Thursday, November 09, 2006

Sea Change

It was nice to see a good, solid down day. Particularly when the market blasted higher from the opening bell, riding on the wings of CSCO's strong earnings. The fact that the NASDAQ actually fell after such a strong opening is great. Green on the screen is a pleasant change these days.

The real change going on is in the political/social pulse of the country. 1994's Republican sweep into Congress preceded the monster bull market of 1995-2000. Conservative values, religion, the 'contract with America' - the whole schmear.

Now that the pendulum is starting to swing the other way, what do we have? Cover stories about aetheism, bestselling books about atheism, a very left-of-center Speaker of the House. It's like a mirror image of 1994. And don't you think the odds of a Democratic president in 2008 are pretty strong? The pendulum is swinging to the left, and I imagine it's going to be approaching socialism before it starts tipping the other way again.

How good do you think that's going to be for corporate profits? Can you imagine what kind of nuclear bomb will hit the market when the capital gains tax is eliminated and people must pay ordinary income on stock profits? After all, no more tax breaks for the rich!

Like I mentioned, the NASDAQ fell. The $NDX pierced its prior 100% Fib level (which, cough cough, I've conveniently skooched upward to today's high). I like the weakness today.


The Russell 2000, a perpetual favorite of mine, has puts which I've been gobbling up at these levels. Someone asked about IWM - to which I respond, yes, I like this for a short position. I wouldn't call it a head and shoulders, but I like how it is weakening.


I think I mentioned a couple of days back going long the $SOX. Nahhhhhh. I changed my mind and bought puts yesterday. I'm glad I did. This did well today, and it's got a really obvious stop price (and a really obvious this-was-the-right-choice price).


I've never drawn a trendline on an RSI until today, but it works rather well, don't you think?


The cool thing is that the $VIX is slowly but surely turning upward. A series of higher lows, marked by that ascending trendline, illustrates this. C'mon, $VIX!!!


Now for some specific short suggestions, all of which have put options available. AMG:


BA, which kissed the underbelly of its former trendline today:


FMX (no options on this, I don't think, but......):


HYDL, which busted its head and shoulders pattern, but still looks sweet:


TXT:


Hey, I could use another dose of Down tomorrow. We'll see.

13 comments:

walter said...

Tim,

Now that the dems have won the house and senate, i may actually turn bullish on the economy and stay bearish on stocks... dont you think bush, the iraq war, etc has contributed to us being bearish on the economy? it has for me...

Derek "NHL KING" said...

Ya I got this wierd feeling with earnings nearley out of the way, the election shit all done. I think end of of november is going to be a sell off. I think this is it, we'll see and let's hope so.

PB said...

It looks like the sell-off finally began today. Lemme explain:

A lot of investment houses have been warning clients (since early '06)to beware the 4-year presidential cycle, which leads to lows just leading up to the mid-term elections. Once the election is out of the way, it is safe to buy. HOWEVER, this time around we had the rally prior to the elections, and now that the Dems. have gained control of both venues, it will be damn hard to make significant headway to the upside from here. Couple this with a solid 4 months of non-stop buying, the time is more than ripe to start booking profits now.

On the technical side, there are many divergences (all bearish)

- DOW transports failing to confirm
- broker/dealers failing to confirm
- prior DOW high (11,700)has not yet been tested
- the chart provided by Tim on the SP500 and it's diverging RSI, along with Fibb lines and out of range level.

If you were an institutional investor faced with the above, would you not want to sell?especially given the surprise win by the Dems, it is more than enough to start tripping sell signals. It's the excuse many were waiting for.

Also, DOW has returned 14+% YTD, that's a healthy and respectable return. Book it now, and park the proceeds in cash!

onewaystox said...

How can you the economy get more bulish? This has been the best economy maybe in the history of the nation -- record high tax receipts, as well as record high corporate cash levels, low interest rates, low stock valuations, record high DJIA, record high CRB Index...what the heck is there to complain about?

Any bull will long for these past years of the steady one-way market since Sen. Torricelli (D, NJ) resigned 10/09/02, when the Bush Republicans took control.

W/ left-wing economic policies coming, I'd expect taxes & interest rates to go through the roof. Especially taxes -- 61% for the wealthy, including stem cell tax, global warming tax, tooth fairy tax, ...& interest rates should go half-way back to where they were in the Carter years to 'balance the budget'.

The phrase we're waiting to hear from Pelosi? "Windfall Profit Tax" vs. Big Oil. If that happens, I'd expect XOM, CVX, COP, & VLO to respond by laying off half of their 250,000 employees, as well as halting further payment of dividends.

The only thing better than that for the bears? Impeachment hearings.

Tim, you're about to have two very good years.

ctkwtk said...

Politics,schmolitics. When Bubba Clinton was in, the house changed to R. in '94, the markets just kept going up (accredited to Bush 1 and Reagan) , with a small hiccup in the '98 'asian contagion'. In 2000 when Bush and the R's controlled all, the markets went down for 2 years (blamed on Clinton), 'til the lowering of interest rates to near nothing and the beginning of the 'wars on terror' in '03. Just watch the charts folks. When we start making lower highs and lower lows under the 200 day moving average, we'll be in a bear market, regardless of who's in power.

Just Testing said...

ctkwtk, pubs didn't control the senate from 2000-2002. look it up.

Denver_Investor said...

I think we're heading back down, and it started today. Cisco, the poster child of the late 90s .com bull market exploded upward today...and the market didn't follow.

The upward momentum actually stalled about 10 days ago, and I'm betting today was the transistion day. The worries about the Dems will get it started. Health care and drug stocks had a terrible day. And the home builders have started the next leg down. The major indexes recent attempts to go higher are on lower RSI readings, a negative divergence. The gold sector is on fire, often a contrary group.

Bad news won't be surpressed like it has for the last 2 months. Iran, oil problems, mideast tensions...remember them? They are still there.

Now that the election is over oil is....GOING UP! SURPRISE!! ...not

I still maintain much of the last 3 months of rally was politically aided, and that motivation is now removed. Get ready to re-experience the truth that stocks go up..and they also go down. Sometimes by a lot, and quickly.

PB said...

here's more ...

Bank of England just raised interest rates after a pause as inflation has been running higher than their comfort level for the past 5 months. This at a time of record bankruptcies.

Gold is re-accelerating upwards from comments by China in it's intention to diversify it's reserves away from USD.

Also, does anyone know when the last 100+ point correction was in the DOW? How about the last 10%+ correction ... yup, seems like another life!

I think that the post-epection rally the market usually enjoys has been brought forward, just like how the market is looking ahead to the next rate cut cycle. It is ignoring current reality in favour of what MIGHT come in the future.

Don't forget about the retailers and the crappy quarter they are about to have.

PB said...

and to make your morning a little brighter ...

http://www.boston.com/news/world/middleeast/articles/2006/11/10/israeli_strike_against_iran_a_possibilty/

Brian said...

Hey Tim, any thoughts on RIMM? Went short after that incredible run up to $115 but stops got taken out. Now trading at $125 am wondering if it is worth shorting again?

Andrew755 said...

NYX is soaring today, but no news i don't think....odd. Cramer Cramer Cramer

trader said...

Interesting day. I'd love to buy the 640 OEX puts. They would double or maybe triple if we only went down 100 pts next week.They are 2.40 on the ask as I'm writing this,3 pts out of the money.I don't
think I have the balls to buy puts on Friday anymore.The way this thing looks with NSDQ,trannies,utilities,etc all being up substantially,we could close higher.However if we have the kind of close we had yesterday,we actually might have started at least a short term downtrend. It seems like the NASDQ is really important to the markets near term performance.If the NSDQ gets a close above 2400 today or Monday, then I think all bets are off for 'THIS' pullback.Interesting day.Guess I'll take a small position on those 640 puts after all.

trader said...

Well, it looks like I got caught in a 'bear trap'.I don't think todays close bodes well for a continuation of the pullback.That NSDAQ is something else.If it closes over 2400 next week, then they will want to get to 2500 pretty quickly.That would be a symbolic 'halfway back from the dead'figure that would probably fuel the entire market going into year end.I knew it was risky buying puts on Friday and it was. I held the position over the weekend but if this thing is up on Monday morning then my trade is dead and should be farly tell-tale about the direction going into the end of the year or at the very least were going back to 12,200 on the DJIA.