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:

20 comments:

Des said...

Tim,

I'm reading your book (very well written, incidentally.. even a mouth-breather like me can understand it) and I read your blog posts every day, which are always enlightening and funny. However, when it comes to your choice of videos.. words fail me.

Keep it up!

JakeGint said...

Rolling... on... the floor....

Laughing.... my ass .... off!

Vic said...

There is one Bear I know of that got not just rich but super rich. That would be the greatest trader to have lived--- Mr. Jesse Livermoore! Bear extraordinare he is one in a billion and so are you Tim! What we need now is some cocky Iranian to take a shot at one of our cruisers in the Med. that coupledwith the coming slowdown will = about a 15% +drop, that not even Bernakes money printing could allay. Avalanche ahead!

Leisa said...

Oh Charlie..I mean Oh Toshi...

Where do you find this stuff?!!!

dbohntr said...

Candy Mountain? This was a classic post. Bears are bigger! Thanks for enlightening me.

Dennis said...

Obviously I don't have a crystal ball but I really feel that the big drop on 2/27 is merely a warning and today's drop is the beginning of the real thing, a protract and severe bear market.

Dennis

theriteway2000 said...

Ha ha ha your blog is a good laugh

You make several noobish statments in your posts that make me question your qualifications.

You write:

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.

That is a stupid comment. For one, GS has a PE ratio of 10 according to Yahoo Finance so how does that make it expensive? Also, GS trades with the market so if the indexes go higher GS will also go higher regardless of your funny trendlines and log graphs.

Tim Knight said...

"That is a stupid comment. For one, GS has a PE ratio of 10 according to Yahoo Finance so how does that make it expensive? Also, GS trades with the market so if the indexes go higher GS will also go higher regardless of your funny trendlines and log graphs."

I'm betting the market WILL go lower. Plus a PE is only as good as its "E". Earnings aren't forever, you know.

And if you think the blog is noobish, then don't waste your valuable time here.

anunakki said...

theriteway2000

it never ceases to amaze me how some people cling to their fundamentals and refuse to observe the charts.

In other news.. today was fantastic but Im uncomfortable with the 20MA crossing above the 50Ma tomorrow on almost all the indices... it could just be a small pop before a bigger fall but its making me nervous as I have a LOT of shorts on the table.

JakeGint said...

Amazing how all these newly appearing blogger names have "profile unavailable" and -- coincidentally, I'm certain -- have startlingly similar writing styles and maturity levels.

"Noobish?" And you're talking about Goldman's PE? Do you even know what business Goldman is in, and how volatile and cylical that business's earning can be?

Make sure you know what you're talking about before you make a fool of yourself on an expert's site.

Leisa said...

Well, I'll raise my hand sheepishly for fundamentals--given that chart patterns (as I learned from the experts-including Tim) fail a high enough % of time to make fundamentals a nice backfill.

But, people will misunderstand fundamentals as well. I read on one site where a reader wanted to buy one of the dying on the stake lenders because they had a 12% dividend yield. Like P/E ratios, when the "D" goes down because there ain't no money (and of course let's mention that the deonominator is an atrocity because the business model has just been annihilated), then that dividend yield ratio quickly drops.

There are successful adherents to both styles. And some are bi-adherents that dabble in both.

Tim Knight said...

Shun the non-believer!

Shun!

Shuuuuuuuuuuuuuuuuuuuun!

It is spoken! It has told us the wayyyyyyy....

mde said...

Candy Mountain? What kind of man are you. I cannot take you seriously posting videos like this. I sincerely hope you stay bearish and lose everything in this bull market that is about to take off again. Open your eyes.

Jon said...

hi Tim,
any reason why you would buy puts of SPY?

Jon said...

Sorry, i meant "wouldn't"...
i think there's important support to break @ 141.42?

Minstrel said...

Tim -

I have no problem if you (or anyone) chooses to be eternally bearish. Thats cool - whatever makes you happy! But while there are certainly times to be "near term" bearish the big picture dictates otherwise. I started watching the market back in 1979 when the Dow was about 750 and have watched it go to 13,000. Over the years there has been many reasons to worry, seemingly always - in fact at just about every turn - but the fact is that through it all the market goes up. I guess if when I started the Dow was 13,000 and went to 750 it would be the other way around and I'd be a bear! But I have learned that - on balance - we should just set sail and go for the ride. Anything else is just like waiting for a rainy day in Arizona! It happens, but for the most part - RELAX AND ENJOY THE SUN! :o)

Leisa said...

Hey, I bought your book and reviewed it (though only 1 of 3 people found my review helpful!)--Don't shun me. I'm a bi-adherent!

Tim Knight said...

"Candy Mountain? What kind of man are you. I cannot take you seriously posting videos like this. I sincerely hope you stay bearish and lose everything in this bull market that is about to take off again. Open your eyes."

MDE: Go somewhere else. Please. My readers and I don't want you wasting your valuable time here. Shoo.

Tim Knight said...

Minstrel,

Good points, and actually I agree with you. And, you are correct, if you live through 1979 to 1999, it "burns the bull" into you. Absolutely.

And likewise if you went from 1973 to 1981, you'd think stocks were for fools.

Anyway, we're in violent agreement. I start off my 'Why I Am A Bear' basically saying the bulls are, by and large, correct.

Jon said...

SPY puts??