Monday, October 30, 2006

Tasty Shorts

The market didn't do too much of anything today. Oil (and therefore OIH) softened up a tad, which is consistent with my speculation that the energy market is going to resume its downward movement. Gold, in spite of the metal's rise in price, softened too on the $XAU. The Dow just lost a handful of points. At least we didn't have some big 'recovery' day after Friday's nice drop.

I just wanted to share a few charts on which I own puts right now. Here's AMG. This pattern is basically in a "post-broken trendline" situation, which is a favorite of mine. The general uptrend has been clearly broken, and the stock has recovered partly or fully to the underside of the trendline. These often represent low risk/high reward trades. Let's call this kind of pattern PBT for the sake of today's entry.

LEN is just a nice topping formation:

NDAQ looks pooped:

TXT is another "PBT":

I've mentioned MRO a few times already:

Altria (MO), yet another "PBT", which seems kind of common these days:

The VIX went up some time, which is also consistent with my view that we've bottomed out on volatility and complacency. The market misbehaved badly in September and October (typically bearish months, yet the market went up) so let's hope the typically bullish months of November and December likewise confuse everyone! We bears could use a break. A sustained break.


walter said...

anyone have any opinions on this:

U.S. Statistical Fluke Exaggerated Growth, Will Be Reversed

By Carlos Torres

Oct. 27 (Bloomberg) -- An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist.

Last quarter's annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.

Its not getting much attention in the main stream media...

R41 said...


Check out Nouriel Roubini's site, he's been calling for these numbers. He's a Dr. of Economics at NYU and goes into detail about what you mentioned. He's very good at what he does and has an enviable record for getting it right. He's calling for a recession early next year as well.

R41 said...

Might help if I tell you how to get there.\blog\roubini

Leisa said...

Walter, in addition to Roubini's blog, you can also get some discussion here

Volvosan said...

Tim, I have to thank you for the instructive tips and observations that you are always making - and please don't think that you are too repetitious. Repetition is critical, as far as I can see, to becoming a consistent winner.
We ARE learning from you, thankfully. Concerning PBT's - SLB is another great example of one, having just backed down from the underside of it's broken trendline these last 2 days. It is sitting on some nearby horizontal support today - if it breaks down below that, one could foresee a solid, predictable move down 6 more points to it's next support level.
As to the market's irrational exuberance, I would only note that market breadth is extremely overbought - and worsening, with fewer and fewer stocks actually participating in this rally. What I see is a bunch of closely-packed support levels on the Dow and S&P, that probably aren't going to offer up much in the way of support if things get quickly headed to the downside - like dominos falling. If you are long, I'd tighten up my stops. If you are thinking about riding this thing down with some puts, I'd be looking at what seems to have run up big lately and is running out of steam. This move down could be easy to miss - like in late October of 97 - the S&P lost 117 points in 4 & 1/2 days.

PB said...

October 1997 was the LTCM blow-up. We might see something like that again as there are too many people on one side of the boat. The bulls have been extremely stubborn of late. It's gonna take a massive kick to the head for them to wake up and see reality. The fog is slowly beginning to lift as concerns about the economy are gaining more acceptance. I still believe that time will show this latest rally to be a big head-fake!

EddieFl said...

We are due for a pullback, heck we were due for a pullback a month ago. Being due and happening are two different stories.

Does anybody in here trade MSTR? it is a left over from the .com era, and it trades like a beast, you can easliy catch 20= point moves on this, it has a small flaot, so use caution with position size, I have just been watching, waiting for the next trade on this one.

z-stock said...

Hi eddiefl,
i don't think MSTR has enough forward eps momentum to break through 123...
at rsi 79 i still think it has some upside....
anything above 123
and MSTR enters over priced territory...if it does manage higher than 123,
check off on w%, williams
try to get w%= 0.50..that's a good entry place...
if you get w%=0.00...then short the next day...
i successfully shorted spy recently at 138.8 and i had to use all this....
z-stock esrx mtw apol

bsi87 said...


Full disclosure: short. The rally up to 139.40 looks like it was a snap back. If it breaks and closes below 130, it'd open it up to a downside target of 90.

Wouldn't that frost Boone's mug?

Do your own homework.

costas1966 said...

re: OIH. I just don't think there is any gravy left in this trade on the short side, you maybe able to catch a one or 2 day down move but it is very easily to get whipsawed if you don't take the position out immediately. The index is trendless trying to find a bottom. Fundamentals in that sector are probably the best in the market right now, so you have a neutral technical picture and a very strong fundamental picture.

Sanjay Sola said...

market is incredibly hard on both the long and short side. the market is going up, but internally it's not doing a whole lot.

i'm on the sidelines.

Denver_Investor said...

I think the question is, how long can the market ignore the evidence that is piling up regarding a significant slowdown in the economy?

last Fri: much lower CPI than expected

Sunday: Walmart sales very weak

Yesterday: Ford announced big cuts in Q1 07 are NOT selling

Today: PMI and consumer confidence BOTH quite a bit lower than expectations and a drop from previous figures

homebuilders reports are without exception AWFUL

at SOME point the market will decide these things matter; and that's why I just can't be a bull; there is NO fundamental reason for the this market to take off to the upside

Scot Castle said...

Found two interesting double-tops that might be good to short:
CP-Canadian Pacific Railway
SMG-Scott's Miracle-gr Co

I've been following this blog for a few months and have learned a lot! Thanks Tim, your charts are very educational!

Tim Knight said...

Judging from the action so far today, maybe it IS starting to matter that the economy is failing.

DIE, BULLS, DIE!!!!!!!!!!

EddieFl said...

Thanks Z-stock , interesting analysis on MSTR

bsi87 said...

re:OIH short

Costa, OIH hit the 200 DEMA at 139 and change and reversed. It rejected 134 this morning, is trading below the 50 DEMA, and there's skads of room below to 118.

The LT chart shows a huge H&S with a 170 head and a 130 neckline.

I'll play this hand.

re:EEM short

bounce above 102. Adding to short position.

re:OCR. bought some at 35.80. Trailed a stop 1/3 of daily ATR. RSI on daily and weekly are below 30.

Do your own homework.

costas1966 said...


bsi, I see it as a long right here more than a short. The stock reversed at the 200dema but the volume going down was much lighter than the volume going up and there is a lot of support around 130.5. I went long on the stock today at 130.98, i figured I set a stop below 130 and I shoot for a rally back to the 200dema.

walter said...

today's earnings charts are UGLY:

SPG, EK, UARM... like NTRI last week...

they appear good on surface - run or gap up and then fall hard on giant volume...

this is good!

PB said...

this market makes me SICK, from being down over 50 points on the DOW, now we are up 5!!!

ufcking bulls are so stoopid! Don't they read the paper??

PB said...

floor traders cleaning out all the shorts!

It takes all day for the market to drop down, but only 30 minutes to rise back-up on no news! What gives???

Sanjay Sola said...

market volatility is back. end of the month is over, we just have to get through this election.

market internals are not good. too many reversals. very few breakouts still.

bears are getting hungry

Paul T said...


Too many bears, everyone expecting after elections that we are going lower - not going to happen. Just like they expected weak Sep and Oct.

I see 13000 and nas 2500 by the end of January.

I dont see how this economy is "weak" Lets be real, its a nice steady economy.

Stop hoping and follow the trend. GOING MUCH HIGHER - dont this mini consolidations give u any clues. How can anyone think we are goin lower when we havent lost 100 on the Dow or 20 on the NAs in how long. End of story

nasdaqstox said...

Tim (or anyone else) - How do you find these set-ups? are there particular market scanners you use?

chronictown said...

gold breaking out. next stop 614 and then 636. the dollar is weak. Gold is the play. former wanna be bear turned goldbug!Whats a girl ta do??

bsi87 said...


The downtrending resistance has been in play since May 15. On the other hand, the uptrending supportline has been in play since Oct 4 and at a very steep angle and was broken today but stuck its head above it. Rally in the last 3 hours came on declining volume.

That Oct 4 reversal looks too inviting not to be retested. Guessing 118 will break and setup for a rally back to 130.

We'll know in the fullness of time.

re:gold. Not good enough entry for me. Need to see the dollar rally and/or drop. Even if it rallies, resistance is just above, maybe 10-15 bucks. Continues to make lower lows and lower highs. Have patience.

Went long some OCR. RSI 30 on couple timeframes.