Friday, June 16, 2006

Good Enough.....

The market's rebound fizzled out today. This is how rallies are in bear markets - quick, fast, explosive, and short-lived. The Dow ended up basically unchanged today (down .62 points) - here's the intraday graph, where it just bobbled up and down through the day.


What's fascinating is that the resistance it's bumped up against is the very long term trendline going back several years; the blue line you see in the intraday graph corresponds to the long blue line on this daily multi-year graph.


I've put green highlight at the next target for the Dow - about 10,450 or so. It's based on both Fib and classic H&S measurements. Plus it feels right.


I've likewise laid out a target for the S&P.


Stock analysts are paid a fortune each year for completely worthless advice. I'm going to give you some valuable suggestions for $0. Shorts. Or Puts. Enjoy the ride. Here we go:

Bear Stearns (BSC)


Caterpillar (CAT)


Cummings (CMI)


Diamond Trust (DIA)


Hewlett Packard (HPQ)


Monsanto (MON)


Oil Services Sector (OIH)


Union Pacific (UNP)


Wellpoint (WLP)


Let's maul 'em next week, guys 'n' gals. Have a good one...

22 comments:

Anonymous said...

Hey Tim!

Watch this:
Ed Yardeni just said "we'll be OK if nothing happens"????

And then this:

http://today.reuters.com/news/newsarticle.aspx?type=topNews&storyid=2006-06-16T203855Z_01_N16222773_RTRUKOC_0_US-KOREA-NORTH-USA.xml&src=rss

Spooky!

brian said...

Has BSC invalidated it's Head/Shoulders pattern by breaking up over the neckline after breaking down below it?

mike said...

Thanks for the update.

Noticed your S&P target is around 1170. Someone else I respect a great deal as a chart expert, Glen Neely of Neowave, is suggesting this week almost the exact same target w/in a 4 week period and I think (my editorial) he thinks it may happen sooner.

Both of you have been dead on with your analysis and I appreciate it a great deal.

Mike

costas1966 said...

This rally will not die after 2 days. The bulls will not give up that easily. After the first sell off from the top that started in the beginning of May the market rallied for a total of 7 trading days before the new leg down, one day short of 2 weeks. The 10 day stochastics that I follow, at the end of the rally registered an overbought reading at 82.64. I am expecting the same thing now. They may even rally it more than 2 weeks since we got more oversold this time and it might need more time to work the oversold condition. So I would not jump aggressively into the short side just yet unless it is for a daytrade or a very short time frame. They can very well take this market down 100-150 points Monday, the bears will get excited and go short and then the next day or 2 you can see this market breaking above the high of 1258 that it did yesterday, creating another short squeeze and taking the shorts to the cleaners. They say patience is a virtue and my goal is to be virtuous for a couple of weeks and even play the long side. But again, for the long side I will use the same strategy, just trading into very short time frames. It can get very choppy here and closing the trades at the end of the day will make a lot of sense.

costas1966 said...

Hey Tim, what happened to Hurricane 5? One of his favourites, NTRI, is breaking down. It even went down yesterday on a 200 up market day. First there was a negative article on WSJ and then presenting in a Morgan Stanley conference they said they will meet the quarterly and yearly targets. A market that was used to upside preannouncements every quarter did not like that statement, so they are taking it down with a vengeance. Hurricane 5 was extrapolating exponential growth to perpetuity if I remember and was touting the stock as a buy with $100 price target and without a stop. He was very condident on his extrapolations. That I think should be an example that personal opinions never matter in the market, the market has always the final word and the only way to protect your hard earned money is to have your opinions but make sure you use risk management, stops.

stockshaker said...
This comment has been removed by a blog administrator.
stockshaker said...

Amazing the action that happeend today.

I admit, i was a little nervous with teh end of the day rally (which fizzled out). And that to me, shows bears are still in here.

and all my graphs show so many bearish configurations that its ridiculous how a new investor would start buying into the market right now, because of 'bargains.' its like watching a horror movie, and you know whats going to happen to the victim before they do.

But I know, there have been so many messages on how amazing your site is, that would probably fill my ego for the next century, but it is all true, keep up the great work.

I'll be sure to click on some google ads for ya!

Thanks A LOT!

William said...

Tim: Your comments -- and graph examples -- are very helpful. Thanks very much!

John Wheatcroft said...

I disagree (what's new) with the 10450 target. If you look at the chart you posted, the Dow fell back into the 10800 - 10900 range. Looking just a little bit to the left of that I see a strong area of support and, what do you know, a bounce off that support. (There is also a fib line there but I don't believe in fibs.)

My model (based on internal relative strength) turned over and is heading back up. Generally that means 10 to 20 days of up direction (although the market never goes straight up).

Traders have pretty much priced a .25 rate increase into the market already so the rest of the month is not very important. The problem is this - there is no catalyst at this time to take the market in either direction.

Keep in mind that that activity on a quad witching day was largely controlled by the fact that it was Friday in June. Don't put any stock in any activity on any Friday in the Summer. It is play time.

NTRI - I pointed this out weeks ago - it was a "island in the sky" which is another way of saying "mirage". Better put - all gaps will be closed. When the gap is closed, probably next week, there is a good chance it will start back up again. Especially given the recent conference. Traders, I have found, don't really care what the message is (except in the near term) they are more interested in certainty. Aren't you?

Trade well.

cristri25 said...

one more consolidate and move down and i will be 100% bear ....

last couple years we had a consolidation and move up, over and over again.

now it seems the reverse is happeneing ....

I look at a monthly long term view and the major averages are rolling over downward. the fact this time in the last 3 years what is different is that global banks are reducing liquidity. money will be harder to come by. where did I read that the biggest dow days came in bear markets.

The Gov't pundits tell us to ignore the yield curve inversion kind of like a car wreck (sort of like there is nothing to see here please move along).

John Wheatcroft said...

If you think that money becomes harder to come by and stays that way you are not following along with reality. Once world economies start coming unglued the world central banks will once again open the spigots and out will pour the dreck called "money". The banks have no choice they know that the game can only survive on unlimited liquidity and so they have to pour it onto the fire in order to stay ahead of the hangman.

Think about it for a minute, what if we were to have another 1929 or even 1987 and an equivalent decline in the averages (about 35%). That would put today's Dow around 7100. I know that many of you think you would be rich - I say that most of the banks would be closed stocks wouldn't exist, brokerages wouldn't have money to cover the debt and all those shorts would never be paid.

The only way we got out of the depression of '87 was for the banks to start pumping money into the economy as fast as they possibly could. Having learned that lesson now twice (at least - there are others not as well known) do you really think the Fed is going to let that happen?

Moral - be careful what you wish for. A 7 - 10% correction gives you a chance to make some on the short side and me a chance to take a vacation - we all win. Anything worse and we all lose. Remember - bulls make money, bears make money, pigs lose.

Have a good weekend - see you all on Monday.

stockshaker said...

I disagree, there is always a catalyst. When there is no news, no mergers/aquisitions, no FED member opening up their mouth, that would normally churn oujt 100 point days, even without these, there is always one catalyst that seems to take over - fear of the uncertainty.

Its been the reason why the markets have been tanking, and the reason why the markets will continue to tank.

The .25 is certain, but whats uncertain is how this rate hike will effect everything overall. And no one knows, and thats why we are playing a different ball game then we were a year ago, two years ago, or even 3.5 years ago when the bull cycle started.

The biggest fear is whether the FED knows when to stop, to avoid a bubble pop.

And no one will know until we get there. I think even if you read marketwatch headlines, the highlights are more subdued, there are more articles about slowing down, and I think they are slowly breaking these headlines to the general public (who still want to ride a fast moving DOW wave to the moon).

But, there is always a catalyst right now.

stockshaker said...

but I think we are talking about two very differnt timelines. Mine is more near term, and I do agree that there will not be anything like a depression-type of money-strapped times.

cristri25 said...

John Wheatcroft, Thats a good blog entry.... 7100 would be pretty miserable. I don't think we get down that far. 10,000 is healthy.

bob said...

Tim,

I'm very thankful that you publish these thoughts and do such a careful job.

It's like listening to a coach or mentor everyday, working with real situations.

Please keep it up!

Thanks again.

downosedive said...

Im UK resident and a bear of the Dow. I stumbled across Tim Knights blog site by chance (Google)about 5 weeks ago. I spreadbet on the Dow and had I followed his advise I wouldnt have lost the £5000 to date. I dint believe the DOw would fall so far and fast - I closed my shorts ages ago and then bet it would go up, instead of following his downward advice. Quite frankly this guy Tim Knight IS God!! Never seen anything like him. Forget WHAT news you and all the media/broker experts think will move or had moved the markets - as Tim illustrates it IS the charts that show the market past, present and most importantly the future. The only impact unpredictable news will have on the market is speed up the timeframe for the chart movements to happen. Unless there is a major major unpredicted news event capable of upsetting the chart projection (ie 9/11) all other news events and so called invester sentiments flows are merely used as justification to try explain why the market has moved in a particular way, it could be fear of overshooting on the next rate rise or it could be a rise in the price of baked beans. It really doesnt matter, the fact is the move will happen irregardless and this is what Tim Knight is trying to show us all. Hang his every word - TIM KNIGHT THE SUPER BEAR HAS ARRIVED !!!

Fabio has something to say said...

I stumbled across your blog on a search for "fabulous blogs"...now I know why you are considered fabulous! It looks like we have more in common than blogging!

Tim Knight said...

Wow, this is flattering! I'm glad so many people are benefitting. Hope everyone is having a great weekend; looking forward to Monday's action.

Anonymous said...

Hello Tim,

Fantastic blog that you maintain! Have been following this site for the past three weeks or so, and frankly, this site has made me understand the impact of general market behavior on individual stocks. Have only been doing short term trading for the past few months, and hopefully your blog and comments from everyone will help me become better at technical analysis. Thanks again Tim and everyone.

Pardon me if what follows is just plain stupid:

I took your three year Dow chart from yesterday's post and drew a line from the 7400 bottom in 2003 to the 9700 bottom in late 2004. Then I looked at the drop from 10900 to 10000 in early 2005, and I saw that the behavior of that drop vis a vis the line I drew is very similar to the behavior of the current correction vis a vis the line you have drawn (except that we seem to be about halfway down the correction right now). The next target of ~10450 you mention is a 78 percent fibonacci retracement, which is also the overall retracement of the 2005 drop. Looking at the S&P chart, the early 2005 drop was a 50 percent retracement, and in the current situation we have already seen ~50 percent. You are predicting more like a 78 percent retracement near term on the S&P.

All these being mentioned, I have the following question:
Is the 900 point drop in 2005 considered just a correction inside an overall bull market, and if so, how can we be sure that what's happening right now is a bear market (15-20 percent correction?) and not just another bull market correction?

Thanks.

cristri25 said...

""" and if so, how can we be sure that what's happening right now is a bear market (15-20 percent correction?) and not just another bull market """

Watch the FED ... thats the KEY.

stockshaker said...

I think even after the FED, we will still be in the same position as we are now.

Bernanke won't allude to anything, and probably will stick to his guns and maintain that data will show the direction.

I doubt we'll have any foreshadows dropped on future hikings.

Anonymous said...

You know what would really kill the markets?

A surprise 50 basis point rate hike by the Fed just to signal that they are serious about fighting inflation.