Wednesday, March 14, 2007

Candlesticks Galore

I think it's time to back off for a while.

This may seem to be a sudden change compared to yesterday's post. But I see a lot of reasons why, in the short term, it might be best to take profits off the table and wait it out a bit. I certainly did that today. I've got a lot back into good ol' cash. Specifically, what concerns me for bears is:

  • The relatively high $VIX
  • The abundance of very clear hammer patterns today
  • The abundance of 'trendline touches' today (intraday lows touching suppporting lines)
  • The lack of a new catalyst.......the Yen carry forward helped us a couple of weeks ago, and the sub-prime debacle helped us recently......but we need a new disaster du jour, and a pretty gigantic one that that.
Earlier in the day, when the Dow was down another 150 points (actually piercing below 12,000 for a while), a reader sent me this picture (which I appreciate!):

Strictly speaking, they're bison. But it's a nice thought.

In many instances, the kinds of clobbering I've been expecting have exhausted themselves, at least in some industries. Take housing, for instance. I first mentioned Meritage Homes (symbol MTH) way back on January 23, 2006 when the stock was at $58. It lost nearly half its value since that time, so clearly the head and shoulders pattern behaved as expected. But as you can see in the highlighted area near the bottom, there's a bunch of support here, and I think stocks like this have played themselves out to the downside.

That isn't to say that the drop from 12,700 to 12,000 consitutes the Giant Bear Market I've been talking about. Not at all. I'm just saying that, barring an important new catalyst, I can see the bulls taking the reigns again for a bit.

Take today's $INDU, for instance. Support at 12,000 was pierced, but there's a ton of buying interest at that level, so the bears were pushed away, and we had an intraday move of over 200 points.

The MidCap 400 ($MID) is an even clearer example. Look how perfectly it bounced off that Fib retracement level.

The $NDX also held firm. So the failure of the bears to really maul the market indicates to me that the baton was handed back to the bulls in the middle of the trading day today.

$RUT (the Russell 2000) likewise showed good Fibonacci obedience.

The S&P 500 shows the pickle that the market is in right now. It's just stuck on that major trendline. A state of equilibrium in the market stinks for traders......but we may soon find ourselves in a trading range based on this tug-of-war.

The Transports also supports the short-term strength theory. A perfect bounce off the supporting trendline.

I have no new ideas for you today. Sitting on your cash might be wise. Continental is doing pretty good on the short side; I've highlighted a target.

MER touched its trendline perfectly.

Microsoft - which I don't really trade, but it's important to follow - also touched the the penny. Although this trendline was broken, I made an exception since it seems to be important to monitoring the stock.

I also got out of SHLD today, at a profit. Same reason - - trendline bounce.

So Monday's post had me talking about how boring the market was. And Tuesday was fireworks. Now we're back to boring. I really think, unless something totally shocking happens, we'll be marking time as the $VIX winds its way back down to the lower double digits. In the meantime, enjoy Flunky the Clown from the late 80s....


Tom2oc said...

Hi Tim, nice TA work! Congrats for being cautious last night.

Today turned out not as boring as you thought it would today. And VIX was perfect indicator to call that intraday reversal. My outlook is bullish with odds at 60%.

See my blog for details.


shiftpoint said...

IMO, more downroom to go on SHLD... head and shoulders pattern.

Leisa said...

Stong-like-bull market today. Interestingly, there is a PERFECT inverse correlation between the FXY and the market. Perfect, I say.

My SNE puts did so beautifully--for a while. We have a couple of key economic reports still. I cannot believe that we will happy news, but the "facts" will speak for themselves.

Leisa said...

Flunky the Clown. Well mister you just bought yourself an "et al" from Viacom's suit of Google et al (et al being all of the people--like you Tim--who shamelessly broadcast copyrighted video and other "stuff"). Yeah, they'll get you and your little dog too!

And we're badgering China about intellectual property rights. The thought of it all makes me bristle, and long for Frylock!

ctkwtk said...

DIA & SPY bounced hard off 200 ema. $BPNDX -4.0, -6.78% to 55% today. More down left. IMO

Adam said...

Should we buy index puts on the way up?

Tim Knight said...

"Should we buy index puts on the way up?"

I'm not inclined to, for at least a couple of reasons.

One is that the premium is much higher than before, and the perverse thing that happens is that as things "normalize" and markets climb, the premium shrivels away. Better to buy puts and have the market fall than buy calls and have it go up the same amount.

The second reason is that there are just too many surprises lately. No one saw the 400+ point drop 2 weeks ago, and no one saw the 243 point drop yesterday. Things are actually behaving more bearishly lately, so I think the risk of going long is higher than it was.

z-stock said...

The bears are so close to testing the 200 day = 11,700
(Why give up NOW!)
The Chinese started all this, I suspect they’ll finish it.

TradingGoddess said...

I hope that no bison were harmed in the making of that pic!


Jeff said...

CME fun ride today.....weeeeee!!

z-stock said...

If we have a down 3rd Friday, It’ll be the first one I’ve seen, in (well, in a second, as far back as….wait, I think I found it, … no wait, that’s not it, well.. Records don’t go back far enough.