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Jeff Bailey : 2/2/2008 3:01:33 AM

YAHOO Options Montage Link

I marked (red) the COVERED Feb $25 Call (YHQ-BE) and note some of the heavier (pink) activity today 2/01/08 and OpenInterest (as of 1/31/08 before the SHOCK). Was the "news is noise" or did it draw a response? Will it have INFLUENCE going forward? ASSUME that it will, and have a PLAN to deal with it.

see below ... Facts (3), (4), (5) and (6).

Jeff Bailey : 2/2/2008 3:01:07 AM

It can happen to you, it has happened to me! ... OK, so long-time subscribers will know this to be true. Years ago we were long an HMO stock (Wellpoint (WLP) I think it was) and just prior to an option expiration, we got out the near-money covered "call squeezed" to the upside.

A little different situation here, but here's a real life "problem" and we've got to LOOK at the CHART and our retracement levels, assess the RISK, and work through some things.

Here's the situation and here's the challenge Link

Facts:

1) The trader sold COVERED some Jan $25 Calls and they went "poof" and trader worked DOWN the cost basis.(GREEN IS GOOD!) Consider this GAIN against the YHOO trade, which I think has been done with "Adjusted Cost of Jan09 $25 Calls = $3.38/contract" This is the RIGHT TO BUY at $28.38

2) I'm all for "repeat success" (LEAPs calls offer that option for some time if things don't go EXACTLY to plan) and the trader once again sells COVERED calls with the Feb $25. I'm thinking that not unlike a lot of traders and institutional investors, after the earnings announcement and "no news" regarding the company having been approached by a buyer (MSFT rumor has been circulating for about a year) it would be reasonable to think YHOO is "dead money" for at least a quarter. When I (Jeff Bailey) told subscribers to sell 1/2 of the VYH-AE on 1/30/08 (see MM), that was part of my reasoning. I could have profiled the selling of covered calls too. We had $727.70 in gain for the MONTH going (see trade blotter review, running total) so decided to cut back to 1/4 position. Turnaround anytime soon wasn't gleened from earnings call, what was left near-term was potential buyout. Still, I was thinking, the buyout if it were to ever happen probably not until late Q2, maybe another "bad quarter?" TECNICALS were not suggesting anything different. If I had sold covered calls, I'd be doing what I'm doing now anyway. Again, we've been here, and we've done this! I've done it at LEAST 7 or 8 times over the years in my own account. OBLIGATED TO SELL at $25 or adjusted in account to ($25 + $1.05 = $26.05). While commissions are a factor, it is a cost of doing business and should not be a major focal point.

3) There was HEAVY activity in February options. UNUSUAL looking at Feb $30 Call with 3:1 UptickVol. UNUSUAL looking at Feb $27.50 Put with 30:1 DnTick Vol. This suggests SHOCK and SURPRISE to a more bearish hypothesis. What have you been taught about call buying/put selling vs. call selling/put buying. "Noise" or something to be aware of?

4) HEAVY activity at the March $30 Call with 8:1 UpTickVol. The March $27.50 Put not overly heavy, but 2:1 DnTickVol. March $22.50 Put same CBOE volume as $27.50, Up/Dn matched 1:1 suggests an equilibrium level of $22.50.

5) April $30 Calls HEAVY, slight UpTick. April $20 Puts heaviest, not overly revealing CBOE only of 25:10 Up:DnTick.

6) July $25 Call heaviest, but we begin to see "less focus" as we move out in time. July $20 &$22.50 Puts heaviest volume on put side for this month.

7) Microsoft's unsolicited bid approximately $31.00 was stock.

8) MSFT $30.45 -6.59% would suggest market not overly "bullish" on the idea.

Variables/Unkowns:

1) If accepted as stated, YHOO would eventually trade as MSFT traded to closing of deal.

2) If deal restructured cash and stock, or all cash deal, YHOO should trade either slightly stronger than MSFT (cash and stock depending on % of each), or YHOO would come close to pegging price offer if cash only. A stock & cash is a "sweeter" deal than stock only. An all-cash is "sweeter" still.

2) If current offer rejected, I still have no idea of market response. MSFT could follow with higher offer. Based on recent quarter's guidance, MSFT might try and influence shareholder approval offering recent 52-week high of $34 (see chart)

3) Is there another suitor out there? Possible bidding war?

Jeff Bailey : 2/2/2008 12:49:30 AM

Yahoo! (YHOO) Was one of my "top 5" bull picks for 2008 that was included in a research report for this year. I've also mentioned a "top 5" bear pick here in the MM that we traded in Wachovia (WB) which didn't really trade the way it needed to for a LEAPs trade in January. It needed to RALLY $5 from its December close, not plunge to my initial target.

As you know, my broader scope economic call was for 2008 to see a "modest recession" and under that backdrop, I had to put together a portfolio of candidates that I thought would produce Net Profits. Scenario's (reasoning) for each was a client mandate, and the technical action points needed to be outlined. It was made clear that the fundamentals and technicals as well as trade management meet "prudent man" rule of investment policy and RISK/REWARD resoning be clearly established.

It was an honor to be selected for such a task.

Here is YHOO's chart as I had originally outlined for the client. The exception being that the now "conventional" retracement had to be "dragged down" from its 12/18/07 relative low. Link

Research Hypothesis (brief): Yahoo! Inc. (YHOO) may well be one of 2008's biggest winners among NASDAQ-100 components. "Easy comparables," and co-founder Jerry Yang looks to turn the ship around. If successful, or unsuccessful turnaround, company may be ripe for takeover given strong brand by AT&T, Verizon, or Microsoft. At a minimum, I see YHOO trading $30 in 2008, but a successful turnaround and potential takeover from a wireless provider or Microsoft as it looks to improve its search performance could have shares fetching $50 longer-term.

Jeff Bailey : 2/2/2008 12:49:26 AM

It can happen to you, it has happened to me! ... I'm working on some educational, but real life trade situation regarding today's YHOO action and what has undoubtedly happened to a lot of market makers and some individual options traders.

What happens when you've bought LEAPs calls, and early in the trade, it moves AGAINST your scenario and you write Jan08 covered calls and work down your cost basis?

No sooner do you sell Feb08 near-money covered calls then the BULLISH scenario unfolds?

The question is... "what do I do now?" What will YHOO and/or MSFT do next?

The key is to PLAN for the WORST.

OI Technical Staff : 2/1/2008 9:59:59 PM

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Jeff Bailey : 2/1/2008 9:50:41 PM

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

CLOSED out the VYH-AE at the bid of $4.50 as YHOO traded $27.74.

Jeff Bailey : 2/1/2008 9:35:34 PM

Closing U.S. Market Watch found at this Link ... DJUSHB Net% incorrect. Up 2.71% today.

5dyNet% crack spread negative. 20DyNet% a smidge positive.

Jeff Bailey : 2/1/2008 6:07:38 PM

Closing Internals found at this Link

Jeff Bailey : 2/1/2008 5:31:59 PM

Don't want them to "pump" VLO too much more.

Jeff Bailey : 2/1/2008 5:31:34 PM

Good gravy! CNBC talking energy ... you'd think they were MM subscribers!

Long the refiners, short the producers. Refiners bull VLO and TSO.

Jeff Bailey : 2/1/2008 5:14:00 PM

Toll Bros. (TOL) $23.72 +1.89% ... "gets'er done" at conventional 50%. $24.00 is the big level for us PnF-ers.

Jeff Bailey : 2/1/2008 5:07:58 PM

Excellent, excellent analysis from CNBC trader ... MSFT buying YHOO not at YHOO top, but at lows.

This was the "kicker" for my Jan'09 "top 5" bull picks.

Very unfortunate for YHOO shareholders/call holders in my opinion that Q1 earnings and somewhat "lack of forward restructure" found stock sinking after 1/29 earnings.

Jeff Bailey : 2/1/2008 5:02:27 PM

Will check new weekly's for SPY, see what we get.

Jeff Bailey : 2/1/2008 4:58:32 PM

Beautiful, simply beautiful. Overlaps with conventional at its 50% and 19.1%.

Jeff Bailey : 2/1/2008 4:57:22 PM

Yep ... take your MONTHLY Pivot retracement as taught.

Jeff Bailey : 2/1/2008 4:47:50 PM

"Bailey Wave" suggest SPY has to close back below $138.04 at a minimum to see a retest of lows anytime soon. More likely continued strength to $141.76.

Jeff Bailey : 2/1/2008 4:42:24 PM

Knowing Art ... he's talking retracement and pivot levels.

Jeff Bailey : 2/1/2008 4:41:12 PM

Art Cashin on CNBC today looked a little frazzled. Thought rally was a little more than bears had thought it should be.

Jeff Bailey : 2/1/2008 4:39:25 PM

SPY $139.58 +1.60% ... "gets'er done" and QS1.

Jeff Bailey : 2/1/2008 4:22:17 PM

DJ Home Construction (DJUSHB) 410.69 +2.71% ... at today's close, I now must take up my 100% conventional to the 5/24/07 relative high of 675.01. Leave 0% at 1/09/08 of 245.91. Check to see if it "makes sense." It seems to.

Keene Little : 2/1/2008 4:13:17 PM

The SPX daily chart looks similar to the DOW's chart--looks ready for at least a pullback from here, possibly the start of next leg down to new lows: Link

Jim Brown : 2/1/2008 4:08:53 PM

Amen to that SPX halt Keene, all the major indexes stopped just under major support. The Russell-2000 closed at exactly 730 and that is a major resistance level. The euphoria over the rate cut may fade early next week.

Keene Little : 2/1/2008 4:04:16 PM

SPX got parked right under resistance and I see a good chance for a down day on Monday. If it turns back down then I'll be watching for some clues as to whether it will be just a pullback (pink) or the start of something much more significant to the downside (dark red). Updated 60-min chart: Link

Linda Piazza : 2/1/2008 4:00:59 PM

Another week on the markets endured or enjoyed, depending on your viewpoint and the status of your trading account. Get away and enjoy yourselves this weekend. You may need the rest. Next week is the week before option expiration week and those can get wild, especially along about the Wednesday and Thursday of that week.

Jane Fox : 2/1/2008 3:54:44 PM

Should the monthly jtHMA turn back green then I will look to get back in the game.

Jane Fox : 2/1/2008 3:54:00 PM

I exited some of my long positions yesterday based on these jtHMA charts. My bias is stilll bullish but the charts take precedence over my bias. Link

Jane Fox : 2/1/2008 3:51:58 PM

SPX has now reached the proverbial 1400. Earlier I thought the low on January 28th was a swing low but now I see that maybe it was not. This has just been your plain Jane rally to resistance and I suspect next week we will see a retracement however, the lows made on January 28th may be support. In any case the swing low from the retracement has to be a higher low for the bulls to win, if the SPX closes below yearly lows then it is game over. Link

Linda Piazza : 2/1/2008 3:48:43 PM

The SPX upside target is now 1398.49. If you've decided to exit all or part of your positions before the close be aware of the kind of action we had late yesterday, keeping that sort of sharp pullback in mind in as a possibility. Also remain aware that the SPX hasn't had more than two days in a row of gains since the end of December. Maybe it's time, and I really wouldn't be terribly surprised to see a push up toward 1400-1405, but you're risking an immediate rollover, too. If you're betting on the first three-day winning streak this year by holding over the weekend, know how much risk you're willing to absorb. I personally have been taking some bullish risk off the table today (some bull put credit spreads closed out).

Jeff Bailey : 2/1/2008 3:46:55 PM

Begins to violated "Bailey Wave"(4 d1)

Jeff Bailey : 2/1/2008 3:45:49 PM

Internation Business Machines (IBM) alert! $109.35 +2.09% ... 50% conventional.

Jane Fox : 2/1/2008 3:44:48 PM

Gold is taking the expected retracement here. Link

Keene Little : 2/1/2008 3:43:22 PM

For the DOW I had a key level at the November low of 12724 which has now been exceeded. That's the level that would negate the possibility for a sideways triangle that I've been showing on recent daily charts as one of the possibilities (dark red--yesterday's chart: Link ). The reason for this is because a 4th wave correction can not go above the 1st wave low. This is an important EW rule in counting waves properly (the only exception is in a rising or descending wedge).

So now we're down to two choices. Well, actually three, the rally could continue higher from here and break out the top of its down-channel. The level is somewhat arbitrary but I'd say a rally above 12850 should see a continuation higher to 13200-13300 (so the key level for the upside is there--the green target symbol on the 60-min chart below). Updated daily chart: Link

Watch for a possible move a little higher to the top of its rising wedge pattern just above 12800 but any break down below 12500 would be a heads up that we're into a deeper pullback (pink) or the start of the next leg down (which would be a very bearish wave 3 of (3), dark red). The key level to the downside is 12250 to say there's no more upside for now, as shown on the 60-min chart: Link

Jeff Bailey : 2/1/2008 3:38:27 PM

The ONLY reason we held the one (1) VYH-AE instead of selling the entire position was the possibility that YHOO might get bought out. Gets an unsolicited $30.00 offer today, so got rid of it.

$30.00 was my low bull target. Earnings report and guidance not what I had been looking for. Stock hits a 52-week low, not in favor. Capital better used elsewhere.

Jeff Bailey : 2/1/2008 3:35:25 PM

Just a little "noise" carryover from last Friday's news.

Jeff Bailey : 2/1/2008 3:33:56 PM

North American Palladium (PAL) $5.07 +13.93% ...

Jeff Bailey : 2/1/2008 3:33:28 PM

Stillwater Mining (SWC) 12.89 +23.34% ... good gravy! (see Friday's MM)

Jeff Bailey : 2/1/2008 3:32:37 PM

CNBC reporting platinum surging on S. Africa supply concern.

See Friday's MM.

Jeff Bailey : 2/1/2008 3:26:05 PM

03:00 Internals found at this Link

Linda Piazza : 2/1/2008 3:17:50 PM

The shape of the SPX's laborious climb up toward resistance certainly doesn't look particularly encouraging, but the SPX is still climbing. It doesn't matter the shape, though, if you're already in a bullish trade, as you just follow the SPX higher with your stops, beginning to tighten those stops if you've decided to exit all or part of your position by the close.

Jeff Bailey : 2/1/2008 3:10:41 PM

Regan! Is some of this making sense per your email regarding lowest risk?

Jeff Bailey : 2/1/2008 3:09:14 PM

Pacholder High Yield (PHF) 8.15 +0.86% ... our "junk bond" observation in U.S. Market Watch.

Jeff Bailey : 2/1/2008 3:08:00 PM

Russell 2000 Index (RUT.X) alert! takes another look at 38.2% ...

Jeff Bailey : 2/1/2008 3:07:22 PM

RS chart of GG vs. GLD 1-point box Link

0.50 box Link

Jeff Bailey : 2/1/2008 3:01:20 PM

DXY ... daily interval bar chart with updated MONTHLY Pivots. Also show current "Bailey Wave" counts Link

Linda Piazza : 2/1/2008 2:49:31 PM

The SPX is attempting a breakout again. It looks possible, at least, that the SPX could climb up toward its ascending next resistance, now at 1396.92, although that's still a bit iffy as the breakout wasn't as conclusive as I'd like. If it does, I want to do what I did earlier today: warn that the SPX is climbing into one possible resistance zone that I and others have identified. So, as we approach the last hour of trading, I want you to be thinking about whether you want to carry all those bullish options positions you might have, particularly February ones, into the weekend. I've thought it possible that the SPX was chopping its way up toward the descending 30-sma, but it could roll over any time. It could also climb up toward 1425-1430, so if you're exiting today, you're exiting knowing that you could miss an entry if there's a gap higher on Monday. What could cause such a gap? News that some sort of rescue package for the bond insurers had been reached might do it.

So, you must weigh the possibility of loss opportunities against the possibility that today's climb is it or that any punch higher Monday morning will be sold. Bear flag climbs, which this one may be (looks more bullish on the weekly chart) are notoriously difficult to gauge. How high will they go before rolling down, or will they reach above some critical level that ignites a longer run higher?

Keene Little : 2/1/2008 2:56:53 PM

The limit up or down risk with futures is an excellent point. This is true of course for all futures contracts which makes holding overnight futures more risky than options. Be sure you understand the risks involved before going to sleep at night.

Jeff Bailey : 2/1/2008 2:42:09 PM

DXY Alert! ... 75.41 +0.31% ... "ground hogs" its 19.1% retracement. Presses back up against lower "Bailey wave" channel.

Jeff Bailey : 2/1/2008 2:38:42 PM

GG-PU as profiled today at $3.80/contract is MAXIMIM defined RISK of $380.00/contract.

Jeff Bailey : 2/1/2008 2:37:10 PM

Semiconductor HOLDRs (SMH) Alert! $30.01 +6.60% ... trades the $30 strike.

Keene Little : 2/1/2008 2:34:57 PM

A parallel up-channel for price action since this morning's low is just above SPX 1392 so watch for a possible reversal from there. Much higher than that and we should see an acceleration higher in which case watch for 1400 next.

Jeff Bailey : 2/1/2008 2:37:06 PM

Offering a RISK management perspective on trading gold. For years, and I do mean years, there have been critiques of Fed policy that would have the US financial system crumbling and U.S. equity markets plunging like that of the 1930's. Should such an event take hold, RISK management reasoning could have gold futures "limit up" for days. Yet as you've seen since January 1, 2008, while gold has seen impressive gains, even gold equities have "lagged" the move of the commodity, or DECLINED.

Those looking to implement RISK management in their traded should understand the implications.

Should gold prices retreat, as some have thought since October'07, then I would think gold equities also retreat.

Keene Little : 2/1/2008 2:23:19 PM

Offering a different opinion on how to play the moves in gold, I like trading the emini future for the same reason I like using eminis on the indices (YM, ES, NQ, ER)--tight spreads, less slippage, good leverage. But you've got to be very disciplined the same as trading the futures on the indices.

It's the same when playin QM (oil emini). That booger can move and stops need to be a little wider so you should play with smaller trade sizes. Know your risk and trade accordingly and use the same tactics and procedures as you use for trading stocks and indices.

Linda Piazza : 2/1/2008 2:23:17 PM

Unfortunately, this particular Keltner setup on the SPX could continue for another trading day or could end at any moment. For now, though, the resistance band still looks a bit stronger than the supporting one, suggesting that resistance is likely to hold on 15-minute closes. What could happen, though, is that this sideways/up trading pattern could keep shoving Keltner resistance a bit higher without the Keltner setup changing. So, for now, I can only say that Keltner resistance just over 1389 and then at 1396.37 still look strong enough to serve as resistance on 15-minute closes. The lower of those two is being tested as I type.

Jeff Bailey : 2/1/2008 2:05:11 PM

CNBC reporting that potential mortgage bond downgrades could come late February ... options traders may consider this news should they seclect duration on any options.

Jeff Bailey : 2/1/2008 2:01:06 PM

For those new to the MM, I want to again stress that to play any downside in gold, I ONLY condone doing so with OPTIONS on gold mining EQUITIES at this time.

Keene Little : 2/1/2008 1:57:32 PM

Two equal legs up for the bounce off this morning's low would be at SPX 1390.57 (ES 1392.50). If it makes it higher than that then I'd look for a press to a new high otherwise watch for failure of this bounce to lead to another leg down. A break below SPX 1380, the low near 12:45 PM, would confirm we're either breaking down right away or we'll be in a larger correction (meaning more chop).

Jeff Bailey : 2/1/2008 1:55:39 PM

SPY $138.75 +1.00% ...

Jeff Bailey : 2/1/2008 1:53:44 PM

VIX.X Alert! 24.54 -6.33% ... gets the trade at WEEKLY S1.

Linda Piazza : 2/1/2008 1:43:35 PM

SPX resistance at 1389.27 and then at 1395.54 on 15-minute closes. That still looks strong enough for one or the other to stop advances until they're particularly strong advances. However, we're into a typical stop-running time of day and anything can happen. Support is at 1379.58 and 1374.71 on 15-minute closes.

Jeff Bailey : 2/1/2008 1:41:44 PM

"Bailey Wave" theory says that for GLD to make another high, it should be able to close above $90.00.

Jeff Bailey : 2/1/2008 1:38:11 PM

01:00 Internals found at this Link

Keene Little : 2/1/2008 1:33:11 PM

The way we'll find out what's happening with gold is after a bounce that corrects the current leg down. If it bounces (38%-62% retracement) and then turns back down below the low of this move down then the top is in for now. But until that happens I think we have to respect the possibility that we're going to get another (choppy) leg higher in gold.

Keene Little : 2/1/2008 1:28:07 PM

Even though gold has dropped hard today, and looks very bearish, I'm wondering if there isn't "one more new high" for the shiny metal. The move up from December, out of the sideways triangle, would actually look better with another minor new high. The reason for that is because of the new high that was made above the Jan 14th high. That leaves a 3-wave move up from December and it looks incomplete (it should be a 5-wave move for the final 5th wave as I've labeled the move up from December).

The daily chart (April YG) shows an idea for a rising wedge, something that is very common for 5th waves and especially so for commodities: Link . It's a bit speculative at this point but I like the setup and it points to the 960-970 area for a final high. Interestingly, this ties in nicely with the upside Fib projection I mentioned late Wednesday for the 5th wave (which is the move up from December) at 966.40 where it would equal the 1st wave.

For all who think EW is only for bearish counts, or that I'm only looking for bearish plays, remember this (wink)--I'm thinking there could be a long play setting up on gold (for one last hurrah).

Jeff Bailey : 2/1/2008 1:21:17 PM

Remember some of my observations, and others from CNBC regarding dollar/oil relationship.

Again understand my observations regarding DXY chart and my "Bailey wave" with Andrews Pitchfork (modified schiff) and sloppy trade at upper/lower end of channels for a few days, then back in the channel.

When the breakdowns really take place (based on observation of other securities) is when the securities price show the continuation out of the channel.

Jeff Bailey : 2/1/2008 1:17:50 PM

USO $70.51 -2.54% ... $0.50 box chart to match futures Link

Should we observe a trade at $69.50 and bullish support trend, then we would place the bearish resitance trend at $73.50, and go lower at 45-degree angle.

Jeff Bailey : 2/1/2008 12:58:50 PM

Valero (VLO) $59.08 +0.03% ...

Jeff Bailey : 2/1/2008 12:58:04 PM

Tesoro (TSO) ... $37.23 -4.29% ... still like for an initial call as I have profiled at these levels.

TSO-HI $3.40 x $3.50.

Jeff Bailey : 2/1/2008 12:55:48 PM

Petroleo Brasileiro (PBR) $111.33 +0.33% ...

Jeff Bailey : 2/1/2008 12:54:57 PM

US Oil Fund (USO) alert! $70.31 -2.81% ... 19.1% conventional retracement.

Linda Piazza : 2/1/2008 12:48:33 PM

Unfortunately, the SPX Keltner setup doesn't suggest when the day's going to stop being boring. Nearest support and resistance look about equally weighted right now. RSI is at 52 on the 15-minute chart.

Linda Piazza : 2/1/2008 12:46:32 PM

How times have changed. The SPX has moved in a 20-point range today and we deem that a boring day!

Linda Piazza : 2/1/2008 12:39:58 PM

Once again, the SPX looks as if it's likely to roll down to next Keltner support, now at 1376.67 and then 1372.76, but it looked like that earlier today and it didn't roll down. The 9-ema has flattened, and it's useless as a benchmark right now.

Jane Fox : 2/1/2008 12:39:10 PM

And we are stopped at 12629 from 12672. :(

Keene Little : 2/1/2008 12:38:58 PM

In the daily chart of the banks (BIX) that I posted late yesterday I showed the potential for a small push higher today to the top of its parallel down-channel ( Link ) which is exactly where it rallied to this morning and then pulled back sharply. The little bounce off this morning's low looks like a bear flag and I expect the decline to continue.

It will take a while before we know whether it will be just a pullback before heading higher again and break out of its down-channel (pink) or drop down to the Fib target zone of 213-216 (dark red and my preferred wave count).

Jane Fox : 2/1/2008 12:28:25 PM

YM has now given us a clear swing low that I think we can use to reduce our risk. Raise stop to 12629. alert

Linda Piazza : 2/1/2008 12:22:40 PM

So far, SPX Keltner resistance continues to hold, with that at 1390.60 and then 1394.60. Support is now at 1376.6 and then 1372.39.

Jane Fox : 2/1/2008 12:08:13 PM

Did I say this trade could take a long time?

Linda Piazza : 2/1/2008 11:59:34 AM

The SPX's resistance now at 1389.45 and again at 1393.93 still look strong enough to hold back the SPX, barring a strong push through it.

Jeff Bailey : 2/1/2008 12:04:51 PM

Here is what I'd like traders to do if interested. This is an "adjustment" to bring an observation I'm making.

Take an Andrews Pitchfork (modified shiff) on GG from the 8/17/07 low, and let's make a "Bailey wave" for lack of better term up to the 11/07/07 relative high of $38.11.

Then drag the "Bailey wave" down to the 12/18/07 relative low of $30.15.

Then, call up the StreetTracks Gold (GLD) chart. You should have an Andrews Pitchfork (modified shiff) on one chart from the 8/16/07 relative low, with a "Bailey wave" up to 11/08/07 relative high, then the drag down to 11/19/07 relative low. Make the observation.

Jeff Bailey : 2/1/2008 11:54:15 AM

Disclosure: I currently hold a bearish position in GG.

Jeff Bailey : 2/1/2008 11:53:46 AM

Swing trade put alert! ... for one (1) of the Goldcorp GG April $37.50 Puts (GG-PU) at the offer of $3.80. No stop for now, target $30.00 in the underlying.

GG $37.03 -0.53% ...

Keene Little : 2/1/2008 11:51:27 AM

The bounce in the indices actually looks more like small rising wedges instead of bear flags. That suggests a fast retracement of the bounce. But if it rallies out the top then it should go quickly so I see a bigger move (relatively speaking) about to happen.

Jane Fox : 2/1/2008 11:44:40 AM

This trade could take a while.

Jane Fox : 2/1/2008 11:44:27 AM

WE are long the YM from 12672 and have a stop at 12609. The target is 12672 -12609 = 63 12672 + 63 = 12735. alert

Keene Little : 2/1/2008 11:42:31 AM

The bounce in equities off this morning's low looks corrective--overlapping highs and lows and looks bear flag-ish. We've seen enough of these kind of corrections suddenly take off to the upside (as surprised shorts scramble to cover) but the odds favor a continuation lower from the current bounce.

Jeff Bailey : 2/1/2008 11:37:57 AM

MERRILL PAYS BACK SPRINGFIELD FOR CDOS

DJ- Merrill Lynch is buying back, from Springfield, Mass., complex debt securities that rapidly collapsed in value during the credit crisis at the $13.9 million price the firm sold them to the city.

MER $56.50 +0.24% ... interesting. Very interesting.

Jeff Bailey : 2/1/2008 11:36:21 AM

SAUDIS REJECT PLEAS TO LIFT OIL OUTPUT AT OPEC MEETING

DJ- The Organization of Petroleum Exporting Countries is set to reject calls from oil-consuming countries to pump more oil and cool scorching crude. Latest on oil.

Jeff Bailey : 2/1/2008 11:35:51 AM

CHEVRON 4Q NET UP 29% ON HIGHER OIL PRICES

DJ- Chevron's 4Q net income rises 29% to $4.87 billion, or $2.32 a share, as the company continues to benefit from the rising price of oil. Sales and other operating revenue gains 30% to $59.9 billion.

CVX $83.03 -0.26% ...

Jeff Bailey : 2/1/2008 11:34:30 AM

BANKS FORM GROUP TO AID BOND INSURERS

DJ- Royal Bank of Scotland, Societe Generale, Wachovia, BNP Paribus, Barclays, Dresdner, UBS and Citigroup join in an effort to rescue bond insurers, CNBC reports.

MBI $16.03 +3.41% ...

ABK $12.86 +10.48% ...

Jeff Bailey : 2/1/2008 11:32:37 AM

GOLDMAN DOWNGRADES MORGAN STANLEY

DJ- Goldman Sachs downgrades rival Morgan Stanley to neutral and removes it from firm's Buy List. Goldman leaves its earnings estimate and price target for Morgan unchanged, but says near-term challenges abound.

MS $49.06 -0.58% ...

Jeff Bailey : 2/1/2008 11:31:25 AM

GLOBAL CHIPS SALES UP 3.2% FOR 2007

DJ- Global semiconductor sales rose 3.2% in 2007, according to the Semiconductor Industry Association, falling short of previous estimates as sales increased for items like personal computers but prices declined for high-speed, high-capacity memory.

Linda Piazza : 2/1/2008 11:30:30 AM

The SPX didn't do what the Keltner setup suggested it would do or I was wrong in my interpretation. Resistance now is at 1388.04 and then again at 1393.23. The setup suggests that one of those will hold, but then again I was wrong in my interpretation a few minutes ago. It's not typical for the SPX to close beneath the 15-minute 9-ema after a pronounced uptrend and not drop back to the bottom channel support to recharge.

Jeff Bailey : 2/1/2008 11:30:13 AM

US CONSUMER SENTIMENT IMPROVES IN JANUARY

DJ- The Reuters/University of Michigan final January consumer sentiment index moves to a reading of 78.4, from 75.5 in December. Forecasters expected to see a reading of 78.0. The preliminary January index had stood at 80.5.

Jeff Bailey : 2/1/2008 11:29:16 AM

US CONSTRUCTION OUTLAYS BELOW VIEWS

DJ- U.S. construction spending take its third tumble in a row during December as housing and government sectors drag overall outlays. Total spending falls 1.1% at seasonally adjusted annual rate of $1.140 trillion. Wall Street expected 0.6% drop.

Jeff Bailey : 2/1/2008 11:28:35 AM

EXXON EARNS RECORD $11.66B IN 4Q

DJ- Oil giant's earnings surge 14% to record $11.66 billion, or $2.13 a share, boosted by high prices and strong upstream results. Analysts expected earnings of $1.95 a share. Revenue jumps 30% to $116.64 billion.

XOM $86.20 -0.23% ...

Jeff Bailey : 2/1/2008 11:27:43 AM

US MANUFACTURING MOUNTS SURPRISE RECOVERY

DJ- The Institute for Supply Management's index of manufacturing activity moves to 50.7 in January, from 48.4 in December and 50.0 in November, as inflation pressures rise again. Economists had expected a January reading of 47.0.

Jeff Bailey : 2/1/2008 11:27:16 AM

US JANUARY PAYROLLS DROP 17K, UPS RECESSION ODDS

DJ- U.S. employment unexpectedly falls by 17,000 in January, the first monthly decline in four years, fueling worries that the economy might soften further or even slip into recession in coming months. Unemployment rate falls, as expected, to 4.9% from 5%. Economists expected a 75,000 increase in payrolls.

Jeff Bailey : 2/1/2008 11:25:49 AM

MICROSOFT OFFERS TO BUY YAHOO FOR $31 A SHARE

DJ- Microsoft offers to buy Yahoo for $44.6 billion, a move designed to create a more credible Internet search competitor to industry leader Google. Offer of $31 a share in cash and stock represents a 62% premium to yesterday's closing price.

YHOO $27.71 +44.52% ...

MSFT $30.70 -5.82% ...

Jeff Bailey : 2/1/2008 11:22:08 AM

11:00 Internals found at this Link

Note: It would take a closing session measure of 18.00% for the NYSE's 10-day NH/NL measure to see a 3-box reversal higher.

Jane Fox : 2/1/2008 11:16:30 AM

The stop will be now at 12609 because of the swing low as 12614. alert

Linda Piazza : 2/1/2008 11:02:41 AM

The Keltner setup suggests that the SPX still might be headed to the lower channel boundary, now at 1372.70. It's possible that prices will instead move sideways while that channel line rises beneath it, and it's of course also possible that my interpretation is just wrong, but that's how it looks now.

Keene Little : 2/1/2008 11:01:10 AM

SPX popped briefly above the top of its rising wedge pattern shown on my 60-min chart (if that's what's playing out) and has since dropped back down. One concern is that it might have finished the pattern (rather than pull back and head for one more new high inside the pattern to about 1400). The potential for chop and whipsaws remains until SPX breaks below 1334 which would be the signal for us to be looking to play the short side.

Jane Fox : 2/1/2008 10:59:10 AM

The stop will be 12619 so a little better than daily lows.

Jane Fox : 2/1/2008 10:58:30 AM

OK let's try a YM long at 12672 right above the swing high at 12671 alert

Keene Little : 2/1/2008 10:56:26 AM

I'm back. I see equities and gold have not held up. As I've been warning about gold, when it drops it's going to be fast. So much for more upside potential--it has now broken down and confirmed a top is in for now. By breaking below 920.80 it confirms that the leg up from Jan 22nd is finished.

It's still possible we're going to see another push to a new high as part of a larger rising wedge pattern from the December low. It looks now like we'll see a continuation lower after the current small consolidation finishes and then it should be set up for a bounce to correct today's decline. Then it will be a time for the short play.

Jeff Bailey : 2/1/2008 10:54:42 AM

You'd think Yahoo would have said something when they announced their earnings.

Jeff Bailey : 2/1/2008 10:49:12 AM

Swing trade long exit alert! ... for the one (1) Yahoo! YHOO Jan'09 25 Call (VYH-AE) at the bid of $4.50.

YHOO $27.74 +44.62% ...

Linda Piazza : 2/1/2008 10:47:14 AM

It looks as if the SPX will have its first 15-minute close beneath the 9-ema since about 11:15 yesterday morning. While it's possible that the SPX just needs to pull back to the bottom of its smallest channel--now just below 1372) to recharge, equity bulls do not now want it to find consistent resistance on 15-minute closes at the 9-ema, now at 1380.26.

Jane Fox : 2/1/2008 10:44:32 AM

The DOW futures have now made a new daily low so the long trade is off the table.

Linda Piazza : 2/1/2008 10:42:19 AM

The advdec line is still dropping, at 1058. Bullish traders want to see it steady near 850-900 if it continues dropping and certainly above about +550.

Jane has a different perspective on the advdec line and I urge you to watch her posts on the various indicators that she watches, too, for more input.

Jane Fox : 2/1/2008 10:41:49 AM

I see a long YM trade at 12702. Stop will be below the daily lows at 12635 so adjust the number of contracts to accomodate the added risk. alert

Linda Piazza : 2/1/2008 10:36:39 AM

The SPX tests its 15-minute 9-ema, with that average at about 1381.60 and the SPX a few cents below it. So far, no great damage has been done, but the Keltner setup does look a bit weaker with resistance beginning to firm a bit.

Linda Piazza : 2/1/2008 10:35:13 AM

The USDJPY first jumped up to 106.70 but after the 10:00 numbers, it dropped heavily. It's back at 106.13 as I type. U.S. equity bulls don't want to see it drop much longer and certainly want it to steady near 106 if it does continue dropping.

Linda Piazza : 2/1/2008 10:28:35 AM

I said earlier that the Keltner setup for the advdec line didn't promise that the advdec line could move much higher than 1900. It did by a little, to 1945, but the resistance held on a 15-minute close and now the advdec line is back at 1476, about to test the 9-ema at about 1450. Equity bulls want a bounce here, but then watch resistance again near 1770 and 2050. Equity bulls do not want a strong decline.

Linda Piazza : 2/1/2008 10:25:02 AM

The SPX is having trouble maintaining an upside breakout. It needs to sustain 15-minute closes above about 1392 currently to set up a breakout mode. In addition, RSI shows tentative bearish divergence at this high when compared to Wednesday's. Bearish divergences do not prove prices will crater: all they offer is a warning to have a plan in place in case they do. If you're in bullish positions, you have a relatively easy task. Just follow the SPX higher with stops at account-appropriate distance beneath its rise. Do consider, if you have more risk on the table than is comfortable, taking partial profits at certain intervals, a wise move in an environment in which prices can and do crater suddenly.

Bulls would like to see the SPX maintain 15-minute closes above 1384.90 or at least the rising 9-ema at about 1382.80.

Jane Fox : 2/1/2008 10:15:03 AM

"Internals" are strong and certainly favor the bulls. Link

Linda Piazza : 2/1/2008 10:14:32 AM

The SPX handily hit and even exceeded that upside target shown on the 15-minute chart. It's attempting a breakout on that chart, but needs to complete a 15-minute close above 1392.50 or so to do so.

Remember in my Wrap last night and then in my 9:30:49 post this morning, I suggested that the SPX traders might be aiming toward 1395-1405, with the SPX now approaching that zone. To me, that signals that it's time for you to exercise even more caution in setting stops and executing any plans you might have to take partial profits at key points. Some charts I have suggest that if the SPX can get through this zone, it might head toward 1425 or so, while others suggest lots of danger points along the way. It's time to begin following the SPX higher with your stops, if you haven't already been doing that.

Jane Fox : 2/1/2008 10:13:16 AM

US$ is not looking very strong here and why Gold is as strong as it is. Link

Jane Fox : 2/1/2008 10:08:21 AM

Crude's head and shoulders pattern is not playing out for the bears. When a bearish pattern forms but does not confirm it becomes bullish because the bears were not strong enough to pull through. Link

Linda Piazza : 2/1/2008 10:04:58 AM

So far, the advdec line hasn't been able to break above Keltner resistance, now at just under 1700 and then again at about 1920. The advdec line is near 1700 as I type. There's the possibility although still not the probability of a stalling here, so watch.

Jane Fox : 2/1/2008 10:03:49 AM

Jan. ISM manufacturing index above 47% consensus

Jan. ISM manufacturing index 50.7% vs 48.4% in Dec.

Nov. construction spending falls revised 0.4%

Dec. pvt. residential construction spending falls 2.8%

Dec. construction spending falls 2.3% year over year

Dec. construction spending falls 1.1%

Linda Piazza : 2/1/2008 10:02:49 AM

I used this morning's climb to exit my 20 RUT FEB 620/610 bull put spreads for $0.20, locking in some profit and lowering my downside risks. If you're so inclined, you might take a look at some of your positions and see if you can do that, too. My broker sometimes prefers that I put bear put spreads in front of the bull put spreads I have instead of closing out those, so there are lots of ways to consider handling the lowering of risks (vega as well as price risks). I've partially done that with my SPX FEB 1240/1230's, but in this climate, sometimes I just want to lock in profit and get out. I prefer to get out for only $0.15 of my original credit rather than $0.20, but in this climate, as I said . . . .

Jane Fox : 2/1/2008 9:56:47 AM

The bulls are in control now (at least until the ISM report comes out). AD line is +1393 and VIX is making new daily lows.

Linda Piazza : 2/1/2008 9:56:51 AM

There's light SPX Keltner resistance on 15-minute closes that's now been shoved up to about 1386.50. The SPX is currently testing it. If the SPX can maintain this 15-minute's close above 1383.01, it's again set a tentative upside target near 1391.29, but I'm just not sure how obtainable that upside target is as the advdec line's position at resistance makes me wonder if both won't stall. In any case, it's time to evaluate, if you haven't already, whether you'll stay in your positions through the 10:00 releases.

Linda Piazza : 2/1/2008 9:51:00 AM

I'd give you the Keltner outlook on the advdec line this morning except that there's not a particular outlook to give. The advdec line is climbing--bullish--but the Keltner setup is not currently showing a high probability that the advdec line will climb much above 1900 or so. If that setup doesn't change, then there's the possibility that equity prices will stall. This isn't a probability but a possibility so far. The advdec line is at 1558 as I type, still climbing.

Jane Fox : 2/1/2008 9:48:08 AM

Remeber the ISM out at 10:00 today.

Linda Piazza : 2/1/2008 9:45:28 AM

The USDJPY broke lower this morning after the jobs numbers. It's now at 106.19, trying to retrace some of its losses. The direction since about 9:00 am ET is supportive of equity gains, but not if they don't keep going, and resistance at the 9-ema is now being tested for the first time since the USDJPY dropped. We just don't know.

Linda Piazza : 2/1/2008 9:42:24 AM

The SPX's 9-ema is now at 1375.44. For the OEX, the 9-ema is at about 640.50.

Jane Fox : 2/1/2008 9:40:12 AM

VIX is making new daily highs although it is still early to make too much of the VIX right now.

Jane Fox : 2/1/2008 9:39:29 AM

AD line is above 0 at +710 and in that area that I will say the bulls are in control but do not have a firm hold on the ball.

Linda Piazza : 2/1/2008 9:32:36 AM

SPX 15-minute 9-ema is now at 1374.90, possible support on 15-minute closes. Resistance at 1381.70-1383.77 on 15-minute closes. SPX at 1378.89 as I type.

Keene Little : 2/1/2008 9:31:43 AM

One more thing before I leave for an hour--I mentioned on Wednesday that I thought gold had the potential to rally a little higher. As posted late Wednesday night: "As shown with the Fib projection now for a 5th wave up, there is upside potential to 966.40 (April YG) but I'm wondering if it will find lower resistance near 949 (assuming of course it rallies instead of drops below 920.80) where some trend lines and a 62% projection cross early Thursday morning (pre-market)."

The overnight high was 941.90 and has pulled back sharply but it still looks like it has some upside potential. So as mentioned Thursday, I think we're close to resistance at the top of its parallel up-channel which suggests a deeper pullback (at a minimum) is coming and that makes a long play risky (reward:risk ratio not favorable). But it's still too early to look to be shorting gold so I continue to watch for a setup.

Linda Piazza : 2/1/2008 9:30:49 AM

In my 3:43:44 post yesterday, I noted that "if you look at that rise [of the SPX off last week's low], you see strong days alternating rather frequently with weak days." I've seen saying and said again in last night's Wrap that the shape of the climb looks like a bear flag, so that we should be prepared for a rollover at any time. It looks to me as if the SPX traders want to chop this index a bit higher, perhaps toward 1395-1405, but the nature of bear flags is that they can collapse into lower prices at any time, and those strong days are alternated with weak days. Which will we get today? This is a day in which the reaction just isn't predictable before the open. I advised yesterday and have been advising that you not take home more risk than is comfortable for you, so hopefully you can watch the opening and get a feel for what's happening with some equanimity.

Jane Fox : 2/1/2008 9:21:42 AM

I must admit I am getting real tired of seeing Gold rally without me on board. As I have said before I was waiting for Gold to retreat back to 850 when I would have taken a long but it got to 855 (the spike down on January 22nd) but there was no evidence to me that was the bottom, it was too fast. Link

Jane Fox : 2/1/2008 9:18:16 AM

Overnight the markets broke their previous day highs but have now retreated back into their respective previous day ranges. Obviously they did not like the employment report but the fact that overnight lows were not even tested tells me the selling may be done. Link

Keene Little : 2/1/2008 9:16:19 AM

A big overnight rally in equities was reversed sharply since the high around 7:45 AM this morning. The volatility continues even in the overnight hours. I will be away from the MM for about the first hour. If we're in the rising wedge that I showed for SPX, watch out for the whipsaws (typically found is wedge patterns)!

Jane Fox : 2/1/2008 9:10:36 AM

WASHINGTON (MarketWatch) -- U.S. employers cut back their hiring in January for the first time in more than four years, government data released on Friday showed, perhaps providing the smoking gun showing that the economy has entered a recession.

Nonfarm payrolls fell by an estimated 17,000 in January, the Labor Department said. This is the first decline since August 2003.

The nation's unemployment rate fell to 4.9% from 5%.

The decline in payrolls was much weaker than the 85,000 increase that had been expected by Wall Street economists surveyed by MarketWatch.

Stuart Hoffman, chief economist at PNC Financial Services Group, said in an interview on Thursday that a decline in payrolls would be the sign that the economy had entered a recession.

Jane Fox : 2/1/2008 9:09:43 AM

WASHINGTON (MarketWatch) -- The government overestimated job growth in 2007, according to an annual revision released Friday by the Labor Department.

U.S. nonfarm payrolls grew 95,000 per month in 2007, a slower pace than the 110,000 previously reported.

The job market started 2008 on the wrong foot, with 17,000 jobs destroyed, the government said in the release.

For all of 2007, employment rose by 1.137 million, the slowest job growth since 2003, when hiring picked up again after a "jobless recovery."

The level of employment in December 2007 was revised lower by 376,000 on a seasonally adjusted basis to 138.1 million, based on more up-to-date information from quarterly tax returns by businesses.

Jane Fox : 2/1/2008 9:07:03 AM

Dateline WSJ - Microsoft Corp. offered $44.6 billion to buy Yahoo Inc., in a bold attempt to dramatically expand its online business and compete more effectively with Google Inc. in services ranging from email to Internet advertising sales.

The offer was made in a letter sent Thursday by Microsoft Chief Executive Steve Ballmer to Yahoo's board of directors. One person familiar with the matter said that Microsoft decided to "go hostile" with its bid within the last few weeks after Yahoo ignored its latest overtures.

The offer, $31 a share in cash and stock, is a 62% premium to Thursday's closing price. Microsoft said Yahoo holders would be able to trade their shares for cash or 0.9509 Microsoft shares a piece, with no more than half of the overall purchase price paid in cash.

Jeff Bailey : 2/1/2008 4:18:43 AM

12/31/07 to 01/18/08 Sector Bell Curve from Dorsey/Wright Link

01/24/08 Sector Bell Curve Link

01/31/08 Sector Bell Curve Link

Market Monitor Archives