Thursday, December 07, 2006

Making It Up to My Readers

Well, I'm going to make up for the lack of a decent post yesterday (although it certainly didn't seem to diminish the activity of the comments section). This is going to be a big 'un.

A couple of weeks ago I mentioned the disparity of wealth distribution in both the U.S. and the world in general. An interesting study came out about this in the past few days which illustrates that the top 1% of wealth holders control 40% of the world's wealth, and the top 2% control 50%. How about the bottom half? They have about 1%. That's right......50% of the world has 1% of the wealth, and 1% of the world has 40% of the wealth. Pretty skewed, eh? Here's the link.

Another interesting item I read in yesterday's New York Times was how bullish newsletter writers have become. The graph in the article shows, on the left side, the U.S. stock markets, and on the right side, the bullishness of the writers. They seem like virtually identical graphs. Make you wonder how much value these guys add. Anyway, again, here's the link.

Today was a nice (although modest) down day. Take a look at the Russell 2000, shown below (and, as always, clickable to be larger), which I've embellished a bit with some studies for those folks finding my graphs too plain. Examine the "waves" of the past, and notice how far the moving averages were at the peaks of those waves. Looking at the most recent data, the averages have never been farther apart.


The same can be said of the S&P 500. Just look how rapidly the index has ascended and how much distance is spread out among the averages. At the same time, look at the continuous softening of the RSI. Quite a divergence, wouldn't you agree?


The $VIX has finally gotten some legs. It seems to be pushing way higher, as the market seems to be not-quite-so-sure about the certainty of indexes rising every day of the year. And this is all in the context of the Dow 30 hitting a lifetime intraday high today!


Now, some specific stocks - most bearish, a few bullish. I've been terribly impressed with Akamai's (AKAM) strength. It seems to be defying any weakness right now. This is one of those stocks which, in 2002, you might have felt was doomed to bankruptcy. But it's been a barnstormer.


I must again offer Capital One Financial (COF) as a short suggestion. My puts on this are doing well, and I just really like the look of this chart.


My small bearish position on GOOG is doing OK as well. I do not normally watch CNBC, but at the airport yesterday I saw they were doing a featured story called something like "Can Anyone Stop Google?" That's my feeling exactly. People seem to think Google is perfect and unstoppable. A good time to fade the market's disposition. Can you imagine the collapse when they make their first earnings stumble? Whether it happens next quarter or in 2025, it will happen. And great will be the fall of it.


Being short investment banks has been tough lately, but maybe we've finally turned the corner. These banks got great news yesterday in the form of a very favorable court ruling, which stated that class action lawsuits against these banks were not permitted. I'm sure the 50 Goldman Sachs personnel getting at least $25 million each for their Christmas bonus (you read that right...) are having the time of their lives. But take a look at the graph below. How's that for a monstrous bearish engulfing pattern?


HYDL looks ripe for a short as well, with a nice, tight stop.


I've had puts on LEH for a few days (someone commented how I got whacked on it; I have no idea what they are talking about; I did not get stopped out). The way it's playing inside these Fib Fans is cool, and it seems to be losing its grip at this level.


Here's a longer view on LEH to bring more clarity to my explanation.


NVR has had a good run-up of late, and a look at the Fibonacci retracement levels gives good reason to short here, with a very tight stop.


I suggested Redback (RBAK) back on October 4 when it was about $14. It pushed to about $17.50 today on strong volume. This stock looks more bullish than ever.


I put puts on RIMM a few days ago for the worst of reasons - "it just seems really high." Luck has smiled on me so far and it seems to be tumbling more than a skosh.


I remain long puts on SHLD.


Apparently all eyes are on tomorrow morning's employment report, released an hour before the opening bell. It's one of those funny ones where if employment is strong, the market supposedly will take that badly, whereas if employment is weak, the market will respond well since rates are more likely to drop. Ya know, folks, interest rates are not the entirety of the economy! Take a look at Japan during most of the 1990's which was completely buried in recession and had negative interest rates. There's only so much good they can do.

22 comments:

Anonymous said...

Tim,

I agree that the market is definately at or near a top. Maybe one more exhaustion run up for Santa...and then maybe not. One question....how much time do you normally buy for your option trades? Thanks.

Doug

Anonymous said...

Interesting entry today, Tim. This is what I said two days ago:

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


Here's what you wrote today:

"notice how far the moving averages were at the peaks of those waves. Looking at the most recent data, the averages have never been farther apart."

Great minds think alike, I guess.

Today was definitely a profit taking day. Not much movement either way, but noticeably biased to the sell side. I honestly have absolutely NO idea how they will spin tomorrow's economic numbers. I do know that they will do everything they can to spin them positively, without a doubt. The real question is: will investors actually BELIEVE the spin?

Nobody knows.

-TonyB

Anonymous said...

One more thing:

Everyone and their brother was anticipating a significant correction this Fall. Many "experts" were predicting a drop after the November 7th elections. Hell, I thought we'd see a decline, too, but I admitted to myself that I really had no idea which way things were going, because this rally STILL seems 100% artificial. Fund managers racing to catch up so they can print some good end-of-year numbers.

So, in that sense, now everyone is predicting a "Santa Rally." Well, wouldn't it be something to see a go-nowhere market until Jan 1st, then a significant decline throughout next Spring??

Don't count it out.

-TonyB

Leisa said...

Tim and others. . . I would be grateful for your sharing the time frame that you use in your put purchasing. I suppose that I would expect a depends...but if you would say (1) I buy puts less than x months out if....and (2) I buy puts greater than x months out if. I hope that makes sense. If not, be kind to me, and just put it in more logical terms.

Thanks very much.

wincity said...

Funny that people puts so much weight on the employment report. In my experience, market goes where it wants to go, no matter what the report says. Right now, I think it'll go down.

Anonymous said...

Tim,

Once again you have put together an interesting and informative report. I don't always agree with your view points, but today we are in a great deal of agreement, well, except for GOOG - I will NEVER short that one. I have already been burned twice by GOOG short positions, so I stick to the long side now, and it works well! Thanks for the time you take to put your report together!

PB said...

Guys (and gals) ... this market is still the TEFLON MARKET, nothing sticks to it!!!

- Inverted yield curve
- A massive war effort going nowhere fast.
- Commodities in major bull market
- Housing at clearly unaffordable levels
- Companies NOT investing in themselves, they'd rather buy back stock
- US auto industry FUBARD
- Highest oil prices since the oil crises in the '70's
_ the USD clearly not getting any respect
- dividend yields on blue chip stocks are pathetic and well below long-term average

... I could go on and I'm sure I've missed some points. But what I'd like to impart by the above is not that America sucks, it's just that people have animal spirits in them that seem to be making their investment decisions for them right now rather than rational/logical modes.

In any event I would like to thank the bulls for giving us bubbles to short!

When will investors finally start demanding a respectable dividend from companies. Instead of buybacks, pay some back to the shareholders.

P.S. Harry Dent has a vested interest in pushing the bullish story, so please take him with a grain of salt ... he was bullish throughout the 2001-2002 sell-off.

Anonymous said...

Tim,

Great post.

I can't help but think with all the new short ETF's & short mutual funds that volatility will increase. Used to be that many retail investors used to buy & hold or buy & go to cash when declines occurred. Retail investors are known by the supposed smart money to be late to the party, but I feel when the bigger drops get under way they'll be relatively quick to sell & go short the easy way. Same holds true when the market goes back up, all the more money coming back in long.

At least I hope I'm right.

R41

Cal said...

Tim Tim! I did it, I did it! I bought my first batch of Puts!@
I bought some RIMM Puts yesterday, as it just seemed toppy, and I did the tech analysis of course, had a stop in place, but you're right, I think we might make out like bandits on this puppy.
Reader,
CalTrader

radicimo said...

Here's one for the Jesse Livermore fans:

"Without faith in his own judgement no man can go very far in this game. That is about all I have learned -- to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary. I have been short one hundred thousand shares and I have seen a big rally coming. I have figured - and figured correctly - that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits. And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again in the rally. I knew that if I did I might lose my position and with it the certainty of a big killing. It is the big swing that makes the big money for you."

z-stock said...

Congrats, Tim and Co. on Rimm puts. That was a gutsy play.
Keith,
Google, (Xom target Price)
The target price has been raised from $75 to $80.
Also go to stockcharts public charts, Look for Third Eye.

z-stock
New position, bought a truckload of puts on Coco...Yeah! Probably forever, stuck at the 200 day, with little eps help, to propel it above that. Calvary, won't be showing up for these guys.

chronictown said...

$rut puts.... What the heck! top has to be near, IMHO Stops in place,lets go for a ride!

Shawn M. said...

Bought IWM Jan 83 puts yesterday with IWM at 79.40. Stop above previous high of about 79.90. Looking for at least a drop to 77.

eatthebears said...

Standard setup for options week next week - knock it down - buy calls - take it back up...

Another bear trap - puts will expire worthless next Friday...

Will you bears ever learn?

Barbecue the Bears!!!

stockshaker said...

Maybe you guys can provide some insight, as I am sure a few of the great people on here are ALREADY doing this...

I read that article about 1% of population at the top control 40% of the wealth.

BUT: WHAT are they doing with this money, that is generating more money for them?

We all know the stock market is a tool, that only a fraction of the population actually take advantage of for generating more returns...

But with the recent fall of the american housing sector, real estate is not looking as hot as before, am I right?

So: WHAT are other avenues that people are investing in for generating more income?

Oil exploration leases? China? Where is all this money going?

Where are the new avenues of investing besides the markets?

ps. tony, you are correct - I am expecting a sideways trend as well, and then a downwards bias for the next few months thereafter once the wheels start moving in that direction.

stockshaker said...

Doesn't it feel like Dec04-Jan05 all over again?

eatthebears said...

Yes nice 100 point move in the Dow this morning!!

Eat that bears!!!

Told ya...

You fell for the simplest trick in the book... options rollover of S&P's.

New all time highs coming in all indices!!

Bears - why don't you learn how markets work... please...

Loooooooooooooooooooooooooooooong

Anonymous said...

Tim,

Great post.
But the market is really tough for us bears. Would you give a list of top five reasons the market should go down again? I need them to hold my put positions. Thanks.

Anonymous said...

I bet Tim's top five reasons that the market will go down big are:

5. Bearish engulfing pattern
4. This looks like a bearish pattern back in 1973
3. Massive head and shoulder pattern
2. The charts look way too high
1. Fibonacci! Fibonacci! Fibonacci!

Anonymous said...

z-stock,

Thanks for clarifying what target price you were referring to. At first I wasn't sure if that was something you came up with or the regular analyst target price.

Keith

downosedive said...

You are all missing the two fundamental things that control all market behaviour, the world over - FEAR & GREED. As simple and factual as that folks. When either one ones motivators have complete dominance, reiforcement to continue momntum in that direction will be sought from every economic, political or social event or piece of data available ecah day. These drivers or oftn lead by one driver in particular,which is known as the dominatrix. The drivers may be repeated as motivators for many days or weeks until other drivers take the spot light. In between definitive FEAR & GREED dominance are periods of 'wrestling' or 'no-mans-land', where both forces struggle to take absolute control. All we have seen since summer is GREED as the fundamental controller, reinforced by many driver - interest rate (actual & expectations) being an example of a dominatrix and the regular raft of economic reports as being the back-up drivers. GREED will turn to FEAR, that is fact. Bulls cannot change that, this rally is no different to any other. It is a question of when FEAR will take over and not IF. Probably we will encounter a period of wrestling or no mans land on the way to FEAR taking control. This site in part seeks to try and estimate or project when the change from GREED to FEAR will occur. That is why we regular bears always live in anticipation of that turning point, or at least for the direction reach the wrestling stage.

z-stock said...

Reversed Lstr Position. Bought Lstr Jan 40 calls, Am I going to eat this one, or get lucky?
Hey There Mr. Eat the Bears. Everybody here already goes long. So, I didn't see anything new on the table. I like reading about stock trades. Care to share? It's easy to build up your own following here.
Thanks
z-stock