Friday, November 17, 2006

Pfft....

Well, they got us again today, didn't they? Market started off with a nice tumble, flitted around for most of the day, then surged at the end. This gets old.

I am surprised I missed this before, but here's a fascinating angle on the Russell 2000 from a Fibonacci perspective. Using Fibonacci extensions, you can see the predicted high on the Russell based on prior high/low extremes (the high being in 2000 and the low being in 2002). This week, the Russell ($RUT) touched this line almost perfectly, within less than one point of the predicted level. Worth noting.


Yesterday was a chart heavy day, so today just a couple for your consideration. Fluor (FLR):


And General Dynamics (GD):


Have a good weekend, everyone.

43 comments:

Des said...

Tim,

Thanks for the continual posts. When, oh when are you going to publish your book? I ask because, in my ignorance - not stupidity, I hope, just ignorance - I look at the Fluor chart and I see no reason to go short. What's to stop it hitting 95 in the next three months? Obviously you have a an answer to this, hence your success, but I need a serious dose of chart instruction. Any time frame set for publication? (Doesn't your agent badger you unmercifully like mine does me?)

Thanks for everything and have a great weekend.

Des

Tim Knight said...

Thanks for asking; the book comes out in February; here's a link to Amazon:

http://tinyurl.com/yk2nyp

Des said...

Only excellent! Thanks.

onewaystox said...

Tim,

When r u gonna make the call to the bullpen to bring in the lefty?

I'm all warmed up. Even Pedro & Johan Santana need a break every now & then.

(p.s. -- keep your chin up. This is STILL the best chart blog on the web.)

Scot Castle said...

Worth noting that there was very high volume on IWR (ishares Russell 2000) December puts on the CBOE. Perhaps a sign of a fall to come?

PB said...

I'm expecting the blow-off top to come next week. Look for a 10-15 point rise in the SP500 ... if the market was able to shrug off such bad housing #'s friday, (on an expiration day nonetheless), I expect the bulls to just start running away with it Mon. morning.
So, look to go short once we get this pop.

How can we expect to get a santa rally if all we've been doing since the summmer is grinding higher daily on pretty shitty news?

Also, isn't high volume put buying a contrary indicator? Buy puts to protect your long positions?

Anonymous said...

I remember a year ago in October, BEFORE all of this recession talk.

October was horrible. Then it recovered and we had a decent rally through November.

Then in December, there was a HUGE amount of inflation talk, and my portfolio once again started to sink pretty badly. Then around Christmas it was "profit taking." Either way, December was bad.

Then January came around and things picked up nicely. February was great. March was so-so, and then I cashed out all my longs in April while I sat in cash, watching the market decline in May/June/July.

Since then, my head's been spinning. What was bad news is now good news. Economic slowdown? Great!! Buy more stock! Recession? What's that? We'll just print more money and float the markets higher and higher. Pullbacks? Pffft!! Those are only necessary in the OLD markets. This is the "new economy", just like 1995-2000.

So here I wait, another November, another December, but a different story. Now that we're PAST the 4-year cycle and well into the 2nd longest bull market EVER (on the heels of the LONGEST bull market ever, no less), who the hell knows what will happen next???

My favorite is Coca-Cola (KO). It's been growing at a maximum of 8% for the last decade, but for some reason, the market is now applying a FORWARD (yes, FORWARD) P/E multiple of more than 18.

Yeah, that makes good sense.

Like I said two months ago, I'm afraid we're back in 1995 again. Get ready for the major indices to double in the next 5 years without a pullback.

This is insanity. This is a game for the big boys, plain and simple.

-TonyB

Anonymous said...

tony B double in the next 5 years???

i hope that was a joke.....

as PB said about the santa clause rally I dont know how there could be one to begin with when the indices have gone straight up for 3 months......just doesnt make sense, i could see if the markets were down 1-3% on the year or even up 2-4% that a santa clause rally would be perfect, but with the markets up double digits in just 3 months i just dont understand.

Trader 2006.

PB said...

for some reason the market has become so focused on interest rates and what the fed will do next that ALL other news is just periphary! Bad news is good news because that means that the fed will NOT raise, but cut. So there you have it ... a very narrow minded way of thinking, but that's what it is. As they say, if you can't stand the heat, get out of the kitchen. Which is where I have been (after taking a few frying pans to the head)

Remember Greenspan's speech in '96 about irrational exuberance? Did the markets care? NO --- they almost doubled (DJIA) I think this latest rally has actually made me appreciate technical analysis even more. While fundamentals point to a market that's anything but investor friendly, once we broke out of that 'rare' diamond pattern on the DOW earlier this year, that shd have been the sign to go long. Sure we had the summer May/June drop, but regardless, mid-Aug brought a breakthrough of the downward trendline, which again shd have been another signal to go long. Really and truly, it was the damned fundamentals (fundies) that kept me out of this market. I have no one to blame but myself, because it is I that pushes the buttons on my computer to place trades, NOT the Fed, not the hedgies NOR anyone else. So, anything worth knowing is reflected in the charts, hence I can turn off the darned CNBC and just focus on patterns and trends and let the charts do all the talking!

P.S. if charts were of so little value, (as Cramer says they are) why does he insist on showing them on his program? Also,is he hard of hearing? Why does he have this constant need to yell like we were retarded or something?


Technical analysis works because there are a lot of investors/speculators/traders etc. that use them. Kinda like a self-fulfilling prophecy

trader said...

I don't think Tony B was joking at all.Too much money coming in right now in the form of mergers,take-overs,& IPO's.Ex-NYMEX IPO.Market has the perception that the post 9/11 correction was WAY OVERSOLD.The market took 5 yrs to get it's 11750 figure back and it's not going to give that back when all the major indexes are hitting 6 yr. and in some cases all-time highs.Maybe never going below 12000 again.When oil was hitting 50,60, up to 75, I was very bearish, & the market ignored that like it did'nt happen.The "market" has decided that the world and everything in it will sooner or later be worth a lot more than it is now.Thats probably correct with 'one' world.
We went from 1000 to 2 & 3K, & on and on up through 10 & 11K.The market again may be ready to once and for all leave this 12000 +or- territory and move much higher. A good and major correction will probably only come from a much higher level.Good observation "Tony B' and something all us traders to think about going into the new year.And hey, when I started reading this site I was really a bear,and plan to be again sometime,but it may be a losing proposition for a while .

Anonymous said...

Will you believe these pathetic chumps? Still calling for a top, still waiting for a fall, all while the market has had one of the best 5 month run ever. And keeping on talking of shorting, hoping for a crash, even after throwing in the towel.

Anonymous said...

To tell you the truth if it wasnt for the housing market and ARMS resetting in 2006 2007 and beyond i would be very bullish on this market, every day im pulling up articles of recession and a slowdown in this economy yet the dow breaks records everyday. The thought of Trillions worth of ARMS resetting in 2007 gives me chills...how any bull can view this a positive is beyond me.


I think fundamentals at this point should be thrown out the window. Today with starts and permits dropping the dow still managed to rise, why?? because this could indicate a cut in rates by early 2007. Rates are still at historical lows yet any cut would be bullish from here on in. I dont think there is anything that could stop this bull, every person on cnbc is more bullish than the next...feels like we have entered a stage where nothing can go wrong, where buying on any dip is a guaranteed profit. Nothing goes straight up forever, many are talking about DOW 13,000, many on other forums are talking nasdaq 3000, 4000 5000 etc..do many think this run is a run straight to the blue skies without any sort of pullback, i dont know but it seems that way....


TRADER 2006

Anonymous said...

Some good new bull bear ratios have come out:
the Consensus and MarketVane polls are very overbought and showing high levels of bullish sentiment. The Consensus poll hit 74% bulls, the highest reading since early 2006. Over the last 10 years, readings of 74% or above have been fairly rare. The MarketVane poll rose to 73% last week, also the highest reading since early 2006. Readings above 70% have been rare for this poll over the last 10 years.

Taking the two polls together gives us a very high bullish reading of 146%. This level of optimism towards the market is pretty rare and has only been exceeded in January, 2006, January, 2004, March, 1998, July/August, 1997, and January, 1997, looking all the way back to 1990.

Humm! I am the stonedinvestor. I am VERY good at calling general market directions purly from instinct. CNBC yesterday was such a freeakin' joke this prattle about new highs with the DOW up 13 it's just ridiculous it lures in the stupid who will get hurt. Those of you betting against the market I feel will be rewarded throughout the next two weeks. That being said I let my newly found negativity stop me from making a good earnings trade on ADSK- so we must always be on the lookout for short quick gains when you can find them. My problem is despite investing & researching the market every day for 20 or so years I have never had the GUTS to short. It's a mindset I have trouble getting my arms around- it would be like betting on an NFL team to lose. And then spending the rest of the game " cheering " for losing. How did you all get the courage to start shorting stocks? ~ Ben

Anonymous said...

The only reason fundamentals don't matter in these markets is the fact that the markets aren't driven by fundamentals. I think at one time they were (maybe prior to 20 years ago), but not any more.

The markets are driven by liquidity now, and have been since 1990. As I keep reminding people, until the easy money stops flowing into the system, then stocks will continue to rise. Don't bother looking at earnings multiples or sector growth, just focus on the supply/demand side of the equation (i.e., read the charts for oversold conditions and look at the short ratio).

Until something drastic happens, or another investment vehicle comes along that's more attractive than equities, then the markets will continue to just keep going up. There's a hell of a lot of money out there, and it's got to go somewhere. Bonds, CDs, money markets, commodities, etc. are all just a waste of time right now for the big players.

My biggest problem has been trying to overcome the fact that I still kept believing that fundamentals DID matter. But as I said, they don't matter any more. Nowadays, a market P/E of 20+ is "just right" for an economy heading into a recession. In past history, any multiple even approaching 20 would be a clear signal that the bull market was over. Anything below 10 was a buying opportunity. Now, anything under 20 is a buying opportunity.

Go figure.

-TonyB

wincity said...

Ben,

I don't see why you need the courage to short. Most of my trades are shorts and I never feel nervous in general. On the contrary, I'm nervous when I go long because often the stocks I buy would suddenly drop, leaving me stranded.

Maybe going through some bearish charts every day might help? I think most stocks come down after they go up. Not so in reverse. This makes me even more inclined to short.

PB said...

if you just a look at the comments in this blog, it would seem that no one wants to go short. One guy doesn't even think will drop below 12K on the DOW (that's only 2% or so from here) What a perfect set-up for a nice drop! You guys are delusional in thinking that 5 months worth of action completely alters theories made over the last 100+ years. Prior to 1929, many had thought that the markets had reached a permanently new plateu. Sure they have, for a few months.

Also, volume is severly lacking in this latest rally. Make what you want of it, but markets don't go straight up or down. Some of you bulls might be wise to take profits here. That is if you even participated in this rally. Judging by the volume, you probably didn't, like so many others.

Denver_Investor said...

TonyB...interesting post. And I can certainly understand your viewpoint. It does seem that fundamentals don't matter any more.

But, when someone buys a stock they are still buying a share of the company. So, therefore, fundamentals HAVE to matter; at least in the longer term. A share of a healthy, profitable growing company should increase over time, the value of a share of a failing unprofitable company should decline.

If this is not true, then it just becomes gambling.

I have noticed in reading posts on the internet how short most people's time horizon is in wanting an investment to 'work'. People used to buy a stock, put the stock certificate in the lock box, and forget about it. But today, with the ability to check a stock price every 5 minutes or oftener with the internet, investors jump from investment to investment constantly. Chasing price is the big thing. Momentum investing rules.

Now, about liquidity. If creating easy money is the answer to every economic problem...well, why work, or save, or anything? The answer is, there is a definite cost of just creating money. It is inflation and eventually much worse, an economic collapse.

What has happened is that the ability to keep going with ever higher amounts of debt has astounded everyone. And gone further than anyone would ever have guessed would be possible. So much so that everyone is just ignoring the longer term consequences of more and more and more debt.

At some point this is going to become a VERY BIG DEAL. In fact, the only deal. And when it does, in my opinion, fundamentals will once again matter. Very much.

The timing is the thing that is almost impossible to figure out in advance. When will the tipping point occur?

onewaystox said...

Guys, this market has always been driven by fundamentals. Stop being so friggin' cynical.

In fact, during the current earnings season, the reason why the market has been so strong is based on earnings.

P/E ratios keep going lower & the market keeps going higher. The index hasn't been this cheap since the beginning of '95.

Take a look at the CME's, GOOG's, ICE's...they're the one that are growing earnings the fastest, & they're the ones whose stox are being rewarded the most.

Anonymous said...

Does anyone find it just slightly odd that the market bottom and subsequent huge rally started just a couple of days after Henry Paulson was sworn in as Secretary of the Treasury? Kinda odd don't you think???

Doug

Anonymous said...

[quote]
Now, about liquidity. If creating easy money is the answer to every economic problem...well, why work, or save, or anything? The answer is, there is a definite cost of just creating money. It is inflation and eventually much worse, an economic collapse.
[/quote]


Not exactly. The "master plan" of Bernanke is to continue the flow of easy money and run the printing presses, therefore floating the indices until the economy recovers and until they can sustain themselves on the fundamentals alone.

I suspect then, at that time, the "plan" will be to drain the liquidity back out of the system, slowly but surely, keeping the growth stifled at the peak of the economic cycle, but also preventing a recession at the trough of the cycle.

In theory, it should work. But in theory, communism also should work.

-TonyB

Anonymous said...

Oh, and as you've noted, "why save anything?"

As you can tell from the economic conditions today, people AREN'T saving anything. The simple fact is they're spending much more than they're making.

The USA is very much a debtor nation, both collectively and individually. That's *NOT* a good recipe for economic growth and prosperity.

-TonyB

trader said...

I have stated this before .When I started posting on this blog several months ago I was a "total bear". Mainly because of the sharp rise in oil and the metals.Well that ended up being wrong and cost me a lot in shrunken valuation in my put positions on the S&P.I've got some of it back but it's gonna take some more time and luck to get it all back.I started playing the market right out of college in '83 so I actually saw it go through 1000,2000,etc-etc up through it's current all time highs. Every single time this market went through a "thousand mark" new high there was tons of negativity and comments and articles about how we were way way too high too fast. A couple of times they were kind of right,but more often, the so called expert forecasters were dead wrong.Everytime we backed off one of the high figures on the DJIA, and then came back and pierced it again, then that was it, a new major rally was on again.Right now looks and feels like one of those times. Remember ,the DJIA had a 45% correction after 9/11 and it took 5 years to get it's high back.
It's not gonna give that back anytime soon under the current circumstances with all the new money hitting this market right now on a weekly basis.EVERYTIME this market has hit major new highs ,THE FUNDAMENTALS never look right to a large majority.If it was that simple ,then playing this market would be simple.And we all know this trading ain't simple.Thats "TRADING" not investing. I've got a 401K too but I hardly ever look at it,but it is up 18% over the last year.Just something to think about.I will say this too, I had some of my most profitable options trades during the crash of '87.But that was different. The market had doulbed from 1300 to 2700 in a year & 1/2.Right now we are only 450 pts over the old high over 5 years ago. Non-confirming fundamentals aside ,thats not much of a headline yet .

Volvosan said...

I see this blog digressing constantly into fundamental analysis - that disheartens me. Let's concentrate on the technicals - because, in the end, it's technicls that are the only true expression of market sentiment. If prices are moving higher - they just are! Who cares why?
What I see right now is the energy sector on the move higher. Many charts (e.g. HAL, MRO, CVX, FTO, OIH, etc.) bottomed out at the beginning of October, and have been on the move higher since. Forget what the talking heads are saying about cheap oil - the supply/demand fundamentals don't support that notion. Listen to what T. Boone Pickens is saying - we are going to see $80 before we see $50. Fund Managers have quietly been loading up on these stocks - why else have their share prices risen since Oct 1? It is a clear divergence. If anything is going to send prices back down where they belong right now (are we forgetting the housing slump, higher commodity prices, slowing economy, inverted yield curve, warnings from the chip-makers of slowing demand, etc?), that is to say - lower, it will be the return of higher energy prices, inflation worries, and dare we say "stagflation"?
The markets are moving higher, and will continue to. I'll need to see a clear break of some of these recently-established support levels on the S&P (1290 & 1260) along with a failure to make new highs afterword.
If you asked me, this market has been difficult to trade lately. The rally has not been as broad-based as some would have you believe. Seems like a range-bound, channeling, sideways market would yield steadier profits. All I heard back in May, was how much psychological damage that selloff inflicted. Well, looks who's laughing all the way to the bank now - all those diehard bulls that bought at support back in the middle of July. We bears have been left to cry in our soup. With the exception of the energy sector selloff, tell me where bears have cleaned up lately?

Volvosan said...

One addtional technical note: the DOW is hitting the underside of the upper trendline that connects 08/28/05, 05/10/06 and now 11/17/06 - chilling!

Anonymous said...

wheres wuss ?

Anonymous said...

he is holdin his short johnson, thats where he is . rotflmao !!!!! wussy.

anunakki said...

[quote]I see this blog digressing constantly into fundamental analysis - that disheartens me. Let's concentrate on the technicals - because, in the end, it's technicls that are the only true expression of market sentiment. If prices are moving higher - they just are! Who cares why? [/quote]

Thank you for that... I get naseous with all the fundamental chit chat...all it does is cloud the charts. And the charts are always right.

I spent the entire weekend going over the dow/nasdq/S&P/etc and while the short term channels begining this past summer are too steep, the intermediate channels they emerged from , that stretch back to 04 are solid. IMHO we are due for a pullback to get in line with the previous channel...but we arent headed into a downright bear market.

Of course Im always wrong on the intermediate term trends which is why I onyl day trade...lol

For the first time in a couple months im going to do some shorting this week. I think we're going to have a small pullback before the christmas rally kicks back in.

Anonymous said...

to see what is driving this market higher, look no further than FCX's take-over/merger announcement with Phelps Dodge. Fundamentally this market stinks, but when corp's are buying each other out at breakneck speed, who really wants to part with their shares? This also helps explain the low volume. It's really the institutions adding to positions to leverage on take-overs. Once this runs it's course, we'll have massive co's who will make downturns even more volatile/severe.

Still waiting for a pull-back to 11,900 -12,000 (at the least)

Also, volvosan! You see this blog digressing into fundamentals, yet after stating that, you jump right into a fundamental discussion. Glad to see you keep things straight! :)

- Mr. G

Anonymous said...

You are short this great market man i would hate to feel this much pain. I am long and margined to the max tech stocks as they are poised to quadruple by next year. Long live the late 90s baby.

Anonymous said...

5:17pm anon poster ... please put down the crack pipe!

Anonymous said...

Give me a break with all the Real Estate non-sense, I think we'll see that real-estate prices will go higher starting as early as Jan 2007. All the talking heads will be proved wrong. I have been buying home-builders recently, and will buy more if they drop.

Also please don't keep talking about ARMs resetting, it is just a "myth". There is very few people affected by ARMs resetting, even they have multiple options to get over it. So many easy credit options available these days.

"Cosmo Cramer"

Anonymous said...

yeah, ok buddy!

the only "real-estate" prices going up will be those in bankruptcy court!

You really think we have repealed the laws of human greed and stupidity? That's why we have cycles, feast followed by famine!

Things are different this time ... so much so that we are able to create bubbles every 5-6 years now!

Anonymous said...

MAN-OH-MAN! I love this market! If you see any red anywhere, just buy it! No matter what the news, the red soon turns to green!

This is just wonderful. The hidden hand of capitalism at work. Kudlow is right, this IS the greatest story never told! The Fed WILL ALWAYS AND FOREVER BAIL-OUT THE MARKETS. BEARS are now an endangered species! S/one pls call WWF!

Turkey's will now also be stuffed with call options!

walter said...

in prophet charts > java charts,

in the indicies section, the volume for the $INDU and $SPX are exactly the same... when you flip back and forth between the two daily charts with the volume showing, it doesnt change...

any ideas?

Anonymous said...

amazing, asian markets get a selloff and we open to the downside but quickly power up to the upside, its just getting old now, when you see the DOW trading flat like it is today it means its taking alot to keep it up, that is my opinion, its been doing this for weeks and weeks....we might get that late day surge like we hate seen about 239482 times before....these markets are sooo over bought yet they still trade higher, WE DIDNT SEE THIS ON THE DOWNSIDE, we would get oversold bounces....we dont even see any overbought drops and its driving me crazy.....the nasdaq is up nice after its early morning selloff. If the dow jumps up over 40 or 50 expect the nasdaq to jump up 20 points...

I hope to see the DOW drop off a cliff.....


Trader 2006.

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downosedive said...

You posters that just say buy because its going up and you posters that say any kind of fundamentals support this market and you posters that say the dja is only 600points above the previous rally high so there is plenty of upside- you are all desparately clutching at anything to try and back this rally up and see reasons to keep it going. You miss the point - markets dont continuously rally when growth is healthy and it is - 2% last quarter?, thats pretty ok, lets face it the 5.6% growth in the 1st quarter was never going to be sustainable in the light of other economic factors, so the drop is perfectly reasonable. So why is it rallying when growth has and is clearly there? Greed, that is all, pure and simple. Nothing wrong with that, except that the rest of us bears cant see that as a reason to join in and buy. Greed always turns to fear eventually and we tend to think that time could happen at any moment. If anything shakes confidence and pauses this rally, then its back to a zig-zag pattern - it may still be upwards or it may be down. But the point is, we can have a chance to sell the peaks. Im confident that time is very very near. That is what we want and that is what will happen. beleiving that indices can continuously compound upwards simply by comparing with a base line of dja 1000, 2000, 3000 is meaning less because you are looking at a nominal/low valuation points

Anonymous said...

VIXXXXXXXXXXXXXXX is under 10.00...


WTFFFFFFFFFFFFFFFFFFFFFFFFF...


is this it....

TRADER 2006.

Anonymous said...

dow should get a lift by late afternoon, nasdaq already doing well for the day,, if the dow closes up it will be 10 out of 11 days being up...


Trader 2006.

Anonymous said...

Rimm is insane with market being insane.

Anonymous said...

NEWS ALERT, the DOW is DOWN over 30 points IN THE RED, this late in the AFTERNOON!!! Have people gone crazy??? Stock indices can only GO UP!! Especially when news is bad! Doesn't everyone know that??

PB said...

Hey Bearz!!

I know it that all the markets have been doing lately is going up like there's no tomorrow, but have a lookey at this chart ...

http://www.tradertom.com/images/Dow500calendardays_000.jpg

Anonymous said...

pb nice chart.....

as for todays market hahahahaha, as soon as you think everything is headed down they buy it back up, nasdaq was looking weak and than out of no where up 6 points...I thought the DOW would be off 40-50 points....i think i was asking for too much....

Trader 2006.