Wednesday, July 19, 2006

Massive Sucker Rally!

For all those who think I'm a permabear, I want to point out that last Saturday I said a bounce was imminent. And wow, what a bounce it was. Up over 212 points on the Dow. Yuck!

This is soooooo typical of a rally in a bear market. It's fast and furious. I hate days like this, believe me, but it's all part of the unwinding. Bernanke goes in front of Congress to yack a bit, and people go haywire. Bulls will take any excuse to buy.

Here's the Dow - I've pointed out with the up-facing red arrows where the Dow has found support. The area shaded in green highlights in more. It made for formidable support this time. We have got to break through this level to get serious, bears!


Here's a close-up of the same chart. I'd say the circled area is about as high as it's going to be able to make it (11,150 or so). If it busts above it, I've got some more thinking to do!


Gold still looks like a solid H&S in the making:


And the S&P 500 looks like it's retracing to a short-term trendline.


As is so often the case these days, I've got a plane to catch - but I just had to post a few remarks after today's madness!

24 comments:

PB said...

hmmm, a 66.6% retracement from the July 6th high of 11,250, to the low of 10,700, will bring us to 11,066 or so. I believe today was a reflex bounce and there is not much upside. The former resistance at 10,700 or so took about 3 months to break through to the upside last year. So the early Aug meeting of the Fed will probably be the tipping point that will dirve this market through support, as the bulls (again) will not get their pause.

Anonymous said...

I agree that it's time to start looking for shorts again, but don't be too anxious. I think Tim's got it right -- there is still some upside room to move (along with a definite downwards move off resistance) before the risk is eliminated on the short side.

Tim, you need to fix that chart of "Gold". Yes, it has a nice H&S pattern, but it's not the chart of Gold. The actual chart of Gold is in no-man's land right now. Bounced off a minor support level at $620 and rallied nicely on Bernanke's dovish comments, but I'm not sure that the rally will be sustainable. There were lots of commercial shorts applied in the $650-670 region. I don't think they all covered today and I wouldn't be surprised to see the short side increase, even at $640.

-Tony

Anonymous said...

Time to start shorting again? The p/e on the S&P is the lowest it's been in 12 years and you're talking about shorting just AFTER the nasdaq has had its biggest monthly rise in short interest ever? That's pure madness.

Mark said...

The bear market is definitely a patient game. Lesson learned today as I got out of almost all my longs yesterday when no action happened. The ones I left gave me a moderate profit and I had a moderate profit overall. But it could have been incredible!!!

The market will likely move a little more up, but come next week it will correct itself. Along with Tim, I think the rest of this week is great shopping for some bargain puts.

Y'all remember when I said I have some strong trend lines pointing to 108-109 for DIA for July's option, it got down to 107 which is where I unloaded it because of what happened this past Friday that made me anticipate a rally. Will it get there on this Friday? Maybe, but I didn't want to wait to find out in anticipation of a rally before then.

My DIA Aug trend lines look to be @ 104-105. If it is under 105, then it will have broke a 5-year support line, and likely the DOW will have broke a 20-year support with it.

Bear last week, bull this week, bear next - I think I'm getting the hang of it!

mike said...

Yesterday I mentioned I went long because I was suspecting the next few days to be sideways or a moderate bounce. Boy, did I underestimate the bounce!

I have mentioned here before that in addition to Tim a few other newsletter guys I read (Neely from Neowave) were predicting a large drop througout July.

I am still in the bearish camp but Neely changed his position today and unless I misunderstood has taken a bullish position. Up until recently he has been very much a near term bear but believes the structure of the charts and wave patterns to him show that a strong bull market is more likely to break out then a bear.

He has been very accurate for the last 45 and I believe drafted his change of opinion prior to the big surge today. Anyway, just a word of caution. I desperately wanted to short a bunch of stuff at the end of the day based on trend lines but am going to take a little wait and see.

Mike

Hbarr said...

This bounce is getting the market overbought in a hurry. Give them another two days to run things up into options expiration and it'll be ripe. If Tim is right and the high for this bounce is below 11,250, the Dow could be making a descending triangle. That would be a big pattern, measuring down to 9,750. Is anyone THAT bearish? Anyway... third test of the 10,750 area could be the charm.

Oil came all the way down to its 50 day SMA and bounced pretty hard to close a point above the low of the day, and it's getting oversold going into the big Friday when HAL and SLB confess to all the loot they made this quarter. If I'm going long anything for a quick hit and run it's in the energy sector.

Anonymous said...

will the market just die already ? Nah, because I have puts.

Anonymous said...

I just looked at all 100 NAZ stocks and DOW 30 stocks ... anyone see a pattern on 90% of them ?????????????????

Hmmmmmmmmmmmm.

I think there is gonna be some down days a coming.

Anonymous said...

hey people, news flash! I think there is some kind of war or something in the middle-east. Is this true? If it is, I am loading up on stocks, as they are clearly the best performing asset class during times of uncertainty. Wish me luck!

(I guess this is what a typical bullish blog looks like)

Hurricane5 said...

Well folks, it's that time again. My #1 Stock Pick Of The Year will report earnings on Monday. Yes, Nutrisystem. I needed you in NTRI at $40 a share several months ago. I need you in NTRI today at $65 a share. Those who have heeded my advice are up over 50% this year. If you are just wanting to get in, now is the time.

The company gave guidance of .44-.46 on revenue of 118-122M. They guided down about 23% to account for seasonality. However, Nutrisystem in a mature state would not see a 23% drop in earnings q/q. Because Nutrisystem remains in hyper growth mode, I'm not sure they will even see 10% of seasonality. The company expects full year revenues to come in at 490-510M. Full year EPS is expected to be $1.80-$1.90.

I believe that Nutrisystem continues to grow rapidly. They just launched their men's program in January of this year. In the first quarter, the men accounted for 45,000 of the 235,000 new customers. This is up about 475% y/y. If you have been watching tv lately, you have most likely seen a nutrisystem ad. I believe they have dialed up the men's marketing because they are satisfied with the CAC costs. The women's program obviously continues to grow very rapidly.

Over the past 5 quarters, Nutrisystem has exceeded their revenue guidance by an average of 27%. Over the same 5 quarters, they have exceeded their new customer guidance by 40%. Despite this, 28% of the share float is shorted. The large pool of these shorts has led to massive gains following earnings releases. Over the last 7 quarters, the stock has skyrocketed an average of 21% after the earnings release. 4 of the 7 quarterly reports saw gains of 30%+ in the aftermarket. In Q1, the stock rocketed 34% and needless to say, I made a fortune. A company growing at this rate trading with a multiple less than 50 is a gift.

Dan Marino just signed on to take care of the marketing for the men's program. I believe he reprsents a macho type figure that will give men confidence to go on a diet. If men see that an NFL football player will go on a diet, then they will too. Being able to eat burgers, pasta, and pizza doesn't hurt either. With over 70% of adult men over age 35 overweight, the market is enormous.

The bottom line:
Q2 new customers: 190,000 (22% beat)
Q2 EPS: .57 (24% beat)
Q2 Revenue: 140M (14% beat)

Full year earnings of $2.2
Price Target: $120
AH stock spike target: 20%

Mike Stone said...

Mike,

I got an e-mail about neowave going bullish todady. I don't subscribe to it though. How long have you been a member?
You think it's worth the $$$$??

-Mike

Anonymous said...

Tim,

Review as I am confident you will the intraday 5 min/1 min and discover your bearish dreams!!!

Gaps are abound in the Midcap 400 (which I trade) and the Russell 2K as well as the S&P 500.

Lower gaps in the Midcap 400 @716.76/Russ 2K @ 674 and the S&P 500 @1238 ....if this rally stalls even a bit these will be targets.

The Russ 2k today filled an overhead gap at 701.3 then backed off and is holding just above at 702..

I am currently short the Midcap 400(EMDU6) 5 @ 740.20(ouch) and 5 @ 744.10 with avg @ 742.15 which looks to be ok at this time though the AH is up a bit.

A very tight stop is in order here since I avg'd up and I am out if price moves back above 743.80(200 ema.@1 Min. chart) for a period or 2 at the open A.M. 7/20..

Hope your flight went ok...Looking forward to the Thursday open!!!!

(Not) Always a Bear

costas1966 said...

What if we are all wrong, hurricane5 is right, his absurd targets on goog hans and ntri materialize and the market is going back to the recent highs or even higher. I tried to get out of the bearish mind frame and see if there is anything wrong on the bearish case. I did not like what I found.

I know that I have been bearish on the market for quite some time now but I definitely I don't want to be commited and biased to one side of the market or another and miss a turn when that turn will happen. For the first time in months I see a few cracks in the foundation of the bearish case. I don't know how serious these cracks are and only time will tell.

Here is the list of them:



S&P 500 tested and held the June low.
Since June 14 the quality of volume on the S&P 500 has been on the upside, meaning that the volume was more heavy on the rallies than on the sell offs.
S&P 500 held 2 year trendline support.
Nasdaq tested and held support from 10/2005.
Quality of volume on the Nasdaq has been also on the upside since June 14.
A/D line on NYSE is very oversold testing March 2003 lows.
The number of NYSE stocks hitting new lows are at high enough levels to warrant an intemediate term ralliy. Similar levels of new lows have indeed started intermediate term rallies in the the past 2 years.
Earnings are not falling appart. For example MOT, IBM, AAPL, all came with good numbers. Ge whch is a mini U.S. economy in itself met expectations and reaffirmed 2006 guidance
Banks like WFC, JPM, BAC all had great numbers indicating that credit is still expanding at a steady pace.
The Fed has indicated that it is worrying about going too far and I think there is a really good chance for a pause.
10 year bond yields have failed to make a new high recently.
Crude oil might be putting a double top formation which could ease inflationary pressure.

I think there is a decent chance the market can have a rally back to the highs. the next retracement will be the clue. I think we rally some more here and then if the retracement happens on low volume 1.5-1.6 billion shares then watch out bears. Next retracemet is the clue and off course the rest of the earnings, which must show the resiliency they have been showing so far. But most important will be the retracement. At the other hand if the retracement happens on heavy volume, and I need to see 2 billion shares or more on the NYSE, then the bearish case is still valid. Lets get rid of our biases and have an open mind.

Anonymous said...

Does a bear shit in the woods? No, in his pants...

Anonymous said...

Costas,

One thing you have to consider is that the market looks ahead 6 months. So, yes, for the next 2 quarters, earnings may continue to be good. Reaffirmed guidance for NEXT quarter (or even the rest of the year) isn't necessarily bullish.

I like your thinking, though. Every good investor needs to see the big picture, not just one side of the equation. I just think that it's inevitable that the market will turn south. Maybe not tomorrow or next month or even next quarter, but it will turn eventually.

So many people have predicted a choppy summer it's not even funny. We could just be seeing "normal" choppiness here. A few heavy down days with some wild up days. And yes, we still haven't broken through the lows. We could continue to trade in the 10,700 to 11,200 range for several months, who knows.

PB said...

Hey Costas:

interesting points, but weak and fleeting as in a week to 2 weeks time all that you mention cld hv been remedied by the market. Oil trades up/down with the economy, so weak oil, will beget weak markets. NDAQ has been extremely weak lately and the big board is soon headed that way. Also, we are at the tail end of this expansion, not the beginning, so I am not sure how anyone sees new highs here. Also, the DOW successfully 'tested' the highs at 11,600-11,700 TWICE in the last 5-6 years??? As soon as we touched 11,600 in May, it dropped a 1,000 points. So yes, very short term (and it might be over today) it was good to be a bull. But I would not change just 'cause of a snap-back rally.

Thx

Anonymous said...

Guys,

No worries and be patient. The earnings are not that good, they are actually really disappointing. The reason that some look so good is because there stocks have been beaten down AAPL, EBAY, and the analysts lowered the bar.... but honestly... markets usually decline Sept/Oct. This is creating yet another shorting opportunity. And I love it.... How could any bear complain this summer?

The yield curve is inverted, growth is slowing (remember that today's earnings reflect the rate hikes from 6 months ago not the recent one) which means that stocks must come down when they lower guidance etc.

Here are some ideas, AMZN and GOOG. Ya maybe the Goog is a bit risky before earnings....unless you were in beforehand from a higher level....AMZN is definately a short.

Enjoy your day.... this is the most predictable market this summer, enjoy it.

Anonymous said...

looks like we be rallying today.....aapl, qcom, ebay issues downside guides and of course aapl flies qcom recovering all of its loss from afterhours and ebay up as well. Crazy.

TR said...

Interesting discussions today. Pockets of growth will alway allow some stocks to rise and create new highs. I have to wonder about overall growth or a slowing in the economy that will affect a lot of the companies listed above.

No crystal ball, but I like the technicals confirming weakness and no true commitment. Still summer trading so I would expect that volume would be light.

Exiting my DDM / MVV longs today. Nice little bounce from the day before. Like those new proshares as a way to double the market performance.

Suggest people look at the spx 1300 / 1310 credit spread today / tomorrow for a few bucks.

Mike Stone said...

crash
crash
crash

oh baby, please..just crash

Sanjay Sola said...

Dow is leading the market again. not a good sign. we should head up a little bit more. Nasdaq needs to test 2100 at least.

Anonymous said...

same here Mike, hope this bitch crashes BIG TIME, it's wearing me down!!! This mkt is on crack the way it's been behaving one day to the next. Bernanke said NOTHING about pausing, yet the crack-heads stepped in to buy on a day the CPI #'s were inflationary. There is no bull case to be made, yet these fukkers don't let up!

mike said...

Mike Stone:

Responding to your question re Neowave.

I have subscribed for about a year to his S&P service. He has a different way of looking at things so it is another perspective for me on the market. He's been in the business a long time and if you buy into the wave theory stuff his version is highly respected.

I also took some training from him so I know he uses channels, etc. in addition.

Since I'm relatively new at all of this I attempt to synthasize as many different opinions together and then make a final decision about where things are going.

For instance, I had a bunch of market puts open as of Monday. On Monday he sent out a note to close short positions. I wasn't convinced but also saw Tims note/s about a likely bounce. With that in mind I looked at the charts again and saw how oversold things looked. I really didn't want to close all the positions because I didn't want to miss out on "the crash" but based on the opinions and then my read of the market I closed the puts out early Tuesday as well as some more volitle shorts. (Thank God). I also then went long on Tuesday w/ some DIA and QQQQ to hedge my remaining short positions.

I don't think that I would have made that decision without input from various sources. Among those that I think are most credible are Tim, Bill Cara (his blog), Neely and Robert McHugh, (who has been a bear for a long time but looks at things another way also).

I will say that for the last 30 days Neely has been dead on. I even remember the last week of June he put something out that said we are going to hit lower lows and then higher highs all in the same week - and he was dead on; it was like he scripted the market.

That is why I'm a little concerned right now. I buy into the market still going down quite a bit (per Tim and Bill Cara) but at least for now Neely has flipped and is bullish. I liked it better when everyone I respected had the same opinion.


Anyway, hope that helps.

Anonymous said...

let's turn this 60 point loss into at least a 100! 2:30pm EST