So Short, I Could Jump Off a Nickel
One of the readers of this blog commented last night: "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." Well, we were down today 50 points on the Dow. Another good week!
Here's a daily graph of the S&P 500. I've put three moving averages on this index graph - a 50 day, a 100 day, and a 200 day. The big drop on February 27th sliced through the 50 day and the 100 day. The recover from that fall kissed the underside of the 100 day. And now it's falling again, pulling both the 50 and the 100 into a downward slope.
Here's something more remarkable to me. See that huge upward-sloping channel? Now take a close look at the upper line of that channel. Keep in mind I drew that channel a while ago. Take a look at what happened today on a minute-by-minute basis:
Do you see what I'm talking about? The arrow marks the place where the index bounced off the trendline virtually to the penny. Astonishing! Once again, this isn't a trendline I drew today. I drew it a long time ago. But now that we're back within the channel, the price is obeying this level splendidly.
A lot of people, myself including, have become hung up on the fact that the $VIX has become so "high" in a very short amount of time. Going from the single digits to 16 is a big move, to be sure. But step back and look at the $VIX over the past decade. The norm was for it to bounce between about 20 and 30, with occasional bursts above and (less frequently) below these levels. So a level of about 16 is actually way under the norm still.
Looking at the NASDAQ Composite, if there is any regularity to the broad action of the market, it seems we're still in the same sine-wave type pattern with plenty of room left to the downside.
The Dow 30 did a gorgeous bounce off the underside of the 100 day moving average. It seems to me the next target is to take out that red 200 day moving average.
Regular readers know of my fondness of the Russell 2000, particularly since the put options have a much more reasonable bid/ask spread than the S&P 500. A tight stop on this would be about $785.
The Major Market ($XMI) is another interesting graph. We've come full circle on the breakout. The downward momentum of this market doesn't seem like a fluke anymore. It feels truly bearish.
Most of the attention has been focused on the rinky-dink sub-prime mortgage lenders. Gigantic blue-chip banks like B of A (BAC) seem vulnerable now. Check out the topping pattern and busted trendline.
Black and Decker sports an interesting diamond-like top.
Purse-maker Coach (COH) has had a great run, but it seems to be history.
Google (GOOG) is not a slam-dunk bearish pattern, but busting that supporting trendline would cause some big fireworks. I personally think Joost is going to completely trash YouTube. I'd go so far as to say YouTube may go down as one of the stupidest acquisitions in modern corporate history. But only time will tell. It's great for the sophomoric videos I post here, at least.
MicroStrategy (MSTR) continues to have its steam leak out its sides.
And for today's video clip.......Carmen Electra's completely hilarious and unintentional pratfall at a fashion show. Chevy Chase could never mime something this good. Find some good Benny Hill-style music to play while watching this.
18 comments:
tim, I love the excitement that you are Putting back into the blog. I was getting scared when you were on the fence earlier this week about the market direction.
Your book rocks. I wish there was a way to sign up for some kind of email notification that would tell us when you have made a new post.
I love it when you make a mid day post and hate it when I find that out at the end of the day!
Pb..
Last Google correction 2006 was 20%.
I’d say this correction is the same…$513 minus 20% equals $410…just a thought…
Tim,
Could you show you show a chart of the OIH with your thoughts. I'm seeing XLE, XEG (Canadian Energy ETF), large caps like bp, xom, cop, su etc. falling apart as well as many small E&P's yet the OIH holds on. Implied vol is also very low for the so called beta of the energy sector. Your thoughts would be appreciated.
shaham
I don’t have a take on OIH, either. I’m neutral, could go either way from $140.
But I do have a short sell candidate.
SU ( oil sands Canada) is a short candidate.
Eps forward is about as dismal as I’ve seen.
short sell SU, 50 day at 72, or 20 day $70 ,
I’m looking for SU support of around 63 down to 60.6. I favor $60…
When you think about it, it's really not so amazing when a move ends at an old resistance line, especially an intraday move.
As an upward move loses momentum, there are fewer and fewer buyers. As it reaches the resistance line, there's a *relatively* sudden influx of sellers, which turns back the move. But since the move is running out of momentum, it doesn't take many seller to turn it back.
So the reversal shows that there's resistance at that level, but it doesn't indicate how strong or weak it is. But it probably does indicate that there's no stronger pivot line below it.
In this case, of course, it's a fairly long-term trend line, so resistance is probably pretty strong. But even a weak line can turn back an intraday move as it runs out of bull fuel.
Barron: No Matter How You Slice It, the Decline Isn't Over
http://online.barrons.com/public/article/SB117384520776036543-8O2WMa67zuxPB4JouMOVCyOLH9M_20080317.html?mod=9_0002_b_online_exclusives_weekend
In a research report, Goldman Sachs chief U.S. economist Jan Hatzius writes that the mortgage problems extend far beyond the subprime sector. Surprisingly, among prime-quality adjustable-rate mortgages, the deterioration is, if anything, more pronounced.
Based on data gleaned from the latest Mortgage Bankers Association -- which showed a sharp jump in delinquencies and foreclosures in the fourth quarter -- ARMs with so-called teaser rates at the beginning are getting into trouble once these initial low rates are adjusted up to prevailing market rates.
Mind you, this is among supposedly solid borrowers, not the subprime ilk with little or no salary documentation or who put little or nothing down on their houses.
I have been among the former cohort. Back in the 1980s, as a big believer in disinflation and a bond bull, I eagerly went for an ARM instead of paying for a double-digit fixed-rate loan. In the early 1990s, with the Federal Reserve having driven down the federal funds rate to a then-unimaginably low 3%, I chose a hybrid ARM that locked in a low rate for five years, which also was a big savings over a conventional long-term fixed-rate loan.
In each case, however, I was qualified not on the basis of the initial teaser rate, but on whether I could cover the monthly nut once the loan adjusted to the full rate. That sort of lender prudence seems to have gone by the wayside in this cycle.
According to Goldman's Hatzius, ARMs that aren't subprime are going down the tube even faster than riskier loans. Prime ARM delinquencies are above their worst levels of the 2001 recession, he points out. By contrast, Subprime fixed-rate delinquencies are well below their recession levels.
But here's a key point: prime-quality and so-called alt-A mortgages (middling credits, lower than prime but better than sub-prime) have longer reset periods -- two years or more -- than subprime. That means we haven't seen the full impact of the sharply borrowing higher costs on many ARMs yet.
As teaser rates on ARMs get adjusted, Hatzius suggests the teaser-rate problem could turn out to be bigger than the subprime problem. Clearly, lenders didn't take care whether their borrowers would be able to shoulder the higher costs once the teaser rates ended.
Will the Fed ease soon enough and by enough to bail these borrowers out? If it does, it effectively bails out feckless speculators, just as it did after the tech debacle. If it doesn't, the Fed risks a new downturn worse than that resulting from the Nasdaq collapse.
Once again, debtors borrowed well, at the time, if not wisely. The consequences are becoming apparent.
Monster,
Speaking as a Mortgage Banker, One thing I see in my office on a daily account is those A paper borrowers calling in, wanting to get out of the "hybrid ARM" you speak of and I have to turn them down because they have no equity or the wrong LTV to refi. I turn down at least 2 loans a week because of "value" issues that piles on to the problem you speak of.
As a side note, they all want cash out. There ATM machine has been cut off. The American way is to spend beyond our means so I suspect that borrowing from credit cards and defaulting on them should reach new levels in the future. They will max them out and have to get new ones until finally it makes sence to refi agian, probably at a higher rate. People are finacially stupid when it comes to there desire to acquire things.
This is going to take many years to truly unfold the magnitude of the consequences. SHORT the whole market!
pb,
GOOG is so much more than just search. Look for the price to dip down to the 200 day MA, then rise nicely through the spring, into the huge marketselloffhappylandforTim around July.
(RIMM)possible bearish Diamond top formation?:
http://stevepuri.blogspot.com/2007/03/research-in-motion-ltd-rimm.html
Bears dying a horrible death. ouch! lol
FIBONACCI Question:
Why are your Fibonacci Price Retracement Lines different on your Russell 2000 and DOW 30 charts? Your start and end points are reversed which yields different price levels.
Thx!
Bulls are getting giddy. Worst volume in at least 5 days.
http://finance.yahoo.com/q/bc?s=%5ETV.N&t=5d
http://finance.yahoo.com/q/bc?s=%5ETV.O&t=5d
What's interesting about this sub-prime business, is that if you look at the 10-k's of some of these banks/thrifts that have issued these loans (or hold them) you will see the comment of "we use historical rates for our loan loss reserves). WEll, loan losses are at historical lows--if you look back at loan losses doing non-goldilocks (hey tim, we should call it a "fryloc" economy) because the folks get fried....oh well..--they were 3x (% wise) than they are now.
There will be more pain on bank balance sheets. If I'm wrong, I will NEVER EVER post again anywhere and check into either a nunnery (I think my husband already thinks that I'm prepping for that) or a psychotic ward.
Time to go long now Tim. Lets grab a little meat on the run-up before the real breakdown occurs.
MDE said:
"Time to go long now Tim."
On THIS volume??
Everything just Bear Flagged up on scrawny volume. This is the "Drooool" zone.
dbohntr,
Should your bank bail these guys out? LOL
http://www.latimes.com/business/la-fi-subprimeqampa15mar15,1,7807082.story?coll=la-headlines-business
In 1996, Eddie filed for Chapter 7 bankruptcy. There were other run ins with the law and other small claims filed against him. So yes, a spotty history indeed.
By 6/2002, Eddie and Kerman decided to buy a Chino Hills home together. They scrambled together $150 for the down payment while First Franklin overlooked Eddie's bankruptcy and agreed to finance the purchase with a $233,900 first and a $58,450 second.
A year later on 5/2003, Eddie and Kerman were in need of some extra spending money. They went to Argent Mortgage and refi'd for $349,000, cashing out $56,650 in the process.
By 8/2004 Eddie and Kerman have realized they no longer need to work. They can just keep refinance from their house, use that money to pay for the mortgage, and use the rest to live on. Of course, the more they refi the plushier their lives become. And so they hooked up with Greenpoint Mortgage and refi'd for $432,000, cashing out $83,000.
But to really live it up in Chino Hills, $140,000 in cash out within 3 years ain't gonna do it! Eddie and Kerman went looking for more cash-money in 6/2005. They found it with Greenpoint in the form of a HELOC for $62,000.
Nine more months pass on by and Eddie and Kerman is itching for some more cash. Washington Mutual came through this time with another HELOC of $72,000 on 3/2006.
For good measure, on 4/2006, Eddie and Kerman got another $24,314 in loan from Silverstone Financial.
And so just 6 years out from a bankruptcy and carrying $150 in down payment, Eddie was able to team up with Kerman and buy a house that just kept on giving, giving, and give some more. Within less than 5 years, these guys ran up the mortgage debt on their Avalon Ct. home all the way to $530,000, and that's assuming the $72,000 from WaMu paid off the $62,000 from Greenpoint.
Anon contributor calls these guys "the perfect poster child for what is wrong with the industry." He also made this observation, "these guys don't even need jobs! They can just get cash every year from the housing ATM!"
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