Friday, April 27, 2007

Kick the Clay that Holds the Teeth In

As a true sign of the times, here's an article about a 16 year old girl that is confident her business will make her a billionaire not just in her lifetime, but by the time she's 25. OK, sister, good luck with that.

I've mentioned the correlation between the NZD/USD and U.S. stocks, and I've got a feeling some are skeptical. Here's a graph of these two apparently unrelated financial instruments. You can see the correlation yourself. In fact, it gave a pretty good heads-up about the 2/27 plunge two weeks in advance.


Regular readers of this blog know that the head and shoulders is a favorite bearish pattern of mine. The way it is supposed to work is well illustrated by MRVL, shown below. The difference between the neckline and the top of the head was about $10, which traditionally is the target price for the fall. MRVL nailed its target to the penny.


My hope is that my AMR short - which has been doing great, thanks for asking - will follow suit as well. There's quite a way to go before the target is reached.


I don't have a position in Capital One Financial (COF) anymore, but I've got to say, this is one monstrously large looking topping pattern.


Merrill Lynch (MER), on which I own puts, seems to be turning the corner. RSI and the slow stochastic are in a downturn, and the retracement seems to have played itself out.


Much can said of US Steel (X) as well.


I think today might be the last "the Dow has to go up because it just keeps going up" day for a bit. My sense is that we'll see a lower Dow on Monday. See you then.

27 comments:

RLgtGLgt said...

"about a 16 year old girl that is confident her business will make her a billionaire" as the great AB says, "you rude little pig". Actually heard that TK got his billion from selling prophet.net. Heh, heh . . .

Seriously, surprised at how well the bull has been holding up. Even a bull needs a rest!

sam said...

Tim, since May 26, 1896, when Charles Dow first published the Dow Jones Industrial Average, the index has never closed up 19 out of 21 days. That is, until these past four weeks. We should expect a sharp break of this streak by May 3. Sammy

TOMTHETRADER said...

Tim,
I do not think I like being a Bear for the one day I have been but ....Something even more extraordinary happened today, with the Dow Jones Industrial Average closing in positive territory for the 19th time out of the past 21 trading sessions. In 110 years of price history, I could find only two other precedents.



I showed charts of those two times earlier today, so take a look if you're curious about what they preceded. We can't make any conclusions about our current situation given only two priors, and those being 80 years ago to boot, but it's at least interesting to note that the momentum stopped pretty much immediately thereafter, at least for the short-term.



Another interesting factoid with the Dow is that for the fourth time in the past two weeks, the Dow has hit a new yearly high while NYSE breadth was negative on that same day (i.e. more stocks closed lower than the previous day than closed higher).



Looking over the past 67 years of data, I can find only one other time when this was the case - July 6, 1955. The Dow took a dip after that, dropping about 3% over the next few weeks, before recovering and going on to new highs.

I think my becoming bearish is a sign of good fortune for you and your comrades !!!

TTT

Safal said...

Tim,
Do you think there are short trades building up in the following stocks.
RIMM, AMZN, RYAAY. I'm bearish on all three.

Leisa said...

I think that the Dow stocks going up without the balance of the market is a contrarian sighn (for the balance of the markeg).

I still wait patiently for the yawning jaws of death that R. McHugh speaks of at FSO.

If one of my kids spoke to me about their becoming a billionaie by 25 I will realize that I've totally failed as a parent. My daughter turns 19 (I was 10 years old when I had her) today. Very balanced young woman with her head screwed on straight. Now my 16 year old son....

plunger said...

The COF is a great chart Tim, nice big rounded top , that thing breaks $70 on the downside should be nice play as there is very little recent support - 1rst support @ $60, then @ $50

$70 support line has held since Dec. '05. but since beginning of '06 seems like it been working on a descending triangle which put downside target somewhere @ $50

i will be shorting this thing heavy south of $70

Keith Shepard said...

I think the fact that the Dow is being pushed up by only a few stocks does not bode well for the Bulls. This is a fragile market (JMFO).

That said, I'm Long only until the SP-500 breaks its 200 MA. I suck at shorting in Bull markets (no mater how contrarian I am). I only seem to do well shorting when everyone has accepted that doom is one inch away and they are out selling pencils and apples.

Short: None
Long: GE, LAZ, HEW, AA, AH, GEF, XTO, MRO

plunger said...

Keith Shepard said...
I think the fact that the Dow is being pushed up by only a few stocks

i agree , the dow is hitting new highs while the majority of nyse stocks fall. the ad line tells it all. that would lead one to believe it's a flight to defensive stocks[which mostly make up the dow 30] by big money.

Dennis said...

Well, I guess "newequity" is right. If lower GDP and higher inflation don't stop the stock market then nothing will. Just be long and be happy.

kihei said...

The major carry trade would be across two currencies with large differences in interest rates - the major case being long NZD and short Yen. Depending on the broker this might have to be setup as a cross trade (NZD/USD and then USD/Yen). If the currencies are stable, with $100k on this trade it would produce about $20 a day, which comes out to about 7% per year. But the large hedge funds are leveraging up huge and can make 50% or more per year. Imagine putting several hundred million on the carry trade. Where is the money coming from? From the central bankers' printing press. It's money being printed out of thin air and going straight into the big boy's bank accounts.

The hedgies in turn take that leverage and inflate all other assets, including equities and commodities. This will not stop until a central banker intervenes, such as a BOJ raising the rate on the yen. That in turn would cause the yen to rise and those hedgies that were fully leveraged would have forced margin calls, in which not only the currencies would move fast but they would have margin calls in other futures as well. It's what happened last february and will happen again in the future. So it doesn't matter if you follow the chart of the yen or the NZD, they both should give a warning of massive credit deflation should it occur.

cantdrive55 said...

A huge part of this long,sustained rally,that WE HAVE NO IDEA "WHEN" OR "WHAT" will make it end is that never in the markets history has so much stock been accumulated and controlled by (1)major & medium corporations buying back their own stock -and- (2)mutual funds and pension funds amassing huge quantities of stock and holding.

This is all making the price of a lot of stock go up just because the float is shrinking.Sad but very real.You can't do TA on that situation.
Are we heading into a bubble ? Maybe.But you can't time a bubble like this and we may very well go much higher especially since we're coming into Bush's final "legacy" year and he has Hank Paulson to see that the INDU close as high as possible on his departure.That will mitigate all his other screw-ups and he will forever be known as the Prez who economically saved America 'POST 9/11'.I guarantee you 15000 is talked about as the high-five figure between Buch/Paulson/Bernanke. A 100% increase. 7500 to 15000.Who knows for sure if their is a PPT ? It sure feels like with all that liquidity that pours in on every little daily pullback.I did'nt want to believe it,but I'm starting to.
And lastly,as far as records being broken on-'most succesive up-days in a row'-,well,if we have to go all the way back to '27 or'29 ,then it is time for that record to be broken 80 yrz later.
Thanks 'TOMTHETRADER' for those very interesting hisorical statistics,and my personal stand on the market is that I think we go higher thru '07 and into '08...BUT , it would'nt bother me one bit if we fell a 1000 pts next week,but we'll probably be lucky just to get a close below 13000 I think. Who knows ? ! ?

b.healed said...

fascinating parallel between nzd/usd. i will be following that much more closely. thanx for that comparison chart, it really cleared things up a lot!

b.healed said...

chkp -- is this a "would be" head and shoulders had it not gapped up?

Jamage said...

MHK a little weak?

My take:
-double top pattern (~$94)
-target: $88, (or better) $81 and change.
-RSI (declining?)
-Fundamentally, in an industry that's sensitive to housing...
-Inside selling noted this week in Barrons'.

Keith Shepard said...

Hey Tim...

Here's an interesting article that you might find worth reading:

• http://www.tigersharktrading.com/articles/8182/1/The-Last-Bear-Standing/Page1.html

"This week we look at the growing disconnect between the US economy and the stock markets. One is slowing and the other is exploding to the upside. One of my mentors once said that it is the duty of the markets to prove the most-possible people wrong. So far, I am clearly in the wrong category. We will look at some explanations as to why, ponder if this can continue, and more."

Cheers. =^.^=

Doug said...

is it just me, or do the h&s drawings look like very stumpy penises to others as well. lol

JakeGint said...

Dammit Tim, your damn Niners got both the number one draft picks I wanted for the Giants (LB Pat Willis and OT Joe Staley).

I feel like I'm back in the eighties when I had to get my hate on for the Niners on a regular basis... it's been a while.

Jack said...

Tim:

You have puts on MER and MER has put on a $6BN. buyback program.

How do you deal with such events that may impact your chart read and put position? Do you move your dough elsewhere to "less well healed" companies that can't fight the signs of weakness in the charts?

Jack

Tim Knight said...

Keith Shepherd - thanks for the interesting article. I think I'll quote from it today.

JakeGint - sorry, I've never followed sports at all! So I'm afraid I can't take the fall for this one......even insofar as wishing for a certain draft pick.

Jack - I don't really pay attention to buybacks, announcements, etc. I'm a pure chartist, for better or worse. So I just respect my stop above all else. Nothing else matters.

See everyone this afternoon after the close......

Kool Kat said...

Is this the top ? stopped a couple of points shy of the anticipated High, (on the SnP500)

Top calling .. fun but dangerous.

NewEquity said...

You can call the tops while I trade the meat out of the moves...

Kool Kat said...

Oh well maybe you could help us poor saps figure out the next move. UP or DOWN? maybe a hint on that?

Tim Knight said...

Don't waste your mental energy on NewEquity. I've stopped doing so. The guy is a complete and utter turd.

Kool Kat said...
This comment has been removed by the author.
J. Francis Lehman said...

Bill Fleckenstein has a great label for people like *newequity*: END-ZONE DANCERS.

although TURD captures it fairly well, too. :o)

The Sound said...

It seems removing Anonymous didn't remove the ad hominem attacks. I also have MER (and PJC) puts, and I also just look at the charts. Using technical analysis, you have to renunciate all of the noise.

TOMTHETRADER said...

Maybe being a BEAR isn't all that bad !!!

http://www.ttthedgefund.blogspot.com