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Jeff Bailey : 2/9/2008 1:55:41 AM

Today we get some news regarding a convertible from MBIA Inc. (MBI) $14.60 +2.81% and I spent some time with it.

Undoubtedly, MBI probably much more of a "key stock" regarding an observation of what the MARKET thinks, or knows about the future of the mortgage insurance industry. I spend some time on MBI today not just because I've profiled a put on the stock, but what we can learn from today's news regarding LEVELS.

As you know, or may have heard, the credit markets are tight right now, especially for low credit score individuals, and company's that may be having some balance sheet issues.

ADI is simply an example of how a convertible can impact a stock's price as there are traders that ONLY trade stocks of company's that offer convertibles. Why?

Because they can crunch some quick numbers, figure out PRICE levels where a deal discounts. You see, it is usually SHORTS that will look for convertibles as their mindset is geared towards the BUYERS of the convertibles, and knowing that an institution that BUYS the convertible is looking for some YIELD and capital appreciation, but when the stock price (which the convertible is tied to) "discounts," it the the owner of the convertible that may come in and start SHORTING the underlying shares of a stock in order to HEDGE their position. After you observe ADI's convertible structure, you'll see it was "different" that MBI's (collars and conversion prices.

Where the prolific SHORT squeeze can take place is when the UNHEDGED short (you and I that don't have the convertible to protect us from an UP move) is short, and the stock begins to move OUTSIDE the range.

I've seen more "convertible offerings" that last few months than I can count. I've posted some of them here in the MM and we note the YIELD (if you see a convertible with NO YIELD or a small 1% to 2% it will likely be hedged from day 1, but for stocks that most of us will recognize. What does YIELD tell us? It gives us the observation of RISK. Makes sense. If you want me to take the deal, and RISK is HIGH, you'd better offer me some yield.

One primary reason we see so many convertibles is due to the tight credit markets.

A convertible is unregistered stock, so it is pretty "easy" to get a deal done when compared to a debt offering (a bond offering).

Now you're probably asking ... "What the heck does any of this have to do with the broader market, the economy?"

The answer is very simply in my opinion. And it can be a KEY SIGNAL for an economic recovery, or a turning point for a stock. NOT understanding this is what had some so bearish all the way up the scale from 2003.

Pretend for a moment that you are an institutional investor/trader and you get $20M of a convertible with a 7% YIELD. It begins to DISCOUNT on you, so you begin shorting the underlying shares.

Then at some point in the future, say things have deteriorated (maybe your forecast was "modest recession 2008"), and the company that you have the CONVERTIBLE on has been paying you a 7% annual yield on that paper, but the stock has fallen 20%, 30%, 40% or more.

But one day you LEARN something that you haven't seen before (an upside surprise from a competitor, or the company that you have the convertible on) and you're ABLE to trigger the CONVERSION!

So you CONVERT to the common! If you've ever observed a stock that suddenly shows "unusual volume" activity and there's "no news," but your remember that the company did a convertible offering months, quarters ago, it would well be a CONVERSION taking place.

Then you remember the old trader's saying ... "Volume often proceeds PRICE action."

What's the RISKIEST ASSET CLASS a trader/investor can own?

Your right! It is STOCK! STOCK is the last in line should BANKRUPTCY happen. Convertible preferred isn't much better, but now you know there's a YIELD with it, and how a Convertible/bull can still hedge against the RISKIER underlying shares.

Next level of RISK?

"JUNK" bonds, or HIGHER YIELDING corporate debt with LOW credit ratings. What happens to a "junk"-rated bond's PRICE when the rating gets an UPGRADE? Yep, its price will RISE closer to par $1,000.00.

So, we're monitoring PHF.

Next risk? Higher grade corporate debt.

Next risk? Municipal bonds.

Next risk? US government bond. 13-week less risky than 30-year as less risk shorter-term than 30-years out and what can happen in between.

Jeff Bailey : 2/9/2008 1:55:03 AM

ADI 09/26/2000 ... here's a daily interval bar chart of ADI and I've placed my cursor box on the 09/26/00 bar Link

Convertible offering on 9/26/00. Deal done at ADI $85 equivalent with a 4.75% yield.

Trader develops the "collar" adding/subtracting the 4.75% yield from $85.00.

Now, a lot of traders will look at SEC filings every morning and look for any convertibles. They like to SHORT them.

See how a short could have come in RIGHT AWAY on ADI on 09/26/00 (funny how $85.00 so close to a retracement level) and when ADI broke ABOVE the collar ($89.04) stocks jolts higher. "Short squeeze al_rt!" BIIIIG trouble if unhedged above $94.03.

Whew! That was close!

Two (2) sessions later ADI makes sudden dart back lower!

Hmmm... is somebody SHORTING/HEDGING the convertible after the 4.75% rise? If so ... WHY? WHY? WHY? Do they see DOWNSIDE RISK? Do they KNOW SOMETHING? (ie does the MARKET know something?) At a 52-week high, WHY is ADI doing a convertible anyway?

Next day, ADI "discounts" or drops quickly below lower collar. $#&*% says the convertible owner if not hedge.

You can see the "support broken becomes resistance" on the re-test 9 to 10 sessions later.

"Sold to you Mr. Magoo!"

Remember, the convertible long is somewhat "stuck" with the convertible. They can't just go and sell it. They need to HEDGE it. And since its "tied" to the underlying, the obvious place to hedge is with a SHORT in the underlying stock of ADI.

Jeff Bailey : 2/8/2008 10:26:39 PM

Bailey's Basics (09/26/2000):The Analog Devices Convertible

For some traders, you know the story on convertibles. For those traders that aren't familiar with how a convertible can affect stock price, here we go. Today's deal for $1 billion in convertible subordinated notes (convertible at $129.78) with a yield of 4.75% seemed troublesome. Remember that you can buy a 10-year treasury that yields 5.816%. Why would an institution be willing to enter a deal at $129.78 with the stock trading at $85? Either they're long-term bullish and feel the money they're lending ADI will be put to good use, or they're bearish and wanted a hedge. The latter is what we'll discuss in detail. Part of the agreement was that the buyer has the option to purchase an additional $200 million of convertible notes. What's at play here is the $200 million. We don't need to be math majors to figure out that today's price is well below the $129.78 level, even with the 4.75% yield. Is the additional $200 million the "insurance policy" for a declining stock price? Yes would be our answer. That's what many players will be monitoring over the next couple of months. There are traders out there that look for convertibles and like to short them if the stock begins breaking down. Sometimes, the institution that buys the convertible will establish a hedge, by shorting the underlying stock (after all they can convert 1 billion at $129.78) and still receive the 4.75% interest payment if the stock moves higher. If the stock falls to $50 (hypothetically of course) their short position is profitable and they can still convert an additional $200 million at the lower stock price, thus lowering their cost basis from $129.78. Many traders today probably jumped in to short, but they are not hedged. They don't have the convertible to hedge against. For this reason, traders should keep shares of ADI on their "watch list." If a short position mounts on this stock, but the stock price continues higher, that could set the stock up for a short-squeeze on the non-hedged shorts. If the stock breaks down from recent lows, it could bring on further hedging from the current buyer of the convertible and outright shorting by other market participants. After gapping lower at the open, it looks like the buyer of the convertible may be making a statement short-term. "Shorters beware."

OI Technical Staff : 2/8/2008 9:59:59 PM

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Jeff Bailey : 2/8/2008 9:39:26 PM

Closing Internals found at this Link

Jeff Bailey : 2/8/2008 9:30:03 PM

Closing U.S. Market Watch found at this Link

CRB Index closes at fresh 52-week high.

Keene Little : 2/8/2008 4:57:50 PM

Here's the updated SPX 30-min chart with the two scenarios I've been discussing-- a sideways triangle consolidation (pink) vs. another rally leg (dark red): Link

I've noted the key price levels on the chart to help guide us as to which price pattern is going to play out. No answers from today's price action so let's hope for some answers on Monday. Have a great weekend.

Jeff Bailey : 2/8/2008 4:25:19 PM

Vanguard Convertible Securities (VCVSX) finished YESTERDAY at an NAV of $13.37. Just a benchmark.

Jeff Bailey : 2/8/2008 4:16:19 PM

Hmmm ... could have a STRANGLE on MBI.

Keene Little : 2/8/2008 4:15:28 PM

Today was a challenging day. I probably deleted more posts before getting a chance to post them just because price kept flipping around and not meeting Fib targets. This is one nervous market.

Keene Little : 2/8/2008 4:11:34 PM

Here's what I'm thinking for Monday--the DOW 10-min chart shows a descending wedge finishing with a new low by mid-day Monday (the wedge explain all the choppy 3-wave bouncing around we've seen) around 12075 (middle of its Fib support zone): Link

The 30-min chart shows the rally leg out of it where it would achieve 162% of yesterday's leg up, giving us an upside target of about 12400. From there it would then tip over and head much lower. Link

Jeff Bailey : 2/8/2008 4:15:25 PM

Gott'a wonder if the "inflated" premiums on the MBI-QU were at all related to option trader market makers knowing about the convertible. Makes sense.

"Hey Billy Bob ... investment banking just called and they're getting ready to price $750M convertible at $12.15. Don't be selling $1.75. Inflate the premium a bit to $2.00 (even though the stock is moving higher) until the deal gets done."

Jeff Bailey : 2/8/2008 4:08:18 PM

OK, so at least ONE thing we know about last nights MBI extended session was all that was going on was getting the stock squared up for today's convertible pricing. Surely there were market participants that had the info before, as there were some institutional traders tied with the deal.

Everyone now knows the news and playing field is even.

I think you and I have some levels that maybe we didn't have before.

If you've ever gotten caught in a massive down draft, or up draft only to learn later about a convertible that was done prior. You know something today that you didn't know before.

I'll bet you $10,000.00 that somewhere out there, there are a lot of traders either pure short, or pure long that won't know what hit them at some point in the future.

I've been there and done that once. That's all it takes. Ask why? Then figure it out.

Jim Brown : 2/8/2008 4:01:07 PM

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Jeff Bailey : 2/8/2008 4:00:32 PM

PBR driving me a bit nuts. It goes up when oil goes down, it sits flat when oil goes up.

Has to be option related doesn't it?

Jeff Bailey : 2/8/2008 3:59:03 PM

SIL $13.81 +5.17% ...

GG $36.73 +5.12% ...

Keene Little : 2/8/2008 3:57:12 PM

After over-throwing their upside Fib targets and downtrend lines the indices have done a sharp pullback. Is that it for the bounce? Quite possibly. Another drop back down to a minor low early Monday could finish a downside pattern (ending diagonal, or descending wedge) for the move down from yesterday's high. That pattern would set up a 2-day rally so I'm going to wait until Monday before I try a long play with a couple of February call options..

Jeff Bailey : 2/8/2008 3:56:42 PM

MBI $14.59 +2.74% ... DAILY Pivot.

Linda Piazza : 2/8/2008 3:55:51 PM

I originally typed "1245/1235 bull put spreads" in my 3:51:14 post when I meant to write "bear put spreads." I already had 1240/1230 bull put spreads and the bear put ones in front of them, instituted for just a few cents more than it would have cost me to close out the bull put spreads at that time, give me the opportunity to profit from instead of suffer from a drop in price. I didn't hedge the whole position, but I liked the idea, and I just wasn't thinking in those terms when I called my broker to mull over ways I might lessen the risk I was carrying at the time.

Jeff Bailey : 2/8/2008 3:53:55 PM

Then down in the commodity section, green across the board.

Jeff Bailey : 2/8/2008 3:53:34 PM

US Market Watch looks like a red and green-striped peppermint stick. Blocks of Red grouped together and blocks of green grouped together.

Jeff Bailey : 2/8/2008 3:52:15 PM

TRIN 1.09

TRINQ 0.37

Jeff Bailey : 2/8/2008 3:51:42 PM

Hey, we're 50% dyanic on the RUT.X.

Jeff Bailey : 2/8/2008 3:50:48 PM

RUT.X 702.33 -0.06% ... gets above the 700 strike. DAILY Pivot 699.21.

Linda Piazza : 2/8/2008 3:51:14 PM

Time to make end-of-day and end-of-week decisions. Are you comfortable with the risk that you're carrying into option expiration week? If you're not and you've got a great broker like mine, perhaps it's time to make a quick call to your broker for ideas--a week ago, mine suggested a 1245/1235 bear put spread "in front" of some of my 1240/1230 bull put spreads to partially hedge my position, for example. We can get stuck in ruts in our thinking, particularly if we're fearful about our position. I'm not fearful right now, but I am used to having already closed out my front-month spreads by the week before opex, locking in profit, and that hasn't been possible this month . . . yet.

I have already been able to close out the MAR 1530/1540's that I put on a few days ago, though, locking in profit on those and ready to put on more, if possible, if the markets bounce next week and I'm offered the possibility. Check your spreads each day and make decisions about what you want to do.

Jane Fox : 2/8/2008 3:50:04 PM

Can you believe that trade got to full profit?

Jeff Bailey : 2/8/2008 3:49:48 PM

VIX.X 27.82 +0.32% ... slips under DAILY Pivot.

Jeff Bailey : 2/8/2008 3:49:23 PM

SPY $133.56 -0.28% .... takes a look at DAILY Pivot.

Jeff Bailey : 2/8/2008 3:47:00 PM

TSO L.A. Plant work (news from 02/06/08) Link ... I wouldn't think this type of news would have had the stock retreating as it did from $43.11.

Jeff Bailey : 2/8/2008 3:42:39 PM

SUN traded stronger on the pullback than TSO. See how it kissed 19.1% on 02/07 for about 1 minute?

Jeff Bailey : 2/8/2008 3:40:37 PM

Sunoco (SUN) $62.50 +4.32% ... 38.2% conventional (11/28/07 relative high to recent lows) right here at $62.71.

Keene Little : 2/8/2008 3:38:42 PM

Techs are a little stronger today. Two equal legs up for NQ is at 1776.75.

Jane Fox : 2/8/2008 3:37:46 PM

Now that we have reached 12220 I will raise the stop but to a revised 12134 and not 12144.

Jeff Bailey : 2/8/2008 3:37:46 PM

Tesoro (TSO) $37.80 +3.67% ... kind'a no-man's land between 0% and 19.1% conventional. You could break up that range further with a little 0% to 100% between the two and it is at 61.8% on the button here.

Ranges and levels.

Linda Piazza : 2/8/2008 3:37:32 PM

Here comes the approach to SPX 1333, although much later than I anticipated it.

Barring anything big happening before the end of the day, today's trading range is within yesterday's, with the pattern looking on both the daily and intraday charts like a triangle over the last few days. The weekly candle will be an ugly one, one that retraced the previous week's range and then some, although there's currently a lower shadow indicating a bounce off support. The SPX is very near last week's opening value of 1330.70 as I type. Two weeks of volatile movement and the SPX is near where it started a couple of Monday's ago. The day after the FOMC meeting, I wondered aloud whether the SPX could be setting up a big consolidation zone, one that would gradually narrow into a triangle on the daily chart, too, and I'm still wondering if that's a possibility. If so, we could be seeing some miserable trading conditions set up.

Keene Little : 2/8/2008 3:35:28 PM

I don't like the looks of the bounce off today's lows--too corrective looking and therefore do not like the idea of a long play with February call options before the weekend. I'd rather miss a move if it surprises me to the upside (wouldn't be the first time).

Watch now for where there would be two larger equal legs up in the bounce off today's low--DOW 12196 (or maybe its downtrend line from yesterday's high near 12215) and SPX 1335 (just above its downtrend line).

Jane Fox : 2/8/2008 3:33:22 PM

How were able to stick with this trade?

Jeff Bailey : 2/8/2008 3:31:45 PM

Valero (VLO) $58.93 +3.15% .... reclaimed conventional 38.2% this morning. For the most part, has been sitting on it all day.

Jane Fox : 2/8/2008 3:21:39 PM

YM got to a low of 12125 and I have a stop at 12119.

Jeff Bailey : 2/8/2008 3:20:30 PM

03:00 Internals found at this Link

Jane Fox : 2/8/2008 3:20:30 PM

Hmmm did I mention this trade would take a long time. :)

Keene Little : 2/8/2008 3:19:54 PM

The one caution about thinking of a long play into next week (and buying some February call options) is the idea that we could stay stuck in the sideways consolidation pattern that I've shown on the DOW and SPX charts. That would do nothing but eat up your premium. I'll be making an assessment 10 minutes before the close and I'll let you know what I think, fwiw.

Linda Piazza : 2/8/2008 3:10:41 PM

Next SPX potential Keltner support is just below 1321, but neither upside nor downside targets are being met as price action narrows this afternoon.

Keene Little : 2/8/2008 3:04:59 PM

Remember, the bullish possibility here, for a nice trade, is for a rally up to SPX 1365 early next week. That's why a continued push higher from here could be a good buying opportunity. Ideally, from an EW perspective for the move down from yesterday, I'd like to see one more new low to set up the long play. That could mean a rally out of the gates on Monday.

It would definitely be a speculative play but perhaps a couple of cheap February call options near the close today (if we get the new low and it doesn't violate the support levels given) could work nicely in case the rally starts with a gap up. If you're interested in trying it, spend a few moments studying some different option choices. But keep in mind the premium bleed, especially on OTM options, over the weekend.

Linda Piazza : 2/8/2008 2:55:39 PM

No further SPX progress toward 1333. The SPX climbed as high as 1331.18, but it hit that former trendline sooner than I expected and eased back from that. There's still a possibility of 1333, but it's currently not looking any more probable than a decline.

Keene Little : 2/8/2008 2:54:31 PM

The DOW and SPX are overlapping in their bounces so it's either very bullish and we're about to see them blast higher (buy a move that breaks above that last high) or else we've already seen the end of the corrective bounce and prices will sink to new lows (in which case keep an eye on that Fib support zone for the DOW at 12065-12085).

Jeff Bailey : 2/8/2008 2:47:48 PM

I think BGC did a convertible back on July 25th to help fund the Phelps Dodge copper wire/cable business in September. Link

Jane Fox : 2/8/2008 2:41:54 PM

YM retraced and tagged 12149 so we cannot use it for our stop if/when we get to 12200. That stop will now be at 12144. I always put my stops under swing lows when long.

Keene Little : 2/8/2008 2:39:05 PM

Many charting programs don't have the Fib projection tool but most have a Fib retracement tool. So a quick way to measure the 2nd leg up relative to the 1st is to draw your retracement of the 1st leg up and then grap it and move it to the bottom of the pullback. That will show you the 62% and 100% projections.

Depending on whether or not your retracements show extensions beyond 100% (you might have to move the 2nd anchor point to the left or right of the 1st anchor point) you'll be able to see where the 162% projection would take the 2nd leg up. It's very effective for watching each leg of a move for where potential reversal levels might be.

Linda Piazza : 2/8/2008 2:33:21 PM

The SPX hasn't made it to 1333 yet (see my 2:17:52 post) so maybe it's a good thing I used that word "toward"? Smile. However, it still looks as if it might try to 1333, but that's going to constitute a retest of the former ascending trendline off yesterday's low, if it does get that high, and resistance could be tough from 1333-1334. The SPX is at 1330.72 as I type.

Jeff Bailey : 2/8/2008 2:30:33 PM

Years ago we PUT a convertible on ADI around $90 and when it broke, it BROKE.

Jane Fox : 2/8/2008 2:29:58 PM

Once this trade gets to around the 12200 mark I will be moving my stop to 12149.

Jeff Bailey : 2/8/2008 2:29:28 PM

I'm trying to think of the stock that I noted several months ago that did a convertible, and when it BROKE ABOVE, the squeeze was on. Was it EMC?

Keene Little : 2/8/2008 2:27:29 PM

A good way to see whether or not a bounce has a chance of continuing higher is to look for where it will have equality in the two legs up. A reversal after that will often tell you that it was just a correction to the larger trend down. So for the bounce off the last low, two equal legs up would be at SPX 1332.11 (ES 1333.75).

If price reverses back down and takes out the last pullback (SPX 1324.59, ES 1324.75), including from right here, then it will leave it as a confirmed 3-wave bounce and you don't want to be long for anything other than a scalp trade. At least wait until new lows are made and possible support is found at a lower level.

Jeff Bailey : 2/8/2008 2:27:17 PM

Now a quick explanation of why $16.20 could become an important level in days, weeks, months ahead.

There are some traders that look for convertibles to trade.

Many will see it as a "reason to short" per a bearish scenario, where a BREAK OF THE CONVERSION price brings in a strong amount of shorting.

Shorting by BULLS that actually took the convertible with their bullish scenario. In MBI's case, the bullish scenario is that the CDO market will heal, the stock-related offerings they are doing (which will dillute shareholder equity) will put cash on the balance sheet to keep above "junk" rating.

However, should MBI indeed trade $16.20 or higher, then that becomes a SIGNAL that "it is working" and the bull case unfolds.

What we often see then is MASSIVE SHORT COVERING.

Do you see how the CONVERTIBLE can also be a "hedge" to the short? An old short, or a NEW short?

The trader(s) that own the convertible, they know they can convert at a PRICE of $12.15.

The unhedged short that thinks MBI goes "belly up" needs to undestand what $16.20 may then say about the mortgage bond industry and "healing."

Watch those other "junk bond" indicators too.

Jane Fox : 2/8/2008 2:23:11 PM

I'm afraid this trade may take a long time.

Jane Fox : 2/8/2008 2:22:32 PM

I am long the dow futures at 12171 with a stop at 12119. Target is a 1:1 risk to reward.

Jane Fox : 2/8/2008 2:19:46 PM

If the DOW futures makes a higher high (trades above 12166) the higher low is confirmed and the trend has reversed.

Linda Piazza : 2/8/2008 2:17:52 PM

I could be very, very wrong, but the way the SPX is behaving on that 15-minute chart suggests to me that it may try to push up toward 1333. The SPX is at 1326.38 as I type.

Jeff Bailey : 2/8/2008 2:14:22 PM

Dang it anyway ... I had slapped a "dynamic" on it this morning. When lower 61.8% went off, thought it migh close back toward $13.15.

Jane Fox : 2/8/2008 2:13:11 PM

Ok the swing low is now at 12121 so stop will be 12119. alert

Jane Fox : 2/8/2008 2:12:43 PM

Let's try a YM long at 12171 above the swing high at 12166. This will be a reversal type trade and will try to take advantage of an oversold reactionary bounce. Stop will be below the swing low at 12125 so at 12123.

We have already had a bounce but it didn't go very far and since we have an entry above this bounce we should be OK on grabbing the rest of the move - if there is anymore.

Jeff Bailey : 2/8/2008 2:11:40 PM

Day trade short stopped alert! ... at $14.22 for the MBI.

Jeff Bailey : 2/8/2008 2:09:15 PM

MBI "coiling" at 50% dynamic. Need these seller to hold and take out the now afternoon low of $13.83

Linda Piazza : 2/8/2008 2:08:30 PM

The SPX's 15-minute 9-ema once again held as resistance on that last 15-minute close. That supposedly keeps alive the potential downside target, now at 1314-1316, but the SPX appears to be trying to slow its descent in my subjective eyes, so keep some skepticism about that target. In other words, if you see conditions start changing, do not hold on for the supposed target. The 9-ema is now at 1328.34 with the SPX at 1325.55 as I type.

Jeff Bailey : 2/8/2008 2:08:12 PM

Day trade short lower stop alert! ... in the 1/2 MBI to $14.22 (from 14.29)

Keene Little : 2/8/2008 2:07:18 PM

I mentioned a potential test of yesterday's low for SPX and that a break below 1309 (127% reversal of yesterday's rally) would be confirmation of a bearish breakdown. For the DOW, two equal legs down from yesterday's high is at 12085. The 127% projection is at 12065. A 62% retracement of the rally off the January low is at 12073.

So if this Fib band of support between 12065-12085 doesn't hold then it will confirm the breakdown and it will be time to short the bounces. But watch for support to hold first.

Jeff Bailey : 2/8/2008 1:51:58 PM

Please note! I would NOT suggest holding "swing trade shorts" in the MBI underlying. Especially if the stock were to trade ABOVE $16.20.

Review for some, but for those new to "convertible" offerings, and not being hedged, you need to know the dynamics.

Linda Piazza : 2/8/2008 1:47:24 PM

This market is so crazy these days that I feel as if I'm making up stuff when I'm listing potential targets, but here goes: The SPX's potential downside target, remaining a potential target according to the Keltner setup as long as the SPX maintains 15-minute closes beneath the 9-ema, is 1315-1317. The 9-ema is now at 1329.41.

Anyone reading those words spots an obvious problem. How does one engage in a short-term "scalping" trade when one has to wait while the SPX retraces almost 7 points back up to the 9-ema before knowing whether the downside target still looks viable? How does one believe a potential target anyway when prices turn around almost on a dime and zigzag back the other direction? It's a tough market.

Jeff Bailey : 2/8/2008 1:46:18 PM

Disclosure: I currently hold a bearish position in MBI.

Jeff Bailey : 2/8/2008 1:44:02 PM

Day trade short alert! ... for 1/2 position in MBIA Inc. (MBI) at the bid of $13.88. Stop $14.19. Target $13.25.

Jeff Bailey : 2/8/2008 1:40:47 PM

01:00 Internals found at this Link

Keene Little : 2/8/2008 1:38:59 PM

Here's an update to the earlier SPX 30-min chart (11:33 AM) that shows the possibility for a larger a-b-c bounce into Monday/Tuesday (dark red), with upside potential to 1365, or a larger sideways triangle (pink) that could play out most of next week (oh joy if that happens): Link

Both call for a bounce off yesterday's low (may not get there) and a break of the low would be a bearish signal. If it drops more than 127% of yesterday's rally (1309) then it would be good confirmation that it's more than a head fake break.

Jeff Bailey : 2/8/2008 1:36:33 PM

SKK finds a bid.

Linda Piazza : 2/8/2008 1:36:25 PM

In last night's Wrap, I suggested that market conditions just weren't good for those trying to trade with small accounts. We're seeing a lot of turn-on-a-dime movements. I've been cautioning that you have your profit-protecting plans in place before a key level is tested because you might have only moments to react before there's a big turn. Those with big accounts can dial down to a few contracts, and if they're good at account and trade management, they can weather the whipsawing until they catch a big movement. If you've got a $3,000-$5,000 account, though, even good account and trade management and dialing down to 1 or 2 contracts at a time won't save you from damage if you're whipsawed out of a number of trades. Commissions and the bid/ask spread eat even more into your account balances.

So, I suggested that this might be a good time for studying the markets rather than trading them if you've got a small account. Get excited about what you've learned and pat yourselves on the back that you've still got an account to trade. So, today, I want to make a suggestion. I've just watched a webinar on CBOE on the 2/7/08 "Options Safari," showing the process a market maker goes through when deciding whether to execute your order. I thought it was a great thing to watch, for both experienced and new options traders.

Jeff Bailey : 2/8/2008 1:28:24 PM

RUT.X 696.47 -0.89% ... probes WKLY S1.

Linda Piazza : 2/8/2008 1:20:04 PM

The SPX is now slightly below the rising trendline off yesterday's low, so unless it bounces rather quickly, it's breaking out of that triangle shape to the downside. I want to caution that you shouldn't believe in any targets too strongly in this market, but the SPX has now begun to bounce back from its tests of the 15-minute 9-ema. As long as it's doing that, we need to consider a potential target near 1315-1317. However, if there's a quick bounce back above that 9-ema, now at 1330.93, this will have been just a test. It's a little early for the stop-running action that we often see from about 1:35-1:55 pm ET, but perhaps not too early to have big money returning from lunch, testing to see if any downdraft is going to be bought or sold hard. So, maintain a little skepticism and awareness that you might be watching such a test.

Keene Little : 2/8/2008 1:17:40 PM

Two equal legs down from yesterday's high would take SPX (and ES) to a retest of yesterday's low so if that level gets tagged watch for a potential reversal (so a buying opportunity there)--SPX 1317.72 (ES 1317.50).

Jeff Bailey : 2/8/2008 1:15:17 PM

Anyone know where the SPY/SPX OI is at yet?

Jeff Bailey : 2/8/2008 1:14:54 PM

SPY $133.01 -0.68% ... DAILY Pivot $133.50.

Barry! Is this making sense?

Jeff Bailey : 2/8/2008 1:13:26 PM

VIX.X comes to daily pivot

Jeff Bailey : 2/8/2008 1:11:18 PM

PBR $111.13 -0.42% ... "doesn't make sense."

Keene Little : 2/8/2008 1:09:59 PM

It's certainly looking more and more like the sideways triangle consolidation pattern is playing out. Ready for another day or two of this before another leg down? Stay patient and don't get chopped to pieces. Sell resistance and buy support if you're interested in day trading this. Support right now is at yesterday's lows although a sideways triangle pattern says to look for a higher low.

Jeff Bailey : 2/8/2008 1:10:26 PM

USO $72.33 +3.62% ... did see 38.2% conventional ($72.58).

"News is noise?"

Jeff Bailey : 2/8/2008 1:04:53 PM

So ... $12.15 - $1.36 = $10.79 becomes the "waterline" if you will where IF the stock trades $12.15, then traders that took the deal start to assess RISK given the yield of 11.19%. If the dividend gets cut, the yield of the deal will change.

However, let's assume dividend stays $1.36 for base purpose.

Jane Fox : 2/8/2008 1:00:55 PM

Internals are certainly not bullish. Link

Jeff Bailey : 2/8/2008 1:00:28 PM

What's MBI's current stock dividend (reading the deal)

Good gravy! $1.36/share.

So at $12.15, a $1.36/share dividend would be a YIELD of 11.19%.

Jane Fox : 2/8/2008 12:58:05 PM

Ditto for the Crude chart. Link

Jeff Bailey : 2/8/2008 12:57:52 PM

So 8.2% "premium" over $12.15.

Jane Fox : 2/8/2008 12:57:33 PM

Gold chart is now looking a lot better and I suspect the H&S pattern will not confirm. Link

Jeff Bailey : 2/8/2008 12:56:43 PM

Today's low on MBI was $13.15.

Jane Fox : 2/8/2008 12:56:27 PM

The VIX is in sync with the S&P futures so you can use it to help you trade. There are days when these two diverge but not many. Link

Jeff Bailey : 2/8/2008 12:54:35 PM

What kind of SEC Yield can I get from the PHF, a "junk bond" fund?

Jane Fox : 2/8/2008 12:54:15 PM

Here is McMillan's Weekly commentary. -

The bulls' hopes came alive with the strong rally in late January that carried the S&P 500 Index ($SPX) over 120 points higher, while the Dow rose over 1,000 points. In fact, the rally was even larger than that, if you count the intraday lows made in overnight, Globex trading on the Martin Luther King holiday and the ensuing night. Nevertheless, reality returned quickly with Tuesday's large plunge across every sector and index.

This action tells us a few useful things: 1) volatility is not diminishing, and one should not expect it to anytime soon, 2) the market has outlined a trading range, with support near 1265 on $SPX and resistance at the recent highs, at 1395. Inside of that range, there is also support at or just above 1310 (which was an overnight low last week and was re-affirmed today). Overall, though, the $SPX chart is negative in that the 20-day moving average is still declining, and the index could not hold above that moving average on its most recent rally attempt.

In general, our indicators are mixed. The equity-only put-call ratios are both still on buy signals, according to the computer. However, as you can see from the accompanying chart of the WEIGHTED ratio, the naked eye tells you something quite different: it has almost reversed back to a sell signal (which it would if it makes a new high). So, despite the computer's "What, me worry?" attitude, we are keeping a close eye on the weighted ratio.

Market breadth (advances minus declines) has become a better the next buy signal, and they are negative at this time.

Finally, the volatility indices ($VIX and $VXO) have been, well, volatile once again. The spike peak buy signal when $VIX poked above 37 in mid-January is still in place. So, from that perspective, $VIX is positive. However, on the shorter-term it has stopped declining, and $VIX would flash a new sell signal if it climbed above 30, but would reinstate a bullish case with a close below 26.

In summary, this is still likely a trader's market, and not one for investors. Buying near support and selling near resistance (referencing the $SPX chart), is the best approach until the market breaks out over 1420 or below 1265.

Jeff Bailey : 2/8/2008 12:53:55 PM

OK, $16.20 also an IMPORTANT level. Now we've got $12.15 to $16.20.

Linda Piazza : 2/8/2008 12:50:00 PM

The SPX should confirm that inverse or reverse H&S by late this afternoon or early Monday, at the latest, or else we should consider that the formation has fallen apart. A triangle is now forming since yesterday morning, encompassing the head and right shoulder area, and the triangle is narrowing enough that we should probably see a break of that within the same time period.

Which direction will the break come? That's the problem with these narrowing formations. RSI flattens near the neutral level and prices chop back and forth across various supposed benchmarks without the action meaning much of anything at all. You just have to wait for the break.

If the SPX breaks to the downside, say sustaining values below about 1228, it's got potential next Keltner support at 1317, and that looks fairly firm. If it breaks through to the upside, sustaining values above about 1340 now, it's got potential resistance at 1344.65 and then 1348.32.

Jeff Bailey : 2/8/2008 12:51:36 PM

Now, before we "freak" and wonder why MBI's upwardly revised offering was oversubscribed ... (review for long-time subscribers)

Let's say you're the head trader at a hedge fund and you're short 2 million shares of MBI at $20.00, or $6.75 for that matter. Would you take the deal and indicate interest for the offering at $12.50?

Well, we at least know that the MARKET said yes to $12.50. I just want you to know that there might be some out there that said "no, not at that price."

Here's the deal description Link

Jeff Bailey : 2/8/2008 12:51:30 PM

MBI's short interest as of 1/31/2008 was 55.9 million shares. Link

Jeff Bailey : 2/8/2008 12:51:25 PM

OK, that $12.15 becomes VERY, VERY, VERY, VERY important.

Jeff Bailey : 2/8/2008 12:38:51 PM

MBIA RISES ON BOOSTED $1B OFFERING; SCA FALLS ON CUT

DJ- Bond insurer MBIA, trying to keep its AAA rating, boosts offering to $1 billion from $750 million after it was oversubscribed by investors, pricing 82.3 million shares of common stock at $12.15 a share, a 14% discount to yesterday's close. Meanwhile, Moody's issues its first downgrade of a triple-A bond insurer, cutting the financial strength rating on SCA to A3 from triple-A. MBIA rises 0.49%; SCA falls 13%.

Jeff Bailey : 2/8/2008 12:35:04 PM

Maybe you've got some puts that are in-the-money and looking to sell some premium with 6 days until expiration. Check you levels, check the OI, make the decision.

Jeff Bailey : 2/8/2008 12:33:47 PM

For a $10K trading account, I think only a 1/3 position warranted for a "precious metals" stock.

So I've profiled just one (GG-PU) at this point.

Maybe a $30K account trader has three (3) and selling two of the (GG-NG) with 6 days until expiration worth the commission and the covered RISK.

Jeff Bailey : 2/8/2008 12:30:56 PM

GoldCorp (GG) $36.59 +4.75% ... so up $1.63 from $34.93 close. $35 puts are notably heaviest OI on the put side. Just over 1.08 million share equivalent. Link

Linda Piazza : 2/8/2008 12:23:13 PM

The SPX now approaches that trendline off yesterday's early morning low and then afternoon swing low. The trendline crosses at about 1328, I believe.

Jeff Bailey : 2/8/2008 12:21:44 PM

Here would be a decent "covered put" if you had several of the GG-PU.

Sell the out the money now GG-NG for $0.45.

Keene Little : 2/8/2008 12:16:30 PM

Stepping away for about 30 minutes.

Jeff Bailey : 2/8/2008 12:11:44 PM

From Monday's close of $8.30, a rise to $8.70 was 4.819%.

That would have been roughly equivalent to 6-months of dividends.

Bond traders look at things this way.

Jeff Bailey : 2/8/2008 12:08:10 PM

PHF $8.37 -1.18% ... like I said ... "wow!" At $8.70, SEC Yield would have been 10.34%.

Keene Little : 2/8/2008 12:03:57 PM

CME's bounce off Wednesday's low may have already finished and should turn back down to at least a minor new low before bouncing again. This is an update to yesterday's daily chart: Link . This 60-min chart shows a little closer view of how price might play out over the next few days and where support could be found for another leg down (475 or in the 432-437 area): Link . The key upside level is 581--above that would negate the bearish wave count.

Jeff Bailey : 2/8/2008 11:57:56 AM

VXN.X 30.72 -2.66% ... more call buying/put selling than call selling/put buying.

5DyNet% in U.S. Market Watch is +8.84% ... so over past week more call selling/put buying than call buying/put selling.

20DyNet% +1.78% .... very marginal tilt to call selling/put buying than call buying/put selling.

What do you think for next Friday?

Linda Piazza : 2/8/2008 11:52:54 AM

The SPX is no longer maintaining the rising trendline off yesterday afternoon's swing low, of course and now the lower potential trendline support from yesterday's morning swing low through yesterday afternoon's must be considered as a potential support. That's now at about 1328. Bulls don't want to see the SPX maintain prices below that.

However, the SPX also has potential Keltner support that's higher, at about 1332 as I type. There's mixed evidence here.

Jeff Bailey : 2/8/2008 11:51:55 AM

QQQQ Option Montage February at this Link

Noting heaviest Open Interest

Trader's might be able to see the important levels.

Last month I held a "contest" and we tried to guess the DIA's option expiration close. All guesses were WAY HIGH. Even the LOWEST was way high.

Now is an opportunity for those that participated to make an adjustment from what they saw. The key observation from then that was "gosh, I was way off" and see how things go next week.

Markets don't move just because of options, but when the levels are broken (up/down) the options and price action from the OI can be powerful.

Jeff Bailey : 2/8/2008 11:39:53 AM

Probably could call that little pullback in mid-December to 12/18/07 inflection low a (3), then bound back up a (4 d3) and the most recent low a (5 d7)

Jeff Bailey : 2/8/2008 11:37:42 AM

QQQQ ... 60-minute interval chart (rather wide, but shows "makes sense") with "Bailey Wave" counts using Andrew's Pitchfork (modified schiff) and QCharts' WEEKLY Pivot levels turned on. Link

Keene Little : 2/8/2008 11:33:07 AM

I showed two scenarios on last night's DOW charts, one showing a slightly higher bounce before turning back down (potentially very bearish) and the other was for a sideways consolidation for another day or two before heading lower again. This SPX 30-min chart shows a closer view of the two possibilities: Link

Two equal legs up from yesterday morning is at 1353 (shown with dark red price projection) where I'd watch for a reversal (and a good shorting opportunity). If price instead chops sideways in a sideways triangle (pink), I'll be watching for a short to set up later (probably early next week).

The downside projection for the pink price depiction would be a retest of the January low but the dark red wave count calls for a swift decline that takes out the January low.

Linda Piazza : 2/8/2008 11:29:07 AM

The SPX high has been 1341.22, reaching up toward that inverse H&S neckline and Keltner resistance. So far, the pullback isn't dramatic, and that's the way bulls want it to stay. The SPX's 15-minute 9-ema is now at about 1337, and bulls want that support maintained on 15-minute closes. Be careful, though, now that the SPX has approached this zone of potential resistance.

Jeff Bailey : 2/8/2008 11:25:27 AM

11:00 Internals found at this Link

Linda Piazza : 2/8/2008 11:16:14 AM

For the SPX, next Keltner resistance is 1343.24 on a 15-minute chart, coinciding with one version of the inverse H&S neckline. Again, have your profit-protecting plan ready just in case it's needed if you're in long trades. What my expectation was for today was for a rise into this, but I didn't have many expectations beyond that because I had to see how the SPX behaved here. What those who want further gains want to see is either a powering into the resistance zone that extends up to about 1349.58 currently and then some consolidation near the highs before a powering through the rest of the resistance, or else a powering through it all and a consolidation just over that prior resistance. Please do be aware that the SPX can and does sometimes lately touch resistance and then immediately get slapped back hard.

Jeff Bailey : 2/8/2008 11:11:10 AM

Q's might get to 19.1% with that.

Jeff Bailey : 2/8/2008 11:10:02 AM

Pacholder High Yield (PHF) $8.67 +2.36% .... wow! (see Monday's Wrap)

Jeff Bailey : 2/8/2008 11:06:27 AM

QQQQ +1.13%

SPY -0.21% ... Op-Ex look

Jeff Bailey : 2/8/2008 11:05:51 AM

I'm thinking TRINQ up from here, QQQQ eases back.

Jeff Bailey : 2/8/2008 11:05:21 AM

QQQQ's 19.1% $44.18 ... QQQQ $43.60 +1.13% ... juuuust under your "Bailey Wave" lower channel.

Jeff Bailey : 2/8/2008 11:04:26 AM

TRINQ 0.35

TRIN 1.14

Jeff Bailey : 2/8/2008 11:00:35 AM

BNP Paribas Renews $1B Credit Line - Ven. Oil Minister

Keene Little : 2/8/2008 10:59:36 AM

The current bounce in gold maintains the possibility for a new high which I pointed out in my last update on Wednesday ( Link ). The leg up to a new high, if the rising wedge is the correct pattern, will likely be choppy and should be met with a continuation of the negative divergences as shown on MACD.

The updated chart now has the key downside level at 888--a break below that level would suggest the January high could be it for the rally: Link . The upside target remains near 966. A breakdown should have gold quickly retracing back to the apex of the Nov-Dec triangle (just above 800).

Linda Piazza : 2/8/2008 10:59:24 AM

For OEX traders: The OEX is underperforming the SPX, at least according to its Keltner outlook. It's having difficult with Keltner resistance just above 618, resistance that the SPX has already bested. Next resistance is about 620.55 and then 623.40 and 624.10 on 15-minute closes. I'd wait until that highest resistance was maintained on a 15-minute close before I believed too strongly that the OEX's version of an inverse or reverse H&S had been confirmed. I'd also have a profit-protecting plan in place if the OEX does rise between 620-624, as that might be a tough zone to pierce.

Jeff Bailey : 2/8/2008 10:59:26 AM

S&P Rates BA Credit Card Trust Class A (2008-1) Notes 'AAA'

This will be the next set of derivatives that will get close attention.

Linda Piazza : 2/8/2008 10:56:21 AM

And there's the bounce in the advdec line, at least for now. The USDJPY still isn't doing anything that gives me any kind of heads-up as to next direction for it or for equities. So, be careful here as the SPX again attempts to rise toward that 1342-1343 next resistance, with potential 15-minute Keltner chart resistance layered above that up to about 1349.50. The SPX is at 1338.31 as I type.

Jeff Bailey : 2/8/2008 10:57:21 AM

You think PdVSA has any comment or description of what nationalization is?

Go get'em Exxon!

Jeff Bailey : 2/8/2008 10:53:19 AM

Big Oil's Victory in Venezuela ... Business Week story Link

Jeff Bailey : 2/8/2008 10:51:17 AM

PdVSA Cash Flow Not Affected By US Ruling - Venezuela Oil Minister
Business Continues As Usual
Exxon Could Try To Continue These Types Of Legal Actions
PdVSA Won't Be Intimidated By Exxon.
Exxon Move Is "Legal Terrorism"

Jeff Bailey : 2/8/2008 10:44:19 AM

Petroleo Brasileiro (PBR) $111.40 -0.17% Link ...

Linda Piazza : 2/8/2008 10:42:56 AM

The advdec line is unfortunately dropping a bit more than bulls would like to see happen, with the pattern looking a bit like it did this time yesterday. Will it resolve the same way as it did yesterday, climbing again from about 11:30 until the 2:00 swoon, carrying indices higher as it did? With this market, I can't even pretend to make that guess.

I can note, however, that the SPX is so far again clinging to the rising trendline off yesterday's 3:00 low, at the same time tentatively maintaining the support of its 15-minute 9-ema.

Jeff Bailey : 2/8/2008 10:42:54 AM

US Oil Fund (USO) $70.78 +1.40% ... $0.50 box to match futures Link ...

Jeff Bailey : 2/8/2008 10:41:13 AM

PdVSA Awaits Arbitration To Begin - Venezuela Oil Minister

Jeff Bailey : 2/8/2008 10:38:40 AM

Exxon Has Not Respected Arbitration Terms - Venezuela Oil Minister ... (see yesterday's MM)

Linda Piazza : 2/8/2008 10:35:12 AM

SPX 15-minute 9-ema test going on right now, with that average at about 1335.35 and with the SPX currently at 1335.29.

Jeff Bailey : 2/8/2008 10:31:20 AM

Continuouse Unleaded Vs. West Texas Link ... "overweight refiners"

Jeff Bailey : 2/8/2008 10:29:50 AM

For those that may have just recently joined OptionInvestor.com, these "shutdowns" are expected this time of year.

Jeff Bailey : 2/8/2008 10:28:44 AM

Sunoco Sees Planned Work Cutting Q1 Refinery Output ... Reuters Story (last yesterday) Link

SUN $62.00 +3.48% ...

Jane Fox : 2/8/2008 10:25:23 AM

With the internals looking like this I would not be thinking short but the price action is not giving me a lot of warm and fuzzies to be long either. Link

Jane Fox : 2/8/2008 10:23:32 AM

VIX is bullish at least it has been most of the morning but the AD line is putting an anvil on the market. Link

Jeff Bailey : 2/8/2008 10:23:28 AM

OPEC Should Cut Output At March 5 Meeting - Middle East Delegates
US Stock Builds Support Cut.

Linda Piazza : 2/8/2008 10:14:23 AM

Disclaimer to my 10:11:53 post: Just in case you're wondering if I got into a trade and didn't let you in on it, I'm not in any short-term scalps on the SPX or OEX. My comments are intended only to point out what I'm seeing. I do have trades on both the SPX and OEX, but they're either condors or credit spreads, not short-term trades.

Linda Piazza : 2/8/2008 10:11:53 AM

The SPX approaches the neckline for its potential inverse H&S as well as potential Keltner resistance. That neckline is now at about 1343-1344, depending on how it's drawn. Keltner resistance is at 1343.01, 1346.73 and 1350.04, all important on 30-minute closes. If we get a massive relief rally, the SPX could of course bulldoze right through all of that, but in normal circumstances, even if the outcome is to be bullish, you should see the SPX tangled up in that resistance for a while. If you've got bullish hopes, you just don't want to see the SPX pull back too sharply. Have a profit-protecting plan in place just in case because few signals of a reversal are given these days. (An example of a profit-protecting plan? If you intended only to scalp a few points and are in from this morning's low with 4 SPX or OEX call contracts, you might consider selling 1 or 2 and locking in partial profit automatically if that zone is tested and then setting a stop for the rest while you watch what happens next. If you have a longer-range trade in mind, you'd likely have a different plan.) The SPX is at 1338.44 as I type.

Keene Little : 2/8/2008 10:07:54 AM

The same level for the DOW is 12284.

Keene Little : 2/8/2008 10:07:28 AM

Keep an eye on SPX 1342.52 which is the level where the bounce off yesterday afternoon's low would have two equal legs up. If we're goign to remain in a choppy consolidation that's where we could see a reversal back down.

Jane Fox : 2/8/2008 10:06:32 AM

The short YM trade is off the table now alert

Linda Piazza : 2/8/2008 10:05:35 AM

While the SPX prepares to rise into resistance, the advdec line is already there. The advdec line is at +108 as I type, with resistance up to about +240. Equity bulls don't want to see a sharp decline.

Linda Piazza : 2/8/2008 10:00:36 AM

The futures action this morning was contrary to my scenario for the day. As mentioned in the Wrap last night, my best guess scenario for the SPX in normal times would have been at least an attempt to climb today, but I mentioned several chart setups and conditions that made it more "guess" than usual. So, I'm not sure whether that scenario yet needs to be thrown out the window. If the SPX does gain, I warned last night and I'll warn again now that you need to know ahead of time how you'll treat a test of the 1347-1350 zone. (Numbers might have been slightly different last night due to the dynamic nature of the Keltner channel setups.) Sometimes you're given only seconds to enact a plan before there's a reversal.

Keene Little : 2/8/2008 9:57:16 AM

The market looks vulnerable for a retest of yesterday's lows. But we're right in the middle of a very choppy pattern since yesterday morning and this tells me to be more cautious than usual. The probability for price whipsaws remains high.

Linda Piazza : 2/8/2008 9:54:38 AM

The SPX is now testing the 15-minute 9-ema at about 1332.90. So far, the SPX hasn't been able to maintain values above that, but it is so far holding above 1330 on 15-minute closes. So, the day starts out about where it looked as if it would when I made that 9:14:22 post this morning. As I type, the SPX is hanging out in the middle of nowhere, about as likely to dip down toward next support, now at 1322.30-1323.50 as it is to climb. It's got potential resistance at 1335.94, but needs volume-packed help, probably, to get through that on a 15-minute close if it's going to do it soon. Above that is resistance at 1342 and then 1347-1350.

Linda Piazza : 2/8/2008 9:49:59 AM

The advdec line is now at -651, holding that Keltner support on the close of the first 15-minute period and heading up. A tentative good sign for bulls but only tentative so far.

Jane Fox : 2/8/2008 9:52:46 AM

I see a YM short at 12169 just below overnight lows. Stop will be 12211. alert

Linda Piazza : 2/8/2008 9:45:10 AM

Keltner outlook on the advance/decline line: The advdec line is testing/breaking through potential Keltner support at about -750. The advdec line is at about -876 as I type. However, there are still several minutes in the 15-minute period and the advdec line, because the numbers are so big, can overrun potential support or resistance by a bit. I don't consider the advdec line as having clearly broken that support yet.

Keene Little : 2/8/2008 9:43:57 AM

Quite the spread between the techs and industrials this morning--DOW down 76 and NDX up 6 here.

Linda Piazza : 2/8/2008 9:42:42 AM

Uh-oh, Jane. It's obvious that you and I were making observations about the USDJPY at the same time. Didn't mean to step on your observations. For subscribers, Jane and I tend to look at different metrics when observing indicators that we watch. Both ways have merit, so I urge you to read her posts, too, if you're reading mine about the same indicator or chart.

Jane Fox : 2/8/2008 9:41:54 AM

NQ (NDX futures) has actually broken its overnight high. Who would have thunk? Link

Linda Piazza : 2/8/2008 9:41:10 AM

The USDJPY is still within a consolidation zone at the top of its climb, so until it breaks one direction or the other, it's not going to give us much of a heads up. It would need to sustain values below 107.14 or above 107.80 to break out of this latest consolidation pattern. It's at 107.39 as I type.

Jane Fox : 2/8/2008 9:40:29 AM

USDJPY is making new daily highs as well so we have the internals out of sync and that means - you guessed it choppy markets.

Jane Fox : 2/8/2008 9:39:05 AM

However, VIX is making new daily lows so is not supporting the bears.

Jane Fox : 2/8/2008 9:38:29 AM

AD line is -557 so not overly bearish but certainly not bullish.

Linda Piazza : 2/8/2008 9:35:49 AM

The SPX did hit that ascending trendline off yesterday's 3:00 low and is now attempting a bounce from it. I'm not sure if such a short-term trendline is going to hold, but now we see.

Jane Fox : 2/8/2008 9:31:59 AM

And the head and shoulders on the Crude chart is also not going to confirm - at least not yet. Link

Jane Fox : 2/8/2008 9:30:44 AM

It looks like the head and shoulders pattern on the Gold chart is breaking apart but the fat lady has not sung yet, it could just be in the process of building the right shoulder. Us goldbugs need to see the MACD cross up and then new yearly highs. Link

Keene Little : 2/8/2008 9:30:23 AM

Like the night before, equity futures dropped after the European markets opened and bottomed with one last thrust lower near 8:30 AM. Yesterday started a bounce at the open and never tested the overnight low so we could get a repeat performance. The volatility continues.

Jane Fox : 2/8/2008 9:28:01 AM

Overnight charts are not looking all that good are they? Lower lows and lower highs mean the bears have control and I'm not sure they will relinquish that control intraday (once the cash markets open). Link

Jane Fox : 2/8/2008 9:21:42 AM

Dateline WSJ - Federal Reserve officials are acknowledging increasing weakness in the economy, signaling a willingness to cut rates again at their next meeting. But inflation concerns are rising among some officials, indicating the magnitude of their next move may be a matter of contention.

In speeches this week, policy makers said they are expecting a sharp economic slowdown during the first half as the housing slump, credit crunch and market turmoil take a toll on consumers and businesses.

Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech yesterday that she expects the economy to escape recession in the coming quarters, though it remains vulnerable to even slower growth.

"In circumstances like these, we can't rule out the possibility of getting into an adverse feedback loop -- that is, the slowing economy weakens financial markets, which induces greater caution by lenders, households and firms, and which feeds back to even more weakness in economic activity and more caution," she said in remarks prepared for delivery in Honolulu.

Linda Piazza : 2/8/2008 9:14:22 AM

As I type, SPX futures are 6.71 points below fair value. If they stay in the same approximate range into the open and if the cash markets drop in accordance--which they don't always do--that would drop the SPX back toward 1330. On the SPX's 15-minute chart, that's in the middle of nowhere, between support and resistance. If the SPX should drop that far, it could as easily drop back toward 1323-1325 as it could climb right back toward 1334-1336 according to the Keltner setup on that short-term chart. If I draw an ascending trendline off yesterday's 3:00 pm ET low, that line appears to cross between 1331.50-1332.50, so we could perhaps look for some steadying there, but I really don't think such a short-term trendline, established by only two touchpoints so far, should be something upon which we should base all our decisions. At this point, I'm not even sure we should count on the SPX dropping in accordance with the futures values as I began typing. The DAX has been trying to steady. The USDJPY is lower than it had been overnight, but is still within a consolidation zone at the top of a climb that it began about noon yesterday. Watch this currency pair for early clues this morning, although the correspondence of its performance and equity performance isn't always reliable these days.

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