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Keene Little : 10/16/2008 11:27:35 PM

Friday's pivot table: Link

We were left with a setup to short the market at Thursday's close since it hit the projection for two equal legs up in the bounce off Thursday's low and completed the wave count for the 2nd leg up. This requires pretty much an immediate selloff on Friday. Otherwise a push higher (especially if after a pullback) will be bullish for a run back up to at least test Tuesday's highs. The SPX daily chart shows either a higher bounce or a large consolidation into next week before heading lower (if the market pushes above Thursday's highs): Link , whereas the 60-min chart shows the setup for a decline on Friday (or higher, in pink): Link

The NDX daily and 60-min charts show the same bullish and bearish possibilities here:
daily: Link
60-min: Link

OI Technical Staff : 10/16/2008 9:59:59 PM

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Jeff Bailey : 10/16/2008 4:54:40 PM

Must Listen ... Here is an interview with Bill Sinclair on KOA from 10/14/08 @ 04:00 AM EDT and gives insight as to his experience as lendor with the Community Reinvestment Act (CRA) Link

What some did, and what some refused to do. Mr. Sinclair was one of the few that refused. A great American hero? Only YOU can decide.

Jeff Bailey : 10/16/2008 4:20:28 PM

ANY subscriber that lives in California that buys ANY type of fixed income, that was/is looking to buy ANY type of bond that is, or would likely be backed by the Federal Govt. (based on what we're seeing), that pays a HIGH LEVEL of state income tax, was likely POUNDING ON THE DOOR of any bond desk for these double tax-deferred yields.

5-year finished down 7.6 bp at 2.812%.

Jeff Bailey : 10/16/2008 4:14:26 PM

That $5 billion California was done in two (2) tranches.

$1.2B matures 5/20/2009 and yielded 3.75%. $3.8 billion matures 6/22/2009 and yielded 4.25%.

Jeff Bailey : 10/16/2008 4:09:29 PM

DDM $35.69 +9.21% ... represented a 200% leverage today.

INDU 8,980.37 +4.69% ...

DIA $89.95 +5.98% ...

Linda Piazza : 10/16/2008 3:56:10 PM

I wanted to weigh in for a moment and note that the TED spread is at an important point. It's still sky high at 4.07 after the bond markets closed today. However, it's now within striking distance of its rising trendline that's been prompting bounces in the TED spread over the month. Bloomberg doesn't offer a way of drawing lines on this one-month chart of the TED spread. I'm sure there's a way to do it and I'm just not technologically learned enough to do it, but I estimate that the rising trendline under this climb is probably somewhere near 4.05-4.20 or so, so the TED spread ended the day testing a trendline under this rise: Link The last peak high was at about 3.87, so I'd have to see TED spread levels below that before I decided that a rising trendline had been violated to the downside. So, market watchers who are using the TED spread as a looking glass into how the credit markets are performing (but not as a market timing tool, I hope, because the correlation of TED spread highs to SPX lows isn't rock solid) should watch for the TED spread to either bounce from that trendline as it's been doing for a month or else break below it, showing some change at least.

Keene Little : 10/16/2008 3:46:24 PM

If the decline from Tuesday was just the 1st wave of what will become a 5-wave move down, a typical 2nd wave correction is a little less than 50%. Therefore if you played this bounce on the long side I'd be careful about holding it overnight. It's possible we'll start the 3rd wave down tomorrow (dark red). SPX 30-min chart: Link

Keene Little : 10/16/2008 3:36:02 PM

A 38% retracement of SPX's decline from Tuesday is getting tagged here at 934. The 50% retracement is at 955. Right in between is the projection for two equal legs up from this morning near 944.

Jeff Bailey : 10/16/2008 3:31:53 PM

California's $5 billion muni was upsized, and demand was strong.

Jeff Bailey : 10/16/2008 3:30:39 PM

Diagio's $1B 5-year bond launched today at tsrys +462.5 basis points.

Keene Little : 10/16/2008 3:26:54 PM

If today's bounce is merely a correction of the leg down from Tuesday then we could see resistance at one of the Fib retracement levels. NDX would have two equal legs up in the bounce off this morning's low at 1320.23 which is in between the 38% (1298.73 and just tagged) and 50% (1331.62) retracements. So that gives us some levels to keep an eye on.

Jeff Bailey : 10/16/2008 3:25:48 PM

13-week finished up 23.5 bp at 0.435%

Jeff Bailey : 10/16/2008 3:23:50 PM


Jeff Bailey : 10/16/2008 3:22:04 PM

NYSE NH/NL 17:501

Jeff Bailey : 10/16/2008 3:18:06 PM

Yen CurrencyShares (FXY) 98.19 -2.18% ...

Jeff Bailey : 10/16/2008 3:17:32 PM

iShares Japan (EWJ) $8.69 +4.07% ...

Jane Fox : 10/16/2008 3:11:38 PM

Crude made a low of 68.57 today and closed at 70.06. On July 11th it hit a high of 147.54 and closed that day at 145.35. No matter if you use the low to low numbers, the high to high numbers or the close to close number, anyway you look at it Crude has fallen more than 50% in 3 months. We are in historic times.

Keene Little : 10/16/2008 3:05:23 PM

If we get a last-hour rally here, two equal legs up from this morning's low is at SPX 943.66 which have it back up to yesterday afternoon's high.

Keene Little : 10/16/2008 2:47:32 PM

OK Charlie Brown, because the sideways consolidation following this morning's rally looks potentially bullish, one more dip back down could set up a buying opportunity. It's a bit risky so I recommend a lottery play only--if we get another rally leg like this morning's you will have kicked the ball out of Lucy's hands. If it drops back down towards this morning's low Lucy will once again have pulled the ball away from you at the last moment.

Keene Little : 10/16/2008 2:25:25 PM

The sideways/down consolidation following the bounce off this morning's low looks potentially bullish for another leg up. If it matches the first leg up we could end up with a very bullish day. But I'm swinging back and forth between wanting to be long and short and when I get this way I find it's better to just stay on the sidelines. Capturing every move in the market is not necessary.

Keene Little : 10/16/2008 1:45:42 PM

One reason to keep in mind the more immediately bearish possibility is the Fibonacci timing window of the week of October 26th as I has shown on the SPX weekly chart yesterday (updated throught today's price: Link ). The high-to-low turn window is still a very good setup. Even if it will only be for a relatively small bounce within the larger pattern to the downside it could give us the largest bounce since the July-Aug rally and perhaps as large as the March-May rally.

Keene Little : 10/16/2008 1:39:22 PM

As I had mentioned last night, we're now into the tougher part of the wave pattern as we get into larger bounces as part of the stair-stepping lower over the next couple of months. I see the possibility for yet another new low today, as shown on the NDX 10-min chart (12:56 PM) but we might have seen the low for the week. If the bounce continues I have two ideas for what could be next. The first is for a large sideways triangle running through next week (shown in dark red on the daily chart). The second is for a larger bounce up into next week that exceeds Tuesday's high (shown in pink). Both will be followed by renewed selling. SPX daily chart: Link

Not shown on the chart is the possibility for a larger bounce today, perhaps into tomorrow, followed by another leg down right away. That would obviously be more immediately bearish and would point to a downside target near the 2002 low (768) next week.

Jane Fox : 10/16/2008 1:14:50 PM

Jeff I think the issue of low income housing should be laid at the feet much higher than ACORN. How about taking a shot at the WALL STREET tycons who bought all these loans. Please don't respond because this is getting very very close to a political debate and I WILL NOT get into that here.

Jeff Bailey : 10/16/2008 12:58:54 PM

VIX.X 76.42 +10.35% ...

Jeff Bailey : 10/16/2008 12:58:40 PM

EIA: Weekly Nat. Gas Storage Link ... showed a build of 79Bcf.

UNG $30.12 +3.15% ... UNE-AJ $1.70 x $1.95

Keene Little : 10/16/2008 12:56:29 PM

Here's the NDX down-channel (10-min chart) that shows it hasn't quite broken out yet and could in fact get another new low before the decline is finished (pink): Link

Keene Little : 10/16/2008 12:52:49 PM

NDX is trying to break its downtrend line from Tuesday here at 1256. It poked above it and is now cycling around it. If it holds as support then we'll probably get another launch higher. Lottery call play into tomorrow (with cheap October call) could work nicely. Treat it as a total loss though before you try it.

Keene Little : 10/16/2008 12:49:50 PM

So far we've got a 3-wave pullback which is just a correction. Another push higher is expected as long as we see these kinds of pullbacks.

Jeff Bailey : 10/16/2008 12:34:39 PM

Community Reinvestment Act 1977 per Jane's 11:47:51 Link

Its history, and now realized implications.

Association of Community Organizations for Reform Now (ACORN) which doesn't get nearly enough credit for making housing "more affordable" so people in low-and moderate-income neighborhoods can be homeowners. Link

Jane Fox : 10/16/2008 12:29:33 PM

Of course I cannot overstate the importance of the failure of Bear (and its subsequent bailout) and then the total failure of Lehman Bros. If Lehman had not failed we may have avoided this level of hurt but we would certainly have had to live through some sort of crisis at some point. I just don't think it would have been this bad.

Jane Fox : 10/16/2008 12:18:21 PM

Why did the subprime mortgages become so popular? From an investors point of view these mortgages performed well and only stopped performing in 2006 because of the raising FED rates and the Interagency Guidance legislation.

Keene Little : 10/16/2008 12:17:12 PM

Pushing higher again has me out of the rest of my short position but I'm not comfortable enough with the pattern to want to try the long side, yet.

Jane Fox : 10/16/2008 12:10:59 PM

WASHINGTON (MarketWatch) -- The credit crunch underway in the U.S. economy may restrain economic growth by a greater amount that the previous episode in the 1990s, Gary Stern, the president of the Minneapolis Federal Reserve Bank said Thursday. The recession of 1990-91 was brief but not mild, he said. Real GDP declined more an 2% at an annual rate over the three quarters that ended in the first quarter of 1991 and consumer spending dropped sharply. The financial headwinds lasted from 12 to 36 months depending on how one reads the data, he said. "Something similar is certainly conceivable today," Stern said in a speech in Houghton, Michigan.

Jane Fox : 10/16/2008 12:05:09 PM

In 2006 there was a document called the Interagency guidance that affectively prevented institutions from making any more alternate loans. So with the FED funds rate raising and this Interagency Guidance document this all started to unravel.

Keene Little : 10/16/2008 12:02:23 PM

Using a 2-min chart you can now count a 7-wave move up from the low and that's a corrective count (two a-b-c's separated by an x-wave for an a-b-c-x-a-b-c double zigzag). Therefore a turn back down from here would support the idea that we'll get a new low. Of course trying to do EW analysis on a 2-min chart is sometimes asking for trouble as short-term interference can skew the count.

Jane Fox : 10/16/2008 11:59:14 AM

WASHINGTON (MarketWatch) -- Social Security benefits will rise 5.8% next year, the largest rate increase since 1982, the government announced Thursday.

Among all retired workers, average monthly Social Security benefits will rise to $1,153 from $1,090, an increase of $63. Read details about changes.

The hefty adjustment will be good news for retirees who have been hit hard by the recent financial turmoil. The Congressional Budget Office recently estimated that plummeting assets may have wiped out about $2 trillion from pensions over the past year and a half.

Keene Little : 10/16/2008 11:54:34 AM

Ideally, from a wave count perspective for the decline from Tuesday, it would look best if we got one more new low to finish a 5-wave move down from yesterday afternoon. But too many times I've been fooled by the missing 5th wave. So I see the possibility for one more new low but can't count on it. That's why a pullback here followed by another push higher will have me out of the rest of my short position (otherwise I'll get out at the next new low and even look for a long play entry).

Keene Little : 10/16/2008 11:51:25 AM

SPX back above 900, the low around 10:30 AM would also look bullish.

Jane Fox : 10/16/2008 11:50:00 AM

After 2001 terrorist attacks the FED lowered rates to 1% which set the stage for increased loan productivity (read unhealthy loans) the rates stayed here for about 3 years. Towards the end of 2004 Greenspan encouraged the market to create more alternative loan products (subprime loans) and Wall Street got the message loud and clear. So now we have low rates and the proliferation of unhealthy products and this was the case for 2 years. Then around 2006 the FED started raising rates and they went from 1% to 5.25% so the new products started to not look so good

Keene Little : 10/16/2008 11:49:58 AM

We've now got a small 5-wave bounce so the potential here is that we've made a low. If we get a corrective pullback and then a push to new highs again that will be a clear signal that we're at least into a larger bounce.

Jane Fox : 10/16/2008 11:47:51 AM

Here is a little bit about Glass-Steagall. The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before using loopholes in Glass-Steagall that allowed for temporary exemptions. With lobbying led by Roger Levy, the "finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, according to the Center for Responsive Politics..." These industries succeeded in their two decades long effort to repeal the act.

Jane Fox : 10/16/2008 11:46:53 AM

The start of liberalization of mortgage loans started in the early to mid 1990, under the pressure of congress and as early as 1991-1992 nonconforming type mortgages were been introduced. Unfortunately these mortgages performed well so Wall Street developed an appetite for them. Then in 1998 came the law that allowed 500K of your primary residence tax free and the housing market started it parabolic rise.

Then came in 1999, with hundreds of millions dollars from lobbyists, the Glass Steagall act was overturned. Citigroup and Travellers wanted to merge and the only way they could have completed this merge was revealing this act.

Jane Fox : 10/16/2008 11:45:09 AM

I am going to try to give you a timeline as to how we got to where we are today. I think this is important, at least it is important to me. I will have to talk about the Glass-Steagall act so don't glaze over it.

Keene Little : 10/16/2008 11:40:55 AM

The current bounce is so far a 3-wave move. If it turns into a 5-wave bounce then it will be a signal that we might have seen the bottom in which case I'll pull the plug on the remaining portion of my short position. But so far it being just a 3-wave bounce we could see it turn right back around and head lower still.

Jane Fox : 10/16/2008 11:34:03 AM

Crude down to 69.15/barrel. Geesh!!

Keene Little : 10/16/2008 11:23:34 AM

Using the all-hours ES chart I get a downside projection for the 5th wave at 838.75 (to equal the 1st wave). Last Friday morning's spike low was 837 and the afternoon low was 841.50. I see a successful retest of Friday's low coming up and that should get the bulls excited. The downside projection doesn't mean it's going to get there (or stop there) but it's a great spot to look for support. I'll even try a long play there if it looks like it will hold. ES 60-min chart: Link

Jane Fox : 10/16/2008 11:08:14 AM

SAN FRANCISCO (MarketWatch) -- Crude supplies rose for a third week, up 5.6 million barrels for the week ended Oct. 10, according to the Energy Department Thursday. Motor gasoline supplies climbed 7 million barrels. Distillate stocks were down a seventh week, by 500,000 barrels. Refinery utilization was at 82.2% compared with 80.9% of capacity a week earlier. Following the news, November crude was down 4.5% at $71.21 a barrel on Globex.

Jane Fox : 10/16/2008 10:57:39 AM

The best thing I can say this morning is at least the overnight lows have not been violated. Link

Keene Little : 10/16/2008 10:44:23 AM

I took a 1/3 of my short position off the table before yesterday's close and I'm going to take another 1/3 off here. I'd rather take profits at this point and miss some downside than let my profits disappear in a puff of smoke. If you've had a good ride don't go for the last penny since that's usually what causes a bigger loss of profits than what you would have gained by holding on.

Jane Fox : 10/16/2008 10:39:54 AM

Here are the internals and they are bearish. Link

Keene Little : 10/16/2008 10:38:06 AM

NDX is now approaching last Friday's low near 1196 so watch for the potential for a bigger bounce. SPX's Friday low was 839.80 so that's quite a bit further down yet.

Jane Fox : 10/16/2008 10:36:05 AM

WASHINGTON (MarketWatch) -- Short-term credit in the commercial paper market declined in the past week by $40.3 billion, or 2.6%, to $1.55 trillion, the fifth straight decline, the Federal Reserve said Thursday. The rate of decline has slowed from a 5.6% drop two weeks ago. Interest rates for commercial paper remained very elevated, with unsecured, lower-rated 30-day paper fetching 6.05% compared with 1.65% for the best-rated paper. Financial firms issued $36.4 billion less paper in the week ending Wednesday, a 5.6% decline. Corporations and local governments issue commercial paper to finance their day-to-day operations.

Jane Fox : 10/16/2008 10:25:52 AM

Commercial paper market shrinks by $40.3 billion, or 2.6%

Commercial paper market drops for 5th straight week

Keene Little : 10/16/2008 10:22:20 AM

Finally! Someone in government is recognizing that you can't force banks to lend money no matter how much cash you give them. I may have to take back all the bad things I've said about Mr. Hanky Panky Paulson.

Jane Fox : 10/16/2008 10:19:20 AM

Paulson is speaking now and is saying we are in for a few tough months and it is difficult for force banks to lend.

Jane Fox : 10/16/2008 10:18:30 AM

Here are the charts of the VIX and S&P futures and they are in sync and bearish. Link

Keene Little : 10/16/2008 10:16:21 AM

NQ's all-hours chart points to 1131 for a downside projection (where the 5th wave down would equal the 1st wave) which would NDX dropping down to about 1128 and below last Friday's low. That kind of move, making a new low below last Friday's, would actually be a cleaner setup for a larger bounce into next week.

Jane Fox : 10/16/2008 10:04:31 AM

WASHINGTON (MarketWatch) - The output of the nation's factories, mines and utilities plunged 2.8% in September, the biggest decline since December 1974, the Federal Reserve said Thursday.

The figures were weaker than forecast by economists surveyed by MarketWatch, who were looking for output to fall 1.5%.

A strike at Boeing Co. had a negative impact on production, as did Hurricane Gustav and Hurricane Ike.

The two hurricanes subtracted about 2.25 percentage points from output in September, the Fed said. Crude oil and natural gas operations in the Gulf of Mexico were suspended in the month.

Factory output fell 2.6%.

Capacity utilization - a gauge of inflationary pressures -- fell to 76.4% from 78.7%. This is the lowest level since October 2003.

Industrial output is down 4.5% in the past year. In the third quarter, production declined 6%.

The output of consumer goods fell 1.4% in September, as durable goods production fell 0.7% and nondurable goods fell 1.5%.

Consumer durable goods were weighed down by a drop of 3.3% in the production of appliances, furniture and carpeting.

The index for automotive products rose 1.7% in September after having dropped 11% in the previous month.

Jane Fox : 10/16/2008 9:58:36 AM

When I started watching the AD line, a value +/-500 was bullish/bearish. Then for at least the last year a value +/- 1000 was the standard. Of late the bullish/bearish level is around +/-1500. So the AD line at 1328 is a big Oh UM!

Jane Fox : 10/16/2008 9:55:54 AM

Geesh Crude hit a low of 71.21 overnight. Who woulda thunk?

Jane Fox : 10/16/2008 9:54:41 AM

WE do have a nice little rally going on this morning but the NDX futures is the only market to break its overnight high so far.

Jane Fox : 10/16/2008 9:49:41 AM

The Swiss will be the first government to start removing toxic waste from banks' balance sheets, $60 billion worth of waste. They also announced they are taking a 9% stake in UBS both moves of which are in line with Paulson's original proposal. However, Credit Suisse will be allowed to meet new standards through their own shareholders, which is part of the British plan that allows banks the choice of raising more capital privately or publically.

Keene Little : 10/16/2008 9:46:02 AM

The DOW is making 200-point swings in the span of 10 minutes here. Tis a wee bit of volatility this morning.

Keene Little : 10/16/2008 9:44:05 AM

Doing the same analysis on SPX/ES I get a downside Fib projection for a 5th wave at ES 839 which would mean SPX 831 which would take it slightly below last Friday's low (840.93). That's further than I thought the current leg would get when I use SPX's pattern so we've got some disagreement between the futures and cash indices as to where this market could be headed sooner rather than later. It takes a rally above yesterday's late-afternoon bounce high (SPX 946, NDX 1304) to negate the bearish downside projection.

Jane Fox : 10/16/2008 9:41:00 AM

Here are your overnight charts. All markets traded similar to one another. They dipped below their previous day lows and then staged a rally. I'm on Keene's side that this rally will probably not be too long lasting. This is called an oversold rally and they are usually sharp but not sustainable. Link

Jane Fox : 10/16/2008 9:25:09 AM

WASHINGTON (MarketWatch) -- First-time claims for state unemployment benefits dropped 16,000 to 461,000 in the week ended Oct. 11, the Labor Department reported Thursday. The four-week average of those claims rose 750 to 483,250 - the highest level since October 2001. For the week ended Oct. 4, the number of Americans continuing to collect benefits rose 40,000 to 3.71 million -- the highest level since June 2003. The four-week average of continuing claims rose 65,750 to 3.63 million -- the highest since July 2003.

Jane Fox : 10/16/2008 9:23:15 AM

WASHINGTON (MarketWatch) -- U.S. consumer prices showed no growth in September, with a 0% change from the prior month, as energy prices declined and food prices rose, the Labor Department reported Thursday. Energy prices dropped 1.9% after seasonal adjustments. For the second consecutive month, food prices rose 0.6%. The core consumer price index - which excludes food and energy prices - rose 0.1% in September. Economists surveyed by MarketWatch were looking for the overall and core consumer prices to each rise 0.2%.

Keene Little : 10/16/2008 9:22:25 AM

We've got a big overnight rally in equity futures so it hardly looks like we're going to get a quick spike down first thing this morning. It's clearly possible the leg down from Tuesday is finished and now we'll start at least a bounce up to correct it. I prefer to use the cash market (regular trading hours) for EW analysis because of the greater number of participants in the market. But I've noticed a very clean pattern in the futures using all hours that is giving me a heads up that this morning's bounce may not last.

I showed a wave count for NDX last night that shows the possibility we'll get a bounce and then back down for one more new low before setting up a larger rally leg. Looking at NQ and all hours I get a clear indication we need another leg down (60-min all-hours chart): Link

So it's a bit tricky this morning to call a direction but I'm leaning towards further downside for one more leg down.

Jeff Bailey : 10/16/2008 3:30:32 AM

YM 8,523 ... +23

Jeff Bailey : 10/16/2008 3:09:17 AM

YM off 43 at 8,461. Has been unusually active.

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