Saturday, September 23, 2006

The Case for a Double Top

It wasn't a bad week. The bulls wanted this to be The Week of New Highs, but it was not to be. The more we can take away a new prize for the bulls, the more discouraged they will get. Which, let's face it, is all they deserve.

Oil is tantalizing close to an all-out breakdown on OIH. Within pennies, really. I like what I see.


As I look at the major U.S. stock indexes, I see some pretty big double tops. Could they be rendered moot by a pierce through to new highs? Of course. But if the earnings season, starting in early October, disappoints, we may have already seen the highs for quite a while. Here's the Dow, which got within spitting distance of a lifetime high this week.


The oft-ignored but still important Dow Utilities (interest-rate sensitive) likewise has a double top, although not quite as clean.


The S&P 500 is of particular interest to me since I own so many puts on it. I'm feeling pretty good about where this index is positioned.


Here are all the positions I've got that will fit onto on screen. I manage four accounts, two of which are shown here. Every one of these has a sizeable put position. God help me. (As always, since these images can be illegible, click on 'em to see a bigger, more readable version, then click your Back button on the browser to return to this lovely little blog).

35 comments:

Anonymous said...

Tim

I'm a fellow bear in waiting at the moment (I picked up 400 puts on the QQQQ on May 8th for my best trade of the year -- just wish I would of held it longer than I did).

Question: With the markets so correlated these days, why carry put positions on so many different issues in related industries? I don't see the benefit to the pseudo-diversification, only a lot of time involved to manage so many positions.

You're obviously a busy guy -- what's the theory behind your strategy?

Thanks for sharing your work.

PC

Tim Knight said...

Just spreading the risk. You never know when one particular company is going to get bought out or have surprise earnings.

Anonymous said...

Tim:

Regarding the OIH, what is the textbook target for the head and shoulders bottom? i.e where would you consider covering the short position?

Thanks,


Alan

Tim Knight said...

Oh, $112 or so for the first lurch down.

Mike said...

Tim, check out the sweet chart for WYNN. I got short at $78. I've already covered a bit, but this thing looks like a monster.

Tim Knight said...

Yeah, I have followed that for a while. Hasn't really grabbed me yet, but it's interesting.

Anonymous said...

Sept. 25 (Bloomberg) -- Crude oil fell to a six-month low in New York after Iran's President Mahmoud Ahmadinejad said his country may consider discussions on its nuclear program, easing concerns that supply will be disrupted.

What if there is no resolution to the problem? Will oil spike back up to 70+. Is this the drop before we see oil go to record levels????


Mike

John B said...

Well, I see that while I was absent, the bond traders decided to discount another depression. The yield of the 10 year fell 20 basis points from 4.79% last week to 4.59% as of Friday. I will leave the analysis as to whether that is rational or not to CNBC and instead try to focus on the spread between stocks and bonds.

As of Friday's close the S&P was at 1315. There is no new analysis of earnings, so they continue at 79.14. Assuming long term growth at 8.37%, the discount rate required to discount future earnings to today's price is 13.02%. When compared to the 10 year's 4.59% yield, the spread widened from last week's 8.20% to 8.43% now.As a reminder, the highest the spread has been in 25 years was 9.92% in August of 1982 while the narrowest was .57% in April of 2002 and 1.13% in January of 2000.

In order for the spread to get back to the same level as last week, the S&P 500 would have to be priced at 1,349 today...quite a rally...but only one to catch up to the bond market. Of course, the market could be discounting a slow down in growth to 7.75%...a real possibility.

Even more sinister...maybe the market is discounting a dramatic slow down in growth at energy profits...the only real area where growth has occurred recently. But that is an analysis for when I am at home.

Anyhow, be concerned about energy profits and hedge fund losses...we could be setting ourselves up for what old bond traders call a "deleveraging festival". Only this one could be bigger than Long Term Capital because it involves large bets on energy.

Good Luck


John B

jblack010@gmail.com

Sanjay Sola said...

with the decline in oil prices, I was compelled to go long as soon as the Nasdaq went green. picked up some AEOS and GME on sale.

smallswinger said...

My Small Cap Swing indicator moved to a SHORT signal early on 9/19/06. Bad news on 9/21 in the Leading Indicators and the Philly Fed Index was actually seen as “bad news” (wonder of wonders) – same for Existing Home Sales on 9/25. The current SHORT signal is at -59 on 9/25 @ 11:15am ET.

Here are the recent values of my Small Cap Swing Indicator for the last four switches.

. . . . . .Small
. . . . . . Cap . . . . . . . . .Russell
. . . . . .Swing . . . . . . . . .2000 . . . Cumulative
Date . . . Ind . .Signal . . % Chg . . . . % Chg

08/28 . . +05 . .LONG . . +1.1% . . . . +1.1%
08/29 . . +23 . .LONG . . +1.2% . . . . +2.3%
08/30 . . +39 . .LONG . . +0.8% . . . . +3.1%
08/31 . . +48 . .LONG . . +0.0% . . . . +3.1%
09/01 . . +52 . .LONG . . +0.1% . . . . +3.2%
09/05 . . +62 . .LONG . . +0.8% . . . . +4.0%
09/06 . . -19 . .SHORT. ..-2.1%. . . . . -2.1%
09/07 . . -43 . .SHORT. ..-0.8%. . . . . -2.9%
09/08 . . -61 . .SHORT. ..+0.3% . . . . -2.6%
09/11 . . -72 . .SHORT. ..-0.1%. . . . . -2.7%
09/12 . . +18 . .LONG . . +2.4% . . . . +2.4%
09/13 . . +41 . .LONG . . +0.8% . . . . +3.2%
09/14 . . +54 . .LONG . ..-0.4%. . . . . +2.8%
09/15 . . +65 . .LONG . . +0.2% . . . . +3.2%
09/18 . . +70 . .LONG . . +0.0% . . . . +3.2% (short triggered)
09/19 . . -06 . .SHORT. ..-0.5% . . . . -0.5%
09/20 . . -05 . .SHORT. ..+1.2% . . . .+0.7%
09/21 . . -13 . .SHORT. . .-1.0% . . . ..-0.3%
09/22 . . -37 . .SHORT. . .-1.2% . . . ..-1.5%
09/22 . . -39 . .SHORT. . .-0.1% . Intraday @ 11:15am ET

Normal LONG target: . . +65 to +75 (max: +95)
Normal SHORT target: . -65 to -75 (max: -107)

I remain 100% invested in SHORT positions as Friday’s close, 9/15/2006, when the trigger was close to switching.

I see more down days than up days this week.

J said...

Joe B is still bearish, f*&k.....

Anonymous said...

give it up guys, the market will keep on goin up.

Anonymous said...

just keeps going up, sh#t

marhattan said...

You know what they say... It's only when the last bear gives up, that the market will tank...

Don't des-bear.... Sooner or later, we'll be right... ;)

Anonymous said...

"give it up guys, the market will keep on goin up."

The market isn't up that much this year.....and the indices haven't done anything special yet this month but trade rangebound......

This feels artificial today though...the trading. I suspected last week that we may go up again hard this week but look at brcm, akam....MOMENTUM.

EddieFl said...

Going up, ,,, like i heard before that markets probably have seen thier lows for the year.

Lose your opnion and increase the balance on your trading account..

the trends always go farther to the upside or downside then everybody thinks.

Anonymous said...

Tim,

On the SPX what Month and how far out do you go since these tend to be expensive (low intrinsic value)?

MS

PB said...

short squeeze!!! These mf's will never run out of reasons to buy! Never mind that earnings are slowing etc. the market couldn't be happier! Excellent time to short!

Anonymous said...

C'mon BEARZ!!! Let's start fukkin' selling already!

Sanjay Sola said...

better to just trade this market and forget going long or short on either side for more than a day.

this market is acting abnormal, imo. i just trade and forget about everything else. it's a lot easier.

PB said...

the Dow is trying to break it's record today! UNBELIEVABLE!!

stockshaker said...

don't freak out! thats how you lose your money. Just like Sanjay said, just forget everything else. IT IS UP, we know that, but if you were to play the long side, I have a feeling that you've pretty much missed the boat. Things are really overbought (obviously), and I think you would be safe holding on for a little bit for the pullback.

Unless of course, you're individual stocks have already violated resistnaces, then yes, you should be changing up your strategy.

Look at the individual stocks, don't just get phased by a 100+ dow movement, becuase I still see so many good stocks poised for downfall - and that means something has to give soon enough.

Stay calm, always.

Anonymous said...

I admit to being very confused.

I keep reading that we are most likely headed for/or already in, a recession. The falling commodity prices and interest rates would confirm this, if true.

Yet the new breakout industry group is ...retailers.

Now, one of the above things has to be incorrect.

which is it?

look at the chart for Target for instance...TGT ...up like a rocket

Anonymous said...

Carl's turning bearish. If you don't read this guy check him out. He's good.

carlfutia.blogspot.com

R41

PB said...

Bearish??? Come on!!!
he's looking for 1400 on the S&P by year-end!!

plus, he won't even post your comments!!

Anonymous said...

PB,

Patience.

9800 on the DJIA after the top.

Patience.

R41

Sanjay Sola said...

oil must be close to a bottom.

Anonymous said...

Huge reversal in the oil sector. If oil turns around, it will be the cataylst for new highs in this market.

Carl R said...

Is it a good time to short AKAM? Indicators seem to be overbought.

Anonymous said...

Anonymous said...
Huge reversal in the oil sector. If oil turns around, it will be the cataylst for new highs in this market.

1:56 PM


WHAT??? NO IT WONT.....

Anonymous said...

"Anonymous said...
Huge reversal in the oil sector. If oil turns around, it will be the cataylst for new highs in this market. "

Typical bull.....

I thought that it going down was the catlyst....for the market going up..... now the bulls will say that it going up means the economy is booming...nonsense. I still smell COmplacency.

I'm ignoring this weeks acting and staying away from the market....markups-end of the quarter.... careful.

Anonymous said...

What an interesting day, wake up to see the futures up, market opens up then turns down around 10am. I stepped away for a few hours only to see market up about 1%. Then I took action, went long QID at $61.30. Dropped a bit afterwards, but think it heads back to $62.50-$63 sometime this week.

This whole markup at the end of the quarter is starting to bother me, if this is the case this time around, at end of December I will be going very long.

Trader 2006.

plunger said...

talk about having your head so far up your ass you can almost see the light again, you guys are ridiculous, are you traders or just someone who only wants the market to go down no matter what? trading to make money is the game, is it not ? open your eyes and trade technicals not fundamental shit, when patterns are proven , supports violated, resistance broken act accordingly, only then, not what you think it should do, but what it does is all that matters.

EddieFl said...

AMEN, AMEN plunger,

I have posted repeadetly , post after post upon post about doing what you are saying.

What it comes down to is do you want to be, feel, need to be, hope to be, like to show off, strokes your ego to BE RIGHT or do you want to make money. Sticking to your trade/opinion until you are right, is a loser's game.

Because being right and making money dont always go together. think about that.

Anonymous said...

ok lets see what the smart guys know...... why are there so many divergences in the market???? Have they confirmed the move???

Fundamentals don't mean anything??? Yes they do to me. When they are bad as they are now, they add risk to the trades.... now that is great that so many of you are so confident in your trades...but I'm not and I would rather protect my gains this year. Until I get confirmation that this move is for real....

Let me ask again, are earnings going to lead the market to new highs, or is the idea to throw cash at the market....just to see it up.

This is an irrational market right now. and perhaps just maybe some will get a rude awakening when people start realizing oh my we need to realize that companies don't deserve these multiples.....