Tuesday, June 20, 2006

Crossroads Again

Greetings from bucolic Palo Alto, California.

It seems the Dow is clinging to its former support (now resistance) line once again like a magnet. To 99% of the population, the market is having a great day. To those armed with good charts, it's clear to see we're simply at a crossroads again, where it's unclear whether bulls or bears are going to own the short term future.


In the recent past, the Dow's attempt to break out (followed by a failure) has been a critical component to the downdrafts we've been enjoying. The Dow moving above 11,057 would change my tune for the short-term.


If this micro-rally fails and we bust through last week's lows, I'd say the next target for the Dow is about 10,450.


A reasonable downside target for the S&P would be about 1,170.


And the Transports at about 4,300.


I am quite confident we are going to end the year below 10,000 on the Dow. As for the longer term (say, 2007 through 2009) my crystal ball is really fuzzy. A down market, yes, but how far down is unclear. So let's take it a day at a time, shall we?

25 comments:

oldsoothsayer said...

Ready for the slide down.
3....2....1....
GO!

Anonymous said...

Just out of curiosity, I charted the retracement from the highs last month, starting with the short term bull run from last November.

61.8% is at 11,103
50% is at 10,930
38.2% is at 10,758

I've got a medium term trendline (going back to August of 2004) at around 10,500 as a bottom. We could get back to 11,103 on the Dow before continuing downward.

But as Tim said, if the 11,075 level isn't broken, then it's probable (not guaranteed, of course) that the downtrend will continue. And if it continues, I expect this next downleg to be brutal.

stockshaker said...

I read a lot of different sites, and all are bearish, which is a good thing, because I like consensus.

However, I don't like thinking I can beat the market, I just like to play with it - and that means you can't be devoted to your beliefs, otherwise if the market swings in one direction, that was unexpected, you adapt, not get stubborn to your trades (I HATE saying that, because that is what all these major websites preach to new investors, and I am sure we have all adapted a "don't get married" to your beliefs attitude).

So, lets say, if this thing does swing into a bull market again (and everything that has happened was infact, a correction, where do you draw the line, and accept that the bull market is still intact?

I am not saying that it is, since I look at the NAZ, and see it fail huge multiyear price channel, and the SP500 is flirting with its channel support.

But where do you accept that this all was just a nice bear run, which died?

At what resistance level does it have to cross to accept that the bull is still alive?

Long post. Lots to think about.

stockshaker said...

by the way, all you new fellas to the blog, I am a Bear at heart, and don't want to stir up a new concern of wishy-washy, bear movement today, bull movement tomorrow type of thing.

I can't see how with housing bubble bursting, FED's stubbron rate hike efforts, global downspins, and softing of commodities, that a new furious bull market can stay intact, well at least failure to make new highs in the current (while diminishing on a daily basis) bull market.

Anonymous said...

I agree with 11,100 too.

If we manage to close above 11,100 in the next few days bears are likely to go back in hiding.

But I don't think a close above 11,100 is very likely. We are already approaching overbought levels on slow stochastics.

I'm looking for a drop on Friday following the release of durable goods orders.

Anonymous said...

is it me or is the down volumne much less than the up volume today

brian said...

A little perspective on market leadership: On May 8th (an arbitrary day) I started tracking a play portfolio of 10 IBD top growth stocks...all leaders with strong fundementals. The stocks were HANS, GOL, BAS, MFLX, CTSH, ARD, UNT, FORM, CRDN, UPL. The combined portfolio is down 19% since May 8th. The only stock still in the green is HANS (up 4% from it's price on May 8th).

Tim Knight said...

90 minutes until the close. Looks like the bears are chipping away at the Dow's former 90 point gain today. We're down to only +36. Keep it up, fellas.

Sanjay Sola said...

I could use a brief rally. CNBC has nothing to talk about when everyone is so bearish. it was painful to watch a segment on Ben Bernanke's ties and how they are linked to inflation. last week, they showed the CNBC analysts playing golf.

anyway, market goes sideways until we get some big news. market is green but semis are red. also,today is day #5 of the rally attempt.

cristri25 said...

if todays action is what is about to come... the bulls should be worried.... the "positive" housing numbers turned out to be a good selling area.

Tim Knight said...

Traffic to this blog, which has been climbing steadily, exploded 100% higher today. Does anyone know why? Is there an article or something out there? I'd love to know; please advise!

cristri25 said...

i told a couple friends about your blog ... maybe someone posted a link somewhere... Tim you are turning into a legend !

downosedive said...

Good comments from posters today (as always) - stockshaker, your sentiments about not being wed to one concept in the face of it being incorrect is so valid and I thanked Tim in yesterdays blog for suggesting caution and a possible risk of an upwards movement as an example of not being too proud to say 'I might be wrong'. anonymous your comments re 11100 reflect the thoughts of many here including myself, it really is close to crunch time......and chritri25 you have expressed exact same thoughts as my comment last Friday - any item of news can be turned into bull or bear! The housing figures were unexpectedly strong today, whopeee, but tomorrow they could equally be reviewed as bad news because it increases the confidence of the fed that the progressive rate increases havnt hurt the economy and therefore further increases are perfectly safe to apply! Anyway all we can do is wait and maybe speculate a bit until something more decisive happens - either direction. Hopefully Tim will project and predict the direction in sufficient time to share that with all of us!!

cristri25 said...

the market has much to ponder....

cristri25 said...

As for some shorts ... Check out TIE and WGO , tell me what you think

Mark said...

cristri, both those scare me because they could swing either way depending on how the market feels.

I nailed the short on POZN @ 7.30 today. Now if I only had some real money on it. I saw a couple of lines come together at that price: Line of closes for the past 4 days showed 7.30 for today, and 7.30 would be the 50% retrace from yesterday's high/low. I've not tried predicting, so this was practice for me.

stockshaker: Bear, bull, I can talk both. I think most bear traders can, how else to lure the bulls into the trap and eat good when they have control?

John Wheatcroft said...

I made money today - hope you did too. My MRVL trade absolutely sucks but I'll hold on a couple of more days and see if it can shake off the WSJ article. See - I have no business buying that 4 letter crap.

VIX is oversold (again, already) so I'm expecting another market down day tomorrow. No matter I'll just add to my miners and and probably put some drillers on late in the day.

And that is how you make money in this market - you play the game as the table lies and don't wait for it to be the way you want it to be.

Good trading everyone see you tomorrow.

Anonymous said...

Great site Tim, found your blog through dehtrader.com.

I was bullish on this market but have become bearish. Im 90% cash at the moment hoping for a a major pullback, most likely around 10500-10600. I do think we head there. The whole talk about the fed pausing is a joke. They have been talking about a pause since late 2005. I think we go to 6%. I agree that if the dow cannot get back above 11,100 we are headed back down. This is a traders market at the moment. It will get more volatile towards the end of the month when everyone starts to make their adjustments for the next quarter.

As for CNBC I agree with what one person said. The show is such a waste of time especially when they talk about Golf...I dont see Espn talking about the stock market, why should cnbc waste their time doing a segment on golf...and the whole bernanke tie thing...haha, pathetic...

keep up the good work.

Andrew M. said...

I am trying to keep this blog my "dirty little secret." Why, because I am selfish and this site gives me an edge in the market compared to my "know it all" brother in law (who has gotten CREAMED in the market recently while I have been playing put after put after put).

The information and analysis is a breath of fresh after after listening to the talking heads an blowhards on TV.

If I got ONE THING from the INVESTools conference in Vegas in March...this was it and the info has paid off that trip in spades.

Thanks Tim, can't wait for the new Prophet.net charting tools to come online so I can use them...the sneak peak in Vegas was such a teaser!!!

Happy trading.

Mark said...

My 13 picks for Monday are now 12 green. The last one is being a pain and flirting with the stop.

And the first stopped out for 0.06 profit on HL. I should have got out of that for .10 more profit, but I didn't think it would go above of its 50% retrace. But as I look at it today on the 5-day 5-m chart, both the 3 tops tracing down and the 50% retrace cross at the same moment in time (4.34 between 10:35 & 11:00am) that the stock went above it. It also did a nice bounce down off of the 50% retrace first thing in the morning too.

Queue the erie music.

My feeling after today is to cinch the money-belt quite a bit on the stocks I have open to protect the profit. I think tomorrow or the next day will be telling on what the market wants to do for the next week.

Anyone have any good books/training/theory/website/blog for someone to learn options?

I sometimes wonder if it really is this easy to play the market? I've only been playing it on paper for about 2 months, and average about 3-5% profit per week, and the only loss I've had is 1% per week for 2 weeks. This is without any formal or imaginary training other than what I've picked up here and there.

Tim, I do love the JavaCharts because it lets me draw all the lines I love to draw to see the patterns (real or imaginary) that are there. Thank you for making such a great product!

onemilliondollarman said...

Tim,

recently, I added a link to your blog here... I don't think my traffic is substantial enough to cause that jump in your trafiic, but I hope it helps...

Thanks for this great blog and oooh.... great java chart from prophet.

OMDM

Tim Knight said...

I am blown away at the readership of the blog today and the quality of the comments. I'm going to try to make another entry late tonight. I guess I feel obliged since so many great people are taking the time to read my musings!

TR said...

Nice bear traps being set. I was looking at 1180 SPX, glad to see you thought 1170. Lot of decent stocks in bad positon technically speaking.

Should be interesting up to the Fed meeting. I hope they run the market up huge with light volume. Look to load puts up with each tick up.

Althought you don't follow the technicals, fundamentally in the market you have to start thinking about fuel costs, ARM's going up huge amounts (reading 20-40% within the past 18 months; ie - 1000 payment to 1380 - wow!), and peoples equity being lost with a downturn (while be in short term - is short term categorized into years?). Think the economy and the sentiment will help keep people out of purchase power to keep this monster going . . .

Good luck to all, hold your cash tight and enter at tops and bottoms. :)

Cup said...

To Mark: to learn about options, take the self-paced online courses from the Options Industry Council at http://www.888options.com/

If you are starting out with options, you should start small, and buy in-the-money options as opposed to out-of-the-money (if you can afford it). They are more expensive but they give you a higher percentage chance of making a gain and/or avoiding big losses.

Tim: you have the best blog going! Keep up the great work and the frequent posts!

costas1966 said...

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