Tuesday, January 31, 2006


Friends, let's pause and reflect a moment on a recent anonymous post, in response to my brilliant GOOG analysis. He writes:

Google is going to rock to all time high very soon. Time to close your put position and buy some call position now if I were you. The stock market is in a super bull mode right now with $rut, $mid, $nya, $tran, $util, $bkx, $xbd, $xoi, $osx all in or near ALL TIME HIGH. Dow, S&P and Nasdaq are near multi-year high. This is no time to be bearish.

Well, you 1999-on-the-brain bullish twit, now that GOOG has reported their earnings, how are they doing? Down about $70 in after-hours trading. That means your call options - of which I hope you owned a boatload - are going to get wiped out. Whereas my puts are going to go up hundreds of percent instantly at the opening bell.

I resolved earlier this year to be a bit less dogmatic with my bearish views. Screw that. Let me lay out The Truth for you.

Bulls brought us Enron. Bulls brought us Excite. And Worldcom. And CMGI. And HealthSouth. And all of the rest of them.

Bulls have a stench of fraud to them. In a market this wildly overvalued, the world is fed to the teeth with these charlatans trying to convince you that stocks are worth anything close to these prices.

Bears, on the other hand, are truth seekers. I offered the truth in my GOOG post. And the truth is out now.

It's going to take some time for the market to get wiped out. Probably years. But when NTRI is at $5 (or 50 cents......) and GOOG is about $20 and the Dow is at 6,000, it might be amusing to reflect back on this blog and see what I was saying back in the day.

And to all you GOOG bears out there - - well-earned congratulations. It's time we finally had our place in the sun after 24 years of bull lies and tyranny. Enjoy the ride down. There's going to be a few pops up now and then to get the bulls excited and provide them fodder to try to defraud the unsuspecting.

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.


Steve said...

I'm the proud owner of a WTFOTM bear put spread. I'm likely going to get pinched by the IV drop, but I'm still encouraged that I might make a little $$ off this move. Unfortunately, my initial zeal is being tempered by GOOG's steady march up in after hours trading. I'll definitely tune in tomorrow to see WTF is going on in pre-open. I have a strong feeling that the institutions will hold GOOG up much like they did when the last block of shares were released to the market.

Jerome said...

Tim. I didn't put money on Goog but was with you expecting this fall. I laughed hard out loud at this posting.
I'm not sure that the whole market is going to come crashing down because of it, but I suppose anything is possible.
I like the "seeker of the truth" bit. Some truth in it, I suppose, but I'd wager there's also a tendancy toward half empty in there too.
Keep up the good work.

Tim Knight said...

OK, first, congratulations, you have actually offered a word not found on Google - "WTFOTM" - I have no clue what that means, although I've got a good idea what the first three letters are.

After hours trading is always weird. In some weird instances, a stock getting clobbered after hours goes UP during normal trading the next day (witness eBay from a week or so ago). But, umm, I don't think it's going to happen with GOOG. Last trade was around $380, which is down about $51. I have no clue where it'll open tomorrow, but it'll be an exciting opening on the stock. As my Fib chart shows, the next stop is around $330.

As for Jerome, no, I'm not saying GOOG is going to *cause* the market to come crashing down (although Nasdaq is going to get hurt by this tomorrow). I'm just saying this is a taste of things to come. GOOG is not 9/11. This isn't going to cause a 1000 point drop this week. It's just part of the "new way" of the market.

Anonymous said...

A 'super bull market'? How can anyone entertain the idea that we are in a new bull market? Oil prices have doubled in the past two years, with the 200 day moving over $60 now. When will people wake up and realize that the US dollars that the fed has been pumping into the system post-bubble crash is worthless. If oil is not important, then why is the US spending billions to oocupy Iraq? The US is at war with the Muslim world and with itself. Big changes are coming and people will only change as they see the market evaporate into thin air. Value will be re-defined. So take this time to buy puts on anything US.

P.S. The Chinese don't owe us anything, and when push comes to shove, they WILL dump US treasuries!

Tim Knight said...

Excellent points across the board! Thanks for your post.

Anonymous said...

We have not paid for our sins of the tech-bubble. It has merely been post-poned because of 9/11 and the massive financial flooding courtesy of Greenspan. The testament to this is the Nasdaq at 2300. The animal spirits have returned and will soon be crushed. Value is going to be redefined. Unfortunately it will be the US that will bear (pardon the pun) majority of this re-adjustment. We are very close to putting in a double-top in many markets. Take a look at the DOW and S&P. One question to ask yourself is this, if the markets weren't able to break through 12,000 Dow and 1,600 S&P at the height of the tech-bubble, what makes you think that they will do it this time around? What has changed in the last five years to warrant a push to new heights? War on terror, ever expanding trade deficits, government spending out of control, higher oil prices, plus a consumer who is over-indebted. Doesn't sound like a recepie for new market highs. Buy your puts and stand aside!

Tim Knight said...

Again, outstanding points. Look, as fervent as I am about my market viewpoint, I love America, and I think this is going to be really, really bad for the country. So as much as I'd like to see this idiot bulls swept aside, I take no pleasure in the extraordinary damage to America that's going to take place at the same time.

Sustainable Progress said...

America is the best place, but to make it even greater, some essential truths shall come to thr forefront once again, otherwise it's not worth going further. No Pain, no gain! The coming period will not be 'pleasant', but in the end the US will emerge more vibrant and dynamic than ever before. BUT, it is time to face the music, as the world around us has changed so dramatically. The truth shall be set-free once again!

One Way Stoxx said...

brilliant, just fucking brilliant. best charts on the web. please write more. we'd like to pre-mkt & intra-day from you.

Tim Knight said...

Thank you for the compliments.

Oh, and if you think we have the best charts on the web now, you'd better brace yourself. You're going to need a change of underwear when you see what we've been working on for the past three years. These are God's own charts.

Anonymous said...

I am enjoying your posts and we agree on a lot of things, however I will argue with you from time to time so I can offer the opposite point of view, when that exists. When it does not exist then it probably means you have a very good prediction coming.

"It's going to take some time for the market to get wiped out. Probably years. But when NTRI is at $5 (or 50 cents......) and GOOG is about $20 and the Dow is at 6,000, it might be amusing to reflect back on this blog and see what I was saying back in the day."

What I have to say is let’s not get carried away to one extreme or another. There are always opportunities on one side of the market or the other. The attitude should be lets find the trend and make some money on it whether is a bull or bear. Lets not forget that in bull markets you make much more money since a stock that goes from 1 to 10 means a 1000% return where when a stock goes from 10 to one you only make 90% ( unless of course you are buying options but not everyone can do that and it is too risky for the average investor).

It would have been nice to be a long in goog or on ntri the past 12-18 months you would have made a ton of money. There is nothing wrong with overvalued stocks as long as they are going up and they are growing their underlying fundamentals. After all ntri when it started its rise on 9/04 it was selling only $1.39. Even though it was losing money at the time and it would have looked overvalued, based on 2005 numbers of .59c E (only one 4q is estimated) the stock was only trading 2.35 times 2005 earnings. So I don’t think ntri can go to 5 unless they disappoint and start losing money all of a sudden. On the other hand it can have a nice correction of the 35-50 % range depending if they miss their growth targets or not or if we get into a bear market or not. Same reasoning goes with goog. I don’t think it can go to 20 but it can have a nasty correction of the 50% range since they managed to miss their whisper number.

So basically what I am saying is let find the trends as early as possible and stay with them and not become fanatics. bulls or bears.

Speaking about finding trends early
I think you are on to something. I will have to agree with your bearish stance. I think this market is topping out here and very likely we will enter a bear market soon. The technicals point definitely to the start of the correction for now. But the fundamentals point to a full fledged bear market.
Technically the market had 3 heavy distribution days the past month and it failed today to break the top (My definition of distribution days is the same with William O Neal, IBD, down days in price with heavy volume.). Those days were 1/20 1/25 1/31. Tomorrow there will be distribution day #4 and it will knock this market right into a bearish mode. The theory behind the distribution days without further price progress is that when there are 3 or more distribution days that means that there is heavy institutional selling, the big guys are getting out and the small guys or the inexperienced are left holding the bag unable to push the market higher. Usually 3 distribution days will do the trick, 4 distribution days will put the nail to the coffin. I think the nail will be nailed tomorrow with the help of goog.

Fundamentally, I don’t see anything positive. Budget deficits, trade deficits, overconsuption based on overdebtness, loss of manufacturing base, lack of investment (except in housing which is now waning). Butter and guns policies for years, dollar devaluation, increasing lack of competitiveness in the global markets, dependence on foreign money to finance our housing boom and government budgets, high energy costs, high commodity prices, chaotic uncompetitive health care system, tight money, over speculation in the real estate
and real estate finance market. Let me know if I forget anything.
I think all of these problems will come home to roost this year and the trigger for that will be the purking of the real estate bubble. This economy has been moving on housing construction and on equity extraction from appreciating home prices. They estimated that 700 billion dollars were extracted from home equities last year alone. That is a tremendous number. To get an idea how big that number is, GW's tax cuts had only a 250 billion dollar impact. Also that number is 6.5% of the GDP. This equity extraction will not be there when the houses stop going up in price (which by the way is happening right now} and the economy will fall into a tail spin. There are estimates out there that the housing boom was 50% of the gdp growth the past 3 years. When GDP growth is 4% you get 2% when you take out the housing boom. Well guess what, GDP growth was only 1.1% last quarter and that tells me it will have a negative growth when the impact of the housing slowdown will take its toll. I think the economy is slowing down as I am writing and to see that one has to look only to the reports and guidances of c, ge, bac, ibm, aa, appl, sndk, ebay, yhoo, hov, tol, ctx ( that’s the one with 100k discounts to sell their houses) . It’s going to get much worse as the housing slows down and the fed is too slow to move to an easing policy.

MarketWizWannabe said...

Good post. I disavowed my bullish GOOG sentiment a few months ago, but not on my blog - in a discussion board somewhere. Anyhow, watch the capitulation tomorrow. How many shares are going to trade tomorrow? There's going to be alot of "GET ME THE F* OUTTA THIS THING"...and some analyst is going to go on CNBC and say buy on weakness, buy on weakness. I say that guy should get fired.

Anonymous said...


steve said...

WTF = way the *blank*
OTM = Outta the money

WTFOTM = you get it now...


and yes... I got pinched by the IV drop, but I only lost about $100 in the affair, and for giggles, I left a single contract spread open just in case something dramatic causes a tumble before 2/17... ;-)

Anonymous said...

Hey Tim,

I think Steve was refering to his Way The F* Out of The Money options he had on GOOG.

I will have to remember that one.


TryumphTrader said...

I think steve ment *WTFOTM* to mean Way the F Out of The Money, 0r at least thats what I took it to mean :D Not a common phrase just yet so hasn't made to the google search engine. ;)

Goog closed with in the wedge pattern today.. very interesting trading day indeed.

Tim Knight said...

In response to "anonymous" (umm, so many people are making comments anonymously, I hope you know who you are) no, I'm not British. Although in a country as Anglophilic as the United States, it wouldn't hurt if I were. My love of this country has nothing to do with my bearish stance.

Let me say again - - I do NOT know if we've entered a bear market yet. As I've said in the past, it will only be something we'll be able to see in retrospect. We MIGHT be in it, we MIGHT not. I do think even if we're not, we're extremely close.

The fact that the U.S. is prosperous - and that China, India, and most others on the planet would like to be as well - is no basis for a "super bull market". I have no idea what your basis is for Google becoming a trillion dollar market cap. In any case, only time can determine the "winner" of our differing views. Thank you for your follow-up, however.