better way to go for now. The techs are stronger and they're looking like a bounce could take hold. This makes it look like we could get more chop.

Linda Piazza : 10/16/2007 10:33:12 AM

Yesterday I mentioned that my daily Keltner charts suggested a first potential downside target in the 1536 area for the SPX. That's now dropped to just under 1535. For the OEX, it is just under 717. Those of you in bearish positions might begin thinking about how you'll treat tests of those areas, if they're tested.

The SPX just managed a 15-minute close at the Keltner support that's now ringing the SPX's 1538.06 level by a few cents on either side. In other words, it didn't really break down on that chart yet and support tentatively held. Still, there's been no change in tenor although a bounce attempt could come along at any time. Next potential resistance is now at 1542.12 on 15-minute closes.

Linda Piazza : 10/16/2007 10:28:01 AM

The Fed announced a repo in the amount of $6.500 billion today, with one in the amount of $14.750 billion maturing today. That leaves a net drain of 8.250 billion. When I saw yesterday's net add, I wondered if the dollar, then hitting 117.80-ish resistance against the yen, would drop. It did. I wonder today if the net drain will prop up the weakening dollar a bit. I'm honestly not sure there's any effect, and I'm positive it's not that simple, if there is. Still, we'll watch.

Jane Fox : 10/16/2007 10:24:15 AM

VIX and AD line are both bearish so I don't really care what the other internals are doing although I do still keep an eye on them for hints that the tide is changing. So far the internals are not giving me any bullish hints whatsoever so I will continue to trade short.

Linda Piazza : 10/16/2007 10:21:49 AM

This breakdown below yesterday's lows is something that SPX and OEX bears wanted to see. So far, the still rising VIX is on your side, as is the corrective fan principle (last weekend's Trader's Corner article explains it), but know where your stops are because we keep seeing bullish price/RSI divergences on the shorter-term charts.

Keene Little : 10/16/2007 10:21:42 AM

That was a nasty little spike down after the attempt to rally the market back up. Someone goosed it to then sell into it. So far the market clearly looks more bearish than bullish by this price action. The DOW is now 30 points above its downside Fib projection at 13869 but it's getting down there faster than it should if it were to set up a bullish play. Its uptrend line from August is currently near 13843.

Linda Piazza : 10/16/2007 10:19:18 AM

Breakdown on the 10-minute chart. I'm rolling up to a 15-minute one, and see that the SPX is currently testing Keltner support on 15-minute closes at 1538.27. If there should be a bounce from this support, bears want to see resistance hold at the 9-ema at 1543.22 on 15-minute closes. For the OEX, analogous levels are 717.40 support and 719.77 9-ema resistance.

Jeff Bailey : 10/16/2007 10:12:33 AM

Wells Fargo (WFC) $34.77 -3.28% ... notably weak.

Keene Little : 10/16/2007 10:09:24 AM

Techs were leading to the downside but are now getting the biggest bounce. Banks, brokers, housing and trannies are much weaker than the rest. Looks like a setup for chop but on the bearish side.

Linda Piazza : 10/16/2007 10:06:54 AM

The bullish price/RSI divergences continue on the SPX's 10-minute chart. Keltner support now drifts down from the current 1542.08 to 1539.62 on 10-minute closes. Those bullish divergences hint that a bounce attempt is coming, but the VIX isn't backing off any yet.

Jane Fox : 10/16/2007 10:00:50 AM

The DAX has just made a new daily high and the AD line is climbing but at -997 I am certainly not thinking long here.

Jane Fox : 10/16/2007 9:50:51 AM

Internals are bearish and I see nothing telling me that will change anytime soon.

Linda Piazza : 10/16/2007 9:50:08 AM

For those of you who didn't read my Trader's Corner article this weekend or weren't reading the MM yesterday, I pointed out that the rising trendline off the summer's low could also be the third trendline of the corrective fan principle, with the idea being that this is the trendline that marks the end of a trend. RSI broke through its analogous trendline on Thursday, and RSI sometimes leads prices. Usually the break of the third trendline leads to a precipitous decline, but I and others cautioned yesterday that there might be a bounce once a number of bullish divergences began showing up. I counseled short-term bears yesterday to pick an average from which the SPX was being knocked back and place stops an account-appropriate level above that average, letting price take them out when the bounce got too big. I counseled those who had intended longer-term bearish plays to set their stops at breakeven or an account-appropriate level above that rising trendline, which was at about 1547.50 yesterday. Presumably some were stopped out on the late-day push. If you're still or again in a bearish play, that advice from yesterday still holds. You of course want to see price break below yesterday's low. The VIX has finally moved above 20.00 and you'd like to see it maintain its position above that previous resistance.

Jane Fox : 10/16/2007 9:49:53 AM

I also think the DOW should/will revisit its 50EMA at which point the bulls will put on their worry caps and start to wring their hands hoping that support will hold. Link

Jane Fox : 10/16/2007 9:47:43 AM

Here is a daily chart of the Russell 2000 cash index and as you can see it is now testing support. I think this support will break and it will make it all the way down to the 50EMA. At that point the bulls will want to see some kind of support and to see the buyers to come back into the market. Link

Keene Little : 10/16/2007 9:44:17 AM

If this morning's drop continues, the first thing to watch for is whether the DOW pattern that I showed last night (below) will play out. This calls for a choppy decline to its uptrend line from August and a downside Fib target at 13869. If support holds there and we see some bullish divergences then it will be a good time to try the long side. But if we get a stronger decline that drops quickly below 13830 then the sellers will be making a statement.

Don't forget, with the high bullish sentiment we're now in a situation where a selloff could result less from the bears and more from worried bulls. The result is the same (as far as price) but the mood would be entirely different and more bearish.

Jane Fox : 10/16/2007 9:44:17 AM

S&P futures is testing its PDLs here. Link

Linda Piazza : 10/16/2007 9:39:37 AM

Now we have the big test approaching. Will yesterday's low and potential Keltner support, now from 1540.76-1543.20 halt the decline?

Linda Piazza : 10/16/2007 9:38:42 AM

Both the RUT (small caps) and the MID (mid caps) are holding up relatively well so far. Bears would like to see them rolling down steeply instead.

The USDJPY is now at 116.62, not yet below its overnight low of 116.43, a low hit, I believe, after the Nikkei closed, and so, somewhat suspect.

Jane Fox : 10/16/2007 9:38:41 AM

VIX opens above its PDH and climbs supporting the bearish AD line.

Jane Fox : 10/16/2007 9:35:31 AM

AD line is a bearish -649.

Linda Piazza : 10/16/2007 9:33:12 AM

The SPX is again dropping beneath the rising trendline off the summer's low this morning. The SPX currently tests the 10-minute 9-ema at about 1546.20 with further potential support now grouping from 1541.80-1543.60 on 10-minute closes.

Jane Fox : 10/16/2007 9:26:05 AM

Crude is trading over $87.00/bl and the relationship between US$ and Gold is falling apart. My theory is that the price of Crude is has more of an affect on Gold than the US$ when Crude is in the headlines. Link

Jane Fox : 10/16/2007 9:20:52 AM

Lower lows and highs tells me the bears have control but take note the overnight lows did not breach the previous day lows. The S&P futures did indeed test those PDLs but did not break through revealing a level of support we should all watch today. Link

Keene Little : 10/16/2007 9:18:05 AM

Because of the potentially bearish wave pattern on SPX with the 3rd of a 3rd wave down setup, a gap down this morning followed by strong selling would be very bearish. Any strong sell off could be exacerbated by opex as too many have been leaning towards the bullish side when you look at the data showing bullish vs. bearish sentiment. If you're long don't let it go much against your position--stay disciplined and take your stops.

Jane Fox : 10/16/2007 9:12:08 AM

LONDON (MarketWatch) -- U.S. stock futures pointed to further declines Tuesday as oil prices pushed toward new highs near $88 a barrel and investors eyed a profit warning from Ericsson and the latest earnings from Wells Fargo and Johnson & Johnson.

On the economic agenda for Tuesday is the October home builders' index as well as a September reading on industrial production, with both measures expected to show a slowdown from previous months.

Linda Piazza : 10/16/2007 7:26:00 AM

The USDJPY continued its fall from the 117.80-ish resistance that was tested yesterday morning. As I type, the currency pair is at 116.66, hovering just above the next support zone near 116.30-116.35.

Linda Piazza : 10/16/2007 7:04:05 AM

A repo in the amount of $14.750 billion matures today.

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