Friday, October 20, 2006

What a Week

This was quite a week. 12,000 pierced. A close above 12,000. It even managed to end the week above 12,000 (by 77/100ths of a point. Blowout earnings from GOOG. And a tidal wave of earnings reports, few of them shockingly bad.

If there's an opposite of fear and panic, we have it right now. The VIX pushed even below the trendline I drew for it a while back. These are epic low levels of complacency in the market.


Someone asked yesterday in the comments section about where I place stops. It depends on the chart. There's no set percentage or anything. That would be arbitrary. Take LLL, for instance, which I own puts on right now. I have an order to sell the puts at the market price if the underlying stock goes above 80. It's not based on a formula. It's based on the chart, and every chart is different.


I'm still 99% short right now (with a fair bit of cash on the sidelines), but here's a couple of long ideas for you. There's Redback Networks (RBAK):


As well as Sears (SHLD), which I've bashed for the longest time, but I cannot help but admire its gorgeous pattern. This has got to be the most perfect cup-with-handle pattern I've ever seen. It's beyond me why everyone on the planet would suddenly start buying their leisure suits and knit pants at Sears, but the chart doesn't lie.


I haven't indiscretely shown my positions in a while, so they are below (those that will fit on the screen, anyway; I ran out of room). As always, click on the picture (and any picture on this blog) to see a bigger version.


This market is in a "watched pot never boils" situation, and it's tiresome, I know. Some think we'll have to wait until after the elections are over. Some think we'll have to wait until January. And plenty of people think there's no such thing as a bear market anymore. Time will tell.

33 comments:

Stockowner said...

I'm guessing that the November 7 elections are going to provide the culmination of the July rally. Just a hunch, but assuming the Dems take control of at least one chamber, a general malaise will set in

Stuart said...

should I sell my MER long position? I just saw that you're short it, its at a 3 year resistence.thanks

ch7guy said...

first expiration week in months the market hasnt made a big move one way or the other. unfortunately for me i thought it was going to have a good correction down week, only to see my QQQQ 41 puts expire worthless :(

bsi87 said...

re:SHLD

Kosmo thinks Eddie is gonna turn SHLD into a holding company ala Buffett/BRK.

PB said...

on the DIA, so far in October, we had no pull-back to at least the 21 day ma. Also, the RSI has been above 70 since Oct 3rd. In Both AUG and SEP, we had at least 2 pull-backs to the 21 day ma. Combine this with good resistance at 12K, along with the continuos kissing of the upper B-band since mid-AUG and it looks to me like the downside is a higher probabilty move. As the market is forward looking, this latest rally is, to me, based on the Republicans remaining in power.

As a side note, it took 7 years to add-on another 1,000 points to the DOW. In percentage terms, this is pittyful performance. In lay mans terms, we've done fuck all in this new millenium. Adjusted for inflation, you're actually a loser! So where is this BULL market???

Sanjay Sola said...

hard to see any reason to short with oil falling. gas is dirt cheap and the consumer is going to keep buying. i need a negative catalyst or some signs that a downward move is imminent. better to stick with the trend until it gives you signs that the trend is changing.

Ron Sen, MD said...

As always, lots of interesting stuff out there:

1) SPX/VIX ratio at extreme high
2) Almost 80 percent of stocks above their 40 day average
3) XAU/30 year bond ratio low (weekly)

The 10 day average of NYSE breadth (A-D) has been positive for months (unheard of).

Haven't seen Bernanke much lately...he's too busy printing money.

mde said...

Tell me when the trend changes buddy. I'm 100% long as of last week. I think the rally is just beginning. My friends and I just reentered the market (was 100%cash) for the first time since 2002 and are confident this market is ready to take off. We have our party hats out already. I expect at least 20% on the SPY by the end of the quarter. Take care all.

Andrew755 said...

You tell me how you are expecting those gains.....when growth is slowing....???? Recession/slowdown is forthcoming???

I hope everyone of the bulls are leveraged.....right now. The move up so far was irrational...yes it happened and no bull can explain why it happened. Too many were leaning short...now I sense that too many are leaning long...and the market is complacent.

I encourage everyone to to get long and bullish especially after a 12-15% move straight up....hahah but don't say that you weren't warned or there were no signals....cause the inverted yield curve means its different this time.

downosedive said...

Get this all - Bush will include specific mention of the Dow being at an all time high in his speech on Weds. Who says this isnt politically motivated? And no Andrew755, youve got it wrong, this rally is good for another 100 to 200 points before it stalls for at least the short term (6 months). Just make sure you dump then, otherwise its a long wait to see a return on your money

bsi87 said...

re:Monday

Will look to be closing my short bond position and going long bonds if my indicators look decent. TLT something between 86.75 and 87.25 but I'd like to see some reversal or I'll put a trailing buy stop that rachets down as the stock moves down.

re:Miners. Looks like a pretty sizeable sell off in gold. I'll be looking at miners esp the juniors. IAG, KRY, KGC for example. Long KRY full disclosure.

Need to see a reversal on the mkts to think about shorting the indices.

bsi87 said...

re:TLT

ATR is 49 cents, trail a stop 25 cents and see what happens.

re:VTI

when I run the VTI:TLT chart, VTI is above 70. More inclined to look at it for potential short.

EEM has more potential to short IMHO.

Key is to watch what happens and be flexible.

Kapil Khanna said...

The trend will continue upward unless it reverses. Tim and others have been prediciting a bear market for a very long time now. There is no point in anticipating a reversal. Ride it when it actually turns.

downosedive said...

Andrew755 - ohh er, perhaps you may be rught after all, I see the Dow is up 75. Crazy>

Andrew755 said...

Downosedive- hahaa..... and that is the reason I'm being patient and am pretty much on the sidelines. I tried to make a purchase this morning but had all of about 5 minutes..... before whoosh...straight up we go!!!

I was completely stupid for not being at the end of July....but way to risky up here- I don't see DOW 13000 on the horizon in the next two weeks...but based on todays action...apparently some do:)

Sanjay Sola said...

you need some signs to short. some blowoff tops would be a great indication.

that's how the market topped on May 11.

one has to be concerned about the divergences here. the semis and transports are not following this morning's move. but it's better to be long and capture the market's last moves, until the market tells us it wants to go down.

bsi87 said...

re:DXD

Trailing a buy stop at 60.96

EddieFl said...

If you all spent half the effort that you do on bearish indicators, and bearish reasoning on trading what you see, developing some rules to trady by. You would be killing it now on the long side. And not sitting on shorts on a ramp up day like we had this morning.

YES,IT IS IRRATIONAL< THE MARKET SHOULDNT BE THIS HIGH, IT SHOULD NOT BE GOING ANY HIGHER, BUT THE REALITY IS THAT WE ARE HIGHER..BY A LARGE AMOUNT.

WHAT IS MORE IRRATIONAL?? WAITING ON A SUPPOSED DOWNFALL TO END ALL DOWNFALLS, THE MOTHER OF ALL DOWNFALLS TO MAYBE HAPPEN OR ACTUALLY TRADE WHAT IS HAPPENING.

I for one really dont know which one is more ludacris.

Happy Trading Bears.

PB said...

sanjay sola --- and today is such a blow-off top! up a 100 points injust over an hour?? Come on! The world is running out of stocks. Also, we have hit R3 on the DOW today. This rarely happens, so I just went short.

Sanjay Sola said...

PB,

we are very close to a blow off top. Google and McDonalds are the market leaders I'm watching. look at their charts. parabolic.

we are very close to the end. we need more distribution days though.

Sanjay Sola said...

don't forget, it's end of the month buying. so the dips in strong stocks will be bought.

PB said...

I still can't find the news why this rally happened ... strength begets strength I guess. I guess the predominant view on the street is that it's just a slowdown, NOT a recession. That's fine, but then why are the markets rallying?? The herd is in full-force.

I thought the distribution days were late last week.

I'm watching GS for any signs of weakness.

trader said...

This makes it a little difficult to go to those dinner parties and look like a hot-shot visionary who knows what they are doing.If most of us here had "clients",we definitley would have been fired and laughed out of the business, but one of the clients would have probably already killed us before that happened ! Eddiefl & Downosedive excepted.

PB said...

sure trader ... where was your post to buy the june lows?? Also, let's see where we are in Q1 2007

When did it ever make sense to buy on economic slowdown?

The rational part of me is having trouble coping with such exuberance and complacency

Denver_Investor said...

The 14 day RSI on the DJIA is now just a whisker under EIGHTY. (at 79.43 as I write this)

An RSI of EIGHTY is unheard of for an index.

We are either at the early stages of a really significant upward explosion that will last several months..

or...this is the final throws blowoff top

wish I knew which...I know which the fundamentals seem to support; but to date this market does not give a hoot about any stinkin' fundamentals...yikes

Andrew755 said...

Complacency is the word of the day......

Look at SLAB..... It traded down to 29.30 after its earnings sucked... came up light and now it is up 5%- despite an analyst downgrading it. I'm really pissed off that I missed FCX for a trade today..... I was getting ready to buy but then all of the sudden the market rallied 100 points....

This is why I can't trade quite yet.... I don't care if we go up or down or sideways but either you jump on the roller coaster or stand aside and watch. I want to but into a market that prices in things rationally....

EddieFl said...

WHAT A BLAST OFF TODAY, TO NEW HIGHS??? OR A BLOW OFF TOP,


This really is not a rally to give a blow off top.

I would feel more secure with a consolidation sideways and then a blast off, but I take what they got.

To have full disclosures, i did sell 80% of long position the S+P500 about 2weeks ago. I wish i could say I was heavy long, but that aint the case.

It a never ending learning process, maitain position while my indicators says so, i was looking for a reason to sell and I finally found a reason two weeks ago.

The Trend always go farther than we think.

trader said...

I'm admitting to being one of the OAFS that DID NOT buy or post a comment that the June/July period was a bottom.Come to think about it,Sept and Oct were also excellent buy points. This is one of those markets that if you explained that you did'nt make any money over the last 4 months to a 6 year old,he'd look at a chart of the DJIA and tell you even he could have figured this out by the beginning of August.Very humbling ! Glad I don't have any retail clients anymore.I would'nt have been alive to write this.

chanon said...

I haven't seen market in the kind of uptrend we're in...in a very long time
October rally is great...but beyond alot of people expectation
cheap energy, strong earnings, quite geopolitics...some factors
DOW

PB said...

it's the damn japs flooding the system with their cheap money ... we need this DOW diversion to take people's mind off of the ugly reality of the hostile countries united against the US. Not sure the above belongs on a technical site.

On a technical note, these latest highs are being met with a divergence in the MACD indicator. It is not at the highs of 2004, or even 2001. As the divergences add up, this market just marches higher. The Dow is about 140 points or so away from R3 on the weekly AND monthly resistance levels. Short-term, it looks like we are still headed somewhat higher. But I still can't for the life of me explain this rally. It's sort of like the buffalos following each other off cliffs! The market seems to be signalling an earnings explosion despite indications to the contrary.

Denver_Investor said...

Ok..here's my theory for the day re: why the market is so strong.

The economy is indeed slowing, perhaps even more than we realise.

HOWEVER...the most sensitive signal of a slowing economy is the drop in energy prices. Energy demand drop off shows up right away and oil prices drop. Futures traders join the downward momentum and drive these prices even lower than the demand drop would justify.

The market is focused on all the positive benefits of these lower energy prcies. i.e.: Higher retail sales, lower inflation (and interest rates) and no more Fed rate increases.

The jobs fallout of a slowing economy will show up a bit later. But for now the market is partying on the basis of these low energy prices.

Add that to all the short covering and momentum players hopping on the upward bandwagon and you've got a steller rally. Until it runs out of gas.

Note: The DJIA is about 900 points over its 200 day moving average. We could have a substantial sell off and still be above the 200 day.

..but for now we're still in 'all news is good news' and bad news (what's that??) is ignored mode

EddieFl said...

chanon,

How were you able to post a chart link in the blog?

I have been trying to do for a while.

thanks,

chanon said...

basic "a href" html tag
TAG
if u're member of prophet.net
u can right click on java chart..print...then copy print as webpage link