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Keene Little : 11/26/2008 4:16:47 PM

It was a nice bullish day (no surprise) and if Friday's shortened trading day sees only a shallow choppy pullback it should set up the next leg higher on Monday. Then we'll get to see what happens to the fractal pattern setup for a pullback from that level.

I hope everyone has a great Thanksgiving day. For all of our non-US readers I hope you have an enjoyable day as well. If we come back on Friday a bit groggy from eating too much and displaying trytophan-like behavior (lack of clear thought, mumbling something about needing a nap and wondering which football teams are playing next) you'll have to forgive us. Be safe, enjoy family and be thankful.

James Brown : 11/26/2008 3:59:14 PM

FRE's sister company FNM is up 55% at 73 cents and up sharply from its lows near 32 cents on Monday.

James Brown : 11/26/2008 3:57:44 PM

One of the big winners this week is Freddie Mac (FRE). Shares are up 47% today and up about 100% from its Monday low of $0.40. Yup, FRE is only 78 cents.

James Brown : 11/26/2008 3:53:59 PM

McDonald's (MCD) is breaking out past its trendline of lower highs, past its 50-dma and currently above its exponential 200-dma.

James Brown : 11/26/2008 3:53:12 PM

Retail stocks are doing well today. Wal-Mart (WMT) is up 3.4% and breaking out past its 50-dma and the 200-dma.

TGT is up 10% at $35.00. ANF is up 7.5% and challenging resistance at the $20.00 level. KSS +10%, ANN +10.5%... COST is under performing with a 1% gain.

Keene Little : 11/26/2008 3:48:01 PM

If the bulls can keep the rally alive, including on Friday, and get above the 20-dma at 890 I think there's a good chance we will see 917. That's another important Gann number and the previous highs on November 11th and 14th. The chart on the left shows the rally from October 28th to November 4th and the section that I'm interested in is the price action in the small parallel up-channel: Link

If we see a similar pattern (a fractal pattern) play out to a December 1st high then it would be a good setup for the end of the rally. QCharts is still showing tomorrow as a trading day so move one more day beyond where I show 917 getting hit. This is one reason why I'm saying today's rally actually increases the possibility that we're setting up a more bearish outcome from this.

James Brown : 11/26/2008 3:34:20 PM

The VIX volatility index is down another 9.9%, down 4 days in a row, and falling below its 50-dma, which was where it bounced in early November.

Keene Little : 11/26/2008 3:19:31 PM

SPX 890 is the 20-dma so that's the next resistance level if it gets tagged.

Keene Little : 11/26/2008 3:17:07 PM

Unless we're getting just a throw-over above SPX 882 resistance the bulls look like they're going to just plow through it and keep heading higher.

James Brown : 11/26/2008 3:16:04 PM

Scotts Miracle Gro (SMG) is up 6% and breaking out past resistance at the $30.00 mark. This move is also a breakout past its long-term (two-year) trendline of lower highs. Could be a bullish entry point.

Keene Little : 11/26/2008 3:13:41 PM

I'm messed up today. I was thinking it was 4:00 PM but we have another hour to go. So we'll have an hour to see how SPX handles 882.

James Brown : 11/26/2008 3:13:34 PM

It's the same story with PCLN. The stock is up 9% at $68.48. Our first target is $69.90 but I would be tempted to take some money off the table right here.

James Brown : 11/26/2008 3:12:23 PM

I would also consider taking some money off the table on ISRG. The stock retested the $120 level this morning and it's now trading over $134.00 with a 7.7% gain. Granted the day after Thanksgiving tends to be bullish so it is tempting to just hold on. Our official target to exit is $140.

James Brown : 11/26/2008 3:08:57 PM

Exit Alert! - AXSYS Tech (AXYS)... this OI call play has hit our target to exit and take profits at $69.50. The $70.00 level has been resistance in the past. AXYS +4.4% at $69.51 (high 69.61).

Keene Little : 11/26/2008 3:08:07 PM

Golf clap for the nice parking job at SPX 882. This 120-min chart shows the potentially bearish setup from here (back down to new lows in December): Link . This is by no means a given but it's a decent setup. We might get just a pullback (or not) before heading higher again.

Jane Fox : 11/26/2008 2:52:37 PM

Crude is actually trading up to $54/bl lately. I guess the decline at the gas pump will abate for a tad but it has been nice. Seeing prices not seen for over a year. Link

Keene Little : 11/26/2008 2:50:03 PM

SPX 882 is an important Gann level on the Square of Nine chart and it's also where the downtrend line from September 19th is currently located. If it gets parked at that level for the close I think it will be a good place to take profits on any long plays and nibble on a short.

Keene Little : 11/26/2008 2:48:04 PM

I'm back. No surprise, the market has been quietly pushed higher all day with only a minor pullback from the mid-day high. The bearish divergences continue and ironically enough the pattern of the rally from Friday actually now looks potentially more bearish (increasing the chances of a more significant decline in the early part of December. I'd be reluctant to go home long over the holiday even though Friday's shortened trading day may hold up.

James Brown : 11/26/2008 2:33:14 PM

The fertilizer/agriculture stocks are all showing strength today with +3% to 5% moves (POT, MOS, MON, CF, TRA, IPI, and SQM)

James Brown : 11/26/2008 2:30:17 PM

I commented on FLR earlier. Another construction company stock Jacobs Engineering Group (JEC) is doing well. JEC is up 10.3% and breaking out over its 50-dma. Yet the rally has stalled right at resistance in the $41.00 area. The stock is up very sharply in the last four days from its lows near $26.00.

James Brown : 11/26/2008 2:27:28 PM

Education stock APOL is showing some relative strength with a 6.6% gain and a new nine-month high at $76.30. This move follows the recent breakout from its three-week consolidation pattern. The next level of resistance appears to be the $80.00-81.50 zone.

James Brown : 11/26/2008 2:23:49 PM

Another high-flying stock hitting key retracement levels is Google Inc. (GOOG). The stock is up from $247 to $290 in the last three days. Shares have hit the 38.2% Fibonacci retracement level of its November sell-off with today's gain.

James Brown : 11/26/2008 2:21:26 PM

Shares of First Solar Inc. (FSLR) are soaring today. The stock is up another 8.4%to $127.00. The stock is up very sharply in the last four sessions (about 40 points) and today FSLR has tagged the 50% retracement of its November sell-off. It may be time for a pull back.

James Brown : 11/26/2008 1:58:19 PM

Correction: The DJUSHB home construction index continues to rally (+7.7%) as investors bet on improving conditions and falling mortgage rates to lift the homebuilders. The group is up three days in a row (+44% in three days).

James Brown : 11/26/2008 1:39:29 PM

RIMM is also out performing today. We noted the bounce from $40 yesterday and the stock is up 7.1% at $44.50 today. The RSI on the daily chart looks like it's coiling for a bullish breakout but RIMM needs to break its bearish trend of lower highs.

James Brown : 11/26/2008 1:37:19 PM

Priceline.com (PCLN) is up strong this afternoon with a 7.6% gain at $67.60. Our first target to exit is $69.90. I would raise stop losses on this play toward $60.00 or the intraday low near $61.00.

James Brown : 11/26/2008 1:34:54 PM

Dang... I'm feeling a little seller's remorse. Today's move makes it look like we were too early exiting our OI call play on Fluor (FLR). We caught the move from $32 to $40 but today the stock is up another 13.4% at $44.32 following an analyst upgrade to "buy" this morning. Today's move is a bullish breakout over the 50-dma and its early November highs.

Keene Little : 11/26/2008 12:58:15 PM

The market is drifting higher on very low volume and SPX has now reached potential resistance at 870-871. I wouldn't be surprised if this is all we're going to see today for the rally. But clearly there's little interest in selling.

I've got to step away again. It's grandparents day and I've been requested by my grandson to come see his school. How can I say no? I should be back just before the close (and maybe the optioninvestor.com site will be back up by then).

Keene Little : 11/26/2008 12:22:13 PM

The uptrend line from this morning's low is still holding, currently near SPX 861. If it breaks lower than that level now it could be an indication we've seen the high for the day. Still bullish for now.

Jane Fox : 11/26/2008 12:16:10 PM

The VIX has been loud and clear all day, we just needed the AD line to get on board which it has. Link

Jane Fox : 11/26/2008 12:15:06 PM

There is little doubt now the bulls have the ball and are not going to give it up easily. Link

Keene Little : 11/26/2008 11:35:55 AM

While the normal setup looks good for a deeper pullback today we need to stay aware of the bullishness before the holiday. While bearish divergences are showing up it could be reflecting lower momentum as part of the lower volume but not necessarily lead to more selling. I've typically found it to be a frustrating experience trying to short a bounce into a holiday. Tighten up your stops if you're long but exercise caution about the short side.

Keene Little : 11/26/2008 11:28:45 AM

If we're going to get a leg down as part of a larger consolidation pattern we could see SPX make it up to around 870-871 (two equal legs up for the bounce off yesterday afternoon's low is at 870.81). This bounce could then be followed by a relatively sharp decline in which case I would expect 820 for a good downside target.

Keene Little : 11/26/2008 11:21:31 AM

While NDX is pushing marginally above yesterday's high, NQ's pre-market high yesterday was 1174.25, 9 points higher.

Keene Little : 11/26/2008 11:09:25 AM

I'm back and I see the market hasn't done a whole lot. We remain inside yesterday's trading range and this kind of consolidation near the high is bullish. But it doesn't preclude a sharper decline as part of the consolidation. NDX is testing yesterday's high but is showing bearish divergence so stay aware of continued chop if not a stronger decline today.

Jane Fox : 11/26/2008 10:09:51 AM

The AD line is climbing and the VIX is falling so that is bullish correct? Well if you notice the AD line is below 0 you will know the bulls do not have a firm hold on the ball and could drop it at any time, like what is happening now. Link

Jane Fox : 11/26/2008 10:11:30 AM

The FED understands it will be very very easy for banks to become addicted to the FED's injections and is worried as to how and when it will take this drug away from the them. They have not worked that out yet because they see they will have to address that problem well into the future.

One has to wonder if we are just lengthening the recovery process but I'm not sure I would want to know what would happen if the government didn't try. And what will happen to inflation? A weakening economy, unemployment climbing and consumer spending falling should put a dampening on that monster.

But what happens if the programs don?t work? What do we do then? More money? I'm sure the FED doesn't know the answer to that question.

Keene Little : 11/26/2008 9:56:05 AM

Techs are holding up the best this morning and that gives the market a bit of a bullish tone even though the market remains in the red. Today's risk is a low-volume day that sees some volatility. Trading around holidays can sometimes be more difficult.

I've got to step away for an hour and should be back at my desk by 11:00 AM.

Jane Fox : 11/26/2008 9:52:29 AM

WE all know how well this worked for Japan, don't we?

Jane Fox : 11/26/2008 9:51:10 AM

The Treasury can only borrow money from the public to finance its programs but the Fed can effectively create new money by flowing funds, also known as reserves, into the banking system, which the Fed is doing now. Watch the TRIN and you know when it is doing just that.

This approach is similar to what Japan did in the late 1990s and earlier this decade when The Bank of Japan pumped money into its banks. Although the Fed is taking a similar approach it is going one step further and not only pumping in reserves, it is deciding where that cash should go, through its own lending programs.

Jane Fox : 11/26/2008 9:44:21 AM

If you add up all the rescue programs guaranteed by the Fed, the Treasury and Federal Deposit Insurance Corp., the government has already made more than $4 trillion of financial commitments. If these programs do not work that number could grow.

Other programs in the works, like a large fiscal-stimulus plan being worked out now, will make certainly make it grow

Jane Fox : 11/26/2008 9:36:22 AM

AD line opens bearishly at -1244

Jane Fox : 11/26/2008 9:34:16 AM

The S&P futures (ES) is the only market to break its previous day lows overnight. Link

Keene Little : 11/26/2008 9:30:52 AM

The overnight range in equity futures stayed inside yesterday's price range (ES dipped slightly lower at this morning's spike down on the economic news) so there's nothing telling there. But we had a setup for a pullback and so far with futures in the red I see that as the most likely direction today. SPX 820 is the first downside target if we get a deeper pullback today.

Jane Fox : 11/26/2008 9:30:06 AM

The $800 billion will be broken down into $200 billion in financing to investors buying securities tied to student loans, car loans, credit card debt and small-business loans. The rest will go to buy $600 billion of debt issued or backed by Fannie Mae, Freddie Mac, Ginnie Mae and Federal Home Loan Banks, all mortgage-finance businesses with close ties to the government.

Jane Fox : 11/26/2008 9:25:54 AM

Yesterday I stated the government was going to pump $700 billion into the economy and I wasn't sure if it was part of the orginal $700 billion or not. Today I have more information. First of all this is NEW money on top of the $700 billion already approved and secondly it is not $700 billion but $800 billion. I mean what is a billion here or there heh?

Jane Fox : 11/26/2008 9:07:53 AM

Mortgage applications rose 1.5% last week according to the Mortgage Bankers Association but fell 21.9% compared to the similar week of 2007.

Jane Fox : 11/26/2008 8:43:11 AM

All those very important releases at 8:30 did not affect the futures at all.

Jane Fox : 11/26/2008 8:41:17 AM

Core Durable Goods Orders is the change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation.

Jane Fox : 11/26/2008 8:40:10 AM

The Core PCE Price index is the change in the price of goods and services purchased by consumers, excluding food and energy.

Jane Fox : 11/26/2008 8:36:55 AM

WASHINGTON (MarketWatch) -- First-time claims for state unemployment benefits fell by 14,000 to 529,000 in the week ending Nov. 22, the Labor Department reported Wednesday. The four-week average of those claims rose to a 25-year high of 518,000. Meanwhile, the number of continuing jobless claims fell by 54,000 to 3.96 million. The four-week average of continuing claims rose to a 25-year high of 3.92 million.

Jane Fox : 11/26/2008 8:36:23 AM

WASHINGTON (MarketWatch) -- Consumer spending fell 1% in October, the largest decline since September 2001, the Commerce Department reported Wednesday. The result matched analysts' expectations. Real consumer spending fell 0.5%. Personal income rose 0.3% in October after a 0.1% gain in September. Analysts were looking for a 0.1% income gain for October. Real disposable income rose 1% in October. As expected by analysts, the core personal consumption expenditure price index was unchanged in October. This index gained 0.2% in September, and is up 2.1% in the past year.

Jane Fox : 11/26/2008 8:35:15 AM

New orders for manufactured durable goods in October decreased $12.7 billion or 6.2 percent to $193.0 billion, the U.S. Census Bureau announced today. This was the largest percent decrease in new orders since October 2006 and followed two consecutive monthly decreases including a 0.2 percent September decrease. Excluding transportation, new orders decreased 4.4 percent. Excluding defense, new orders decreased 4.6 percent.

Jane Fox : 11/26/2008 8:32:50 AM

HONG KONG (MarketWatch) -- The People's Bank of China Wednesday slashed its lending and borrowing rates by more than 1%, in addition to cutting banks' reserve requirements sharply, to deliver its strongest response yet to a recent slowdown in the mainland's economic growth.

The central bank cut interest rates by as much as 1.08%, taking the one-year yuan lending rate to 5.58% from 6.66%, and the one-year yuan deposit rate to 2.52% from 3.60%. The rate cuts are effective Thursday, according to newswire reports.

The central bank also reduced the reserve requirement for the country's six largest banks by 1%, and for smaller banks by 2%

Jane Fox : 11/26/2008 8:25:54 AM

TEL AVIV (MarketWatch) -- American International Group Inc., the New York insurer, closed its $40 billion stock placement with the U.S. Treasury under the government's Troubled Assets Relief Program, the company said late on Tuesday. The Treasury bought 4 million shares of AIG Series D preferred and a warrant to buy common stock equaling 2% of the company on the date of the investment. The preferred pays 10% annual interest. The 10-year warrant is exercisable for as many as 53.8 million common shares; the price equals the common stock's par value when the warrant is exercised. AIG said it would use the proceeds to reduce its borrowings outstanding under the credit agreement the Federal Reserve Bank of New York extended to the insurer in September. The maximum capacity of that credit agreement will be reduced to $60 billion from $85 billion, AIG said.

Keene Little : 11/26/2008 12:38:09 AM

Wednesday's pivot table: Link

While studying the setup for Wednesday I've been thinking that it would look best with a pullback before proceeding higher and the pullback could take the whole day before starting another rally leg into next week. A couple of levels for this pullback/rally scenario are for a pullback to either SPX 820 or 790 and then a rally up to either 917 or 996. That's quite a difference and unfortunately there's no good way to determine which it might be. Both are shown on the 60-min chart: Link

In addition to Fib retracements and projections at the levels cited above, a pullback would form a nice right shoulder of an inverse H&S pattern and it would have an upside projection near the same 996 Fib level. So that's my vote--pull back to 790 and then another rally leg higher from there.

But I took another look at the possibility that we have not yet seen the lows for the year, as most now think (which is the direction I started leaning after the big rally off Friday's low). The way the decline finished makes it look as though it's missing another move down to complete the 5th wave down. I can force a wave count to fit but I always hate doing that (but a pullback and rally higher, as shown on the 60-min chart, would convince me the bottom is in).

So I drew out a scenario that calls for another leg down into December to finish the 5th wave before it sets up a larger rally into next year, shown on this 120-min chart: Link . All the 3-wave price action since the October 14th high says we're in a wedge and to make a "prettier" wedge pattern it needs another 3-wave move down for the 5th wave. Interestingly, after drawing out the decline I noticed it dropped to 661 during the 2nd week of December. I had mentioned 661 as the next lower number that's square to 768 on the Gann Square of Nine chart.

I don't know if this will play out but I see it as a definite risk to those who are long the market right now. This is a trading environment and any trade held for more than a day is a risky trade. If SPX starts back down from here and breaks below 768 I'll be betting we'll see another 100 points lower before we see a bottom.

OI Technical Staff : 11/25/2008 10:00:00 PM

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