Friday, January 26, 2007

Stalled Bull

Even the most fervent bull would have to admit at this point that, at least for the immediate moment, things have stalled. The week as a whole was down for the markets, and in spite of a lifetime high on the Dow this week, there's plenty of news and market action out there to scare our bullish friends.

Let me show you something interesting. Below is a chart of the S&P 100 ($OEX) over more than a decade. I have drawn a Fibonacci retracement from the peak in early 2000 to the nadir in October 2002.


Now let's take a closer look at the same index. The 61.8% retracement level was 702.13. And what was the peak this week before it reversed? 699.99. In other words, the market climbed to 99.7% of its anticipated retracement before reversing. Pretty impressive!


The Dow Transports continue to be relatively bearish. I've marked the level they need to crack before we can consider this a new series of "lower highs/lower lows."


Although the S&P 500 pierced its retracement level a while ago, at least it neatly bounced off its trendline.


As I've said repeatedly, this is not a bear market until we break the uptrend. And we have not broken the uptrend! So the bulls still run the show. It is heartening, at least, to see what a monstrous divergence exists between the price action and the RSI.


For more bearish evidence, take a look at the NASDAQ. If you consider this price channel to be meaningful, take a look at the bullish upside (green) and the bearish downside (red). One is a lot bigger than the other, isn't it? I'd say the risk/reward ratio gives the favor to the bears.


Now - as always - some bearish ideas worth examining. Behemoth Microsoft (MSFT):


FCX:


ETR:


Camden Property Trust (CPT):


CKH:


It's been a pretty good week. I'm sure those who follow NutriSystem, mentioned here several times as a bearish idea, enjoyed the drop today.

Thousands of people stop by each day to read this blog, and I want you to know I appreciate it. Doing this blog helps me think more clearly about the markets, and it's fun for me to share my views. Do keep swinging by!

9 comments:

Rusty36 said...

Enjoy your observations and the blog in general. However, the scale of your graphs is so large that its hard to view (small is too small, large is too large). Any chance you could use a medium scale?

What If? said...

Thanks for your positions and views
helps me do a balance - and it is for sure - by watching the short imbalance on many securities, etc - that the push/pull of the market should settle out - always takes longer than we wish.

thanks again, paul

Tim Knight said...

"Enjoy your observations and the blog in general. However, the scale of your graphs is so large that its hard to view (small is too small, large is too large). Any chance you could use a medium scale?"

I am spoiled by a big screen. This is the first time anyone has ever mentioned it, so at this point, I'm going to leave the graphs the current size.

Do yourself a favor - and I mean this sincerely - get a nice big screen. Flat panels are cheap these days.

fastermasterblaster said...

Tim,

Rainy days here on the south coast, leisurely weekend charting is about the only option. Your blurb about divergences is spot on and informative. Keep it coming.

I use the free prophet java charts ... always ... to get a true feel of the market. Best thing out there IMO. Using that platform I can also see the market divergences you are seeing, expecially on the naz. Using a slow stochastic (39,1) curve and the trendlines that reach the midrange (40 to 50) will indicate or confirm a market shift. Divergences are also easy to spot with this indicator.

I got this tip from another blog a couple of years ago and it appears to work and it easy to interpret a trend slowly changing.


Still bearish on the NAZ expecting another few down days before a support battle is waged.

Other markets are nicked up and weakening but still not a sure thing yet.

EddieFl said...

Tim,



Awesome job charting. Very nice, Good macro view on the OEX, 10yr charts on the FIBS.

A good excersize would be to print that chart and tape it to the wall. That could be a large macro trade/economic indicator.

AND YES, i am having trouble reading the charts on my 14" Compat CRT MONITOR.,,,,,,,, just kidding,

FlatopS ARE VERY CHEAP, I picked up a nice 21" Flatpanel Wide-aspect Dell with a X-mas coupon for 268.00 total.

Robert said...

Hi Tim,

I really appreciate your efforts and love this blog.

What are your thoughts on that MLM idea that you had the other day? It still hasn't broken 114 but it is still dancing close it.

Regards,

Roberto

Keith Alan Shepard said...

I have also been watching the diverging indicators in relation with the markets (market ETFs actually). Obviously, as you write, the Bulls are still in charge of the market and indicators such as the RSI can diverge for a long time in a trending market without bearing fruit (i.e., a market correct/roll over).

Still, I find indicator divergences interesting. I also like your analysis of the SP100. Thanks for sharing that.

I'm not much of a DOW theorist and I hate cars, trucks, trains, plains, boats, bikes and rickshaws, so the DOW Transports are of little interest to me, but it's good information and I'm glad you bring it up. It’s always good to read what you usually don’t expose yourself to.

/Keith

Housing Kaboom said...

Hi Tim,

read your blog daily... especially on down days... helps me get over the pain of the bulls running all over the bears... and me...

it seems like the tide is changing slowly and will eventually come to fruition... not to say i'm a bear always but this irrational exuberance in the housing, private equity buyouts, credit default swaps is horrendous....

thks again for your time

chronictown said...

gold is hangin in there. stronger dollar,oil tanking ,and gold shows signs of breaking out?just thinkin out loud.whats a girl ta do?