Friday, January 20, 2006

Victory for the Bears

I've been accused of wanting to be right in this blog. Well, I confess it. I'm opinionated, and I want to be right. Take a look at my blog's archive and then the market and you'll see some encouraging signs that I'm not too far off the mark. This market is going to belong to the bears for a long time. You "GOOG @ $1,000" freaks will need to seek greener pastures.

The bulls got kicked in the head again today, and although there will be plenty of jiggles up and down along the way, I believe this is just the beginning. The joke of Dow 11,000 is past us now, and we can consider more important matters, such as Dow 7,000.

I predicted nine days ago that the market as measured by the broad Russell 2000 index was nearing the very top of its 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):


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!


Some of you have written to ask specifically what my short positions are. At the moment, they are as follows.......


As we end this week, the year 2006 is already a loser. All of the early gains have been wiped out. There's no doubt that bulls in the long run make a lot more money than bears. After all, the most a bear will ever make on an equity position is 100%, whereas there's no limit to what a bull can make. But in a market like this, I'd advise you to brush up on your short-selling skills.

14 comments:

john said...

Sweet Jesus
Congradulations on a very profitable day in the market
You Madman. Apreciate your articles and outlook always a good read. Thanks

Anonymous said...

I give you Kudos, Tim. Today is certainly a big indication that your sometimes seemingly emotional(and not just technical) Bear shouts just may be spot on for a while.
I'm curious if you use the Russell index for a greater or different type of significance than the big three indexes. I'm somewhat new to this game.
I'm happy to say that I have a short position in BMHC, one on your list. So perhaps I'm getting better at calling things like the pros. Would you mind giving me your read on that one? Seems like 70 is an obvious target.
In any case, I find your postings very interesting and educational. Thanks for sharing.

Tim Knight said...

Thanks for your comments. I like the $RUT because - - if you take "the bigger they come, the harder they fall" philosophy - - $RUT is really ripe for a big one. In fact, even though today was a monster down day, this index actually touched a never-before-seen high (way higher than the 2000 bubble) before it started swooning. So I basically think this one has a lot of juice to squeeze out of it.

As for BMHC - you need to think bigger than $70! If the price breaks below $67.50, I could easily see this going to $45, and possibly even $35. $67.50 represents the neckline of a not-too-bad head & shoulders pattern that's shaping up.

Anonymous said...

Tim:

I was and am a prophet.net subscriber so congrats on the building and selling of it.

Here is my question just finding your blog. I understand most of the steps involved in considering a long position but havn't done much shorting. Can you select 1 or 2 of the stocks you shorted and explain your process for shorting? In part my question is based on knowing or not knowing whether you look at the level of short interest as part of your process in addition to the technical nature.

Thanks

Tim Knight said...

Thanks for your remark - - the subject of how to pick a short is a lengthy one. Maybe I'll make my next posting about that subject (unless there's a huge up or down down to talk about). I can say, however, that short interest isn't part of the process. It's the chart, the chart, and the chart. Nothing else. Thanks again for your interest; I appreciate all the people reading this blog.

Anonymous said...

Tim... I just subscribed to the blog and it has occupied my reading all day. Thanks. I would also love to hear an explain your process for shorting. I am starting to think it could be a good skill to have this year. :)

Anonymous said...

I'm new to this blog. Obviously you did very well on Friday. But how do you know it is not some nasty correction like we have so many times in the last three years? How do you know it is the start of a big bear market? Would you give us a list of reasons (both technical and fundamental) for your bearish stand?

Anonymous said...

I am new to this blog and obviously you did very well on Friday. Congratulations! But how do you know that this is not just a nasty correction like we have so many times in the last three years? How do you know this is the start of the big bear market? Would give us a list of reasons (both fundamental and technical) for your bearish stand?
Thanks.

Tim Knight said...

Great comments and questions, everyone - I'll try to cover these in my next posting.

BostonD said...

Tim,

Great blog! I was at a conference the other day and we were talking about Dow 8000. Your 7000 is slightly more bearish. I always wonder why and how I developed into such a bear, but it seems to be the right track. I always wonder though if my inside voice is too biased. How do you combat that?

My Diamond puts are really starting to look good right now...

elduque said...

Thanks for your help and willingness to share your knowledge.

NO DooDahs said...

Have you ever posted about any *buying* opportunities for stocks? Do you have any posts where you said, “hey, buy the market now, it’s oversold” or stuff to that effect? I couldn’t find any, despite there being good, no, great, buying opportunities for the indices in late April, late October, and late December of 2005. But in combing your archive, I couldn’t find them. Are they there?

In late April you were talking about how it was time to short as much MDY as we could afford … just before it went on a two-month tear from 117-ish to 132-ish, gaining 12%.

http://tradertim.blogspot.com/2005/04/blast-from-past.html
http://finance.yahoo.com/q/bc?s=MDY&t=1y&l=off&z=l&q=c&c=

In October you told us we were at “the beginning of a major descent,” that just didn’t materialize.

http://tradertim.blogspot.com/2005/10/bull-bear-war-of-2005.html
http://finance.yahoo.com/q/bc?s=iwm&t=3m&l=off&z=l&q=c&p=&a=&c=

I mean, it’s nice to be a Perma-Bear, but doesn’t it hurt sometimes?

NO DooDahs said...

Have you ever posted about any *buying* opportunities for stocks? Do you have any posts where you said, “hey, buy the market now, it’s oversold” or stuff to that effect? I couldn’t find any, despite there being good, no, great, buying opportunities for the indices in late April, late October, and late December of 2005. But in combing your archive, I couldn’t find them. Are they there?

In late April you were talking about how it was time to short as much MDY as we could afford … just before it went on a two-month tear from 117-ish to 132-ish, gaining 12%.

http://tradertim.blogspot.com/2005/04/blast-from-past.html
http://finance.yahoo.com/q/bc?s=MDY&t=1y&l=off&z=l&q=c&c=

In October you told us we were at “the beginning of a major descent,” that just didn’t materialize.

http://tradertim.blogspot.com/2005/10/bull-bear-war-of-2005.html
http://finance.yahoo.com/q/bc?s=iwm&t=3m&l=off&z=l&q=c&p=&a=&c=

I mean, it’s nice to be a Perma-Bear, but doesn’t it hurt sometimes?

Tim Knight said...

Yes, I've mentioned many buying opportunities for stocks.

I just took a glance - - for instance, there was http://tradertim.blogspot.com/2005/09/redback-recovery.html where I recommend RBAK. It's up 40% since I did that posting a few months ago. I also recommend Quest with post http://tradertim.blogspot.com/2005/12/cute-with-capital-q.html although the gain is more modest.

As for my failed predictions about the market falling before - - absolutely right! But I try to make specific statements about the stop loss points. In other words, I try to state at the time at what point I know I'm wrong. For instance, my recent suggestion of shorting NTRI said that a price above $46 would null out the suggestion.