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Currently, there’s uncertainty if the economy will fall into recession within a year (e.g. given some of the previous money supply tightenings are in the “pipeline,” and the flattening of the yield curve). In 1994-95, the Federal Reserve achieved a “soft-landing,” and may avert another recession in the current period.

The first chart is an SPX 1993-94 daily chart that shows a top in Feburary ‘94, a 9.7% fall in two-months, and then a general uptrend. The second chart is an SPX current daily chart that shows a top three-months ago. The vertical line in the first chart is where SPX was three-months after the ‘94 top.

There are some crude similarites between the two charts, including falling to bottoms quickly, making higher highs and higher lows, and the 50-day MAs falling below the 200-day MAs. The two arrows, in the first chart, indicate a more sustainable rally above the 50-day MA, which began to rise. Consequently, it’s uncertain if SPX is currently in a similar uptrend.

The third chart shows intermediate-term technical indicators remain bullish (the CPC 50-day MA, i.e. Put/Call above chart, is particularly bullish, because it peaked at 1.08, which is an all-time high). However, short-term technical indicators are overbought. SPX 1,261 is key support, i.e. breakout point of mid-July high, middle of daily Bollinger Band, and rising 50-day MA. SPX resistance is around 1,290, i.e. June high.

If the FOMC pauses Tuesday, that may ignite a rally, perhaps to around 1,290. Read more…

The SPX weekly chart below shows short-term resistance around 1,325, i.e. yearly high and weekly upper Bollinger Band. On Friday, SPX rose to 1,324 3/4 and was turned-back to close at 1,319 3/4. Also, the FOMC announcement is Wednesday. So, SPX may trade below 1,325 before then.

The daily NYSI (brown line) made lower highs throughout the current cyclical bull market, while SPX made higher highs. On Friday, NYSI closed at 727, which is below the 772 most recent high, while SPX hasn’t reached a new high. So, SPX may rise to a new cyclical bull market high before beginning an intermediate-term downtrend.

Sentiment indicators, e.g. the CPC 10-week MA (above price chart), remain bullish. However, the NYMO 10-week MA (below price chart) has turned bearish. Another major mixed signal is September has been the weakest month for the stock market. However, the price of oil fell below a long-term support level a week ago (see daily oil chart below).

Also, the SPX chart shows there’s major support around 1,280 (i.e. 10

The cyclical bull market, which began in March 2003 (or October 2002 by some estimates), within the structural bear market, that began in March 2000, was fueled by monetary policy. The FOMC began an easing cycle in January 2001 when it lowered the Fed Funds Rate from 6.50% to 6%. The FOMC continued to lower the Fed Funds Rate, until it reached 1% in June 2003, and kept there for a year. In June 2004, a tightening cycle began. The Fed Funds Rate reached 5.25% in June 2006 (to neutral from accommodative), and then the FOMC paused in August for the first time in over two years. Consequently, there has been a great deal of speculation that the tightening cycle is over (a restrictive stance won’t be taken) and perhaps an easing cycle will begin in 2007.

Below is a daily chart of NYSI (red line and right scale) and SPX (black line and left scale). NYSI made lower highs, while SPX made higher highs over the cyclical bull market. Currently, NYSI is near the top of the downtrend line, which indicates SPX is near an intermediate-term top, although NYSI pinpoints lows better than highs. Below the price chart is the NYMO 50-day MA, which is at a level similar to recent SPX intermediate-term tops. However, sentiment indicators, including the CPC 50-day MA (above price chart), which fell from an all-time high, and AAII and ISEE (not shown) show a great deal of pessimism, which is SPX bullish. It seems, almost everyone is expecting SPX to fall.

So, monetary policy and intermediate-term technical indicators are market bearish, while sentiment indicators are market bullish. Also, mid-September through much of October is historically the weakest market period. Consequently, Read more…

Are you confused as to the question of how to deal with your incentive stock options? Or are you worried about owing a large amount of tax on options that you have not even exercised and do not have the cash to pay for it? Well, luckily, if you manage your affairs well and take on board some simple advice, you will be able to avoid owing too much tax on your stock options, and also postpone paying it until you have the cash to do so. Sounds complicated? Not necessarily so. In most cases, if you have a large amount of money tied up in stock options, then you should probably get some professional advice. Financial advisors can help you put together a strategy that maximizes the value of your options. This article is only intended to give you an idea of the steps that can be taken when tax planning with stock options.

First of all, you do not have to pay any tax owed immediately, if you do exercise your stock options. This is the case so long as you do not sell the stock you receive. If you exercise an option to buy some shares, then so long as you do not sell that stock, you do not have to pay any tax at that time.

The second piece of good news is that you can end up only paying 15 percent tax on the options when you do sell. This will apply if you hold on to the stocks for long Read more…

The first chart is an SPX daily chart that shows bullish intermediate-term indicators. The CPC 50-day MA (above price chart) fell from 1.08 Monday to 1.05 Friday, while the NYMO 50-day MA (below price chart) continues the uptrend (other indicators not shown also show similar bullish patterns). Also, SPX has recently made higher lows and higher highs (the SPX high Friday was 1,280.42).

The second chart is an SPX monthly chart. Monday is the end of July. If SPX closes above 1,285 Monday, the MACD indicator (below price chart) may close the month maintaining the bullish crossover. Also, SPX has closed each month above the middle Bollinger Band, since rising above that level after the cyclical bull market began. Money Flow (above price chart) increased and remained positive in July.

SPX closed at 1,278.55 Friday. Currently, short-term technical indicators show SPX is severely overbought. So, if SPX closes Monday above 1,285, to maintain the monthly bullish MACD, it may fall to at least 1,261 key support later in the week, although the first few days of a new month tend to be bullish. Also, the FOMC announcement is August 8th Read more…

The IRS has joined with California’s local stock options backdating task force to investigate alleged backdating of stock options iwth an intent to defraud.

US Attorney Kevin V. Ryan announced the partnership. He said that the task force was formed in July of this year. It is made of members of the US Attorney’s Office, the FBI and IRS-Criminal Investigation in the Northern District of California.

The US Senate has been pressuring law enforcement authorities to face the fraudualent backdating of stock options, which appears to be prevalent despite the Enron scandal.

Ryan said hat it is important to the people of the nation and the financial markets that books and records are honest.

“Falsification or backdating of financial documents may call the integrity of companies’ financial statements into question, can constitute fraud on the company, shareholders and the market, and may give rise to tax violations,” said Ryan. “We will evaluate the facts of each case, and we will bring criminal charges when appropriate.”

Roger L. Wirth, the IRS-Criminal Investigation Special Agent for the investigation said that the IRS is committed to cracking down on options Read more…

The price chart below shows daily SPX (green line and right scale), daily NYSE Summation Index (NYSI; red line and left scale), and the NYSE Oscillator (NYMO) 50-day MA (blue line). Normally, when both NYSI and the NYMO 50-day MA rise, SPX also rises. Moreover, both NYSI and the NYMO 50-day MA fell to low enough levels recently to create an SPX intermediate-term bottom. Also, above the price chart is the CBOE Put/Call (CPC) 21-day MA and below the price chart is the CPC 50-day MA. Typically, a falling CPC 21-day MA is market bullish. Both the CPC 21

The monthly chart below shows SPX managed to close the month above the middle Bollinger Band, maintained the bullish MACD, and held Money Flow steady. So, the cyclical bull market remains intact. Also, intermediate-term technical indicators, e.g. the NYSE’s Summation Index, Bullish Percent Index, and Oscillator MAs, reached low enough levels in June, consistent with other cyclical bull market pullbacks, to indicate an intermediate-term bottom. However, a breakdown of those lows will lead to a larger correction or a bear market. Also, SPX had a classic October to May rally and has entered the seasonally weaker period. Consequently, a volatile trading range will likely take place over the next few months.

The daily chart below may indicate the SPX July trading range. Volume normally decreases over the summer. Major support levels are 1,253 (multi-year Fibonacci level) and 1,246 (previous support

The most recent article “Lower Volume Trading Range” showed SPX held the cyclical bull market low, intermediate-term technical indicators may have bottomed, and an SPX 1,246 to 1,290 range may take place in July. However, the possibility of a rise above 1,290 should be taken into account.

The two charts below show daily SPX (right scales and candlesticks) and daily NYSE Oscillator (NYMO; left scales and green lines) in 2004 and currently with SPX 50 and 200-day MAs. NYMO closed above 72 on Monday, which is the highest level since early-June 2004.

The first chart shows SPX topped in March 2004 at 1,163 and began a volatile downtrend. The second chart shows SPX topped in May 2006 at 1,326 and also began a downtrend. The gray arrow in the 2004 chart may indicate SPX movements over the next month. The first two weeks of July tend to be bullish. So, it’s possible, SPX may rally into earnings season, stay high, and sell on the FOMC anouncement August 8th. A short-squeeze may be triggered above 1,290 with upside potential to around 1,310.

However, there are major differences between the 2004 and current charts. When the 2004 NYMO rose above 80, it began below negative 100 (both the high and low were historical extremes), while the current rise began slightly below negative 50. Also, SPX rose above the 50-day MA on the first bounce after the top in 2004. However, SPX failed to reach the 50-day MA on the first bounce after the top in 2006.

Over the 2004 downtrend, Read more…

Stock option trading can be considered as one of the most financially rewarding strategies one can become involved in. Sometimes, this becomes a destructive investment plan, though. Stock option is the ?right? to purchase a stock at a given price within a specified time. Stock option trading is largely dependent on certain factors, such as name of the associated stock, strike price, expiration date, and the premium paid for the option, plus the stock broker?s commission.

Stock option trading involves trading standardized options contracts, which are listed by a variety of futures and options exchanges. In the United States, there are presently six exchanges where stock options are traded, including four open-outcry marketplaces and two electronic marketplaces. The open-outcry marketplaces are Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) in New York City, the Pacific Exchange (PCX) in San Francisco, and the Chicago Board Options Exchange (CBOE). The International Securities Exchange (ISE) and Boston Options Exchange (BOX) are included in the electronic marketplaces. In Europe, the main futures and options exchanges are Euronext.liffe and Eurex.

Another option to trade a stock is the ?over-the-counter? (OTC) trading, which is the opposite of exchange trading occurring in option exchanges or futures exchanges. The OTCs are traded not in exchanges, Read more…