Thursday, October 05, 2006

What Does It Mean?

Another new high on the Dow today. I'm as confused as you are.

I was amused to see the cover story on Newsweek. For contrary thinkers out there, maybe this is another sign that oil's recent plunge is done for now and you should go bullish. I certainly have.


The recent breakout in the Dow leaves us thinking: what does it mean? Two possibilities are (1) a sustained, meaningful breakout, past 12,000 and beyond; or (2) a fake breakout.

I was looking at a century-looking chart of the Dow 30, and I saw something fascinating. Check this out (clicking on the image for a bigger version):


As you can see by the circle, there was a breakout in 1972. The pattern is similar to what we're seeing today. A long struggle to get past a major milestone (back then, it was Dow 1,000 as opposed to Dow 11,750). It broke out in Autumn - just like now - and it pushed the Dow up another 4% or so until January. Then, voom, it started plunging hard.

Does that mean this is what will happen this time? I don't know. Maybe. But it at least proves that a new breakout, even on a major index, doesn't guarantee a sustained movement to the upside. Here's what our own market looks like in the present day:


I was disappointed - very - that one of my last holdouts, Russell 2000, pushed through resistance today. As prior breakouts indicate, this could be very bullish for this index. I've shaded in green the movement following similar breakouts. I'm no longer in this position and currently am holding a mixed bag of puts and calls (the latter being mostly in energy).

16 comments:

Andrew Wright said...

Tim, this is actually a good thing..... believe it or not everyone is bearish and that is slowly diminishing. Has anyone heard about earnings???? I haven't. Nobody has even talked about them and they are next week......

Tonight MU, guitar ???, web methods all missed their quarters...

everything is priced so perfectly that companies need blowout numbers to justify their multiples.....speaking of multiples.... nobody talks about fundamentals anymore. First sign we aren't roaring into a new bull market yet.

Jennifer Owens said...

MU shit the bed, more to come? If the market crash would be the last week of the OE with heavy hitters such as aapl and goog, we shall see.....at this points puts values are crushed to nothing.....

Unknown said...

Tim, Did not see grahp on SPX. Would you mind comment on SPX? Thanks.

Unknown said...

Unbelievably, I caved today. Covered my SPX puts. I'm not a bear or a bull, just a flopping fish on sand.

RLgtGLgt said...

Tim,
Love your blog . . .

I am a bear at heart, but the index's are way above the MA. I think they will pull back (and all the stocks they contain). I will stay long and careful for now!

Appreciate your insight. Can't imagine anyone that posts your posture. Your insight makes sure we don't trade poor trending stocks higher and ensures that good stocks don't get out of hand!

Give us links to the "almight Toshi" funny stuff on line. Lot of us are not getting those feeds in our links or emails. I really like your humor. No Cathy or Family Circle for me!!!!

Keep going market (I have money waiting to take advantage to the break - most people can never trade that way, either due to knowledge or can't believe it!).

RLGL

Tim Knight said...

Wow, one day it's 140 comments, I kill anonymous posters and then it's 7 comments. Hmm. I guess that's not such a bad thing.

chronictown said...

Man,this market can get a girl humble!I guess i need to forget my opinions, before i go broke!$rut puts are toilet,Whats a girl ta do?I guess expensive lessons are the lessons rememberd!Now i know the true meaning of capitulation.....

Leisa♠ said...

Chronictown...I think that you have lots of company. The sooner my opinion and me get a divorce the better!

M Hoffman said...

It's not a bad thing, Tim... and just so you know we're all still here I'll jump in, too!

Finally got off my rear and started trading this week. Bought my first calls in weeks and finally made some money. =} Still waiting for the drop, but realized there's money to be made in the meantime.

I love your blog, check it everyday and am so grateful that someone with your skill and experience is willing to give up what you know to support the rest of us. I know you've felt beat up recently, but it takes a lot of cajones to put yourself out there like you do and most of us are truly surprised by the markets now. The anonymous tough guys need to have more respect. So I'm not sorry to see them gone...

It's easy to get squirly when you're the one whose 'right'. It reminds me of something one of my instructors said: 'Most of you are not here to make money, you're here to be right, so ultimately, most of you won't.' These guys are too happy about their 'rightness' to stay in the green for long... Payback will come, and it'll be ugly... ;)

Tim Knight said...

Marhattan, I appreciate the kind words. By and large I really like writing this blog - - - remember, I started doing this a year and a half ago when no one was reading it. It was really basically a personal diary.

I confess I'm still a bear at heart. I've got my share of SPX and RUT puts (just bought the latter moments ago). But I've got - gasp - calls too, on the energy side.

Thanks for taking the time to hang out here; we'll have to have a convention someday :-)

Unknown said...

Tim,

Hope alls well with you....

I had posted earlier about owning 150 contracts of the OIHVF...Oct.130 puts, that I purchased at 8.25...they were down to the 3.5/4 area last week but recovered up all the way to 12 earlier this week ....I was able to sell my position at 9...and therefore avoid a rather large loss.

I have just purchased the OIHVE at 4.40....Oct.125 puts on the OIH...just based on my interpretation of the OIH chart...any opinions?

And I am long Google at 415 as of yesterday...

niko said...

Ashok,

Looks to me as if bsi87 is playing OIH correctly...

There is upward pressure on energy right now due to the possible OPEC cutbacks. That said, there is a major H&S with a neckline around 130 that hasn't played itself out yet.

Bit of a dangerous market because you're playing around the news of a cutback or reversal on the cutback. I wouldn't be suprised to see a bounce to 130 and then a major retreat. With that said, I'm waiting on the official announcement...

Unknown said...

Google in talks to acquire YouTube for 1.6 B.....stock spiked around a bit around the time of news if you look at 1 minute chart on Google....


and thanks Sanjay, Niko...for your feedback....:)

smallswinger said...

With a 2-day advance of +3.4% in the Russell 2000, my Small Cap Swing indicator whipped back to LONG, even though in overbought territory and high stochastics. Because of the huge advance and high stochastics this LONG signal was at +40 as of Thursday’s close and is at +51 intraday Friday, 12:00noon ET. It won’t stay LONG very much longer.

This whipsaw effect has not occurred that often with this indicator. I have checked back over two years and though it has happened before, it is fairly rare. This whipsaw in the indicator is much like the recent market prices, and lends support to the idea that this may be a manipulated rally with many bearish divergences.

Here are the recent values of my Small Cap Swing Indicator for the last four or five switches.

. . . . . .Small
. . . . . . Cap . . . . . . . . .Russell
. . . . . .Swing . . . . . . . . .2000 . . . Cumulative
Date . . . Ind . .Signal . . % Chg . . . . % Chg

09/06 . . -19 . .SHORT. ..-2.1%. . . . . -2.1%
09/07 . . -43 . .SHORT. ..-0.8%. . . . . -2.9%
09/08 . . -61 . .SHORT. ..+0.3% . . . . -2.6%
09/11 . . -72 . .SHORT. ..-0.1%. . . . . -2.7%
09/12 . . +18 . .LONG . . +2.4% . . . . +2.4%(short-covering)
09/13 . . +41 . .LONG . . +0.8% . . . . +3.2%
09/14 . . +54 . .LONG . ..-0.4%. . . . . +2.8%
09/15 . . +65 . .LONG . . +0.2% . . . . +3.2%
09/18 . . +70 . .LONG . . +0.0% . . . . +3.2% (short triggered)
09/19 . . -06 . .SHORT. ..-0.5% . . . . -0.5% (& confirmed)
09/20 . . -05 . .SHORT. ..+1.2% . . . .+0.7%
09/21 . . -13 . .SHORT. . .-1.0% . . . ..-0.3%
09/22 . . -37 . .SHORT. . .-1.2% . . . ..-1.5%
09/25 . . -43 . .SHORT. . .+1.2% . . . ..-0.3%
09/26 . . -39 . .SHORT. . .+0.4% . . . ..+0.1% (long triggered)
09/27 . . +17 . .LONG . . . +0.4% . . . . +0.4% (& confirmed)
09/28 . . -19 . .SHORT. . .-0.4% . . . . -0.4% (whipsaw short)
09/29 . . -25 . .SHORT. . .-0.6% . . . . -1.0%
10/02 . . -48 . .SHORT. . .-1.5% . . . . -2.1%
10/03 . . -64 . .SHORT. . .-0.1% . . . . -2.2%
10/04 . . -49 . .SHORT. . .+2.1% . . . . -0.1%(short-covering)
10/05 . . +40 . .LONG . . . +1.3% . . . . +1.3%(whipsaw long)
10/06 . . +51 . .LONG . . . .-0.8% . Intraday @ 12:00noon ET

Normal LONG target: . . +65 to +75 (max: +95)
Normal SHORT target: . -65 to -75 (max: -107)

I remain 100% invested in SHORT positions as of Friday’s close, 9/15/2006 (RUT=729.35 to 735.94, a +0.9% advance). Still haven’t lost much since going fully SHORT, but the vaporization of gains on 10/4 and 10/5 really hurts.

Andrew Wright said...

N. Korea is testing a Nuc this weekend over the water.......

Just on the newswire...... HERE WE GO..... lets see if they ignore this.... earnings are next week. I'm getting excited- the tide is turning.....

Unknown said...

Google exploding up.......up 8...
OIH doing better....but I remain negative ...adding more OIHVE puts at 3.40 to my earlier position at 4.40