Tuesday, May 23, 2006

The Bears are in Control

I can't remember when I've had so much fun trading the markets.

Everything about the market feels right. Which is the strongest indicator to me that the bears are in control. The charts make sense. Everything is working from a technical analysis perspective.

Even when the Dow was up 75 points earlier today, I felt confident and assured about the market. Although I was thinking the market might go up hundreds of points over a few days, today's run-up felt like it was all the bulls could muster. So I gobbled up more puts. And the market went limp, as it has done for the past three days in the final hour, handing the baton back to us bears.

The market has to turn around at some point. The next resting point on the Dow is 10,925. If it cracks that, it will have sunk through a major ascending trendline, and the party really starts.

Take a look at the NASDAQ Composite. This market had plenty of room to recover. But instead, it's falling away from that broken trendline like Wile E. Coyote from the side of a cliff.

The S&P likewise had plenty of room to push higher to make it easy for us bears to short. It was up this morning, but it fell to pieces. All the markets made gorgeous bearish engulfing patterns. You can just hear the bulls screaming with frustration. It's a nice change. Screw those guys!

There are way too many great shorts to show right now. I'll just give you a couple. Here's Aetna (AET), which has broken a huge ascending support line.

Boeing also represents a really cool potential short. The head & shoulders hasn't fully formed yet, but look at high this thing is above the trendline. Looks ready to get gutted.

How many of my 36 positions are puts? 100% of them. Allow me to tip my hand:


John Wheatcroft said...

As I said last evening the market would probably go up this morning and fade during the afternoon. It did - I made my dailies by noon and went to play golf.

The csticks all suggest further down tomorrow and I still believe we will print a red candlestick for this week and next at the very least.

Don't know how many readers know this but we now have a gold miners ETF (GDX) that is trading in the mid-30's. This will be an excellent way to play gold without getting involved in the physical or in some of the shadier companies out there. I'm going to watch it for awhile and see how it goes before getting involved.

Hurricane5 said...

Tim, you are shorting my stock pick of the year. I hope you do not have much money invested in those puts. Ouch.

RKess said...

I see your ATI short has disappeared from your list. I'm assuming you followed your trade plan and closed the position when it took out 80. I too was stopped out of the 65 puts..purchased end of day 4/26, watched a profit vanish. But I knew ATI wouldn't rise forever. Why didn't you adjust our trades, either adding to the current position or protecting your short by purchasing calls? I'm having a hard time shaking this one off. Any thoughts would be helpful.

stockshaker said...

Fellas, with all due respect, but aren't we getting ahead of ourselves a little bit? We've had one hell of a downswing, granted, but to think about new put plays (at the current short term) - is a little bit of wishful thinking?

I do totally believe that we are headed for more downspin, but a bounce is inevitable. Yesterday we avoided a huge loss, today, we were up, and ended up negative.

What does this tell us? Indecision. John - that was a huge call yesterday, when you said it was gonna tank in the last hour today. That was huge, HUGE. Pass me your crystal ball, please.

But look at the csticks - small bodies, and long shadows, and the last three days starting to cluster together. Tells us that right now, there is indecision.

But the bias (for the short term), is up. Things have to shift back to equilibrium before a new major move can be made.

But I do agree that the downtrend is still going to prevail. I just need a new entry point. and I think a lot of bears who cashed out with a handsome profit last week, are waiting for that bounce.

I think volume also tells a lot. Notice today's volume compared to yesterday, or even the day before. Less - why? Indecision. No one wants to make a major move.

All that means is that the next few days, I can book some nice tee times. Until either a bounce happens, or something breaks us out of the current cluster that we are in.

stockshaker said...

Another question - how are you guys gearing up for the housing bust?

I am looking for a good REIT.

costas1966 said...

For the past 3 days this remains a sideways market even after the drop yesterday during the final hour of the trading day. One should not get overexited and get too aggressive on the short side. It is fine to short but tighten your risk management and your holding periods. All my indicators point to extreme oversold conditions (rsi wilder, 5 day arms, put to call ratio). There are 2 ways to work through an oversold condition either go sideways for a few days without a significant bounce and then start hitting new lows or you get a bounce somewhere in the 38-50% of the last move down and then start falling. I am still leaning towards the bounce scenario. Overall there are 3 possible outcomes for the market.
#1 go down 30%
#2 go sideways 35%
#3 go up 35%

I give a little less weighting to probability # 1 because we are so oversold. If you are agressively short there is a 35% chance you will lose a lot of money therefore a chance I am not willing to take this risk at this point. I would not have more that 35% of my porfolio in shorts and I would still use strict money management.

Active trader said...

Tim, I can not express how much i enjoy your column. You have made me a much better technician. I thank you and prophet.net. THE BEST

Active trader said...

Thanks Tim, your blog is great and our family loves reading it and using Prophet.net you have made us much better technicians

dsantos said...

HANS has turned!! THe trend line has reversed, Geronimo - Look out below!!!

Hurricane5 said...

Don't lose your shorts dsantos. HANS closed at $169.97. The CEO said the company is willing to listen to offers and that spooked some investors. Do not worry. It will break $200 again this year.

walter said...

finally - nice green volume on indicies - for the bounce we've been waiting for/betting on...

cristri25 said...

as of WEDnesday today ... things look like they want to turn up. The rusty 2K tested the 200day.

Also the QQQQ is setting up to look like it wants to go up.... ONLY

GDP tomorrow morning. It can go either way.