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Friday, May 19, 2006Next Week's Golden Opportunity
What a week this was! But I am hoping next week is even more exciting.
Here's the kind of scenario I think it fairly likely, and if it plays out this way, it represents a one-two punch for bears to make money. Now that the big fall from earlier this week seems to have cooled down, the market has had a chance to stabilize. Both yesterday and today, the market seemed trying hard to compose itself (although the final hour yesterday caused the market to freak out and fall some more).
What I can see happening next week (barring a surprise this weekend) is for the market to get its legs back and start chalking up some gains. The S&P graph below shows how the market is rather oversold at this point, and I could see it scratching its way back to that median line:
http://photos1.blogger.com/blogger/4311/970/400/0519-SPX.0.jpg
The S&P 400 MidCap (MDY, shown below) also shows what appears to be a short-term bottom in the market.
http://photos1.blogger.com/blogger/4311/970/400/0519-mdy.jpg
So, moving up from these levels seems quite plasible. Profiting from this rise could be handled by buying calls on SPY, MDY, DIA (I'm less enthused about QQQQ, which seems too dangerous). Another good pick may be AAPL:
http://photos1.blogger.com/blogger/4311/970/400/0519-aapl.jpg
If we get a few days to make some green based on the market's upturn (which is when the bulls will come out, relieved that the worst is over), I'd close out those positions for a profit and start shorting. I'd wait until the market had recovered to some pretty obvious resistance levels before doing so. But if we are in a new pattern of lower highs and lower lows, this is a fantastic opportunity to profit in both directions.
at 5/19/2006 6 insightful comments
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This is an unusual intraday post. It seems to me a strong possibility that we're at a short-term bottom. Observe these charts. Here is the S&P 500:
http://photos1.blogger.com/blogger/4311/970/400/0519-SPX.jpg
And here is the very important oil services index:
http://photos1.blogger.com/blogger/4311/970/400/0519-OIH.jpg
The lows today were set at 11:16 a.m. EST. If these are taken out, then this post is moot. But some short-term trades on, for instance, call options on QQQQ, SPY, DIA, and OIH, might yield some handsome profits for next week.
at 5/19/2006 6 insightful comments
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Thursday, May 18, 2006So Much for the Recovery.....
Well. Wasn't quite the rally we might have expected, was it?
The GLOBEX was up nicely before the open. And the market opened higher across the board. Let's take a look at how long it lasted:
http://photos1.blogger.com/blogger/4311/970/400/0518-dowrally.jpg
I've got to say I'm a little surprised. Perhaps some more selling had to wash through the system before we got stable enough to push higher. But the fact that the markets just meandered most of the day and then started falling hard in the final hour doesn't bode well for a recovery rally.
Medium-term trendlines are now broken, and we need to look at longer-term trendlines as our next stopping point. The Dow looks vunerable to about 11,000 based on the line in place. Should it break that one, it's a very different ball game.
http://photos1.blogger.com/blogger/4311/970/400/0518-dow.jpg
The NASDAQ market continues to look especially weak. The NASDAQ Composite, shown below, has blasted through a major support line. As I said yesterday, what we ideally want is a recovery back to this line (which is now resistance, formerly support) so we can short the bloody hell out of everything. Shorting into a falling market is obviously riskier. It would be better to sell into the strength.
http://photos1.blogger.com/blogger/4311/970/400/0518-compq.jpg
The NASDAQ 100 is similarly weak. This presents a very clear area which, if retraced, makes for a marvelous place to short stocks.
http://photos1.blogger.com/blogger/4311/970/400/0518-ndx.jpg
at 5/18/2006 5 insightful comments
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Wednesday, May 17, 2006Fantastic Sell-Off
The last few days have been sensationally fun. The market is behaving beautifully from a technical perspective. And, no, I'm not jazzed just because the market is down. On the contrary, I think it's going to go up (yes, up) in the very short term, creating more great shorting opportunities. And, in the meantime, we might even make some cash going on the long side (yes, you read that right).
Here's the Dow Jones 30 for the past year or so. As you can see, the medium-term trendline was violated by just a hair, and the market closed at exactly the trendline (I do not draw these trendlines after the fact, folks; these are honest, pre-drawn trendlines).
http://photos1.blogger.com/blogger/4311/970/400/0617-indu.jpg
The $VIX spiked big-time today, which is no surprise considering the Dow was down nearly 250 points at one point.
http://photos1.blogger.com/blogger/4311/970/400/0617-vixspike.jpg
Look at the graph I've made below, comparing the $VIX with the Dow 30 (click on any of these images to see a much larger one). Notice the very high correlation between big $VIX spikes and short-term bottoms in the market. This is one of a number of reasons I think today may have been the bottom for a bit (how long the 'bit' is remains to be seen).
http://photos1.blogger.com/blogger/4311/970/400/0617-vixanddow.0.jpg
Here's another interesting graph where, again, I've highlighted the points of interest for emphasis. It shows the DIA (which is the Dow 30 ETF) with its volume. Notice today's huge volume. Two other recent instances of a big volume spike likewise marked the establishment of a short-term bottom.
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Here's another interesting graph where, again, I've highlighted the points of interest for emphasis. It shows the DIA (which is the Dow 30 ETF) with its volume. Notice today's huge volume. Two other recent instances of a big volume spike likewise marked the establishment of a short-term bottom.
http://photos1.blogger.com/blogger/4311/970/400/0617-diavolume.jpg
Yet another interesting graph (isn't this fun?) is below. It shows a channel with a midline on the SPY. You can plainly see the SPY is right in the middle of the road (think Pretenders.....Learning to Crawl). It seems a natural "point to pause."
http://photos1.blogger.com/blogger/4311/970/400/0617-spymiddle.jpg
The NASDAQ 100, which has been extremely weak (it's been down 7 days in a row, right?) seems oversold at this point.
http://photos1.blogger.com/blogger/4311/970/400/0617-qqqqbreakdown.jpg
One specific 'buy' I'd suggest is Apple Computer (AAPL), my employer from many years ago. I think we've got a nice inverted head & shoulders pattern here, as well as firming at the Fib retracement level. Plus, it went up today (yes, up) which is extraordinary considering the market's action.
http://photos1.blogger.com/blogger/4311/970/400/0617-aapl.jpg
For my bear friends who think I've lost my mind, fear not, I'm not only still bearish, but moreso than ever. I think days like today help sow the seeds of doubt. But I really don't want to see the market keep sinking. I think more likely we're going to see a recovery. That could very well establish some exquisitely beautiful shorting opportunities before the carpet gets yanked out from people again.
Many of you have been posting questions to the comments board. I'm going to try to answer them en masse sometime soon. Ta ta!
at 5/17/2006 4 insightful comments
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Tuesday, May 16, 2006Some Ideas to Gnaw On
A pretty ho-hum day on the market today, but that's no big surprise. A look at the past few years of the S&P 500 indicates there's ample room on the downside still, even within the confines of the ascending wedge pattern. The Fibonacci retracement levels aren't really worth considering at this stage, since we're still in the uncertain zone.
http://photos1.blogger.com/blogger/4311/970/400/0516-spx.jpg
I've got a few short recommendations to consider. The first is CSX, which is a Transports component. This is sky-high and seems to have lost steam. This is optionable and, to my way of thinking, presents a very positive risk to reward ratio.
http://photos1.blogger.com/blogger/4311/970/400/0516-csx.jpg
As cruel as Hansen Natural has been to us poor bears, I can't resist suggesting it - - this one is just insane, folks. Bananas. Late 90s style "this time it's different" Internet mania. Tulip country. You get the idea. Put in a stop at $202. (And could someone please explain to me why there are no options on this one? Please?)
http://photos1.blogger.com/blogger/4311/970/400/0516-hans202.jpg
A tip of the paw to buddy Michael Kahn for suggesting Marvel Technology (MRVL) a few days ago in his own column. This looks like a beauty. It's also been clobbered the past couple of days.
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A tip of the paw to buddy Michael Kahn for suggesting Marvel Technology (MRVL) a few days ago in his own column. This looks like a beauty. It's also been clobbered the past couple of days.
http://photos1.blogger.com/blogger/4311/970/400/0516-mrvl.jpg
Union Pacific (UNP) looks awfully toppy too. This one to me seems a slam-dunk.
http://photos1.blogger.com/blogger/4311/970/400/0516-unp.jpg
Lastly, in the same spirit as my Time Warner question last week - - - could someone tell me who trades Sun? And why? This has been about a $4.50 stock for years, and trades ten million shares a day. Someone responded to my TWX question by suggesting it was for capital preservation. Excuse me? I can introduce you to some good certificates of deposit that are safe and throw off similar gains (better, actually). So what's the deal?
http://photos1.blogger.com/blogger/4311/970/400/0516-sunw.jpg
at 5/16/2006 8 insightful comments
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Monday, May 15, 2006Waiting for History to Repeat Itself
Today was pretty much exactly the kind of day I expected after two big down days on Thursday and Friday: that is, an initial descent, some gnashing of teeth while the market tried to figure out what to do with itself, and then finally an ascent on the part of the Dow 30. The major financial sites predictably responded with the swift "recovery" of the market.
The kind of market I think we're in now is reminiscent of the one shown below - from 1966 to 1982. During that very long period, there was a fixation on "Dow 1,000". As you can see, the market hit that point again and again, only to fall from it each time. These days, the fixation is more oriented toward making a new lifetime high on the Dow. We got extremely close on May 10, but I suspect we're in the throes of what could be another major selloff. Whether or not the Dow has enough gas in it to cross the finish line or not remains to be seen. But compare this graph:
http://photos1.blogger.com/blogger/4311/970/400/0515-70sdow.jpg
......with the more recent Dow. As you can see, the possibility that we're in the first few years of an incredibly length range-bound market is clear.
http://photos1.blogger.com/blogger/4311/970/400/0515-recentdow.jpg
The NASDAQ 100, which has been quite weak lately, fell through an important support level today. Once the markets do resume their weakness, I imagine the NDX will be especially weak. This support level was quite important, and now it's gone.
http://photos1.blogger.com/blogger/4311/970/400/0515-ndx.jpg
Part of the reason for the market's weakness today was that recent hyperbolic markets (Gold, Silver, Crude Oil, Copper, etc.) got blasted. What's great about being a bear in any market is that drops in price usually come much faster than rises. Take a look at this chart - it took just over a couple of days to erase the gains which took weeks to establish in the first place.
http://photos1.blogger.com/blogger/4311/970/400/0515-goldgone.jpg
I think if you'll look back over last week's recommendations, you'll see virtually all winners. At this point, I've scaled back quite a bit, as I'd prefer to re-enter positions at better prices than these, particular in the energy markets. See you tomorrow, everyone!
at 5/15/2006 2 insightful comments
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Friday, May 12, 2006Thanks, Consumers!
Let's just take a look at a few indices today. Here's the Dow 30 in candlestick form for the past year or so. The past two days are pretty remarkable, and the next stop might be the trendline you see beneath. We are going to have to ultimately crack that line in order to make a more serious move down.
http://photos1.blogger.com/blogger/4311/970/400/0512-dow.jpg
More encouraging are the series of breakout failures (prepare yourself to see that pair of words a lot...........) in the other major indices. Here's the NASDAQ 100:
http://photos1.blogger.com/blogger/4311/970/400/0512-ndx.jpg
......the S&P 100:
http://photos1.blogger.com/blogger/4311/970/400/0512-oex.jpg
And the American Major Markets Index. I noted this one a few days ago since it had broken out from a pretty nice inverted head & shoulders. Well, bulls, the pattern's been invalidated. Prices have crossed back underneath the neckline in a big way, so there is no longer a breakout.
http://photos1.blogger.com/blogger/4311/970/400/0512-xmi.jpg
For you voyeurs out there, here are my current positions. Those listed twice are those in which I actually have two positions (meaning I'm especially confident). All of these are puts.
at 5/12/2006 17 insightful comments
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Thursday, May 11, 2006Blowing the Froth Off
Yesterday I wrote, "Below is the Dow 30. I could make all kinds of technical jargon, but I will offer only this: the market is really, really, really extended. It will not keep going up every day, people. Promise."
Well, promise kept. All the indices got beat up. The NASDAQ 100 was down 2.2%. The Dow was down 142 points. I have embraced a sober view of my bearishness, however. As the chart shows below, there are plenty of times the market has pushed up against its resistance trendline, only to ultimately push higher.
http://photos1.blogger.com/blogger/4311/970/400/0511-spx.jpg
So I'm not going to be beating any "the market is crashing!" drum. It's down today, and that's great. And I hope it goes down a lot more. But there is no sea change in the market's direction yet. It could consolidate and push inexplicably higher yet again.
The oil sector threw me for a bit of a loop this morning. I got instantly stopped out of my OIH position at the open this morning (it gapped up) only to see OIH fall the rest of the day. Crude oil might have topped out, but it's very hard to say. A day like today would definitely give pause to the energy bulls.
http://photos1.blogger.com/blogger/4311/970/400/0511-oih.jpg
The NASDAQ is clearly the weakest index in the U.S. these days, and the $NDX has finally snapped below its supporting trendline. This is great news for the bears. As you can see, this trendline goes a way back, so this is a pretty good signal of a change for the better.
http://photos1.blogger.com/blogger/4311/970/400/0511-ndx.jpg
Take a look at stock CHRW as a short candidate with a stop of $50.25. I like how it's retraced part of its recent fall and seems to be re-weakening.