Thursday, July 13, 2006

Double Penetration

From 6/6 to 6/29 the Dow was under the 11,000 mark. It pushed its way back above it, and now it has - as of today - closed below it one more. (Did I do a decent job making a raunchy headline plausible?)

Today when the market was down about 160 points, I figured maybe I should close out some of my positions. I looked at them - all 48 of them - and I found one which seemed ready to close. All the others looked like they were just beginning their falls. My point is that this isn't the end; it's the beginning.

And what a beginning it is! It will be interesting to see if we get a third triple-point decline in a row tomorrow.

The Dow Composite ($COMP) is perched on a very long term trendline. It actually violated this trendline a few weeks back, but I left it in place.


The NASDAQ Composite (which has been weak for weeks) is poised for a big fall down to its next Fibonacci level, highlighted in blue (as are all the other targets in today's entry - - and, as usual, click the image for a bigger one).


The Dow broke its short term trendline yesterday, and it followed through beautifully today. Looks like we've got another 5% or so to lose before this thing pauses for another fake-out rally.


NASDAQ 100 ($NDX) is similar to the Composite - plenty of room left to fall to the next Fib level.


Next stop for the S&P 100 is shown with a horizontal line. This would be the third time it hit this level. Should it break it, the real fireworks begin.


The target price for the S&P 500 is similar - about 5% away or so.


The once lofty Transports hit a double top and have a ways to go before hitting their ascending trendline for support.


And the one that's going to shock people the most is the $XAU - I see the potential here for an enormous collapse, provided the head & shoulders completes and breaks its neckline. We could head down to the ~$70 zone here, folks. OK, OK, start throwing things at me now.


You may wonder where all the individual stock charts are. There are simply too many of them! I have 47 discrete positions now, each one of which is really good, and a lot of other new positions to open. There is so much great stuff out there! So I just wanted to give you yet another overview of the indices, this time for a longer term perspective.

Have a good Friday, everybody. See you on the other side.

44 comments:

costas1966 said...

I agree with you 100%. Market should free fall now. The distribution day today and the break of the bearish flag put the last nail on the coffin of this last attempt to rally. It wont be straight down, there will be 1 to 1 1/2 day rallies along the way, many off them so sharp that they will feel like a bottom. The trend though will be hard down and it will get ugly, mush uglier that it has been so far.

Anonymous said...

Agree with Costas, there will be rallies so strong that it will feel like we have bottomed. Only thing is those will be just opportunities to sell. Next week we have CPI and PPI if these show inflation 10650 is possible and nasdaq under 2000 is certainly possible. I do think we touch mid june levels sometime in the next 2 weeks however at that time im sure people on every financial news channel will be saying buy buy buy and as usual we will get those 1-2% bounces. Im only trading ETFs, I feel i should go short a few stocks but seeing them at 52 week lows makes me believe they may bounce and I will be caught covering at a higher price. A few shorts I have in mind are:

EEM
GDX
SMH
EWZ
IFL.

The futures look like we are going to open down tomorrow unless GE says something positive I see another down day. Going to be a tough day tomorrow especially if oil touches $80.

Sanjay Sola said...

Double penetration, lol.
looks like we'll see 2025 in the Nasdaq soon. watch the semis to guage when to cover. t

oil is at $78 tonight and broke out past $76. i think we'll see $85-$90 a barrell. i'm betting on $90 though.

jockgunter said...

Tim -

How can EVERYTHING go down? In May, it did, seemingly because of Japanese liquidity starting to be removed from the hedge funds. But is stocks and bonds and ag/industrial commodities get creamed, shouldn't at least GOLD and gold miners rise? Doesn't there have to be some logic behind the charts?

Also, how do you generae 42 short ideas so quickly? Scanning for weak stocks, then buying their puts?

Anonymous said...

Best Blog on the Web

Tim Knight said...

Thank you, mon frere!

Anonymous said...

I have been hearing that the airlines should be shorted, anyone think they should be especially CAL

Flowergirl said...

I certainly wish that I had started to check your site earlier. Obviously you see things very clearly. Now I am loaded up on positions that will take forever to turn profitable....thank God they are leaps!

muckdog said...

Found you via a comment link from tickersense. Added you to my RSS subs. Interesting, and some humor too... Good job!

PB said...

hey Hurricane5 --- ok, since you refuse to give us a short, here's a long for you!! BIDU, up over $5 in this sell-off, WOW!!! China+internet, you can't get hotter! Go after this one big guy!!

Anonymous said...

Double Penetration??? Huh???

Anonymous said...

We are still in the period of liquidity-draining by the BoJ. This MAY continue on Monday and possibly even into Tuesday before it's finished.

Look at the volume today and yesterday. The liquidity is being drained quickly and people are panicking.

Gold and metal stocks are holding their own, surprisingly. When the dust settles, those stocks will be good to buy. I don't think people will completely abandon the stock market altogether, so there should be some support for those stocks in the short and long term.

PSQ is looking good today.

-Tony

Anonymous said...

was hoping for psq to drop to around 72.50 but i dont think its going to happen

Anonymous said...

Today's action is such a yawner.... perhaps the bears will really take take the bulls for a ride this aft. How did Oil run $3 bucks in one day...nonsense. But look at those oil drillers...woof woof.

Comcast CMCSA has developed a h&S with the shoulderline @$31... and a gap @ $29.....

Have a fun day all:)

Mark said...

Another pick for Hurricane would be DOG!

Jim Chan said...

Oct puts on TEX, bought them Tuesday for 8.30 now, 14.80
Way oversold and had another rally to the 52 week high looked like a double top and with the split coming looked like a great short opportunity. As you can see it worked out great.

North of the 49th said...

Xau to 70? Well, I think that is a little extreme.....but it got me thinking. I was going stone you, but for now I've put the rock back on the ground. What might be the story to support a fall like that? To far to fast?

Anonymous said...

Anybody short CAL?

Anonymous said...

I'm short JEW

Brian said...

Tim--

You're a funny bastard. If only IBD would print stuff like this.

And to all who read this:

So I thought oil would break out, and it has. I own MDR as an oil play. I would be feelign pretty smug her, except that MDR has been down past two days as oil prices sour. Also, OIH is down, but USO is seems to be following the price of oil. Is this a matter of oil stocks just pulling back with the market, or is this a major signal that they're not rallying with the price of oil? Also, what is the difference between OIH and OSU (as far as I know, OSU is comprised of oil stocks...does OIH invest in oil itself?)

- Brian

Anonymous said...

Schmiegel likes this market. My precious, go down, down!!!

Anonymous said...

OIH does not invest in oil itself, its an ETF that is made up of individual stocks, if you want to play "OIL" buy USO. Only true OIL ETF available to trade.

Anonymous said...

WMT going below $40...

Bob

Anonymous said...

market trying to put in a rally, might happen but im sure by 3:30 everything will be down

bsi87 said...

Interesting day. VXN is at the top of its range and reversing (20 day Bollinger Band). Naz is at the bottom and showing reversal signs. Not a time to add to short position. If one is nimble, may close them and reopen if we get a retest of the 20 or 50 DEMA. OIH is breaking down. Gold is at top of P&F chart. Doesn't mean it can't go higher but not time to go long or add to long now.

closed my long DOG position this morning for a 2% gain in a couple days. Opened a QQQQ position. Looking at DDM. All ST trades. Still will be net short.

bsi87 said...

I don't know re; 3:30PM. If any improvement in the political situation over the weekend, options expiration, time to tread cautiously, long or short.

Anonymous said...

I still can't summon up the guts to go long or short here. I WISH I would have gone short this morning on any number of stocks, but after yesterday's bloodbath, I guess I sort of half expected the bulls to push things a bit higher today, especially with today being Friday and all...

Gold is still in the Twilight Zone. No sense buying now and frankly I see no reason to sell, either. Put a stop loss around $650-660 and sleep well.

I hate all this "tread cautiously" nonsense. Now that we have a clear direction (down), making a decision should be a no-brainer. But unfortunately, it's tough to tell when the "bargain hunters" will step off the sidelines to put their cash to good use. I suspect that the majority of the big traders are in cash right now anyways. There's no telling when they'll start the next rally so they can sell their remaining positions at a premium.

Ain't Wall St. just grand?

Have a good weekend everyone. I'll be counting my piles of cash -- Lord knows they won't be used for stock purchases anytime soon.

-Tony

Anonymous said...

agree tony, i wanted to add to my qld today and avg down, thought yesterday was somewhat of a bottom, timed it a little wrong, but so many times today i wanted to buy buy buy but kept thinking twice about it.

Its tough to trade this market now, the trend is down but what if you decide to go short and all of the sudden the market jumps 2-3% next week, forget it. I do like DDM myself, think i may add a position when the dow touches 10650-10700 ride it back up to 10800-10850

Anonymous said...

It already touched 10,700 today. If it breaks 10,700, I wouldn't be buying at 10,650. That's too early.

I've been eyeballing the 10,500 level as the next REAL support level for quite some time -- long before I ever discovered Tim's blog.

Coincidentally, he's got his mid-term target right around 10,500, same as I do.

Scary.

-Tony

Anonymous said...

tony are you 100% cash??

Anonymous said...

10500 is what i was saying back on other forums months ago when the dow was above 11200 and no one believed me, thought i was crazy. 10500 is certainly possible now. 10500 could be here next week.

Think the dow 10500 in august along with nasdaq 1950

Anonymous said...

OK here are some thoughts....

Since Oil is going up... la de dah in fear of something really bad happening.... say nothing happens over the weekend. The oil stocks and drillers look ripe to come down barring any upside explosion....

The majority of the drillers have fallen below their 50 day MA for the 2nd time...

This oil @ $77 is nonsense. Premium???? hahaha ya right.

Goog looks ready to fall out of its sym triangle after earnings... people don't want to pay that much anymore going into a slowdown.

bsi87 said...

Lotta action this afternoon. VXN is now reversing at the top of the 20 day BB. VIX isn't far behind. DIA max pain for options expy is 11,000 so we could see a 300 pt rally and still not violate the downtrend. Closing my other large Dow short positions. SMH showed a hammer yesterday and a spinning top today at the bottom of the BB. IWM and IJR max pain options are above current prices. I think the big boys rally 'em up to erode the put values and we go down again after it's over.

Gotta love the volatility and play the extremes.

I see OIH down to low 130's. And XAU is acting punk.

Expect the unexpected.

Mark said...

I have puts from way back (about a month ago) when someone first mentioned zack.com and the option training site. Those 19 puts I bought (paper) from back then are almost all green now, with only 3 red at this moment and one of those is a 100% loss (I have found out I went very extreme with that one). Another was 100% loss, but has sense bounced up to almost breaking even. The combination of those at this time is 84% up. Seven are over 100%, with the highest at 366%.

Again, Tim, thanks for the blog and thanks for everyone else's thoughts here too! Patience wins out in the end. Just to think that it was about -70% earlier this week.

Anonymous said...

bsi, good info as always. I enjoy your contributions. And thanks for the heads up on the max pain options. They will most likely bring the Dow back up to the 11,000 level before the "C" correction really hits hard. Quite possibly within a week or so. Expect some 150-point rallies coming up.

The Naz is acting like it wants to rebound. Long Q's might be a good play, along with the SMH. You know, maybe it will give back some of its -7.8% loss on the year :)

When oil comes back down (I'm expecting in another few weeks or so it will have peaked at the top of the trading channel at $82.xx), it will hit the O&G services very hard. I suspect there will be some excellent bargains in the drillers at that time.

September 1st is a red-letter date on my calendar. That is the date I will get back into the market heavily long in specific sectors. I may nibble a bit through August, but nothing serious until September. Hey, and in another 8-12 months, home builders should be a good buy as well.

Good luck everyone. Have a good weekend.

-Tony

bsi87 said...

Wow, Tony, the opportunities are now as I see them.

I feel it's a good time to trade but I'm cutting my position sizes to risk .25% of my equity on any one trade.

Took down some SNDK in late PM. Max pain showing 47.50 so that'd be a nice one if it comes thru.

downosedive said...

Anon - you appear to unusually contradictory and Im puzzled as I respect your opinions. Today you ahve mentioned the risk of a bounce along the downtrend and suggested you think it could be very soon and yet you also say you see 10500, possibly by next week. I am puzzled. I would suggest not loading upwards in Sept unless to catch whatever technical bounce there may be at that time. The month of Oct is likely to be 'the big one' as in times of volitility in the weeks preceding that month, Oct typically takes the markets right down, due to the '87 effect. Just an opinion

Anonymous said...

bsi, yes, if you're trading quickly (2-3 days max.), there should be some nice long opportunities on Monday. Or if you were interested, today would have been a nice time to buy. I see that you're working with equity percentages that are much too small to impact my portfolio. I just don't have that large of a cash balance right now, but I agree with you that you NEED to keep those positions small to keep the risk low. My problem is that I don't have the purchasing power to make small percentage trades like that.

So for me, it's usually trading larger percentages with tighter stops, which is not good for this market.


Nosedive: No, no, no. I meant that we could hit 11,000 by next week or so. The correction to 10,500 will take much longer, probably going into late August. But the rally to 11,000 will be the mother of all shorting opportunities.

Yes, October could be brutal for stocks in general, but should not impact gold. In fact, the reverse is true. And gold is what I'm planning on buying heavily in September. Some metals stocks are also a possibility, but I will have stop losses on them going into October for sure. If O&G takes a beating in August, then September should provide a nice 1-2 month window of opportunity for some very nice gains.

I could be wrong. As always, I'll wait to see what happens and possibly adjust my plan accordingly. But for now, that's my plan.

-Tony

downosedive said...

Thanks for the reply Anon - that makes sense and I had indeed misread part of your earler comment - I hadnt realised you were on the topic of gold at that time. Im obsessed with the old DJA and sometimes skim over anything else written here on other speculations. I really am in a tangle at present as ive been speculating in roughly equal amounts, both short and long on the DJA. I cash in the shorts and then reopen them if it looka as if the market is going to continue down. As for my puts, they just grow to big minus numbers with the aim of cashing in the shorts completely and buying further long positions at the beginning of the next rally in order to cancel or partly cancel the accumulated past long positions. Crazy and probably the wrong thing to do, but Ive learnt that what goes up does come down but also visa versa..........

Mark said...

Anticipating a H&S pattern (I know, don't do it!) but the DOW needs to bounce (rally?) from ~10700 to ~11000, which could happen early to mid next week. Then perhaps another float, but more likely a turn-down to 10400.

Great time to get another round of puts on DIA, for those that didn't catch this slide. I had (paper) DIA put @112 for 1.05 from early this week that I cashed out for 4.60.

That is how I'm anticipating the next week or so to play out. The DOW did finish up over the long support line today.

Anonymous said...

Mark, as I said, Dow up to 11,000 should be the next leg up and will happen probably through next week. This seems a fairly obvious resistance level, but an important one. If it even gets close to 11,000, there's just no way in hell the Dow is breaking through it.

I think people are having a hard time adjusting to the bear market. They're still focusing on "buying the dips" when in reality they should be looking to identify the tops and either go short or buy puts (sell calls). And God forbid, if anyone's still long in this market, for Pete's sake: SELL THE RALLIES.

I suppose you could sell puts (buy calls) at the bottoms, but it's easier to identify overhead resistance in a bear market than it is to call bottoms.

I've had great success calling the tops, but my mismanagement of stop losses has really cut into my profits.

-Tony

bsi87 said...

Tony

I'm not sure you understand what risking an equity percentage is. Most assume it is the size of the total position. Say your total equity is $100,000. If one risks .25%, that's $250. And if the stock has an average true range of $1, you have to decide how long you'll hold a position. Most traders go 1.5 or 2x the ATR. So 250/$2=125 shares. So if the stock is volatile, the ATR is larger and you purchase less. If your trades are not doing well, you cut the percentage from 1% to .5% to .33% to .25%. Sounds complicated but money management along with position size has helped me immensely. It's in one of Elder's books, Come into my Trading Room or Trading for a Living.

Anonymous said...

Ok, I understand what you're talking about now. I guess in my case I'm typically going with a 1% risk on my total equity per trade, sometimes 0.5%, so I'm in the right ballpark that you mentioned. But I haven't really established a solid trading system or a worthwhile journal at this point. I guess I would do it if I had more time, but I just can't afford it right now. I think if I did have an established system, I would do better. My calls are accurate and my discipline is solid, but I just need some work on precise entry/exit points.

Thanks for the clarification.

Mark said...

Tony, I was just clarifying for myself. I really should get my own blog to do that in, and I will once the rest of my life settles down a bit and I can focus more energy on my trading thoughts.

I think the rally will be over 10900, but under 11000. That would support the next drop to 10500. But from what I see, it will drop below 10500, but over 10400. So that would allow the next leg up to 10600-10700, or if the bulls take control (bears let them have some gold that turns to lead) it will go back up to the 10900-11000 range before dropping again.