Monday, January 08, 2007

Grease the Pig

The market tumbled about fifty points earlier today, but it recovered to close up twenty-five on the Dow. I think the bulls are trying to mount a comeback. We will see if the nascent lower highs/lower lows has any legs to it.

One market that intrigues me on the long side is oil (as a short-term play). I think the recent tumble has been fast, and the "common knowledge" that we're in a very warm winter has permeated the media so thoroughly that it strikes me as a contrary indicator. This minute bar graph suggests a possible consolidation, with a stop-loss price on the OIH of 128.94.


The market, as measured by the Dow Jones Composite, seems to be in a trading range, and today we were near the bottom of it. I wouldn't be surprised at all if, by and large, this was an upward-pointing weak.


The Dow Jones 30 has a clearer "lower lows/lower highs" pattern going on, although it's not been that way for long. I've tried to use arrows and circles to simplify the pattern.


The NASDAQ 100 also suggest a medium-sized trend change.


One index I'm eyeing as a short - - although I might let it ride higher for a bit - - is the Russell 2000.


The S&P 500, whose puts I sold early in the day for a nice profit, may have topped out recently. But - you know me! - the guy who predicted 17 of the last 3 bear markets! But even a bull would agree the past couple of weeks have been on the downslope.


Another indication that we may have a bit of an upsurge is that the $VIX is relatively high, based on the activity of the past couple of months. It has typically softened once it reaches these levels, and the market tends to swell higher during that softening.


I've just got three stocks I wanted to point out tonight. Autozone (symbol AZO) looks like a potential double top. I bought puts on this today.


My fascination with Google (GOOG) goes unabated. A petite head and shoulders seems to be intact here.


Finally, MDC, which I have been short a few days, is behaving nicely, moving away from its neckline.


I'll be traveling tomorrow, but hopefully I'll get time to post an update at the airport. Thanks for dropping by!

13 comments:

Scot Castle said...

Hi Tim. Just curious--what's your opinion on Gold right now?

Anonymous said...

Yea, the bears had there fun on Friday now the bulls take over for the rest of the week is what I think is going to happen. For some odd reason the bears can never a get a nice follow through with these down days. Tonight the futures are strong again and most international markets are moving higher as usual. I think the NDX breaks 1800 tomorrow and trades back above 1815-1820 by end of this week. Seems there is no stopping this bull, just when you think were headed lower the markets turn up again.

Trader 2006.

Anonymous said...

By Ian C. Sayson and Pimm Fox

Jan. 8 (Bloomberg) -- Marc Faber, who predicted the U.S. stock market crash in 1987, said global assets are poised for a ``severe correction'' and says it's time to sell.

``In the next few months, we could get a severe correction in all asset markets,'' Faber said in an interview with Bloomberg Television in New York. ``In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate.''

Faber, founder and managing director of Hong Kong-based Marc Faber Ltd., advised investors to buy gold in 2001, which has since more than doubled. His company manages about $300 million in assets.

The bullish outlook of traders in everything from bonds, equities and commodities to real estate and art suggests valuations are peaking, Faber said. Last year, the Morgan Stanley Capital International World Index of developed stock markets jumped 18 percent, while a survey of Wall Street's biggest bond- trading firms predicted U.S. Treasuries will post the best gains in five years during 2007.

``I am not a great buyer of assets now,'' Faber said. ``We may be in a situation where consumer-price inflation comes back and will have a negative impact on the valuation of assets.''

Faber, publisher of the Gloom, Boom & Doom Report, does have some favorites. Singapore and Vietnam are his top picks in Asia because stocks in Singapore aren't ``terribly expensive compared with interest rates'' in the city-state, while Vietnam's equities have ``incredible potential in the long run.''

Vietnam, Singapore

Vietnam's Ho Chi Minh Stock Index more than doubled last year and was Asia's best-performing benchmark. Singapore's Straits Times Index climbed 27 percent, beating a 15 percent increase in the Morgan Stanley Capital International Asia-Pacific Index.

So far in 2007, Vietnam's index has surged 10 percent, again leading gains in the region, and Singapore's is up 0.6 percent. The MSCI has dropped 1 percent.

Faber recommends investors steer clear of shares in the world's biggest developing economies after the emerging markets in 2006 outperformed their developed counterparts for a fifth straight year.

``Emerging markets could get kicked in the next three months so I'd be careful of buying Russian shares,'' Faber said. ``I'd also be careful of buying China and India shares now.''

Russia's dollar-denominated RTS Index surged 75 percent last year, while the Hang Seng China Enterprise Index, which tracks Hong Kong-listed shares of Chinese companies, jumped 94 percent. India's Sensex Index, which more than quadrupled in the past five years, is valued at 25 times estimated earnings.

Thailand, Japan

Faber also advises investors stay away from shares in Thailand, where he and his family are based. The nation's SET Index has been the world's worst-performing benchmark in the past month, sliding 15 percent as currency controls introduced by the central bank and bombs in Bangkok spooked investors.

``Valuations in Thailand are very inexpensive but I wouldn't buy tomorrow,'' said Faber. `` We have some political problems in Thailand right now. I'd wait for a couple of months.''

The SET is valued at 10 times estimated earnings, the lowest among 14 Asia-Pacific markets tracked by Bloomberg. MSCI's regional index is valued at 18 times.

On a more positive note, Japanese stocks may prove good bets this year, Faber said. The Nikkei 225 Stock Average climbed 6.9 percent in 2006 and the broader Topix index added 1.9 percent, the smallest gains among benchmarks for the world's 10 biggest markets.

Gold, Oil

In addition, the fund manager said gold should rally further on expectations that supply of the precious metal will decline and demand for it will increase to hedge against inflation. Gold climbed 23 percent last year, its sixth year of gains.

``The price of gold will continue to go up and probably very substantially,'' Faber said. ``In the long run, it's very clear that central banks are basically increasing the supply of money and the supply of gold is obviously very limited.''

Oil prices are also tipped to rise as political instability in the Middle East and other petroleum-producing areas threatens supply and global demand increases. Crude oil in New York added less than 0.1 percent to $61.05 a barrel in 2006, after tripling in the previous four years.

``Everyday the world is burning more oil than new reserves are added,'' Faber said. ``You wont see $12 dollars again'' for every barrel of oil. ``The trend is likely more to be upside because demand in Asia is going to double over time.''

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net and Pimm Fox in New York at at Pfox11@bloomberg.net
Last Updated: January 8, 2007 07:10 EST

http://www.bloomberg.com/apps/news?...L8PQ&refer=home

Anonymous said...

Hey anon:

here's a tip ... Marc Faber has been a sour puss for as long as I have heard of him. Every dog has his day. Yes, the markets will drop, but not before heading higher.

As for OIH, I think your stop is too tight Tim. Below $126 - $125, we're in trouble.

aoiwwuj

Anonymous said...

Tim- what about GS?? I see you don't post the chart when it has a huge rebound like it had today :)

Bubs said...

@Scott,

Cant give you any charts or anything but being in the jewelry business alot of jewelers are buying gold at this level. 605-610. I talked to some suppliers overseas and they were even surprised with the orders they recieved friday and monday. Many people held off buying and after Christmas is usually very slow for wholesale and retail jewelry but with such a big drop the demand will pick up a little bit.

Lauriston said...

Before I head for the Land of Nod, I will say a prayer that the GOOG HnS pattern comes to manifest, and soon!! I have puts in QQQQ and short RIMM right now, so I could do with GOOG dropping maybe $20-50 points. That would be nice, especially if it could happen, let's see..., maybe all tomorrow? Am I asking too much? :) http://lauristonletter.blogspot.com

Kurt in Seattle said...

Tim, I am trying to get a better feel for options. In the cases of Autozone and Google, just as examples, what would you see as an appropriate duration for put option, and at what strike prices? (I'm not looking for investment advice here, since I don't plan on buying the puts. I'm just trying to understand how an experienced trader estimates these things.)

IM said...

Little by little it seems the bulls are losing their numbers. They have been pushing this market up the last few months in anticipation of a Fed rate cut. Based on the economic data this will not happen anytime soon.

At the same time economic data does suggest we are slowing down though not rapidly enough to warrant rate cuts.

So now the Bulls are in No Mans land.

The data is not good enough to warrant a continued upsurge in the market while at the same time it is not bad enough to warrant rate cuts which is what the bulls were hoping for.

IM said...

AAPL ran up from $76 to $86 in 2 days between Jan 10 and 12 2006 last yr when Jobs spoke at MacWorld. AAPL than proceeded to fall to low 60s a month later. Short opportunity me thinks.

Lauriston said...

The media will be all over AAPL for next few days/weeks. But a patient bear is a well-fed bear... http://lauristonletter.blogspot.com

Anonymous said...

die shorts die!!!

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