Monday, April 09, 2007

Earnings Season Begins

This week kicks off the Q1 earnings reporting season, and finally we can focus on the real basis of stock value - - earnings - - instead of obsessing whether or not the Fed will adjust rates or not (which, to me, is the most bizarre obsession imaginable).

Last month in my March 19th posting I mentioned American Home Mortgage as a good short play. Last Friday, a market holiday, they dropped an earnings bomb, and today the stock was down over 20% at one point.

What's fascinating to me is how, once again, Fibonaccis predicted a resistance level. The 23.6% Fib level for AHM is $22.43. Today's high price.....$22.45. Remarkable!


The S&P 500 is sporting a neat little shooting star today. Nothing dramatic, but at least the market closed well of its highs. This market's rationale for pushing higher is getting weirder and weirder. I saw a headline today which said - I'm not making this up - "Market Rises on Interest Rate Worries." Huh? So let me get this straight. The market goes up if interest rates are believed to be going down. And now the logic for going up is that they might go up? Insane.


Google (GOOG) is acting pretty interesting lately. I bought some puts on this one today with a stop price of $484.25


As big as IBM is, I'm not sure if I've ever mentioned it here. As you can see, in spite of the steady rise of the price for the past five weeks, the volume has been getting more and more feeble. Hardly the stuff of great bullish plays.


JC Penney, purveyor of the country's finest fashions, is a candidate for shorting here as well. What I love about these huge, relatively slow-moving consumer companies is that you can usually pick up the deep in-the-money January 2008 puts for the same price as the August 2007s!


Lastly, the NASDAQ 100 (QQQQ), which has the advantage of penny-priced options, closed its February 27th gap perfectly today. The low just prior to February 27th was 44.74. The high today.....44.73. Picture perfect.


For some reason, a lot of people wrote me directly over the long weekend. I received many interesting notes - - all but one of them very friendly. In fact, one of them is so interesting I might ask permission of the author to discuss his theory.

Thanks for taking the time to stop by. See you tomorrow afternoon!

56 comments:

TOMTHETRADER said...

TTT HEDGE FUND MEMBERS bought the .QQQPT at $1.33-36 50 contracts and sold them at the close at $1.56 for $1k we are 50 % cash and are looking to buy some more puts ...did you see the close on AAPL ??? Not looking good and the narrow ranges , like I said last week , are positive for the bears...which I am becoming for the week anyway !!! Bulls took our stocks up INTC and DOW as well as AEIS ANR ASFI DISH PCU SIM and WYNN. There is going to be some major action tomorrow and it could be big for the Bears ...get a daily dose of TTT and thanks Tim for such a nice site ...I am losing that Bullish feeling even though my stocks are flying....we may be in for another jolt ??? Could you chart AAPL if you have the time ???

Tom
http://www.ttthedgefund.blogspot.com

Anonymous said...

Tim

thank you for another good post, i really enjoy your charts and reasoning! Hang in there, our time is almost here, and please ignore the nasty/boring/irrelevant comments, including tomtheroostersuckertrader. i am bored to death by tomthetrader. he's always way ahead of everyone to lick your ass, you'd think he was satiated by now. anyway, good luck to us bears this week. as i said before when the market drops, everyone will be licking your ass just like tomthetrader has perfected that art

Kunal said...

Whoa Tim ... JCP is something I think you would wait for more a clear picture of a bearish pattern before jumping in for a short/put.

A better option would be to wait for this sucker to drop below $75, the neckline of the head and shoulder - I would imgine shorting anytime before this would probably be like standing in front of a fast moving bus, thinking you were superman.

Question ... I am a regular reader of the blog now, but what is up with all the short plays on mutli-year uptrending stocks?

Wouldn't it be better to find stocks that are fighting the lower boundary of a sideways trend, or even stocks already started to move downwards?

Thanks Tim for all the effort - Im just plowing through your book, quite an easy read, especially since I've had my share of textbook sized readings on technical analysis and the sort.

The Blog Peruser said...

10 days ago I was quite bearish thinking we could break the 12000 level on a closing basis and at least re-test 11750 one more time.
I actually hope tomthetrader is right about tmrw but I think with a few of the deals that out there on the table AND Buffett getting into these railroads AND the Asian mkts hitting highs again our market is back to a..."the worst is behind us" mentality.The next couple of weeks are crucial if the 'shorts' are going to get back into this and take control.These last few months before the election also favor the bulls having an easier time taking control until then.A lot of bad news is probably priced into this level on the DJIA,so those of us who want another decline from these levels may not benefit from that either.Of course, the worst case would be a sideways market for months and months. I see alot of that opinion out there on the market blogs.Hope not,volatility rules.

Anonymous said...

It's APRIL! And a 9 MONTH CYCLE bottom is due! Which way do you think we go???

Anonymous said...

I like the idea of IBM. I almost bought a July 95 put and selling an april 90 put. Seems as though there would be a good chance for it to pull back to 90. i like the volume divergence. I talked to a coach of mine and he didn't like the play. he said that there is good evidence that ibm is in a 2nd phase uptrend. Also it just broke above the 50ma and there is higher volume on this doji that occurred today showing that there isn't much sign of sell off. there are aspects of the play that i like, but my coach brought up some good points. let me know what you think. thank you very much

Steve said...

Like IBM, RIMM and a bunch of other tech companies are up on low volume over the last few weeks. Are we ready for another big down day ala last month?

I sure hope so. I'm starting to feel like the market has been patting me on the head like a clown visiting someone in a rest home.

Tim Knight said...

"I sure hope so. I'm starting to feel like the market has been patting me on the head like a clown visiting someone in a rest home."

....and we all know how demeaning that is. We need the market to touch us on the shoulder firmly.

IM said...

The strong job report did not benefit the bulls because the chances of a rate cut are even less likely. On the other hand, the job report did not benefit the bears either because it shows the economy is still strong and an impending recession is highly unlikely. I suppose the Q1 earnings will give us an indication of what direction we go from here. Positive guidance will likely power the markets past 13,000. Earning misses and negative guidance will drop us fast.

beanie11111 said...

Just a side note.

I find it hard to believe an atheist uses the Fibonacci sequence.

If you only knew where it came from...


:)

Aaron said...

Any thoughts on CFC? People are actually expecting them to beat! WTH?

JakeGint said...

Beanz-- who's the atheist?

The secret word is "otpaoo"

Anonymous said...

screw tomthetrader and his phucking hedge fund spamming bull$hit.

Anonymous said...

Tim
kindly block this "Tom" hedge fund as# h0le .let him take another avatar & pimp his services.
You allow one cockroach & the next thing your kitchen will be full of them.
simply block posts with links to paid sites.
long time blog reader/appreaciator

DavidDT said...

That is why they called: "Talking heads" with no brains and one is better then another. Because of morons like that ( interest rates phrase ) people quit they jobs and start trading full time.
Regards and thanks Tim for great work you do!
DavidDT
http://www.trading-to-win.blogspot.com/

Leisa said...

Aaron--I was aghast at CFC's strength yesterday.

Unless I'm wrong (and I'm frequently wrong!) we will likely see that cyclical ebb and flow of confidence and fright with the lenders that we saw with the homebuilders. And some of the placated homebuilders shareholders who moved in after thinking that all the bad news was baked in, ended up with a mud pie.

Think of it as a fact-free zone. What hard facts did you see about the homebuilders's potential demise? You didn't see any qualified person telling you what the income effect of the land writedowns were going to be. I call asset write downs, blood on the street. And you don't get a bottom until there is blood on the street. And...it's worth noting that you can see a little blood (first round write downs) followed by alot of it-was-worse-than-we-thought blood (think KB homes and Toll most recent admissions).

Until yesterday, you didn't see the effect of the widening credit spreads on lender's balance sheets--you saw it on AHM's. (Remember that H&R block was the first public company to take a write-down on mortgages--and they had to keep writing down their numbers).

Wouldn't you have thought that all the bad news was already baked into AHM? For nascent problems, I think that it is farcical to believe that the market "knows" and has it baked in. I think that the market hopes ("I hope it is not worse") until the hard numbers come in. And when the market is long on hope and short on facts, then you get the "OMG it's worse than I thought".

In the end--without quantifying the effects of the widening on the credit spreads (and I've not seen any analyst come out with that analysis)--it's just speculation.

Anonymous said...

leisa

what is "aghast"?

;)

Leisa said...

Aghast: "struck with overwhelming shock or amazement; filled with sudden fright or horror: They stood aghast at the sight of the plane crashing."

Hey, it's a word worth knowing in this market!!!! (g)

Anonymous said...

Hello Tim,

I noticed on a few of your charts that you have included a precise stop price. I was wondering if you exit the trade if that price gets hit intraday or do you exit the trade at a close below that number. Thanks for the site man, it is sweet ass sweet.

stephen

beanie11111 said...

The real Snakeoil Salemen?


http://www.mercola.com/2004/sep/1/vIaccines.htm


And one of the many tragic stories:
http://www.mercola.com/2002/aug/7/vaccine_death.htm


If your pediatrician tells ya that the vaccines your baby is gonna get has the potential to cause this:

brain damage, severe food allegies, retardation, brain swelling and hemorraging autism, homosexuality, death, and many others...

would you bite?

beanie11111 said...

I feel that pediatricians are the biggest frauds your kids can ever come in contact with.

They know about those serious side effects, but they try to hide them from the parents.


Note that today, 1 in about 130 children are AUSTISTIC.

hmmm, i wonder where that came from?....

Leisa said...

Toshi-- (or others)

Would it be fair to say that RTH would also be a good short play? I have some OCT $105 puts. (not looking for advice, merely an opinion in light of the JCP suggestion).

I do note that JCP fell from $54.69 down to $8.76 from 07/99 to 09/25/00.

TIA

Anonymous said...

leisa

thanks. I hope bulls will stand "aghast" very soon, and not at the sight of a plane crashing...

TradeitLikeitIs said...

Hey Leisa...

I'm not so sure that RTH and similar is going to be a good short going forward.

IMO in reading the tea leaves from the Fed - they want to stimulate growth and this will be good for the consumer - but they can't stimulate too much yet because material prices keep rising.

One way or another these guys always get their way - so my guess is that come about the 1st week of May or so the best short is going to be materials - Gold stocks, Metals stocks - anything that has had the best run the past 3 years. I wouldn't short them yet - because a blow-off may be approaching and they still have strong momentum... But one way or the other this stuff is going down - either on its own - or because they have to take the whole market down to kill these commodity speculators once and for all.

I'm looking at May 10th or so as a possible date that this might happen. Also closely watch the market action after the next G7 meeting as important shifts often occur after these meetings. Ignore what they say out of the G7 - but watch the major markets - if more than 2 markets make a large move shortly after the meeting (Say US$ up and Gold down - or say YEN up and stocks down etc...) then this means something big is happening and go with that new trend.

Just my opinion anyways.

good luck

Leisa said...

Tradeitlikeitis--I really appreciate your feedback. I did take into consideration Fed stimulation. My sense is that consumers are going to have to borrow now, and I'm feeling like we are looking at marginal increases. While there has been much focus on sub-prime, let's remember that many prime holders of adjustable equity lines are looking at interest rates that have increased as much as 50% in the last 18 months.

But the strength under this market has been considerable, and your caution is well taken. Thanks again.

Tim Knight said...

"I noticed on a few of your charts that you have included a precise stop price. I was wondering if you exit the trade if that price gets hit intraday or do you exit the trade at a close below that number. Thanks for the site man, it is sweet ass sweet."

A sweet-ass site is my goal.

To answer your question, the stop price applies at all times. There's nothing magical about the closing prices. These are standing, good-until-cancelled orders.

Market Speculator said...

Finally someone other than me pointing out weakening volume...!!!

TradeitlikeitIs said...

While we are looking for weaknesses... the leading indicator for Nasdaq - CSCO has not been leading and BKX the banking index's bounce off the Mar low is definitely weak - so probably another shoe to drop there as well.. and the Fed knows this - that is why they are out in droves today talking things up.

However investors are already short - and again I would buy the dip until this Bull campaign ends.

Anonymous said...

you morons are shorting into the next largest bull market. who gives a damn about volume when price pays boys.

Anonymous said...

this market is not moving, what are the experienced traders seeing here? what do the probabilities favor, up or down?? much appreciated, I am getting sick of this non-action

Market Speculator said...

Anonymous said...
you morons are shorting into the next largest bull market. who gives a damn about volume when price pays boys.

LOL - Morons? LOL LOL

Market Speculator

Anonymous said...

Hmmm Possibly this level could be a large distribution top sitting around soaking up all the new 401k
money that needs to be put in before the 17th ?

wattson7 said...

I have BA and AKAM puts left to place Tim. I hope this works.

Anonymous said...

You need to rename your blog, "Bearwatch with Tim the Knife"

humble

beanie11111 said...

Another fraud of pediatricians is they tell ya your kids can't go to school if they're not immunized.

The law specifically states that indeed some of the vaccines are mandatory before your child can attend school, but it also states that you can bypass that requirement for (1) religious reasons or (2) philosophical reasons.

Religious reason is obvious. The philosophical part you don't even need to give to the schools the specific philosophical reasons, although you could. (Adverse side effects you don't like is also a philosophical reason).

TradeitLikeitIs said...

That is a valid point about price versus volume - with more than 50% of the trading done by program trades or by algs they trade price more than volume.

Plus usually there is a divergence in the A/D line well before a major top which we haven't seen - and the New Highs New Lows looks good - this is definetely not some major top ... yet - but not so sure this is the 'next major bull market' yet either - we need more liquidity and the Fed is afraid to add this yet until materials prices stop going up.

At best this is a trading market - that trades up - so buy the dips - sell the pops.

In the end though ultimately I see it going higher one way or the other - too much pessimism..

Anyone else got any thoughts?

TradeItLikeitIs

Anonymous said...

ahh another up day, the bears cannot catch a break.....fu$king sad. UP UP UP, the dow has had its longest winning streak in 4 years. WTF is wrong with this picture.

Anonymous said...

"Ahh another up day, the bears cannot catch a break.....fu$king sad. UP UP UP, the dow has had its longest winning streak in 4 years. WTF is wrong with this picture?"

the markets are manipulated phuck em boy.

Anonymous said...

Someone please help me. I have lost more than $120,000 since feb 20. First I went long stocks and sold some "naked" puts as well because I was convinced we were in for a huge rally like the analysts like AJ Cohen said. Then I went short at the bottom in March just plain bad luck. I could have lost everything, but my positions were not too big on the options. I have very little money left in my account (just north of $27,000). If someone has been trading for a while and is genuinely interesting in helping someone else, I would be happy for some advice on where to get some information that can help me. Is there any website or book that has helped you? Anything will be appreciated. I am going to give myself a great deal of time to make money so I don't need to trade for next one year. I wait until I feel ready again. I made too many mistakes, Thanks. - Justin

Leisa said...

My BAS had a nice breakout today.

That is of the chump who keeps calling me a permabear!

Anonymous said...

"Someone please help me. I have lost more than $120,000 since feb 20. First I went long stocks and sold some "naked" puts as well because I was convinced we were in for a huge rally like the analysts like AJ Cohen said. Then I went short at the bottom in March just plain bad luck. I could have lost everything, but my positions were not too big on the options. I have very little money left in my account (just north of $27,000). If someone has been trading for a while and is genuinely interesting in helping someone else, I would be happy for some advice on where to get some information that can help me. Is there any website or book that has helped you? Anything will be appreciated. I am going to give myself a great deal of time to make money so I don't need to trade for next one year. I wait until I feel ready again. I made too many mistakes, Thanks. - Justin"


This sounds like a lie, sorry. How did you manage to lose 85% of your money in less than three months? You must have tried hard to lose it or are just faking it.

Anonymous said...

I wrote some puts, biggest mistake I ever made. I had done it since beginning 2006 with no major problems, but in February it took me by surprise. If you write puts you will know what I mean, otherwise believe what you will. I am only interested in genuine advice or pointers.

Anonymous said...

oh Justin,

Yes, for a mere $75 you can join TomTheHacker and his hedgefund.

Anonymous said...

This sounds like a lie, sorry. How did you manage to lose 85% of your money in less than three months? You must have tried hard to lose it or are just faking it.


It is surely possible to lose 85%. but ofcourse there is no way to make it back in the same time. and with the current amount of $27000, justin has to make approximately 500%

Anonymous said...

well you make that 500% if you join tomthehacker

Anonymous said...

I want to do work getting to find my own way, I have tried "services" but none worked for me, just increased my frustration when I started trading in 2005

Anonymous said...

Tim where are you, I 'tomthehacker' is waiting to post my daily advertisement.

Anonymous said...

tomthetrader

tim

I have typed my ad and now ready to copy and paste into your freshest post, please hurry up!!! I wanna lick your ass!!

Anonymous said...

I am still waiting here

Anonymous said...

tomthetrader said

Dow is up 8 days in a row, if you had subscribed to tomthehacker servive for just $75, you would have made 800% because we are 250%long

dont wait wait anymore. come join us

Tom
http://www.ttthedgefund.blogspot.com

Anonymous said...

no ass licking today. aww!

Anonymous said...

Justin,

In order to lose $120k you must have written over 300 puts naked which most brokerages would not allow if you only have $147k in trading capital. Tell us how it happened exactly and we may help you make it back. I made over 100k last month.

tomt

Anonymous said...

if you made 100k last month, what the fsck are you doing here

Anonymous said...

because I like to lick Tim's ass

Tom
http://www.ttthedgefund.blogspot.com

Anonymous said...

'if you made 100k last month, what the fsck are you doing here'

phuck off assclown. I made my money now you jealous cause I read tims site. phuck you.

Fuzz said...

Speaking of energy Tim, don't forget you "call" on OIH Jan 17. I picked up some OTM April 135, 145 and 155. Ignored your "put" April 2. Thank you.