Friday, March 30, 2007

Shoving Match

The bulls and bears are really starting to hate each other. Today was a total shoving match. First the market blasts higher. Then it does about a 150 point reversal. It ends the day basically unchanged. Just look at the action over the past couple of weeks. You can see where the bulls and bears are starting to brawl at the red and green markers I've laid out.

The first quarter of the year is over, and in the coming weeks we can look forward to earnings season - - to, once again, see if there is anything that will give this market some direction. If you believe it has direction, you're wrong. Let's examine the percentage change of the major U.S. indices.

The Dow 30 - three months of trading - and basically unchanged.

The NASDAQ - basically unchanged.

The S&P 500 - basically unchanged.

Even the Gold & Silver index ($XAU) - basically unchanged. What......a..........bore!

I'm going to let my massive post from yesterday stand on its own. I'm charted out. The week's done. Enough charts for now!

Finally, I was surprised and disappointed at the absence of comments from yesterday's video. As your punishment....Christian Clown College: Part 2.

Thursday, March 29, 2007

Dead Letter Office

Greetings, beloved readers. We've got a lot of new folks here today since a talk I gave yesterday about ProphetCharts was attended by nearly 1,000 people. A lot of them are asking where to buy my book about ProphetCharts. You can get it by clicking here.

As you may recall, I finally escaped Chicago this morning to return to bucolic Palo Alto. On my way out of the airport parking lot, I grabbed my parking stub which I noticed was different and more modern-looking than those I had seen in the past. Sure enough, as I approached the cashier's terminal, I saw this:

Now the purpose of this, of course, is for me to pay. So what I would expect to do is (1) insert the stub (2) see the amount due (3) insert my credit card (4) get a printed receipt (5) move on with my life.

Instead, a chunky hand extended out of the toll booth and a man asked for the stub. Not wanting to be rude, I gave it to him instead of the machine. He then proceeded to put the stub in the machine for me. (Please note I've been using computers since the late 1970s and am thus pretty handy with technical tasks such as inserting stubs). He then asked for my credit card (as did the machine). I handed it to him, guessed it........he inserted it into the machine for me. The machine returned the card and a receipt, both within easy reach, but he took them and handed them back to me. And I was on my way.

During this process, I noticed on his uniform sleeve was embroidered the following: "Proud to be a Teamster. Proud to be an American." Coincidentally, on my own shirt sleeve, the embroidery read: "Ashamed to Be in a Country where Union Goons Shamelessly Featherbed Pointless Jobs." I mean, I've only got one shirt like that. What are the chances?

Now, a number of you have been asking me some questions in the comments section. So allow me to reply to a few that I found recently:

Also a comment about Tim being a bear. He is not really a bear he is a closet bull. Being a bear creates controversy and increases the traffic on his blog so he pretends he is a bear. He lives a double life folks thats my conclusion. - zeus111

Untrue! A falsehood! I am a bear to the core, for better or worse (usually worse). I have virtually no incentive to increase traffic to this site.

any reason why you would buy puts of SPY? - Jon

Mainly because I was so disgusted with the bid/ask spread on SPX options. But considering the price movement of the SPY is so much smaller than the actual index, it's probably a pointless exercise. I'll just stick to the real thing.

You've not looked at SHLD in a little while. Is there such a thing as a double top head and shoulders? If that is a doofus question, I apologize. - Leisa

You're not a doofus, Leisa, and you know it. There is such as thing as a Complex Head and Shoulders pattern (which sometimes is just a technician's way of explaining really messy price action). As for SHLD, I don't really see it. But I've still got my puts.

1) One your $RUT chart, you show a very light blue line below the broken trend line. What's that for?

2) I am assuming you are short on everything in that list you provided, but I'm curious as to why you buy puts on some things and not on others. For example, I've bought puts (successfully) on AKAM a number of times recently, and yet it seems you'd rather short the stock... any reason?

3) You show Bear Stearns and Goldman twice in your list. Once on the main list and then a second time on the shorter list. What's that about?

4) One not so technical question: Is your family from Memphis, or was I misreading that prior post? - JackGint

To respond:

(1) You are seeing a portion of a much longer-term trendline that starts on August 13, 2004. It's the lower trendline of a multi-year channel. If that one ever gets broken, hurray.

(2) I usually short the stock if the bid/ask spread on the option is just too much to stomach, or if the option simply doesn't exist. Plus I want to moderate the volatility a bit, so I try to avoid 100% options.

(3) The first list is a personal portfolio. The second list is a portfolio for a trust account. Sometimes I like a position so much I'll have it in both.

(4) No - I was paraphrasing a fairly famous Bob Dylan song.

I'm a bear also, but I've been wondering why you hang out at airports so much? - sab63090

Actually, I'm not at airports much. It's even written in my employment contract that business travel will be minimal - - I miss reading nighttime books to my kids too much for that sort of thing. It probably seems like a lot because I bellyache about it when I'm on the road.

OK, on to charts. The market opened strong today, fell for most of the day (which got me excited that maybe we'd push through that Fibonacci retracement level), but then unfortunately recovered about 60% of the day's initial gain. Kind of disappointing, but not surprising. Remember, just this morning I mentioned how we'd probably have to take a 'breather.' This is what I was talking about.

The NASDAQ 100 shows the same story. We're in a tight trading range now. Break above it, and we're going to probably have to wait a while. Break below it, and our revenge will be swift and terrible.

Yep, here's the Russell. It held that Fib level fairly well. Just look at the huge amount of action I've highlighted. Even if we do push below the Fib, that's a lot of muck we have to drill through.

Dow Theory fans who are bullish probably can't really count on the Transports helping them out. This doesn't look like a bullish setup to me.

And $XMI has "drop/retracement/drop again" written all over it.

A few specific bearish mentions. You're going to see more energy stocks today than normal. I think they've topped out. Here's Cabot (COG):

AMLN is a huge top, although it could be a fakeout. Its descent has stalled for a bit.

Black and Decker has broken a rare diamond pattern.

ESRX looks sharp. And check out my spiffy trendlines! Pretty, eh?

Goldman Sachs (yes, Leisa, I've still got those puts) has moving averages which are starting to converge after its huge run-up.

Noble Energy (NBL) is very high and is a low-risk put play.

Same with OXY.

Copper magnate PCU is high enough to be safe again.

PSB is a bit iffy, but with a tight stop it could be a good play.

And now we come to the Tim Knight selection of your video today. It may be one of the most depressing things you'll ever see. Yes. It's Christian Clown Training. Consider yourself warned.

Charlie Don't Surf!

This is going to be one of those danged "airport posts" which are shorter than normal, since I am frantically typing prior to rushing onto my plane. Forgive me!

The markets were nice yesterday for us bears, although I wouldn't be surprised if we took a breather here for a bit. The NASDAQ 100 does a fair job of showing how tired this market is, possibly moving into our dreamed-of lower highs/lower lows scenario.

Perennial favorite Russell 2000 is resting on top of its Fib retracement, which could mean a bounce up today. I really need it to penetrate through this line to move to the next logical level.

Apple has been a powerhouse, but I think it's a great put candidate now. Oh, and by the way, my experience with AppleTV completely sucked. I returned it the next day. Disaster.

FDX is a great example of a failed bullish breakout. Look what has happened since its break journey above that horizontal line.

McDonalds as a short......I'm lovin' it.

Here are my current positions......actually, the screen wasn't big enough to show them all. As usual, put options are shown in bold. See ya this evening!

Wednesday, March 28, 2007

Stuck inside of Chicago with the Memphis Blues Again

Well, all the flights from O'Hare have been cancelled, so I am unexpectedly stuck in Chicago instead of winging home to my beloved family. Grumble.

I'll do a nice long post later tonight after I drink my troubles away with my colleagues......see ya then!

Tuesday, March 27, 2007

Freedom of Choice

Subtle product placement prior to writing this post: buy my book Better your life! Be the envy of your neighbors and the hero of your friends! God knows you could make your life better than it is now.

I thought my soul-baring post yesterday on why I am a bear would attract some interest, but I didn't quite anticipate what kind. I'm starting to feel like a polemicist. A lot of comments, a lot of linkbacks, and a fair bit of rabble rousing.

Markets aren't typically very easy to explain, but right now, it is. So here we go: if the indexes soon push above the highs we saw last Friday, it's back to wait-and-see, gosh-life-sucks mode for the bears. If we stay in the trading range established over last week and the week prior, we could be stuck there a while. And if we break beneath the low seen two weeks ago, it's party time. Simple as that.

Let me offer one potentially short-term bullish scenario in the graph below. It could be conjectured that the strength we saw last week was the true direction of the market, and the past couple of days have simply been a retracement. It could be argued that this is just a launching-off point for the bulls and we will continue with last week's strength.

Judging at least from this evening's GLOBEX session and the news that a major homebuilder is looking at sweeping Federal fraud charges, maybe the descent of the past couple of days is more representative of the market's direction. After all, plenty of feckless speculators in the real estate world are just starting to get slammed.

Let me show you what I mean by the highs of last week by way of the S&P 400 MidCap index. $857.23 is the stop price. Bang, it's just that simple. Cross above it, and Tim is unhappy. Continue to sink away from it, and Tim is glad. And the latter is what we all want, isn't it?

Here's perennial favorite $RUT, the Russell 2000. The lines speak for themselves:

The minute graph of the same index shows the support zone the bulls have on their side. There needs to be a robust run through this for the bears to survive.

I like Chevron (CVX) as a short (long puts). Looks like a potential double top, and the risk is quite low.

The DIA is the umpteenth example I could show how this market has shaped up. The stop-loss point is close enough to be relatively low risk, and the potential gains from that huge air pocket beneath makes it worthwhile. The green tint shows the bull zone. The red tint shows the bear zone - - which, as with most things associated with bears, is bigger.

Goldman Sachs has the potential to be a train wreck, which would be fantastic, of course. A stock this expensive can probably some incredible juicy returns for put owners.

Same story with MER. I really like how the investment banks are behaving.

PG represents a more conservative play. I like these giant consumer stocks because the options volume is big enough to get the bid/ask reasonable, and you are not going to wake up one morning to hear that the toilet paper they sell is a miracle cancer cure, sending the stock up 100 points.

RYAAY is tumbling nicely, moving away from that busted trendline.

I've highlighted SPY to beat this dead horse.

Lord knows you're probably not here for charts for instead of the occasional videos I find. Pull out your Facts of Life commemorative bong, light up, and enjoy:

Monday, March 26, 2007

Why I Am a Bear

Quite often people write to me (or comment on this blog) asking why I am a bear.

Let me first state that I am quite aware of a couple of reasons why a person shouldn't be a bear:

(1) The whole world is against you. From the investment banks, to CNBC, to Jim Cramer, to the brokerage houses, everyone on the planet wants the market to go up forever. There is a huge, huge, huge vested interest in the markets going skyward for all eternity.

(2) No one gets rich being a bear. Fortunes like Warren Buffet's are made by investing in stocks that reap multi-thousand percent gains or more. There is no one on the Forbes 400 that got there by being a bear.

Having said that, allow me to explain myself and hopefully set this question to rest.

For the sake of organization, I will break my reasons into three sections: Personality, Rational, and Irrational. I feel a little awkward posting a blog entry like this, since it resembles more of a confidential therapy session than technical analysis, but I want to be very clear about why I am disposed the way I am to shorts and puts instead of longs and calls.


Impatience: I'm not the most patient soul in the world. And the fact is that markets fall much faster than they rise. For instance, on February 27th, the market plummeted over 500 points in just a few hours. It takes weeks to go up that much (usually). So I'm drawn to fast-moving markets.

Worrywart: I'm a worrier by nature. I wouldn't go so far as saying I'm a pessimist, but usually I tend to see the things that will go wrong faster than I will see the things that will go right. Hence - - bear-dom!

Unconventional: Somehow I'm wired to want to be different. I like to stand apart from the crowd. Per my introductory paragraph, being a bear is by its very nature weird and different. If you happened to be this way during the 1980s and 1990s, it's also terribly unprofitable! I guess I could file this under 'Irrational', but it's part of my personality, so I put it here instead.


The Macro Economy: There is simply too much evidence of a sea change afoot for me to ignore. When I was growing up in the 1970s, things were generally pretty bad for America. We were coming out of Vietnam. There was stagflation. Carter was president. Media images of long gas lines and unemployment lines were a daily fixture. And out of that malaise came a huge resurgence. America was essentially "basing" for a very long time and exploded into success, wealth, and power.

That doesn't last forever, folks. Once you're really, really fat and really, really rich, you get soft in the middle. There is way too much mega-wealth sloshing around for anyone to believe that the U.S. is a lean, hungry machine waiting for burst into newfound success. Everyone in the Forbes 400 is a billionaire now.

Don't get me wrong, I love America, and I remember well during the early 1980s the feeling of pride that America was on the move again. But things move in cycles, and a big down cycle is coming. The grotesque wealth among a powerful few is a harbinger of a change. The forthcoming IPO of Blackstone is just another sign of this.

Long-Term Charts: I'm a chartist. I believe in what charts can predict. And every long-term chart I see (and when I say long-term, I'm talking about over a century in some cases) absolutely screams "TOP!" to me. And if you study the charts well, it doesn't predict a few hundred points off the Dow. It predicts a cataclysm. I want to profit from it.

Social Observation: One of the few verbs I remember from four years of Latin in high school is 'speculare', from which we derive the term 'speculate.' This verb doesn't mean "to gamble" but instead means "to observe." I am a speculator, and as such I am an observer. I consider myself pretty tuned-in to the social mores and climate of the U.S. and, in particular, the Silicon Valley where I reside.

I can tell you everything I see is far more indicative of a late 1990s style arrogance and bravado than a mid-1970s humility from which great companies like Apple and FedEx were born. What kinds of companies are being born today? The United States is populated in large part by a young generation that has never experienced a bear market in their lives.

The Irrational

Revenge: In the interest of full disclosure, I will be the first to admit that a portion of my bearishness comes from a sense of feeling cheated out of the amazing gains of the 1990s. So I'm wanting my share of the pie, having missed out on the amazing bull market. This isn't logical, it isn't sensible, and it clouds my thinking. But I at least have the clarity to recognize it.

And there we have it. As the tired cliche goes, the good, the bad, and the ugly. Today's market had enough interesting things going on that I could have spoken about it instead, but I felt it was high time to tell my thousands of daily readers just how my head was screwed on, for better or for worse. Good luck to you.

Friday, March 23, 2007

Grind It Out, Part Deux

Photocopy yesterday's entry and make it today's. Not satisfied with that? Sigh. I feel a sense of duty to put up a post for today, in spite of little new to say.

Here, I've got a chart to show you. Something to get us away from the tick-by-tick obsession of this market (which, granted, sucked for bears - every single day this week was positive for the Dow).

This graph shows a huge, secular bull market followed by a bear market, and then a push to new highs. Let's call it Graph #1.

The next graph is very similar. Again, a huge bull market........then a bear market .....and then a push to new highs. We'll call this Graph #2.

What is interesting to me is this......what happened to Graph #1 in the years that followed? This is shown below. Year after year of a market that ground away, going nowhere. Actually, if you take inflation into account, it could be argued this was a sixteen-year long bear market. Suffice it to say equities wasn't a good place to be.

My theory is that Graph #2 - which spans from the early 1980s right up to the present day - could be a repeat of the same behavior. That is, yes, we've made new highs, but we're in the midst of a very long "grind it out" market which, in retrospect, will be a debacle for the market in general.

Here's another way of making the same point: below is a chart of the S&P 500. I've highlighted the most recent dip (2000-2002) and rise (2002-present).

Here is a close-up of the same area. And my point is this: bull markets are not launched from charts that look like this. There's no base. No jumping off spot. No massive consolidation that is about to explode to the upside. I can't state it any more simply: bull markets do not commence with graphs that look like this.

On a shorter-term note, it was interesting to me that the NASDAQ 100 actually inched down today. We are near the top of the Bollinger Bands, and the RSI is trending down.

The NASDAQ Composite is a similar story. In both cases, I think the retracement is completely, and we spend the past couple of days marking time. I've highlighted the "2/27 gap". It hasn't even closed that gap.

One last graph before I send you off on your weekend: The Amex Major Market Index ($XMI). I've simplified this by showing just the 78.6% retracement. I will be stunned, amazed (and a lot poorer) if the market pushes higher next week. It simply shouldn't happen. But then again, the market doesn't consult with me before doing its own thing! Good night, and good luck..........

Thursday, March 22, 2007

Grind It Out

I know a lot of you spend a lot of time worrying about a gift to buy me, particularly since no one was able to come through with a C3PO tape dispenser. I will welcome this surprisingly frank Batman water pistol in its stead.

And for your daily Unlikely Juxtaposition of Books, I offer this snapshot I took in my local Borders bookstore. It's not crystal-clear, I realize, but on the right of this New Non Fiction selection is Hillary Clinton's "It Takes a Village" retread, and on the left is a book about sexual pleasure for women. I'm surprised one of these books did not leap to the floor under its own power.

Oh, yeah. Charts. I almost forgot. Today was one of those grind-it-out bore-fests where the do the rah-rahs say it?........oh, yes, "digest" their gains. This still falls in line with what I was looking to unfold: specifically, the end of a full retracement before the fall resumes.

The daily candle yields a similar picture. Notice the spinning top today. I've marked another recent spinning top, which happened to be at the very peak of the market.

All the charts that follow tell the same story, so I'll just net it out for you here: (1) plunge after 2/27 (2) consolidation (3) turbocharged retracement to approximately 2/27 levels. My speculation, and where I'm putting my cash at this point, is that the markets will resume their fall. The rest of today's entry will be little more than tickers and graphs. Here's the gold and silver index (XAU):

AHM (part of the sub-prime world):

BAC (a huge bank, but a beautiful chart nonetheless):

Bear Stearns (BSC):

Continental (CAL), mentioned countless times here, having completely a lovely head and shoulders retracement to the neckline.

Brazil iShares (EWZ):

Goldman "nut" Sachs (GS):

PSB, part of the commercial real estate crowd:

Oh, speaking of Hillary......your video of the day. This is what all the fuss is about regarding the repurposed "1984" commercial. Hearing her nasal voice patronizingly talk about "conversation" this and "chat" that is truly nauseating. Anyhoo........enjoy: