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Keene Little : 3/17/2009 4:18:34 PM

One other note on the SPX 60-min chart, the 5th wave would equal the 1st wave of the rally at 778.41, only about 30 cents higher than today's close.

Keene Little : 3/17/2009 4:15:14 PM

Notice the glaring bearish divergence at today's high--also fits as the 5th wave which is usually much weaker than the previous 3rd wave.

Keene Little : 3/17/2009 4:13:42 PM

A picture is worth a 1000 words, especially when it comes to EW counts. The SPX 60-min chart now shows an impulsive count for the rally with today's new high. Whether it continues higher or not tomorrow is questionable but for now I'm showing a pullback and then continuation higher into next week (and beyond). It remains a possibility for the decline to kick into gear (pink) but I now consider that less likely from here. SPX 60-min chart: Link

Keene Little : 3/17/2009 4:02:42 PM

SPX 770-780 resistance zone is still formidable and that's why I've been saying we might only get a minor new high, which we're getting into the close. If it's another mini capitulation into the close (the shorts covering) expect an immediate reversal tomorrow morning.

Keene Little : 3/17/2009 3:57:06 PM

Today's rally ruined a perfectly good setup for a continuation of the decline into the end of the month. While that move remains a possibility the rally off teh March 6th low now is a possible impulsive move and if true then it sets the new trend to the upside. Of course I thought that after a 5-wave move up into the high on Friday morning and then it only pulled back a little and morphed into a higher corrective count.

A 3-wave move is a correction and a 5-wave move is an impulse. Multiples of 4 waves after that determine whether it's a corrective or impulsive move. Clear as mud, I know. So a 7-wave move (3+4) is corrective (a,b,c,x,a,b,c) whereas a 9-wave move (5+4) is impulsive (one of the waves further subdivides into its own 5-wave move (1,2,(i),(ii),(iii),(iv),(v)-3,4,5). An 11-wave move is corrective and 13 is impulsive, etc.

That's a long-winded way of saying the move up from March 6th can now be counted as a 9-wave move (impulsive), although today's rally hasn't quite made a new high yet. Assuming it's impulsive it means we should get a pullback to correct the rally leg but then the chances have signficantly improved for a continuation of the rally after that. The scenario for a new low into the end of the month is now in jeopardy.

Jane Fox : 3/17/2009 3:40:46 PM

NQ has been able to break its previous day highs but ES and YM have not, although they have come very close. Link

Keene Little : 3/17/2009 3:15:42 PM

Yesterday's volume on a down day was higher than the volume last week during the rally. Today's volume on the rally is running considerably behind yesterday's rally. This is not the kind of volume the bulls need to see.

Keene Little : 3/17/2009 3:12:54 PM

The techs were unloved yesterday but loved today as they lead to the upside again. Whether it's opex related I don't know. NDX is now up testing its 50-dma just above 1180.

James Brown : 3/17/2009 3:09:28 PM

Bulls Make Another Push
(Intraday Update)

The U.S. markets showed surprising resilience on Tuesday with the major indices and most of the market in a widespread upswing. It looks like the only sector not in positive territory is gold and the gold miners. Tech stocks took the lead today powered by strength in the semiconductor sector. Better than expected housing numbers and tame inflation readings added fuel to the fire.

Tuesday started with a mixed session overseas. The Asian markets were mostly higher. The Chinese Shanghai composite surged 3.0% and overshadowed the -0.7% in the Hong Kong Hang Seng. Meanwhile the Japenese NIKKEI index rallied 3.1% as it extends the rally from last week. The NIKKEI is now up more than 900 points off its lows and trading up 7,950 for a 12.7% gain since last Tuesday.

European markets were more languid. The French CAC 40 was down 0.8%. The British FTSE was off about 0.2%. The German DAX fell 1.4%.

Commodities continue to make headlines. Oil was up sharply today. Options on the April futures crude oil contracts expire this week and the futures are showing a lot of volatility. Oil is up more than 5% around $50 a barrel. The USO is trading near $30.00 with a 5.5% gain. The move today thus far marks a bullish breakout above the simple 50-dma for the USO. The OIX oil index is up 2.1% and the OSX oil services index is up 1.8% and challenging technical resistance at its simple 100-dma. Meanwhile gold and the U.S. dollar are both down. Usually these two move in opposite directions. The intraday chart on the GLD gold ETF is growing more bearish.

Chart of the GLD:

Tech stocks are out performing the rest of the market today lead by a 2.1% rally in the semiconductors. Yesterday it was the semis that were under performing the market and leading us lower. Today the chip stocks were bouncing after one broker report this morning suggested conditions were improving for the sector due to rising demand for laptops computers. This opinion seems to conflict with what the Gartner Group said about two or three weeks ago and their forecast that semiconductor sales would fall sharply over the next two to three years.

The homebuilding stocks are up today with the DJUSHB home construction index rising 3.5%. Fueling the move was the Commerce Department's latest numbers on housing starts, which were surprisingly strong. Housing starts roared to a 22% gain boosted by a huge 82% increase in apartment buildings. Single-family permits jumped 11%, which was the biggest percentage move in 18 years.

Honestly, I am very surprised at these numbers. Homebuilder confidence numbers have been abysmally low for months stumbling around all-time, historic lows. If we ignore for a moment that most of the gain was due to rising construction of apartment buildings, that's still a big jump in new-home permits. New home prices are still falling because there is so much competition from existing home sales due to rising foreclosures and short-sales. As spring approaches the number of existing home for sale are going to skyrocket as people desperately try to unload their homes. The economy is slowing. Consumers are pulling back. It seems foolish to be a builder that is increasing their construction.

In other news the Producer Price Index (PPI) rose 0.1% drifting higher for the second month in a row. The core PPI rose 0.2%, which excludes the more volatile food and energy components. Energy costs were up 1.3% versus a 1.6% drop for food.

Here's a quick look at the major indices:

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the DJIA:

Now for a quick look at the OptionInvestor.com play list. Shares of AMZN are showing a lot of strength with a 5.2% rally and a bullish breakout over resistance at $70.00. Shares of Chinese Internet giant BIDU spiked to $158.00 this morning and then bounced to an 8% gain. Shares are now at $174.50. We recently adjusted our stop loss to $159.40 so the play is closed. Shares of oil company HES are up 3.1% and back above the $60.00 mark. Semiconductor stock XLNX is up 4.1% following a bounce from its 10-dma. Our put play on Newmont Mining (NEM) is doing well. NEM is down 3% to $36.30. Our put play on steel stock SCHN has been opened. Shares broke support and the stock is currently down 7.2% to $23.76.

Keene Little : 3/17/2009 2:47:23 PM

The pullback from the high is only a corrective 3-wave move and it did not overlap with this morning's high near SPX 761. That leaves the door open to a run to a new high, or at least a retest of yesterday's high.

Jane Fox : 3/17/2009 2:43:02 PM

Crude is now breaking resistance at 49.21 but it is still vulnerable for a retracement.

Keene Little : 3/17/2009 2:38:19 PM

SPX has broken its uptrend line from this morning so that's the first clue that the bounce is finished, or at least that leg of it. It's possible we're going to do a larger sideways kind of consolidation which would be potentially bullish until this morning's low is violated.

Keene Little : 3/17/2009 2:13:11 PM

Bears want to see this morning's high at SPX 761.23 get taken out as that would negate the possibility for an impulsive (5-wave) rally off this morning's low. As it stands now the bounce is only a 3-wave correction to yesterday's decline.

Jane Fox : 3/17/2009 1:22:34 PM

Crude made a high on March 9th at 48.83. So far today the intraday high has been 48.85. It is very possible this rally will stop here and retrace then take another run at resistance but I do think this resistance will break sooner or later.

Keene Little : 3/17/2009 1:21:16 PM

One more push to a minor new high, which will likely be very close to SPX 770, should be the end of the leg up from this morning's mid-day pullback. Assuming it rolls back over from there we'll then get to see whether it's going to be just another corrective pullback or the start of a stronger decline.

Jane Fox : 3/17/2009 12:49:03 PM

Next stop should be previous day highs.

Jane Fox : 3/17/2009 12:48:37 PM

Resistance from the ON highs is now out of the way. Link

Keene Little : 3/17/2009 12:47:55 PM

SPX has now achieved two larger and equal legs up off this morning's low--766.62 so a failure now could mark the top of the bounce. But again, any higher than 770 would suggest we've got a new high coming, even it's only going to be a minor new high or just a test of the high.

Jane Fox : 3/17/2009 12:47:41 PM

Internals are giving you the green light. Link

Jane Fox : 3/17/2009 12:45:20 PM

AD line is now +1025 and VIX making new daily lows. Time to take this market long.

Keene Little : 3/17/2009 12:01:24 PM

So far it's been relatively quiet in bonds and equities since the opening bell. The bounce pattern in the stock market this morning continues to look like a correction but it's not clear yet whether the bounce has finished or if it's going to work its way a little higher first. I don't see anything yet that suggests a long play but if you're short the market I would not want to see SPX above 770 (78.6% retracement of yesterday's decline).

Keene Little : 3/17/2009 11:07:04 AM

SPX did not reach its Fib target near 762 (yet) and any drop back below its morning dip to 753.63 would mean we're either going to stay stuck in a consolidation pattern for a bit longer or the bounce is already over and down we go.

Jane Fox : 3/17/2009 10:53:13 AM

NQ breaks its ON high but ES and YM have not even tagged theirs.

Jane Fox : 3/17/2009 10:52:45 AM

Just noticed ON highs have not yet been breached and that high could be a formidable opponent to the bulls so take note of it.

Jane Fox : 3/17/2009 10:51:28 AM

ES breaks its intraday high as the VIX breaks its intraday low and the AD line is gaining strength. Not time to try a long just yet but I can see the whites of their eyes.

Keene Little : 3/17/2009 10:49:13 AM

Two equal legs up in SPX's bounce off this morning's low would be at 762.49 and a 50% retracement of yesterday's decline is at 762.23 so that's our Fib resistance level to watch for a failure of the bounce and a shorting opportunity.

Jane Fox : 3/17/2009 10:43:25 AM

Here is an article that raises the same argument I raised yesterday about the AIG bonuses. I don't like the bonuses anymore than anyone else but they are valid contracts that need to be honored. Link

Jane Fox : 3/17/2009 10:30:13 AM

Crude it taking another run at resistance and each time it does the bears get weaker and weaker because there are less and less sellers to hold back the buyers. Link

Jane Fox : 3/17/2009 10:14:14 AM

An AD line at -59 is telling me it is not time to go long but VIX and price action are certainly telling me it is not time to be short either. That was a really good headfake earlier on when it looked like the bears were going to rule the day.

Jane Fox : 3/17/2009 10:10:11 AM

ON lows broke and ES (S&P futures) and YM (DOW futures) tagged their previous day lows but then the bears fumbled the ball and the bulls recovered it and are now running with it. They don't have very good field position yet (ON highs are still waiting ahead of them) but they are getting stronger.

Jane Fox : 3/17/2009 10:05:00 AM

VIX is falling but the AD line is still not giving us a bullish tone however the bears are losing their grip big time.

Keene Little : 3/17/2009 10:00:33 AM

NDX was the albatross around the market's neck yesterday and finally dragged the blue chips into the red where NDX had been all day. Now it's the one holding in the green. Even the RUT has the same pattern as the blue chips. The techs have been doing their own thing and are worth watching but at this point it's not real clear what they're up to.

The one bearish thing I see in the NDX pattern, especially with this morning's bounce (as long as it doesn't get higher than yesterday's mid-day high), is for a very bearish setup to the downside where the next decline will be a screamer. Two equal legs up off yesterday's low is at 1161 and a 62% retracement is close to 1163. If the bounce fails in this area and then drops to a new low it could be a very fast selloff. Other than that it's a choppy price pattern so far.

Jane Fox : 3/17/2009 9:52:51 AM

Interestingly though NQ (NDX futures) have not yet broken their ON lows.

Jane Fox : 3/17/2009 9:52:13 AM

Both ES and YM are now breaking below their respective ON lows so probably safe to dip your toes into the water now. Internals are almost agreeing here.

Jane Fox : 3/17/2009 9:45:08 AM

By the way for all the futures traders out there you know we moved to a new front month last Thursday? The front month for the equity indexes is now June.

Jane Fox : 3/17/2009 9:39:31 AM

AD line is -92 and telling us nada.

Jane Fox : 3/17/2009 9:38:48 AM

Sometimes you get ahead of yourself when watching a pattern form and that is exactly what I did on the Gold chart. I was watching a Head and shoulders pattern form and drew the right shoulder before it actually formed. The March 6th swing high makes the pattern a little lopsided but the March 13th high fits with the number of days the shoulder should take to form so I am using the March 13th high as my right shoulder.

If the neckline does not break this time then the pattern has been negated and that would be quite bullish. Link

Jane Fox : 3/17/2009 9:35:23 AM

Once again the Crude bulls have lost their momentum and are succumbing to a new resistance level. They may take a while to work through this area but I do believe they will and eventually break this resistance but until then we sit and wait - again. Link

Keene Little : 3/17/2009 9:26:54 AM

If the market drops some more this morning and SPX makes it down to the 741-742 area I suspect it will be a good support level. Once we get a decent bounce started we should see a healthy retracement (perhaps 50%) of the decline from yesterday's high, which could start at any time now.

Jane Fox : 3/17/2009 9:19:40 AM

The overnight session was just a sideways continuation of the previous day close but should give us a pretty good idea of support and resistance. I will only be long above ON highs or short below ON lows. Of course it goes without saying the internals have to agree. Link

Jane Fox : 3/17/2009 9:07:44 AM

WASHINGTON (MarketWatch) -- Led by higher energy prices, inflation at the wholesale level rose in February for the second consecutive month, the Labor Department said Tuesday.

The producer price index rose 0.1%, driven by a 1.3% gain in energy prices. Meanwhile, food prices fell 1.6%. In January, the PPI rose 0.8%.

The February core PPI, which excludes food and energy costs, rose 0.2%, compared with a 0.4% gain in January.

Economists polled by MarketWatch were expecting the February PPI to rise 0.4%, and for the core to gain 0.1%.

Jane Fox : 3/17/2009 9:06:38 AM

WASHINGTON (MarketWatch) - Boosted by an 82% increase in construction of apartment buildings, U.S. housing starts surged 22% in February to a seasonally adjusted annual rate of 583,000, the Commerce Department estimated Tuesday.

It was the largest percentage gain in 19 years and was the first increase in eight months in the sector that was at ground zero in the global economic recession. The housing data in winter months are especially volatile because of the weather.

Construction of new housing units had plunged 38% in the previous three months before February's unexpected jump. Economists surveyed by MarketWatch had forecast a further drop to 456,000, despite an expected surge in multifamily construction.

February's annual rate of 583,000 was the highest since November. January's starts were revised higher to a 477,000 pace, a record low dating back to the 1940s.

Keene Little : 3/16/2009 11:54:06 PM

Tuesday's pivot tables: Link

On Monday the market ran right up into its 770-780 resistance zone that I had identified last week, topping out at 774.53 before giving up the day's gains and closing a couple of points in the red. As a reminder, this resistance zone was identified by the October 2002 low (768), the top of a parallel down-channel for price action since January (772), the 50% retracement of the decline from late January (772), a price projection for two equal legs up from the February 6th low (779), the previous 4th wave high on February 25th (780) and then as the day wore on it was the top of a rising wedge pattern for the rally from last week.

This was going to be a very tough area of resistance and with the markets having moved into overbought it was a low-risk bet to short the market at today's high (or at least cover/hedge some long positions). SPX 60-min chart: Link

The daily chart shows the parallel down-channel from January and the setup from here is a good one for the last leg down to a new low into the end of the month to finish the final 5th of the 5th wave down. The note on the left side of the chart refers to a price projection near 625 where the larger-degree 5th wave (the decline from January) would equal the 1st wave of the decline from October 2007 (the decline into the March 2008 low). SPX daily chart: Link

I then placed on the chart a price projection that shows the move down to 635 where the 1st and 5th waves of the move down from January would be equal. It's important to note that a 62% retracement of the 1974-2000 bull market is also at 635. To say that a move down to 625-635 area would be a pound-the-table long play setup would be a gross understatement.

OI Technical Staff : 3/16/2009 9:59:59 PM

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