Monday, December 19, 2005

The Bulls Will Fail

With each passing day I like this market more and more.

The sneering, smirking bulls, with their obsession over "Dow 11,000", keep failing to do it. They just can't. No matter what favorable news blows their way, and no matter how many millions of people are falling all over themselves to push the market higher, it's not working. The market's not going up.

What's cool is that every morning they try again, and they fail again. As I've said in the past, this is exactly what we want to see. The market opens, they stamp their little hooves and push the market 30, 50, 70 points higher.....and it stalls. And starts slipping. And spends the rest of the day giving those gains back and, more often than not, closing lower for the day.

There are now just eight trading days left in the year. At this point, for the entire year, the Dow has gain 53 points. I am hopeful that minuscule gain will be wiped out and replaced with a loss before the year is over so we can throw this decennial pattern in the garbage where it belongs.

Now let's take a look at the current insanity, Google. About a week ago or so, in an attempt to outdo other analysts, one stock analyst made a projected price target of $500 for Google. What's this thing with big, round numbers? Does this guy really get paid this much to just dream up a big round number? Is there actual analysis behind it? What about $600? Or $700? Why not a good old 1990s $1,000 price target?

Well, anyway, Google shot out of the gates today because they look close to catching some of that AOL magic (take a good look at the dog TWX stock to see how much life is left there). It was up $17 or so, blasting to another lifetime high. And it stalled. And started sinking. It finally closed down nearly $6 for the day. A daily range of something like $25. I actually had bought puts on it near the top but chickened out. Just look at this insane intraday chart (below is about the past 5 days).

I am hoping 2006 will put us in a position where the bears really take charge. We're sort of gently tapping the bulls away at this point. I'm wanting to rip a few thousand points out of the Dow and see real blood in the streets. 2006 could be the year for that kind of action. Below is a list of all my current puts and shorts. All of them are already deeply profitable, and I'm counting on many gains to come. Let the games begin!


Anonymous said...

Tim Knight Rocks.

bumby_lansford said...

It doesn't really matter that you *hope* that 2006 will be the year bears take control, or that you are *wanting* to rip a few thousand points from the DOW. The market does not care what you *hope* or *want* it does what the MARKET wants.

The market may go down next year, but it wont be because you wanted it to.

bwebb said...

How do you come out on the short end on AAPL, FTO, and HANS? Betting against a strong uptrend in both the Weekly EMA and Daily EMA usually spells a recipe disaster. I also don't see any reversal patterns for these stocks. Looks like the play here is LONG and buy the dips back to the MA.

Tim Knight said...

To respond to these comments......

I know it doesn't matter that I "hope" or "want", etc. Most of what I offer here is relatively objective analysis. But sometimes I'm going to pipe in with my own speculations and desires! Try to overlook it if it bothers you that much. I recognize that the market, not me, is the arbiter of price direction.

As for AAPL, FTO, and HANS - there is no doubt these stocks have been blockbuster performers. And they may continue to be. My suggesting these as shorts here is based on the supposition that the market is soon due for a hefty fall, and these high-fliers would be particularly vulnerable. And, even if they continue to go up, their stop prices are clear enough to mitigate the risk. In other words, the price risk of getting stopped out is relatively modest compared to the price opportunity of the fall.

bumby_lansford said...

I just think that it is a dangerous game to start trying to predict where the market is going 6 months to a year out. You will start to only see evidence that confirms your beliefs and ignore evidence that refutes it. That can be very expensive. Just my 2 cents. Nice blog though.

Tim Knight said...

Isn't predicting the future direction of the market what technical analysis is all about? Anyway, there are a TON of sites out there that will pretend to analyze the market but won't take a stand. One of the most popular - which posts each day - has some text that says the market might go up and has some text that the market might go down - - and the next day, then extract the "right" text, put it in italics, and hold that up as evidence of their consistently correct direction.

Anyway, yeah, I'm opinionated. There are lots of sites that don't have a backbone. It's a free web, so feel free to look at those instead if you prefer. I'm bearish, and I don't pretend not to be.

Anonymous said...

WOW...I LOVE to read this stuff.
The cult of the BEAR has been cocky, and will soon be throwing in the towel. January will give them the last chance to cover.


Fed model = Stocks 40% undervalued

Record Corporate Cash, and at the same time record buybacks, LBO's, etc...mopping up equity supply very quickly

Interest rates and inflation will remain low for years

Emerging markets (read: new consumers) are starting to "mature"

Technology Revolution will finally be possible as a GLOBAL Wireless Braodband will become REALITY over the next few years.

Newbie Short hedgefunds that "need" flat / down markets are WAY too popular (the hot dot), and Mr Market will not bow to them

I have alot more on this, but you get my drift....Flame away! ;o)

bumby_lansford said...

I think of technical analysis as more of a diagnosis. Wasn't it once said that its like a doctor "I can tell you whether the patient is well today or not, I cannot tell you whether or not he will get sick in the future." You are trying to tell me that the patient will get sick 6 months from now. Maybe you will be right, maybe not. Seems to me that you might be more interested in being right than making money.

Scottorama said...

Hi Tim,

I, for one, am glad to see you take a stand. The other day I mentioned YOU were doing the two ways to win scenario. :-) And, as we all know, hindsight is 20/20, and everyone picks losers now and then, so we just try to call 'em like we see 'em and then wait to see what happens.

As for GOOG... I was on a trader chat (rare that I do that... I just wanted to see what people were saying...) the day it went to just under $400. I joked, "Hey, why not make history and be the first to place that $400 Buy order!" :-) It might be a small part of history, but it is easier to say, "Yeah, I remember when GOOG hit $400... 'cause I did it!" than it is to say... "I remember when GOOG hit $473.28 ... they thought it would hit $500, but the end-of-the-year rally failed..." And it is more positive. :-)

It sure seems the Bears are going to win out in the short-term (that being the next year or two in my mind) even though there are no blatent indicators (again, in my mind), but I am not as seasoned in all this as you and many others.

Rock on Bears!