Thursday, October 26, 2006

Cut and Paste

I'm starting to think I should just cut and paste a generic blog entry each day: "The economy is on a precipice. The housing market is failing. Stocks are insanely overvalued. And a new high was reached today." It would save me plenty of time and effort.

Today it was reported that houses suffered the biggest year-over-year fall in over three decades. My local market (the crazy SF Bay Area) is looking like this lately:

So how did the market react to the news that the principal asset of every American is collapsing in value? It spiked to a new high! Of course! Here's the S&P 500 with the RSI indicator. The index is at the top of a channel and the RSI is in nosebleed territory.

I have no position in Red Hat, but this is an amazing stock. Below is the entire history. You can see broad trends of higher highs/higher lows and lower highs/lower lows over the course of its history. I guess the news that Oracle is going to provide support to Red Hat users at a deep discount tossed a nuclear missile at this stock (which had amazingly high volume - something like over 80 million shares).

Now here's a chart I simply cannot figure out. It's symbol IYR, which is an ETF for real estate in the U.S. This chart just goes up and up and up. Even on a day like today. Clearly this has nothing to do with domestic housing (I suppose). I would think that the shrinking of the housing bubble would be causing damage here. Not in this market.......

Perversely, in this bearish blog, my "long" suggestions are doing great. Once again, the hotties are Redback Networks (RBAK):

Sears Holding (SHLD):

and Immucor (BLUD):

I am having absolutely no fun in this market at all. You can tell by my posts. I hate not understanding a market, and I absolutely do not understand this one. Not a great thing for me to say in my own blog, but that's the truth.


bsi87 said...


Couple observations and old saws.

Things don't matter till they do. Unfortunately the worries you cite may kick in overnight with no opportunity to get short. I say that because it hasn't mattered to the mkt and my gut sez it'll be a 2x4 to the head and not a gradual sell off. Difficult to game.

Trade what you see, not what you believe.

What everyone knows isn't worth knowing.

Maybe the markets are looking ahead and saying things will be slow enough after Dec 31, that the Fed will be cutting rates. Don't know, don't care, we are TA guys and the reasons are known after the fact.

trader said...

I bought my house in Denver 12yrs ago for 225K. When the market hit it's high of 11,700 in 2000 it was worth around 350 to 400K. It got up to where I was getting offers of 500K about a year and a half ago and now I could probaly get 475K TODAY if I was selling. The point is ,even with the "DROP OFF" in home prices recently ,they are still a lot higher than they were 6 years ago. So on that basis, the DJIA average is not going down from here on that calculation. It probably feels it has some catching up to do.We are only 450 pts above where we were 6 yrs ago. And most people are at least somewhat richer than they were 6 yrs ago.So the DJIA won't be going down based on any of those kind of calculations ! People in general are now very comfortable with buying and holding and ROTATING, but NOT GETTING OUT OF THE MARKET.
Thats one of the main reasons it's almost impossible to get any pullback for more than a few minutes.Look at the BIG picture ,and don't ever sing the song "OUR DAY WILL COME". It might come,but maybe not in your lifetime.Good luck to all !

Christopher said...

I posted in this in the previous comments post, but would still like to get your take on RHAT, ORCL, and CRM.

Are you still suggesting a long position in RHAT, or do you think ORCL will zap their market share?

I'm also looking into shorting (CRM). Whats your take on that one Tim, if you have time.

As always, thanks for the advice.


PB said...

Tim, if it is any consolation, there are many out there that are just awe struck that the market is actually pulling this off, for now!
Don't despair, I can hear Pappa Bear growling now!

trader, don't want to upset your apple cart, but real-estate only keeps up with inflation over time. So you for the next 10-20 years, you might be sitting on a house that will barely fail to move up y-o-y.

Also, Bullish talk like yours above sounds very much like bubble talk ... right, things can ONLY go up!

Also, tight after 4:00pm EST, the futures market took a nice 30 point dump in a matter of seconds ... shape of things to come?

Looks to me like many mkt participants are NOT doing their homework, buying 'cause everyone else is? Sounds like a rule for real success!

downosedive said...

Trader - you have made an inprotant point and one that has been worrying me for quite a while. 650points up in about 5 years, isnt at a level that suggests a reversal. With companies and the general economy in better and more profitable shape than 5 years ago, why should this level be considered overvalued? Its only when compared to the summer recess down to 10700, that we all shout about an outrageously overblown market. But this is all worrying for bears, because by this thought pattern the DJA would have to reach over 15000 to be classed as overblown compared to its peak in 2001. However, heck, at the moment we just a consolidation down say 200 points would be welcome, before continuing upwards again, but just goes up & up & up without a break and thats why we become more convinced each time that it just must drop soon and thats why I called this a dumb ass rally in yesterdays post

ctkwtk said...

Tim, As I'm sure you know, IYR (and ICF) are comprised solely of REITs. If you superimpose a 1yr. chart of DJR (reits) over HGX (homebuilding) you see quite a divergence. I think that the homebuilding boom was born of the artificially low interest rates beginning in '03. As interest rates have risen more people may be in danger of losing their homes due to ARMs, no down loans, home equity cash-outs etc. Since our fiat dollar is now worth about 4 cents, it makes sense to own real property, especially if you can buy on the cheap. If things continue to worsen for middle and lower class, the REITs will be there to rent you a house or apt. Like buzzards circling.

John said...

I know by now everyone is tired of hearing from me, but if you look at the 10 year, it has declined in yield by 7 basis points in the last week. I know this does not sound like much, but at the same time earnings have come in better than expected.

In the simple discount model I use, assuming S&P raises their estimates this week by 3%, the value of the S&P 500 would have to be 1,420 tomorrow, just to get back to the spread versus the ten year that existed last Friday.

However, a sure sign of a top is I lifted my hedges today...didn't work anyhow. S&P will probably close at 1200 tomorrow.

John B

PB said...

john, your posts intrigue me, but what makes you think that the 10 years are priced correctly? If they are mis-priced, which I think they are, then wouldn't their over-valuation throw your S&P #'s off?

The massive flood of money Greenspan created is still very much sloshing around the globe looking for anything with a bid. Does this show up in CPI? Not the way it's currently calculated. My only hope is on gold and that it will be able to escape the central bank manipulations

trader said...

Look , I was salivating a couple of years ago about this DJIA going back into the 8000/9000 range primarily due to the extreme rise in energy and the metals.Both,based on history would take money OUT of the DJIA type of stocks.Higher energy...lower profits.Metals going higher usually equates with people wanting stability and safety away from the market.Oil was trading at about $18 a barrel on Sept 11th ,2001.When it hit $40, I thought we'd have a crash at that time.We almost doubled that and the market either went sideways or up.Blew me away.Still does , except I think that this thing we call the "market" has now decided to calculate everything all over the planet at the same time in sensing it's current valuation.So higher oil and higher gold are now actually "good" for "this" economy.And ,I know they have pulled back off of their respective highs but they are still miles above where they were just 5 yrs ago and will never go back down to those prices again.Just like everyone else here,I'm just trying to figure this thing out so I can improve my chances of making money consistently,whether this thing goes up or down.

John said...

I'm sorry, but learned a long time ago not to spend too much time worrying about things I can't control. My analysis is strictly from the viewpoint of a money manager who has to invest to meet a targeted payout in a specified period of time. He only has two choices, the S&P or the ten year. He cannot deviate.

Based solely on which produces the higher expected rate of retun of the horizon, he will select that investment, Right now, the S&P is producing an excess return over the 10 year more than two standard deviations from average over the last 25 years.

Again, this is only an observation. The greater problems you mentioned are beyond my capabilities to address and probably beyond most of this board members. To me they fall into the category of things I can't control but only react to and hope I don't loose.

Good Luck


Andrew755 said...

Alert Alert: GDP # is in the morning, and the yield curve is the most inverted it has been. Time to come out of hibernation.

I bought some SPY puts near the end of the day..... Do you know how alot of people on this blog sound? Like they have given up.... This reminds me of the selloff this summer to be honest...the bears were flying high and the bulls were like I never think stocks are going up again.

I'm not saying the world is ending but I think it is time for a correction..nor am I calling a top. But I am curious to see how the market reacts on a pull back.

I'm looking to start getting aggressive trading starting tomorrow. I've been monitoring my positions on paper just to see how the market is acting, and believe it or not...not too bad. haha alright well maybe alittle excessive;)

Careful before elections guys!!!

ch7guy said...

the 55 day ema on the dow has reached around the level of the old high in MAY. i know some use the 55 day ema as a gravity/correction level. This sets up a good time for the much needed correction down to the 55 day EMA which would set up a nice support area for the rally to continue on. thats how im gona play this beast, THE TEMP BEAR MARKET IS GETTIN STARTED DOWN TO 11650

ch7guy said...

anyone know of any good TA forums? this comments section is the best ive found of any good discussion. Glad to of found dis blog, really enjoy it, and your day is coming Tim, keep yo head up

Sanjay Sola said...

if the trend is my friend, i've got one crazy friend who loves to climb heights without taking a breather!

THE D.A. said...

Great postings tonight!!!! Both sides spelling it out, Where is smallswinger and his indicators? I grabbed some index shorts for tomorrow, Lets have the correction and another run till mid november!!

Matthew said...

Another remarkable up day. This market doesn't know the meaning of closing red. I'm afraid we have a long way to go before we see a move down. It's great to know that when you see red during the day on an index, you can buy it with faith that it will turn green by day's in. This is just the beginning guys. Many charts are beginning to breakout to the upside whether we like it or not. Get in while you can. Good luck tommorrow and remember to place your buy orders early.

PB said...

ok, here we go, soft GDP #'s ... what will the market do with that!?
Well, buy of course! Why? it will cause the Fed to EASE!

you herd it here first!

bsi87 said...

re:EEM. Put on the short position yesterday as it retraced half of the kangaroo tail reversal from the 106 level

re:Bonds. John the Bond dude has it wrong....why are we not surprised? (GRIN)When you plot VTI:TLT, bonds were a buy at the beginning of May and the mkt was a sell. Mid June it reversed. On Oct 23, TLT put in a reversal. That was the buy signal. Long TLT. If we see a correction, I'll be looking to sell the bonds and buy the mkt. Sorry, John, it's gonna take trading to make money in this market.

re:RHAT. Stuck a buy limit in at 13 with a trailing 1.3 stop. Below 30 RSI on daily and weekly. It's puking up blood.

re:RIN. Darn it! This was a OShaughnessy cornerstone value pick and I got lazy and stopped screening for them. Will say this. There are a bunch of foreign telecos esp Asia that look interesting. See...there are charts people haven't discovered.

Risk levels are increasing dramatically. I have short positions but not huge ones. Trade smaller and use stops in case you're wrong. Capital preservation above all.

Do your own homework.

Denver_Investor said...

There's no stopping this market.

A much weaker than expected GDP didn't even cause a serious dent. The tick looks like every other day for the last 2 months...a brief dip to -200 and then it popped right back up and we're seeing readings over +1000; Seems like 90% of tick readings are positive (just an estimate). There is just NO SELLING.

Jason at noted yesterday that the 3 day RSI on the S&P500 was at a high yesterday seen only once before in the last 8 years.

PB said...

WHO are these damn buyers??

I think the trade is this:

as the mid-term election day approaches, and there is no war against Iran, the market goes up. Each day that we avert a confrontation against Iran, the market chugs higher. We will keep going up day by day until the elections Nov 7th. And then depending on who wins, will determine Nov's direction.

Sanjay Sola said...

the market is incredibly tough. i see a ton of stocks down $4-$10 today. it's this kind of trading that scares me. very few solid sectors performing well.

Sanjay Sola said...

this looks like distribution. that would be 4 for the Nasdaq, if it is. too many sectors are in pain right now.
the inverted yield curve is rearing its ugly head.

Denver_Investor said...

well..maybe I'm laying down on the tracks with the locomotive in sight, but I just bought some DIA Dec06 121 puts for 1.70 with the djia at 12122

break even point is djia at 11930
expiration date is Dec 15

djia moving averages:
20 day at 11950
50 day at 11662
200 day at 11243

I think I'm seeing a turn here, 2 days till end of month and 6 days to election..just had a tick reading of -946, lowest in weeks

Andrew755 said...

As I was saying yesterday, euphoria was kicking guessing that the market would get hit was no magic trick. I just closed the Spy puts that I bought at yesterday's close.

I'm looking for buys monday morning. Then I suspect that the market may correct abit more.....but I'm staying open minded....and even though all my economic indicators say this is going to be a hard landing, i've learned that it is what the irrational greedy hogs of the market think about it!!!:)

Anyways.... hope all had a great day and eventually all markets do become rational. Elections are in 2 weeks.....:)

Cal said...

I just can't get over how you sit here with your puts, and cry when the market is screaming upwards like a woman in labor. Follow the freakin' trend and make some freakin' money. The trend is your friend, not your bullcrap views that you think the market is gonna tank while we're racing upwards right after a DJIA 30 point drop and people are immediately buying. I'm just saying wake up, and get a more broad view, being stuck in the cynical mindset of your own proposterous world is going to lose you more money than you want to post on your blog. I sure hope you're hedging! Don't take my post offensively, I only offer a different view, and insight you may not have seen. Thanks Tim, you're the best.