Monday, June 05, 2006

Another Bounce.....or Get Serious?

First, I apologize for the late posting. It's well past midnight here in California, and a combination of a busy day and Blogger's uploading capability being down for two hours contributed to burning the midnight oil.

The 200 point drop on the Dow Monday put a spring in my step. The market's behavior aligns nicely with what I'm been predicting. There's one particular daily market letter which, each day, puts in some bearish text and some bullish text and, the next day, puts in whatever was appropriate (after the fact) at the top of the new posting to make it seem like they were right on the money. No such games here. I'm going to always take the chance to state my mind about the market's direction.

As much of a mega-bear as I am, I'm still not ready to start waving the Flag of Doom yet. There's a reasonable chance of a bounce tomorrow (which would be a real drag, since these stupid bull bounces get really boring and tiresome; and they seem like a waste of time to me, since it seems we should get to the real business of a market wipe-out instead of all this pussyfooting around). The $VIX is shown below on an intraday basis. As the red line indicates, we bumped up against resistance today. The VIX really needs to cut through this line before it can move appreciably higher.

But the action over the past couple of weeks has been superb. Look at the NASDAQ Composite below. A break, a retracement, and then a fall again. Beautiful.

Here's a closer look at the NASDAQ so you can see in greater detail the textbook performance (the newbies out there: you can always click any of these images to see a bigger version).

The Dow 30 is right on the cusp of completing its head and shoulders pattern. It's not the most massive H&S I've ever seen, but it fits the definition. If it breaks the neckline, we could see this heading to the green area I've shaded. As it is, I'm thinking it'll at least push down toward the circled red area, which is roughly where the supporting trendline would hit the price action.

The Russell 2000 likely has an easy target on its supporting trendline. As I've pointed out before, notice how the most recent pattern was a rounded top (bearish) as opposed to the three saucers before (bullish).

The S&P 500 likewise has a very technically-correct pattern.

Let's look at a few specific recommendations. I like ANDE, although it is, unfortunately, not optionable:

Capital One (COF) is getting close to completing its H&S, which would send it down to the green area I've shaded.

Oh, and remember my recommendation to short Meritage? Looks like this is finally starting to work out.

Finally, symbol TOA has completely its H&S and broken nicely to the downside. I'd wait for a retracement back to the neckline for a nice, clean trade.


Dave said...

Because MTH broke the neckline to validate the H&S and then crossed back above it, doesn't that negate the H&S pattern? From everything I've read its 'supposed to' but I just wanted to get your take on that technical issue.

Thanks again.

costas1966 said...

Tim you don't mind if I anwer that do you?

The first time was the head fake, the second one was the real move. The market will do just that, they will screw everyone. Always expect the unexpected. Many times the first attempt to break out fails, so it can fool everyone. In this instance the first break out destroyed the longs who sold with the violation of the trendline. Then the subsequent rally above the neckline destroyed all the shorts that went in for the breakout. Now that everyone has been taken to the cleaners the real move is happening. That is the market for you.

That is how I got screwed when I owned hans at 13.5 on 9/13/04. That day the stock broke out of a multimonth base and it failed the same day shaking me out of my position. Then it had the real breakout 2 months later but I was so frustrated (a mistake on my part and a lesson, I should have bought again)that I ignore the stock. I did not want to mess with it again.

Tim Knight said...

Well, another triple digit loss so far today. Guess maybe we're "getting serious."

Gee, hurricane5 sure has been quite lately, eh? Strange.

stevepuri said...

Does this look like an Elliot Wave ?:

John Wheatcroft said...

This is absolutely wonderful - another two days down and look out above!!!

costas1966 said...

I thought this would be interesting to see. 8 out of 11 foreign markets I monitor have comlpeted major top formations and it is safe to say that they are in bear market territories. The other 3 are near completion. The charts for whoever is interested.

Will Fix said...

Look out above??? well even a dead cat bounces! hahaha.....yeah we may have an up weak as the market looks maybe institution buying can push up the market through the Q's, DIA's or the SPY's is looking bad, real bad...ummmm I mean good, yeah its looking good, I bought puts ont Q's at $42.00 when they were $42....I watched my money go up and down up and down, and then the big slid down up up up, I believe it will get much worse (better) and then recover quickly at year end. Yaaaay bears! yes I am a bad News Bear!