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.

6 comments:

chronictown said...

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

Andrew Wright 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.

matte351 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.

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

Chris 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.

Chris

matte351 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.