Wednesday, April 19, 2006

How Soon Is Now?

These are the times that try bears' souls.

Oh, my fellow doom-and-gloomers, it's been a tough few days! Indeed, it's been tough since, oh, about October 2002! Ah, well. Hope springs eternal in the savage breast. And the one bullish glimmer in my black bearish heart, the stock of my employer, has been up quite a bit lately. So at least that's going well!

Let's start off with a couple of interesting short picks. One is pretty risky and the other is fairly obvious.

The risky one is Allegheny Technologies, the specialty metal producer which has been on a huge tear for three years, up over 2,500%! Check out the trendline I've drawn, which was violated a year ago. The prices have finally pushed their way back up to the underside of this ascending resistance line, and this "kissing the underbelly" represents a relatively safe place to short the stock. I'd put in a stop price of $75, because this is a very strong stock.


Another reason ATI might be a good short is that, on the whole, volume has been getting lighter. Notice the line drawn on the volume graph below and see how volume has been generally waning in the face of the stock's ascent. To be fair, the dollar volume of the stock is probably pretty steady.


One short I've had a while which is doing nicely - and continues to look promising (particularly considering its fall during the last couple of super bullish days) is McKesson (MCK). It's a lovely topping dome pattern, pure and simple.


I'm watching the Nasdaq 100 ($NDX) very closely, because a fall-away from the saucer pattern being built would be very bearish. Notice how the prior two saucer patterns were much, much bigger than the current one.......and they didn't even go up that much even when complete. What we want to see is (a) a failure for the saucer to form and (b) subsequent to that, a cross beneath the trendline shown here.


Lastly is the Dow Utilities ($UTIL, which has the ETF of UTH). The monster rally yesterday, fueled by relief over interest rate increases, pushed the price of this back to its neckline. It's getting soft again now, and I remain convinced the target shown in shaded green is going to be met.

6 comments:

acceltrader said...

Tim-

Enjoy the blog... I've also been targeting ATI as a short...Worked for a short time this AM and it bounced right back...This metal group has to come down to earth...Also look at TIE CRS NUE RS FCX etc..Can see reason for golds to run, but the other metals will fall hard...just a question of when...Bob

PB said...

Not to worry fellow bears, this market will break ... it's overdue for a good pullback, but the bulls are acting like such crack-heads! The VIX tells it all. Volatility has no room to go but up, the next major move in the markets is clearly down. What I find amazing is that with even such low interest rates, companies can't find projects to invest in profitably, so their cash hoard just grows and they buy back stock or each other. No wonder investment banks have record profits. But, as with all things this will dry up as well. H2 of '06 will be pivotal. Pay-day is coming, my fellow bears!

costas1966 said...

Shooting stars are all over the indexes today. I think the end game is near. They may start dumping as soon as tomorrow on expiration.

Kapil Khanna said...

Tim,
Research shows that 4 out of 5 stocks will follow the direction of the market. Given that, why would you short a stock, in this market?

PB said...

Because that still leaves 1 out of 5 stocks that decline! What makes you so sure Kapil that the markets will head higher from here? We are back at 2000 levels, some very serious resistance. So now, a mere 5-6 years after, we are gonna clear it? Please give me a logical explanation why you think this is the beginning of a new and sustained up move.

Kapil Khanna said...

pb,
I never try to find the answer to the "why" a market moves. I am a trader, and dont really care. Since i do not go looking for the "why", i cannot give you a logical explanation.
My earlier comment was, in the current market, which is bullish, (not sure if you want to dispute that) its not advisable to short a stock since 4/5 stocks will move in the direction of the trend. When the markets turn bearish, i will be the first to change my trading direction and let you all know.
Tim also keeps making a case for why the markets are reversing etc.. and he has been putting so much effort into it. Any slight downward movement and he thinks this is it, and makes strengthens his case for it. How much wasted energy goes into that. The markets will reverse, we all know that. Right now thats not the case.