Wednesday, March 21, 2007

Give the Past a Slip!

Today's entry will be relatively short.

Although you may not believe this, I saw today coming. Sort of. For those who might hurl claims of permabear, let me cite my recent quotes over the past few days...

From my March 14th posting:

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

From March 19th....
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.

And from yesterday, March 20th...
Index after index shows the same thing - - that we are at the upper levels of the trading range established after the 2/27 break. As I said yesterday, if we push above this trading range, the bulls are going to feel rightfully emboldened. If we don't see weakness tomorrow, it's going to only amplify the discouragement, disappointment, and frustration of the bears who had thought their fortunes had finally turned with the recent market break.

What surprised me was the speed that the market has retraced virtually its entire drop from February 27th. You can see how quick the effect of the Fed's statement was today:


You would have though the Fed statement read, in its entirely, "The U.S. Government hereby guarantees a positive month-after-month return on U.S. equities in perpetuity." Instead, here it is:


The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Surprising that the above statement generated so much excitement. But here's where Tim the bear comes out: I was gobbling up puts left and right at the peak of the market today, because I feel 2/27 was the tip-off to a new kind of market, and everything we've seen since then has just been a retracement which will be obliterated in short order.

Just look at the $VIX. Every morsel of volatility from 2/27 forward has been destroyed. We're back to "the before time."


The key for the Dow 30 is the trendline I've drawn. I've circled the key break date.


The Russell 2000, being particularly strong of late, is just about to kiss the underbelly of its broken trendline. This, to me, is the ideal time to buy puts (or otherwise short the market). Because for all those that missed 2/27, here is your second chance.


Same story with the S&P 500.


I find the $XMI graph intriguing, although shorting this index isn't as easy. The full-blown bear play would be to short it here and watch it smash that horizontal line (which represented the former bullish break-out).


Don't get me wrong - - today sucked for the bears. But, as my earlier postings suggested, we had to suffer through this retracement. You can see from the comments section of yesterday's post how re-invigorated the bulls are now. Memories are very short, my friends!

19 comments:

Mike B said...

Tim, since you are dabbling in currencies, take a look at the EurJPY as a short. It has almost totally retraced the 2/27 move.

anunakki said...

Im glad to see you saying this is a retracement.

The bulls have no leg to stand on other than pulling macroeconomic fundamental mumbo jumbo out of their @$$ to justify today.

The charts say this is a pullback..how long it lasts ? I dunno.. could be weeks..could be days with how quickly the market turns around these days.

I will say that as we near the zone between the 78.6% fibs and the highs before the 2/27 drop people will get scared and start to sell...

Ravi said...

Retracement in some of the currency charts look almost unreal. AUD composite and NZD composite for example.

But as you mentioned Tim, opportunities are being presented again to us bears I guess. It was quite painful to watch portfolio value drop every minute. But things were being bought in a hurry as if people expect every index to double in the short run. I can understand such rush in a multimonth highly oversold bottom. At current levels, it appears a bit immature.

I added to my NZD short position and also few other mentions from your column that I had missed earlier.

Still waiting patiently..with all of you..:)

Ravi

LifePost said...

Looks like we could have a potential 2b setup on the stock market. I'm thinking vix calls and IWM puts. All the shorts that tried to enter these last 2 week have likely been washed out, and the next week will be the key to finding out if the bears are still in control.

haraldbange said...

Hi Tim

I was listeneing to the TOS Wednesday afternoon chat, normally done by Tom Preston, and Tom Sosnoff did it today.

He was proud to announce the new Prophet charts on TOS.

I sent you an email with additional details.




Like your blog

Hal

Monster Rules said...

Motorola (MOT) Warns

Handset sales disappointing. Revenue is going to $1 bln below guidance in the 1st quarter; EPS also m issing by a mile: 17c was expected, loss of as much as 9 cents now expected. MOT halted, but when it's resumed they won't be using a claw hammer; they will pull the wrecking ball out.

http://buttonwood1792.blogspot.com/2007/03/motorola-mot.html

TOMTHETRADER said...

Tim ...Again ..I have followed you for years and I knew ...as i posted yesterday that the Bull run was coming but like you ...I think we are reading the Fedannouncement wrong and even though i am VER BULLISH and have been for a few weeks ...I think today really showed the overbought mania short term in especially qqqq and iwm interest rate sensitive areas. I am getting my members into cash tomorrow on strength for the short term ..I am very bullish again 1-3 months out but like I told your readers yesterday Bears had an out today and could have covered ..even made money on a short term qqq sell off in the a.m. as I did ..we are 120% long with QLD and options on XBD and GS MS GLW but will get out of options tomorrow and cut back our stock exposure to 50% and up our short position from 0% to 20% buying IWM puts....April only as I think the selloff will be late Friday through mid late next week and then the Bulls will take over again as end of months and our intermediate strengths come into play . Hope everyone is buying the book...founf myself miss a trade today studying the cup and handle formation I think is developing in several tech stocks ..especially EMC 20 day chart ???

Thanks for your Help and good luck to all traders...It's all about beating the wall street crooks !!!!

http://www.ttthedgefund.blogspot.com

TOMTHETRADER

mde said...

Bought a boatload of Apr calls on the q's near the end of day. I really hope this rally holds up tomorrow so I can make some fast money.

Kiso! said...

What puts are your favorites?

Debbie Davis said...

Hey Tim,
Is there a way to bring up the XSP (mini S & P 500)on Prophet Charts? I haven't been able to figure it out.
Thank you!

beanie11111 said...

Pretty much anybody who hold put options have them shredded to the core.

Bears had better pray the indexes don't go straight to new highs from here. This is Helicopter Ben's first year at the Fed helm and he's determined to do his best (and put the bears back into hibernation). Need i say more? Permabears will come back and make one Last Stand before Helicopter Ben shreds them to the other side is my opinion. You've been warned.

Helicopter Ben already pumped 50-75 billions into the trading desks of the primary dealers just last week. No matter what the bears throw at him, he still holds the Ultimate Weapon, which is to lower interest rates.

z-stock said...

Mot guidance, crashed every tech stock, in after hours, at yahoo’s unreliable site…NOK really fell in sympathy. As well as other wireless related…
If Q’s survive that ….tomorrow, then,
Tim’s parody… has the FED statement pretty much right, Buy ‘till you DROP.
"The U.S. Government hereby guarantees a positive month-after-month return on U.S. equities in perpetuity."

par·o·dy (păr'ə-dē)
n., pl. -dies.
1.
a. A literary or artistic work that imitates the characteristic style of an author or a work for comic effect or ridicule.

zeus111 said...

I am looking at a 1991-1993 S&P 500 chART AND What I am noticing is that the market back then had a very slow trajectory rising about 8% per year. It is interesting to know that we did had similar problems back then as we are having now. Economy was growing slow,
the real estate market was declining; the banks were plagued from bad loan problems with Citigroup being on the verge of bankruptcy; many S&Ls went under; auto sales were problematic with Chrysler running into financial distress; jobless rate was persistently high with media talking about jobless recovery all the time. Despite all those problems the market did not manage to get in a bear market but it continued to rise even though the rise was at a very slow pace. I mention this to warn all the bears predicting Armageddon and loading up on puts every time the market sells off that the market does not have to crash or get into a bear phase just because there is a housing bust and subrime lenders are going bankrupt. We had been there before and the market could not even do a 10% correction (sounds familiar?). We all need to put things into perspective and keep an open mind about this. Yes the economy is coming off from probably the worst housing but in decades but that does not necessarily mean we will see a bear market. Don't get me wrong I don't rule a bear market out but it does not have to happen.

wattson7 said...

Tim, is anyone watching the NZD or did we take care of that trillion dollar problem in the last couple of weeks? The USD is tumbling.....

Monster Rules said...

Who was buying yesterday?

http://kevinsmarketblog.blogspot.com/2007/03/stocks-surge.html

"I can't even begin to explain the frustration and disappointment I'm feeling about how I managed my short positions. I had a profitable trade in DIA, QQQQ and SPY until today. I went negative on my positions this afternoon and took off the SPY's and Q's at a loss. I still have half my DIA's short because it didn't hit my stop. If the dow takes out today's high tomorrow, I will exit the rest of my position."

PB said...

Y'day's plain stupidity only emboldend me further ... these bulls will not rest until they are completely annihilated. The near 500 point drop a mere 3 weeks ago is now completely forgotten?

Ben Bernanke is a putz. He will not ever say anything to jeopardize the equity markets. He is a bulls best friend.

Pierce said...

Zeus111,

Lets remember at the start of 1991 the DOW had only partially recovered (9%) from a 20% correction that occurred from August to Mid October, perhaps an over-reaction to geopolitical events, Saddams invasion of Kuwait.

Also the 10 year treasury went from over 8% at the start of 1991 to well under 6% by the end of 93.
If long term rates were to make a significant move southward from today's levels of 4.5%, wouldn't that result from severe economic weakness?
Slashing overnight lending rates in the face of this weakness won't necessarily provide a cushion for high equity prices, just ask the Japenese equity investors in the 1990s.

TOMTHETRADER said...

Tim and readers ,
I think the move down early was the 1% i was hoping for on the down side ..the market is doing such a great job of backing and filling as those who missed the 400 points up are trying to get in and keeps us from more than a 50 point drop ? I am very bullish for April and May and will be joining the Bears when it gets so frothy my Aunt Terry asks me to buy some atherogenics at the market !!!

http://www.ttthedgefund.blogspot.com

TOMTHETRADER

If you don't have Tim's BOOK you are missing 1/2 the market ...It is like a shovel ...the best tool you can have !!!

beanie11111 said...

Permabears are now trying to mount one Last Stand to take the market down hard, before Helicopter Ben slices them to oblivion.