Wednesday, February 28, 2007

The Price of Tea in China

I am writing this Wednesday morning, a few minutes into the opening bell. I stayed up until 2 going through charts and resumed at 5:20 this morning. So this is a late post, but it is in the context of Tuesday's mini-crash.

It has been a long, long time since I have awakened to such a beautiful sight on Tuesday morning:


In the end, Tuesday turned out to be the best of times and the worst of times. It was the best of times since it was spectacularly to finally see a real fall, just like I had hoped for the previous day (see my Monday post). It was the worst of times since, for my index options, I closed them out when the Dow was down just 120 points. I made money on all my options, but there was a huge amount left on the table. Deeply disappointing, but nice to see the smart bears beat the dim bulls for a change.


A few interesting notes from yesterday:


  • I had a record amount of blog traffic. It's weird, because usually my traffic is very steady. Maybe my regulars came back repeatedly to see what crazy Tim was going to say. Or maybe those who visit me occasionally figured it would be a better post than most.
  • A number of people wrote me emails to thank me for the profits they made. I appreciate that, but the credit goes to you! I'm just here sharing my thoughts, for better or worse. What you do with them is up to you.
  • Quite a few people keep asking about the sales of my book (especially, strangely, my detractors). I have no idea! I do track its rank on Amazon, and it briefly made the "Best Sellers" list on the business books/investing section, but remember, this thing hasn't even hit any stores yet. It is just off the press. Only time will tell, but I'm pretty proud of my book. I think it's a good read!
  • On a personal note, I've been waiting for the perfect opportunity to use the subject I chose for yesterday's post ("I Am Become Death"), a reference to Animal Mother in Full Metal Jacket. I felt it fitting!

I think few stocks better represent the broken promises of this fraudulent bull market that Google. What a snoozer this thing has become! Just look how it's been doing a whole lot of nothing since November. This is a relatively blue chip high tech stock, but you can just hear the air coming out of the tires.


If you look at the NASDAQ over the long term, you can see we might have a loooong way to go before we reach bottom.


Looking at the same index with a shorter time horizon, we plainly bounced off the upper resistance line.


The Dow Industrials were just crazy yesterday. I was - - and this is further proof of just not God, but a Cruel God - - trapped in my car virtually all of yesterday, taking dangerous glances at my Treo. The market was down 200 or so for the longest time, then it was suddenly down 500. I honestly thought the president had been killed or something. But it was just this orgy of sell orders all at once, I suppose.


Looking at the long term industrials, one could easily argue that yesterday was an anomaly. There aren't any major trendlines broken here. Just some very shaken bulls.


The Russell 2000, which I've mentioned quite a bit as a good index to buy puts on, took a better tumble than most yesterday.


And just look at the QID (and its volume!) It's pretty clear there is a growing interest in this double-inverse funds!


Looking at the $SPX, you can see a brief pause about half an hour into the trading day. This is the point where I - shame on me, shame on me - did an "ad hoc" close (which I had forbade myself from doing). Pure idiocy.


But here is perhaps the most interesting chart I have for you today - the SPX on a daily basis. Take a good long look at those trendlines that made up the channel, above which the index had broken out. And to which point did the index fall yesterday? That's right - almost precisely at the same trendline! If any bulls are ready this, you can take that as an encouraging sign.


The volatility index went stark raving mad. This almost certainly cannot sustain itself.


A close look at the $VIX shows the amazing breakout. This borders on unbelievable.


I had no position on the $XAU, but I wish I had puts on this bad boy. The plunge in China had a profound effect on metal prices.


Oh, and the Dow Transports breakout I mentioned last week as great news for the bulls now is rendered moot. The pattern has been shattered.


Continental Airlines has broken its trendline. I've pointed out the target on this. I own puts on this (which I bought prior to the breakdown), and I have high hopes for this position.


One other stupidity on my part - I closed out my CME puts yesterday at a fantastic profit. But the profit became much more fantastic as the CME kept falling. These expensive stocks can make for fantastic puts, especially when volatility is low (as it was not long ago!)


Lastly, Goldman Sachs - - whose puts I've been derided for owning - - is another winner. I'm hanging on to this, although I sold my MER just to trim my investment bank exposure. But you can see by the trendlines there's plenty of room left to fall.


I apologize again for the late post, but I hope I made up for it by the size of this one! Thanks again for all the congratulations and pats on the back. I'll let you know if any bullish Australians have left any cowardly voicemails for me.

13 comments:

Lauriston said...

Tim

Excellent charts- you have a unique way of looking at charts and I really appreciate that very much. I hope you are not tired of people thanking you for your hard work, I truly appreciate them. I too closed many of my puts/shorts at that "halfway" point, but I don't regret it at all as I have a plan (like you) that I follow strictly. If I hadn't done that, I am sure the opposite would have happened :). You've done a great job on the charts today! The lesson to take from your detractors is: Patience and discipline. We bears have been on this case for almost 2 months now, and all we needed was patience to hang in there till yesterday! Of course the severity took all of us by surprise as we were so used to bulls "buying the dip". I wonder if they will buy this Grand Canyon now? I am having fun taking it easy today...

Rob said...

Dead cat bounce?

dhart346 said...

Hey Tim,

Great blog. I'm addicted.

By the way, the reference to the "I Am Become Death" quote has a different meaning from my generation. Check out the following for the origin of this quote (at least as I understand it -- Robert Oppenheimer, Trinity 1945 quoting from the Bhagavad Gita, chapter 11, verses 31-33):

http://www.faktoider.nu/oppenheimer_eng.html

Jim said...

thanks tim. and congrats on a great day. i sat out in cash, after selling everything on a whim monday. lucky. i am new to this bear thing, but will be studying hard and learning to play the downside. you've inspired me.

JakeGint said...

Tim,

Question on your charts... I note that you do not include a volume study in them... is there a reason for this? Doesn't volume tell you if a move is "real" or not? Thks for your work here.

Jake

Tim Knight said...

Hi Everyone,

Funny enough, I am doing big fat nothing today. Just sittin' on my existing equity puts. And trying to stop kicking myself for selling my index puts.

DHart346, yes, I know of the early historic reference to "I Am Become Death." I appreciate the link.

Lauriston, keep those thanks coming; I don't get tired ;-)

JakeGint, when looking for bullish breakouts, I think volume is key. In the case of breakdowns, as long as volume is high on average, I really don't pay much mind to it. 99% of the time, I have the volume pane turned off (ProphetCharts tip: Ctrl-Space toggles it).

JakeGint said...

Tim,

Interesting perspective... I guess I learned my TA on the bull side. Wouldn't the volume level tell you when best to cover, or is that all support and resistance lines for you as well?

Not to be contrary, but I'd feel like I was fighting in the market w/ one hand tied behind my back if I didn't have my volume bars...

Anyone else have an opinion on this one?

K said...
This comment has been removed by the author.
charttrader said...

I hear there's a good chance the SPX will break the current support and move down to the 1300 level... a lot more selling to come I think!

Jeff said...

Covered all shorts/puts yesterday (HANS, SNDK, KNOT, CROX, CTRP, CRM(today)).

Longed CME(515.36, +20pt), GRMN (54.50), ANDE (Jun 45 calls)

Short: ICE (149.88)

Want some Jun CME calls badly.

Hopefully we get some shakeage tomorrow, then surge on Fri on short profit taking.

z-stock said...

YEAH!!!!!!

“COMMENT DELETED.”

I Just can’t get over it. I’ve never laughed this hard, in I don’t know how long it’s been.

Thanx, Tim. GOOD Lookin’ OUT!!!!

z-stock

Ravi said...

Hi Tim,

Please take my congrats as well..Great analysis for us small folks.

I entered NZD again yesterday. Looks like you got that one nailed as well.

Any comments on SYX?

Thanks,Ravi

mde said...

Many bloggers mentioned that traffic increased dramatically yesterday. I think everyone was trying to figure out if the decline was real or not. Time to load up on shorts now. I am buying QID big time now.