Monday, January 29, 2007

Slow Start to a Big Week

This is going to be an action-packed week - earnings, the FOMC announcement, major economic reports. The whole schmear.

There wasn't too much action today, however. The market rushed higher, sold off to negative territory, and closed today with tiny gains. Basically nothing happened. While we wait for something more definitive, let's look at a few interesting charts.

Back on January 4th, the Dow 30 broke beneath a medium-term trendline. I've circled the event here. Notice how the most recent trading has stayed clearly beneath this former trendline.

Backing up in time somewhat, you can see this from a different perspective. I've pointed out in red the day the trendline was snapped, and I've pointed out with a green arrow the reversal off this trendline. As regular readers of this blog know, I am always fascinating by the "turncoat" nature of trendlines. We are now beneath the former supporting line.

If you believe tech is vulnerable, you might consider buying puts on the $MSH. It isn't very heavily traded, but there's plenty of potential downside here on the index (and thus upside on the puts).

The Russell 2000 remains my favorite index on which to buy puts. But we remain trapped in a trading range. If this pushes above $801, all bets are off. In fact, I'd get very skeptical if things even pushed above $796. This is a minute-bar graph:

The S&P 500 is a more popular index venue, although to my way of thinking this is not as vulnerable as the Russell 2000. But you can see trendline behavior similar to what was witnessed above with the Dow.

I haven't been trading the $XAU (gold and silver) for a while, but this index seems to be heading south. Even if it reverses, the recent high price is such an obvious stop-loss level that this is a pretty low-risk trade.

Now a few other short ideas to chew on. Exxon Mobil (XOM):

Chicago Mercantile (CME), which at these price levels easily gains or losses double-digits worth of points on any given day:

BP, which continues to be in the throes of forming a head and shoulders pattern (as yet incomplete).

And, lastly, Bank of America (BAC) seems to be finally falling - - with nice volume too! My puts on this have been inching higher.

My book is coming out in just a few more weeks! Stay tuned!


Sanjay Sola said...

not enough distribution to start any type of bear market. everyone is expecting a correction, so I think we might be headed up some more. actually, the market has been correcting for the last two months and too many people are on the sidelines or half invested. maybe we go sideways some more until everyone's puts expire.

Lauriston said...

Tim, CME reports tomorrow so I expect a major move from this one after tomorrow. Which way? Mmmhh... it's been a powerful performer on the upside and I know a few people who have made a great deal from longing it... anyway, we'll see after tomorrow

Des said...

Tim, Very much looking forward to inhaling your book and then giving it a careful study. Someone asked about MLM over the weekend, not sure that you replied. Earnings next Monday and potential action before then. Thanks for the continued posts.

PB said...

Chicago Mercantile (CME), which at these price levels easily gains or losses double-digits worth of points on any given day:

it should read "loses"

the Dow still has about 600 points left in it before any 'major' pull-back ... too many mergers, buy-outs going on! Why on earth these waay profitable companies don't pay higher dividends is beyond me.

stockshaker said...

I doubt that everyone is expecting it to fall. Im reading a few places wehre people are waiting for start packing in more money into longs.

I doubt that just because everyone thinks it shoudl go down, that it will keep going up, becuase things have to correct themselves. The long term techs have already pointed downwards. I hope the next few days will get things moving. The QQQQ's four center of a gain is hardly anything that i can use to pay the rent!

If you get a chance, please check out my blog,, i got a race going on...

Anonymous said...

Any chance the book will be available in an audio version? I read better with my ears. Thanks for the blog.

Des said...

"Any chance the book will be available in an audio version?"

Err.. not to be rude - I'm a big fan of cyberspace civility - but I can't help but think that it's a book on how to interpret charts, so I'm going to go out on a limb (dangerous territory, I know) and suggest that there might be a substantial visual component that will not lend itself to aural interpretation?

Jon said...

Can I borrow a feelin- and wish that you offer your beloved blog readers a discount on the new book...

John Forman said...

Best wishes on your book release from one Wiley author to another. :-)