Wednesday, July 19, 2006

And There's Our Bounce!

On July 15th I wrote that a bounce seemed quite likely. It took a couple of days, but, voila, it's finally here.


At first the SPX bounced perfectly off its Fibonacci retracement. It seems to have goosed past this for now. To me, this means only one thing: another shorting opportunity. I'd eagerly short as the Dow gets close to 11,000 again.


By the way, congratulations to any YHOO put owners out there - what a day!

42 comments:

Anonymous said...

so tempted to short here, but dont know if there will be a continued short squeeze. INTC, EBAY, AAPL, and MOT reporting tonight.

Anonymous said...

Technically, shorting is definitely the order of the day.

However, I would be extremely cautious. The market is still terribly oversold and Bernanke's dovish (yes, they were dovish) comments today could really spur on a significant rally.

Combine that with dropping oil prices and also what should be good earnings tonight, and I can see a definite breach of the resistance levels.

UNH beat earnings today and essentially guided up for the second half of this year. JPM beat earnings and also issued a positive outlook. I expect more to come. People may start to move money back into the dividend-paying large cappers, which could lift the Dow considerably.

I also expect a stronger rally than anyone here anticipated. I think the Dow could easily pass 11,200 this time around. I think the charts could undergo some significant damage in the short term.

All in all, I see some good things happening that could add steam to a rally. Granted, we're still in a slowing economy, an overall bearish market, but another 3% added onto today's gain in the broad market indices is not out of the question.

-Tony

bsi87 said...

Geez Tony,

I posted that the VXN had topped and reversed, that the indices were at the bottom of their 20 day Bollinger Band but divergences were showing, that I closed all my shorts between Monday and yesterday and that I had started long positions. Further that Kosmo Kramer said sit on your hands which at the current levels was a fade, i.e. go long.

That said, the rally may last a few days to a week. When I see the VXN hit the bottom of the Bollinger Band, probably around 18 (it's 22.25 right now), it'll be time to close the longs and start opening short positions again.

This is a great country. GRIN.

Anonymous said...

Keep your shorts on! Nothing but an oversold bounce. How quickly the market forgets!! Bunch of chicken brained idiots with money. I guess the Middle East is a symbol of peace these days.

Hbarr said...

It was very nice the way they bounced the homebuilders this morning, alas they've already given up 50% of that boing.

With options expiry on Friday I'm keeping my eye on the heavy strikes for guidance as to where to add to shorts. If the market can stay up for a couple of days it should get the short-term oscillators back into overbought.

Two days ago I looked at YHOO puts, but I didn't buy any because of the oversold oscillators. Damn! Kicking myself.

How about that Sen. Buning? 'Ya think maybe his mutual funds are down a tad this quarter? The poor helicopter can't win for trying.

Anonymous said...

bsi87: yes, I remember your call. Great timing. Keep posting... maybe one of these days I'll take your advice :) Actually, I need some help with execution. It's not my timing that's off, it's my execution, as I've mentioned before. Someday I'll get it right.


On the flip side, I would definitely feel more comfortable on the short side in this market. As I said, the bearish bias is still fundamentally intact, so I'd rather get caught on the wrong side of the trade going short than long here. At least I know things will go back down, but I have literally no confidence that the market will continue upwards.

I sometimes wonder how the market rallies like this if it's not just based on the technicals. Fundamentally, there has been a change in somewhat bullish SENTIMENT, but the bullish case for the market overall has been destroyed long ago.

-Tony

Anonymous said...

da bears are dead

niko said...

Tony and bsi87,

Great analysis. The thing about the current market is that it's trying to find a direction. Yes, there may be a bear bias, but not yet a bear. We're playing the volitility game here.

Seems to me, your best bet is to play opposite the weekly or daily trend (whatever your horizon, beyond that is unknowable to any decent probability in this market), and keep your stops tight. Why bother guessing where we'll be in a month?

bsi87 said...

Tony

Good luck with your timing. I'm just trading what I see. And I saw things lining up to at least close short positions and go long indices.

I don't know about bearish bias. A 180 DJIA pt rally kills a lotta bears and gets the bulls chasing. I'd rather make money than be "right".

And yes, this rally IS based on technicals. VXN got way overbought (lotta fear), indices didn't break thru the June low and in fact, reversed around 2PM yesterday, meaning the big boys were buying. There were other signs. Boone Pickens on every freaking show talking about oil to 80 or 100, Kosmo Kramer saying do nothing. The Israeli conflict was worse after the weekend, yet the mkt stopped going down. OIH dropping. Lotta of signs, just have to be observant and trade 'em.

The next thing to watch is the DJIA 11,050, the neckline, and see if they can push it thru. And the other is the VXN, if it drops to 18 or so, it'll be time to close longs and look at shorts.

niko:

Yep, it's all about volatility and opts exp. The way to play it is sell resistance and buy support.

Anonymous said...

It's deja vu all over again.

Check out the double bottom in the Dow. Also note that the previous bottom at 10,700 was exactly 2 days before Bernanke spoke last time.

The day before he spoke last time, the Dow went up around 50 points or so (exactly like this time).

The MINUTE that Big Ben spoke last time, the markets went up 70 points (just like this time) and ended the day in the green by over 200 points.

Just like this time.

Amazing, isn't it??

What I find rather amusing is the fact that Bernanke's comments say absolutely NOTHING about future interest rate hikes that wasn't already well-known. Yet people stormed back into the market once again based on hopes and dreams.

Sanjay Sola said...

Today would be the first day of the rally attempt of an index can close 1.7%. better to watch and see if we get a follow through day next week.

I wouldn't be shorting now. let the market get overbought and then short. alternatively, go long if we have a confirmation day next week (1.7% in an index on days 4-7 typically and good volume).

Past history suggests that when the Fed stops raising rates, the market usually does not go up.
Why? Because the economy is slowing.

bsi87 said...

I was curious about what happened last option expiration. What a coincedence (sp)!

The market bottomed on the Tuesday before the Friday expiration at 10,653. Looked like the end of the world. I thought so but I also remembered when it closed Tuesday PM that it was just too easy and I should take something off the table. And the % of SP500 stocks trading below their 50 DMA was getting close to under 20% which is a buy signal in some systems. But I thought I'd ride the trend down further. We all know what happened.

Now we hit the same area yesterday at 10658 and it didn't break. In fact, the DJIA started to reverse. If it hits the top of its 20 day BB, it'll be 11,300. Whether it gets there, I have no idea but I'll be watching the VXN/VIX and see if we have a reversal at various resistance points. 2200 is the top of the Nasdaq. JMO.

Anonymous said...

markets touching intraday highs. I dont comprehend this, i really thought yahoo would do worse to the markets, nasdaq up 40 and dow up 214. Ha, interest rates still going higher. Everyone here is saying go long at the moment. I feel like shorting I think this is another headfake that will lead to just another drop. 10500 is possible along with nasdaq 2000. Seems the market is overbought, too many earnings moving the market. Tonight a bunch of companies report and all are market movers especially AAPL and INTC. There could be a possible 1-2% rally again tomorrow but who knows, may wait this one out and go short if another rally takes place.

Super Bull said...

Wow, I am impressed with this 200 point rally. I covered all my shorts (yhoo, ebay, goog and aapl) and thinking of going long again.

PB said...

starts scaling into shorts, if market goes higher, sell more. Today's buying is very manic, based on what? the hope that the fed is done? How many times did we rally 'cause of this belief only to be disappointed by Bernanke. With over 200 points up on the DOW, OIH is sure not having much of a day. Next leg down we'll break 10,500.

Anonymous said...

superbull yep just like everyone else did after the last 250+ rally after the federal reserve raised rates....everyone went long and fell for the trap. Sad. Im telling you DOW 10500 and Nasdaq 2000 is possible by end of july early august. This is an opportunity to SELL not buy. you should have been buying the last week if you thought it was the bottom. Wasnt it just last week AAPL was trading at 51 because some analyst said ipod sales were going to slow then 2 days later it was upgraded. This market is all messed up. Go short and stay happy. Its going lower.

Anonymous said...

pb agree, 10500 is coming. After 10660 is broken like Tim is talking about 10500 is coming.

The whole talk about a pause makes me crazy. They have been talking about a pause for 2 years now. I also read that after the federal reserve stops raising rates that the markets dont do so well. So i have no clue as to why this would be good news. SHORT SHORT SHORT AWAY

Mike Stone said...

Tim,

We need you. Help us to understand. All my bearish sentiment is slowly draining away. As of Monday of this week i was sitting on some over priced DIA puts because I had unwound everything else.

Tell us O' Wise One...is the bear over??

HELP!!

-Mike

Ron Sen, MD said...

Markets were REALLY oversold with 69% of NDX stocks oversold by stochastics and breadth (10 day average) oversold, and McClellan oscillator trying to make lows.

Does this fix any of the structural problems? Of course, not. Enjoy it while it lasts.

Anonymous said...

THIS IS PROGRAM BUYINGGGGGG!!!!

bsi87 said...

PB, not even time to think about going short. No reversals, not at resistance. June 12 bottom ran till the end of June for 600 Dow pts.

Superbull, why go long now? A 2% rally and you wanna chase it?

Anon - I know, it's like the boy who cried wolf. But with all the slowing signs, Helicopter Ben has to say what he did today.

Mike - we're in a trading range, DJIA 11250/11300 top, 10670/10700 bottom. Ron hit it on the head. Mkts got oversold, people loaded up on puts, and the big boys are having a hay day.

Trade what you see, not what you want to believe.

PB said...

bsi87 - lower highs, lower lows are here. Doubt the DOW will pass 11,250 last seen on July 06th. A slowing economy produces less inflation pressures. Maybe. Stagflation would say otherwise. Look for inflation to be picking-up in the coming quarters as evidenced by today's CPI. This 'rally' will fade just as fast as it came.

Thanks for your blogs, they're worth the read.

bsi87 said...

PB,

DJIA traded thru the 20 DEMA at 10987. If that level holds at the close, that'll put the fear into the bears.
The 50 DEMA is at 11060 which happens to be the neckline for the DJIA H&S pattern. I thought when that level broke again, 10,300 was in the cards for sure. The top of the 20 day Bollinger band is 11314, the resistance from the last two tops in the DJIA is around 11,225.

I don't know what will happen but I'd rather short again when I see a reversal at some sort of resistance. Right now I'm just riding the pony.

Anonymous said...

ILL SHORT DOW 11200 AND nasdaq 2125-2150

PB said...

bsi87 --- nice that you are making money on this bounce, I was actually long at friday's close (I was sweating over the weekend, as the mid-east could hv easily exploded) Anyways, took awhile, but we hv our bounce, but that's all this is. I still see heavy resistance at 11,050 - 11,100. The outlook for 2H has not been positive from the co's that reported so far. It's a choppy market, so trading is quick and mostly profitable.

Keep raking in those $$$

Anonymous said...

market headed back down!!!

my prediction:

AAPL up AH
QCOM down AH
EBAY down AH
INTC up AH
MOT down AH

let the games begin.

Anonymous said...

ONLY 200 points on the DOW today? what's with this market? Is evreyone bearish here? I was looking for a 500 point pop! Come on bullies, let's start buyin'!

Anonymous said...

no one buying afterhours i knew this rally was a head fake. PATHETIC. INTC is down along with QCOM...

Anonymous said...

mike,

i am short dia puts also. also spx among others. got hammered, but did not panic sell. this is a balloon filled with hot air optimism. lots of people piled in today - weakness in the market will prevail.

PB said...

oh no, what happened to crap-daq futures? they are only up 2.50 at 4:15pm EST! After a day like this they sure gave up easy!

bsi87 said...

PB,

Oil actually closed below its open on Friday. Plus oil has hit that 75 area about 4 times and struggles there (looking at USO). And Boone Pickens has been talking his position. I think there'll be chance to get long oil but at lower levels.

I don't know if the mkt will hold together with the ER report but look how it shook off YHOO and went up.

Anonymous said...

I think people got the gist of what Bernanke is going to say tomorrow from his testimony today before Congress. Basically he's being dovish and wishy-washy regarding his direction.

I liked him better when he stood firm on his beliefs. Or at least made it SOUND like he was standing firm. Now he's just trying to cover his ass in either direction. Frankly, I wouldn't be surprised if there was some serious market manipulation going on in the Fed's higher-ups.

Anyways, QCOM getting thrashed after hours. EBAY looking weak. INTC getting a good drubbing as well. AAPL is up slightly, but guidance isn't all that great.

MOT crushed earnings, but only due to a windfall tax/lawsuit gain. They're up almost 10% after hours, though. Lemming bull chasers after hours looking at the EPS value, but not really understanding where it came from.

Another quarter or two of "decent" earnings? Sure, why not. But the slowdown will get to everyone eventually.

PB said...

Bernanke news trumps everything. What will drive tomorrow's prices? Bernanke, jobless claims or the FED minutes?

Oil is the only thing I wld go long on (+ gold) everything else can evaporate.

P.S. I still don't understand how China can have Q2 GDP numbers out before the US? What give? I didn't think abacuses are faster than Pentium processors!

Anonymous said...

MOT, EBAY, AAPL flying afterhours. Seems people had gotten way too bearish, especially on tech.

Some very big negative bets have been taken lately: Nasdaq Short interest increased 737 million shares for the month ending June 15, that's a record increase and nearly twice the size of the last record of 398 million.

Over the last 4 months Nasdaq short interest has increased by a massive 24%.

As a percentage of open interest it now stands at 23.52%. Last time it got this high was May 05 (23.78%) and Oct 05 (23.46%). In the 6 weeks which followed, the Nasdaq proceeded to rally 6.17% and 8.54% respectively.

Bottom line, the market has set itself up for a monster short squeeze.

Anonymous said...

You may be correct. But the big problem is that there's no clear direction for the small-time retail investor. If the Big Boys start to pile on the shorts and drive prices down, the retail long investor has only 2 options: 1) sell and hope to buy back lower, or 2) average down. Neither of which are very good prospects in this type of market. If you sell, then in only two days' time you could be behind the curve by 10%. If you average down, then you risk having more shorts piled on, in addition to the panic selling by the longs.

And with the market moving over 2% every time Bernanke opens his mouth, things get a little ridiculous.

Very strange market. You really have to be a keen trader to be able to make any significant money here. Or, you just take the long-long term approach and keep averaging down.

Not a good prospect when the fear of recession and rising inflation is front-and-center of the economic picture.

Anonymous said...

all of my puts look like POO POO today. day. bulls kicking my bear in the nuts. total BS. it is what it is. till it isn't.

JNPR please tell me why that POS is up AH's ?? they did not even report earnings just rev;s because of an investigation on gaoing but it is up AH's WTF , WTF, WTF !!!!

the big money is just trying to kill all the july puts and they are doing it.

Anonymous said...

One more thing: if you look at the VIX and VXN, you'll see that the 200-day SMA is forming a nice round bottom. And in both cases, the current levels are above the SMA.

Chances are that the markets will continue to decline, as "predicted" by the VIX and VXN action. Yes, there have been significant short percentages back in May and Oct of 2005, but you'll notice that they were short-lived and broke back through the 200-day SMA, leading to a nice recovery in the markets. The current period of time that the VIX/VXN have been above the 200-day is the longest so far and still hasn't broken the 200-day.

Also, the late-afternoon recovery in the VIX/VXN (forming a bit of a tail in the candle) doesn't speak of an excess of confidence in this current rally. I think today's action was a bit excessive, personally.

I'd check that 24% after today's action. I'd be willing to bet that there was some substantial short covering today across the board. But that doesn't mean that more shorts won't be opening up in the near future.

Sanjay Sola said...

things are going perfectly for the bears. This rally was predictable. Tim called it a few days ago.

market leadership is questionable and not many stocks are well positioned for breakouts. semis look bad still. i think the bulls will rally into August.

This market makes big moves based on the Fed. so maybe August 8th or 9th will be the next move down?

Anonymous said...

"Anonymous said...

market headed back down!!!

my prediction:

AAPL up AH
QCOM down AH
EBAY down AH
INTC up AH
MOT down AH

let the games begin"

I think you need another dart board..

Mike Stone said...

Thanks guys. I've got my bear mojo back when I saw the yield curve nicely inverted:

http://www.bloomberg.com/markets/rates/index.html

Still holding onto my dia puts and plan on slurping up some more tomorrow or the day after.

-Mike

Anonymous said...

I love it -- Bernanke said that the inverted yield curve was a "structural problem" rather than a fundamental problem. In other words, he's implying that "this time will be different" and we won't see a recession, because the curve will just sort of fix itself as the bond markets come to their senses.

Yeah, right.

The main problem is that people have no clue what's coming. This morning, the bond markets were pricing in a 90% chance of a hike in August. Now it's 68%.

And this is after ANOTHER big CPI increase. Annualized 3.6% inflation (Bernanke wants to keep it under 2%). Yeah, Big Ben is going to stop raising rates when inflation is over 50% above his target.

Are people insane?

bsi87 said...

re:VXN/VIX.

I've never found that signals from these last more than 20 days. If they would go back up (meaning more fear), I would increase my long positions esp if they hit a hit and then close below the open AND the previous day's close, meaning the big boys are not fearful. What you don't want to see is VXN drop at the open and close above the open and the previous close, meaning the big boys ARE fearful.

SPX and NAZ showed no reversals at the close, meaning they took 'em home long. DJIA has some wicks on the bottom and the top but nothing severe. MACD not diverging.

I'll be watching carefully on Friday to see they want to take 'em home long over the weekend. I may close my longs but that doesn't mean I will automatically short. I want to see rejection at some resistance level similar to what we saw yesterday and the VXN/VIX get down into the complacency area, 17-18, at time of this post. Look at the daily Naz chart with candlesticks. Hit that 10,650 three times and couldn't break it.

Trade what you see, not what you want to believe.