Monday, November 06, 2006

Electile Dysfunction

This is a really dangerous time for us bears. All eyes are on the election right now. Setting aside whether the Dems or the Reps prevail, the fact is that if the market breaths a sigh of relief on Wednesday morning (for whatever reason), there are important "lines in the sand" which could be taken out by the bulls. If this happens, I'm ready to hang up my bearish hat until probably mid-January of next year (and even then I would consider whether to don it again or not).

The NASDAQ Composite represents this danger well. Look how close it is to pushing above the double top it has made over the past several months.


The Russell 2000 also shows this danger, but in a different way. Look at the downward-pointing arrow. If the $RUT pushes above this level (and it could easily be tomorrow or Wednesday), there's going to be a very hefty stake pushed through the bear's heart for the rest of the year.


If the market does push higher, the $SOX is probably not a bad place to look for calls. It seems to have found a short-term bottom.

The $XAU (gold and silver), on the other hand, might be a nice short play. I've circled what seems to be a possible turning point. I've got puts on this index right now.


One stock which shows just how hefty the bull run has been in mega-investor Warren Buffett's BRK.A, which now trades well over $100,000 per share!


I've mentioned Fluor (FLR) before as another good bearish pattern, but it merits repeating.


And let's bow our heads for a moment and remember departed reader hurricane5, who held us HANS as one of the "one decision" stocks to own. This poor beverage stock has lost 50% of its value. It had an unbeliveable run, but you just knew this thing couldn't sustain itself.


In closing, take a look at LEH. This stock is so typical of what I see right now. A double top which could be taken out and blow all the bears away. Or, if it weakens anew, could be a fantastic short to have. But this election isn't going to clear up until Wednesday. Until then, we can only wait and see.

26 comments:

h. lovil said...

Wow- cup and handles everywhere.


If they play out they will skewer bears - if not we are looking at some good waterfalls set-ups.

Denver_Investor said...

The bear won't recommence until every bear gives up.

...sounds like you are on the verge of giving up Tim.

If this rally in stocks and collapse in oil prices really have been manipulated, the reason for it goes away tomorrow. I guess we'll find out soon. But, as I've mentioned before, I just don't see the fundamental case to support a new bull market from here.

h. lovil said...

There is no fundamental reason.

GDP was 1.6% and will be revised down and will be lower in Q4.

Isn't the stock-market supposed to be forward looking??

boomkap said...

Tim wont be able to follow through on his advise. He will be bearish in the next few posts.

Kapil said...
This comment has been removed by the author.
costas1966 said...

"But, as I've mentioned before, I just don't see the fundamental case to support a new bull market from here."

"There is no fundamental reason.

GDP was 1.6% and will be revised down and will be lower in Q4.

Isn't the stock-market supposed to be forward looking?? "

You guys need to go with the trend otherwise the bull will keep chipping away money from you on a consistent basis. This market is acting as a bull market rising on expanding volume with small corrections on contracting volume that stop at the 10 -15 sdma and then the trend reaccelerates to the upside(see action today). NO reason to be shoritng stocks right now, the odds are against you.

h. lovil said...

You are right Costas- this market will keep going until it stops...and in it's wake it will leave bloodied bears, who, like me (and Hussman) cannot believe that the market is going up DESPITE sticky fundamentals!

jock said...

As Lord Keynes said, "the market can remain irrational for longer than you can remain solvent ... "

PB said...

this rally is idiotic to the n-th degree!!!

Denver_Investor said...

Gotta love this market. Here's a great example of how non-intuitive it is.

WCI Communities, a developer of high end condos in Florida (we're talking a minimum of $1 million units) had a NEGATIVE unit sales of four in the 3rd quarter. That's right...they had four MORE cancellations than sales.

Add this to a 70+% drop in profits, huge debt, negative cash flow..and, you guessed it..the stock is UP 5%.

I just don't see how this company will survive, and I'm not alone. Read the Yahoo message board on the company. Unlike most Yahoo boards this one has some very good analysis.

It seems to me we're in a period where research and logical analysis gains a person nothing. It's all being jacked around by the hedge funds and who knows who else.

what to do.....(?)

EddieFl said...

The SEMIS are finally joining the party,,we are gonna see some streght in tech for the next couple days.

costas1966 said...

denver investor it is insane, but that goes to show you that it is suicide to stay on the short side of the market. If the homebuilders that have the worst fundamentals fail to go down on dissapointing news then you have now chance going short anywhere else in the market.

I would put WCI on my radar screen and when this buying spree dissipates (that will take a sell of on hig volume and a subsequents rally that fails to break a new high) then wci it is a short candidate.

PB said...

this market does not stop, it's off to the races right from the opening bell. Pivot points are ignored, we seem to be running right for R2 and R3 resistance levels. I seem to be missing a BIG part of the story. Do all these buyers read different news? Maybe from another planet?

costas1966 said...

PB there is one word I would use to describe this market. BULL

PB said...

costas, you are right. No reason fighting it, get on and make some money. One day common sense will return, but until then, this market just wants to go up.

PB said...

they are pricing stocks out of the reach of many, just as they have with housing ... one bubble after another. There is absolutely no cushion in stock prives right now to whether any downturn in earnings.

downosedive said...

costas, pb and the rest. Yes, you are right, bull for the sheer hell of it. The trouble is we are too logical to join in, so we just sit and wait for a turning point. Just shows how dangerous it is to be short with such a quick about turn back upwards. A short needs to be perfectly timed and to be held for just a day or two, otherwise risk being caught. We all thought Nov 7th would be a turning point downwards, but oh no, they are now saying that a close call is a good result and that that will cause the markets to rally even further, which of course they are

trader said...

I think it's pretty safe to say that the old "charts" are fun to look at but they obviously did'nt tell what was going to happen over the last 6 months and they DEFINITELY are not going to tell us what the next 6 months are going to do.We are in "over 5 yr high " territory on every index that counts so this thing really has to be played from here on with GUTS and INTUITION. Great insight and comments by the from Downosedive,Costas 66, & Denver-Investor. Keeping an open mind from here on is really going to be key !!!

PB said...

downosedive --- almost ANY news will be spun to be positive. There is no longer such a thing as bad news. To the market it's all good.
I really thought that last week's break was the beginning of the end. But what a difference a day and a half makes! I can't for the life of me believe there are people buying out there!

costas1966 said...

there is one thing positive going for the bears right now. The S&P 500 failed to make a new high and it looks it will have a weak close.

costas1966 said...

I went ahead and shorted some tie. It is a weak stock in a strong market if the market fails today the stock will get weaker

bsi87 said...

re:WCI

It's dropped from 29 bucks in March to 14 bucks in early Aug. IMO everyone wanted out has gotten out. Hence the bounce. Might be shortable above 18 but I don't like to short stuff that has less than a 5 buck range.

Still carrying my OIH short. If it closes above 140, I'll close it and think about getting long.

Still carrying my EEM short. If it closes above 106, I'll close it.

Gold issues look very shortable here. Very overvalued in comparison to bonds. And bonds look to me like they're getting ready to top again. TLT around 90 bucks.

To make in this mkt one has to think outside the box. Look at names that people hate for potential long positions and names they love for shorts. Also need to consider whether the stock is trending or nontrending. To me it seems like most are nontrending so breakouts don't last and reversals are common.

PB said...

OIH looks good so short above 140-141 ... you might wanna double-up then. Just a thought. As for the majors, Jesus Christ himself would have to win the elections for there to be any further upside. At this rate. We'll be at 15K before year end. These last few months have been nothing short of spectacular for the bulls. Time for them to take a fukkin' break!

ctkwtk said...

Since the breakout of this bull market in March '03, SPY has NEVER made a sell signal on PNF chart. Price objective was met way back at $105. Day trade or swing trade these markets up 'til they die.

mac said...

Is it me or did we just witness a shift in market momentum today? Sure seems like the market may have had it's last big hurrah for a bit. Wake up bears. Hibernation may be over!

PB said...

Hey mac!

I'll be the first to buy you the biggest steak you can eat if you're right!