Monday, July 03, 2006

Charts and Stops

Happy Independence Day. I hope no one blew their paws off with fireworks this weekend (mangled hooves are OK, however). I wanted to offer some attractive charts for put purchases with some stop prices (e.g. should the underlying stock cross above the cited price, get out at once!). Of course, regular short sales are fine too. Lower risk, but lower reward. Here we go:

APA (stop price 75.66)


CLF (stop price 41)


DIA (stop price 112.85)


EOG (stop price 79.24)


RIG (stop price 84.05)


SHLD (stop price 167.95)


UNP (stop price 95.20)


The market has not been kind to bears recently. At this point, I see one of two things is going to happen in the next couple of weeks (maybe even sooner). Either the market is going to resume its downtrend. And if it does so, it had better start soon, such as before this week is over! Or the market has found newfound strength and is going to press higher. This'll really piss your buddy Tim off. Of course, the market doesn't care.

The Dow Transports is heading toward its all-time high. A double top here would be nice. If it pushes on to another, newer high, that's not good news for the bears. The Dow Composite is likewise showing surprising strength.

Many charts I look at, including larger indices such as the S&P 500 and Dow 30, appear to be shaping up to begin their downturn once more. This would keep the all-important lower lows/lower highs intact. If the market's recent strength has been simply a countertrend rally in the midst of a bear market, that's dandy. If this strength is legitimate, however, and the bear market is a phantom, it's time to reconsider! By the end of this week, it should be more clear.

35 comments:

PB said...

Happy 4th of July to everyone! It looks like the bulls have been finally given enough rope to hang themselves with. This latest rally or short-covering, if you will, is probably the last chance this year to sell at these levels. The fed is getting inflation get out of control (notice how gold spiked after the last rate announcement)and this will lead to more aggressive tightening down the road. When you have a cold you don't go out and party, but this is exactly what the bulls want to do. The fed is now behind the curve.

John Wheatcroft said...

Tim, this week will not be a good gauge to determine the future of the market. I think we get to at least 1290 on the SPX this week and then we can take a look and try to predict the future.

Earnings season is upon us. For any stock you care to buy or sell you might want to check out the whisper number first and adjust accordingly. I ran this set that Tim identified through the site and I don't see any weaknesses. I'm probably wrong though.

Just be careful and good trading.

stockshaker said...

Did someone say the markets are entering Wave 3 of Elliot Wave?

zoom out of the dailies for a weekly view, and I can see the third bounce in the market starting to form.

But this week will NOT be any form of what is to come. QQQQ's did 21 mil, yee-haw? nope, hardly. But I'll take it!

jockgunter said...

Tim --

Why so many shorts chosen from the market's hottest sector: independent oil and gas? why not more shorts from weaker sectors? Jock

Anonymous said...

Another rally, I laughed at todays rally.

I dont see how it can continue, today was a gift. Doesnt anyone remember what just happened 2 weeks ago. I HIGHLY doubt were out of the decline mode. I think bernanke was listening to wallstreet when he did a .25bp instead of a .50bp last week. Commodities and Oil are now rising while the dollar continues to fall. This only means another rate hike going into August which will bring it to 5.5%. Again I think the markets will continue their sell off on inflation worries. These markets are very sensitive and anything could easily move it up or down 2-3% in a week. I think this rally is just something that is going to cause even more selling when the time comes. The next drop wont be a pretty one I think we fall even lower than mid june levels. 10500 is not out of question in the next 2 months and 1950-2000 on the nasdaq is possible as well. Invesotors will realize in about a week to 2 that the federal reserve still has more in store for them. Job numbers due out this week will be a big market mover.

Anonymous said...

PXE, PXJ, OIH, XLE and USO have gone straight up for about 7-8 days in a row.

John Wheatcroft said...

I guess making money doesn't matter - the only thing that matters to some people is being correct on the direction of the market. Play it as it lies - you know you can make money (a lot of money) in a bull market. Most of the wall street fortunes were made on the long side. The fact is the market is going up. When it turns it will be going down. Then guess what, it will go up again.

I made money today - I hope you did too. Gold said "buy me" last week and I doubled up all my positions. Oil said "buy me too" last week (actually any holiday weekend is always a good time to buy oil)and I doubled up my positions. Notice - I didn't sell short or wait for a magical moment - I dove into the river of money that was running by my door. It really is as easy as watching what is happening in the world and remembering rule 1 - Nobody knows nothing (including Cramer, Bernake, the entire cast of crapvision, or any six, ten or twelve self-proclaimed guru's anyone wants to name).

My fellow Americans have a wonderful holiday and good trading. The rest of you's - get back to your trading screens.

Anonymous said...

the past 3 trading have been outstanding for the bulls, I bought 4 stocks after the big move thursday and all 4 are in the green, shorts were printing money 2 weeks ago so let us recoup some of our losses for a couple more days.

Ron Sen, MD said...

The immediate obstacle for the furry-minded amongst us is the volatility constriction pattern setup by today's action (NR7 = narrowest range of 7 days)

These setup for SPY, DIA, QQQQ, RTH, GLD and some others. The VXO is extended almost 20% below its ten day average, stochastics oversold (3% SPX stocks, 2% NDX stocks)are absurdly low, and the SPX/VXO is back nearing its highs. But the momo crowd, short-interest, and beginning of the month inflows could temporarily stuff the honey jar on some bear heads.

Just trying to see the trade both ways, FWIW.

Best,

Ron

Anonymous said...

i would be careful about shorts in shld

to me it still looks too much like a cup and handle

i would consider jumping only if it breaks below 150

costas1966 said...

This rally has been confirmed by a follow through day on volume and it is not going to die that easily. There are a lot of things that are working now on the long side. I call them the inflation trade. Market thinks that the Fed will pause as early as August and it will lose the battle on the inflation. Energy, copper, steel, ethanol, gold, whoever tranport commodities like rail of ships, pawn shops (look at ezpw up 13% on up guidance, that is not an inflation trade but I decided to mention it anyway)they all look like they will continue higher. Too early to short to my opinion. Also breath was 3 to 1 positive today despite weak guidance from Walmart, a weak construction number and a drop on auto sales, not the action you want to see as a short. Breath was 2-1 positive Friday eventhough the market went down 40 points. Last Thursday we has 4.5 to 1 positive breath. Shorts will be taken to the cleaners again and again in this type of market. Basically what the market needs to be safer on the short side is to find a resistance level that will stop it and it needs a sell off on more than 1.9 billion shares, a distribution day. Until that happens i want to stay away from the short side and try my luck with some longs.

Super Bull said...

Trader Tim,

It looks like you will have to pull in your bearish horn. This clearly is just a severe correction instead of a bear market. I will have to give Hurricane5 his dues for having the courage of his bullish conviction. Long GOOG.

cristri25 said...

it is hard to say if selling will resume.

downosedive said...

Hmm, definately seeing a mellowing or change of direction in the tradition bears. Like the rest of you, I just dont know what will happen - we all have our opinions and backed by various facts/thories etc, reality can be so different, so its as well that we are all keeping an open mind. I have 3 nasty loosing short positions of which 2 are covered. Im keeping them in the belief that I can close the 2 cover position when a short term high is reached and then take further short positions on the way down in order to recover those longer term 'nasty' short positions. Of course this theory will go belly up if the market trend is long term up..........All I would say is another website has issued a sell note on the Dow 2 weeks ago and based on past indices actions of theirs, they have been extremely accurate. They estimate there is only a 15% chance of an error.........just my luck to experience that though! Hope you are all enjoying your Independance Day holiday - its good to have a national break from the markets isnt it!

PB said...

The bulls have been waiting for the fed to stop since 2006 began. Even if it does stop we are not guaranteed a new bull here. Anyways, risk is not priced into this market at all. Is a 2-3% upside worth the risk for the 20-30% downside? Idiot bulls would say yes. I would start scaling into short positions here until the end of the month, you just never know when the next shoe will drop. But by August this will be one sour market!

Mark said...

I still think the bear claws will come out Wed. As long as the DOW remains below 11300, otherwise it will definately bull territory. I'm waiting for a sharp up first hour to two, then the bears have their feeding frenzy. That didn't happen Friday, nor Monday.

I think that Monday is still an ugly day to make any serious recomendations from, with the DOW at 1/2 the volume from Friday. I just think it was some cows that strayed from the heard to keep playing another day. It does help with the formation of a topping pattern, at least that I see.

John Wheatcroft said...

PB - on what do you base "20-30% downside"? The market always moves in 2-3% increments whether up or down. And most often even less.

We just had a 7% correction and it took about 20-21 market days to realize. We're 13 days from the most recent turn up and probably have 8 - 10 more days to go before it turns down again. Which puts us into August and your sour market - the only difference is I expect it because of normal liquidity cycles - I don't know why you expect it to happen.

The only thing that moves the market is liquidity - the only question to ask is "is there liquidity"? And I would have to say yes there is. Because if there wasn't the market wouldn't be going up.

Now what is going to occur to cause the liquidity to dry up? Do you really think energy is going to crash? During hurricane season? Gold? Given the current state of the world?

While higher interest rates might affect the consumers (but never have in the past so why they will this time I don't know) businesses are awash in cash. They don't know where to spend it - and guess what - they don't need to borrow. They're paying off debt with cheaper dollars every day.

So exactly what is the engine that drives the market down other than its normal 2 - 3% breather?

Individual stocks - sure - crap happens every day, but the market - maybe it will. I surely don't know anything except what I expect to happen which is what happens all the time. I modelled the market a number of years ago and so far (including the crash in '87) the model has been fairly accurate and predictable.

stockshaker said...

John, wow, WHAT did you just say?

That is some serious high level thinking.

I think pb is a little optimistic about a crash in the near future, but I do agree with pb, that it will be bound to happen.

But what is this liquidity stuff, and how does all this play into the markets? and how can you say inflation wont take a toll?

you think all this news is propoganda to create some high alert to traders, for no reason at all??? is that why everything fell in may, and again will fall in the future - due to liquidity problems? Im just a little confused.

WOW, actually, i have no clue what you mean.

maybe thats why my success as a trader comes from playing current short term trends, and not speculating about liquidity on a GLOBAL field.

but i guess thats why i am curious as to how other traders trade the markets... and hence the question posed.

stockshaker said...

and, John, WHERE do you read on all this stuff?

sounds kind of like news you get from joining some secret club - because I have never heard of anything like that before.

Or probably never bothered to care enough to look, as it hasn't impacted my trading styles.

And even though it probably won't (still) in the future, it has added to some curiosity.

Kindly fess up a couple links.

Thanks in advance.

Anonymous said...

How can anyone think we are going higher, especially back to 6 year highs, how is this possible. I see so many negatives its not even a joke. Here are just some:

Housing bubble, yes i said bubble. The housing market IS DONE WITH, ARMS are reseting as I write this, foreclosures are moving higher each day. The housing boom was the driving force of this economy for the last 5 years. Where are people going to borrow money to buy, buy, buy and push themselves further into debt. Debt is at extreme levels.

Higher Interest Rates

Consumer Spending slowdown (not good because this makes up 2/3 of our economy)

OIL going higher, (could easily break out to new highs above $75 and head to $80)

Consumer Confidence dropping.

Dollar dropping

Interest rates going up around the world.

These are just some, I dont see how these markets could move higher with just so much holding it down. I dont think this selloff is done. I will continue to repeat myself again and again. Amazing how sentiment has totally changed since last thursday. The federal reserve IS NOT DONE raising rates, expect .25 in august and 6% by the end of 2006. This rally is nothing but people anticipating a pause in rate hikes which they have been hoping for for the last year. Those talking heads know nothing about what the federal reserve has left to do.

I think another 2-3% rise from here and thats it. Like the other person said this rally was JUST short covering. Once we get a few nice selloffs you will know were headed back down once again. Only thing that might keep us floating is earnings. Some stocks I follow are approaching levels from mid-may right before the selloff. Besides this I think we head back down, this rally should be an advantage to close out long positions before the next big sell off.

G2006

cristri25 said...

stockshaker ~ that is what the FED and CB's do around the world ...provide liquidity meaning they pump money into the market. sometimes it helps ... most times it does except when you get nasty bear market corrections like 2000.

John Wheatcroft said...

OK guys - if common sense and the newspaper aren't enough then I don't know what else to say. Stockshaker if you don't know what liquidity is you really need to go do something else.

I never said anything about "global" except that the market is now "global" - I don't care if you believe it or not - it is - we seem to have a Brit on this board right now.

I have said over and over and over and over and over and over again - my Rule #1 - Nobody knows nothing (and that, sir, includes me). All I do know is what my model tells me - can my model be wrong - sure. The fact that it has been correct for 20 years on the turns means only that - it "was" correct. Here is what my model tells me - the market goes up and the market goes down.

The market does not have to go down. Yes it can correct (and by the way the 7% correction over 21 market periods is just simple math - although I also read it over on Barry Ritholz's site) but it doesn’t have to crash.

In October 1987 the market went down about 33% from its high. It took about 10 days for the complete slide. (My model had signaled a turn so I was in cash and short - and trust me I wasn’t the only trader smart enough to spot a market turn – did we know how severe it was going to be? Hell no – did we care – hell no all we knew was turn time going down – for a good trader that’s enough). Two days later it had recovered about 15% of the slide. Because I play regression to the mean I had grabbed a few easy bucks in that period. A drop on the third day after got me out again and several days later my model signaled and a turn up and business was back to normal. (As normal as the 90's could ever be).

I rely on myself Sir - no one else. You could tell me the sky is blue and I would look up to confirm it.

So when a person says a 20 - 30% is imminent (or ever) I want to know what crystal ball he is looking at. But it matters not any longer since I am out of here.

Goodbye all – And good trading – Always remember rule 1 – nobody knows nothing.

PB said...

Dear Mr. Wheatcroft

20-30% downside does not mean it happend in one day (although that would be nice)This market is overvalued relative to anything (except maybe bonds) Your moniker about liquidity is right. But how long can the fed pump dollars into the system before people start wiping their asses with USD bills? This is the reason gold will continue to outperform. One other thing, this great cash hoard companies are amassing --- do you know what they are doing with it during this era a low interest rates? They are not even re-investing in their own businesses, they either buy other co's or buy back their own stock! That's how much confidence they have in the future that new projects are not even begun beacuse they can't earn more than the std deposit rates. And you would have people buying into such a market??? The low interest rates of the last few years have pulled the wool over peoples eyes. Maybe the fed can provide some 'liquidity' to the many working class americans who will not be able to finance their heavy debt load. Oh, P.S. the US gov't is now spending $21billion extra per year to finance the huge deficit. USA has become the greatest pig the world has ever witnessed --- and no amount of liquidity will spare it's slaughter. Your views are appreciated but you might want to share your 'model' --- otherwise you end up looking like some know it all! Thx

PB said...

John

Please show me imperical evidence that 'higher interest rates do not affect consumers' --- this is quite the claim, and I think all the auto manufacturers must have had it wrong when they offered 0% financing!

Tim Knight said...

I am blown away by how bullish people have become on this forum. Costas has softened into a bull, and people are praising hurricane for his brilliant recommendations (Jesus.....) Only PB seems to have stayed the course! Let's see how today turns out.

Hurricane5 said...

I was hoping investors would be in a cheerful mood after the holiday, but after 15 minutes of trading it appears this is not the case. North Korea and profit takers are currently weighing on the market. I thought of selling a few shares this morning and buying back on the dip, but decided to wait it out. With earnings season upon us I have a lot of homework to do. I will try and post a few stocks that could make you a fortune in the days ahead. I look for companies that have strong earnings growth and are kind of flying under the radar screen. The "unnoticeables" as I like to call them. Happy trading and have a great day!

Anonymous said...

Did anyone see the pre-job data this morning at 8:15am, showed over 350,000 new jobs, if this is correct expect a big jobs number on friday morning that will only create more pressure on the federal reserve to raise rates at their august meeting. 6% by the end of 2006 is certain. This could lead to a huge selloff friday if this data is correct and we do create over 350,000 jobs. Hey maybe the market will look at it different and think that 350,000 new jobs could support interest rate hikes above 5.75%.

Mike

stockshaker said...

Maybe I should be doing something else! but then I take a look at the account, and im like, nope!

all jokes aside, thanks for the info John/Cristri25.

Now, John, you said 8-10 days of up, then the cycle repeats. where are these graphs then?

Anonymous said...

My PSQ is doing great today. Hoping for a new high above $71.50 sometime in the next 2 weeks

Anonymous said...

Is today a buying opportunity or are we headed back down for the rest of the week. Im waiting for friday to see where the job data comes in. At that point i may take some long positions.

Anonymous said...

looks like the lows for the day have been put in

still watching the 50 dma

we should get at least another test

Kapil Khanna said...

The intermediate trend remains bearish. However the short term trend is bullish. Both the intermediate and the short term need to align for a solid directional trade. My most recent puts have stopped out, showing signs of bearish exhausition. Entered some puts on ET today, lets see if this one stops out or actually gives me some money.

downosedive said...

JW and all of you, yes Im a BRIT, hi there to you all!! Pleased to be on TK's site and to read all your comments. Like Ive said a number of times before, I like the sentiment both factual and speculative. Im a Brit and yet I chose to gamble my money on the DJA instead of the UK markets. I wont bore you with my reasons, unless anyone is interested. The fact is Im here all the time even if I dont post as much as some of you. I monitor like a hawk, the US and world events likely to affect your economy whether they be political, socio-emotive or pure economics. I hope over time you will welcome me even though I cannot actually 'live the American dream'! Anyway back to today and the DJA has rallied from being about 98 points down to 65 points down, as I write with about 2 hours to the close. This again backs up my previous postings suggesting a worrying on-going rise. Im still worried the bears will not return and that all we may see from now on are indeed just market corrections within a slowly upward trend. But many of you still give me hope of a continuance of what we all beleived to be the beginning of a bear market. We just dont get this drama here in the UK! Just one of the reasons I chose to focus on the DJA only (not shares or S&P etc). Remember that sign that says 'BEWARE OF THE BULL'!!

downosedive said...

JW and all of you, yes Im a BRIT, hi there to you all!! Pleased to be on TK's site and to read all your comments. Like Ive said a number of times before, I like the sentiment both factual and speculative. Im a Brit and yet I chose to gamble my money on the DJA instead of the UK markets. I wont bore you with my reasons, unless anyone is interested. The fact is Im here all the time even if I dont post as much as some of you. I monitor like a hawk, the US and world events likely to affect your economy whether they be political, socio-emotive or pure economics. I hope over time you will welcome me even though I cannot actually 'live the American dream'! Anyway back to today and the DJA has rallied from being about 98 points down to 65 points down, as I write with about 2 hours to the close. This again backs up my previous postings suggesting a worrying on-going rise. Im still worried the bears will not return and that all we may see from now on are indeed just market corrections within a slowly upward trend. But many of you still give me hope of a continuance of what we all beleived to be the beginning of a bear market. We just dont get this drama here in the UK! Just one of the reasons I chose to focus on the DJA only (not shares or S&P etc). Remember that sign that says 'BEWARE OF THE BULL'!!

Tim Knight said...

Kapil, I think that ET trade is a good one. See today's new blog entry.