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Wednesday, February 08, 2006Oil Services Sector
Anything related to oil has been crazy for the past year. One of my favorite financial instruments, OIH, is a particularly good market to trade.
The most recent formation of OIH is a head & shoulders pattern. Below is an intraday graph of the past 30 days, approximately. OIH broke down badly recently, and it pulled back to its neckline today, representing a good shorting opportunity. I would also add there are plenty of options available for this security too, if you want a higher risk/higher reward trade.
http://photos1.blogger.com/blogger/4311/970/400/0208-OIHHnS.jpg
Zooming in closer to this graph, you can see the Fibonacci retracement displays a pretty clean relationship to the price action. I've highlighted in green areas where the price congregates toward any of the retracement levels.
http://photos1.blogger.com/blogger/4311/970/400/0208-OIHFibs.jpg
at 2/08/2006 1 insightful comments
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Tuesday, February 07, 2006Fantasy Island
If anyone needs proof of how stupid I am, look no farther than the fact that I regularly tout one of my boss' favorite stocks as a short position. I'll try to position this as proof of my objectivity as opposed to my daftness.
Anyway!
The stock in question is NTRI (NutriSystem) which has lost 25% of its value in the past four days (to be fair, it went UP thousands of percent beforehand - - this was a $1.60 stock only 15 months ago).
I've mentioned this stock a few times since it broke its trendline and "kissed" the underside of the trendline (see the arrows in the graph below).
But what's really interesting about this stock now is the bearish island reversal. An "island" is basically a series of prices which are flanked by two price gaps. So it looks like a clutch of price bars just floating in midair (or, in a bullish formation, floating down below the chart). Take a look:
http://photos1.blogger.com/blogger/4311/970/400/0207-NTRI.jpg
Islands are VERY rare, and they are also VERY strong reversal signals. This stock had a very fast, very steep runup, and frankly I don't know what to suggest as a place to take profits. I don't see any strong support for a long way down.
at 2/07/2006 2 insightful comments
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Monday, February 06, 2006Predicting the Future
I first want to say thank you again to everyone who has sent in comments. Many of them are quite intelligent and thought-provoking, and I encourage readers of this blog to check them out.
Below is the chart for crude oil futures leading up to the August 2nd invasion of Kuwait in 1990. The chart makes sense......with crude oil rising. But note this - - the chart ends on August 1st! Oil is making a major move upward before anyone outside Iraq new of this surprise invasion.
http://photos1.blogger.com/blogger/4311/970/400/0206-Kuwait.jpg
A similar example is the horrible events of September 11, 2001. Look at the graph of the S&P below, as the market accelerates downward. The last bar shown is for September 10th.
http://photos1.blogger.com/blogger/4311/970/400/0206-NineEleven.jpg
I'm sure many people will think of these as simply coincidences. But to me, they illustrate the eerie power of the markets to anticipate what's coming over the horizon before individuals are conscious of it.
at 2/06/2006 7 insightful comments
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Friday, February 03, 2006The Market's Big Picture
It's particularly important for me to note that clicking on any image in this blog yields a bigger version. This post contains a couple of really important and fascinating graphs that really should be seen in all their glory.
Anyone who has read my blog knows my view on the market is very bearish. I believe that the Dow 30 will lose about half of its value within the next ten years. Below are a couple of graphs of a broader index, the S&P 500, to back up this belief.
Here is the S&P 500 dating back to 1928 with a Fibonacci fan drawn from two extremes: the bottom of the Great Depression to the top of the recent bubble.
What fascinating about this is how the prices tend to be bound by fan lines. Take a good look at the graph below; I've made it easy to see by drawing a rounded rectangle around major instances (which often span many years - even decades):
http://photos1.blogger.com/blogger/4311/970/400/0203-SPYBig.jpg
More recent history shows that the S&P is bouncing along one of the fan lines. It needs to break below this fan line to make its next serious move down. As you can see, it's already pierced below this fan a few times, only to move above it again. But if it moves below it without recovering, you can expect the S&P to move into the high triple digits afterward.
http://photos1.blogger.com/blogger/4311/970/400/0203-SPYClose.jpg
Confutatis maledictis,
flammis acribus addictis,
voca me cum benedictus.
Oro supplex et acclinis,
cor contritum quasi cinis,
gere curam mei finis.
at 2/03/2006 9 insightful comments
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GOOG Slumps Toward $330
I'm in North Lake Tahoe this week, and all the Googlers (employees of GOOG) ditch work and spend a week up here once every year. I saw a lot of them around Squaw Valley, and by my estimate the average age at the firm must be 19. The slopes are full of millionaires that can't legally buy a beer.
Anyway, GOOG is down nearly $100 from its lifetime high, set just a few weeks ago. Here's the intraday chart showing the disintegration:
http://photos1.blogger.com/blogger/4311/970/400/0203-GoogBurn.jpg
Fibonacci retracements suggest the next stopping point will be around $330.
at 2/03/2006 3 insightful comments
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Thursday, February 02, 2006Measuring a Price Target
Just a quick lesson here.
It's often true that figuring when to take profits on a stock is far harder than knowing when to get into a stock. The balance between greed and fear is always difficult.
One objective measurement for one particular kind of pattern - the head & shoulders - is to measure the delta between the top of the head and the neckline, and subtract this figure from the price at the neckline. Look at this recent example of stock DST:
http://photos1.blogger.com/blogger/4311/970/400/0202-DST.jpg
It's not a huge pattern, but the target was still valid. The price sneaked below the target a little, but better to take the profits than wait for the stock to bounce back up (which it is doing right now).
at 2/02/2006 1 insightful comments
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Wednesday, February 01, 2006Time Premium & Uncertainty
I first want to thank my readers for many terrific comments posted to yesterday's entry. I encourage everyone to check them out; lots of good input.
Naturally, all eyes were on GOOG this morning. Although the stock got clobbered yesterday in after hours trading, getting as low as about $350, it wasn't down as severely this morning. Make no mistake, a 40-point fall is still really nasty, but the price seems to be gravitating toward its 78.6% Fib retracement instead of the lower 61.8% retracement at $330.
http://photos1.blogger.com/blogger/4311/970/400/0201-GOOG-Fib.jpg
What's really interesting is how the time uncertainty collapses after the earnings are known. I saw a lot of speculation a few days ago of people who were buying $350 puts at very low price, hoping to make a killing. Well, the world of options isn't entirely fair. So even though the calls are getting destroyed........
One last thing - a stock I've mentioned before, ASYT, is doing great shooting away from its inverted head & shoulders pattern.
http://photos1.blogger.com/blogger/4311/970/400/0201-ASYT.jpg
at 2/01/2006 4 insightful comments
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But, slowly but surely, this market is going to be utterly laid waste. Trust those noble bears who are seeking the truth. And remember who brought you the bubble of the late 90s.
http://photos1.blogger.com/blogger/4311/970/400/0131-TheBullsGOOG.jpg
at 1/31/2006 17 insightful comments
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Friday, January 27, 2006Bull Run or Bear Trap?
I've been tracking the Russell 2000 ETF (symbol IWM) not only because it is a very broad-based instrument, but also because it's been by far the strongest of any of the index ETFs for the past year. If the IWM really starts to break down, it's a serious bearish signal. So far, this has not happened. On the contrary, the IWM has shown amazing strength and resiliency. Click on the image below to see a larger picture:
http://photos1.blogger.com/blogger/4311/970/400/0127-OvershotIWM.1.jpg
As you can see, the index has been creating an ascending wedge. Although it has historically bounced off its support and resistance (indicated by the arrows), it did appear to break beneath support in September, highlighted here with an orange circle. However, this was a false breakout, and it pushed back into its wedge and has been moving up pretty much ever since.
at 1/27/2006 6 insightful comments
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Q up 11% since Last Month's Post
Regular readers of this blog may remember that I pointed out the beautiful head & shoulders pattern on Quest (Well, the stock has performed very well since then - up 11% since my post. Let's revisit the chart and see how handsomely the price is moving up and away from its breakout:
http://photos1.blogger.com/blogger/4311/970/400/0127-Q.jpg
I'll also mention (hat in hand....) that NTRI has gone to a new all-time high, rendering my recent suggestion of it as a short moot. As I mentioned in that post, any price above $46 should be taken as a stop-loss, which it has by now. It seems a very bullish analyst report has pushed the stock skyward. It's still below its ascending trendline, but the cold fact is that it's not breaking down at this time.
at 1/27/2006 0 insightful comments
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Tuesday, January 24, 2006Is Google Going Soft?
I have something amazing to show you.
Google's lowest price ever was on the day of its IPO. Its highest price ever was recently, on January 11th.
I drew a Fibonacci retracement from the lowest low to the highest high. The first retracement level indicated a price of $394.74.
During last week's fall, Google got hit hard. How hard did it fall? What's the lowest price that it reached? The answer: $393.97. Do you know how close that is to the predicted retracement? One TENTH of one percent! Incredible!
http://photos1.blogger.com/blogger/4311/970/400/0124-GOOGDaily.jpg
Taking this a step further, this morning I saw Google was strong. It bounced up quite a bit yesterday, and it was headed north again today. I was interested in going short this stock (buying puts, actually). I wanted to get in at a good price. So I drew another retracement on a much shorter time horizon, as shown below. As you can see, the price got right up to the retracement level and then softened up.
http://photos1.blogger.com/blogger/4311/970/400/0124-GOOG.jpg
Now, there's no guarantee of course that the price will plummet. But at least I have a nice clean stop-loss point (the same retracement level).
Monday, January 23, 2006NTRI Follow-Up and MTH
Today was a relatively quiet day in the market, which isn't surprising considering the sell-off last week. I see the major media wasted no time in declaring that, since the market was actually up 21 points today, we were "Back to Bullness" (that's the top headline at MarketWatch). I'd suggest a different eight-character word beginning with "Bull", but I don't have any sway at CBS.
I wanted to follow up on a short suggestion I made on January 12 regarding NutriSystem (NTRI). Well, so far, so good. Indeed, unless the stock blasts back above $46 unexpectedly, I nailed this thing 100% on the dot. Take a look:
http://photos1.blogger.com/blogger/4311/970/400/0123-NTRI.jpg
I have another short recommendation for your consideration - Meritage Homes (symbol MTH). This stock has already fallen a long way - about 40% since August of 2005. But it has formed a gigantic, textbook-perfect head & shoulders formation. Should it break the neckline at $57, traditional measurements in technical analysis target a descent to $17.50 (!). Here's a close-up of the chart:
http://photos1.blogger.com/blogger/4311/970/400/0123-MTH.jpg
I received a ton of emails and comments on Friday about my "Victory for the Bears" posting. Many questions, too, were sent along. I'll try to answer these in the coming days. Thanks for your attention!
at 1/23/2006 2 insightful comments
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resistance trendline. It touched this line first thing this morning and never looked back. Here's where we are at now (as always, click on the image to see a much bigger picture, then click your browser's Back button to return to this posting):
http://photos1.blogger.com/blogger/4311/970/400/0120-RUT.jpg
If you ever need proof of the power of leverage, just take a look at the chart below of Google puts. One class of these puts went up 9,900 percent today alone! Now this is obviously an extreme case. Stocks don't typically lose 40 points in the span of one day, and we're talking about an option that only had a few hours left to live. All the same, it's an incredible chart!
http://photos1.blogger.com/blogger/4311/970/400/0120-GOOG.jpg
Some of you have written to ask specifically what my short positions are. At the moment, they are as follows.......
at 1/20/2006 14 insightful comments
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Thursday, January 19, 2006Trendline Magic
Just a quick posting today. I've remarked many times about how almost magical trendlines can be. Particularly how, even on a steeply-angled trendline, support can change into resistance. It's as if the price is magnetically drawn to the line, but stays rigidly on one side or another.
Even unusual instruments seem to have this property - check out this mutual fund, symbol USPIX, which is a double-inverse bear fund from ProFunds (in other words, if the S&P 500 goes down 1% on a given day, this fund goes up 2%). Notice how this security's trendline changed from resistance to support.
http://photos1.blogger.com/blogger/4311/970/400/0119-USPIX.jpg
at 1/19/2006 1 insightful comments
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Thursday, January 12, 2006Dow 11k, We Hardly Knew Ye
Well, the Dow's triumphant mounting of the 11k level has come and gone. Three days of glory in the sun, and now we're back into the 10s. C'est la vie.
Here's a six month candlestick chart of the $INDU to put this into perspective:
http://photos1.blogger.com/blogger/4311/970/400/0112-11kBroken.jpg
I'd like to offer a pretty interesting short candidate - NutriSystem (NTRI). This was, I believe, the top percentage performer of 2005, and it's at an all-time high right now.
What's interesting to me about this graph is that NTRI broke its ascending trendline and now it's just kissing the underside of it. To me this implies strong resistance, and now is just about the ideal time to short this, because if you're wrong (e.g. the stock moves on to new highs), you'll know almost immediately!
http://photos1.blogger.com/blogger/4311/970/400/0112-NTRI.jpg
The stock topped out Wednesday at 45.65, so I'd say $46 is probably a pretty good stop-loss point. Good luck!
at 1/12/2006 0 insightful comments
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Wednesday, January 11, 2006Pushing at the Top of Resistance
A picture's worth a thousand words - so I offer you TWO thousand words today. The charts speak for themselves. Here is the S&P MidCap 400:
http://photos1.blogger.com/blogger/4311/970/400/0111-MID.jpg
.....and the Russell 2000......
http://photos1.blogger.com/blogger/4311/970/400/0111-RUT.jpg
Notice in particular the progressive breakouts in the Russell 2000, and how each one is shorter-lived and weaker than the prior one. These breakouts are indicated by the horizontal lines you see drawn four times on the graph.
at 1/11/2006 1 insightful comments
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Monday, January 09, 2006Dow 11,000: BFD
Well, the Dow finally crossed 11,000. Big deal.
Let's take a look at the index chart itself (reminder - click the graph to see a bigger version):
http://photos1.blogger.com/blogger/4311/970/400/0109-RutNear.jpg
at 1/09/2006 0 insightful comments
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Friday, January 06, 2006The Bulls Break Out
Well, there's no arguing with prices, and the market pushed through across the board to new highs.
Some of the ETFs - like the MDY - reached never-before-seen highs. Others, such as the QQQQ, reached multi-year highs. Gainers trumped losers by about 2-to-1, and there is a very bullish tone to the market in general.
Let's take a look, for instance, at the big breakout QQQQ had recently. Notice the former resistance line and how powerfully the QQQQs have burst through it (the arrow indicates the year-end pullback, which was a bear trap, and the subsequent rise in the market).
http://photos1.blogger.com/blogger/4311/970/400/0106QQQQBreakout.jpg
Now before we get totally carried away, let's take a look at a graph which you'll have to admit looks awfully similar. It's also the QQQQ, and a virtually identical breakout is shown. (This happens to be from a year ago).
http://photos1.blogger.com/blogger/4311/970/400/0106-QQQQOldBreakout.jpg
But look at what happened next (I've left the rectangle drawn so you can see the relative point of reference).
http://photos1.blogger.com/blogger/4311/970/400/0106-QQQQOldBreakdown.jpg
As you can see, the breakout didn't have a follow-through.
What's going to happen this time? Will the markets continue to surge upward? Or will the magical Dow 11,000 number be crossed only to be crossed back on the downside once more? I have no real way of knowing. At this point, the markets are clearly pointing skyward. Whether it can be sustained or not will be revealed over the balance of the month.
I will offer some evidence of froth, however. Google - which continues to blast upward - keeps drawing higher and higher target prices from analysts. Remember back in the late 90s how Qualcomm, which peaked at about $100, fetched an analyst target of $1,000? That's often held us as an example of how bonkers everyone went during the bubble. Today a report came out suggesting a Google price of $2,000. And - amazingly - the report stated how it was "different this time" (compared with the bubble). People never learn, I guess! Anyway, if you're interested, the article is here.
at 1/06/2006 1 insightful comments
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