Tuesday, May 08, 2007

I'm Turning Japanese

I bet you never thought you'd associate Devo with technical analysis, but check out their song "Patterns":


Patterns all around you
patterns everywhere
patterns of behavior
sometimes seem unfair
can you recognize the patterns that you find?

Patterns unfamiliar
patterns lead you through to
patterns of discovery
tracing out the clues
can you recognize the patterns that you find?
stuck in your mind

In this land where stability is hard to find
you can rearrange the patterns so unkind
don't bother asking why a pattern never cries
old patterns never die they just go on and on

Patterns multiplying
re-direct our view
endless variations
make it all seem new

Cool, huh?

I read an interesting article about Richard Russell throwing in the towel. He has been a bear for lo these many years. Now, at long last, he's saying it's bull market time. Draw your own conclusions.

Oh, and don't forget to sign the petition to keep Paris out of jail. As the petition declares, "...She provides beauty and excitement to our otherwise mundane lives." God knows that I'm grateful that an illiterate, insipid member of the lucky sperm club gives me a reason to wake up in the morning. I only pray that they don't do a reality show of her incarceration.

One of the readers, Keith Shepherd, mentioned this interesting article about the similarities between the "melt-up" in the Dow recently with the Nikkei back in the final weeks of 1989. Whenever I read that the current market resembles a certain period of the past, I check it out, and usually the graphs don't really match.

Because I adore my blog readers - well, most of them, anyway - I made the effort to fire up Photoshop and blend the recent history of the Dow 30 with the Nikkei 225 during the last portion of 1989. Even I was surprised at the results. They are virtually a perfect match, right down to the doji hanging man pattern created today.


Let's back up some. Take a look at the Nikkei through the 1970s and 1980s. An amazing, incredible, "let's all learn to speak Japanese" (remember that?) kind of market. People were freaked out, and the Japanese were snapping up the Empire State Building, Pebble Beach, and everything else in sight.


Looking closer, you can see that practically every day was an up day. Now let me ask you - - and I'm directing this at the bulls. Where was the warning sign? Where did it show a top was in place? How could you tell that this was the end? Imagine you were massively long this market. How would you know the party was over?


I don't need to tell you what happened next.


Let's take another, smaller example - Malaysia. This little country had a great run-up in their share prices.


But notice what happened after the melt-up. Things went to hell in a handbasket. (I sold short a bunch of EWM today, with a stop at 12.11).


OK, back to the present. DRQ represents a potential buy. In this kind of market, I'm really reluctant to go long, but if you must, this is worth checking out.


I would say the same thing (with similar warnings) for former shining star JetBlue (JBLU), which seems to be in the process of forming a series of higher highs and higher lows, having suffered terribly over the past year.


Oh, and MicroStrategy (MSTR), mentioned on this page many times recently as a short candidate, finally paid the piper. I've marked the failed bullish breakout earlier this year which preceded this nasty tumble.


Your video entertainment today combines two of my favorite cultural touchstones: Star Trek and Monty Python and the Holy Grail. The few moments with Captain Pike is alone worth your time.

25 comments:

TOMTHETRADER said...

Tim,
I an still of the opinion that the FED and the world governments HAVE TO keep this thing going ...since you take requests (DJ TIM?) Take a look at the 10:30 a.m. marke almost exactly over the last 45 days of this market ..I am saying that it is not a coincidence that everyday THERE IS A BOUNCE AT 10:30 am. I am 90% long 10% short NDX but am getting so sick of these 2 things 1)A?D line a/d volume 2) 10:30 am buying from a "SOURCE" I am not the conspiracy theory type but if anyone can give us a reason for the 10:30 am sharp buying explosions over the past 45 days I would like to know.

Thanks !!!

http://www.ttthedgefund.blogspot.com

Tom

Dennis said...

Something about this market that just makes me uneasy. I closed all my positions today. I will wait for a major break either way. The bull argument is that the earnings from booming international business will more than make up for the weak domestic spending. I have my doubt about that. Let's wait for the retail sales report on Friday to find out. I remember a long time ago, there is a GM indicator that basically said that whenever GM is in trouble then the entire economy will soon be in trouble as well. Well, GM is so passe now but Toyota (TM) is the new GM. TM has been going down since late Feb selloff and has not recovered along with the rest of the market. Is it telling us something? Perhaps we should be talking about the TM indicator.

JakeGint said...

Awesome clip... two of my faves.

Next, "Life of Brian's" Always Look on the Bright Side of Life laid over a Battlestar Galactica Cylon invasion!

Prometheus said...

I think the biggest problem with the market today is that it is starting to disconnect itself with the economy. The economy seems to be slowing down (whether or not you think it is slowing too fast, too slow, or just right doesn't matter). What matters is the economy is in someway slowing and the stock market is accelerating. The acceleration of the market post-Feb compared to the prior 6 months is amazing. Probably too amazing, but who wants to get burned trying to pick the top of this magic carpet ride.

Leisa said...

Toshi--the video was superb. In fact, I rank it #2 after the Toshi video. I had such a huge crush on William Shatner (and Robert Conrad of Wild, Wild West).

I'm still of the mind that so long as the consumer stays strong AND that real interest rates stay low, then the market will stay strong. We'll get some retail numbers this week. The Asian markets are going to be keeping a watchful eye on it.

tommy t said...

"Where did it show a top was in place? How could you tell that this was the end? Imagine you were massively long this market. How would you know the party was over?"

One sign is sentiment, shoeshine boys and elevator operators falling all over themselves to buy. Media, showing rediculous headlines, sentiment surveys showing big bullishness.Put/call ratios showing similar. Maybe in China they do, but in the US market we don't have any of those. Sentiment seeks flat. 2-3% pullbacks yes, but nothing bigger for now.

Tim Knight said...

"One sign is sentiment, shoeshine boys and elevator operators falling all over themselves to buy. Media, showing rediculous headlines, sentiment surveys showing big bullishness.Put/call ratios showing similar."

Can you provide any links to back that up?

Yuri said...

What is taking place can only be characterized as stubborn bullishness by market participants - it is as if no one believes that corrections are possible anymore - it's certainly got me scratching my head.
With many of the indices at or just below their short term trendlines, a bear must stand firm. Irrational exhuberance or not, it is a low risk, high probability trade to be short right now (and have very tight stops if they punch thru on good volume).
I am a chartist, and until proven wrong, I have to follow what the charts are telling me - at or near resistance, negative divergences everywhere, the indices haven't been so removed from their 200dma's since they made a similar parabolic rise in early 2004. Gravity and the laws of probability & statistics are going to take hold here. At some point this bull party is over - and there are going to be some gigantic hangovers. Folks, the reality that things are not really so great on the economic front, is going to grab hold at some point. The market will probably need a shock to bring about this epiphany - maybe Uncle Ben says something that sets it off, or maybe as the dollar continues to slide, it forces the Chinese $ Japanese to really think twice about the amount of their hard-earned capital that is tied up in USA dollars.
Don't know, but the charts seem to say that we finally take a pause from this insane runup and at best go sideways for a while. How I long for normal, sane, predictable price action. Things go up for a while, then go down for a while - support & resitance, fibonacci's and all that.

NPF said...

Russell going bullish,with his record, is a highly contrarian indicator. Now, if you would go into bull mode that might just tip it and the market would fall! Simon.

wshhmm德州牌手 said...

Shanghai Stock Index now is crashing. After it atop 4000 mark today then started to crash about 5 minutes ago.

Let see something happen tomorrow.

Here is the link for SSEI.

http://www.sse.com.cn/sseportal/ps/zhs/home.html

zeus111 said...

TIM ARE YOU FOR REAL trying to compare the Japanese market of 1989 with the U.S market of 2007. It is like you compare apples with oranges. The Japanese market quadripled from 1984 until 1989 after it went up 5fold from 1970 until 1984. The Dow has merely doubled from the bottom of 2003 and that is after the worst bear market of a generation. The two markets are simply not comparable. On a pe ratio basis Japanese markets were trading at 70 times earnngs in 1989 vs 16 times for the U.S. now. Because the market is up almost everyday it does not mean it will crash. GET REAL!!! They were 4 times the Japanese market made long winning streaks without crashing and it only crashed during the fifth time.
You sse tops when they do not exist instead of following the trend. Even Warren Buffett the greatest investor of all times thinks that the U.S. market is fairly valued. This market can go another 20% higher before you can call it overvalued. You are so bearish camp you cannot see straight.

d333gs said...

RE the Japanese market of 1989 with the U.S market of 2007 YUP!
and compare the $SSEC now and the $INDU 86/87 and $CONPQ 99/2000: Besides just going up the structures all share similarities like that 'W' bump 3/4s up.
I just spent the morning comparing bubble charts , and if the lightswitch is going on in my meger mind , it may well be going on in the rest of the herds head's.

Humble1 said...

I'm still short from 4/26 @ DOW 13101.60 and still losing money on the trade. Some stocks as you point out are beginning to show signs of tops, but the odds still favor the bulls. What you fail to point out in your comparison of markets is that individual stocks begin to crater long before the market does, sometimes up to a year before the market top and some of your picks are juicy. I am not a big fan of making predictions of current markets based on what happend to the same market ions ago, nor with different markets as proxies. As long as Japan is lending money for free, the market will grind higher. This is just another way of extending 90% margin to the masses. When they pull the plug and the music stops, then you see the mad scramble. No one but the insiders will be able to catch the initial move and who cares. The trend will setup and there will be plenty of time to play it. Top pickers are fools, and they certainly ain't technicians of any worth.

william bills said...

you are not alone Tim. Ben Graham couldn't buy a stock after the Dow broke 100 (post 29 crash) Actually, if I remember correctly, he only bought 1 - I believe it was Geico.

So, it just goes to prove that you can be brilliant, motivate the next generation of uber investors, be a cool, nice guy and still be completely wrong about the market

nice low risk play I have here is playing a breakout of the recent highs on GE put in a buy stop @37.75 - 50 by JAN, stop at 34

Yuri said...

I don't know what charts you folks are looking at, but unless and until these indices violate the resistance of these trendlines they are bumping their heads on, it would seem to be very high-risk to be buying new longs right now. Let's put it this way - the SPX should most surely test support @ 1480 before moving on higher. Let's see - on 10 contracts, that's about $25K. If you are wrong, you could probably cut your losses with a tight stop - a good volume, good breadth move past 1510 - maybe 7-8 points. That's 1 to 3 risk/reward. Doesn't get much better than that. And the odds favor a pullback for a variety of reasons I've mentioned - resistance, divergences, profit-taking, etc. To me, the FED is a non-issue. This market will spin the statement however it sees fit.

CATCHERNTHERYE said...

PLUNGER,

just thought you should know JAKEGINT is talking all kind s of shit about you on another blog, been bashing you all day.

heres the site:
http://beanie11111.blogspot.com/

tommy t said...

"Can you provide any links to back that up?"

to back up sentiment or shoeshine boys sentiment? obvioulsy not many chart shoeshine boy sentiment, its a subjective thing, and I just don't see it...but other sentiment is all recorded. For P/C ratio/sentiment, go to CBOE.com and ISE.com...for AAII and Investors Intell %'s, you have to subscribe. AAII has just under 50% bulls ( normally >65% at tops) Inv Intell has just over 50% bulls ( 60% is normal at tops.

Teh said...

A few good sites with interesting picks
http://www.tradertim.blogspot.com/
http://www.downtowntrader.blogspot.com/
http://tradenote.blogspot.com/

sam said...

Gordon Gekko back in sequel

beanie11111 said...

Game over shorties!!!???

Markets going up everyday is because we are on the cusp of a new super bull market?!!

ericbolling said...

What did I tell you bears. Keep shorting the Russell tim. Thank you sir.

Tim Knight said...

Fellas,

You're entitled to gloat a bit, but at least try to say something useful.

As for you, Eric, I actually closed my $RUT puts half an hour into the market's open today, at a profit. Thanks for thinking of me.

JakeGint said...

Just to let everyone know, Catcher is the same guy.

Called him out on it at Beannie's and now he's continuing the charade.

Pathetic.

Kool Kat said...

I trade primarily on TA ONLY, Every time I have looked at the fundamentals of any company or country I have got into trouble. AS of now, the SnP seems to have finally stopped .. just a tad ahead of the target.

Maybe this is the beginning of the end ?

IM said...

Tim,

Please don't jinx the bears by saying we are entering a bear market. Do something different like suggesting we should be bullish and buy this dip. That Russell guy of Dow Theory became bullish a few days back. See whats happened. Maybe its time for you to become bullish too.

BTW- If u suggest to sell this market, I am selling all my shorts and QID, DXD, MZZ SDS etc and going long all in and on margin.