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OI Technical Staff : 8/29/2008 9:59:59 PM

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Linda Piazza : 8/29/2008 4:02:20 PM

If the OEX rises first thing Monday morning, we'll now be watching the 591.90-592.50 zone to see if it holds as resistance on 15- and 30-minute closes.

Jim Brown : 8/29/2008 5:02:09 PM

4th Annual ASPO Peak Oil Conference
If you have signed up for the ASPO Peak Oil conference in September and have not received an email from me please send an email to Jim (at) OptionInvestor.com so I can send you some info about our private meetings at the conference.

There is still time to register for this 3-day conference in Sacramento. Link

Linda Piazza : 8/29/2008 3:56:23 PM

Happy long weekend, everyone!

Linda Piazza : 8/29/2008 3:55:18 PM

This week's OEX candle will likely be a small-bodied one with that small body below last week's but still within the range of the tall green candle produced three weeks ago. Although each of the last three weekly candles, including this one, have been small-bodied candles producing closes beneath the previous week's close, the pattern could actually be part of a bullish candlestick one called a rising three methods: Link This pattern, with the information courtesy of the candlestickchart site, requires a strong up week next week for confirmation, with next week's close being higher than that seen three weeks ago. Otherwise, this is just a potential reversal signal that never is fulfilled, so don't count these bullish possibilities before they hatch. They aren't even peeking the tip of a beak out the shell just yet.

That means that we must consider the potential for a climb next week without being promised that one will occur. What we see on the daily chart isn't convincing as yet. Today's daily candle could be a real body inside yesterday's candle, depending on what happens these next few mintues. Despite the small dip below yesterday's low, we could be seeing an inside-day or harami type candle, and this is indicative of indecision. I'd be undecided, too, after this kind of action! Based on what's showing up on my daily charts, it's as possible that the OEX could drop toward 579.50 as that it could climb toward 601 or maybe even 609.

Intraday charts give us some insight, but whether that will hold over the long weekend isn't certain. It looks as if sustained 30-minute closes (not just a last-minute dip this afternoon) beneath about 591.80 would set a potential downside target near 587.26 and, depending on what happened there, perhaps to 582.15. Sustained 30-minute closes above 595.55 would suggest a potential upside target of 597.50 and, depending on what happens there, perhaps to 599-599.50. Bears want to see the OEX gapped lower Monday morning and bulls want a bounce right away.

Keene Little : 8/29/2008 3:26:01 PM

No real surprise today in that the larger pattern, on the daily charts, hasn't changed since last night's charts. The DOW and SPX charts still show slightly different ideas for how a continuing rally could unfold next week, either directly after another leg down to match this morning's or a little lower to reach the bottom of a sideways triangle. It takes a break below DOW 11340 and SPX 1261 as a heads up that the bounce may have already finished.
DOW daily: Link
SPX daily: Link

Linda Piazza : 8/29/2008 3:11:43 PM

Potential support for the OEX now extends from the currently being tested 593.60 zone down to 592. Sustained breaks below 591.90, particularly on 15-minute closes, suggest a drop down to 587.20, but I don't know that there would be time to realize such a downside target, even it it's going to be hit. Just be aware that potential support could kick in at any time, but that sustained moves beneath 591.90 could produce sharper declines.

Keene Little : 8/29/2008 2:39:25 PM

If they manage to push the market a little higher this afternoon, two equal legs up off the mid-day low is at SPX 1294.64, just above the 62% retracement (1294) of this morning's decline. Another leg down from there equal to this morning's drop would give us a downside target of 1279.6 and that would match a retest mid day Tuesday of the broken downtrend line from May. Again, just playing with some numbers on a slow trading day.

Linda Piazza : 8/29/2008 2:32:55 PM

At this point in the day, an OEX rise toward 596.17 and a drop toward 592.55 look about equally possible.

Linda Piazza : 8/29/2008 2:12:58 PM

I'm here and I'm watching, but the OEX is just doing what I thought it might do and warned it might do. Now we have to wait it out and see what happens next. Support at the day's low (or actually, slightly above it now) and resistance at this afternoon's high seem about equally weighted.

Linda Piazza : 8/29/2008 1:42:50 PM

I'm not surprised to see the OEX pause here, of course, since I've been warning since my 10:56:30 post that the OEX could drop to the zone it dropped to, then bounce and stall in this same zone. The numbers are slightly different as the Keltner lines are dynamic, but that zone's top line on 30-minute closes is marked by the 30-minute 9-ema, now at 594.37 and by potential Fib resistance just under 594. So, while it's possible that the OEX will get knocked right back to 591.70-592, it's also possible that it will just chop around near the afternoon high over a number of hours.

Linda Piazza : 8/29/2008 1:37:16 PM

I know some of you will be taking off early so I wanted to cover the "what releases or events are scheduled for foreign markets" part early today. Of course, the upcoming Republican convention, if it's not postponed if a hurricane is hitting our shores as some suggested it might, will be important, as will the hurricane itself. So would any further developments in the Russia/Georgia conflict and or any announced big bank takeovers by the FDIC, but those developments are not predictable.

Sunday night, Japan's Average Cash Earnings will be announced at 9:30 pm ET. Monday morning, Germany's Retail Sales will be released at 2:00 am ET, and the eurozone's Final Manufacturing PMI at 4:00 am. The U.K. releases its Manufacturing PMI at 4:30, and a couple of numbers related to mortgages will be released then, too.

Although our markets are closed, FOMC member Governor Randall Kroszner" will deliver a speech in Argentina with the topic "The United States in the International Financial System: A Separate Reality? Resolving Two Puzzles in the International Accounts." That's at 9:30 am ET. At 9:00 pm ET that evening, the Bank of Japan's Governor Masaaki Shirakawa will spead with business leaders. He speaks again at 2:30 am ET. At 5:00 am ET, on Tuesday morning, the eurozone's PPI will be released. That rounds up the important economic releases before our market opens Tuesday morning.

Linda Piazza : 8/29/2008 1:27:46 PM

Next OEX resistance on 30-minute closes is 594.52, being tested as I type. There's also potential Fib resistance just below 595. So, what we know is that the OEX has risen to the top of the next resistance zone, but not how it's going to act now that it's here. As noted earlier, it's possible that the OEX could now stall near here and essentially trade sideways for a while or even get knocked back again. If the OEX should instead spurt higher, watch for next resistance on 30-minute closes near 596.80. OEX at 594.59 as I type.

Jane Fox : 8/29/2008 1:18:20 PM

Earlier the VIX was telling you the S&P futures were going to break to new daily lows and they did. Link

Keene Little : 8/29/2008 1:17:53 PM

SPX didn't quite make it down to the support level around 1281-1282 but it did drop in a 5-wave move from yesterday's high. That tells us we're going to get at least another leg down after a bounce to correct this morning's decline. If the market gets real slow we could see it simply consolidate for the rest of the day and then another leg down on Tuesday.

Playing with some numbers, if a bounce this afternoon retraces 50% of the decline that would have SPX back up to 1292 (interesting how that 1292 number stays in play). Then another leg down equal to this morning's decline would give us a downside target near 1277. So some numbers to think about as you watch what happens from here.

Jane Fox : 8/29/2008 1:16:34 PM

Crude is really stuggling today and is now trading at $116.00. Yesterday it hit a high of $120.50 and right into the resistance zone from $120 to around $122. Macd is not telling me it will break this resistance anytime soon. Link

Linda Piazza : 8/29/2008 1:11:28 PM

TRIN is slowing drifting lower, down toward potentially strong support on 15-minute closes now at about 1.10. TRIN is 1.18.

Linda Piazza : 8/29/2008 12:59:01 PM

It took a bit longer for the bounce to begin than I anticipated that it would, but the possibilities remain the same. I would watch for potential resistance to kick in as the OEX approaches a potential zone on 15- and 30-minute closes from 593.50-594.65. The possibility exists that the OEX could stall at that zone over many 15-minute periods, perhaps as long as several hours. That's just one possible scenario.

Keene Little : 8/29/2008 12:45:52 PM

SPX is slowly working its way down towards gap closure and potential trend line support near 1281-1282. I suspect the rest of the day will start to feel like watching paint dry as trading volume crawls to a stop.

Linda Piazza : 8/29/2008 12:25:31 PM

The OEX's 15-minute 9-ema is now 593.83 and that joins potential trendline resistance, but I think there's the potential that any bounce, if it occurs, could stall anywhere from 593.50-595, so watch for stalling or rollover potential in that zone if the OEX should bounce.

Linda Piazza : 8/29/2008 12:15:18 PM

And now the OEX does reach down to that potential target I've been mentioning much of the morning, now at 591.59-592.15. This is potentially strong support on 15-minute closes and on 30-minute ones, so there's bounce potential here. If you're in a bearish position, I've been warning to make profit-protecting decisions ahead of time since there's bounce potential. If there's a bounce, which isn't a given, there's then potential that the OEX could stall at the top of that bounce, perhaps to 593.50-595, for a period of hours. So, the possibility exists that you may be seeing your best prices today right now for your bearish positions. That's not a probability but is a possibility. I actually entered a lottery-type bearish position earlier today, just one contract (still a lot of lottery money) and I solved this dilemma by setting a profit-limit I thought would get hit if the OEX dropped to this level. So, I'm out with my miniscule profit. (Sometimes I just get the itch to try the old day trading skills again, but I don't put much money at risk to do it.) If you have multiple bearish positions, you might consider taking partial profits and lowering the stops on the rest.

Linda Piazza : 8/29/2008 12:01:28 PM

The OEX's 15-minute 9-ema is now at about 594.88. This has been resistance on 15-minute closes all day, but it's beginning to flatten now, so its resistance might not be as strong as it was previously. The possibility of a drop toward 592.93 or even 591.60-592.23 still exists, but that depends on how 15-minute 9-ema tests proceed.

Linda Piazza : 8/29/2008 11:43:31 AM

Next potential support for the OEX is near 592.91, but the 15-minute charts set a potential downside target of 591.54-592.20. As I mentioned earlier, bears need to know ahead of time how they'll treat a test of that zone, if it occurs. Barring a strong downdraft through it, it could be strong enough support to prompt a bounce attempt that could then stall this afternoon.

Linda Piazza : 8/29/2008 11:32:06 AM

The OEX's 15-minute 9-ema is now 595.34.

Keene Little : 8/29/2008 11:32:05 AM

SPX would close yesterday's gap up at 1281.59. That's also near where it would retest its broken downtrend line from May. If we see a move down to that level from here it would create a 5-wave move down from yesterday's high. That would suggest we'll get a bounce but the bounce would be followed by another leg down.

At this point I'm leaning more towards seeing a drop to at least the 1271 area (perhaps by Tuesday) and the DOW down to the 11400 area before we'll get a sense as to whether it will then set up for a rally into mid September or not.

Linda Piazza : 8/29/2008 11:17:34 AM

The OEX's 15-minute 9-ema is now 595.59. The pattern so far today is for the OEX to find resistance on 15-minute closes at or below that moving average. So far, it looks as if the OEX is trending sideways while that resistance cycles down closer to it, at which point we might see the OEX either head straight down, if it's especially weak, or else rise up to test it. That test will tell us if the status quo for the morning is holding.

Linda Piazza : 8/29/2008 11:15:46 AM

The VXO, the old VIX and the one determined using OEX options, is so far holding above potential S/R on 15-minute closes at 21.94, but it hasn't been able to make any headway above that potential resistance. Equity bears want to see it sustain values above that on 15-minute closes or at least above the rising 15-minute 9-ema, now at 21.64. VXO at 22.00 as I type.

Jane Fox : 8/29/2008 10:57:32 AM

NPR.org, August 29, 2008 ? Republican Sen. John McCain is set to announce Friday that Alaska Gov. Sarah Palin will be his vice presidential running mate, reports say, a move that brings youth and a staunch anti-abortion advocate to the GOP ticket.

CNN, The Associated Press and other news media are reporting Palin as McCain's choice, citing campaign officials. Palin, 44, was elected Alaska's first woman governor in 2006. She has extensive influence in Alaska politics, where she served as mayor of Wasilla and ethics commissioner on the state's Oil and Gas Conservation Commission.

Linda Piazza : 8/29/2008 10:56:29 AM

If you're in bearish OEX trades, you should of course be adjusting your profit-protecting plans now that the OEX dropped to 594, where support might be. I'm not sure this support will hold, as some charts show the potential for a deeper drop, at least toward 592.80.

What if that further drop happens? I think you should consider ahead of time what you're going to do to protect profits if the OEX should drop to 591.36-592.80. Several types of potential support converge in that zone, and there's the possibility that support could catch hold there and bounce the OEX. If the OEX does break down to that area and does bounce, I would then watch out for some stalling near 594-595 unless the OEX just barrels through it. That stalling can't be guaranteed, but it if occurs, it could carry through the rest of the day.

I've said it many times lately, and I know it sounds like a cop out but it is instead a warning, but these markets can do anything these days. Even a cursory glance at a daily chart will tell you that.

Keene Little : 8/29/2008 10:48:34 AM

The break below what should have been support at SPX 1292 is bearish, at least for the short term. As mentioned earlier, we could see a pullback to the bottom of a sideways triangle before getting another rally leg (wave c of an a-b-c bounce off the July low). For the DOW that's down near 11380 and for SPX it's near 1370. Basically it's all within the trading range we've been in for the past month.

Linda Piazza : 8/29/2008 10:44:56 AM

I noted in my 9:58 post this morning that I wouldn't be surprised to see the OEX test 594, and I still wouldn't.

While my Keltner channels tell me that if 595.10 is lost on 15-minute closes, the OEX might dip all the way to 592.80-593, I would watch for the potential for support to kick in any time now. If it does, we now have an established pattern of resistance on 15-minute closes at the 15-minute 9-ema, now at 596.60.

Linda Piazza : 8/29/2008 10:29:33 AM

The OEX again tests potential Keltner support on 30-minute closes now at 595.78, being slightly below it as I type. It's still above potential Fib support at 594.92. What's equally important to me is that the OEX has so far today maintained a pattern of finding resistance on 15-minute closes beneath its 15-minute 9-ema, with that now at 597.12. This is something we can continue to watch to see if the OEX continues the down pattern from this morning or if something changes along the way. OEX at 595.48 as I type.

Keene Little : 8/29/2008 10:27:07 AM

SPX has now dropped down near the bottom of the up-channel I showed on the 10-min chart (8:51 AM)), currently near 1292. This is of course the 38% retracement level of the May-July decline that was resistance for a while. So now we'll see if it turns into support.

Jane Fox : 8/29/2008 10:23:06 AM

ES has made a triple bottom at 1292 but the VIX is telling me it will not hold on for much longer.

Jane Fox : 8/29/2008 10:24:31 AM

The S&P futures are hitting 1292 again but the bears have not been able to break through it.

Jane Fox : 8/29/2008 10:12:13 AM

The probability that the S&P futures (ES) will break to new daily lows is higher and higher with each new daily high the VIX makes.

Jane Fox : 8/29/2008 10:05:05 AM

WASHINGTON (MarketWatch) -- Speculation about Sen. John McCain's choice for vice president intensified Friday with talk centering on darkhorse Alaska Gov. Sarah Palin amid reports that apparent frontrunners Mitt Romney and Tim Pawlenty were out.

Jane Fox : 8/29/2008 10:03:16 AM

Aug. UMich consumer sentiment 63 vs. 62 expected

Jane Fox : 8/29/2008 10:00:48 AM

The AD line is making new daily lows, the VIX is making new daily highs and the TRIN is 1.36. This means the bears have possession of the ball.

Linda Piazza : 8/29/2008 9:58:41 AM

The OEX has so far bounced from where it would be expected to bounce, paused where it would be expected to pause. No answers yet. However, I wouldn't be surprised to see the OEX fall toward 594. That's not a prediction yet because the OEX still has strong support on 30-minute closes at 595.56 and some potential Fib support at 594.92, but it wouldn't surprise me.

Linda Piazza : 8/29/2008 9:52:29 AM

Here's where the A/D line is, after dropping toward that support I mentioned earlier: Link The A/D line had an automatic bounce after hitting that potential support, but it hasn't gotten far yet. The danger for bears is that there's really not any nearby Keltner resistance, at least, until above +700. The danger for bulls is that the A/D line, after having tested Keltner support, often comes back to retest before it can mount a successful bounce, if it can. We haven't seen a retest yet. Although it's not a given that there will be one, I would certainly weigh that as a possibility, and then we see how the A/D line acts after that. Sideways would be bad for bulls.

Linda Piazza : 8/29/2008 9:52:43 AM

If the potential support on 15-minute closes now at 595.48 continues to hold, supported by a Fib level at 594.92, and the OEX bounces, watch for potentially strong resistance on 15-minute closes at 598.06. This was support all day yesterday on pullbacks, and the fact that the OEX gapped below it this morning may have converted it to equally strong resistance. Keep in mind that "may" in that last clause. OEX at 597.22. Keep in mind the strong potential support beneath the OEX, too, as it's possible that, barring a strong thrust one direction or the other, the OEX could ping-pong for a while between support and resistance before next direction is decided.

Jane Fox : 8/29/2008 9:39:09 AM

HMMM Trin is a bearish 1.50.

Jane Fox : 8/29/2008 9:38:33 AM

AD line opens at a bearish -712 but not overly bearish, that would be below -1000.

Linda Piazza : 8/29/2008 9:38:14 AM

TRIN 1.41. If it pulls back, bears want to see it maintain support on 15-minute closes at 1.20.

Linda Piazza : 8/29/2008 9:35:59 AM

The OEX drops heavily through first support, toward potential support on 15-minute closes now at about 595.50. Watch for potential support to kick in, especially if the A/D line should drop a bit further toward -770, where potential support for the A/D line exists. The A/D line is currently -573. If the OEX does bounce now, however, watch for potentially strong resistance now at 598, where the support line from all day yesterday now crosses. Unless the OEX can scramble back across that and produce 15-minute closes above it, the tenor has changed, at least on the short-term basis.

Linda Piazza : 8/29/2008 9:32:37 AM

Yesterday produced a big rally on the OEX and other indices. It's possible to draw all kinds of trendlines on the daily chart and say this one or that one matters, but it's difficult to make any such assessment take. What we know is that the triangle that the OEX had been forming as it broke out of the former rising wedge shape has been broken to the upside. What we also know, however, is that the OEX is still below the former support line of that rising wedge, which now crosses at about 609-609.70. What we also know is that price action has been somewhat violent and erratic of late, and that, on weekly charts, all that violent churning has done nothing but keep bringing the OEX back to about where it was three weeks ago, when the OEX closed the week at 601.05. Especially on a pre-holiday summer Friday, making predictions about next direction becomes an exercise in futility because markets will go where they're pushed.

Let's look at short-term charts for some guidance. The OEX ended the day jammed against potential resistance on 15-minute closes at about 599.60-599.80, so that, coupled with weakness in futures, suggests a pullback to test resistance, with the emphasis on "suggests." All day yesterday, however, the OEX maintained support on a Keltner level now at 597.80 but likely to be driven toward 596.90 if the OEX should drop sharply at the open. Until and unless that support level is lost on 15-minute closes, nothing about the OEX's tenor has changed. I would watch for bounce potential at that level, and I'll keep updating on the exact numbers after the market opens. If that support is lost, then a pullback toward 595.25-596 is possible. If the support bounces the OEX past the resistance, then we're looking at a possibility of a rise toward 601-604.

Jane Fox : 8/29/2008 9:27:32 AM

DENVER (MarketWatch) -- As John McCain prepares to announce his running mate on Friday in Dayton, Ohio, speculation is centering on candidates ranging from his chief Republican rival during the primary season to a former Democratic vice-presidential candidate as the Arizona lawmaker's choice to help him take on Barack Obama and Joe Biden in the historic fall election.

Jane Fox : 8/29/2008 9:25:40 AM

Oil companies, including Royal Dutch Shell and BP, and well driller Transocean began to evacuate hundreds of workers from the Gulf region, which produces about a quarter of U.S. crude, according to a Wall Street Journal report.

Jane Fox : 8/29/2008 9:20:17 AM

Crude is ralling due to concerns that Tropical Storm Gustav still has the potentail to do serious damage to drilling infractures in the Gulf of Mexico. Link

Keene Little : 8/29/2008 9:16:21 AM

The other reason for caution about the long side today is what I see on the ES (S&P 500 emini) daily chart--yesterday's bounce took it right up to its broken uptrend line from July, again. The last test last Friday resulted in a hard reversal on Monday. Link

Jane Fox : 8/29/2008 9:03:11 AM

Here are the overnight charts and as you can see the news out at 8:30 did not spook them too much. Link

Jane Fox : 8/29/2008 8:54:21 AM

WASHINGTON (MarketWatch) - After a strong performance in the second quarter, the economy is stumbling out of the gates at the start of the third quarter, new government data showed Friday.

Consumer spending and personal income were both down in July and inflation moved higher.

Personal incomes fell 0.7% in July, the most since August 2005, as extra cash from government stimulus checks dried up, the Commerce Department reported.

At the same time, consumer spending decreased 0.4% in inflation-adjusted, or real, terms, the lowest since June 2004.

Core consumer prices rose 0.3% in July, pushing the year-over-year increase in inflation further above the Federal Reserve's target zone.

The declines in income and spending were worse than economists expected. The increase in core inflation matched economists' expectations.

Keene Little : 8/29/2008 8:51:56 AM

As happened yesterday, equity futures found their lows around 4:00 AM and then rallied back up to the flat line around 8:00 AM. They've been struggling, especially after the 8:30 AM economic reports. I'm wondering though if we'll see a repeat performance today like yesterday. I suspect there will be an effort to at least hold what we've got for the week. I do see upside potential to about SPX 1305 this morning and then higher if buying pressure keeps elevating the market throughout the day. The parallel up-channel shown on this 10-min chart shows what to watch for now: Link

The one caution is that the move up from Tuesday achieved two equal legs up at 1298.89 so it could be ready for a reversal. This would be especially true if we're going to get another leg back down in a sideways triangle consolidation as shown in dark red on the DOW's chart posted last night. Otherwise a continuation higher could get SPX up to the higher Fib projection at 1312 where the 2nd leg up would achieve 162% of the 1st leg up and that's at the top of the channel at 2:00 PM today.

Jim Brown : 8/29/2008 3:44:23 AM

Technical Problems Thursday Night

There was a technical problem with the hosting/email servers on Thursday night and the normal nightly newsletter could not be uploaded or emailed.

We apologize for this absence but the source of the problem was out of our control.

The updates will be sent as soon as the problem is corrected.

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