AheadoftheNews.com: May 2008

Saturday, May 31, 2008

You have to give it to the bulls. They pushed back a major bear attack last week. NDX/QQQQ held their 200 dma's and both the COMP and the RUT closed this week above that level as well. It would have looked better if the RUT had managed to break 750, so there is still a big question mark going into next week and the all important jobs report.
The other major problem is still the financials. I'm not sure that group can take off until XLF closes its March gap at 23.45 (chart). There have been too many attacks on the 24.65 level (gap open) and another failure today at 50% (25.23).

Hedge funds that were over-invested in commodities put some money to work in technology at the end of May, so as not to look too stupid if oil falls off a cliff in June. Nevertheless, as far as the S&P 500 is concerned, we are still in a bear market and the recent rally is still a bear flag on the monthly chart. The lousy market breadth of this week's advance suggests tepid participation. In fact, we have not had a single +2000 day on the NYSE advance/decline since April. And then of course, there was the keen interest in bonds on Friday with yields on the ten year hitting 4.1%.

If they decide to unleash more upside, COMP 2602 and the January gap close would be on the radar. The one thing bulls have going for them, or had going for them, was the sharp reversal in investor sentiment early last week. Those readings have been a roller-coaster, from extreme bearishness in March, to a good degree of bullishness by mid-May, back to bearish the week before last. The next release is set for Tuesday, it will be interesting to see if we flipped back up.
As far as equity put to call ratios are concerned, bulls have gotten enthusiastic once again with many reads between 160 and 200 on ISE and CBOE in the mid 50's. In other words, we have a mix of everything out there, making it very difficult to get a clear picture. When that happens, go back to the primary trend, which as far as the S&P is concerned is still down, or better yet stick to day trading.

May 30 (Bloomberg) -- Anyone wondering why Americans show no signs of abandoning their vehicles as gasoline fetches almost $4 gallon can find the answer in Europe, where the price of petrol hasn't been that low in at least six years.

This type of story is irritating, it is so badly researched and almost flippant. First of all, Americans are driving less, we don't need stats to tell us that, it's part of our daily lives. Secondly, Europeans have been putting up with their higher gas prices not only because of their better overall fuel economy, but because of their top-notch public transportation system, second to none in the world. The lack of infrastructure investment in our country has been a tragedy for the past twenty years, especially in states like California. East coast big cities fare better, but for most of us living without a car is unthinkable, whereas many in Europe (and Japan) do without. The above article does a huge disservice to public perception out there and thus legislative action. It could have been written by the US auto lobby, which represents the most incompetent business group out there. This old behemoth, once the pride of our nation, could only find a (temporary) competitive advantage by spending hundreds of millions of dollars over the years blocking congressional efforts to lower EPA guidelines as opposed to just investing in making more fuel efficient cars early on. We all saw peak oil coming, but I guess these highly paid executives determined fossil fuels supplies were infinite and that China would not suck up oil production as much as they are now. Your average cab driver (no insult intended) could have done a better job running these bloated companies.

Friday, May 30, 2008

PM update:

Only one word can describe today's action: window dressing. It's the tedious process we have to go through every end of month. Meanwhile, bonds still have a bid and AD lines look pitiful. Breadth analysis is useless on a day like today. We will see how futures behave after the close.

Noon update:

The modest rally continues but it looks rather lame. NYSE AD lines are barely positive and NASDAQ AD is actually negative. Bonds still have a bid and small caps are down. Not very inspiring if you are long. This could set up a closing sell-off if NQ loses 2031.75.
Gold is bouncing back after a lift in crude and a dollar drop. YG resistance is at 890.90, GLD at 87.92.

Open:

U.S. May UMich consumer sentiment 59.8 vs. 62.6 April

This is slightly above expectations (59.50), but a dismal number nevertheless. Bonds hold the bid and the dollar is getting a little weaker.
Financials are down and small caps (RUT) are lagging. Watch that NQ 2031.75 level mentioned earlier.
This is an important day for bulls. If they fail here. we have multiple head and shoulder readings setting up in all the majors, especially SPX. Fund managers are window dressing, which does give a floor of support, but a drop by NQ below 2023 would end the rally. A move above 2035 would set up a strong short squeeze.
ISE equity opens at 198 as the crowd loads up on speculative long calls (everyone is playing the 1st of the month rally, I would be careful).

Pre-open:

NQ is gaping up thanks to DELL. Watch 2031.75, 61.8% Oct/Mar.
VIX support will be at 16.98, resistance 18.39.
Note that bonds have caught a bid as it seems 4.1% found some takers. Consumer sentiment at 10.

Thursday, May 29, 2008

When everyone starts getting comfortable with a "bottom in place", it pays to look at the Russell 2000 and see if risk money is really being put to work. The RUT chart shows the importance of where we are. Today saw another failure at the 200 dma, but more importantly, a strong rejection at 750, or 50% off all time highs and the March lows. Until we close above that level, I would remain extremely cautious with the long side on anything other than day trades. We do have a clear up trend, but with a slight wedge. The May 19th high of 748 is where many shorts just placed their stops, tomorrow's action will be interesting.

Close:

When bonds and commodities drop while equities rise, the rotation is pretty clear and bears need to be respectful. Whether or not it lasts depends entirely on the attractiveness of treasury yields. Right now, they are not on anyone's radar. As mentioned earlier, we are hitting a very key area, namely 4.1% on the ten year. It's the 1998 low, the 2001 low and the median point from 2002 to 2005. Once we are done with end of month adjustments, we will get a clearer picture. For now, SPX did another rejection at 1405, while techs are attempting a breakout. QQQQ is hitting the 50 area, another battle for the very resilient bulls. Those AD lines are just not that exciting, stalling at +700 on NYSE.

After the close, DELL did well in beating lowered expectations and the stock is probably a good long term play. But for the immediate future, this little comment from the CFO says it all for the overall market:

"Carty said the company is seeing spending conservatism in the U.S., especially in the financial sector, as well as from small and medium businesses and state and local governments."

Noon update:

Oil drops as the dollar rally continues. A little more logical now. Equities keep climbing, NDX next level of resistance is 2021.25, 61.8% October/ March. The head and shoulder is not yet negated, but we are getting close. AD lines however are not that impressive and semis are down, in large part thanks to INTC, still losing ground.

Morning update (2):

Bulls hold on, even after a crude spike to 133 following the inventory release. Many hedge funds that were heavy in commodities are probably parking their money in equities before the end of the month. I guess their reasoning is that oil is peaking. They could be right if CL loses 129 again but inventory days are very volatile for crude, so be careful. What is very surprising is the strength in oil even with the dollar rally.

Morning update:

NDX chart.

Open:

The bond selling continues and stocks get a lift. The yield on the ten year note has very strong resistance at 4.1%, 1998 and 2001 low. It will be interesting to see if there are takers there.
NDX is bumping up against the old trendline support (2014) and a failure here could confirm a right shoulder on the daily.

Pre-open:

WASHINGTON (MarketWatch) -- U.S. weekly initial jobless claims rose by 4,000 to 372,000 in the week ending May 24, the Labor Department reported Thursday. The four-week average of initial claims, which measures the underlying trend of claims, fell by 2,500 to 370,500. Continuing claims rose by 36,000 in the week ending May 17, to 3.10 million. The four-week average of continuing claims rose by 18,500 to 3.06 million. Continuing claims are at their highest level since February 2004

This does not bode well for the jobs report next week. Nevertheless, bonds are selling due to the trade deficit drop, but the writing is on the wall. Watch that 1390 level for SPX when cash opens.

Wednesday, May 28, 2008

Let's pan out once again and check on the SPX monthly chart. As you can see, we closed right at the December 2000 high, which is an important marker because it was the first in a series of monthly bear flags on the way down to the 2002 lows. This month's candle does not look pretty with a clear rejection at 10/20 month moving averages, but we still have two days to go. It does look like they want to sucker back in the "sell in May" crowd, which explains these rallies with 130 oil and consumer sentiment in the tank. But the real question is: at what point do bonds become attractive once again on a risk/reward basis? We will soon find out.

Informal survey: have you noticed how fast items are shipped when you order online? Even when you elect for free shipping and the slowest method, it gets there in less than two days. Either UPS does not distinguish anymore between second day air and ground, or warehouses have nothing to do and 15 employees are busy packing your one pair of sneakers and getting it out the door the minute your card is approved. It almost makes you wonder if you should be buying anything now.

Closing hour:

Oil and gold traders should pay attention to the EUR/USD June futures and the 1.5622 level, an important fulcrum going forward.

Overall, no real commitment (so far) either way ahead of GDP and jobless claims tomorrow, although ISE equity is showing plenty of upside bets (long calls).

Noon update:

Bulls can't shake off the earlier gap and crap as NQ struggles to hold on to weekly pivot and SPX is once more below the key 1383 level. The COMP lost its 20 dma.

Yahoo is now providing free real time quotes: link.

Open:

INTC and MSFT are not participating and financials are down. Watch those gaps, 1993 for NQ and 1384.75 for ES. AD lines have dropped form a high of 835 to 303, for Nasdaq, 907 to 169. Bulls must defend these gaps. The yield on the ten year found some takers at highs (3.99%).
The flip side of the report is inflation and possible support for oil. Watch 128.20 resistance there.

Pre-open:

May 28 (Bloomberg) -- Orders for U.S. durable goods excluding transportation equipment unexpectedly rose in April by the most in nine months, signaling demand from abroad may be helping factories ride out the housing-led economic slowdown.

Bonds keep selling and bulls might have pulled it off for now if SPX can hold water above 1383. Watch NQ resistance at 2011 (76.4% of 2008) and 1395 for ES (61.8% of 2008).
Next support level for crude oil is 124.45/124.75.
The yield on the ten year has jumped to 3.99%. Will bonds find some takers at 4%? Watch those gaps at the open.

Let's dig a little deeper into the report (from MW):

Defense capital goods rose 4.8% in April.

Shipments of durable goods rose 1.2% in April after falling 0.9% in the previous month. Excluding transportation orders, shipments rose 1.3% after a 0.2% rise in March.

Unfilled orders rose 1.0% after rising 1.3% in March.

Inventories rose 0.5% after rising 1.0% in the previous month.

Looking at individual sectors, orders for machinery rose 4.2% in April. Shipments of machinery fell 1.3%.

Orders for computers and electronics other than semiconductors fell 1.5%. Shipments of computers rose 4.3%.

Orders for primary metals rose 2.8% in April. Shipments of primary metals rose 2.4%

Tuesday, May 27, 2008

May 27 (Bloomberg) -- A bear market in European stocks will last another six to 12 months and a ``superbearish'' scenario featuring a prolonged period of stagflation can't be ruled out, the region's top-ranked strategists at Morgan Stanley said.

``We are not bullish on the remainder of 2008 as we think the bear-market rally is over,'' the strategists, led by London- based Teun Draaisma, wrote in a note dated May 23. ``We have a real-estate crisis, a credit crunch, an inflation problem, an oil crisis'' and peak margins, they said.

I guess the European branch of some Wall Street brokers get to speak their mind a little more than our glorified used car salesmen.
We are not going to argue with the markets if they decide the worst is over. But for now we are still in a bear market, which means overbought should be sold and oversold should be treated with caution.

Bulls hold off the bears as bonds keep dropping and the yield on the ten year jumps to 3.92%, almost negating the head and shoulder we were building over the past week. Much of the enthusiasm was based on the rather dubious possibility of a housing rebound. We all now this is the start of peak season for home buyers and sellers, so an uptick is to be expected. Let's hope it does improve some more, but I'm not holding my breath.
The drop in crude was also mentioned by the media, but we are still holding 10 dma support and 38.2% projection April (chart), so the jury is still out as far as calling tops. Uptrend support is all the way down at 115, the 50 dma and trendline. Even if we correct that far, the primary trend is still up. And it would still be +110 oil, folks.
The COMP did close above the 20 dma and that is the most positive development. It will need to hold as support going forward (2473). The problem is that ES / SPX is still within a bear flag with 5 dma resistance.
Since Monday was a holiday, will reversal Tuesday actually be a Wednesday this week? Oil inventories will be moved up a day to Thursday, so we are in for some price swings.

PM update:

Bonds never really caught a bid and stocks pull off a rally. Nevertheless, bulls will need a COMP close above 2473 to make a case. Otherwise, this is just an oversold rally off a drop in crude to support.

Interesting article from the NY Times:

Rockefellers Seek Change at Exxon

The Rockefeller family built one of the great American fortunes by supplying the nation with oil. Now history has come full circle: some family members say it is time to start moving beyond the oil age.

The family members have thrown their support behind a shareholder rebellion that is ruffling feathers at Exxon Mobil, the giant oil company descended from John D. Rockefeller’s Standard Oil Trust.

Three of the resolutions, to be voted on at the company’s shareholder meeting on Wednesday, are considered unlikely to pass, even with Rockefeller family support.

The resolutions ask Exxon to take the threat of global warming more seriously and look for alternatives to spewing greenhouse gases into the air.

A fourth resolution, which the Rockefellers are most united in supporting, is considered more likely to pass. It would strip Rex W. Tillerson of his position as chairman of Exxon’s board, forcing the company to separate that job from the chief executive’s job.

Noon update:

COMP fails the 20 dma test (2473) and down we go as oil holds 129 and finds buyers at 130. Note also the ER (small caps) failure at its 20 dma a well, after a brief bounce to very strong resistance at 735.20, 23.6% off all time high and 2002 low.

Morning update:

May 27 (Bloomberg) -- Confidence among U.S. consumers fell to the lowest level in more than 15 years, raising the risk that spending will slump.

The Conference Board's confidence index declined more than forecast to 57.2, the lowest level since October 1992, from a revised 62.8 in April, the New York-based research group said today.

Equity ISE dropped hard at the open, suggesting too many bears woke up this morning and a modest squeeze was on. NQ found resistance at its weekly pivot (1986). ES 5 dma is at 1391, so any bounce for now is just a retrace, unless we close above that level. However, bulls have the bond drop on their side, at least today.
COMP 20 dma is at 2473, an important level for the markets.

Oil seems to have support at 129, although the 10 dma is a little lower at 128.25. Weekly pivot at 130.69 is current resistance. That problem for equities is not gone yet, unless we manage a close below 127.70/128.

Pre-open:

May 27 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell in March by the most on record, pointing to continued weakness in the housing market that will further drag on the economy.

Futures have a slight bid as oil drops to 130. Bonds are selling and that triggered a modest bump in the dollar, pushing commodities down. Watch that ten year yield, weekly R1 is at 3.93. Financials are down.
Consumer confidence at 10.

Sunday, May 25, 2008

BERLIN (Reuters) - The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday.

He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth.

"But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think."

Someone other than a chartist is reminding us that we are in a bear market.

Saturday, May 24, 2008

After trading eight days above the October downtrend line, resistance turned support, the S&P 500 (SPX) returned to its 2008 bear mode. Not only did the index re-enter the 2007 high downtrend, but it closed below the May opening day low of 1383. As you can see on the chart, the 50 day moving average is a little lower, at 1371.50. There is also the mid April gap at 1365.50/1369. It's a small gap, but add 38.2% March/May at 1370.23 and you can see how important the entire 1365/1371 area will be on Tuesday.
Bonds caught a bid and held it all day, pushing TNX (ten year yield) down near critical support at 3.8%. We will keep track of this bearish development, especially given the evolving head and shoulder outlined Thursday night.

Friday, May 23, 2008

Close:

Bearish finish for SPX at lows. NDX barely holds the 200 dma. Bulls could not mount a closing rally, which is no surprise given the bond bid and the economic calendar on Tuesday, with consumer confidence and new home sales.

Closing hour:

NDX/QQQQ right at their respective 200 day moving averages. Bulls need a close above (1957.87 and 48.15). AD lines have not improved much, still -1450 for NYSE and -1145 for Nasdaq. AAPL is the one positive for QQQQ.

Noon update:

Slow drift lower for equities as SPX erases the entire gains of May. There is a major area of support at 1369/1371, 50 day moving average and monthly pivot for ES (1369.75). An absolute must hold for bulls. Should the internals not improve soon, we could see a waterfall decline into the close. If that happens, watch COMP 2425.
Equity ISE has been between 187 and 207 this morning, as small traders buy the dips on weakening technicals. Complacency is not what bulls want to see on a day like today because it dampens the short covering fuel they need.

Morning update (2):

ZN holds 115 and equities are struggling to hold key support, namely SPX 1383. This looks like consolidation at lows, not a good sign especially with AD lines dropping further. Be careful, we could sell-off some more.

May 23 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in April, matching a record low and signaling no let-up in the housing recession.
Purchases declined 1 percent to a higher than forecast annual rate of 4.89 million from 4.94 million in March, the National Association of Realtors said today in Washington. The median price dropped 8 percent from April last year, the second- biggest decline.

Morning update:

10:00U.S. April existing-home inventory rises 10.5%

10:00U.S. April existing-home median price down 8% in past year

10:00U.S. April single-family homes for sale highest in 23 years

10:00U.S. April existing-home sales stronger than 4.83M expected

Bonds keep their bid, but SPX still holds 1383. Tug of war going on, watch ZN (ten year bond futures) and the 115 level.

Open:

A note on NYSE volume since September: link.

Bonds have a bid and we could get a confirmation of the head and shoulder I pointed out last night on the ten year yield. Everything can change with home sales report at 10, but for now, that's the picture.

Gold is bouncing off the 916/918 area of support. SPX is right at ex-trendline resistance, now support. That will need to hold (1382/1384).

blogger is enabling picture upload again, so last night's TNX chart is posted.

Thursday, May 22, 2008

Lots of talk of rising rates, but a very clean head and shoulder is forming on the ten year note in May, negated above 3.99%. That would imply rotation out of stocks if confirmed. Neckline would be around 3.77%.

PM Update:

May 22 (Bloomberg) -- U.S. house prices sank 3.1 percent in the first quarter from a year earlier, according to a government report, as buyers waited for values to stop falling.

Even though oil is down, it is still 130 oil and the above news coupled with Ford's profit warning has deflated any early rally.
The 20 dma is now resistance for NDX, a confirmation of trend change.

Morning update (2):

As if on cue, NQ breakouts to 1980, but drops back down below 1972. The surge was off the Nat Gas report, which dropped crude below 132, but it has since recovered. YG (gold) found support at 918. Watch CL 132.50 support turned resistance. Traders are in the "take the money and run" mode.

Morning update:

Equity bid, but NQ is finding resistance at 1972, 61.8% correction of May. If bulls breakout, next level is 1980. Must hold support is still NDX 1952/1954.
Crude dropped to 132.50 support, let's see if they can hold that.
Natural gas inventories at 10:30.

Pre-open:

Bonds drop on the jobless claims numbers. The yield on the ten year is finding support just above confluence 10 and 20 dma (3.835).
Oil has support at 132.10 and 132.55.

Wednesday, May 21, 2008

Close:

NDX erases two weeks of gains in just three sessions. With a solid bearish engulfing candle on the weekly chart, bulls must start wondering if they are not playing with fire. Support was found at 1954, 50% October/March. I expect a bounce from this level, but NQ 1992 level (NDX futures) should be resistance going forward. Note the confluence 50 weekly moving average and 50%.
Just to make matters worse, retail traders are bottom fishing by still loading up on equity long calls. ISE equity closes at 178, dangerous optimism in the face of deteriorating technicals (namely the loss of 1405 for SPX).

note: Blogger is still giving us problems, so no charts today. I will e-mail the NDX chart to the subscribers.

PM update:

NQ drops the May trendline at 1992 and the selling accelerates. NDX looks headed for another key test, its 200 dma at 1958. SPX drops 1405/1406, another major level of support. Bulls need a close above 1405 we could even see the entire May gains evaporate before the month is over.

Morning update (2):

Speaking of 50%, it's also an important number for crude, since 130.15 is 50% projection April and the current stall. Resistance above that is 132.50 if we breakout. Inventories did not lower the bid. The next news item today will the FOMC minutes at 2PM.
Gold holds on to support (see last night) and could be headed for 940 by the end of the week if we close another day above 918.
Watch the May trendline support for NQ (NDX futures) at 1992. It better hold or equity bears take over again.

Traders also need to remember that commodities do not trade like stocks.

Morning update:

The bulls lose an initial rally as the COMP stalls at 2508, which is 50% off October high and March low, a deal breaker if lost another day on a closing basis. Support is 2495, 10 dma.

Tuesday, May 20, 2008

I mentioned gold as a buy on Friday and it has picked up steam since. After closing the April 22nd gap today (918.60) and not dropping hard from there, momentum is still up. Support is the 50 dma at 916 and 38.2% retrace of the current drop at 918. Lots of activity between 916 and 919, watch it carefully.

This article by Kevin Phillips is an interesting read: link.

It will help you understand how the government has the nerve to tell us that PPI showed food prices remaining the same and fuel costs fell .25.

Morning update:

We are getting the predictable drop, but NQ is holding the May trendline support at 1992. AD lines are -1000, nothing dramatic yet. I suspect that will change if we lose 1991. For now, bulls hold on. Watch the COMP 10 dma at 2488.

Pre-open:

May 20 (Bloomberg) -- Prices paid to U.S. producers, excluding food and fuel, rose more than forecast in April, reflecting increases in automobile and furniture costs.

The 0.4 percent gain in so-called core prices was twice as big as anticipated and followed a 0.2 percent increase in March, the Labor Department said today in Washington. A drop in energy costs and unchanged food expenses held the total price measure to a 0.2 percent gain.

The bear market signal is still 100% alive, absolutely no change from December if you look at the SPX monthly chart. The 10 month moving average (blue line) is still acting as resistance (a long term bull/bear marker) and is still lower than the 20 month moving average (green line). Unless bulls manage a month of May close above 1438, there is no reason to be long stocks at this point, other than helping major firms clear inventory at these levels and at your expense. Key support is now 1404/1405, April high. With equity put to call ratios in lala land levels of optimism, the path of least resistance is down, not up.

Extending the chart to 1995, we can see that the last three months follow a pattern not seen since the end of 2000. It could be different this time, but I would let someone else risk their money trying to find that out. It's also troubling to hear the constant drumbeat of pundits and reporters naming this recession a mild one before it even kicks in. Bulls need a wall of worry, not an endless horizon of complacency.

By the way, the March low of 1255 is an exact 23.6% retrace (a standard measure in charting) off the 1987 crash low and last year's all time high (216/1576). This could be a clue as to what the wizards behind the curtain are working with. Should we lose that level without making new all time highs, the next long term level of support is 38.2% at 1056.71 and for those Armageddon readers, 50% at 896.72. Just a thought.

Monday, May 19, 2008

Closing hour:

The Q's came within 20 cents of major resistance outlined over the weekend, namely July 2007 high and January gap close and sold off pretty hard after rallying on bogus news.
Bulls need NQ (NDX futures) to hold 2031 at the close (61.8% Oct/Jan) or could finally get a sell signal that sticks, now that we are done with op-ex manipulations.
ES did indeed stall at 1441, weekly R1.

PM update:

Leading indicators provided a push, although remember that it is pretty much a summary of what we already know. Per Bloomberg: "The majority of the components of the leading indicators have been reported earlier in the month so that the composite index doesn't necessarily reveal new information about the economy. Bond investors tend to be less interested in this index than equity investors. Also, the non-financial media tends to give this index more press than it deserves."

QQQQ is within 20 cents of closing the January gap. Oil is still above 125. the VIX is now attacking the July lows while ISE equity is up there at 185. Complacency rules as does equity call option speculation. ES is stalling at weekly R1 (1441). NQ is lagging slightly, its weekly R1 is higher at 2064.

May 19 (Bloomberg) -- Take away Exxon Mobil Corp., Chevron Corp. and ConocoPhillips and profits at U.S. companies are the worst in at least a decade.

Without the $70 billion that oil producers earned in the last two quarters, profits at companies in the Standard & Poor's 500 Index tumbled 26 percent and 30.2 percent, the biggest decreases for any quarter since Bloomberg started compiling data in 1998.

Not much news today other than leading indicators at 10. Bonds have a slight bid pre-open.

Saturday, May 17, 2008

I highly recommend watching this Bloomberg video on food prices: link.

Panning out on the QQQQ daily chart back to July 2007, we can see the added importance of the 50.62/50.66 area. Not only is it the 2008 January gap close but it's also the July 2007 high, right before the strong August sell-off. This is the kind of confluence computers look for and we will soon find out if it carries the extra-weight the charts give it.
By the way, if we stall there, it's also the right shoulder on a ten month head and shoulder, if you count October/January as one large head. Now that would be a scary proposition.

Friday, May 16, 2008

PM update:

ISE equity is above 200 (again), which means retail traders are loading up on calls going into next month. I don't recall seeing that many +200 reads even during the last bull and this is a bear market... Not much to do now but wait for the next shoe to drop.
If you are day trading this mess, NQ 2028.75 is weekly R2 and probably resistance on any bounce.

Scholes, as in Black-Scholes, has this to say today (interesting how they start quoting negative comments when they are done rallying):

May 16 (Bloomberg) -- Myron Scholes, chairman of Platinum Grove Asset Management LP and 1997 winner of the Nobel Prize in economics, said the worst of the crisis in credit markets may not be over.

``From my perspective, I think that we don't know if the storm has passed or if we are still in the eye of the storm,'' Scholes said in an interview with Bloomberg Radio yesterday. ``Are there

``In my view, this is probably as bad or worse than the 1989-1990 crisis and may even rival the worst crisis we've seen since the end of the Second World War,'' Scholes said. Former Fed Chairman Alan Greenspan has also said the turmoil is the most ``wrenching'' since the war.

Scholes, 66, and Robert Merton won the Nobel Prize for economics in 1997 for their work in valuing options. His firm, Platinum Grove, is based in Rye Brook, New York.

Morning update (2):

This market is bleeding a slow death on the consumer sentiment numbers, the lowest since 1980. We would be going down much faster if it wasn't for option expiration shenanigans. It could be a wicked hang-over next week.
ES needs to hold 1417, support on the 60 mn chart. This, by the way, is right where I bought my SPY July puts on Wednesday. I was never really worried, but I'm glad I used options and not a straight futures trade. It avoided being stopped out in the whipsaws of short covering. As far as day trading, I avoid it during option expiration week.
Below 1417, next momentum support is 1411.75.

Random thought: I had set a mechanical end to this rally between SPX 1420 and 1430 back in early April. Sometimes we lose track of our planning in the heat of the moment, so my attack was probably early, but remember that markets drop two to three times faster than they rise, so it really does not add up to much in the long run. This is where not putting on a full position at the outset enables you to cost average appropriately.

Morning update (2):

Gold is looking bullish, I'm a buyer if it can hold 892. Must hold, if you are long from lower and want to place stops, is 884.20.

Morning update:

Retailers are down 1.3%, Banking 1.75%. After hitting that 2041 level, NQ drops below yesterday's close. Gap and crap on the way? I doubt those QQQQ May 50 calls will close in the money. This is not going to be hard to push down, now that every short with weak hands got squeezed yesterday. We could very well erase yesterday's gains in one session if NQ cannot hold 2029, weekly R2. Watch any bounce from 2028 that goes to 2035 and fails.

INTC stalls right at 25, an area loaded with calls. That fits right in with QQQQ 50. This stock has huge call volume during tech rallies, so watch it for any sign of weakness.
AAPL January gap close is 194.93.

Open:

QQQQ/NDX are smack in the middle of their January gaps and that looks like what was driving this rally all along. We saw the same thing in March, when the drop would not stop until the Q's got rid of some unfinished business. Well, here we are on the other side.

QQQQ January gap: 49.79/50.62
NDX January gap: 2025.36/2051.76

NQ's same gap is a little higher, but interestingly enough, we stalled exactly at the gap open for the e-mini, right at 2041.

These gaps do not necessarily need to be closed, getting half-way in is sometimes enough to do the trick.

Pre-open:

You have to fish for it, but someone found something to be cheerful about in the housing numbers.
Gold is getting some attention and looks ready to mount another assault on the 1000 level in the coming weeks if it can get a close above 918, 50 dma.

May 16 (Bloomberg) -- Construction of U.S. single-family houses in April dropped to the lowest level in 17 years, even as building of condominiums and townhouses rebounded.