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Keene Little : 1/16/2009 4:16:55 PM

Based on the size of the bounce now off yesterday's low I think that leg down is finished. We should be into some kind of larger bounce even if we first get another pullback Tuesday morning. For now I think upside potential for a bounce is to the 38%-50% retracement of the decline, so 865-880. That should be followed by another leg down into the end of the week. SPX 60-min chart: Link

Keene Little : 1/16/2009 3:53:14 PM

It looks like SPY is going to get pegged near 85 and DIA near 83.

Keene Little : 1/16/2009 3:49:29 PM

The choppy price action in today's climb off the low has been very choppy but contained within a parallel up-channel, and still is. With only 15 minutes to go it looks like it might be able to hold up. I can't say I like it for a continuation higher for Monday but stepping back and looking at looking at the 60-min chart I see a very good possibility for a continuation higher on Monday. I don't like it but that's the way I'm leaning as we head for the close.

Keene Little : 1/16/2009 3:26:58 PM

This morning's quick pop higher had NDX tagging the underside of the broken uptrend line from December 2nd, near 1203. It's currently near 1207 now so watch to see how it handles that level if tagged again. It wouldn't surprise me to see NDX/QQQQ settle near 1200/29.50 for opex.

Keene Little : 1/16/2009 3:19:58 PM

The rally off this morning's low is one of the choppiest ones I've seen in a while. I have no confidence it will hold. But it's an uptrend and therefore you don't want to short it. Just be careful of a failed retest of this morning's high (maybe).

Jane Fox : 1/16/2009 3:19:16 PM

.. . and the VIX is testing its daily lows again. This should be telling you the bears are losing control.

Jane Fox : 1/16/2009 3:18:12 PM

AD line has now clawed its way back to +730

Jane Fox : 1/16/2009 3:17:48 PM

By the way you all know the markets are closed for Martin Luther King day on Monday. Just thought I would remind you all.

Keene Little : 1/16/2009 2:35:42 PM

After rallying strong off this morning's lows bonds are now selling off again and at the same time we're seeing this attempt to rally the market. So bonds and stocks are seesawing back and forth today. I don't know it will amount to a bigger move today or not.

Jane Fox : 1/16/2009 2:15:52 PM

All markets are back into their ON ranges now. Well not sure about the Russell 2000 because it is on a 20 minute delay

Keene Little : 1/16/2009 2:15:06 PM

SPX just tagged the 62% retracement of this morning's decline so the bulls need to keep up the buying here. If the market turns back down instead then instead of a thrust higher we could see some strong selling kick in. Or we stay inside a choppy consolidation. If long the market I would pull your stop up closer now and protect against the possibility of a strong selloff. I think it will go higher but that and $2.50 will buy you a Starbucks.

Jane Fox : 1/16/2009 2:14:44 PM

I have to admit I did not expect to see ON lows break so soon, if at all, today. The ON session was bullish with higher highs and higher lows so although a retracement was probable, I fully expected the market to break ON highs. Then the internals were so bullish this morning so it was fait accompli.

Looks like the bears had different plans heh? Link

Keene Little : 1/16/2009 2:11:56 PM

Nice little recovery off this morning's lows. The pattern supports the idea that we could see a thrust higher to new highs for the day.

Jane Fox : 1/16/2009 2:06:17 PM

SAN FRANCISCO (MarketWatch) -- California's cash shortages could lead to a delay in tax refunds for 2008 and affect critical public services including health and welfare, the state controller said Friday. The delay is a result of a chronic budget deficit, which has depleted California's cash reserves. The state expects to be at least $346 million short in February, Controller John Chiang said in a statement. In response, California will delay, for 30 days, payments to some programs that are funded by its general fund to preserve cash for education, debt service and other payments that have first claim under the state constitution or federal law.

Keene Little : 1/16/2009 1:45:03 PM

The other possibility of course, especially this being opex Friday, is that we'll just have a choppy day of consolidation. It's usually better to sit this day out unless we see a really good setup.

Keene Little : 1/16/2009 1:42:03 PM

Now we'll see if the bounce off this morning's low is going to be just a correction to the decline or the start of something bigger back up. Two equal legs up is at SPX 844 (ES 841). If it stalls there it's a short play setup. If it keeps heading higher it's a long play.

Jane Fox : 1/16/2009 1:08:07 PM

SAN FRANCISCO (MarketWatch) -- Drug maker Pfizer Inc. (PFE) will lay off a third of its sales force, The Wall Street Journal reported Friday on its Web site. The cuts could affect as many as 2,400 employees, according to the newspaper. Earlier in the week, the Journal reported that Pfizer was cutting its research and development staff by 8%, or by 800 positions. Pfizer has just over 86,000 employees.

Keene Little : 1/16/2009 12:55:41 PM

To help keep things in perspective (thanks Barry):

Recent labor stats posted on MM today and all over the news lately are very misleading. They focus on the raw number of job losses and make statements like "Worst Job losses since WWII."

Job losses for 2008 were 2.5 million and total workforce is 155 million vs. 1945 workforce of only 54 million.

Percent decline of total workforce in 2008 = 1.61%
Percent decline of total workforce in 1945 = 4.63%

My headline: "Job losses in 1945 nearly 3 times worse than 2008".

Jane Fox : 1/16/2009 12:48:57 PM

When the AD line opens up at +1650 then falls to -932 in three hours that means the sellers have been able to overtake the any kind of buying and is quite bearish overall. We saw the bulls take a stand earlier this year but it feels like they have used up all their energy and have almost given up.

Keene Little : 1/16/2009 12:47:05 PM

It looks like another reallocation program going off this morning as bonds bounced big from their morning lows and stocks took a tumble. I think more are fearing a break of the November lows. At this point I think there's a reasonable chance that we'll get one more new low for the decline from last week. If this morning's high completed a 4th wave correction (pink wave count that I've been showing on the SPX 60-min chart) then a 5th wave projects down to 811 where it would equal the 1st wave. This is shown on the updated chart: Link

But if this morning's pullback is simply part of a larger upward correction (an a-b-c bounce) then we could get another rally leg at any time (dark red). At the moment SPX has bounced back up to the downtrend line from last week, near 835.50, so a turn back down would likely mean we'll continue to the minor new low at 811.

Keene Little : 1/16/2009 12:24:46 PM

It's clearly bearish that SPX has dropped back down inside its down-channnel. The bounce off yesterday's low is left a 3-wave bounce and therefore a correction. From here we could get one more new low (possibly 800 as the downside target) or this morning's pullback could be followed by another leg up as part of a larger upward correction. But at this point, even with another leg up in the bounce off yesterday we have a strong clue that we'll then head lower again (rather than looking for a much bigger rally up).

Jane Fox : 1/16/2009 12:03:21 PM

Here are your internals - not bullish. Link

Jane Fox : 1/16/2009 12:02:19 PM

AD line is now -159.

Jane Fox : 1/16/2009 11:49:34 AM

NEW YORK (MarketWatch) -- Bankrupt electronics retailer Circuit City Stores Inc., after failing to secure financing from its creditors and lenders, said Friday that it will liquidate, joining a list of other retailers like Linens N Things that set plans to fold their operations in the economic downturn.

The liquidation will affect more than 30,000 employees, adding to the rising number of U.S. job losses, which last year hit their highest level since World War II.

Keene Little : 1/16/2009 11:44:36 AM

Now that the uptrend line from yesterday has been broken it will be important to watch how price behaves with a retest of it (if it gets retested), currently near 846.60.

Keene Little : 1/16/2009 11:40:28 AM

It needs to bounce now otherwise the bears are back.

Keene Little : 1/16/2009 11:36:44 AM

The uptrend line from yesterday morning and afternoon lows is now near 846, also near the potential Fib support just below 846. Gap closure would be at 844. It's a support area so a good place to try a long play. It would obviously be bearish if it doesn't hold.

Keene Little : 1/16/2009 11:24:06 AM

ES would have two equal legs down this morning (regular trading hours) at 841 which would be very close to gap closure and another reason to watch that area for support.

Keene Little : 1/16/2009 10:48:14 AM

After the little bounce off this morning's low another leg down equal to the first one off this morning's high gives us a downside target of SPX 845.71, right on top of the 50% retracement of the leg up from yesterday afternoon's low. That's the level I'll be watching for support and a buying opportunity.

Jane Fox : 1/16/2009 10:36:50 AM

The bulls are now making a stand yet have not changed the trend which is still down. This may be the perfect opportunity to jump on board the bull's wagon and ride it for awhile.

Keene Little : 1/16/2009 10:31:01 AM

Price action is choppy in the pullback and that's bullish. I expect this to be followed by another rally leg. Ideally (to find support), SPX will pull back to its downtrend line, between 840-844, depending on how it's drawn and on which time frame. But that might be a bit much to expect the way it's behaving. So far it has retraced 38% of the climb off yesterday afternoon's pullback low. A 50% retracement is at 845.78.

Jane Fox : 1/16/2009 10:16:54 AM

All my internals are telling me the buyers are in control yet the market is making new daily lows. This is quite bearish.

Jane Fox : 1/16/2009 10:15:20 AM

Well actually Crude did increase $8.88 because the March contract was trading at a premium to the Feb contract and now you are seeing that premium.

Jane Fox : 1/16/2009 10:02:08 AM

By the way the continuous contract shows Crude up $8.88 today but we all know that is just not the case.

Jane Fox : 1/16/2009 10:01:15 AM

As a result, Citi will break into two parts: Here is a little more information on the Citi break up. Citicorp will focus on leveraging the competitive advantages of the company's global universal bank in more than 100 countries, and Citi Holdings, which will be made up of brokerage and retail asset management, local consumer finance and a special asset pool - whose management will focus on tightly managing risks and losses, and maximizing the value of these assets.

Jane Fox : 1/16/2009 9:58:16 AM

What has happened is the continuous contract is using the pattern of February but has been "readjusted" up to the March contract prices.

Jane Fox : 1/16/2009 9:57:10 AM

Here is the Crude March contract and as you can see it did not make a new low yesterday Link however, the February contract did. Link

Now take a look at Crude continuous contract, which now March (yesterday it was Feb). Link

Keene Little : 1/16/2009 9:57:01 AM

A pullback this morning to retest its broken downtrend line (top of the down-channel) would have SPX dropping back down to about 844, about 10 points lower. It would be a good time to look for a play to get long (if it holds).

Keene Little : 1/16/2009 9:52:46 AM

NQ pulled back at the opening and dropped briefly below the low near 8:30 (ES stayed above it's 8:30 low) but now is challenging the pre-market high. So far it remains a bullish pattern but another drop down would likely see gap closure.

Jane Fox : 1/16/2009 9:52:05 AM

Citicorp will emerge from the split with all of good stuff and CitiHoldings will be left with some good but mostly bad. Citi hopes this will lower risk at Citicorp and streamline the business model. We'll see and hope it does work because we are all part-owners of the firm now.

Jane Fox : 1/16/2009 9:46:42 AM

The S&P futures are making new daily lows but so is the VIX. This will turn around soon.

Jane Fox : 1/16/2009 9:46:07 AM

NW YORK (MarketWatch) -- Citigroup Inc said Friday that it will realign into two businesses, Citicorp and Citi Holdings, in effect reverting back to running a banking business similar to its operations before Sandy Weill and his team turned the firm into a financial supermarket over the last decade.

The new structure will have the bank operating without the burden of billions of dollars of toxic assets accumulated during the mortgage bubble and made up of bad home loans and various derivatives.

Jane Fox : 1/16/2009 9:41:36 AM

VIX closed at 51 yesterday and opened this morning at 48.11.

Jane Fox : 1/16/2009 9:40:59 AM

AD line opens at +1652, quite bullish.

Jane Fox : 1/16/2009 9:21:36 AM

NEW YORK (MarketWatch) -- PPG Industries Inc. (PPG) on Friday said fourth-quarter net income fell to $71 million, or 43 cents a share, from $200 million, or $1.22 a share in the year-ago period. The latest earnings figure included a one-time boost of 2 cents a share related to an asbestos settlement. Sales rose 3% to $3.2 billion. Analysts expected earnings of 53 cents a share, according to a survey by FactSet Research. "Our early read on 2009 is that the first quarter and possibly the first half of the year is shaping up to be an even greater challenge than the fourth quarter 2008 due to further weakening demand," the Pittburgh maker of paints and coatings said. "We continue to evaluate further cost actions that may result in additional restructuring and related cost savings during the year."

Jane Fox : 1/16/2009 9:20:10 AM

Here are your overnight charts, all have the same pattern, higher highs and lows and all have broken their respective previous day highs. ON session is bullish and I suspect intraday to be bullish but choppy. Link

Jane Fox : 1/16/2009 9:19:55 AM

WASHINGTON (MarketWatch) - The output of the nation's factories, mines and utilities plunged 2.0% in December, the Federal Reserve said Friday. Output has fallen in four of the last five months. The figures were weaker than forecast by economists surveyed by MarketWatch, who were looking for output to fall 1.2%. Output in November was also much weaker than previously thought. Output fell 1.3% in November, more than double the 0.6% drop initially estimated. Recovery from a strike at Boeing Co offset some of the weakness. Capacity utilization - a gauge of inflationary pressures -- fell to 73.6% from 75.2%. This is the lowest level since December 2001. Industrial output fell at an 11.5% rate in the fourth quarter. Output was down 1.8% in 2008.

Keene Little : 1/16/2009 9:15:54 AM

It looks like we'll have our answer this morning as whether or not yesterday's low was the end of the leg down from January 6th. The gap up this morning will clearly propel the indices out of their down-channels and that sets us on the course to a higher bounce into early next week.

The overnight price action was a bit choppy and that raises the risk for a choppy rise this morning, including a pullback to close the gap (or more). So don't get complacent about being on the long side.

Jane Fox : 1/16/2009 9:10:57 AM

We are in deflation once the year over year consumer prices fall to below 0.0% so we are not there yet but real close.

Jane Fox : 1/16/2009 9:09:25 AM

WASHINGTON (MarketWatch) - In another sign of the depth of the global economic slowdown, U.S. consumer prices increased just 0.1% in 2008, the smallest increase in 54 years, the Labor Department reported Friday.

The consumer price index fell 0.7% in December, the third decline in a row, led by an 8.3% drop in energy prices and a 0.1% drop in food prices. Economists surveyed by MarketWatch expected a 0.8% decline.

The CPI hasn't risen since the 0.8% gain in July. Since then, energy and commodity prices have plunged. Read the full government report.

Core prices - which exclude food and energy prices - were flat in December for the second straight month, as expected. The core CPI hasn't risen since September.

Consumer prices were up 0.1% in 2008, the slowest annual inflation since prices fell 0.7% in 1954. The core CPI was up 1.8% in 2008, the smallest increase since 2003.

Keene Little : 1/15/2009 11:45:18 PM

Friday's pivot table: Link

We were left dangling at Thursday's close wondering if we were about to break out of the down-channels that prices have been in since last week's highs. An immediate rally Friday morning, confirmed with a break above Thursday's highs, would say we've put in a bottom and it will be time to look for a larger bounce into early next week (before watching for the next short play to set up). The SPX and NDX 60-min charts show the setups:
SPX: Link
NDX: Link

Jeff Bailey : 1/15/2009 11:42:44 PM

SPX 60-minute intervals (I don't have MONTHLY/QUARTERLY on the SPY) and I mark "SPY $90 equivalent" Link (see 11:22:23)

Thursday's low SPX 817.04 and SPY $81.72 (move decimal to right and get 817.20). SPX high was 852.50 and SPY $85.25 (move decimal to right and get 853.50).

So, SPX 850 roughly SPY $85.00 (give/take $0.10).

Jeff Bailey : 1/15/2009 11:22:23 PM

Jan "Max Pain" Tabulation at tonight's close Link

VIX.X moves UP when there's more put buying/call selling than put selling/call buying. Moves DOWN when there's more put selling/call buying than put buying/call selling.

I'll be out of the office Friday, but I wanted to try and prepare you for a "what to look out for" tomorrow, especially DAY TRADERS.

IF the VIX.X were to start FALLING below the M Piv, you could start to see some "Max Pain" being inflicted on LONG Put holders. IF they panic and start SELLING LONG their puts, VIX.X could drop quickly.

VIX.X has near-term OVERLAP RESISTANCE at 56.00. Link

SPY $84.41 +0.04% .... At 85.00 strike PUT OI=$399.5 million, so not alot of pain to be had. CALL OI= $41.54 million. Not too much "naked call squeeze" type of open interest here.

In fact, as we look HIGHER SPY Price, the same type of imbalances continue for the most part to $90.00.

What a TRADER on FRIDAY needs to be more alert to is the VIX.X above 56.00.

As you look at OPTION OPEN INTEREST below current SPY levels, the PUT OI begins to GROW, and CALL OI gets smaller and smaller, even from the $84 Call strike amount.

We do NOT know how much of the PUT below the $84.00 is LONG (risk is known for a PUT LONG), or NAKED (put options sold simply to receive the premium) with the OBLIGATION to BUY THE SPY should it CLOSE below a specified strike at FRIDAY's CLOSE.

Now, if you "see" or "hear" .... "the VIX.X action today is all op-ex related and really has no meaning," then begin to understand just how simple, yet how MEANINGFUL it might actually be.

JUST AS FUTURES are a derivative that was created for INSTITUTIONAL HEDGING, so are OPTIONS.

And should the "hedge come off" and a direction trade get underway, the MOVE can become MUCH greater than you can imagine.

Especially on Option Expiration Day!

OI Technical Staff : 1/15/2009 9:59:59 PM

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