Wednesday, June 21, 2006

So Now What?

I picked up a copy of Barron's today, and there's ol' Abby at the Round Table again. I thought we were harsh enough, but I just have to point out the performance of the picks she offered six months ago. Now remember, ladies and gents, this is a very famous, very public, very highly paid analyst who is the Chief Investment Strategist at one of the world's largest banks. She's got unlimited access to resources and information.

So how did this person do? Was she up 10%? 20%? More? You might expect it. No, her picks provided a negative .39% return. Ummm, Abby, what is it exactly you are paid for? It sort of reminds me of Warren Buffet - he is heralded as a genius (and, make no mistake, he's an incredible business man), but his stock has changed 0% from February 2004 to present, a period of well over two years.

In case you're wondering what Abby's picks were, they included Microsoft and Cisco. You heard me right. I can't think of any more boring stocks to choose. Of the 10,000+ equities you could choose, do you think you would pick those dogs? I wouldn't. Nice goin', Abs.

As for today, it was rough. The Dow was up over 150 points at one time. It eased back a bit and closed up "only" 104 points. Hey, on a day this painful, I'll take what I can get!

So what does this mean? Does it mean a bold new bull market has started? Hell, no. Does it mean we've reached the bottom of the ascending channel and are ready to move up again? (See chart below, with the red circles showing a series of higher lows). I sure hope not because that looks like a seven month process before we would start heading down again! Does it mean we simply retraced to a resistance level and can resume the fall down in earnest? Maybe, but it's not guaranteed. Or it could break down and get serious about being bearish.


christri25 said...

i just looked at many charts ... Please tell me why most of the candles today look like upside down hammers ..... Very few stocks closed near their high of the day.

Is this bearish or bullish ... I just ran through most of the down and Naz 100 stocks. i learned this was bearish.

Anonymous said...

Hikkake on the SPX500!

Anyway, the week to come is going to be a nervous one.

Southern San Andreas fault waiting to explode:

Tim is going to be blown out and once this happen, who will make a clean chart on the net.
Market will undoubtfully and heavily discount the risk.

It's going daaaaaaoooooooooooown!

Mark said...

Someday, I'm going to have to write down all my trading rules so I can follow them.

My Rule #1: When loosing consistantly, it is time to get out and either take a break and/or practice, refine, and hone my trading techniques. Paper trade time!

Rule #2: Apply learned rules to the real market and remember it is just numbers, not money. Math is so much easier when one doesn't worry/stress/get mad about what it means when applied to real life.

Speaking of trades - I stopped out on the rest of my positions today. 11/13 stopped down for an overall average profit of +1.82%. I'll take it for a 2 day ride down on so many stocks. I apply 4 different rules to my stops. There are different times to use each rule, but I look at most or all of them each time.

1: Find the pivot point from the previous daily high and current daily low & close. PP = (PH+CL+C)/3 The previous daily high can be from yesterday to even a week or more ago, depending on how tight someone wants the stop.

2: Track the opening price down from the most recent daily high through the next day. The JavaChart is awesome for this!

3: Use the day's high as the stop for the next day.

4: Track the high down from the most recent daily high through the next day. Again, JavaChart - much love!!!

Bonus: When in doubt, use the pivot point. Reverse the rules when bullish (tracking up).

At this point, I'm going to watch unless I see something very obvious (REV - one of my losses, is ignoring the bears).

TR said...

The board is gaining some speed with decent posts. Love the see the sentiment and the ideas.

Short term, I have the SPX touching the higher end of my "bearish" channel. I am still out of the market for now, but believe we are still bearish, just running up for the upcoming onslaught.

Anyone have history on major move through the summer? The big downward moves that started on May 8 (SPX down 100 points in about a month) gives me a bearish felling.

Lower lows, today a confirm of a low high? Only time will tell. Another item that held was a bullish fight yesterday (volume still lower). I will stay on the side of the bears for now.

Anonymous said...

I'm expecting a rally into summer, based on strong earnings report and the general "retail investor shortsightedness" that tends to follow significant economic shifts (like rising rates, inflation, commodity bubbles, etc.).

The broad trend is down, but I expect the intermediate term to be surprisingly bullish as the sellers stay on the sidelines.

Ultimately, the sellers control the market. If they choose not to sell, then the buyers will chase up the price. And without news or catalysts to DRIVE the sellers, they will remain content to capture their gains every single day, like they've been doing for the last week or so.

Look around the market. Almost every stock has risen 5-10% when the Dow gains more than 100 points. Complete insanity. People were expecting "boring" trading going into the Fed meeting next week. But what we've seen is HUGE up days and small down days. I suspect that will continue, especially with the sellers lacking a catalyst to dump their shares, as I said.

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


inverted hammers are generally bullish pattern. However, the long tail indicates that the bull is not strong enough to sustain the rally (that does not necessarily means bearish). So, you need to look for confirmation on the next day. If a gap up with white candle, then it might be a sign of reversal. Personally, I would find a hammer more convincing.

I like to visit this site for the meaning of each pattern...

dsantos said...

Tim... Nice post. I really thought the sentiment was turning bearish or at least DOW negative this afternoon. At 12:33 the DOW made it's high for the day and volume wasn't really great. It lingered for a bit and then started to sell off. When the selling came (50 points down is selling to me) the volume started to come in. I am expecting it to continue through tomorrow and Friday. I can't imagine one catalyst to drive this market up. I mean look around? Do you see an economy that is setting new highs? [to answer my own question, NO. We peaked in 1999 and it's been down hill since then]

Sanjay Sola said...

from the Big Picture at Investors Business Daily

“Current Outlook: Market in Downtrend, Day 6 of attempted rally”
And …..”The composite's (Nazdaq) increase came up slightly short of what you'd like to see on a follow-through session, especially given the recent volatility.
The other indexes, such as the S&P 500, didn't come close to confirming the current attempted rally with an unequivocal powerful gain in heavier volume.” said...

Onemilliondollarman and Christri25,

An "upside down hammer" is a shooting star in an uptrend and inverted hammer in a downtrend. It is bearish in the first and bullish in the latter.

In this short term bounce, I had the same initial feeling as Christri. But its a little tricky. You want the tail to be twice as long as the body... and what i'm mostly seeing is white candles with long wicks (Typically Bulllish) - However, when you look at the last 1/2 hour on qqqq or spx you see a good deal of selling. I think its prudent to wait or set good stops. The SPX bounced down right off my resistance line today.

I'm all cash right now waiting for the confirmation.

Mark said...

My view tomorrow = bull. The slight up-tick or balance at the very end of today makes me think the downtrend will stop there and head up - at least for the morning because of the overall day being up.

Tim's DIA put from Monday broke through its resistance and is looking like it could be at 112 on Friday to make the start of the other upside-down shoulder. Only time will tell if it will reverse once it reaches that. The call at 114 could get pretty hot over the next two days, never mind that it went up 75% today! That would be the train I'd catch until about noon Friday - then re-evaluate it then.

John Wheatcroft said...

Still holding gold and oil. MRVL is doing ok. Noticed that gold is on its way up tonight that's always a good thing - for me at least.

Didn't like the long-wicked candle this afternoon and the VIX is way oversold and, even worse, the three sisters (Q's, SPY, and DIA) all finished the last two hours in the red. This bodes evil for tomorrow even though N225 is way up, Hang Seng is way up and futures are up. The euro-markets will probably be up tomorrow too.

We may have a bit of a jump in the opening minutes and then either a down or sideways day.

Earlier someone said that they saw nothing to stimulate a bull rally or somesuch. Blamed the "retail investor shortsightedness" and what am I but a "retail investor". Anyway, keep in mind that the market is always looking ahead. Today's bad news, Ben's 6% rates and so on and so forth are already priced in. The only thing that drives the market is liquidity and the current level of volatility (a forward looking factor) suggests that there is a lot of movement to come and probably in an upward direction. The funds are holding a lot of cash. That cash has to be put to work.

I did a study a few years ago on the INDU regarding up days vs down days. I updated it this evening and will share it in another post in the next couple of days. It will make your eyes cross.

Dave said...

I'm sorry but 'retail' investors simply don't have enough capital to push the markets higher for no reason. 'Retail' investors are usually the first to get scared and usually the last to enter in a move.

Keep in mind I'm talking about retail investors in general.

Anonymous said...

NVR H & S target (look at wkly) completed...

Will it bounce ??

Mark said...

If the DOW decides to really rally tomorrow, it will hit between 11200-11250 where it will hit resistance. Will it end that high? Probably not. But I expect it to definately hit 11150. If it ends at 11150, it will likely continue up to 11200 on Friday. Those are the lines I'm drawing.

John Wheatcroft said...

STOP THE PRESSES!!!! Profunds has launched 7 ETFs that are inverse funds!!

Inverse funds as you may or may not know are designed to go up when the index they track is going down. So if you get a good feeling for the DOW at 9:45 you can now grab on to one of the inverse ETFs ride it for awhile and see what happens. These are also a good way to hedge a long portfolio.

Finally a sensible way to short the market for the "retail investor". The ETFs are PSQ (Q's), SH (Spoos), DOG (obvious) and MYY, QLD, SSO and DDM.
They just started selling yesterday.

Boy am I behind on my reading.

PB said...

Anyone who thinks we'll get a summer rally is NUTS!!! Ok, after a good month of selling, it is actually expected that we get a bounce, and that is what we have here, NOT a rally! Don't forget, markets around the globe have been rallying since last October's lows, and now after a month of selling you expect another rally?? Please let me know where you expect all this money to come from to hold up a market that is obviously cracking! You must be smokin the same crack as Abby. The BULLS will get murdered this year!

PB said...

PS: the bulls are ALWAYS looking for a rally!

bsi87 said...

re: DJIA

Tim probably has said this but there is a H&S formation. With 11,700 top and a lower right shoulder. I have a rough neckline at 11,044. Close below that and on heavy volume will

bsi87 said...

DJIA down 60 Dow pts in first hour, need to see the same or more in the last hour to show that the big boys are letting 'em go or selling into the "rally"

dsantos said...

I think it was only down 50... Rebounded up to being down 30. Hopefully it drops another fifty from here. I still don't really get the sense that there is any conviction on either side of the market. If you ran through Fulton St this morning yelling "buy" the market might go up. Yell "sell" it might go down. There really isn't a lot making it dance right now. Which could be a good thing (this guy is short the DJIA) if Benny-boy decides to shoot this thing in the leg on Monday.

John Wheatcroft said...

What is all this talk about "rally" and "crash"? You guys need a hobby. Hope Tim doesn't mind but there is another excellent site available where people play the market on both sides as it lies on a day to day basis. It can be done for reasonable cost and will give you something else to talk about.


It's free and populated by a bunch of good folks with some great methods of "reading the tape." I follow Trader-x's methods and I have yet to find anything better.

dsantos said...

John, relax buddy. Rally and Crash mean different things to different people. Crash is a term used to describe any down day and rally for any up day, those aren't my terms, those were used by my employers at Citi. It's common for trading desk inhabitants to use such terms regarding day-to-day price movements.

John Wheatcroft said...

I know I'm just jerking you around a little bit - good bunch of people here too.

bsi87 said...

Looks like they're gonna play with the 11,000 level on the DJIA.

Anonymous said...

that spike was bs, took out a couple of my stops. what was up with that?