Monday, May 07, 2007

The Pain Grows Stronger/Watch It Grin

Years ago I remember seeing a Dilbert cartoon where Dogbert had yet another get-rich-quick scheme. This one was a generic newspaper which featured headlines about "Unrest in Middle East" and "Government Proposes More Taxes". It was basically a newspaper you could read any day for the rest of your life, and it would always be true.

Much the same can be said of the market - at least in terms of the Dow 30. I'm starting to lose track. What would today make it......the last 27 out of 30 sessions up? Something like that. It's starting not to matter. As you can see from the graph below, it essentially never goes down.


I am staying far away from SPX puts (or DIA puts, for that matter). The only index put I've been accumulating is on the Russell 2000. Earlier in this cycle, the Russell was strong than the Dow, but recently, it's been falling behind. It also has the added advantage of falling faster on the rare occasions when the market is weak (notice the recent dip, shown in blue).


A closer look at recent activity illustrates the relative weakness better. Today the Dow was up yet another 50, whereas the Russell - a broader index - actually fell.


The NASDAQ Composite is also relatively low on steam compared with the mega-caps.


And the $XMI is continuing the exhibit the rather fascinating "hug just beneath the broken trendline" phenomenon.


I have no position in the CME, but it's interesting how this is shaping up recently. It's not really a head and shoulders pattern, but it definitely looks toppy.


My puts on INFY did pretty well today. Infosys (INFY) fell on a good pick-up in volume.


Symbol MEE is a pretty massive head and shoulders pattern, although frankly patterns this big don't have as much weight with me, since it has already kind of done the retracement-and-fall-again dance. But your eyes have every right to make an independent judgment.


Symbol MS is doing the same shtick as $XMI.


Airline RYAAY finally took a tumble, losing about 20% of its value in the past week or so. It was really overheated earlier, and I don't see any clear pattern at this point.


Long suggestion SCHN continues to do well, although I'm sure the massive buyout news regarding AL/AA had everything to do with today's rise.

23 comments:

Brett said...

NO pattern on RYAAY?

How about a picture-perfect double top?

IM said...

AMZN looks like a short here.

I think China will top in a couple of weeks. Once that happens they will take us down too. Up 300% in a year. Thats ridiculous ! I read they are opening a million brokerage accounts a week there. People borrowing their home equity to gamble on stocks. This is not 1999 in China. Its more like the build up to the CRASH of 1929. Would not surprise me if their market dropped 40% in a month.

stockshaker said...

Don't fall into this same trap. Anything running out of steam will probably pick up fairly quickly when buyers buy the dip.

So far, the easiest get rich quick scheme is just be long.

At first it was frusterating to me because it just didn't make sense, but what made even LESS sense was realizing people who had no idea about technical indicators, or what the hell was going on in the world was making money in the markets, just because they didn't know any better than to just invest.

Because if one had just invested without trying to speculate tops, one would have easily doubled up. I have recouped much of my PUT losses just in the last two weeks, by being long - even though it required me to twist my own arm and put a blind eye to the reality of the economy.

The Dow looks like it will NEVER fall, as non-sensical as that may seem. The Nasdaq may have ended down, but tomorrow will most likely be sky high to keep pace with the rest of the indices.

The best get rich quick scheme is to buy anything in the markets. It will most likely go up tomorrow. (and the day after that, for perpetuity - so it seems)

TOMTHETRADER said...

TIM,

The fun of being a bear lasted all of two losing days and we are back to 100% invested as of Friday with a little put on the NDX ...The weakness of the IWM and NDX as of late is either setting up for a correction as we did in Late Feb or is a blast off zone for Large Cap Tech. There is going to be a quick violent selloff sometime this wek and an intraday test of 13000 ...it seems ridiculous but there will some confusion and probably too strong of econonic numbers will end up biting the DOW as interest rates could skyrocket if Eirope decides to stay strong on rates and our Fed also says they are more concerned with INFLATION.

Tom

Chuck said...

"China recently noticed that perhaps $1 trillion in liquid reserves is maybe more than they need in spare cash laying around the house. They suggest they may take up to 30% of this and invest it, much as Singapore, Dubai, or Norway do now. This is going to be a growing trend. This will be good for the world in general, as much of it will be for large longer-term projects that need deep pockets (like infrastructure). But it is also going to put even more capital into a world already awash with liquidity."

--John Mauldin
http://www.frontlinethoughts.com/pdf/mwo050407.pdf

Never mind the economy, imagine what an extra $300 Billion will do to stock prices.

You can subscribe to John's weekly e-letter (it's a good read) here:
http://www.frontlinethoughts.com/subscribe.asp

JakeGint said...

Tim,

I'd stay away from shorting MEE... One of these Merger Monday's it's name is going to be on the "acquired list" and that's going to suck for anyone short it.

Crappy management, but great reserves, and the coal bidness ain't going anywhere soon....

Tim Knight said...

John,

That is an interesting article. But the author makes a very compelling case for a recession in the second half of 2007 to be virtually a foregone conclusion. So anyone interested should read the article in its entirety.

Robert said...

"The fun of being a bear lasted all of two losing days and we are back to 100% invested as of Friday with a little put on the NDX ...The weakness of the IWM and NDX as of late is either setting up for a correction as we did in Late Feb or is a blast off zone for Large Cap Tech. There is going to be a quick violent selloff sometime this wek and an intraday test of 13000 ..."

You are 100% long and calling for a violent selloff sometinme this week...? Cake and eating it too...?

Mahabala said...

Thanks for the CME comments. I am watching it. Moves a lot intra day.

I wonder where rockets like TNH will end up!

Oneway said...

DJIA FIB.EXTENSION UPDATE

REMEMBER, WE'RE USING THE DJIA 11,750-TO-7200 TRADING RANGE, OR 4,550 POINTS.

A 'MEASURED MOVE' = 11,750+4550 = 16,300

1ST EXTENSION (38.2%)=DJIA 13,88
2ND EXTENSION (50%)=DJIA 14,025
3RD EXTENSION (61.8%) = 14,562

Oneway said...

sorry for the typo

1st ext. (38.2%) = 13,488

Leisa said...

TNH--I have fond memories of TNH--I owned it at $19 when average volume was less than 20K daily if that. Now look at it. Unrecognizable in both volume and price. I weep. I weep.

AH....same tune!

One thing that I want to work on is holding onto my winners a wee-bit longer.

I still think that fundamentals suck and that we will have a recession. But who cares what I think?!

ericbolling said...

You should know by now that the markets never go down tim. In fact, your blog is almost a joke as it has been a good contrary indicator for the past few months. The day you become bullish is the day I will short with my entire account.

Mahabala said...

LRCX and FLR have similar patterns ( last few months that is.)

I must say FLR "was" moving up because it moved down in after hours.

I watch POT a lot, it was moving down after having run up a lot but then they announced a 3 for 1 split.

Tim Knight said...

"You should know by now that the markets never go down tim. In fact, your blog is almost a joke as it has been a good contrary indicator for the past few months. The day you become bullish is the day I will short with my entire account."

Happy to be of service any way I can, Eric.

Keith Shepard said...

There's a LOT of interesting chat on the oddly scary parallels between this DOW and the DOW of 1929 and the Nikkei in 1989. MSNMoney has this to say:

----
The Dow's dangerous winning streak

The market's recent performance mirrors the strong runs that led up to the crashes of the Nikkei in 1989 and the Dow in 1929. Coincidence? Or warning?

-> http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TheDowsDangerousWinningStreak.aspx

-----

I am still long, but ever watching for a sharp drop to sell to the sidelines. I have been tuning my Short strategies (which have been sitting around gather dust lately). I did pick up a nice short on Coach (COH) a few days back.

Still long for now.

Keith Shepard said...

Also this on MarketWatch:

----
Turning Japanese?
Commentary: Editor sees U.S. stocks going parabolic like Nikkei of 1980s


-> http://www.marketwatch.com/news/story/turning-japanese/story.aspx?guid=%7BCE010B5D-A052-40F7-BFA3-85E6A4A2BF6A%7D

----

Hmmm....

Keith Shepard said...

Crap...sorry about those HUGE links everyone. I'll use the HTML tags next time.

b.healed said...

i am putting in and order for a put on UAUA. i will get in as it breaks below todays candle and a target for 32. i am kind of playing off of the aftermath of a h/s pattern. should be fun.

niko said...

CME looks like a bearish descending triangle to me. Of course, wait for it to break its flat bottom on heavy volume.

KFRC looks like a good triangle breakout. Long makes me nervous, but it is the trend for now. Hope I don't get too busted on the breakdown!

cheathamklb said...

I have never posted here before but read it everyday. I really don't understand. Everyone has their reasons but up everyday. CONFUSED. Just wanted to help out the bulls and go on and declare
"Up on the day", again

ericbolling said...

Look guys, you may be book smart but obviously not street smart. Buy the damn market on pullbacks with me. This is a no brainer, just look at todays action and how many new short positions are already being squeezed. Who cares why just buy.

JakeGint said...

Eric,

I actually bought the QQQQ's on this morning's (slight) downturn.

I just said "fuggit" and joined the joyful lemming committee.

Warning: this is likely the sign of a market top.