Friday, October 13, 2006

Darkest Before the Dawn?

To All Disciples, Nay-Sayers, Hangers-On, and Stubborn Mules.......

I bet you didn't know this, but I used to sing. Yes, sing. Amateur level, naturally, but it was fun for a while. Allow me to share my sentiments for recent market activity with this bit of Latin I warbled at one point:

Confutatis maledictis,
flammis acribus addictis,
voca me cum benedictus.

Oro supplex et acclinis,
cor contritum quasi cinis,
gere curam mei finis.

Y'know, times like these so remind me of 1999. Basically smart, sober, thinking people (ahem.....) knew the market was insane. And they got their butts handed to them. Stupid, mindless sheep didn't have to think at all. And they got freakin' rich. The world just ain't fair, is it? Who said IQ pays?

I looked at the comments from yesterday's post and have a couple of replies. To Leisa, I'm delighted to have provided you a big "O" through this blog. Don't let my wife know. She's got me as an exclusive service provider on that front. And downosedive, I agree, we may be in an "overshoot" right now. Indeed, if you believe my 1972=2006 analysis, we're going to keep grinding higher until January or so.

Someone commented how my mood was a contrarian indicator. Perhaps so. Truth to tell, even as a permabear, I'm not bad at picking bottoms. Take a look at my post from July 15th. This marked almost to the day when the market turned around. Now, unfortunately, I've been fighting it ever since........but my point is that I did recognize when the selling was over.

In spite of a completely rotten week, my spirits are relatively good. Hope springs eternal in the bearish breast, eh? Let's take a look at some charts.

The NASDAQ, which I am painfully short by means of puts on the QQQQ, the $NDX, and the $MSH, has been super strong. It's wayyyyyyy at the top of almost every technical channel at this point. But - - that is meaning squat these days.


The Russell 2000 index is something I follow closely. If the market ever does start falling (which, I'm guessing, will be around the year 2039 or so) this one is going to get hit the worst. It's been quite strong and is approaching a lifetime high. I'll let the chart speak for itself.


The S&P 500 has been charging ahead as well. Unlike the Dow, it is not at a lifetime high (God forbid it gets there anytime soon). It's pushing its way toward its 78.6% Fib retracement. This is a heavily marked-up chart.


The $VIX is as low as public opinion of Congress right now. I mean, God almighty, just look at this thing. I've circled the prior nadirs (how often do you use that phrase in conversation?)


I bought calls on the $XAU a few days back and sold them today for a decent profit. Yeah, a wimpy little trade, I know. I'm just having trouble defying this huge head and shoulders pattern any longer. But it definitely bounced off that Fib line (and neckline) and could head higher - maybe even much higher.


Now on to some specific stocks. Here's AAPL. Doesn't the current action look just a touch like late 99/early 2000 to you?


Here's Allegan (AGN):


Boeing (BA) which - gasp - went DOWN today. Maybe the whole Airbus-sucks thing has played itself out. This is a broken trendline.


Black and Decker (BDK):


CMI which, umm, looks just a little overbought, wouldn't you say. I mean, God almighty, just look at this thing.


CTX.......


DE, which I'm not zany about, but seems vulnerable enough......


IWM, which is the ETF for the Russell. A convergence seems to be approaching.


Lehman (LEH).....


LEN.....


Our old friend OIH which, I confess, could go up. But I'm betting down. I'd say a stop at $131 would make this a relatively low risk/high reward trade.


Redback is something that I'm long. Goes against ever fiber in my body, I know, but it is one of the few decent looking bullish plays I see.


I will now grab my mango-infused rum, kneel down on the floor, and pray to the bearish God in heaven to smite those who keep pushing the market higher. Our time will come. Let's just hope we're not all wearing barrels by the time it does.

22 comments:

Teunis said...

Hey, where is everybody? It's been 5+ hours and I'm first-up on the reply board. I've been having the same dark thoughts, although I was thinking multiple suicide bombings on the same day/same time in tens of major metro cities in major public venues (airport ticket counters, grand central terminal). It's really amazing it hasn't happened already.

I'm getting out of my SPX shorts at the next opportunity...

fastermasterblaster said...

Looking back in time ... my post to bs819 a couple of months ago.

"The technical consolidation period following a long term linear downtrend (especially the recent Nasdaq trend) allows the scales to balance the other way. What was bear advantage is not in the deuce court, but definitely advantage to bulls. We should continue to see a strong bull run that will be newsworthy. I suggest bears head for the hills until the market over reacts the opposite way. Nasdaq is going to be a hot play from here on out.

By fastermasterblaster, at 6:35 PM Aug 16th "

Bears day will come. Doubt it will be soon.

Trading and doubling up on the overbought + oversold indicator is occasionally a very dumb move.

The analogy for this tactic is the last coin flip went heads, therefore the next flip is guaranteed to be tails. It doesn't always work that way.

fastermasterblaster

OTrain said...

Hey Tim, love your blog, and I feel your pain as a bear. However, I'd rather you just turn bullish than welcome a terrorist attack. I don't think the loss of life is worth you getting a profit on your positions.

sereddy1 said...

CEO confidence survey lowest since 2001. I capitulated a few weeks ago and I am stunned about the market behaviour when CEO's them selves are as pessimisitic as in 2001 when market meltdown started. Here's the link:

http://www.conference-board.org/economics/indicatorsExpectations.cfm

The results are smilar to CFO survey. I dont know what the general public knows that CEO's and CFO's dont know based on their own company activity.

I do not understand the dichotomy. Yes this market resembles 1999-2000.

Des said...

Tim,

Looks/sounds like Mozart's Req. to me. Saw/listened to Sac Opera's Cosi a few weeks ago, Aida coming up next month.

trader2006 said...

im back guys trader 2006

trader2006 said...

Its been about 2-3 weeks since I last posted and just to let you know these last 2-3 weeks have not been good to me. I was doing great until I made really stupid mistakes. I was too bearish and it has cost me. I continue to read the negative articles and only focus on a few things which are a housing collapse, inflation fears and a recession in 2007. This has kept me from going long these last 2 months. Feels like the time I was a Bull and the markets kept falling, that was only back hmmmmm in June. I bought long all the ETFs i could, IYM, PHO, PSI, PXE, PXJ, PIV, QLD, etc....I was a A BULLLLLL....then after making money on the long side I decided it was time to short.

Im confused to see the DOW continue to make new highs. AA and GE provided nothing great to these markets yet the DOW closed again today at all time highs. It has also got to the point where its a given that these markets have no where to go but up. Its pretty sad when you go to bed worrying about the markets going higher. Every morning I wake up the futures are up, and if there down, no problem they reverse and head straight up. I would have thought at least a 1-2% pullback around 11750-11800 area but that didnt happen. 12,000 should be here by Monday morning, thereafter its earnings that will guide the markets. For some reaon I feel that I can buy any stock and make a profit on the long side. Thats when I think this market has had its great time.

There was a little questionaire on Yahoo finance today that read the dow is entering 12,000 where is it heading next. A. 13,000 B. 10,000. 60% said 13,000 40% were with 10,000. If they had 11500 I would have chose that but instead i stuck with 10,000 even though there is not a chance of that happening.

Earnings will take center stage this week, AAPL and GOOG being a couple of names that could easily move the markets. AAPL had a very good quarter last time sending the shares from the low 50's to 74+, this time anything good from these companies and DOW 12300 could be here by the end of next week.

I still hold my inverse funds with a couple of long positions but most of my portfolio is made up of funds that produce much more for my portfolio when the market falls than rises. As for the people who predict a market that will only go higher should think twice, markets have a tendency to fall quicker than rise. These 3 months of gains would easily be gone in weeks. Any pullback will most likely put the DOW around 11500, some are predicting 11700 as the support area. I still think these markets are being manipulated and moving greatly to the upside due to the elections. MAny will disagree but I do account for 50-75% of the gains based on that.

As I sit here pondering on what next week brings I think Tim said it best:

"Our time will come. Let's just hope we're not all wearing barrels by the time it does."

J said...

ref trader2006

"Earnings will take center stage this week, AAPL and GOOG being a couple of names that could easily move the markets. AAPL had a very good quarter last time sending the shares from the low 50's to 74+, this time anything good from these companies and DOW 12300 could be here by the end of next week. "

Yes, I aggree Earnings next week will set the tune for 4Q. As far as AAPL they didn't have a great quarter last time. Total revenue come in over 150mil to 300mil below estimates depend on which analyst's you wanted to go by. The only bright spot was macbook sales, which released 14 month pent up demand due to well publicited release date for intel based cpu switch. Analists took that one data point and run with it this quarter.......hey bears need to pay to see the flop that is what comes down to it. The hype about over 1 mil notebook sales is getting sillier as the day goes by. The highest number I have see is 2mil mac sales. Someone can get seriously disapointed after the realse. Geez have you gone to any apple stores, I have, a lot of people for sure most playing not buying. The store return policey? 14 days and if you open the box, you eat 10%. Gosh I don't know about anyone else, I am spoiled at Costco and I have stopped buying any electronics other than costco. Every time I check out their stores, there are alwasy "refreshing" unit for sale at 10% discount. Go figure......

John said...

Tim,

This is not 1999. The P/E of the S&P 500 at the end of 1999 was about 33 while the ten year yield was 6.60%. The earnings yield of the S&P was 3% headed into a recession. The "yield pick-up" from selling 10's and buying the S&P was less than 1%.

Today, the S&P P/E is about 16, for an earnings yield of 6%. The ten year yields about 4.80%. Today, the pick-up in expected return is about 8%, close to the highest in 25 years.

For the S&P to approach the same level of insanity it reached in 1999, given today's earnings and interest rates, the S&P should be 3,500.

While it is possible that the market will crash...recession, war, attack...barring any outlier event, this market probably will not allow most participants to buy in until it is substantially higher.

Good Luck

John

jblack010@gmail.com

AT said...

I was surprised when I read that although the Dow is at new highs, over 70% of its components are lower than they were in 1999-2000. The others are also not much higher. How to they calculate the freakin' thing?

So we are seeing this Dow rise on just a handful of components (look at HPQ rise!).

I think the S&P500 and NASDAQ are better indicators of market temperature. The NASDAQ is still trying to regain its May highs. With all this bull power, they just may do it.

However, it will be interesting to see where the spx goes from here - it has just pierces the upper channel line at 1360 after a remarkable, almost straight up move over these last few weeks.

I think the Dow and the spx will take a short breather soon, while the NASDAQ will keep chugging higher. But I'm not betting on it.

Right now I'm almost all in cash, placing short, low risk trades mostly on the long side. The short side has not been good to me recently. But I'm ready to short the hell out of the market when it does inevitably crash.

J said...

I laugh when I see people calling S&P 500 earnings 16 as earnings yield 6%, and thinking it is better to buy stocks because the 6% is greater than the 10 years yield of 4.8%. Let's put todays' earnings quality aside, because that open an other can of worms would get me going none-stop to bore you all to death. The 10 year 4.8% can only be compared with S&P dividend yeild which is only at 1.8%. 4.8% is money in my pocket, and the 6% is pie in the sky. However, wall street spin machine has brain washed the public to believe S&P pe at 16 is cheap become 10 years yield is only 4.8%. LOL. BTW, I don't know how many people realize the 16 pe is operating earnings NOT GAAP earnings. Using operating earnings instead of gaap earnings is another wall street invention to justify the high pe after 2000. But hey, who the hell cares nowadays.......

ctkwtk said...

We now have 2383 mutual funds @ 52-week high. Almost all value funds. (also REITS). After the June/July scary lows for bulls, maybe what we have is an overcooked "flight to safety" rally.

PB said...

hmmm ... everyone is all of a sudden bullish no bears to be found. I still think 12K on the DOW is major resistance, this market could easily drop a 1,000 points and things would still be o.k. for da' bulls!

Earnings have peaked/are peaking. No rush to buy or sell.

mde said...

i am a bull since last week. this market has shown the bears the back door.

Ashok said...

Sometime before the earnings reports for Apple and Google on Wednesday and Thursday of this coming week.....I plan to buy puts on Apple and calls on Google...for both October and November.

Ashok

Sanjay Sola said...

Nasdaq is breaking past the 1 year highs. it looks like we'll see Nasdaq 2400 very soon.

PB said...

oh dear, just a ball hair away from 12K!! Oh, I can't wait to get there!!! All the world's problems will be solved by DOW 12K!! YEAH!!

These little 10-20 point moves feel to me like the bulls are lacking conviction ... they keep taking a few points here a few points there, before the bear wakes up! One day people will wake up and find that we are at unsustainable levels. I'm capping this market at 12,300.

PB said...

oh come on!! Just break 12K already for fukc sakes!! What a little bitch of a market. 17 points shorts and it's acting like ait's the biggest thing in the world! This bull is weak! Let's castrate the bastard!

downosedive said...

Tim
Thanks for the mention in your post today! This links in with pb post at 11.59 - overshoot the 12000 it certainly will. Then its a game of how much higher before a little pullback, and then continuing upwards for the remainder of this year. As I mentioned last week, I dont think earnings will be too bad - a few will miss, but many are likely to equal and some will exceed. The negative economic factors that we all recognise and agree on will take until the next quarter to hit. By then however the worst may be over, so it doesnt mean a downturn even at that time.
The fact is with nowhere else to invest at an equal rate of return for the public, shares look to continue to be in favour for a while yet. The speculators will eventually move onto something else, or turn bearish on shares - which is what we all hope.
j - you make an interesting point, thanks

PB said...

I still can't seem to make a bullish case for stocks, buy just 'cause they are going up? The market itself doesn't seem to be convinced of this move up. There seems to be no risk involved in buying as witnessed by the VIX. I haven't seen a market like this. But I'm still a virgin!

downosedive said...

pb - there is no bull, buy because thats where the momentum is, or just sit and wait for a level to short at, which is what Im doing

PB said...

this market is so bogus. Don't care what anyone says, but this is pure manipulation! Let's wait 'till 3pm and start buying just enough to get the 12K!

this is BULL-SHIT!!!