Tuesday, December 05, 2006

The Neutral Position

Greetings from Times Square in New York City, where I am sitting in my hotel room in what must be earth's most uncomfortable chair. How did they pick these things? I think a milking stool would be preferable.

Of course, a down market would be preferable too, but God's not taking any wishes at the moment. The U.S. stock markets went on yet again to new highs in many cases. Below is the Russell 2000, for instance. For those desperate for a sliver of a silver lining in on a very big cloud, you can at least take heart that there was a spinning top today. But.........big deal. The markets have done little but climb for the past five months. It is absolutely unrelenting.


One fellow wrote and made a good point in the comments section. He said he was a bear, but he had basically stayed out of the market during this time. That actually makes abundant sense. You can have a point of view and still wait for the insanity to pass. You might miss the exact top of the market, sure, but more likely you'll miss a lot of pain (such as the last five months). Having a neutral position makes a lot of sense these days. You can have your opinion, but wait until a better time to act on it!

One mild curiousity is how the $VIX has actually been edging up in spite of the market's strength. The graph below shows how the $VIX and the $SPX have been pretty much mirror images of one another. But the past week, the $VIX has started acting differently. I think last Monday's big drop shook things up.


The Major Market Index ($XMI), shown below, is absolutely in a bullish formation. There's no denying it. I have posted this index many times in the past few months. I keep looking for weakness, but it's not happening. If you're a bull, this is exactly the kind of pattern you want to see.


In spite of plenty of bad homebuilder news, homebuilder stocks have shown recent strength. Take a look at BZH.


I'm loathe to point out short ideas right now, but Capital One Financial (COF) seems so toppy to me I am compelled to mention it again. A person purchasing puts on this might want to make the expiration pretty far out there.


NutriSystem (NTRI) is a stock that had been weak earlier this year. But the volume and strength of this stock have shaped up into something that looks plausibly bullish. A breakout above the (roughly) horizontal line shown would be very bullish for NTIR.

29 comments:

Anonymous said...

I went short using the QID for 2x the qqqq move today.

Anonymous said...

i say keep the faith cuz our day will eventually come... i'm digging a big hole in my trading account.... not pretty...

Andrew755 said...

Call me really stupid BUT.... I bought SPY puts today late in the afternoon.......

There is a gap I am looking to be filled @140.30.

This market is just nonsense...for the past few months I've been saying it. But I have been trading long and short and trying not to get run over in the meantime.

People have to take profits before year end.... so i'm looking for profit taking. Good news is bought, bad news is bought, and horrible news is laughed at.

Cheers

Andy Mayo said...

People with bearish sentiment have been bushwhacked (1) by liquidity, which, among other things, has allowed public companies to buy back billions of dollars of stock and (2) by connecting the economy to the stock market -- they don't always correlate. Now, I wish I had figured this out a few months ago!

z-stock said...

Tim,
I’m glad you’re posting stock charts, again. Let the reader’s assume we are still in a technical market, or not.
DENNIS GARTMAN'S/ rules …..
"Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent."
Think Like a Fundamentalist; Trade Like a Simple Technician:
Keep Your Technical Systems Simple:
I also found some possible break downs, for everyone’s consideration.
Pcar, 69.5 ceiling?
Xle, overdue for a correction.
Gg, glass ceiling. Paid too much, for glg. Eps downgraded
Ctx, worst fundamentals of the housing bunch.
Apa glass ceiling, double top, Eps downgraded
Btu, approaching 200 day = 49.9 Eps forecast in down trend
Ccj, double top , high evaluation , neutral eps trend
Tie, double top , high evaluation , neutral eps trend
Joyg approaching 200 day =47.9 , Evaluations, more in line, than in March.
z-stock
z-stock disclaimer. These stock picks, are meant for discussion only. I own put positions, in Ctx.

Anonymous said...

andrew755, Why would people 'need' to take profits before year end. If the markets hold thru Jan. 1, they can delay taxes on profits 'til next year.

Anonymous said...

People don't need to take profits, but, funds might want to. Also, selling losers and winners will offset the tax.

This market is in a world of it's own, the only reason we didn't have another 100 point up day was because interest rates were up slightly. Bond John's argument seems to be driving the market.

Still waiting for a test of the old highs at 11,700

SEE YA THERE!

bibgyrth

Anonymous said...

I think it's hilarious that everyone was so hyped up over inflation exactly ONE year ago, causing all sorts of problems with choppy trading, and I had HORRIBLE December returns (which was called "profit taking" by Wall St.), and yet the interest rates were LOWER and the price of oil was LOWER.

Now everyone's talking about the price of oil going "down" to $62 like it's some great miracle. And don't forget the extra 1/2 point that they've tacked onto the Fed Funds rate since then.

Look at last December. The market returns were TERRIBLE compared to the returns now. And back then, everyone was explaining it as "profit taking" because last November's action was "straight up."

Go back and compare last October/November/December to this year. This year has been REALLY straight up for 5 months, and yet everyone's talking about a Santa Rally??? What an absolute joke.

Frankly, I haven't seen the markets this extended beyond their moving averages since the 2003 recovery. It really is simply pathetic.

That being said, the Chaikin Money Flow is starting to indicate that the Dow is getting very toppy. I fully expect to see action similar to 2004 in 2007. If you look specifically at the Dow, it basically spent TWO FULL YEARS consolidating the gains from the incredible 2002-2003 run.

2004 February peak: 10,700
2006 February lows: 10,700

Good luck out there.

-TonyB

Anonymous said...

CANDLESTICK PATTERN RECOGNITION

I am using a program called Ameritrade Advanced Analyzer (it is similiar to TeleChart).

Yesterday evening I typed in the symbol for Pzifer, PFE. Advanced Analyzer identified the candlestick pattern as Inverted Hammer Bullish.

Is it possible for candlestick pattern recognition to be added to InvesTools ProphetCharts?

cwo

Anonymous said...

Greetings Fellow Traders,

Made really good money so far on AZO - Long Calls - Jan 115s. Entered yesterday at the close and sold half my contracts (10) at the high of today and will sell the others (10) if it moves below the close of today. Not a bad day for a neutral trader - not bull - not bear. I am also enjoying a great move up in MLM that started a week ago. Should close it out with some really good gains having already sold half my contracts (8 Jan 95 Calls). I am also in IBM, GMXR and FDX all with locked in profits with my Trailing Stops. I know this is a Bear Blog but just wanted to "gloat" abit amongst you diehards. Not to worry though, I will be there when it all comes down as well with Puts and Shorts. All in fun fellow traders, I do respect your position and reasons. I do want us all to make good profits. Good luck in all you do!

Mel

PB said...

10,700 is also the level this rally started from in the summer. So it is safe to say 10,700 holds some special significance for the DOW. It looks to me as if 12,350 is turning out to be near term resistance for the DOW. What would make me feel better about this rally (and I can't believe I am saying that) is a good pull-back. Not this flimsy shit that we get. Don't get me wrong, 158 points is sweet, but it's gotta hold for more than a flippin' day! I still think we have some upside left in the next few months, but it will be limited and it will come slowly.

Take a break BULLS! Spend some time with the family and let the BEARZ take care of business!

Anonymous said...

Tim,

Interesting that you mentioned BZH, because I had no choice but to cover my BZH short today.

On 1000 shares, I gave back 6k of my previous 31k (70 down to 39) profit.

I re-shorted wayyy too early! In fact, I should have went long when I covered my original short in mid-July.

Stupid, stupid, stupid!!!

LL:
I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market. I will not short a bull market.

Momo said...

Tim, QDEL is my best short right now. Take a look. I've been short since it broke the trendline and bounced off, in the 15s. Been a real savior for the portfolio lately. Just bounced off 13/50EMA, and I reckon good to $12, at least. There are shorts out there.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID936866

z-stock said...

Tim,
Do you remember how brilliantly, you called OIH’s number, back in Sept. Well, Well, Well. I have some good news for you. Wachovia (pundits/analysts) said Schlumberger is trading at a 44% premium to its peers. Wachovia’s downgrade is said to be "drawing a line in the sand," I think, you should do you’re magic, that thing you do with all the bells and whistles, and show us OIH again. I have it failing between 146.8 and 151.5. ( pretty big spread).

NTRI COF BZH
GREAT PICKS, GREAT TIMING!
NTRI, dead on, analysis. New yearly hi, definite possibility. (74.5) likely. On paper it looks like a X-mas / holiday cash machine.
You’re COF pick keeps failing at the 200 day (= 80.7). yeah!
And finally, Here’s a shout out to LL……
BZH is approaching it’s 200 day = 48.64. (A COF copycat, if ever there was one) Yeah!
z-stock

Anonymous said...

Dow down right now but for some reason i feel new record closing by 4pm.

come on bears lets push this market down

Anonymous said...

AND THERE IT IS. DOW AT 12333. NEVER SEEMS TO AMAZE ME. MANIPULATION AT BEST.

TAKE A LOOK AT GOOD OLD GS, ANOTHER 52 WEEK HIGH. I CAN JUST IMAGINE THE BILLIONS OF DOLLARS WORTH OF BONUSES BEING HANDED OUT. RICH GET RICHER.

Anonymous said...

I am seriously throwing in the towel jumping in after it and buring it. I give up!!!!

anonmyass said...

Well looks like we've stopped going up.

So they'll need to drop the Dow Jones by 100 or so to pull in some more of you bears to go short - then we can move higher again as you cover again.

Thanks for the ride up!

Anonymous said...

heard this on CNBC this morning, can someone explain what it means. "even though the fed raised interest rates, there is a lot of excess liquidity sloshing in the markets"

another unrelated comment. This is the first paragraph in the Iraq report.

"There is no magic formula to solve the problems of Iraq. However,
there are actions that can be taken to improve the situation
and protect American interests."

I am astonished by the greed. there is a civil war going on and people and children getting killed everyday and these authors Jim baker et al. are just interested in "AMERICAN INTERESTS"

Anonymous said...

It just damn hard to get 1 down days.

POS market

Anonymous said...

" Andrew755 said...

Call me really stupid BUT.... I bought SPY puts today late in the afternoon......."

You are really stupid. Long SPY.

Anonymous said...

9:41

Ending the civil war, installing democracy, and protecting the people is the American interest.

Anonymous said...

10:04 anon

"really stupid"

Please give us a daily play by play since you're never wrong. Rude no doubt, but never wrong.

R41

Anonymous said...

10:04 am anon! You're a loser, pls help America out and go to Iraq.

the next ten points on SPY is DOWN.
Until then, pls go fukc yourself with a wire brush, sideways!

uyxfl

Anonymous said...

this market is barely doing anything today, seems like on the up days they can push it up 30, 40, 50, 60, 75, 85, 115 points but when it comes to those down days we get a huge 10 point decline on the dow and 2 points on the Nasdaq. The day isnt over but what a boring day it is. Unless we get some movement by 2:30-3 this market will be trading like this until 4pm. They are trying to push it higher, once they start too the DOW could easily close at 12350+ without a problem. The s&p 400 has made another historical high. Ever since dipping to around 400 in early 2003 its been straight up to 800+. 100% increase in just 3 short years. Do you ever think we could see it down maybe just 10-15% on the year. Markets only go one way, UP!


TRADER 2006.

Anonymous said...

Gotta love MLM, MS, CROX, LFC EOG just to name a few really good plays this week that are continuing to be good!!!

Jump on board bears and ride along to the top then we will ride down together to the bottom and then.... do it all over again. What a concept. Money up and money down.

Happy Trading people!!!

anonmyass said...

Ride it up
Ride it down...

I agree what a concept!!

Anyone thinking of riding oil down here?

anonmyass said...

Ok you bears - they are testing you at 3:20 this afternoon - nows your chance - take it lower!

anonmyass said...

That was pathetic...
What a bunch of loser bears..
No wonder you guys have been losing so much money the last 4 months....

All you had to do was sell sell at 3:20 - wimps...

Hang up your Bear towels - I think you are all Bulls in disguise.