Thursday, April 20, 2006

What's the Frequency, Kenneth?

First, for those convinced I only do bearish picks, I'd like to refer to a post I made last year for BankRate (symbol RATE) where I suggested buying it when it was about $20. It has, in the 10 months since then, shot up about 150%. Not bad for a bear, eh?


On the self-flagellating side, I apologize for not posting earlier today a retraction of the Google short suggestion. I was looking at the chart, and it dawned on me that since the prices were neatly resting on top of the Fib retracement, it wasn't exactly a great place to short it. Sure enough, stellar earnings pushed the stock WAY higher after hours (something like up $40 at last glance).

Looking at the sky-high (sky-sky-sky high market, more like it), I recall Warren Buffett's 1974 quote in Forbes where he said he felt "Like an oversexed guy in a whorehouse. Now is the time to invest and get rich." But I'd turn that quote on its head. I think the opportunities to short (or buy puts) is just as exceptional now.

I'm going to let the charts do most of the talking now. Here's the $SPX. As you can see, it couldn't cross above its well-established resistance line. It seems the recent (admittedly lusty) push higher is out of steam.


Gold had a big down day today, after doing little put soaring the past couple of years. Prices don't go up forever, I guess, even in manic commodity markets.


Here's the NDX, which spent almost the entire day in the red, in spite of the Dow being up over 100 points earlier in the day. Weakness here is key. As I've said repeatedly, a cross beneath the lower trendline would be great news for us bears.


The Dow Transports seem to have topped out as well.


And the beloved VIX......can you say "overconfident"? Seems to me the market is counting on perpetually higher prices. The fear factor is just about nil at this point.


Below are the current symbols for my potential shorts (upper list) and current shorts (well, actually, they're puts, but it's close enough).

5 comments:

Kapil Khanna said...

On March 29th you posted the GOOG short for which i left comments about how strong this stock looked. I went long at 370, with a stop at 360 (Bullish gap). You suggested 2 shorts, one at the 390 levels and the next at the 400 level. Both were taken out. When the 400 stop was taken out, i posted a comment asking why did you not go long at that point?
I am just curious to see what prevented you from taking that trade. Was it the technicals, or is it because you see what you wanted to see?

mike said...

Was curious; I've done lots of put selling on stocks I think are cheap but I havn't done much put buying. On something like BRCM, which especially after todays record earning/sales and the price, I think is going down - what strike price/expiration date puts do you normally sell (or what would be your first choice today). Just curious how to play the put game from a buyers perspective.

Thanks

Tim Knight said...

Kapil - - there's very little bullish blood in me. Sorry. I just don't think in terms of "buy." Hope you did well with GOOG.

Mike, great question - - I look for the following in options:

+ In the money, or at least very close to it.

+ At least one month out (e.g. if the next expiration is April, I want to be in at least May).

+ Decent open interest and volume (at least 100+ contracts traded in the current day, and at least a few hundred contracts open interest)

+ A bid/ask spread which isn't insane - a nickel or a time is nice. If you're looking at something like 5.80 by 6.70 (for instance), that's just too much.

Kapil Khanna said...

Tim,
You need to change your url from tradertim to timthebear...:).

Krokodil Gena said...

Do you think Google will completely burst its bubble or just lose its steam, now that it's exceeded earnings estimates? I'm wondering if I should sell my shares when/if the breakout gap closes itself, or wait out the storm in hopes that the stock eventually picks up again (even if it takes a year).

Maybe you're not the right person to ask, since you see everything through bear-coloured glasses :P