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.

11 comments:

Unknown 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...

Anonymous 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.

Unknown 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.

Jennifer Owens 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 G. Black 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

Jennifer Owens 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.......

Unknown 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.

matte351 said...

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

Unknown 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

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

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