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Keene Little : 3/20/2009 4:11:49 PM

For Monday it looks like we should get at least a little lower before potentially popping back up to correct the decline from yesterday's high. At this point I think that kind of bounce will be a shorting opportunity but we'll just take it one leg at a time and see how it plays out. From here on (for at least the next week or two) it's going to be short-term trades until the bigger pattern becomes clearer.

I hope everyone has a great weekend.

Keene Little : 3/20/2009 3:05:05 PM

SPX dropped to Wednesday morning's low just below 766 and is trying to find some support there but so far the bounce only looks like a small correction. We've got an hour to go and I'm seeing some round-number support for a lot of names near here. The DOW could settle around 7300 (here), QQQQ could settle at 29 (just below). The wave pattern for the decline doesn't look ready for a big bounce yet but if SPX were to get back above 776 we could be into a larger correction of the decline from yesterday. But it looks like we should continue lower at least on Monday/Tuesday. Tuesday's low near 750 would be just below a 38% retracement.

James Brown : 3/20/2009 2:24:45 PM

Triple Witching Friday Sinks Into the Weekend
(Intraday Update)

Today marks an event that only happens four times a year. It's a triple-witching Friday where equity options, index options, and futures all expire on the same day. In the past these multi-expiration days tended to see more volatility. That trend has softened a bit. Investors, both big and small, have learned to plan ahead for expiration, which has pushed the volatility forward several days in front of expiration. However, sometimes triple-witching can still produce some fireworks.

After an incredible two-week run the upward momentum is slowing. This morning it looked like profit taking would be kept at a minimum but that is changing. The market is starting to see a sell-off into Friday afternoon.

It has been an historic week. The FOMC's decision on Wednesday to devalue the dollar has pushed the U.S. dollar to its largest weekly drop in 24 years. Today the dollar is seeing a minor oversold bounce from support.

Overseas markets were mixed. The Japanese market was closed for a public holiday. The Hong Kong Hang Seng fell 2.2% while its Shanghai rival gained 0.6%. Most of Europe was trading higher but gains were mild. The French CAC40 was up 0.5%. Both the German DAX and the English FTSE were up 0.6%. Tech stocks were under performers after Sony Ericsson Mobil, a join venture between Sony and Ericsson to make phones, issued an earnings warning. The company said first quarter sales were hit hard by slowing consumer demand across the globe.

Gold started to dip this morning as the U.S. dollar bounced but the dip did not last very long. The precious metal is trading around $950 an ounce while the GLD gold ETF is down 35 cents to $94.00 a share. Crude oil is also showing a little relative strength. Oil is closing at new 2009 highs above $50 a barrel as the April futures expire. The USO oil ETF is up 0.7% to $30.60.

Investors should be cautious with their bullish trades. Analysts at Goldman Sachs believe there are not enough signs to support the premise that global growth has returned to fuel a true market recovery. It is somewhat ominous that while the U.S. markets have been surging higher these last two weeks. During the same time the Baltic Dry Goods Index, a measure of shipping demand for goods and commodities, has been plunging.

Chart of the Baltic Dry Goods Index:
Link

--Sector Movers--
SOX semiconductors -4.2%
NWX networking.... -4.4%

BKX banking index -5.3%
BIX banking index -6.6%
XBD broker dealer -1.4%

OIX oil index... -2.3%
OSX oil services -5.7%

XAL airlines.... -4.2%
Dow Transports.. -4.9%

CYC cyclicals... -4.1%
RLX retail index -3.1%
Gambling/Casino. -6.8%

IUX insurance... -4.0%
HMO healthcare.. -3.8%

Chart of the S&P 500:
Link

Chart of the NASDAQ:
Link

Chart of the Russell 2000:
Link

We do have a few movers on the OptionInvestor play list. REIT-related stocks are getting hammered today and ARE has hit our stop loss. FLS is seeing some profit taking with a 6.3% drop. We have a triggered listed to buy calls at $53.50. FLS is down to $54.67. MOS is also hitting some profit taking with a 4.1% drop. Look for a dip or bounce near $40.75-40.50 as another bullish entry point.

Our REIT play on PremierInvestor in shares of BXP has also hit our stop loss. IPCS has hit our trigger to buy the stock at $9.50 but readers may want to hold out for a pull back closer to $9.00 before initiating positions. JEC has broken down from its sideways consolidation pattern and hit our stop loss.

Jane Fox : 3/20/2009 2:04:59 PM

The SPX is overbought so the highest probability is that it will pull back, as it did yesterday and probably today as well, however, if it retraces, makes a higher low, turns around and subsequently breaks 1-800-resistance we have an intermediate buy signal, higher highs and lows mean the trend is up.

I suspect the SPX will pull back to around 750, which is healthy from a bullish point of view.

Jane Fox : 3/20/2009 1:35:20 PM

WASHINGTON (MarketWatch) -- Federal Reserve Chairman Ben Bernanke urged community banks to operate prudently, but not to let fear drive lending decisions. Community banks are generally banks with less than $1 billion in capital. Bernanke said he understood that Washington was sending small banks mixed signals. On the one hand it was important to continue lending, while on the other it was important to have a strong capital position. Bernanke said the Fed had no option other than to rescue large financial firms. He said the Fed would pay close attention to bank pay and bonus practices going forward. He said the Fed was pleased, so far, with its new credit easing policies. He only made a brief mention of the Fed's plan to purchase $300 billion of longer-term Treasury securities.

Jane Fox : 3/20/2009 1:34:11 PM

AD line is now -1297 and the VIX is to new daily highs. It is now Ok to go short.

Keene Little : 3/20/2009 1:30:14 PM

SPX has now given up the entire post-FOMC rally. Each bullish reaction to what the Fed tries is lasting less and less time.

Keene Little : 3/20/2009 1:22:53 PM

So far ES is holding 771 (with a test to the penny, which is why I watch overnight highs and lows for potential support/resistance). A rally back above the last bounce high near 12:30 PM (ES 780.25/SPX 784.07) would suggest we're going to stay in a consolidation pattern for the rest of the day (for opex pinning). Otherwise I continue to prefer the short side as long as yesterday's high is not exceeded.

Keene Little : 3/20/2009 12:56:00 PM

Last night's overnight low for ES was 771. It's now dropping towards that level (773 here) so watch for support (or not).

Jane Fox : 3/20/2009 12:20:18 PM

Talk about a boring market today. Even Crude and Gold are not going anywhere. It feels like a summer Friday instead of the first day of spring.

Keene Little : 3/20/2009 11:31:28 AM

In last night's newsletter I had mentioned that the price pattern for the Transports is one of the cleanest out there and I continue to watch it for some good clues. It's of course a very good barometer for economic health as shipments are a sign of our production status (shipping final products as well as receiving raw materials). I showed the daily chart with a wave count that calls for one more leg down to finish a 5-wave count from the November high, as part of a bullish descending wedge (ending diagonal 5th wave in EW terminology): Link

I added the pink wave count which calls the November low the end of the 3rd wave for the move down from May 2008 (which was a higher high than its July 2007 high). That means the January high was the end of the 4th wave and the count for the move down from January needs to be an impulsive 5-wave decline. The pink count requires the current bounce to stay below the January low (2921). The net result is that it doesn't matter--both counts need a final wave down to complete the pattern and this actually adds to my confidence that we've got a new low coming.

On the daily chart I show a downside projection near 1874 for the pink wave count, where the 5th wave would equal the 1st wave. On the weekly chart (with a count that is the same as the pink count on the daily chart) there is a downside Fib projection based on the first leg down from the July 2007 high. A 262% projection for the C-wave (the decline from May 2008) is near 1730. So it's a little wide at the moment but the downside target zone for now is 1730-1874. I'll be able to zero in a little closer once the decline is underway (assuming of course it will decline). TRAN weekly chart: Link

Jane Fox : 3/20/2009 10:58:34 AM

I agree Keene, short is the way to go today, just not yet.

Jane Fox : 3/20/2009 10:57:09 AM

RUT.X is making new daily lows, so far the only market to do so. Link

Keene Little : 3/20/2009 10:46:43 AM

Opex Fridays tend to be pretty boring affairs and I don't like to trade them. With a tendency towards lower volume and some knee-jerk movements related to options settlements (in other words, less predictable moves) I've lost more money on Thursdays and Fridays of opex than I care to remember. If I see a bigger setup, such as a short play heading into yesterday's close for a move down into next week, I'll take it. Otherwise I prefer the sidelines. If anything I would look for setups to get short the market today.

Jane Fox : 3/20/2009 10:39:23 AM

Here are your overnight charts. ES and YM are still in their ON ranges. Link

Jane Fox : 3/20/2009 10:20:54 AM

VIX is following the AD line today and now making new daily highs and the AD line is falling to new daily lows. Bears are getting stronger. I suspect this will be the scenario for the balance of the day.

Jane Fox : 3/20/2009 10:13:23 AM

Bernanke is scheduled to talk at 12:00ET today.

Jane Fox : 3/20/2009 10:23:05 AM

I think the SPX will retrace at least back to the 750 before it takes another run at 1-800-resistance. If this does happen then we will have a reverse head and shoulders and the neckline will be ... well you know where ... 1-800-resistance. Link

Keene Little : 3/20/2009 9:54:25 AM

I read a number of newsletters last night and this morning and noticed a few references to the dark cloud candlestick formation yesterday, especially in many of the banking names. This candlestick pattern is created when a big white candle (up day) is followed by a gap up but then a selloff to a close that is below the mid point of the white candle. It's a bearish reversal signal but needs a down day to confirm it.

The daily XLF chart shows a good example of this candlestick and how it also closed back below its 50-dma. This morning is seeing some follow through to the downside but currently there is still a chance for the bulls to save it here. XLF daily chart: Link

Price is currently sitting on the top of a parallel down-channel from the lows since July 2008 (the top of the channel has stopped rallies since October). If it were to hold here and rally above yesterday's high it would be a successful retest of broken resistance (a bullish kiss goodbye). This will be a good one to watch today and into next week.

Jane Fox : 3/20/2009 9:53:57 AM

NQ broke through its ON highs.

Jane Fox : 3/20/2009 9:52:50 AM

VIX is now making new daily lows telling me the bulls are getting stronger however the anemic AD line at +175 would keep me on the sidelines.

Jane Fox : 3/20/2009 9:47:33 AM

ES (S&P futures) are falling but the VIX is not climbing but hovering at its daily lows. This is not a time to be trading.

Jane Fox : 3/20/2009 9:46:34 AM

AD line is -234 so not telling us much.

Jane Fox : 3/20/2009 9:43:40 AM

Crude is taking a break today and I would not be surprised to see it retrace back to the Feb 6th swing high. Link

Jane Fox : 3/20/2009 9:32:57 AM

Even though ES and YM closed at daily lows yesterday, the bulls were able to regain control overnight and rally to almost 38.20% retracement of the previous day range. NQ didn't close quite as bearishly yesterday and was not quite as bullish overnight. Link

Jane Fox : 3/20/2009 9:25:28 AM

Dateline NPR - March 20, 2009 ? New deficit figures coming out Friday could make the Washington budget battles rage even harder. The nonpartisan Congressional Budget Office is scheduled to release a new estimate of this year's federal deficit ? and the number is expected to hit $2 trillion. That's hundreds of billions of dollars more than the CBO projected just a few months ago.

Lawmakers knew the outlook would be grim because the budget has suffered a kind of one-two punch since the previous CBO forecast.

That's mainly because the budget has suffered a kind of one-two punch. Congress passed two huge spending bills ? the stimulus package and an omnibus funding measure ? and in the economy's downward slide has only continued.

But even though they knew it was coming, the number stings: some $2 trillion in new debt this year. It has the potential to change the political landscape for the Obama administration.

Keene Little : 3/20/2009 9:17:36 AM

After watching the equity futures drop lower last night I would have been surprised not to see them ramped higher this morning. ES is up about 14 points off its 6:00 AM low and looks like blatant manipulation to get as high a settlement price this morning as possible. Big money also wants a higher price to sell into after the cash market opens. I think it's a decent guess that the gap up open will not hold.

Keene Little : 3/19/2009 11:51:25 PM

Friday's pivot table: Link

Other than the metals adding to yesterday's strong rally, and a little higher for most commodities (fear of inflation as the US dollar dropped further), most of the other markets seemed to pause to think about the reaction to the Fed's announcement yesterday. Is what they're doing going to help? Nothing they've done so far has worked. The only thing the government has accomplished so far is to pour our tax money down a black hole, never to be seen again. There are some individuals getting handsomely rich off the government's actions but we won't go there (and I'm not just talking about over-paid executives and other "key" people).

The Fed's actions are telling us nothing has worked yet but they're not done trying. That's supposed to inspire confidence? And if all the money they're creating is supposed to be inflationary why are we still fighting the deflationary forces? The answer of course is that while the Fed creates money and stuffs it into the monetary system (and buying Treasuries is one way, along with giving it directly to the banks and buying up their toxic-waste assets) it's going out the back door faster than it's coming in. The collapse in debt has a long way to run and it's what deflation is all about. The money that banks are getting is being used to shore up their balance sheets and not going out to be fruitful and multiply (it will later and then the Fed won't be able to stuff the inflation genie back into the bottle fast enough).

So the stock market stalled at resistance, seen clearly on the SPX chart at its downtrend line from January, its 50-dma and previous support in January, all near round number 800. Opex settlement I'm sure had something to do with resistance in this area as well. It's a setup for an immediate reversal back down to a new low to complete the wave count from November. If it drops below 695 we'll have our answer--new lows are coming. If it pulls back, finds support around the 740 area (50% retracement) and then heads higher above 800 then I think we can expect another leg up to about 850 and the downtrend line from November. SPX daily chart: Link

I've been entertaining a few different EW counts to help decipher what's playing out here and I'm getting some different signals from different indexes, especially NDX. But they all fit the dark red wave count as shown above (calling for one more new low) so that's the one I'm sticking with for now. One index, the Transports, has been providing a very clean EW count to the downside from 2007 and I like the setup on its chart that also shows the need for one more leg down to complete the bullish descending wedge pattern: TRAN daily chart: Link

If we do get the new low and it's accompanied by bullish divergence on the oscillators it's going to be a very nice long play setup for a multi-month rally. Bulls need to actually root for this one because one of the alternative wave counts is very bearish which calls for much lower lows into the summer. I won't discuss that one unless I see the market breaking down but stay aware of it in case you're long the market and think you can tolerate a minor new low--know where your puke point is and control your risk with good money management.

OI Technical Staff : 3/19/2009 9:59:59 PM

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