Friday, May 11, 2007

Weekend Reading

Denied. Again.

Yes, as I mentioned yesterday, the risk of the markets bouncing off their trendline was definitely there. The inflation rate (once you take away such non-essential luxuries as food and fuel) was low, and more signs of a worsening economy (anemic retail sales) had the perverse effect of pushing the markets higher.

So today might have been a turning point, but it was example eight thousand and twelve of false hope (e.g. yesterday's short, sharp shock).

It's hard to tell which way is up anymore. You could look at the Russell right now (intraday graph) and make a good argument for yet another bounce which is just getting started.


Using the same graph, you could also show a very plausible dome, indicating a market topping. Search me. After 11 months of banging my head against a wall, I'm as open to suggestions as the next person.



I'm going to have a lazy day and offer you some good weekend reading. Most of these links came from thoughtful readers, whom I would like to thank. I always welcome interesting reading, so feel free to post links in the comments section as you come across it.

Liquidity Boom and Looming Crisis from Asia Times

A Bear Market This Year? by Sy Harding, who also wrote this

The Great Crash of 2009 from the Interactive Investor Blog

The Bubble Hall of Fame

Dancing Bears

53 comments:

Fund said...

It's an inflation driven market.

I'll be looking for a correction when the last bear throws in his/her towel.

Tim Knight said...

"I'll be looking for a correction when the last bear throws in his/her towel."

And how, precisely, are you going to make that judgment?

wshhmm德州牌手 said...
This comment has been removed by the author.
The Sound said...

'Denied. Again.'

Do you call an inside day on very weak volume 'denied'?

We are rolling over at the top of wave E in a reverse symmetrical triangle pattern.

Vic said...

"Logic and proportion dont mean anything no more". News today quoted Greenspan as saying chances now 2-1 that there is a recession this year and the market completely ignored it. If new highs are made monday I will fold. I will then only play pullbacks and forget about catching the initial breakdown. Just Damn!

Bill said...

Tim, great blog. I was dead wrong on the short side, and lost lot of money as a result, since I still have lot of puts.
Today I added PTR call, maybe the China bubble is still alive and well. I know I may get burned on both sides, but got to try something new.....

Locster said...

Well you know it's OK to say "I don't know". Yeh that russell 2k graph could very easily be the top, or the run could continue. It's got to where it is through irrational behaviour, so who is to say when that behaviour will stop?

All you can say with true certainty is that it will revert to replacement value in the long term. I realise my PE40 quote was a bit contentuous to some, not helped by the lack of freely available official data, but lets take that number for a moment. Who is to say it won't reach a PE of 45, 50, 55...

I think some indices reached PE's of 100 or more back in 99/00.

On that note here are the links I mentioned before, not hard evidence but more grist to the mill :)

PE of 36 in July 2006:
http://hussman.net/rsi/relativevalue.htm


Trailing PE of 40.1, April 11th, 2007
http://www.bloomberg.com/apps/news?pid=20601109&refer=exclusive&sid=aVLV6bFaOyi8


Have a nice weekend all.

Locster

Momo Fader said...

Hey locster,

How much is that in pork?

Vic said...

On the 10 and 20 yr graph it looks as though we are at completion of a measured move between major corrections.Maybe the Chinese govt. will say something good this weekend and well get a catalyst.Oops on greenspan, I misheard.

TOMTHETRADER said...

Tim,

I would like to offer this , I have been extremely Bullish for the past 10months and recently downgraded to Bullish and ready to go to neutral because of a couple of simple things...1 I beleive in your DOME theory top due to the inability of the broader market to make new highs and to muster HUGE volume or breadth indicators...not since the triple 9-1 (one bearish 2 bullish) have we had anything close .2) Sentiment has hit records on the short term the II ratio has the lowest BEARS since ???? The Bears have to muster a hold here on IWM / RUT or it is not even a contest...Options expiration week has gone to the Bulls 11-12 so far and the odds are with the BEARS due to the massive amount of O.I. on calls ....unless it is different this time ...the BULLS are not going to make all that money with out of the money calls bought in APRIL ...if they do and we have an up week next week ...I am just calling it the NINTIES and Buying QLD 200% long and wake me at New years !!! I don't think that will happen but without a doubt this has got to end this week or there will be no bear case ..China has a monetary meeting / announcement and they come her for a visit soon so matbe some protectionism can knock the BOVINE to a knee ??????

Gary said...

Tim,
I'm not sure why you want to continue fighting against one of the strongest bull market since 1999. There will be a time to go short (nothing goes up forever). Why not play both sides of the market. Go long when the market is rising and short when its falling. So far all intermediate corrections have several things in common. First and most important the commercials are heavily short in the S&P futures (they are extremely long right now) Why fight the big boys. Second there have been momentum and money flow divergences at every intermediate top on the weekly charts. None so far. Third the markets have been overbought on the weekly charts. Not so yet. Might as well make some money on the long side while it lasts. There will be plenty of time to go short when the market turns.

tommy t said...

Most are missing it...its a global blowoff in progress (meaning it ends straight up normally)..fueled by this liquidity boom. Check the #'s, the fed has been pumping bigtime for many months. The Dow doesn't care about news in a blowoff, only completing the parabola pattern. It it so hard to time the top of one of these, as you can see. The volatility should pick up, the swings getting bigger...greed takes over, bulls get euphoric, and bears won't want to short anymore, for fear the next day it will be up big (like today after yesterdays decent down). It will end badly, from what level is key though. The top end of the parabola can be very tricky. Buena suarte all. It should get exciting.

Yuri said...

I have puts on the QQQQ's and SPX, which I had been hoping to add to on Friday, but no such luck. If there is one light on the horizon, it is that Larry McMillan's indicators are starting to hit sell signals (tho not confirmed yet). What I can see is yet another hammer on the NASDAQ weekly chart, at the top of the channel it has been trading in since Aug 04 - it held for yet another week - not a good sign for the Bulls. I hate to overstate this Bull v. Bear thing, but right now it is shaping up to be one heck of a Inter-Galactic Battle for control of the Universe. Next week is key - perhaps culminating in Friday's CPI number. Many economists are expecting the core rate to be 0.3% which would lead to a huge selloff. Along the way, I don't see much upside risk to being short right now - and the obverse holds that there is significant risk to opening new longs at this time, with the Market so extremely overbought.
On a short-term basis, the SPX sits at a 61.8% retracement of Thursday's selloff. That is a tipping point.
If you haven't already, draw the NASDAQ trading channel, for the weekly chart starting 08/09/04 - if the bulls manage to break thru that, you have to tip your hat to them - but they WON'T!! I'd be comfortable with some longer term puts, enjoying the ride down to the bottom of the channel - approx 2300. Nice IRA trade, nice trade for Grandma's money.

Gary said...

Instead of focusing on the daily charts try looking at the weeklys. The markets are not overbought on the weekly charts yet. So far no intermediate rally has ended until the markets get extremely overbought on a weekly basis. Also no upleg has ended in only 9 weeks. The average is 27 weeks. I'm not sure how you can think there is little risk going short here as this is the strongest bull market since 1999. All the historical data is against you. The big commercial players are heavily long. Why would you want to fight those kind of odds. If you don't want to be long then go to cash but for heaven's sake don't fight this kind of momentum. I have posted a few long term charts on my blog that make my point.

Yuri said...

If guys like Guy Adami & Eric Bolling, contributors to CNBC, were saying earlier last week to cash in your profits now, and that anything you sell now could be bought back cheaper in a couple months, one has to wonder others are thinking. I, for one, was happy with the profits I have garnered these last months, and when JSDA was at $32.50 (bought it at $19.00, thank you), holding on was just being greedy. I cashed in ahead of that thing dropping like a rock - others must be thinking the same thing about some of their holdings.
The weekly on the NASDAQ is rolling over (as we know, the NASD leads the market up or down). My best guess is that the SPX adds 22 points (can you say "double-top"), while the NASD treads water, after which Johnnie takes his toys and goes home (sell in May and go away). I am not expecting any huge selloff - but 5-8%, just like last year, seems to be what all the fund managers want. They want to clear the air, clean the slate, and come back to lower prices, getting in ahead of FED easing this fall.

Gary said...

Unfortunately Eric Bolling and Guy Adami don't run the market, the commercial traders do. In fact their money is 70-80% of the market. I would be wary of what Eric Bolling says on TV. He's definitely not adverse to saying one thing and then trading in the exact opposite direction. Last summer he was touting oil heavily on fast money but actually shorting it in his account. Bolling is a smart guy he knows that you let winners run until you get a signal to exit the trade. There is no such signal yet. If he's telling the public to sell then it's because he wants to buy your shares cheap.

Gary said...

http://stockcharts.com/snapshots/106274583.png
I'm not sure why you think the Nasdaq is starting to roll over. Momentun, money flows and volume are all strong as far as I can see. I don't think you could ask for a better looking bull market than that.

Dennis said...

Bears have been very wrong so far about this market. I have been doing some soul searching and come to the following conclusion:
I know that it is always dangerous to say that this time is different but I think this time is indeed different. The reason is that Asian countries (China in particular) deliberately hold down their currency values so as to export their products to ex-Asian countries and they are wildly successful. For example, the US's trade deficit with China is approaching $300 billion annually. Ask yourself, if you were China's policy maker, what would you do with all the trade surplus money?
There are only so many things that the US can sell to them: airplanes, some heavy construction equipments, drugs, raw materials, foods, some software and movies (those that cannot easily be pirated). Clearly, lots of that money is being converted back to local currency thus the domestic economy is booming. The Shanghai stock market triples in less than two years and is approaching bubble territory if not in one already. The local real estate market is booming and inflation rate is runnig above the official sanctioned rate. You can use some of the trade surplus money on US treasure bonds and earn lousy rates and they have been doing that for a long time now. But recently, they come up with a clever idea, why not use some of the trade surplus money to buy the assets of the ex-Asian countries (particularly the USA)? Of course, the boys and gals on Wall Street are not stupid, they say that if you want to buy our companies, we will sell them to you but at inflated prices. In my humble opinion, that is the main reason that stocks have been going up. How long can this continue? I am afraid I have no idea.

cantdrive55 said...

It's the Gary & Dennis show.Good show gents. We need a traders reality TV series. The only genre left that does'nt have one.

beanie11111 said...

Global warming is a very serious issue and i'm glad Al Gore is doing all he can to get the word out. Darn it, i wish he were president.

There have been and will continue to be detractors. Those people are scum of the earth - liars and paid liars.

Some are in denial but that's ok because the effects of global warming will smack 'em hard one day and wake 'em up when their loved ones starting dying from the potentially devastating effects of global warming. Our environment is everything if you understand the interconnectedness of nature around us. Viruses and bacteria and parasites' success is very dependent upon their environment. Our fish, our birds and our mammals are dependent upon the balance in their environment for their existence and co-existence.

I don't know about you folks, but the last few years the weather in California where i live is acting kinda strange. Last summer, it wasn't as hot as it normally is. In fact, it felt like spring all the way thru. The raining season also acts out of the ordinary.

The last few years, we've seen some castastrophic events across the world (tsunamis and hurricanes) that are happening within a short timeframe of each other, and are happening with increasing severity. We've had days of extreme heatwaves that are breaking records.

The polar caps are melting. Now, i don't care what you believe but when the polar caps melts, SOMETHING HAS GOT TO GIVE. It is as though we have one giant event triggering another giant event(s), that can potentially one day soon take away many human lives.

Is it no wonder that my astrologer is forcasting major upheaval in our climates in the not too distant future that could trigger catastrophic events that can and will result in many human deaths - to the tune of hundreds of thousands to millions? If global warming continues to get worst, it should start waking up the politicians enmasse, and it should wake up the alternative energy stocks' full blown mega bull market rally?

Stay tuned....

Please stay invested in solar like STP, FSLR, SPWR, TSL, etc.

plunger said...

beanie11111 say's,
" The world is coming to an end....

....I need to you to be in stocks!"

Yuri said...

I am saying that the NASDAQ is rolling over based on a few key indicators I watch. First of all, there is a major MACD divergence going on, as well as an ADX that has been in decline for quite a while and now has bottomed out (translation = there is no more trend, but perhaps there is about to be one in the opposite direction). Money flows have been primarily into less speculative large cap names (like the DOW). Fact is, the NASDAQ is only 96 points (3.8%) higher than it was 6 months ago - and that is before any correction. Meanwhile the Dow is up 1000 points since November. If there were to be a correction over the course of the next 2-3 months, the NASDAQ could be net negative for those 9 months (encompassing the year-end rally and 1st quarter re-positioning & buying). Doesn't seem like a lot of investors are going to get rich in that scenario. The word is that there were some very uncharacteristic, of late, worried faces on the trading floor on Thursday - something has changed, perhaps. Take away the false hope the PPI number fostered that inflation is under control, and the subsequent rally in financials, Dealer/Brokers (CBOT/ICE/CME soap opera), and I think that Friday might have turned out very differently. Do any of you out there really think we've got 1-2% inflation? Last I checked, a couple of bags of groceries is costing me $100, and I'm pumping $100/week into my gas tank. Meanwhile, some little old lady in the news, is spending her whole week at the public defender's office to try to get back $135 that some Oil Company has siezed from her social security-funded bank account (illegal, by the way).

Gary said...

Sorry Beanie but there is no conclusive evidence of global warming. Nothing is happening that hasn't happened many many times in the past. Which is not to say that we aren't causing global warming just that there is no absolute proof. Only enviromental groups (that need funding) can make the leap that something that has happened in the past is all of a sudden now caused by the burning of fossil fuels. Of course if they were to tell the truth that we're not sure yet if carbon emmissions is causing the earth to heat up by, what is it 1/2 a degree on average, then their funding would dry up over night. Its all about money (it always is).

Gary said...

Yuri,
Check out the charts I posted on my blog and I think you'll see the error of projecting into the future what you want to happen.

downosedive said...

Gary has it about right. Most others are in a state of denial. im a bear, but have to admit the market is going to end the year higher than when it started and probably significantly as well. Its the 3rd year of presidential term and the markets always rally in that year - there are no exceptions to that. You can beleive this time will be different if you want, but you will be wasting money. The second factor to digest is that in the year 1999 the dow traded in excess of 10000 through to 11500ish. A bull market runs at 20% or more above the previous high ie above 13800 in order to be classed as a bull market. So whilst this has been a bull run, its not even technically a fully fledged bull market yet. Thirdly consider this: since 1999 the dow has increased by between 35% (best case) and just 15% depending on which month in 1999 you look at. Now, would you say an annual return of between just 3.6% best case to 1.75% meets the long term return on the dow? No it doesnt and then add to that, the fact that for a bear market to occur there would need to be a decline from a top that still left the average annual return trend intact - so the dow needs to go a lot higher in order for a real bear market to occur, otherwise it simply wont happen. that deosnt mean to say that much higher top will occur, just that if it DOESNT then there will be no bear, just some reversals along a continuing up trend (the falls may appear to be sharp, but will be short lived and quickly reversed). All this from me - a long term bear as well. painfull

downosedive said...

Tim
Although you dont like the fib on the dow, your figure is probably about right. remember me from last year? I lost a heap by being a stubborn bear and even then I suggested that the dow would need to top 15000 for a full blown bear market to occur. I dont like these figures either, but im afraid it looks as if it could go up there. Its more a question of timescale rather than a specific indices figure.

Gary said...

Even though I'm bullish right now just about every bull market I can find history for has had a severe decline around year five. I think when this parabolic move is done we will see a serious sell off. But what the heck I'm not opposed to making money on the way up and on the way down.

John said...

I'm thinking Jones Soda, JSDA, is the best looking short out there. Possible head and shoulders with a neckline at 22, sell signals on both RSI and MACD indicators. Saucer support is around 11.49 and a gap to fill at 14.

beanie11111 said...

gary,

it is always about the money. With respect to global warming, WHO continues to benefit by the billions ($$$) by tellin ya there is no such thing as global warming?

The research is very strong that our planet is warming up, with potentially catastrophic consequences. The research is out there. All you need are eyes to seem them.


For example, this urologist didn't want to see:
Come see how mr. Beans proves a urologist, who claims there are no proof for natural therapeutics, wrong: http://buttonwood1792.blogspot.com/2007/05/dendreon-dndn-im-angry-really-angry.html

Gemma Star said...

Question for all of you (especially Tim) who know a lot more than I do:

Never mind what any of us THINK the market will (or should) do, the market will do what it's going to do.

So here's my question: Since I don't want to be sidelined in cash in a steadily rising market, what about using trailing stops for my longs?

Granted, it's a chicken way of letting the market take me out, but since the market has a mind of its own, wouldn't it make more sense to let it decide when I should get out?

I've taken myself out of some stocks in the past 12 months, only to see several rise 20% to 40% higher. That sound you just heard? It's the sound of my gnashing teeth....

Market Speculator said...

Global Warming!!!! On Mars! Mars is losing its solar ice cap...Gee those Martians must stop production of C02 NOW! They must use only one sheet of toilet paper, recycle, should ride a bike...oh wait there is no Martians...then how can their Ice Cap be melting???? THE SUN...the sun is at its hottest point in 1,000 years. NASA scientists say that the peak will go on the downtrend around 2011-2012.

I suspect by 2015 we will not hear much about Global Warming as the sun will be on the down cycle of being hot. Ok, sorry for the global warming rant...Al Gore uses 20times amount of carbon than the normal American but buys carbon offsets from his own company...gee does he have an motive????????

I like JASO as a solar play as it is an energy source of abundance! But, don't always beleive the hype. The majority of the last 120 years of warming happened before 1940.

But, since we are in the business of making money, we'll continue to see solar plow through gains.

MS

Yuri said...

Whoever is long in the market would be best advised to tighten up the stops. Personally, I have my puts ready to roll. Here is an insightful article that sets up next week.
http://www.marketwatch.com/News/Story/Story.aspx?column=Market+Snapshot

Gary said...

Yuri,
This is just the kind of negative commentary that will keep the bull alive. You need to worry when all this negative comment disappears and is replaced by nothing but positive outlooks. I've posted another chart on my blog that should bring into perspective what's going on at the moment.

Fund said...

@ Tim , Re: Inflationary markets.

US equities have a lot of upside before any significant correction.

Even though US internal economy is slowing down, most of the DOW stocks are earnings a greater percentage of their profits from overseas markets.

With strong emerging economies, their profits will continue to grow.

Even if their overseas profits diminish, the collapsing USD will make it appear they have ever increasing profits.

Hence, can you see DOW 15,000?

Yes I can. because that where we'll get a minor correction on the way to DOW 30000.

Being a Perma bear is mathematically imprudent.

Longs can theoretically make infinite profit on a move. Bears can make at most 100%.

Mathematics states it is implicitly better to be a permabull than a permabear.

Momo Fader said...

fund, show me a stock that has gone up to infinity and I will show you a dozen that have gone to zero.

Gary said...

well maybe not to infinity but BRK/A, Dell, MSFT, GE. You get the point. The one plus to the short side is that the gains come much faster. I would suggest playing both sides.

beanie11111 said...

WE ARE GOING HIGHER THIS WEEK.

Momo Fader said...

gary, what is the point? Which permabear would stay in the game trying to short BRK/A for 30 years? Buffett actually welcomed it last week, and said he'd have a separate meeting for them.

As for the rest, let's pick timeframes. Dell had been a fine short for 18 months between JAN 05 and JUL 06. If your point is to be nimble, and play both sides, I agree.

@fund's point was some theoretical hogwash. You don't buy and sell stocks in theory, you do it in reality with real stocks and real money and real margin and risks, and perhaps most importantly real EMOTIONS.

Selling short is a tool that can be highly effective under the proper circumstances. Which is the best that could be said about buying long.

Humble1 said...

I don't see anything plausible about the $RUT chart except chop. It's anyone's guess which way that traidng range wqill eventually breakout. Bears want it to go down, bulls want it to go up. Traders don't care. Just move it.

Humble1 said...

as foir the SP 500. the old highs should be a magnet.

http://img154.imageshack.us/img154/7533/spxmonthlyer1.gif

beanie11111 said...

oh sh%t!!! GAME OVER, Permabears!!!!!


--

Bear-of-all-bears, Richard Russell, famous since 1958 for his Dow Theory newsletters, just hung up his very well-worn bear costume and is now envisioning an unprecedented global economic boom citing Dow Theory technicals.

Mark Hulbert's article cited a recent possible "fundamental" support for this outcome being China Banking Regulatory Commission's recent action.

In an attempt to cool its overheated stock market, China Banking Regulatory Commission had ruled that Chinese banks "can now invest as much as 50 percent of funds in overseas stock markets."

Slothower calculates that this means that "up to $2.3 trillion in China monies ... can now move out of China."

To put a sum like that in perspective, consider that the total value of all publicly traded stocks in this country is around $15.1 billion, according to Wilshire Associates. If even a modest fraction of the $2.3 trillion makes its way into U.S. stocks, we could see a "further parabolic advance in equities," as Slothower puts it.

Interesting article:

http://tinyurl.com/2d2jtr

---

Gary said...

Well seeing as how the market cap of XOM is around 450 billion alone I suspect the total market cap of the US markets is slightly larger than 15 billion. The total global market cap is roughly 50 trillion so I'm guessing the US market is somewhere around 15-20 trillion.

Gary said...

I'm guessing 15 billion was a typo.

beanie11111 said...

s o l a r

s t o c k s

a r e

t h e

p l a c e s

t o

b e

i n v e s t e d !!!!!!!!!!!!!


N O

T I M E

L E F T !!!!!!

JakeGint said...

Gary and Yuri -- excellent, excellent repartee, fellahs. That's the kind of stuff I come to this board to see, and you guys do not disappoint.

Beanz, you know I love you, kid. But touting the collective (no pun intended) wisdom of Al Gore, Ted Turner... and your astrologer (???) is no way to gain credibility with your fellow traders...

Solar does have a connection with global warming, but wacked out enviro-leftists think it's us.

beanie11111 said...

solar TSL! get on board!

going to par!

beanie11111 said...

TSL TSL TSL pre-earnings run!!!!!!

This macdaddy is gonna roll the shorts over!!!

beanie11111 said...

solar is so hot my suntan lotion ain't workin

beanie11111 said...

jakegint,

Maybe so but i don't wanna slice and dice ya like that poor urologist:
http://buttonwood1792.blogspot.com/2007/05/dendreon-dndn-im-angry-really-angry.html#links
(mr. beans sticks it to the doctor under the comments section)

lol

beanie11111 said...

Solar stocks' gonna be so hot (hotter than J.Lo? Definately hotter than Tim. lol)

TSL en fuego. Earnings is next Monday. In my opinion, it's got par written all over it.

JakeGint said...

Par? Is it a bond?

Or are we talking golf shots now?

downosedive said...

Gary and Yuri............just caught up on your recent comments. yes you both have it about summed up about right, at least for now (!). However your observations/thoughts are best linked to indicies rather than specific stocks performance as such generalisations are pretty sweeping and dangerous - but once your comments are applied to indicies, there is much merit in what you both say. And yes Im a bear, but now facing up to reality. I beleive any downward movements this year will be limited to 1% to 3% over a very few day(s) on the DJA, and then the up trend continues. Dips may be regular but the up trend will continue to hold. I will not be looking at any other indicies as the DJA has such strength to even though its stock representation is so very limited

downosedive said...

And yes, the previous figures have to be trillions and billions! The Chinese market wont collapse either. in fact I reckon we have yet to see it even start to rocket....eeeek