Monday, March 19, 2007

Contratrend Rally

Today was a pretty bad day for the bears. I woke up to find myself stopped out of my S&P and Russell index puts. I only got stopped out of a few equity/other put positions, but suffice it to say it was pretty much red across the board for me today.

I don't comment much on the FX markets, but I just wanted to share a chart of the USD/CAD ratio. To me it looks like the multi-year slide of the USD/CAD may be behind us. The succession of lower lows and lower highs seems to have changed to higher highs and higher lows. I've tried to make this clear with the circles and arrows.

Speaking of FX, one item I follow fairly closely is the New Zealand dollar. The NZD/USD pair gave me a clear signal before the February 27th selloff. NZD has been rather strong lately, but I think it may have exhausted its ability to climb back up. A resumption of the sinking of this FX would be very positive for equity bears like myself.

Is there a VIX on the VIX? If there is, it must be going crazy. Just look at how volatile this thing has been, swooping between 14 and 20 like mad. Today's very strong market took a lot of steam out of the VIX.

The principle risk the bears are facing right now is if the markets show much more strength, they are going to push into a relatively "all clear" zone where the bulls and frolic for a few weeks. I've tinted this in green.

The NASDAQ is even a prettier picture for the bulls, since it seems a short term double bottom may have been hammered out, and there's plenty of open sky above current levels.

The Russell 2000 - which is a favorite of mine since the bid/ask is relatively reasonable on the puts - has been strong compared to the more narrow indexes. A tight stop on this would be $789.88 with a somewhat fatter stop being 797.45.

Same story with the S&P 500. We've been in a trading range for the past couple of weeks, and things will look bad for us bears if we break above it.

Although people may think the sub-prime story may be fully told, I'm not so sure. I bought puts on AHM today. To me, this looks like the beginning of a much larger fall. What's freaky about these puts is that I actually picked up the June $35 puts for less than the April $35 puts were priced. Bizarre.

RIMM was about the only bright spot for me today. For RIMM to fall in a market this strong is encouraging. Breaking below $131.18 is key.

And now your occasional video clip. One of the most unlikely scenes from "The Facts of Life" known to man. Beyond the pale. Enjoy.


Louis said...

Hey Tim
Even though I protested "P" manual, there are plenty more between the line, 20/80 value principle is satisfied and I withdraw request for a partial money back.
I picked up some HRB puts today and it is amazing how tandem it is trading with AHM...
Best of luck to us all...

wincity said...


Do u mean Canadian $ heading for weakness? Seems that's what your chart is trying to say.

Tim Knight said...

Whoops! Right you are. I've corrected my error; thanks.

JakeGint said...

That is some weird shite, Tim.

The video, I mean. Guess I missed that episode when I was nine.... (one wonders if it ever got out of the can?)

Any comments on the weekly COMP chart by the way. Here's my marked up version, which looks like it's at an interesting juncture:$COMPQ&p=W&b=5&g=0&id=p90977404476&a=84971275&listNum=1

dbohntr said...

I was skeptical about the volume on most the charts I follow. I am surprised Tim that you thought it was strong. Wouldn't you want to see this weak vol. on the way up and stronger vol on the way down?

Leisa said...

I remember last year's vintage when there was a double bottom forming, and of course, everyone was expecting the big correction and John Mauldin, and others showed an ominous pattern that looked like a double bottom, but it was really a "gotcha" slide. I don't remember the name of the pattern and I'm sure that others here will, but this is but a girly-man correction if we are indeed in a double bottom.