Friday, September 01, 2006

Good Riddance, Summer!

Well, another hard session for the bears. I see a lot of bears throwing in the towels in the comment section. Sad, sad.

Well, let's take a step back and look at the bigger picture. Here's the $OEX. It's getting back to to a pretty major Fib retracement level. We are way below the all-time highs set back during the bubble, so there's a fair bit of overhead resistance. We did not, however, have a double top, as I speculated we might yesterday.


The $INDU had an especially strong day. We are just 300 points away from the all-time high set back in January 2000. Can you imagine the headlines if we got to a lifetime high? Jesus. Reporters are running around like crazy as it is just because we're at three month highs on the major indices.


The $SPX has done a yeomans's job fighting its way up the wall of worry. It's discouraging but astounding to behold.


I will now cast off everything I hold dear, grab an air sickness bag, and offer up the only charts I could muster that look bullish, at least for the short term. Here we go.

ALL:


CP:


SHLD:


UNP:


The market hasn't been much fun to trade for bears since mid-July. It's been a real drag, actually, for six weeks now. If September - the month of the bears - doesn't turn things around in a major way, we should all sign the Declaration of Insanity that the rest of the world has apparently agreed to and just move on........

43 comments:

Anonymous said...

Tim, I was using Prophet and noticed something new tonight, that when I draw a trendline the %angle comes up, can you tell me what it means, or does it have a technical use? thanks.

~ Nona said...

Cheer up, Tim. Things are bound to get worse.

~ Nona

Danny said...

I enjoy your writing on every trading day. Traders need bear views to banlace their thinking.

Could you share which blogs you read mostly? Thanks

Danny

downosedive said...

Whatever trading systems you use, unless they show buy, buy, buy.....you might as well throw them in the darned rubbish bin (does that include phrophet?)Nothing counts for nothing these days. Dow 12000 is the next restitance. The bear case is now a wash out. Only a nuclear bomb can stop the rot

Anonymous said...

"Whatever trading systems you use, unless they show buy, buy, buy.....you might as well throw them in the darned rubbish bin"


Hahahaha! Classic stuff, nosedive.

That's so very true! For the last 3 weeks STRAIGHT, if you weren't BUYING, then you weren't making money (generally speaking).

I love it. All the charts showed huge resistance levels, rising wedges, low volume, etc. All bearish signs, yet the markets went up and up and up as if everyone was hoarding their shares like they were gold.

Actually, gold actually went DOWN in the last 3 weeks, so stock shares were actually more precious than gold.

Go figure.

-Tony

EddieFl said...

Costas Im replying to what i see technically.

My indicators have been bullish since mid-june, It is amazing that SP500 rose even through negative chart patterns and trendlines, but i find that to be the case with momentum indicators more often than not, going through any other indicator or signals out there. I use momentum indicators for the most part, I get some annoying whipsaws, but I always get the big moves, 3 or 4 a year is all I need. Actually this move since mid-June has only been a moderate move, not as large as the May-Selloff.

Anyways what I see on the SP500, based on Friday's move: just broke out of the sideways range it was in for the last 2 weeks, it was light volume though. I think we are at a PIVOT point in the market, we either see follow through to the upside to the highs at 1325 or its is a false breakout and we reverse quickly to go lower, which the Bears in here will be creaming thier pants, im sure.

I mostly trade the SPY, DIA, QQQQ, OIH, BBH, ILF,, I like baskets or ETFs, They trend more steadily and I dont get single stock surprises like negative news, earnings, etc...

plunger said...

"the market can stay irrational longer than you can stay solvent"

John said...

Here we go again, time for the group to be bored with my analysis.

Interesting things happened this week. Earnings on the S&P we raised by 8 cents, the S&P rose from 1295 to 1311, reducing the "yield" or discount rate for future earnings from 13.07% to 12.97%. Fortunately, the yield of the 10 year fell from 4.79% to 4.73%. That makes the spread or increase return from stocks at 8.24% versus last week's 8.28%.

Still, the spread favors stocks by a wide margin. The average spread since 1982 has been 4.89%, with a high of 9.96% in Aug of 1982 and a low of 0.57% in April 2002. The consistent long string of low spreads occurred between April of 1999 and February of 2000, with an average of 1.56%.

If the spread were to go back to the average of 4.89%, the fair market value of the S&P 500 would be about 1,970, assuming the 10 year yiuelds were unchanged at 4.73%. If the 10 year were to decline in value, causing yields to rise to 6%, the fair market value of the S&P at the acverage spread would be 1,672, still a substantial increase from current levels.

What could hurt is a decline in profitability. If profits were to decline by 15% to 66.70, but the spread revert to the average, the S&P vaule would be 1,670, assuming the 10 year yields stay constant.

If the spread were to go back to the high of 9.96%, and the 10 year stay constant, the S&P probably would decline to 1,095, which I see as maximum downside.

So, that's the range I see at maximum...1095 to 1970. Pretty wide range, but the risk is that I have underestimated the upside. If the S&P were to go to the spread witnessed in 1999, the value would be 3,200.

As they say, buckle up, we may be in for quite a ride.

Good Luck...

John B

jblack010@gmail.com

Gemma Star said...

John and EddieFl,

Thank you very much for your detailed comments.

Gemma S.

Anonymous said...

Wow John! --- you're effin' crazeeey!!! 1970 on the S&P and you think you might have undervalued it? We're at the top of the profit cycle for christ's sake and bonds are REALLY OVERVALUED. So we're priced for perfection at 1300. Your anal-y-sis is good, but it damn well near gave me a heart-attack!

-Waiting for a sell-off to go long!

John said...

Everyone is waiting for the sell off to go long...bet we don't get much of a sell off.

John B

EddieFl said...

Your welcome Gemma S. I may have left the "creaming in thier pants" part of my post off, if I new there were ladies in here reading our blog.

Anyways, Happy Trading..

Anonymous said...

I read this blog a lot (and I really like it - thank you all), and one thing is strangely absent from the bearz here - GOOG. Google is a market sentiment stock and it's headed for a fall (both on it's own AND due to market sentiment.) I have played it twice to the downside so far (from 440 to 400 in late May, and from 420 to 385 in July), however, I'm not on either side at the moment. It's just that I don't ever see/hear much on this one, and with such bearish sentiment floating around it seems like a natural. I guess the RUT is kinda the same.

Happy Hunting


Short Google

Tim Knight said...

I don't mention GOOG anymore because it's godawful boring. If it were a normally priced stock, like $40, you'd see it move just a few pennies or up down a day. There WAS a time when it was a dynamo, but God, I think that most electric utility companies are more volatile than Google.

Vince said...

I would agree with Costas. Sounds like capitulation on this board. Hmm . .

Re: Short Google - What bearish sentiment? Tim just acknowledged that the bears on this board have thrown in the towel. If you're looking for bearish sentiment, you should have seen this board 3 weeks ago . .

If anything, now everybody is bulled up.

Anonymous said...

Well everyone I just love this site, because I love bears!' My reason for commenting is that the target price that I have calculated on the S&P is 1323.38 that is basically a 99% retracement of the entire move down from 1326. Look for a drastic move to the downside at this point, and it could happen sooner, but this is an extended correction from what I see, and have calculated, Good luck to all, and keep on blogging, you'll make my trading so much more fun, Thanks! #

Anonymous said...

What happened to the arguments of market direction? Do we all agree now? I love reading about shorting GOOG today and on the same blog discussions about earning spreads historically from 1982. I'm sure neither one will ever be incorrect when your using completely different perspectives. "GOOG been flat this last week" followed by "but it’s up big since the IPO"
Tim's looking for short term volatility and the conversation is about an S&P range of 1095 - 1970. Do you think we can trade that range this coming week being it's only 4 days?

costas1966 said...

JohnB nice try but you are way off on your calculations.

Earnings on the S&P 500 based on Reuters estimates for this year are
83.88, therefore the earnings yield is 83.88/1311=6.39%. The spread vs the 10 year bond is only 1.66%. If the 24 year average spread is 4.89% as you claim, then we are way overvalued and it would take an S&P 500 at 875 to get back to the historical average.

Anyway 1.66% above bonds at this point in the cycle is too risky to my opinion and the last thing one wants is to have heavily equity weighted porfolios.

PB said...

... and what would happen if rates suddenly shot up? .... hmmm, a negative spread would overvalue the S&P even at costas 875. So, who wants to play for the next 15 points?

costas1966 said...

Lets get into the technical aspect of the market now. They are stretching this market beyond belief and we are within striking distance to the highs set last May, but volume lacks significantly. Market rallied hard last Friday on a lousy 1.125 billion shares. Volume is the fuel that makes the rocket go and if there is no fuel the rocket crashes and burns. Now I am sitting here and thinking how can they do this so they can cheat the most ammount of people out of their money.

They did manage, the past 45 days, to cheat the bears out of their money, now it is time for the bulls. How can they do that? It is simple, rally this market to May highs, marginally break them and reverse to a long slide. That is the trap I am preparing for and I will go agressively short in the event that it happens. I have that scenario in the back of my mind and I suspect with a high degree of confidence it will happen, considering the light volume , the overbought conditon I get from the Stochastics and the 14 day RSI and the seasonally weak months lying ahead.

costas1966 said...

PB very nicely put. "Who wants to
play for the next 15 points". Come on folks this is almost over. Tim one of the most bearish persons I know is puting bullish charts on the blog. Downnosedive
is completely demoralized, cheated out of his money and now a reborn bullish. The slide is very close I can feel it.

Sanjay Sola said...

too hard to buy stocks right now until there's a pullback. there's just not much room for the market to run and stocks are short term overbought. also, it's a stockpicker's market. you can't just buy anything. only select stocks are moving. better to buy carefully, rather than jumping into extended stocks.

i would expect some distribution days in the next few weeks.

Anonymous said...

test

wincity said...

test

wincity said...

John Mauldin has an interesting chart of S&P 500 for 2000 in his latest newsletter. S&P 500 rebounded to near previous high on Sep 1 that year and then sold off.

fastermasterblaster said...

my opinion/analysis for the next week is still bullish going forward.

Waves - the markets are in a 16-18 session cycle period ... the last wave was always in the money ... we are within 1-2 days of the nadir point and start of a new upwave. Another bullish cycle starting mid-week IMO. It will run for 8-10 sessions ... if pattern does not break down or shorten it's period from profit taking.

Trend - the market has lost some of its volatility because the uptrend has not faltered from profit takers. Steady percentage gains ... not too much, not too little. This market is being maneuvered to a level with little fanfare but clear intent. Expect the talking heads to showcase the uptrend and the dumb money volumes to increase ... after the easy money has been made on the long side.

Markets - NAZ appears to have the best chance of profiting from the next wave. DJI also nice and steady. SNP chart is a little less optimistic, but not by much.

Bulls ... Happy hunting

Bears ... Keep your powder dry

<<< masterblaster >>>

Anonymous said...

Has anyone actually charted the individual stocks in the Dow and the most major stocks in the Naz just to see if they can justify the current price levels or where they might be going from here?

Yes, that's a pretty big job. But there must be a way to automate it a little bit. At least maybe a spreadsheet of the current market leader P/E ratios and forward guidance.

Everyone seems to be working in the dark here, guessing on which direction the markets will go. But nobody really has looked seriously into the Dow components or the big hitters in the S&P/Nasdaq to see if they really ARE overvalued or expected to decline.

Just my thoughts.

Jerry B.

Volvosan said...

As many have said the only real truth to be found in the Market is in it's charts. And what the charts are saying to me is the NASDAQ is sputtering at the moment (when it should be leading), up against it's 50% retracement level of the spring selloff. Surely, given the extreme, and some might say stubborn bullishness lately, a move higher to the much more significant resistance it faces at the 61.8% level (approx 2135)is not unlikely. If a significant selloff does not take place at this point, then it is time to join the bulls.
I am with costas in seeing this as a bull trap, ready to take the money from stupid retail investors who will be out there buying calls like crazy with the VXN at such low levels - by the way, the VXN formed a nice hammer on Friday, sitting on it's lower trendline.

downosedive said...

To all:-
Yes volume has been low recently on the uptrend. Yes the market is overbought according to technical standards. Yes all the news is bad and its reckoned to get worse. But..........none of that appears to count for anything, because its sentiment, sentiment, sentiment thats driving the markets. Completely irrational, yes, but still enough to continue carrying the trend up to test and BREAK those highs. Those traders/bulls/speculators/ manipulators, call them what you will, THEY DONT WANT to see the markets fall. That would dent Joe public confidence so much that a recovery rally would be a long long way off. The institutions/pension funds etc etc dont want negative instability - steady upward trend is what they want. So those in profit, arnt generally short term sellers - the few that are cant dent the indices (only vulnerable individual shares). Sorry folks, but no sell off! Just a few down days in an upward trend over the next few months or more

downosedive said...

Tony - your last post was spot on, as usual. We seem to be like minded in at present

costas - please, im noy QUITE a bull, just a quivering, battered imobile jelly bear........with all the stuffing knocked out.......

chanon said...

100-200 points pullback this month would be good and healthy for the bulls, expect market rally after 3rd quarter earnings report in Oct.
DOW

Anonymous said...

Tim, love the blog, the interaction, and your dry wit. However, after following and occasionally posting here for about five months, I have to voice a critical observation. To me, the hallmark of a sucessful trader is the ability to adapt to what is happening in the market; to abandon the ego, and keep an open mind. You've been stubbornly bearish for months, while stocks have refused to break down hard. Meanwhile, those willing to heed market forces far greater than their personal forecasts have turned a tidy profit on the long side. Personally, I think we've got another 1-3 weeks of upside before a traditional fall correction ensues-- but I won't hesitate to adjust my opinion if the market shows me otherwise. I also doubt we'll collapse to the extent you envision when we do correct--whether we "should", or not. Open minds lead to fat wallets. Cheers.

downosedive said...

chanon - agreed a small pullback would in fact be HEALTHY for bulls, letting off some of the profit excesses is the sign of a sustainable bull market
Last poster also valid comments as well. Sticking doggedly to a bearish mantra has cost be very very dearly. I shalnt be doing that again.

Leisa said...

EddieFL "Your welcome Gemma S. I may have left the "creaming in thier pants" part of my post off, if I new there were ladies in here reading our blog."

Comments such as the above lend a scintillating tone to the blog....

Anonymous said...

Give up bears. The bulls showed us all how wrong we are. The markets will continue to rally for NO reason so hop on the boat long. I give up.

Anonymous said...

"Give up bears. The bulls showed us all how wrong we are. The markets will continue to rally for NO reason so hop on the boat long. I give up."

Good for you. Naz 3000 would be, after all, only a 50% retracement of the '00 top to the '02 bottom. Now why is that so unlikely, from a technical perspective?

Anonymous said...

All you quivering jelly bears!!! What gives?? You're just a small little baby bear! Wait 'till pappa bear eats you and the bull for lunch. Let's keep the big picture in mind! IT'S A BEAR!!! Even on the infamous black monday, stocks managed to climb within a 100 point loss. So this little rally is weak for many reasons and will NOT HOLD. It's time to short, not join the bull camp! Go ahead, be macho and stay long for the next hundred points! But the undertow will take you down quick.

Trader Fred

Anonymous said...

Should see some nice action to the downside this week.

The Trader II

Anonymous said...

Ding ding ding ding!!!

It's 10 AM EST. Time for the markets to start floating up.

Anonymous said...

Whats up with PCU????? up 3.5 bucks....

Sanjay Sola said...

short away!

market way overbought and out of control now. housing posts smallest annualized gains since 1999. Japan raising rates. Germany raising taxes. Catepillar increasing prices (hello inflation!).

market technicals look scary. 350 overbought to 150 oversold. good ratio to short.

Anonymous said...

Overbought, yes.

Falling? No.


PMs have just started their end-of-year run. Jump on board gold and silver while you still can.

Anonymous said...

Program buying begins again at 10:20.

Caller A: Go ahead.

Caller B: Yes Boss.

Click.

Now, When they take out this liquidity. Watch out. But until then Ride it up.

PPT RULES.