Wednesday, October 25, 2006

Perpetual Motion Machine

I won't bore you. Same old story. New high. Relentless bulls. Bears being turned into hamburger. Not good.

I noticed early on Wednesday that the S&P was approaching its 78.6% Fibonacci retracement (as measured from the peak in January 2000 to the trough in October 2002). It doesn't necessarily represent a brick wall. There have been times that the index has blasted right through it. However, there does tend to be some gravitational pull near these retracement levels. Examine how it's behaved in the past.

Some readers have noticed how ungodly high the RSI has become on the market. They're right. Take a look at the Dow 30 over the past few years. I've highlighted in green the places where the RSI has gone over 70 (it's in the unprecedented 80+ vicinity right now). I've highlighted in pink the places where it's gone below 30. Interesting just how long we've been above the 70 level this time.

Here's a long (yep, long) idea to consider - AEE.

Another short idea - Nasdaq (NDAQ).

I also like BXP as a short.

As well as CBE.

I've mentioned Redback (RBAK) as a good long position. Just look at the swelling of volume. Very impressive.

Don't underestimate how far a stock can fall once it starts falling. Take Getty Images (GYI) for instance. Sometimes stocks can receive blow after blow. Although not shown here, the graph for ESRX will show something similar.


chronictown said...

Tim, If you get time,can you look at the $hui index. Triple bottom or H&S ? Whats a girl ta do?

EddieFl said...

I hope nobody is short oil this morning. XOM and OIH are gapping up huge,

Exxon with huge profits last quarter.. not really a suprise.

PB said...

someone said that it's the large number of short-sellers not letting this market collapse. Oh, I see it's the short selleres that are responsible for the rally! How does that make sense, sort of like buyers being responsible for a correction. Also, why does only the short-covering count? Would the short sales have a downward effect on prices?

This market is too crazy, no pull-backs of any significance.


EddieFl said...

+++++ THIS BEAST+++++

Where is this beast going,?? ,, If you pull back a weekly chart on the DOW or Sp500 , this is a type of rally that only happens once in a couple years.

When i first came on this Blog in June and called the market LONG, i was hoping for maybe a 1300 on the SP500 as a long shot, now here we are at 1380.00.!!!

I remember i was vicioulsy attacked by the time i had my second post up, by a couple members who will remain nameless, (peanut butter), I think we can say with some certainty that my LONG prediction was on the money, ,, and I wish i could say i have stayed heavy long till today, but i actually sold most about 3 weeks ago, still long small position on the SPY.

Dont know when this will end, but I do know we have a long bias ingrained in the market. And now we have multiple levels of support in the market, When we do sell off, we hit these support levels and there will be buying.

1. use stops
2. Have a methodology that gives you an edge
3. Use good money management skills.

The object is to stay in the game long enough to know what you are actually doing.

PB said...

yes, eddiefl, you were RIGHT! Hope your feelings weren't hurt by my 'vicious' attack!

I still don't know who is doing all this buying ... but this recent run looks about done.

Denver_Investor said...

With $1.3+ TRILLION in hedge funds (according to this week's Newsweek), most of which is 'hot money', the market is getting less and less rational and more unstable, in my opinion.

The hedge funds are under incredible pressure to beat the market, every single quarter. So, they rush into whatever is moving up, and dump what's declining. Hence, the huge dump in commodity related stocks this summer, and now the breathtaking runup in large cap stocks.

Just remember, this is unstable, fast money. When they change their mind and stampede off into another direction it's easy to get trampled. But for now..its up, up and then UP SOME MORE!

EddieFl said...

pb I agree with you on this run, is at its last breaths,

PB said...

it's unfucking real!! every little drop get's bot like it's going out of style. Don't know who to blame it on, but rationality has gone out the window!

PB said...

these turd-licking a-holes will close us UP 3.27 on the DOW

Andrew755 said...

What a disaster this market is...never thought I would say that after a 1600 point rally.

But why are we all upset? Because we are know that there is a slowdown/recession going on, inverted yield curve, bad earnings (I'm sorry they haven't been great), elections in 2 weeks, and lack of rationality in the markets.....

It seems like it has gone up for weeks..... things will eventually become rational again.....just stay patient. Oddly enough...the market keeps running up, and that has us traders and investors saying.... drop so we can get in. Hmmm I'm not so sure I want in until things BECOME MORE RATIONAL...proper consolidation/fundamentals-multiples that make sense...

Hey I may be wrong right now, but I'm going to sit out until after the GDP # tomorrow.

mde said...

Once again the Dow went from down big in today terms to positive as of 2PM. I knew the market would pull it off again. Follow the smart money up guys.

PB said...

hey mde ... I hope you will be kind enough to let us know when this supposed 'smart' money stops buying the dips so aggressively!

Once this influence is removed from the markets, where will we land? It's a scary thought, but this markets deserves a beating!

PB said...

this market has officialy made me insane! 'scuse all my posts.

I know think that the market is currently discounting the housing bubble in 2051 ... THAT's why we're going up EVERY effin' day.

This is beyond ridiculous!!!

downosedive said...

eddiefl, & pb, we all share your frustration. I think Denver_Invester has it all summed up. Sure, st some point, this hot money will bail out and mde - youve got it all wrong this isnt smart money its 'dumb ass' money, ass being as in brainless donkeys

Christopher said...

Hi Tim,

What do you think about short positions in ORCL and CRM?

Also what do you think of RHAT now that Oracle says that it will charge 50% less for linux support?

As always, I appreciate your opinion.


EddieFl said...

The Smart Money:=====

You know what the smart money did. They did what they had to. And this week, thier account has more money than last week. And this month thier trading account has more money than last month. Thats how you keep score. !!

mde said...

How is this so called "dumbass" money dive. The markets still have room to run as earnings are great so far. Sure you can continue to doubt and continue to be left behind but I chose to hope on for the ride. Remember October is almost over and the fourth quarter should be better. Lots of upside with very little downside threat going forward. Forget about nuclear weapons and all the other turmoil for now and just enjoy the ride upward.

PB said...

How will Q4 be better?? Earnings are going up beacuse of share buybacks, that doesn't bode well for the future. Also, guidance has been lower for the coming quarter. Why don't companies raise the dividend if they are sooo profitable? We haven't had a 100 point pull-back since god know when? This is a healthy market to you? It's being ground higher DAILY by the pro's. Sorry, I just can't go long when every bone in my body says no! But I guess that's why the market is able to power higher, no one believes in it. The bears will be right, but from what price point will the reaction set-in? Judging by the fine chart Tim gave us on SPY, that day is not far off! I can't imagine the market ignoring that + the Fibb line.

Also, we have not even tested the old high on the DOW

trader said...

This market may be in one of it's "repricing the world and everything in it " modes,and has come to the conclusion that "we" traders and speculators have WAY UNDERVALUED it.If this this is the case,and I think there's a good argument that it is,then graphs,charts,MA's,volume comparisons,etc, will continue to be worthless. The "little" guy and his consumer spending habits will become less and less important to valuing the ECONOMY,which from the U.S. point of view is now,and will always be from here on a global economy.The world really is getting smaller. So EVERYTHING in it is now theoretically more valuable than ever before.The house I bought in Denver 12yrs ago for 225K is now worth almost 500K give or take. Probably a little less now than a year ago,but it's never going back anywhere close to that 225K. 15 or 20 yrs from now it's all but a certainty that the house will be worth at least a Mil.
The point is ,I think the market is thinking about the worth of "EVERYTHING" right now,every barrel of oil,every acre of land,every potential invention, and putting a "NEW" value on it which in totality makes the stock market worth more than we can calculate it on paper right now .Hell,even we have over 300M people now.
Just a thought,and a scary one for those of us looking for a major correction anytime soon.

Denver_Investor said...

trader...interesting theory

the fact that you, and most of the rest of us as well, are trying to find some way to make sense of this is telling

when things don't make sense, well, its just that..they don't make sense

maybe there ISN'T a good's just a mad rush to get in the same investment all at the same time..which sucks in even more money

maybe the high stock prices (house prices and most prices) is just a manifestation of how high inflation really is...if inflation is truly the amount of the money supply, well, we KNOW that every central bank, from ours, Japans, Chinas and who knows who elses, has been hugely increasing the money out there

but, for at least a while longer, I'm going to stick with those indicators like RSI to tell me that this is NOT NORMAL...and will, at some point..probably soon, correct

markets go up and market go down..and when they go down it's usually a whole lot faster than they go up

oh well....