Friday, January 05, 2007

A Good Start

I have been in Lake Tahoe this week, just like last year, and it's been snowing like mad. Here's a picture I took of - what else? - a bear yesterday, covered with snow (OK, it's a statue, but still). His eyes are totally covered, and he's got sort of a "where the hell am I?" look to him. I can relate.

I enjoy checking out The Kirk Report regularly, and a recent entry showed the fascinating fact that twenty out of twenty sentiment indicators are bearish now. Even I find this amazing. And, believe me, Charles Kirk is no permabear - so you bulls might have a bit of respect for what's been said.

The graph below is one I find troubling. It shows the median value of real estate prices in my part of the country (the initials represent local counties - Santa Clara, Santa Cruz, San Mateo, and Monterey). Now, as you know, I normally love to see a graph that is primed for a fall......this graph, although crude, is pretty obviously a head and shoulders. But I own not one, but two, houses in this area. And it's no secret that housing is in a slump - maybe even a prolonged one. Not good!

Another macro trend (which had everyone in a panic early last summer) is the descent in crude oil prices. When crude was at about $80 per barrel, people were freaking out, and $100 per barrel seemed a foregone conclusion. My view of this market is very bearish. The break below the trendlines you see here is significant.

The NASDAQ exhibits something about trendlines that I've mentioned before, and which I always find fascinating. That is, the act of the trendline changing from support to resistance. Look how the market took its first fall last summer and spent most of 2006's second half climbing back up to kiss the underbelly of the trendline. Now the descent begins anew.

And look how the RSI in the Dow 30 keeps slipping away. The first trading week of 2007 seems off to a great start.

And the Transports have a good chance of cracking the enormously important trendline you see below the current price level.

Lastly, the Dow Utilities got clobbered today.

Now let's look at some short ideas. CBE:


COF (mentioned often before):

CPT, a good real estate play:

ETR seems to have peaked out and slipped nicely today:


OIH may have bottomed out for now, in spite of my bearish view of crude oil. This may see an upward bounce next week.

RIMM worries me, as does Google. This is amazingly strong. Just look at the accompanying volume as well. If it busts above its lifetime high, marked here, I'm going to hang it up for now on this one.

If you've gotten this far, here's your reward......a mash-up of two of my favorite movies: Rudolph the Red Nosed Reindeer......and Full Metal Jacket. Those easily offended, don't even bother clicking the Play button.


One Way Stox said...

i love that chart of crude. that's another new 52wk low for the commodity.

i still say it goes back to it's sept.'01 price...which i thought was $27.63. Why does your graph show a different price Tim? I don't recall crude falling beneath $20 after the 9/11 attacks.

i wouldn't mind seeing some biotech charts. the sector's been strong.


Anonymous said...


That video is a brilliant juxtaposition! (FMJ one of my all-time favs, as well -- Kubrick's best?)


JakeGint said...

While I've been resolutely bearish for the last two months, I'm a little nonplussed by your "20 out of 20 bearish sentiment indicators."

Aren't sentiment indicators a better indicator of opposite behavior? If everyone is bearish, who's left to sell?

Love your stuff, especially the entertainment. Oh yeah, and the word puzzles at the bottom of these post boxes.


Anonymous said...

GS is one of cramers picks for 2007....Stock has had one heck of a run for 2006. I think its done too, think its headed back to 175. Oh and Friday was a great day for the bears. Would have been nice though not to have seen that extreme run up in the nasdaq on Thursday. Next week is earnings week starting with AA.

stealthelephant said...

Thanks Tim for the Full Metal Rudolph. Laffed so hard I snarfed my coffee. I liked the real estate chart--reminds everyone that technical analysis works on various asset classes and data that is gathered differently than those from liquid markets. I do want to make a comment on Transports, which to me appears more like a consolidating triangle, and it could break out on the upside. That chart is equivocal. On a the fundamental side, transports appear like a good bet. Oil is cracking and going down. We're having a mild winter. Airlines are making profits and rails are reaching capacity demand. Logistics companies can put on price increases with no squawking. Doesn't matter what interest rates do. It matters what employment does--that's the key in the next six months. And that is going to be bullish for transports. Keep it in mind. You heard it here first.

Lauriston said...


On transports, I think they have been doing so well in recent years from economy doing well and all these goods being moved about even with crude high (actually crude was high for same reason of good economy and demand for commodities). Well, now that commodities are cracking and "crashing" (crude, copper, gold etc.), transports may find themselves in a "not-so-friendly" economy where economy/business shrinks. But I agree, they could break out either way, needs watching over next few weeks/months.

Anonymous said...

Isnt Oil dropping a good thing for this economy?

Im a bear but to me dropping oil prices will only benefit the consumer as price at the pump drops significantly. But I have also heard that oil prices dropping means a slowing economy. So which one is it?

PB said...


A Happy New Year to you and your family, as well as your blog 'family'! ... glad to see your sense of humour is still intact in '07! I wanted to share something with you and the bloggers here. I have just returned from a fantastic vacation in Arizona. While there, we drove a few hours south to Mexico, in particular Rocky Point (Puerto Penasco) on the Gulf of California. If anyone has been there in the last few years, you would have seen a real estate boom in full swing. While they are building some very nice condos there, I just can't imagine who in their right mind would fork over $200K USD for a 'starter' condo in a city where there are dirt roads, not many street signs and a general sense of poverty. Unless they are selling these condos with serious concessions, I doubt they will sell many of these. But I must admit that there were people (mostly from the US) who have bought there and obviously see some 'value' in a place like this. There is value, but at what price? Obviously not at these levels. The same can be said for the stock market as well. Just 'cause people are buying at these levels doesn't mean that they are getting value.

Something to think about in 2007. We should be seeking out value in all our purchases!

Lauriston said...


When crude oil was rising in 2005 and 2006 notice how equity markets rose as well: economy was in expansion consuming lotsa energy. As economy slows, less energy (heating, gasoline, aviation, nat. gas etc) is consumed. That is why people always lose money trading the other way round!! Anyway, at least that is how I understand it IMHO. Yes, dropping energy prices are good for consumers, but only if economy is doing well and they are making more money...:)

Anonymous said...

Rimm is acting just like JNPR did in 2001. It just would not go down at first, the momo players played it back and forth to the hilt. Of course, we all know how that ended up.

Anonymous said...

What do you think of MED ceo posting on Yahoo message boards? Is the guy stupid or what?

Anonymous said...

Last chance for redemption Tim. Right here,right now ! Call the DIRECTION correctly within a time frame.

Tim Knight said...

"Last chance for redemption Tim. Right here,right now ! Call the DIRECTION correctly within a time frame."

Thank you for giving me a chance, anonymous.

The answer is: you will be in a horizontal direction within the next 100 years. And the world will be no worse off for it.

Anonymous said...

Yea Tim,

And tell me exactly when to buy, how much, & what to buy, and could you loan me some money and stop by the house and push the keys on the keyboard for me or your free site ain't worth nuthin...


Anonymous said...

Since the Russell 2000 just dropped below its 50 dma and I went short, my guess is up.