Friday, May 12, 2006

Thanks, Consumers!

Well, it's been a terrific two days. My portfolio is up 25% per day for two days in a row thanks to the swoon in stock prices (finally.....) A tip of the hat to consumers, who registered the largest drop in sentiment in the entire history of it being measured. Keep it comin', fellas!

As I mentioned yesterday, as enjoyable and quick as these drops are, I'm not going to be jumping around about the wonderful bear market we're in (yet). I imagine once the bulls dust themselves off, they're going to try to push stocks higher again. Maybe even beating the highs from earlier this week (God forbid).

There will always be ups and downs in the market. What we're all waiting for, of course, is a steady and consistent series of lower highs and lower lows that spell out ongoing diminishment in values.

Let's just take a look at a few indices today. Here's the Dow 30 in candlestick form for the past year or so. The past two days are pretty remarkable, and the next stop might be the trendline you see beneath. We are going to have to ultimately crack that line in order to make a more serious move down.


More encouraging are the series of breakout failures (prepare yourself to see that pair of words a lot...........) in the other major indices. Here's the NASDAQ 100:


......the S&P 100:


And the American Major Markets Index. I noted this one a few days ago since it had broken out from a pretty nice inverted head & shoulders. Well, bulls, the pattern's been invalidated. Prices have crossed back underneath the neckline in a big way, so there is no longer a breakout.


For you voyeurs out there, here are my current positions. Those listed twice are those in which I actually have two positions (meaning I'm especially confident). All of these are puts.

17 comments:

Hurricane5 said...

I'm not sure how people can make money by buying puts and selling short in a bull market. It works best to buy long and buy calls in a bull market. Why is your entire portfolio full of puts in a bull market? Remember, it is important to look at the market from a rationale perspective. The market does what it needs to do, not what you want it to do. This is not a contest to see who is wrong and who is right. This is about making money. It is extremely difficult, if not impossible to make a ton of money by going against the market. For every 1 good day for bears, there will be 2 bad ones. Again, you would switch that statement around if we were in a bear market. The Dow 30 was at 7,500 in october 2002. It is 11,380 today. This is bull market. Please give your argument why we are in a bear market. Because the only reason anyone in this entire world would have 100% of their portfolio full of puts is if they think the market is going to crash or we are in a bear market. If I were you I would buy some GOOG($600) and NTRI($120). Those two will make you more than any put in this world.

cristri25 said...

Cases for a bear market:

Less stocks making new highs over last 2 weeks.

Small caps faltering.

Big cap tech in utter dismay (MSFT,INTC,DELL)

Failure of leadership from tech.

Commodity bull market

Falling dollar

Gold

IRAN

There is inflation and the FED is wrong.

QQQQ below 200 day (bearish)

the best of alll .... a company selling SUGAR WATER trading at 200 (HANS)!!!

Hurricane5 said...

HANS will trade at $200+ because it will earn $5+ a share this year. They are growing at a very fast pace, and deserve to trade at a premium because of this. It is about the earnings. That is what matters. All of the reasons you (cristri25)gave are either false or pointless. The last time I checked the market was supposed to be down in a bear market, not up. Who cares about Iran? We've been at war since 9/11. Adding Iran to the list will not matter. Tech is fine. MSFT, INTEL, and DELL are the past. Look at the future of tech. AMD, GOOG($600), JDSU. If you are concerned with gold then just buy some NXG. We are going through a pullback. Nothing more.

Super Bull said...

Judging by the market actions of the last couple of days, I am increasingly turning bearish. I think at best we will have a severe correction and at worse a major bear market akin to the 2000-2002 bear market. Currently, I am shorting GOOG, YHOO, NVDA, and RACK.

Chris Berte' said...

As much as I hate to say it, I agree with hurricane...2 days does not a Bear market make.(Am I talking like Yoda? hmmm). The major indices(Nasdaq and Dow)ARE pulling back, but that is natural, if not expected, in any bull run. I can understand how such a large move down in such a short time would panic any investor, but it is not time yet to fasten the seatbelts. Even the FED(who knows more about the economy than all of us combined) beleives in the economy, that is why he's raising interest rates! Hang in there and wait for the Bear signs...they will come, but the time is not now.

costas1966 said...

I dont think anyone Tim included has said that this is a bear market. What I have been saying is that this market is switching from a bull to a bear. Tim has said many times that this market is churning at the top without much progress to the upside. Unless you want to wear your blindfolds and claim that this market consists only of the DOW 30, the financials, the commodities and whoever transports them, the churning and the topping action is evident in the S&P 500, in the Nadaq, in the increasingly narrowing leadership and in an a/d line that has been in a bear market since 2004. The last thing one wants to do is put their heads in the sand and claim everything is fine this is a bull market. Also the last thing one wants to do is to find out that we are in a bear market 20% lower from here.
Ignore the warning signs at your own peril.

John Wheatcroft said...

OK - that was nasty - but whatever. Let's take a look at the history. Last year the Dow hit 10682 on 12 Sep. From there it dropped 400 points to 10216 and everyone said - it's toast (especially the Elliot Wave guys - my favorites). From there it bounced to 10552 and everyone said - it's back (The EW guys mumbled something about 3 of the 4th of the a of the C). From there it went to 10216 (seen that before) and once more everyone said - it's toast. From there it went to 11043 and then back to 10667 (been there before) and then to 11639 (recently) with several other 100+ point corrections in between.

Why in the world given that volatility would I believe that we are at a top, near a top, topped or are in anything other than a small correction like the last 6 corections we have had in the past 8 months? And you can look this up - it isn't hidden nor does it depend on Fibonacci or trend lines or anything else.

Keep tight stops on your shorts and get ready to cover your naked puts - we are probably going to have an NR7 day on Monday and if we do watch out Tuesday (unless we skip the NR7 on Monday and boom out there).

Just an opinion and we all know what they are worth.

Super Bull said...

I have been debating whether this is just a correction or a bear market. The fact that in this bear blog, the bears are hesitating to call this a bear market and as far as I know, I am the only bull turned bear, tells me that indeed this is a bear market commencing.

costas1966 said...

I forgot to comment on your FED comment. You wrote: "Even the Fed (who knows more about the economy than all of us combined) beleives in the economy, that is why he is raising interest rates!" Well isn't that a little naive to trust your investments to the FED because they know about the economy. The Fed has repeatedly err on both sides of the scale. In 2000 they pierced the internet bubble by overshooting to the upside. Then they panicked, they overshooted by lowering rates to the downside creating an unprecedented monetary inflation and inflating the housing, the commodity and the bond bubbles. Now they are in the position where they are losing control of the economy. Energy prices are through the roof, the housing bubble is imploding the the bond market is breaking multiyear lows. If you noticed last Friday the 10 year bond yields rallied even in the backdrop of an extraordinary weak consumer sentiment report. Foreigners are not anymore buying our bonds the way they used to, they hold too many of them and they are losing billions everyday with our depreciating currency as well as the declining bond market. They have started buying precious metals and euros and all that thanks to the wonderfull job by our Fed to keep printing dolars. The Fed knows now that they are between a rock and a hard place. Mr helicopter Ben knows that the helicopters cannot run as freely in the sky throwing dolars even if the economy gets weaker. They cannot lower rates or pause even in a weakening economy since they are risking a run on the dolar. A run on the dolar can create a kind of Argentina, Brazil situation with colapsing bond markets, interest rates shooting up to the stratosphere and a foreign debt dependent US economy falling into a severe recession. Ben knows it and that is why he is giving lip service to the one more and we are done stock market crowd, but when it comes to the FOMC meeting he keeps raising and leaves the statement unchaged to appease the foreign bondholders.
So if you put your trust to the Fed to keep inflating your stock holdings you are in for a big surprise.

John Wheatcroft said...

Oh - one more thing - those that the Gods would destroy they first make proud - "My portfolio is ... " is the first step towards ruin. "Keep it comin' ..." is the second.

What you are calling failed breakouts could just as easily be called "headfakes". After the last bollinger squeeze there wasn't much buildup in volatility. So we could see a rebound off the bottom bands next week. Or not. We'll see. I'm going to take a couple of days off and watch the flowers grow. Good trading.

cristri25 said...

one thing is for sure .. tuesday will be a market moving day. the CPI and PPI will really make or break the market. I will be holding some DIA puts and QQQQ puts going into tuesday. I am on the same page as Costas.

The CPI number and PPI are going to indicate inflation.

niko said...

So, I'm a new reader here... Is this a perma-bear blog, or do you folks just believe the market is turning?

Tim Knight said...

Niko, I wouldn't call it a perma-bear blog, but my point of view on the market has been bearish for a while, and certainly is so now. So I'll put it this way - - if you think the Dow is more likely to be at 13,000 than 9,000 in a year, you probably wouldn't find it that interesting.

Rookie said...

hey what charting software or site do you use?

cristri25 said...

im no perma bear or perma bull i just trade what i see. overall, internals on the market at 6 year highs have become negative.

If you notice Daily PPO on the DIA just turned down ... at a high. That is bearish.

dsantos said...

I like your picks... One I wouldn't do though, is SHLD. Never bet against Lampert...

niko said...

Thanks for the info. I am long term bearish in that this is an incredibly mature bull, running up on a mountain of unsustainable (and increasingly expensive) debt and a probable drop in GDP. I'll keep reading!