Monday, May 08, 2006

The Waiting Game

OK, I've got a confession. All that stuff about the bulls being in control and the bears needing to hide in a cave? Deep down, I don't really believe it. I think the market has been living on borrowed time, and it's all going to blow up at some point. It's waiting for that "some point" which is exasperating.

I looked long and hard for stocks to buy in the current market. In spite of being labeled a permabear, I'm honestly quite good at finding bullish charts. But all I see are hyperbolic insanities. I have no basis of declaring that HANS won't double or triple even from these levels. But I simply cannot buy a stock that looks like a hockey stick. It's the "greater fool theory" once again - these securities just keep getting bid up, ascending higher in price based on little more than momentum.

Very little happened in the market today, so there's not much to say about current action. Even with Dell offering an after-hours earnings warning, which slammed its stock, the Globex isn't budging in either direction. I wanted to point out a couple of interesting short plays. Neither of them are slam-dunks, because they've been quite strong over the past couple of years, but they are worth considering.

The first is Allegheny Technologies (ATI), shown below. I've mentioned this one more than once, but it's an intriguing chart. It's clearly below its ascending trendline, and the ascent over the past few months has been so massive (with diminishing volume) I'd say this was a pretty good short, with a stop price at $80.

A similar short suggestion, with similar rationale, is Carpenter Tech (CRS) with a stop at $140.

The "very bullish" chart of the American Major Market Index ($XMI) should be taken in context, by the way. If you look at the chart of the past several years, including the highlighted inverted head & shoulders, you can see that it's nothing to write home about. Even if it manages to hit its full inverted head & shoulders target, it's not going to get to any new lifetime high.

Lastly, take a look at the (recently very boring) GOOG. Its nearest Fibonacci retracement level is $394.58 by my calculations. Just look at this intraday chart over the past week or so - it is just amazing to me how the price is clinging - closer and closer, in fact - to the Fib level. Spooky!


costas1966 said...

I have the same problem with you. I look for bullish patterns and everything is so overextended. A correction is long overdue. As for the market it had another new high on no volume and that is not that bullish. Can they stretchit higher? They can. But the weakness can come out of nowhere. It will be very swift and one needs to use very strict money management.

Super Bull said...

Well, Trader Tim, you sounded kind of defeated and it is understandable given the bull rampage of late. I have been bullish for a long time now but I turn bearish last week. For sure, I am not a long term bear but I think a nasty correction is in store for the markets with S&P losing about 10% and Nasdaq losing about 15%. Why does a superbull like me turn so bearish all of a sudden? There are four reasons for my short term bearish thesis. The first reason is that in the last month we have seen a massive buying of commodities stocks that smacks of wild speculation and might signal a major top. Secondly, the interest rates are now high enough to be a serious competitor to equity. Third, inflation is now becoming a problem. Fourth, China is about to slowdown which will reduce the demand for commodities. Now, Tim, I am not a super bear like you. I am now a long term bull but short term bear (I expect the correction to last until early next year).

stockshaker said...

haha, I guess, all my bear-buddies out there, we must have all gone fishin' at the same time, because no one seems to be trading in our favor! I did find ONE bullish stock, waiting for a breakout within a couple days. PPCO - its a triangle formation, getting close to its point. Had amazing volume today by the way.

Hey Tim, question for ya, did you sell all your puts, or are you still holding on to them, or did you convert them into bull put spreads?

cristri25 said...

Thanks for being a bear.

little bear out.

Hurricane5 said...

Tim, I'm not sure how you come to the conclusion that ATI is "clearly below its ascending trendline". ATI is 300% off its 52 week low, and 1.4% off its 52 week high. ATI hit an all time high of 76.80 today. It closed at an all time closing high of 75.77. It's been on the 52 week high list so many times it should have to start paying rent up there.
The other stock, CRS, closed at an all time high today. It is 170% off its 52 week low and 1.5% off the 52 week high.
Please, show me where you are finding weakness in these 2 stocks hitting all time highs? And for those who missed, here is my buy list: GOOG, NTRI($120 in 2006), NXG, TIE, HANS, GOL, ZOLT

PB said...

The way that the major US indexes are acting, only a crash will shake investors from their complacency. What kind of a market actually likes 'bad' economic numbers? A market that is divorced from reality, and in my view only a crash will correct this manic frenzy to buy!

Will Fix said...

I am a bear for sure, in my non-expert opinion the FED needs to raise rates to keep world market leadership by making the dollar sacrifice the strength of the dollar for our personal gain does America a long term dis-service.

And this overbought condition is dangerous......especially for the C and D rated companies that have seen most of this growth.....they will lose more......right now large cap, fixed rate and tight stops are in order, buy puts and short the market........I feel a correction real soon........real soon!

If the idea of Prophecy and stocks interest you look at my blog site I just started.....time will tell.