Option Investor
Printer friendly version
Jeff Bailey : 3/5/2009 5:13:07 PM

SPX 682.55 -4.25% ...

Jeff Bailey : 3/5/2009 5:02:23 PM

My last and most important post ... My good friend and fellow analyst Leigh Stevens recently fielded a question regarding RSI. Link

As any good trader will do, they may make some adjustments.

Here is some charts I would suggest you look at and use what I've tried to teach you over the years. Certainly you say "but the range is so wide, I'll miss the move!" That's what your weekly, monthly, quarterly pivot levels do, but let's stick with some basics.

I've covered the following before, but you'll easily see how to find "the bottom" and know when it is made. You don't need to pick it. You don't WANT to be a bottom/top picker anyway. Bottom and top pickers that try and "miss it" end up trading against the trend when it takes hold as they become so set in trying to push the market back to where they want it so they can then once gain try and "get the bottom."

Chart #1 of SPX where I place RSI Settings at 3, 6, 9, 12. Leigh is correct in HOW RSI is derived, so I would want to use some type of PERIOD indicator. OCT'02 as great bull market takes form. Link

Chart#2 ... Cursor box moved to Jan'03 as initial "umph" takes a rest, or was Chart #1 "the bottom?" Link

Chart#3 Link ... as RSI 3 above 6 again. Where bears become much more serious with their covering of profits, they begin to question that a low had been found. This is where bulls really start to build positions.

Chart #4 Link ... (RSI 3, 6, 9, 12 says "BOTTOM") as 3 above 6. 6 above 9. 9 above 12. Just like a moving average of RSI. The PRICE confirmation by May'03. See why it does little good to try and "pick, or wonder about a bottom?" All the time you'll just question it anyway.

No? Chart #5 Link ... Lots of "bottom" calls in Oct'08.

Chart #6 Link ... And here we are.

I (Jeff Bailey) see NO sign of bottom in this market, the S&P500, which I see as representative of the U.S. economy.

As I leave you here and now, there are MANY questions we have. What REALLY got this ball rolling? I believe it was GOVERNMENT policy dating way back to the Community Reinvestment Act.

That aside, it doesn't really matter except that we try and LEARN from the past (see above charts as it relates to analyzing a market), and try and have policy that doesn't once again create more problems (review, assess, make adjustments to identify what works, what doesn't).

Well, more "building blocks" and just another secret I give you to use. Go ahead! Try it out. Set up a chart like that above if you like the RSI indicator. Set the 3, 6, 9, 12 just like a moving average.

Then start clicking some SECTORS (a MARKET IS MADE UP OF SECTORS), and then some STOCKS (a SECTOR is made up of STOCKS).

And NEVER, NEVER forget the laws of supply and demand.

PRICE will RISE only as DEMAND outstrips SUPPLY. PRICE will FALL only as SUPPLY outstrips DEMAND.

And to try and intervene with this very simple law, will only DAMAGE a free market economy.

Keene Little : 3/5/2009 3:53:00 PM

If tomorrow's job number comes in something less than Armageddon-like, we could get something started to the upside. We'll Still got bullish divergences at the lows.

Keene Little : 3/5/2009 3:38:46 PM

No follow through to the brief short-covering spurt higher and that's obviously bearish. The bears are less afraid of tomorrow's jobs number than the bulls. I would be reluctant to carry a position overnight since the possibility of a strong flare up tomorrow is very possible. By the same token we could be in the middle of a capitulation flush to the downside.

Keene Little : 3/5/2009 3:20:40 PM

Needless to say, if the brief short-covering spurt higher quickly runs out of steam, look out below into the close.

Keene Little : 3/5/2009 3:19:28 PM

NDX is leading the charge back up the hill.

Keene Little : 3/5/2009 3:09:10 PM

I understand the bulls have called in an air strike on their position. They've climbed into their fox holes and are waiting for the attack against the bears (otherwise known as a PPT-inspired short covering rally).

Keene Little : 3/5/2009 2:35:14 PM

The overlapping price action in this afternoon's decline is either an ending pattern (the bottom is near) or it's getting ready to rip to the downside (capitulation?). A break of the downtrend line from this morning's high near 10:00 AM would be a good indication a bottom is in, which for SPX is currently near 688.

Jane Fox : 3/5/2009 2:22:14 PM

DOW has totally wiped out yesterday's rally. Ditto for the S&P

Keene Little : 3/5/2009 2:19:05 PM

There are no buyers to be found. The bullish divergences tell us there aren't any strong sellers around either. The market is just sinking under its own weight (albeit considerably lighter than it was 18 months ago).

Jane Fox : 3/5/2009 2:17:39 PM

Just like the AD line was telling us the rally totally failed and S&P futures are now retesting daily lows. I think the next move will be a move down. Link

Jane Fox : 3/5/2009 1:52:45 PM

Reuters is reporting that a subcommittee on capital markets is tentatively slated to meet next Thursday to discuss mark-to-market rules that require assets be valued at current market prices. Many think the current rules were a major contributor to our economic crisis and that lifting them would help ease the crisis by increasing the capital side of a bank's ledger. There are others who think mark-to-market rules are needed to value a company's books according to what the market can sustain.

Jane Fox : 3/5/2009 1:44:35 PM

WASHINGTON (MarketWatch) -- Demand for U.S.-made factory goods fell for the sixth straight month in January, dropping 1.9% on weakness in durable goods orders, the Commerce Department reported Thursday.

Orders are down 24% since the peak in July, a reflection of how deeply the recession is hitting U.S. manufacturers. Orders have never fallen for six months in a row since the government began collecting the data in 1992.

"We do not expect any pickup in manufacturing activity until late this year," wrote Adam York, an economist for Wachovia.

Capital spending is on track to fall 22% annualized in the first quarter, wrote economists for Bank of America/Merrill Lynch. Economists expect the economy to contract at about a 5.2% annual rate in the first quarter.

Jane Fox : 3/5/2009 1:24:20 PM

I see a little rally taking shape off a reverse head and shoulders but with an AD line at -2350 the rally won't be going far.

Keene Little : 3/5/2009 1:16:39 PM

For those who follow the LEAPs Trader I had recommended a LEAP call position for XLF, the financial sector. It continues to take a beating and XLF hit the 6.50 stop level this morning. I still like the play but it's clearly risky since it's an attempt to catch falling knives in this sector. Ask all those who have bought any banks during the past year (including some very smart money) thinking "this has to be the bottom". But with bullish divergences and the potential descending wedge pattern I like the setup for a long play. I'm tempted to say enter with no stop and manage your risk accordingly (meaning keep it small and evalutate your results if you experience a total loss). XLF daily chart: Link

Jeff Bailey : 3/5/2009 12:43:55 PM

As William and maybe Keene are seeing, May-June contango at yesterday's settlement narrowed to 1.89% differential.

Jeff Bailey : 3/5/2009 12:42:24 PM

The reason I bolded USO at 12:25:04 it that I want to be specific as to the SECURITY that represents oil.

Still in contango, forward OIL FUTURES contracts may not be at THEIR bottoms should we move into backwardation.

Jeff Bailey : 3/5/2009 12:39:53 PM

SMH $16.61 (unch) ...

Jane Fox : 3/5/2009 12:36:39 PM

Although I think Crude has found a bottom (I was going to say "its" bottom) it still has not proven to me it is safe to take long positions. I need to see $45/bl resistance break first. Link

Jane Fox : 3/5/2009 12:33:03 PM

The VIX and AD volume/ratio are very bearish yet take a look at the TRIN. Link

Keene Little : 3/5/2009 12:30:53 PM

When looking for potential reversal levels it helps to look where 127% of the previous move is. When we look at the bounce off Tuesday's low to yesterday's high, a 127% projection of that move to the downside is at SPX 683.65. The low so far is 683.90 and is starting to bounce a little harder. Today's decline, even though it has made a new low, could be part of a larger A-B-C bounce pattern (called an expanded flat correction) and if so then we're about to get a strong rally leg back up. That's only a possibility from here but be careful if you're short. SPX 10-min chart: Link

Jeff Bailey : 3/5/2009 12:30:16 PM

Well Jane, if it has, then with each termination going forward, and I have already got the retracement on the June contract, from there, we should start to see each termination start the upward progression.

Jeff Bailey : 3/5/2009 12:26:46 PM

Yesterday's April and May Nymex Crude daily interval charts Link

Jane Fox : 3/5/2009 12:26:23 PM

I think so as well Jeff.

Jeff Bailey : 3/5/2009 12:25:04 PM

Yes ... I think the USO made a bottom on 02/18/09.

Keene Little : 3/5/2009 12:18:33 PM

Anybody see a bottom around here? Bullish divergences are still present on the 30 and 60-min charts but no hint of turning back up yet. Bullish divergences are now showing up on the smaller time frames so we could be probing for a low here. It's not much lower to the downside Fib projection at SPX 677.

Jeff Bailey : 3/5/2009 12:16:03 PM

Very defensive ...

Jeff Bailey : 3/5/2009 12:14:45 PM

Linda wrote an article the other day ragarding VIX.X and levels and influence of market makers. Actually, I thought it made the point!

Jeff Bailey : 3/5/2009 12:13:24 PM

SPX 60-minute Link

Jane Fox : 3/5/2009 12:06:34 PM

And once again the VIX follows ES into bear country. The bearish AD line was telling us this is the way it would play out based on the prior days when the same thing happened.

Jeff Bailey : 3/5/2009 12:05:18 PM

12:00 Market Watch at this Link

Jeff Bailey : 3/5/2009 12:02:25 PM

Or, someone.

Jeff Bailey : 3/5/2009 12:01:33 PM

VIX.X 60-minute intervals Link ... other than about 30-minute yesterday, VIX.X above the MONTHLY Pivot still suggests to this analyst that market participants very worried about something.

Jeff Bailey : 3/5/2009 11:58:53 AM

SPX 686.95

Jeff Bailey : 3/5/2009 11:58:43 AM

VIX.X alert! ... 49.69

Keene Little : 3/5/2009 11:43:58 AM

Want to try a lottery play? Citigroup is either headed for bankruptcy or nationalization, which would result in a total loss for stock holders, or it's going to find a bottom here. Roll the dice you could come up snake eyes or a winner. The monthly chart shows C less than 3 cents from its downside target from its 2000 high based on a big A-B-C pullback where wave C has a projection to 94.4 cents based on it achieving 162% of wave A. So tell me, do you feel lucky today? C monthly chart: Link

Keene Little : 3/5/2009 11:31:35 AM

Whether coincidence or not I see the 1082 area for NDX was an important level back in November as well--it gapped up from there on November 24th as part of the huge jump off the November low. It got closed on Monday and now it's playing around that level again. An uptrend line from November though Tuesday's low is at 1074.40.

Keene Little : 3/5/2009 11:25:15 AM

NDX just closed yesterday's gap at 1081.59.

Keene Little : 3/5/2009 11:13:54 AM

Using all-hours for ES I've got two Fib projections of interest at the moment--688 and then 685.25. Right now it's retesting this morning's pre-market low at 691.50 which often acts as support. SPX is close to testing Tuesday's low at 692.30.

Jane Fox : 3/5/2009 10:33:11 AM

... but remember AD Line is -2256.

Jane Fox : 3/5/2009 10:32:29 AM

ES is tagging its daily lows but the VIX is not tagging daily highs Link

Keene Little : 3/5/2009 10:28:16 AM

So far there is the potential, and it's only a potential at this time, for a bullish divergence to show up as the market drops down for what could be a retest of Tuesday's lows with much higher lows on MACD (30 and 60-min charts). Obviously if the decline just keeps going MACD will follow it down but it's something to keep an eye on for confirmation if the lows hold.

Jane Fox : 3/5/2009 10:20:32 AM

ES is making new daily highs and that bullishness is confirmed by the VIX making new daily lows. BUTTTTT the AD line is a very bearish -2170 and that is way too bearish for any amount of bullishness one can see in the VIX.

Keene Little : 3/5/2009 10:02:12 AM

SPX is also (barely) holding its uptrend line from Tuesday, currently near 699.50.

Linda Piazza : 3/5/2009 10:02:05 AM

I'm stopping in to note what the TED spread, a measure of credit default risk, is doing this morning. In general, equity traders want the TED spread to be going the opposite direction of their trades, although it's not a good market-timing tool. It does set the atmosphere or background under which we should be viewing equity action, however.

On 3/2, the TED spread hit an intraday high of 105.14, its highest level since late January, although it closed the day well off that high. The Bloomberg chart for the last month doesn't show the intraday highs and lows, but I had noted that intraday high. The delayed quote is now at 104.74, a high for today. Equity bulls who hope for a steadying in the markets would like to see the TED spread turn back from this close approach to the 3/2 high, although such action can't be guaranteed, of course.

It may be a little iffy to depend too much on TED spread corroboration today anyway. As many of you will know, it's been a decision day for both the ECB and the Bank of England, with both lowering rates an expected 50 basis points. There may be some disappointment with the ECB just meeting expectations rather than exceeding them. The world financial community generally views the ECB as being behind the curve in making adjustments. Because the TED spread's calculation involves three-month LIBOR rates, some believe that a rate-change environment can temporarily distort the spread.

Keene Little : 3/5/2009 10:01:00 AM

Techs are still maintaining their relative strength. NDX dropped slightly into yesterday's gap up and slightly below an uptrend line from Tuesday's low (currently near 1098). But so far both are holding. Obviously a break back down to new daily lows would be bearish.

Keene Little : 3/5/2009 9:29:41 AM

With equity futures down as much as they are it looks like we'll get at least a retest of Tuesday's low. ES had made a lower low in after-hours trading on Tuesday, getting down to 681.50, before rallying overnight and giving us a gap up on Wednesday. That gap would be closed with a drop to ES 689.50 and this morning's low is 691.50. Two equal legs down from yesterday's high, looking at all-hours, is at 685.25. So we've got some levels to watch for potential support in case this morning's pullback is going to be part of a larger upward choppy correction. New lows could usher in stronger selling down to the SPX 677 target.

Jane Fox : 3/5/2009 9:28:01 AM

NPR.org, March 5, 2009 - General Motors Corp.'s auditors have raised "substantial doubt" about the troubled automaker's ability to continue operations, and the company said it may have to seek bankruptcy protection if it can't execute a huge restructuring plan.

The automaker revealed the concerns Thursday in an annual report filed with the U.S. Securities and Exchange Commission.

"The corporation's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern," auditors for the accounting firm Deloitte & Touche LLP wrote in the report.

Jane Fox : 3/5/2009 9:25:53 AM

DOW futures are down -103
SP futures are down -13.50
NDX futures are down -5.75

Jane Fox : 3/5/2009 9:23:16 AM

Dateline WSJ - New York state's attorney general, Andrew Cuomo, has issued subpoenas to several top Merrill Lynch & Co. executives who were each paid more than $10 million in cash and stock last year, according to people familiar with the situation.

The executives include Andrea Orcel, the top investment banker at Merrill, global sales and trading chief Thomas Montag and Peter Kraus, Merrill's former head of strategy.

Messrs. Orcel and Montag now work at Bank of America Corp., which acquired Merrill in January. Mr. Kraus is chief executive of investment-management firm AllianceBernstein Holding LP. They were paid more than $25 million apiece in 2008.

Messrs. Orcel, Montag and Kraus declined to comment through spokespeople.

General Andrew Cuomo has issued subpoenas to several top Merrill Lynch executives In its waning days as a stand-alone company, Merrill paid out billions of dollars in bonuses, even though it wound up posting a fourth-quarter net loss of $15.84 billion. For all of 2008, the 10 highest-paid Merrill executives got a total of $209 million, and 11 were paid more than $10 million each according to people familiar with the situation. Merrill posted a net loss of $27.6 billion.

Jane Fox : 3/5/2009 9:15:37 AM

Crude made a higher low March 3rd but it is not a confirmed higher low. It will be a confirmed higher low when the swing high from February 26th is breached. So far that has not happened and if it doesn't we are back to wondering when the bulls will make a stand. Link

Jane Fox : 3/5/2009 9:05:57 AM

The series of lower lows and highs tells you the bears are in control of the overnight session. I have put a fib retracement on each of the charts to let you know how much of each market's respective previous day ranges the bears have been able to regain. So far I see the NDX futures (NQ) as the strongest because the bears have "only" being able to regain 61.80% whereas the other 3 they have being able to regain 76.40%. Link

Jane Fox : 3/5/2009 9:00:34 AM

WASHINGTON (MarketWatch) -- The number of workers filing for state unemployment benefits fell by 31,000 to a seasonally adjusted 639,000 last week, while the smoothed average of continuing claims moved higher into record territory, the Labor Department reported Thursday.

First-time claims fell back from a 26-year high of 670,000 the previous week to 639,000, likely because of difficulties adjusting for the federal Presidents Day holiday.

The smoothed average of new claims over the past four weeks rose to 641,750, the highest since October 1982. The smoothed average is considered a better gauge of labor market conditions than the volatile weekly number because it smoothes out one-time distortions caused by holidays, bad weather or strikes.

Keene Little : 3/5/2009 1:21:14 AM

Thursday's pivot table: Link

SPX almost broke free of the downtrend line running from the initial highs from February 9th and 13th, which has held SPX down except for a brief break above it on February 25th and 26th. At the close that line was at 719 but SPX closed near 712. Slightly higher is a downtrend line drawn though the February 26th high, currently near 738. Whether it will be able to break these downtrend lines in the next day or two, or instead drop to a new low, is the big question right now. If the market works its way lower I see the possibility for a drop to a Fib projection at 677 before attempting a bigger bounce. SPX 60-min chart: Link

On the daily chart I'm watching the downtrend line on RSI for some clues since RSI will often break its trend line before price breaks its line. RSI stopped at its downtrend line on Wednesday. If it breaks it then the bottom is not far away (if not already in). Beware that I'm only looking for a tradeable bottom, not THE bottom, as depicted in dark red on the chart. And if a 4th wave bounce plays out into mid month keep in mind that it will be ugly to trade--lots of chop and whipsaw (potentially). SPX daily chart: Link

OI Technical Staff : 3/4/2009 9:59:59 PM

The Market Monitor has been archived. You may view it and any previous days here: Link

Disclaimer: Stocks discussed in the Market Monitor are for educational purposes only and any analysis is not meant to imply a recommendation for or against that stock. The analysts in this forum as on any other website are prohibited by the SEC from giving any specific advice to ANY individual trader. All information posted is for ALL readers and is not meant to be directed to any individual. Our analysts cannot answer any email questions regarding any specific stock. Please do not ask and please do not take offense if requests are denied.

Results posted in the Market Monitor are hypothetical and OIN does not claim that any reader achieved these exact results. Due to the lag time between research, writing, posting, uploading, reading and execution there will be differences between the actual signal given and the fill achieved by the reader. Fills may be better or worse but in most cases they will be different. The writers will make every effort to give advance notice of intended signals and indicate potential price targets. Your individual results may vary depending on your activity level and aggressiveness. This forum is intended as an education service only. Trading involves risk and should not be attempted by anyone not ready to accept this risk. By acting on any signal in this forum you agree and personally accept this risk.

Market Monitor Archives