Friday, August 04, 2006

Why Is this Man Smiling?

Before I forget, thanks to everyone who posts to this site. Yesterday's blog entry got over 100 comments so far - a new record! There's quite a sub-culture growing in this blog! We should get t-shirts made or something :-)

This is a very unusual intraday post.

When I saw the market up (another) 70 points this morning, I was pretty cranky about it. Because, believe it or not, I'm not going to keep generating excuses for a bear market (e.g. "Big, round numbers are major resistance points, so there's no way we're going to cross 20,000 on the Dow today!") I'll eventually give up if this keeps going higher. But not yet. And here's why.

It's the charts. What the charts are telling me is that the Fed rally is already done. We don't have to wait until Tuesday's insanity. The bulls have enjoyed this ride already. The futures market is pricing in an 85% probability of the Fed pausing their rate increases. Which is what the bulls have been praying for. 85% is pretty damn high.

When I was first working on this post, the market was near its daily peak. It's already softening fast. But that's not why I feel confident. It's the charts. Like I said. Let's take a look.

The VIX has finally come alllllllllll the way back down to its trendline. It touched it perfectly this morning. All the fear seems to have been squeezed out of the market. The markets having everyone smoking ganja again. So puts are cheap.


The Dow 30 is, among the index charts, the most disappointing for a bear. If you look back at the chart I made of the Dow back on July 28th, you'll see that four out of the five "do not cross this level!" points have been blown through. Being beneath the ascending trendline (not numbered, but shown in the graph) is the last line in the sand to survive.


But the charts of the indexes - even the $INDU - still suggest the miniature rally we've been suffering through is over. All the indices are bumping up against trendlines that will be tough to cross. Here's the Nasdaq Composite:


The S&P 100:


The S&P 500:


The Dow Utilities may have put in a major double top (which is important, considering how key interest rates are in the market recently):


The the American Stock Exchange Composite - the $XMI - has, for the umpteenth time, made a run at its resistance level. I imagine it'll despair and fall away as it has so many times before.


I've been recommending shorting oil service stocks (OIH, DO, RIG, and so forth). Those are doing terrific. As is AAPL. If I get time, I'll do another post today or this weekend. Good luck! And here's hoping for a shooting star (or better...) today.

71 comments:

cristri25 said...

Look at IWM .... DOWN

Tim Knight said...

The Dow is now IN THE RED. A munificent God will keep it there. Boy, that'd be a beautiful thing - to completely fake out the bull bastards.

costas1966 said...

Tim I can sense it you are so fed up with this insanity of the past 2-3 weeks.

Anonymous said...

Just like I said this morning.

All the indices will close red today.

Now, time to start loading up on SDS, DXD, QID, MZZ, etc...

-Tony

Anonymous said...

looking for some insight on MO and HUM. ive been holding on to my short positions on these two. PCU stopped out on the rally and then fell 2.5%! i zig and the market zags! im not giving up however.Thanks to all who post.trying to have discipline. its very easy to tilt! good luck to all. ChrinicTown

Anonymous said...

I smelled this happening this morning..... markets are overbought...downside momentum will pick up late next week and CPI/PPI #'s will be out of this world...remember energy peaked out last month.....

BUT until the fed meeting is over...I'm going to remain 90% cash and stick with my DIA puts.....

It just rolled over at the top end of its range..... with a big headfake yesterday and today.....

Anonymous said...

"The futures market is pricing in an 85% probability of the Fed pausing their rate increases."

Trader Tim,

Please enlighten me on this. Where do you get that info? What's the future symbol? Thanks.

bsi87 said...

Uh, Tony, I wouldn't load the wagon just yet.

Certainly it looks bullish for the bears but DXD, for example, hasn't broken above yesterday's high. Volume is about half of the 10 day average.

One could put a buy stop above the descending trendline of the ETF's you mentioned as one way to enter. Or one could put a buy limit order about halfway between yesterday's close and today's low as a low risk entry. For DXD, that'd about 68.20. Right now, the 10 day Average True Range for DXD is 1.55. If DXD closes at 69.30, a limit order at 68.20 is well within the range.

I either like to see a PM breakout above resistance. Or an AM retracement. I just don't like to chase my entry points. JMO.

Anonymous said...

bsi87: Yes, my statement was made sort of tongue-in-cheek. It's been so crazy lately, there's no telling what will happen. There's still no clear direction in any of the major indices. Yesterday the futures were horrible, yet the market ran up 120 points. Today, the futures were incredibly strong, yet the market has gone down in almost a straight line. Looks like it might sit on the 11,200 level for the rest of the day. Amazing how those "even hundred" levels seem to be like magnets.

That being said, I would certainly feel more comfortable on the short side than the long side at this point. Today is the first sign of weakness that we've seen in quite a while. "Decent" job numbers, the bond market rallying, the index futures VERY high this morning, and a continual steady decline all day.

I, too, have been waiting for a REAL breakout in gold. Just ain't happening right now. I thought today would be the day. Maybe one more trip to the bottom of the triangle before we break out. We'll know soon enough -- the trading range is getting pretty darn narrow inside that triangle.

Thanks for your insight.

-Tony

Anonymous said...

TELL ME WHY.... THIS MARKET WILL NOT GO DOWN ?????????????????

CowboyTrader said...

This morning was the point I had been waiting for; 1293 on the SPX. (see my post Wedneday 7:30am) I bought SPY 129 puts this morning at the open and have a tight stop in case we snap back Mon or Tues. I urge you to view this URL, He has been right on. http://www.sandspring.com/charts2006/cdj061806.html

Leisa said...

It's always amazing to see a rally of depressing economic data. I refuse to believe that there is such a thing as "smart money". I think that it is lemming money or trickster money--luring the unwary into dark, scary corners.

I did have some dismay when my DIA 110 puts went red today. My SPY 127's almost went to break even and then reversed. I suspect that there will another rally if the fed pauses or if the fed does not pause but softens language on future hikes.

For any readers out there, The Tipping Point is a terrific book. I suspect with the market there is a tipping point that is reached. This group (growling bears) is on the forefront of clanging the doom and gloom bell. As there is greater realization and acceptance of the economic turmoil ahead we will reach the tipping point, and I believe the market will fall as many of you are expecting. I'm just an average investor, not a trader, so I don't pretend to have any special knowledge.

spinning_head said...

I subscribe to John Murphy's Market Message, an excellent email analysis service. I thought I'd share a piece of his commentary from today, after the market closed. He is usually right on.
-----------------
A MIXED MESSAGE FOR STOCKS ... Stocks rose initially on today's weak jobs report based on the view that more economic slowing would give the Fed reason to stop raising rates next week. That tells us a lot about the precarious state of the market when Wall Street is reduced to cheering bad economic news. That seems more like desperation than conviction. If you check out "John's Latest Performance Chart", you'll see that investors are taking a more skeptical view of things. The top performing groups over the last month are gold, natural gas, telecom, pharmaceuticals, utilities, and consumer staples. All are defensive in nature. Two of the weakest groups are transportation and retailers. That's not a sign of a confident stock market. Neither is the recent action in the S&P 500 SPDRS. After rising to to a three-month high in the morning, the SPY fell back in the afternoon to record a downside reversal day. That put it back below its early July peak at 128. And it did so on rising volume. That's not a bullish sign. I recently complained about the lack of upside volume in the market to support its July price advance. The On Balance Volume (OBV) line at the bottom of Chart 10 shows it better. The OBV is a running cumulative total of volume on up days minus down days. The OBV line should be rising with the price. In fact, it's stayed flat throughout the July rally. That type of negative divergence doesn't inspire confidence in a long-running summer rally. It's hard to predict what the Fed will do next week or how the market will react to it. At this point, technical indicators are mixed. All we can do is wait and watch and react accordingly. It's not a time to be aggressive either way. Having said that, I'd continue to stick with an overall defensive strategy until market action dictates otherwise.

Anonymous said...

Well boys!! With this failed rally and beautiful slippery slope today, the Tuesday news will only be good for the bears! Either way, if they don't raise; as indicated earlier in posts, the market has already priced it in and a pretty horrible job they did today! Here is the irony, if they do raise watch out below!! Here we come!! Gran-pappy Bear out of hibernation!! Short all the way!
E

Leisa said...

Spinning Head: I too am a subscriber to John Murphy's market message. At the risk of soundy bitchy.... I also subscribe to the notion that paid for services are not displayed for public consumption. It does a disservice to Murphy as well as to subscribers.

spinning_head said...

Leisa...consider it an ad for his service. As I pointed out, the service is well worth subscribing to. The excerpt was a small part of what he said. He also includes graphs that are excellent. However, if you are so small that you can't be ok with a little sharing..well, that's just you.

By the way, it's most likely this will show up in the free weekend newsletter that often includes parts of John's commentary at stockcharts.com. Now, go find someone else who's broken the rules and pick on them. jeesh..

cristri25 said...

i also subscribe to murph. he is a good read. usually spot on. i would like someone to post all of cramers CRAP suggestions :) LOL.

Anonymous said...

It amazes me how Crammmmmer can get away with exploiting his audience. I pray that somebody starts a new show on how he is misleading all those who listen to him.
Recently I came across a lot of articles and blogs which say that doing opposite of Crammmmmer says is more profitable.

Anonymous said...

Cramer is Cramer!! Lets face it. He is reaching part of the 98% of America that could not give a rats ass (at least today) about their investments because they are uneducated and our education system fails to adequately provide general knowledge. (putting your money in mutual funds is horrible advice, but some people need that) Albeit, his advice is questionable. While we may disagree with him because we are way ahead, from an education standpoint with strategies, of those people who would rather watch entertaining TV than study stock patterns or do homework. If he gets five people interested then I have to say he is successful. Not a Cramer fan!

jockgunter said...

cramerwatch.org pits Jim against another chimp, and displays comparative results.

Anonymous said...

Reading this blog humbles me. So many gifted people in this world.Thanks to allyou guys and gals who share your thoughts and opinions.Keep up the great work,and thanks to Tim for your hard work and info!! two stocks, Hum MO Im short! Any insight would be great! ChronicTown

Mark said...

I backed up from the trading table today to figure out why things aren't going as I expected the past couple of weeks. Guess what? I had stopped looking at my technicals, and that is incredibly bad for a technical trader! Someone please slap me now! Again! Thanks. Now a boot to my arse so I don't forget it!

There are a lot of indexes and stocks that I looked at tonight that I wouldn't even touch because they don't make good technical sense. I looked at the DOW and I really felt bad I stopped looking at the technicals, because it showed bullish this whole time I've been wanting it to go down.

But now, finally, things are lined up for the DOW to go down if it doesn't get choppy like a lot of other indexes. Some of them remind me of ship's screw cavitating in the water, and everything is shaking loose! Over the past two weeks, the stocks/indexes would be up one day, down the next, no real path like they had over the past 3 months according to my technicals. One thing is for sure, they are certainly in a channel.

MarketMonk777 said...

It's a bummer that the data feed for the CME eminis went down right as the market started to tank. It was an outstanding opportunity to get some great short positions going.

Anonymous said...

Gosh, You all don't give Cramer much hope in this world, that Millionaire is teaching the herd how to think about their money finally instead of putting it into cars and weekend outings Cramer just relives the book the richest man in babylon, I think he is brave to do what he does, he may wake up the herd and they may begin to stampede wall street for stealing all their money all these years, wall street will be caught off guard when the heard reveals their Horns
Remember education is a wonderful thing but common sense usually prevails
Mr. Knight, thanks for all your time and charting,

bsi87 said...

From IBD. (Hope the board police don't turn me in. LOL) Note DAY 14 of a rally attempt! Haven't had the 1% day with volume, long or short, for some time now. ZZZZZZZZZZZZZZZZ. Hence need to reduce position size as well as more discretion in pick issues to trade.

"Wall Street got what it wanted — and it didn't like it. Slower economic growth could hinder companies' ability to generate profits, the lifeblood of a strong stock market. The Fed remains concerned about inflation as well, raising fears of possible stagflation.

Fed funds futures traders see a 19% chance the central bank will boost rates another quarter-point this week to 5.5%. That's down sharply from 43% late Thursday.

Friday marked Day 14 of a rally attempt by the major indexes. Despite some recent gains, stocks still are groping for direction. Wednesday brought a sort of faux accumulation day — stocks rose in higher volume, but intraday trading was lighter on the upside and turned heavier when stocks retreated in the afternoon.

Volume has also closed below average for six straight sessions, as many traders take vacations in August, and others struggle with an uncertain landscape."

Leisa said...

To BSI87--I've studied your message, and I've found no infractions of copyright violations. I'll take my copyright patrol vest off now!

EddieFl said...

Ok, Im still long positions. Moved up stops. One day of weak volume in my opinion doesnt end a rally. We just had a 15day rally to the up side and one day is not going to stop it. When was the last time you called the top or bottom of any rally to the very specific day, if you do that constantly, you should be trading from your 70ft Hatteras in the Bahamas right now.

The trend always go further than everybody thinks, to the upside or downside. ---Ed Seykota. one of the original Market Wizards.

Really nothing has changed, i think we stop going up vertical like we have the last 4 days, but I still looking for more upside. If im wrong I get out, pretty simple.

UrquhartCastle said...

Whatever the Fed does next week, it is going to be a pretty volitile week for the stock market. Still keeping the faith and still short on DIA. Thanks for the great blog Tim. Lots of fun reading a all the great posts!

EddieFl said...

How about a $450-million loss in two years. Yet another guy that liked his opinion more than his charts.

Big-wig, NYMEX President starts Hedge Fund, shorts all energy, it just has to go down. Where were his stops?

Do you want to be right or do you want to make money? Which one is more important to you?

http://www.traderdaily.com/news/item/3088.html

Anonymous said...

Errrr..... does nobody noticed A FAILED BREAKOUT ATTEMPT ON FRIDAY.....and then a pickup of volume on the downside......

Regardless of what the fed does, the markets are overbought... if the market chooses to go up on monday....I'm adding select put positions.

Get ready for the next down move...

acceltrader said...

QID...New Proshare hedging instrument that by going long duplicates 2X the QQQQ short.

Thought you guys might be interested in this.

http://finance.yahoo.com/q/bc?s=QID&t=1d

Tango Guy said...

Charts are OK, but you never know what the market is going to do until it does it. I thought Friday would end with a nice advance but the bulls lost out. We can see the short term trend is up. But if this is a FED market (until Tuesday) can we expect the market to roll over? After all, the economy IS slowing down ...

EddieFl said...

acceltrdr, Good tool.

It trends nicely on the 30 minute charts, not much volume yet,or history for that matter, but Im sure it will pick up.

The one day, the cubes lost 2.0%, the QID went up about 5.0%, very nice,

thanks for info.

Anonymous said...

eddie: there are several ultra short (double) ETFs. I think they're all from ProFunds.

DXD
QID
SDS
MZZ

I think there are others, but I can't remember them off the top of my head. I have them written down somewhere, though.

-Tony

Anonymous said...

I think these profund ETFs are the best thing to enter the marketplace in a long time. Why trade stocks when you can get the whole market in one ETF. I have traded QID, PSQ and QLD. I did buy QID 2 weeks ago thinking we were headed down but when we started to rally I bought into QLD to hedge against my losses in QID. Now im waiting for a big selloff in the nasdaq so i can sell my shares of QID above 80 and let QLD ride higher banking on gains from each rise.

Anonymous said...

My take on the market is a 1/4 is priced in, however if there is a pause i think the market will rise followed by a hard selloff, people will come to mind and think a pause means there is a slowdown on the way. It will be quite difficult to judge where the markets do go. It will be an extremely volatile week. Again no pause and say hello to 11k by tuesday afternoon.

EddieFl said...

Thanks, Tony,

I like the ETFs, I'll look into these this afternoon. One that I trade often is the ILF, latin american fund.

I can take you for a wild ride, but when it moves your way, it is very nice.

thanks,

Eddie

cristri25 said...

It really does NOT matter what the US fed does. The World Banks are all hiking reducing liquidity in the world. The US FED should raise to keep foreign investment dollars coming in. The US can't afford not to be the lagging rates. AUS, ECB, and BoE raised last week.

There is a lot more inflation in the numbers. There are some serious reasons for a pause but on a global playing field its not just about jobs in the US. A pause will be for stocks for about 2 hours :)

cristri25 said...

edit : A pause will be good for stocks for about 2 hours :)

Leisa said...

Profunds (in contrast to Proshares): Profunds has several funds--they are not ETFs, but rather mutual funds. They have a nav that you buy at the end of the day. The funds have various minimums. Their bear funds (inverse funds), and they have several, require a 15K investment. Some of their other funds have other minimums. I moved some money over there as Fidelity was rather generous in their assesing of fees when I bought through Fidelity. John Murphy (a conciliatory nod to spinning_head) has recommended several of these. I have their sector funds loaded on a Fidelity watchlist to give me a good daily sector overview of performance. You can check them out at profunds.com

Anonymous said...

Anybody thinking HANS good to short for now?

Anonymous said...

HANS seems to have bounced off its 23.8% fib retracement at $40. i am waiting for it break that convincingly and target would then be about $33. (earnings will be out tomorrow)

Anonymous said...

ProFunds Mutuals / Pro Shares ETF's - same company.

The funds you can trade for free @ Schwab. No commissions, short term redemption fees, etc.

Anonymous said...

ProFund Mutual funds are free @ schwab that is...ETF's still cost.

Leisa said...

Anonymous: Thanks for this clarification (boy do I feel stupid!)

Anonymous said...

One thing of note is that during the last hour of the trading day on Friday there was exactly 1 post in the comment section. I wonder what happened to the bears! Getting slaughtered that is! They were fooled in the morning by the pump and covered, then missed the big ride down. I know I would have done this just 1/2 year ago before I caught on to the games DA BOYZ (MMs) play. In this market, one has to have a belief and hold steady to it, otherwise he will be like any other amateur and get shaken out by DA BOYZ and capitulate at the most inopportune of times. Have faith BEARS! Great post Tim!

So far homebuilder stocks have been slaughtered, then came restaurants, who's next? RETAILERS! Short short short! AEOS ANN CWTR CHS BEBE

Sanjay Sola said...

oil is going to make a new high this week with the shutdown in Alaska. if we get a hurricane, it's going to be major trouble.

Anonymous said...

dow futures down!this could be a good day for the bears.discipline is the key for me. good luck to all! ChronicTown

EddieFl said...

The futures have pulled back up getting close to the opening of the bell. I think more important than oil supplies right now , is the FED tommorrow. People are waiting to see what we get, then start staggering to form a trend.

Im holding longs, unless we get a massive sell-off today. I may sell some tomorrow morning, to lock in profits and stay light/nimble and be ready for what the market does after the FED announces.

All eyes on the FED.

Anonymous said...

hans down huge in premarket

Anonymous said...

Since the bond market is pricing in a 88% change of a pause tomorrow, I cannot possibly foresee ANY sort of positive rally if the Fed actually DOES pause. It's already priced into the market.

However, if they do NOT pause, and give NO indications of a pause next time, then look out below.

That's what I'll be playing for -- a no pause and no indications of a pause next time. If they do pause, things could get dicey in the short term, but the markets should still start to decline quickly enough in the coming months.

-Tony

Anonymous said...

Hurricane 5 left right before hans imploded. Lucky him he would have some explanation to do.

bsi87 said...

Wonder if the big boys are trying to get 'em down today and tomorrow AM for a rally after the Fed meeting?

Have SDS and bonds. Short OIH and gold. Full disclosure.

Tim Knight said...

Yeah, I noticed HANS this morning too. What was Hurricane's target on that? $500 a share or something? Sheesh. Let's get real.

Mark said...

goog was $600, HANS was $120

darcy said...

that drop on higher than expected earnings,
I wonder what would have happened if they missed

Sanjay Sola said...

Great call on Hansens. The stock is permanently broken now. i shorted at $45 and am not covering until this market goes into the oversold mark around 1950-1970 on the Nasdaq.

oil is another weapon the shorts have to destroy this market.

Too many catalysts that will drive this market down now.

Anonymous said...

no pause and im shorting KBH and TOL.

Sanjay Sola said...

This is where the distribution days begin to pile up.

Celgene is falling apart now on heavy volume. below the 50 day. high P/E leaders are crumbling apart

Anonymous said...

Sanjay, what are you shorting today?

Anonymous said...

AAPL still stays over-bought!! with all the options scandal still AAPL looking for $70. Sounds like a good shorting opportunity in the next couple of days.

Anonymous said...

What is short term target for aapl short?


thanks in advance

downosedive said...

WHAT........DOES.......IT..........TAKE......FOR..........THESE.......INSANE ........MANIAC......BASTARDS.......TO....STOP.......BUYING??????????

Anonymous said...

Highly probable that we will again close positive today. If this is the pattern, I guess we could just make money just using QID and QLD.

Anonymous said...

Tim,

Do you think that AAPL will fill the gap from $55.08 to $59.72 soon?

Pete

Sanjay Sola said...

i initiated my first short position of Apple. looking for a second trip and successful break of the 200 day moving average soon.

market is ignoring bad news for a little while. but oil just hit a new intraday high and closed at an all time high of $77.03

Anonymous said...

Sanjay, isn't it better to wait till the WWDC is over before shorting AAPL?

Anonymous said...

Here's the latest on AAPL.....

Apple Computer Inc. (AAPL.O: Quote, Profile, Research) on Monday announced a replacement for its professional desktop computer line with the new Mac Pro, which will use the Intel Corp. (INTC.O: Quote, Profile, Research) Xeon chipset, as Chief Executive Steve Jobs took the stage at the iPod and Mac maker's annual conference for software developers.

The new Mac Pro line, which will cost about $2,500, replaces the Power Mac line and will use dual Xeon chips in each computer.

The new Mac is twice as fast than the one it replaces, Phil Schiller, head of Apple worldwide marketing, told conference attendees.


-------------------------

Any thoughts?

Christopher said...

I pose a question for all those short on HANS. Will this stock go lower, even though they had a fairly good quarter? The stock hasn't broke below 200dma just yet, however it is under severe pressure. As far as the industry, would jones soda be a better short here then HANS?

Chris

Anonymous said...

Sanjay, looks like once again you picked a good price for AAPL short!

Anonymous said...

csco reporting after the bell i think it goes to 16.25