Thursday, February 08, 2007

Double Top

In honor of the late Anna Nicole Smith, we will direct our attention to another artificially-inflated bubble without much intellect behind it which no one thinks will die so young: the U.S. stock market.

The $VIX is forming a pretty decent inverted head and shoulders pattern. I've drawn the neckline here. Clearly it would be beneficial for the bears for the $VIX to push its way above this neckline, thus completing the pattern.


The S&P 500 remains beneath its broken trendline. The huge divergence between the price action and the indicator is quite intact, with today finally registering a small downturn in the market after several days of doing basically nothing.


Much the same can be said of the Dow 30.


John Deere (DE) is at the top of a sharping ascending channel.


And Cummins (CMI), mentioned here recently, has put in a possible double top.


I put Boston Properties here (BXP) not to suggest it, but merely to marvel. It's incredible - simply incredible. Much came be same for any of the components of the Real Estate group (wasn't there supposed to be a deflating bubble? Guess that's just residential....)


Bear Stearns (BSC) is finally losing a bit of its steam.


Aetna is obeying its Fibonacci retracement very nicely.


Reynolds Aluminum (RAI), also mentioned here recently, is dipping.


MTW seems to be in a series of lower highs and lower lows - often the makings of a good short position.


MTH looks like it has fully retraced to the neckline of its head and shoulder pattern.


And the same can be said of MDC.


The DJ Real Estate (IYR) equity is breathtakingly high - - which just goes to show stocks sometimes have no trouble defying their resistance lines!

13 comments:

Leisa said...

I'm still smarting from my IYR puts (expired worthless in Jan). I was so sure.... I was a ninnyhammer to be sure.

Today I was scoping out the intricacies of the IYR. I see the Charles Kirk had the same idea. The market cap of REITS has gone up 43% just from 2005 to 2006. They've had an unbelievable run. I'd like to recover my put premium lost, so I'd be an eager reader of some short specifics in this area.

stockshaker said...

I've been watching IYR for a while, because it is definately on my list of ETF's for long term growth.

However, the price action of late has been very uncharacteristic to how its been in the last few years. You can clearly see how it had shown weakness about a month ago, and then defied all weakness to break resistance as Tim has drawn.

Its moments like these that make me scratch my head, and have that puzzled look of "what the heck..." because ETF's are "supposed" to be like indicies/mutual fund types, and should behave similar to one. It just shows that sector ETF's can still behave like individual stocks - based on news. Whereas indices can cushion bullish/bearish news due to the collective diversified components of what makes up the ETF.

Conclusion: Should I be investing in US Real Estate as yet?

Lauriston said...

I wonder whether the real estate stocks are having a huge influence on Russell 2000 small caps and s&p mid-caps? These 2 indexes have also been on a tear lately, and my puts haven't done too well (and would have been worse if I hadn't created spreads out of them).

ODA125 said...

Tim,

Hello and happy Thursday!!! You had posted MLM last month as a possible Bear play and I had been stalking it for a while Iplaying it last year going up and coming down while waiting on the formation to complete. I saw a Cup & Handle forming with a really good Bull Flag forming for the Handle and it actually did break to the upside on Jan 23at 113.39 and today closed at 123.85. This was an almost textbook move for a Bull Flag. I have been showing the trade on my options blog as it as progressed (You can see all my hisotrical posts with annotation on this trade). Here are the charts for the day I took the trade and for today. I still think the Cup & Handle move is intact but time will confirm that..... Thanks for an awesome site and for some really good charts. I learn fromyou every week something new. I love a great chartist site - the basics is all that is required!!! Isn't this market wild!!!

http://img113.imageshack.us/my.php?image=mlmjan23a07uw3.gif

http://img113.imageshack.us/my.php?image=mlmfeb0807ej2.gif

D.A. said...

Tim,
Great charts tonight!!

Bill Luby said...

Glad to see that you're being topical with Anna and the VIX. (Sounds like the name of a band...)

As someone who is long VIX calls and wondering what the catalyst will eventually turn out to be, my concern is that investors have been so desensitized to terrorism, $100/bbl. oil, Iraq/Iran, North Korea, etc. that I'm not convinced that the pop will be a big one.

If you're interested, I recently did a "What to Expect from a VIX Spike" piece in my blog, VIX and More (yes, some poor soul actually started a blog with the tagline "Your one stop VIX-centric view of the universe..."): http://vixandmore.blogspot.com/2007/01/what-to-expect-from-vix-spike.html

BTW, if we do get the H&S bounce, it will be Anna's last bounce and a signal to all of us to start paying attention above the neckline.

Good work!

z-stock said...

Interesting charts oda:I had a possible 120 to 124 target for Mlm back when Tim first mentioned it. Although at the time, I couldn’t see how Mlm would get that high. I used some strange math to get the numbers. I see now, the math might be correct. This could be one of those times when a company reports, and then gases out the next day.
Icf / iyr up on takeover speculation and bidding wars. Maybe Time is coming for that sector to correct 6 or 10%
z-stock
I’m still waiting for Xle uptrend to end. I’d like to try a put on Iwm, but I’m waiting for the energy sector to top. How does Iwm and Xle connect? They don’t, as far as I know. I’ve been forced of late to think outside the box, because, All the tops keep getting topped. This market has no top and no corrections. Does qqqq have to double top now? Maybe March there will be a correction. 10%= 1270 points.
It’s just tradjical

Jeff said...

As I write this ANDE is -$3.2 or 7.15%...where did you get this inate ability to kill a stock the instant you start crowing?? Kills me since I didn't head the Tim K warning and held my shares....unreal!

Tim Knight said...

Jeff,

I'm actually not convinced you weren't the guy who called and left that message.

Anyway, there are plenty of stocks I have "crowed" about that continued their march upward. As for ANDE - or anything, for that matter - there's this wonderful thing called a stop-loss price that's important to have in place.

Whether you use this blog to fade your trades or stop reading altogether, at least do us the courtesy of stopping your insults. It's tiresome.

- Tim

Tim Knight said...

I must confess a bit of surprise that no one took offense at my Anna Nicole Smith jab. I guess she has so little respect that it just doesn't rile people! Oh, well. I tried.

Pravin said...

hi tim

does the dow chart from the past 2 weeks look like a bull flag?

Leisa said...

RE: ANS: I almost said something, but given your verbal thwumping already once this week, I decided that your comment was not egregious enough to thwump again.

I really feel sorry for someone with such a tragic life as that. Makes me glad I don't look like her--it could have happened to me.

Lauriston said...

Tim, the minute I saw your ANS comments I sat down to take offense (as I did with AJC), but then I thought, c'mon Lauriston, for once be honest and admit it! Some people just fly too close to the edge. Reminds me of Princess Diana etc. Tragic though for those left behind...anyway, today was great great great for those puts I talked about yesterday, and shorting RIMM was fun fun fun