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Keene Little : 10/20/2008 4:15:11 PM

For tomorrow I now see upside potential to the 1010-1020 level (with higher potential to the 1070 area). If it's going to stay stuck inside a large sideways triangle the lower level should be about it. If we're going to get a slightly stronger a-b-c rally off the October 10th low then we should see it make it up to 1070. The higher number would mean a strong rally tomorrow so that's why you don't want to be short and fighting the market right now. SPX 30-min chart: Link

Jane Fox : 10/20/2008 4:04:54 PM

DOW closes up 400 points. Not what you would call back to normal just yet.

Jane Fox : 10/20/2008 4:03:57 PM

YA!!! The VIX is back, at least for now. Link

Keene Little : 10/20/2008 4:02:01 PM

And there's the violation so never mind on the short play. This market will head higher even if not immediately tomorrow morning.

Keene Little : 10/20/2008 3:59:06 PM

Looks like this will get jammed into the close--stopping out the last of those who can't hold short overnight or don't want to. This is what often leads to the small capitulation move into the close that gets no follow through the next day. Only time will tell if it will happen again. But a push above SPX 984.64 would negate the immediately bearish wave count and suggest we've got higher to go even if it starts off in the hole tomorrow.

Keene Little : 10/20/2008 3:44:49 PM

That was a little throw-over above the wedge. Short against Friday's high (SPX 984.64) is the current recommendation (put options only) as I think they're forcing shorts out but could find no follow through in the morning.

Keene Little : 10/20/2008 3:31:37 PM

The way this is chopping higher it's giving me the impression it's in an ending pattern. If it continues into the close this way I'd say it will be a good short play setup into tomorrow. If you draw trend lines along the highs and lows since 11:00 AM you can see a rising wedge pattern. The uptrend line is currently near 968 so watch for a break sooner rather than later. Or a throw-over above the top of the wedge near 976 would be another possibility heading into the close.

Jane Fox : 10/20/2008 3:27:30 PM

I am reading an article saying the TED spread is now 2.95, under 3.

Jane Fox : 10/20/2008 3:22:04 PM

When the media throws out some numbers like the stock market just lost 1.2 trillion dollars, do you even wonder where the heck does it all go? Is there some fat cat out there who is $1.2 trillion richer?

Well the answer is that it was never really there to begin with. Let's take an example. You buy a house in Orange county in 1994 for 400K and by 2004 that house is now worth 4 million. The increase is only paper worth because an item's true value at any one point in time is what another person is willing to pay for it. If you can find a buyer who will pay you 4M for AND you sell it then it becomes real money but not until.

If you want to know what is real money and what is not take a look at what the IRS will tax. You are not taxed on the value of a house that grows in paper value from 400K to 4 million until you sell it then the IRS will git ya on capital gains. Now if you should sell that house for 200K you will be able to take a capital loss but only when you sell it.

So all the value lost in the stock market was not really there to begin with.

Keene Little : 10/20/2008 2:56:29 PM

A review of which sectors are doing well shows that today's rally is primarily on the back of commodity stocks. The utilities are up (maybe expecting another rate cut?) and housing stocks are up (so what) but other than that I just don't see anything that makes me sit up and feel bullish. If anything I want to add to my longer term short position and ride out the noise.

Jane Fox : 10/20/2008 2:30:06 PM

NEW YORK (MarketWatch) -- Struggling electronics retailer Circuit City Stores Inc. is considering a plan to shut at least 150 stores and cut thousands of jobs to avoid filing for bankruptcy protection, The Wall Street Journal reported Monday, citing unidentified people familiar with the situation.

Circuit City has hired Skadden, Arps, Slate, Meagher & Flom LLP, which oversaw Kmart's Chapter 11 reorganization, as its bankruptcy counsel. The company also has retained FTI Consulting Inc. to develop a turnaround plan and investment bank Rothschild Inc. to guide talks with banks and secure emergency financing, the Journal reported.

Jane Fox : 10/20/2008 2:13:35 PM

Well that good old VIX came through today and told us early on the bulls were getting stronger. I see the S&P futures have just broken out to a new daily high.

Keene Little : 10/20/2008 2:10:48 PM

As I watch today's bounce in SPX, and trying to get some clues as to what kind of bounce it is, I'll be watching two upside Fib projections if they're reached--972.67 and 976.38. The first is where the bounce off this morning's low would have two equal legs up and the 2nd is where the bounce off this morning's pullback low (to 943.85) would have two equal legs up. I'm not yet convinced we're going to see a rally above Friday's high so watch those levels for potential resistance. Any higher than 977 should see a continuation of the rally which may get stronger this afternoon.

Keene Little : 10/20/2008 1:45:48 PM

The choppy price action could continue higher but I think it remains risky for the long side. Because of the big moves in the market it's tough to call any kind of nearby support or resistance to help provide some clues as to where this market could be headed in the short term. Between Friday's high near 985 and Thursday's low near 890, a spread of 95 S&P points (950 DOW points), we could see the market just flop around and not get any clues from it. SPX 60-min chart: Link

Jane Fox : 10/20/2008 1:32:04 PM

Paulson said he will start with nine banks but has received interest from many others. The application process is very simple, one page, and will avoid all the government bureaucratic delays. Deadline for the applications is Nov 14th.

Jane Fox : 10/20/2008 1:29:47 PM

Paulson is starting to reveal bits of his plans to loan $250B to 9 banks. He stated today the banks receiving this infusion will be expected to loan the money to help revive liquidity in the credit market. This is the one of the first steps needed to restore confidence in our banks, a necessary piece of the puzzle before the credit markets can resume any kind of normalcy.

Jane Fox : 10/20/2008 1:05:43 PM

Mark Twain was ahead of the curve: October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.

Jane Fox : 10/20/2008 1:04:13 PM

What is the difference between an investment banker and a pigeon?

A pigeon can still make a deposit on a BMW.

Jane Fox : 10/20/2008 12:55:52 PM

WASHINGTON (MarketWatch) -- Pressed to say whether the U.S. economy is in a recession, Federal Reserve Chairman Ben Bernanke refused to say. Bernanke, testifying to the House Budget Committee on Monday, said it "doesn't matter" if we call this a recession, because "recession" is really a technical term used by economic historians and has no bearing on which policies ought to be pursued. "We are in a severe slowdown, with severe consequences," Bernanke said. Earlier in the hearing, Bernanke endorsed another round of fiscal stimulus to help the economy grow faster. At one point in his career, Bernanke served on the committee of academics who make the judgment about whether the economy is in recession or not.

Jane Fox : 10/20/2008 12:54:09 PM

Here is another market timer Keene, the jtHMA on a monthly SPX chart. Link

Keene Little : 10/20/2008 12:34:15 PM

Picking up on Jane's comment about a market-timing tool (12:21 PM), one that's very simple and effective is the 20-month moving average. If you want a good tool to tell you when to be invested in the market and when to be out of it, this is one of the better. SPX monthly chart: Link

Jane Fox : 10/20/2008 12:30:50 PM

Now that we are back to a more normal type market movement, I see the VIX is indeed starting to perform again. It told us earlier the bulls were getting stronger and sure enough they did stage a rally.

The VIX is continuing its downward trek so the markets should continue their upward trek. Link

Jane Fox : 10/20/2008 12:27:57 PM

WASHINGTON (MarketWatch) -- The nation's economy isn't in "free fall," though its recovery may still be a year away and further weakness is expected, a Conference Board economist said Monday.

The index of leading economic indicators rose 0.3% in September, marking the first gain since April, after having dropped a revised 0.9% in August, the Conference Board reported.

Economists surveyed by MarketWatch had been looking for a 0.3% gain for last month.

"The extreme volatility in the financial market, and the near freeze-up of credit, will no doubt weaken the economy further," said Ken Goldstein, labor economist at the private research group. "But latest data suggest that conditions in the non-financial economy are not falling apart."

Indeed, six of the 10 indicators that make up the leading index, which is designed to forecast turning points in the economy six to nine months ahead, gained in September. The largest positive contribution came from the real money supply, while the largest negative contribution came from building permits.

Jane Fox : 10/20/2008 12:23:48 PM

There are some other axioms that I could relate but the one that seems to be the most fundamental is "Bull markets are a whole lot more fun than Bear Markets."

Keene Little : 10/20/2008 12:22:46 PM

The bounce back up has left this morning's pullback as a correction. It looks like we should now head higher again but the bigger pattern leaves me wondering if we're just going to whip around. I also don't like the fact that techs are so much weaker than the blue chips. Stay cautious if you're playing the long side. I'd rather stay flat and watch for a while.

Jane Fox : 10/20/2008 12:21:41 PM

If you are a buy and hold type investor but cannot take a 20-30% downturn then you may have to rethink how you invest and find yourself a reliable market timer. Now would be a good time to find a market timer. Pick the one that fared the best during this turmoil.

Jane Fox : 10/20/2008 12:18:06 PM

Rapidly rising or falling markets will correct but they do not correct sideways, they correct strong in the opposite direction.

Jane Fox : 10/20/2008 12:16:13 PM

... and those excesses are never permanent.

Jane Fox : 10/20/2008 12:15:36 PM

Excesses in one direction will always lead to excesses in the opposite direction.

Jane Fox : 10/20/2008 12:14:23 PM

When the markets are taking its toll on us like this you need to remember a few things, the market dynamics are still the same and always will be.

Remember markets tend to return to the mean and both euphoric and pessimistic market cloud our perceptions and how we view the market.

Keene Little : 10/20/2008 12:07:54 PM

Considering where we are in the larger pattern for the move down from May and August, we either finished a 4th wave correction and have started down in a 5th wave from last Tuesday's high or we're still in a larger 4th wave correction. These two possibilities are shown on the SPX daily chart: Link

The dark red wave count says the 4th wave correction finished and that we'll soon see some strong selling kick in as SPX drops down towards its 2002 low of 768 this week. The pink count says we're in a larger 4th wave correction that could either head higher (not shown) or sideways into early November (on hold for the elections?) before letting go to the downside again (post-election blues?). The two counts are slightly different in the degree of the wave count we're in but that's not that important yet--both are pointing lower still.

Keene Little : 10/20/2008 11:53:04 AM

We're not getting much in the way of clean (impulsive) price action this morning, up and down, and that leaves us vulnerable to more chop than anything else. If we get another rally leg going there's some pretty good upside potential to start with (SPX 1013) so don't fight any new highs. For now I'm short against SPX 963 but I don't like the price pattern enough (yet) to get me feeling bullish. I'll simply move to the sidelines if stopped out.

Jane Fox : 10/20/2008 11:22:58 AM

One of the causalities of this recent volatility is the synchronization between the VIX and the S&P futures. It will come back but in the meantime I am not relying on the VIX quite as much but still watching it very closely.

Here ES is making a new daily low but the VIX is not making a new daily high as a matter of fact it is making new daily lows. This tells me the market should move higher from here. Link

Jane Fox : 10/20/2008 11:17:41 AM

Fifth area is strong valuation. Look for a company that is "cheap." These companies have already sold off so there is not a lot more downside but a lot of upside and they have a greater margin of safety.

Jane Fox : 10/20/2008 11:07:07 AM

Fourth is a company with strong management. You need to park your money in a company that has an honorable management team. This is the hardest area to evaluate.

Some fund managers will visit company executive on their own turf but that is usually a little more difficult for the average Joe and Jane investor.

Keene Little : 10/20/2008 11:04:30 AM

This morning's pullback is so far just a 3-wave move and any rally back above the bounce high near 10:50 AM would leave it that way and suggest the market is going to rally higher. Therefore if you're trying the short side you can lower your stop to just above the bounce high (SPX 961.89).

Jane Fox : 10/20/2008 11:00:56 AM

Third is look at a company that has strong market share like Microsoft, Apple, JNJ. Companies that have not only a national footprint but a global one as well. Along with a strong market share is the question,"Does the company also produce a product that will be around for awhile?" Picking a company that has market share in high end boutiques would not do it because those kind of stores will be the first to close down in tough times and the entire market will suffer so it doesn?t matter if you have the best it will be the best of the worst and not where you want to park your money.

Jane Fox : 10/20/2008 10:53:09 AM

Second thing you need to look at is how much debt a company has. Low debt means a company can finance its own capital expenditures and thus its own growth and will not have to tap the credit market. If a company uses credit for growth that growth would be almost at a standstill now because the credit markets are frozen.

Another aspect of growth is to watch for what is called organic growth, growth that is not through M and A (mergers and acquisitions).

Jane Fox : 10/20/2008 10:47:08 AM

If you want to be a Buffet and get down to the nitty gritty and analyze a company from the bottom up where do you start? There are five things you need to look at.

The first thing you need to look at is the Cash Flow. This is basically the net income, although you may have to add a few things like capital expenditures, etc.

Cash flow is a company's life blood and is a measure of how flexible a company is and thus if it has options when tough times arrive. It is also very hard to manipulate.

Keene Little : 10/20/2008 10:45:44 AM

The DOW is up +175 points and NDX just went into the red. We've seen this story play out before and it's generally not good for the bulls.

Jane Fox : 10/20/2008 10:40:09 AM

The Fed, set to meet again Oct 28-29, left the door open for more rate cuts.

Jane Fox : 10/20/2008 10:38:52 AM

Pelosi said Congress is unlikely to approve a rebate package before the new administration hangs its drapes in the White House and that prospects are dim for a post election session to pass an economic aid package.

Jane Fox : 10/20/2008 10:36:45 AM

Here is more on Bernanke's testimony. "If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," Bernanke said. "Such actions might be particularly effective at promoting economic growth and job creation," he added.

House Speaker Nancy Pelosi has said an economic recovery bill could be as large as $150 billion. Economists have told leading Democrats the plan should be twice the size.

Jane Fox : 10/20/2008 10:32:08 AM

WASHINGTON October 20, 2008, 10:04 am ET ? Federal Reserve Chairman Ben Bernanke told Congress Monday a fresh round of government stimulus is a good idea because there's a risk the country's economic weakness could last for some time.

Bernanke's remarks before the House Budget Committee marked his first endorsement of another round of energizing stimulus, something that Democrats on Capitol Hill have been pushing. The Bush administration, however, has been cool to the notion.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Bernanke said in prepared testimony to the panel.

A trio of hard blows from the housing, credit and financial crises has badly pounded the economy.

Keene Little : 10/20/2008 10:27:34 AM

At this point, with SPX failing at its broken uptrend line (with a minor spike above it), short against this morning's high is the recommended position. If we start another leg down this week it projects down to the 2002 low (768).

Keene Little : 10/20/2008 10:09:19 AM

SPX has retraced a little more than 62% of Friday afternoon's decline (967.59) and if it gets above 975 (78.6%) there's an increased probability that we'll see it head for new highs above Friday's. But so far it's just a sharp 3-wave bounce that can be considered a correction of Friday afternoon's decline.

Keene Little : 10/20/2008 10:02:01 AM

SPX is now tagging its broken uptrend line from Thursday, here at 963. Watch for failure (or not).

Jane Fox : 10/20/2008 10:00:00 AM

Warren Buffet wrote in the New York Times on Friday, "Be fearful when everyone else is greedy and be greedy when everyone else is fearful." Easy words to say but very hard to do. What is greedy and what is fearful? You could have thought the markets were fearful in August or September and if you bought in then you would be hurting now. So although this is very good advice, it is very hard to quantify.

Jane Fox : 10/20/2008 9:45:11 AM

Here are your overnight charts. A series of higher highs mean the trend is up and the AD line at +1681 tell me they could go even higher. Link

Keene Little : 10/20/2008 9:28:43 AM

Following up on last night's post, ES made it up to 966.25 last night which would have SPX roughly in the 962 area, the level I said I want to see how it does. Futures have pulled back some as we head for the opening bell but watch for a retest of the overnight highs. This is a setup for a short play but it obviously would need to fail quickly otherwise a continuation of the rally could be bullish for another rally leg.

Jane Fox : 10/20/2008 9:28:58 AM

Short term dollar loans dropped to 4.05 down from 4.418 on Friday. This means we are starting to see the Commercial Paper market open up again. There is still a lot of work to be done but every journey starts will a small step.

Jane Fox : 10/20/2008 9:25:35 AM

Democrats in Congress believe Bernanke will announce a huge new stimulus bill, up to $150B or larger.

Jane Fox : 10/20/2008 9:23:01 AM

Good morning everyone. at 10:00ET today we have Fed Chairman testifying before the HOuse of Representative Budget Committee on the economic outlook of our financial markets. Bernanke will be subjected to a Q&A and we could get some very unexpected comments.

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