Tuesday, June 12, 2007

...And an Awful Lot Like Me.....

First off, if you didn't get around to reading yesterday's post, you should. It rules.

The trend change that I have been hoping, praying, and wishing for might (I say MIGHT) be here. Whether it is or not, the past week or so has been very good to me. Successful trading comes with its own set of challenges, but I'm enjoying myself. Watching the Dow go from a 90 point deficit to a 20 point surplus today, I had the sense that it was time to get more puts. And that was the right move. Lower lows and lower highs seems to be the rule of the day.


The "culprit" of all this wonderfulness is soaring interest rates. One reader (who shall remain nameless but I shall refer to as SuperCOT COTLover) opined that interest rates aren't going to go up forever. Well, ummm, that's right. But they weren't going to go down forever either. Believe me, there's plenty more that can go wrong to help add fuel to this wonderful fire.


Someone else asked to see my positions. Anyone blinkered enough to spend time every day sharing his best charts and thoughts for no money is stupid enough to show all his positions too, so here goes (the bold items are puts; everything else is a short):


Remember that channel I mentioned yesterday for the Russell 2000? Well, it was cracked today. Good.


And the S&P 500, which had been floating above its channel for a while now, has now achieved - if you will - double penetration. The index is within the bounds of its channel once more. Which only means it is at the very highest reaches of its channel, with ample more room to fall.


And, not surprisingly, the $VIX has been zooming higher lately. Even at these levels, we are far, far below historical averages. During saner times, the $VIX would occasionally push above 50.


ALB, which I've been short for a while, has now completed its pattern. Huzzah!


Oh, remember back on May 22nd that I suggested BTJ as a short? I've marked it with an arrow here. How's that for a call, folks? I (stupidly) closed it out a couple of days ago for a nice profit, but, again, it was just stupid. There was no solid reason to cover the position.


CAM is another one dozens of great short/put candidates.


And the DIA is a great general way to play the market downturn via puts. This is a gorgeous chart. Stop price of 134.76 on this one, if memory serves.


My puts on GOOG are doing well. This is a failed breakout pattern. For such an expensive stock, there is nothing sweeter.


I'm avoiding real estate shorts, pretty much (I've got one or two). Looking at IYR, it is approaching a supporting trendline. Of course, if you read about the billions upon billions of dollars in mortgages that are about to explode, it could be that the real estate downfall has only just started trickling in.


My JCP puts are doing well, although his pattern is not complete yet. But it has a very good shot of doing so.


Check out Sears Holding (SHLD). It has crossed its 20, 50, and 200 day moving averages! Now the fun can really begin.


And for all those who used me as a contrary indicator........keep holding those positions, boys. I'm sure you're right and they'll be back in the black in no time. In fact, double up. You know I'm wrong.

XTC........

54 comments:

Trader said...

Tim,

Do you just wait for the head and shoulders pattern to complete or do you have another way to set your targets?

Also, how can you tell if a reversal is happening? At what point do you cut your losses?

I got burned on some home builder/mortgage co. puts a few months ago. Admittedly, I had taken too large of a position.

Momo Fader said...

Tim,

Do you think there is any significance that the Russell2k took out last week's lows today and closed under? Or do we need further confirmation on the Dow and S&P?

Gary said...

Let me point out something. Interest rates have been rising since the begining of 03 and the market is up almost 100%. For the record I said it appears that this decline is totally dependant on interest rates continuing to rise. If they just continue to go up every day then sure stocks could continue to drop. But I just don't see the sea-change that has occured to bring on a bear market at least not yet. Maybe 5.25% interest rates are enough to collapse the economy I don't know, although I have my doubts since this is historically a pretty low interest rate enviroment. If I get a signal to sell this week then I will unload my longs and go short. But at the moment a tiny little 3% pullback in the market isn't enough to convince me that something drastic has happened. For the record Tim I have never resorted to trying to denigrate anybody here. I've always tried to post helpful bits of information and I think most of my posts are just common sense or tried and true ideas about investing. I'm not sure why you feel the need to put down my views or my system. It does have a 20+ year track record of producing superior gains in the market. As a matter of fact I dare anyone to show me a system that has produced better over a similar period. I seem to have somehow gotten labeled as a permabull and that is about as far from the truth as could be. I play both the bull and the bear side of the market. Once I get a legitimate sell signal I will go short. However a 3% decline in a very overbought market simply because interest rates are normalizing doesn't constitute a sell signal for me.

bh_prop said...

Many bears crawling into the IWM den lately. Max pain right now is 82, next largest open interest strike is 83. Market has a funny way of making most of that open premium evaporate. Makes me wonder if we don't take back one or both of those strikes before Friday is over.

b.healed said...

do you not have a position in CEG? i thought you would. it seems pretty nice especially with the shooting star today. may i ask why you are not in it. i was about to place an order for it tonight when i got off work until i noticed that you are not in it. you aren't my market indicator, but i enjoy your opinion.

Robert said...

Tim,

Please post about risk management.

Robert said...

And,

The AJC was classic and hilarious.

Holdem or Foldem said...

Today's drop in SPX is a confirmation for the bull market, over.....

Tomorrow, TLT might get some bounce, that might push SPX a little bit higher. However, I would think it is another chance to add my position, Short.

Parabolic up will company with parabolic down. I agree no support at all, naked.

Brett said...

Tim,

You're a little early calling GOOG a failed breakout. It's still within 2% of that $510 area. Not to mention the fact that it may only be flagging for the next move higher.

CjN said...

Hi Tim, long time listener, first time poster... I just gotta say you are my f'ing hero. The Abby chart is now printed and prominently displayed on my fridge next to my 3 year old's rendition of Dora the Explorer. It's that good. Your portfolio is almost an exact copy of mine except i'm all stock and I'll tell you things were looking mighty bleak until this week. Payment is now due. In full. Rock on my darkside brother.

2sweeties said...

Tim,

thanks for your always great insights, there is always something to learn on your site.

About the trend change, the problem is that there are too many signal that are diverging in this moment to be sure the market is going down and the risk of getting burned again like at the end of february is very high.

I trade the main trend of the market, bull or bear does not bother me, provided it is clear what IT IS.

When I know, then I trade a large position, Warren Buffet-style.

But first I want to be SURE where the trend is going and I am not really sure in this moment.

For example, the S&P 500 could as well be forming a nice W instead of going down, don't you agree?
And then shoot up towards new highs, would you rule this possibility out?
I won't.

Didn't we see so many strong pattern (i.e. head&shoulder)failing their usual behaviour in the last 3 months?

And there are other strange contradictory signs: for example, yesterday, while Wall Street was going down, the German DAX Index (lately a very bullish item) started to go UP (!), very strange since usually it moves in-sync with the S&P500 during the trading day...

Other signs: markets in Asia, while I am writing, are opening down -0.5% to -0.8%, not such a big down and they are already trending upwards, recovering... again, it does not look so bearish to me the whole picture...

February was not a correction, just a blip on the way, and this one seems to be even a smaller blip so far, maybe is not finished yet, but it does not really convince me.

I think everybody should be VERY careful in this moment because it really does not look clear at all where the trend is going.

And if it stays flat in range for the next 3 weeks, then time decay will eat away money from PUT and CALLS....

Just my modest opinion, anyway.

Tim, thanks again for your job.

wincity said...

Congrates on your gains, Tim.

However, I do feel Gary has a point. There're signs that the market isn't sick at all. It staged a wild come-back today when bond yield retraced. Many crazy stocks are still crazy despite the market sell-off: MA, RIMM, CROX, etc.

IMO, a little caution is helpful.

JakeGint said...

Holy mack daddy, another song I haven't heard since I was a teen. Who knew Peter Pumpkinhead was about Kennedy?

Kind of ironic timing with all that conspiracy junk (and Kennedy as Jesus?? LOFL!), especially given Vincent Bugliosi's new tome (that's what you call a 1500 page book) that dispels every last whiff of goofy conspiracy on the matter.

JakeGint said...

Oh, yeah, and the Abby Joe graph was farking hilarity.

I don't agree that we're in the big bear yet, but gawd do I hate her overrated arse.

yuri said...

The S&P is using the 50 day as support - many institutional traders mark the 50 period as a line in the sand. If we get a significant close below, I think that Gary sees his COT report flip on a dime, as there could be a rush to trim back positions.
That being said, just don't get a sense that this is going to much of a pullback - certainly not the BIG ONE, the 10%er that US markets haven't seen in a dog's age.
Nor do I foresee many investors jumping into bonds - that would be like standing in front of a moving freight train at this time. You don't look to buy bonds until interest rates have nearly peaked. Bonds purchased today will just lose money till then.
So perhaps it is nearly time to pull out the old fibonacci generators. A quick calc puts a 61.8% pullback of the move since early March at about 6.5% overall. Let's call it the "Pause that refreshes".
If you aren't hedging, I don't think you can succeed long term in this market. That is to say, if you aren't buying puts (hopefully with the money you made selling calls) or selling futures (the e-mini is a fabulous vehicle), I think the pros are going to eat your lunch, and maybe your breakfast & dinner too!

Prometheus said...

Tim - What happened to your HON puts? Looks like a close below $56 would mean watch out below.

Gary said...

Just from past experience the 50 DMA is basically meaningless to the commercial traders. I doubt that we will get a flip this week because that isn't how they typically work. Normally they gradually build a short position as the market rises. That is exactly what happened last week. They increased their shorts a bit as the S&P closed at new highs. This week should be interesting because it will include the decline and the change in interest rates. If they take the shorts back off I would take that as very bullish. If they increase their shorts as the market went down I would take that as a bearish sign. However I suspect we probably won't get much of a change one way or the other.

william bills said...

which is more expensive,GOOG or YHOO?

Ryan said...

William my friend, just my opinion and not answering for Tim, but yhoo is valued much much higher than the goog on pretty much any sensible metric. if you must short goog, just let it be for a trade, an index short is a smarter way to go bud.

Jason said...

what happened to AZO... stopped out again.? Instead of showing your postions why don't you show 2007 profit / loss... your picks seem to change with the tide.

I am 200k in cash trying to decide where to put my $$$. I was bearish in January and it cost me profits sitting and waiting.... I have been wating for the bear fall for 6 months. So far I am still sitting in buckets of greenbacks.

Tim Knight said...

Wow, a lot of questions. Let me try to answer them in the order received:

TRADER, I have to wait for the pattern to complete. I've said before, I am doing the Wrong Thing by shorting a pattern before it is complete, but as long as I keep my stop tight, I'm willing to break the rule. The stop-loss price tends to be pretty obvious based on the hoped-for pattern and when it is clearly not going to work out.

MOMO FADER, yeah, I'd feel better with the Dow and S&P taking out their lows. It's just past midnight as I am writing this, and Asia is definitely not freaking out, and the GLOBEX is up slightly. Of course, that could change when the retail numbers come in. We'll see.

GARY, don't be so sensitive - I'm just teasing. I'll try to lay off the COT abuse. What I would appreciate, though, would be a graph showing (a) a major stock index (b) the COT lined up beneath it (c) the entry/exit points. That would make me a true believer! Not a table of numbers. But a chart. I'll post it if you can send it.

B.HEALED, I *had* a position in CEG, but I can stopped out at a small loss.

ROBERT, I'll do a post on risk management when we have a boring market day and there's not much else to discuss.

CjN, glad you like the AJC post (same for ROBERT). I should be kinder to her. Rumor has it that she has shaved "TIM" on her back (diagonally - in a down slope, of course, bless her........).

2SWEETIES, absolutely, yes, the market could flip right up tomorrow morning, no question. I have really tried to learn respect (nay, fear) of this market over the past year. I am definitely not working with the assumption that every day is a down day. I keep those stops *tight, tight, tight*.

JAKEGINT, yeah, I'm reliving the mid-80s, definitely. I like the song better than the video.

PROMETHEUS, I closed the HON puts at a nice profit. There were just better charts. I still like HON, but I have better choices, I think.

WILLIAM BILLS, I don't understand the question about GOOG and YHOO. Although, charts aside, I'd say YHOO has some really big systemtic problems with their momentum. I'd rather *work* at Google than Yahoo, that's for sure!

JASON, yep, stopped out of AZO again. A glutton for punishment. Some day I will learn not to touch this one. It only took me one lesson with CROX. And I'm no more inclined to publish a P/L report than I am a balance sheet or my W-2. None of anyone's business.

John said...

Since 1984, there have been three times the yield on the 10 year has exceeded the 100 month average closing price. First was Oct 94 when the S&P was at 472. It fell to 444 within days.

The second time was December 99...S&P was at 1470 and hit 1366 within 30 days.

Third was April 06...S&P at 1310 and hit 1220 within 30 days.

We have now started our fourth excursion. The S&P was at 1531 on May 31. Using the average decline, we should be looking at 1430 soon.

One last observation. This is the first time the 10 year has closed above the 100 month average yield without yields already being more than 2 standard deviations, 5 month over 20 month. We are less than .2 SD's.

Also, this is the first time the S&P has closed more than 3 SD's 5/20 month and the 10 year yield been above the 100 month average price.

There has not been a time where the 10 closed above its 100 month average where the S&P did not get back to the 10 month average price, which is at 1411 as of 5/31.

Be careful.


John B

Humble1 said...

Hey I am only 200 points in the red on my DOW short I called last month. HnS patterns everywhere on the daily charts, they eitherbreak or they don't....no trend change yet, trend is still up. When scuba diving and the water got cloudy, I used to blow bubbles to find my way to the surface......go find a chart and blow if ya can't figure it out.

Leisa said...

Toshi--what a difference a few days makes. Glad to "hear" an effervescent tone return in your posts.

Gary said...

Tim,
I couldn't get the charts to e-mail but I did post a 4 year history of COT signals on my blog. You can copy and paste if you wish.

downosedive said...

gary
I think the issue here is that whenever bears are faced with reasons, however soilid the back up appears to be, there is a continuing sense of disbelief. Im included as im a bear, but what Ive recently tried to do is to join the trend, however much i disagree with it. yr posts are one of only a very small number that aim the backup the bull trend and for that reason i am closely following yr comments. Certainly this is a testing time for all. nail biting in fact

Humble1 said...

"Remember that channel I mentioned yesterday for the Russell 2000? Well, it was cracked today. Good."

What does this mean? There are channels that break all the time and the price action still moves up. Your channel is drawn incorrectly on the R2K chart.

Gary said...

dive,
Just remember position size is the make or break point for any investing strategy. Even if your call is correct if your position size is too big you won't be able to hold on through the normal market volatility. That being said I stated several days ago that I thought the markets needed to test the lows. We may get that test today and then again we may have gotten it yesterday. But just in case your strategy is wrong make sure your size is small enough so that if you are wrong you won't get materially hurt.

yuri said...

I'm staying with my long term out-of-the-money puts on AKAM. The story is just too compelling, as is the chart. You've got a company that just got clobbered for having a flat quarter, is trading at somewhere between 75-100 TTM, and till now have had absolutely no competition in this web video delivery space. Now everybody, including some huge companies have targeted AMAM's business. And you know the saying - "Bad earnings reports are like cockroaches - there is never just one!"

Tim Knight said...

Gary,

Thanks for the chart. Yeah, I actually had looked at that one recently when you first posted it. Is the COT itself actually posted, or have you added the signals manually? I guess I am trying to understand where the COT is plotted, if at all.

Humble1, the channel I drew for the R2K is small, I admit, but it is accurate. Both lines are drawn parallel at a 41 degree angle, and I pride myself in trendlines being "dead nuts on" (to the penny).

Gary said...

I added the actual dates to the chart. If you want to increase the size and get a more accurate look at the exact levels be my guest. I think the general long term chart makes my point pretty clearly though.

downosedive said...

gary
Thanks, its a lesson i have never learnt since taking up spreadbetting. The amount per point always starts off seeming to be so small and harmless. but then of course it rapidly grows into an unmanagible monster and you end up being forced to make panicky and or irrational decisions - and these always turn out to be wrong decisions! as a guess I would have thought about 13200 to 13100 would be bottom, so i dont think the bottom has quiet been tested, then again, what do I know about such things?!!

Jon said...

Tim:

Watching the RUT carefully, playing
the trend as it bounces in its channel. Yes, my charts saw it puncture its "hull" yesterday afternoon, only to bubble up on today's retail figures. Just watching the lower highs and lower lows... like playing PONG....geeze, I'm dating myself! :)

damarketman said...

AAPL is dumped again. Round 3 is yours Tim. I expected volatility ahead of Iphone and I'm getting it. Stop not triggered so I hang on and follow the plan.

Tim Knight said...

"AAPL is dumped again. Round 3 is yours Tim. I expected volatility ahead of Iphone and I'm getting it. Stop not triggered so I hang on and follow the plan."

Only time will tell....."buy the rumor (or at least the product announcement), sell the news", right?

I'm not at all surprised we're seeing a general market bounce higher today. I'll get worried if the $RUT crosses above $837.23; until then, I'm just sitting tight.

Gary said...

Tim,
I'm just curious. I notice you have several shorts in the oil sector. I was wondering why you are shorting the strongest sector. This decline was triggered by an interest rate spike. For the decline to continue it would seem logical that interest rates would have to continue up. If that is the premises of your strategy why not short stocks that are affected by higher interest rates like utilities and housing and leave the noninterest rate sensitive oils alone?

damarketman said...

I continue to feel that this market will go higher after this attempt from the bond guys to shake out the weak hands before the start of a summer rally. Sitting tight on this side as well. AAPL finding a bottom will probably be the cue for the market to zoom higher.

Tim Knight said...

Hey, we're not the only ones that have trouble divining AAPL's direction. Some character named Steve Jobs blew $4 billion by misjudging it too.


http://tinyurl.com/26qrd8

kapil khanna said...

What are you basing your AAPL short on? I do not see the technicals showing a higher probability of downturn. I see a higher probability of the prices going higher than lower.
Also what do you think of INFY? I see the same there - more bullish than bearish.

damarketman said...

LOL! If this guy doesn't know, nobody does. We just have to place our bets, use stops and hope for the best!

kapil khanna said...

Oh please. I have been following this blog for 2+ years now. Tim's performance has been moderate to poor in this entire bull market compared to the movement the market has generated.

JakeGint said...

Kapil, I think Damarket was talking about Jobs with regard to CRAAPL, not Tim w. regard to the market.

Timbo, I think that "missed opportunity" has only been eclipsed by one man... Bill Gates old partner Paul Allen was an original investor in AOL.

I want to say it was 1993 or 1994 when he sold his chunk... some 25% of the company for $250 million. To my best recollection the peak (bubble) value on AOL was what? $250 bn or so?

Oucheroonie.

Tom2oc said...

Hi Tim, long time no talk!

Congrats for nailing AAPL! I called for a pullback from that top last week as well. I expected a pullback in the 110/115 area so this seems to be cooking as per plan with the low of today at 115.40. Never a good idea to stay long on an inverted hammer at the end of a parabolic run. :) I'm watching 110 to trigger a bearish bias if it ever fails it as per the TA loaded on my blog (use user name to get there).

I'm writing you today so I don't feel like speaking in your back. :) I mentioned your GOOG and BG picks as an example to illustrate that TA is an art and not a science and that there are many ways to read a chart. I expected GOOG to pullback too to the 480/500 area and this one also is cooking as per plan with LOD today at 498.69 so far.

As for the market, my indicators say that it is too early to call the end of the bull. Might come any day if TNX breaks above 5.3% but not done yet. I'm watching a failure of COMP 2550 to trigger a neutral stance and 2525 to trigger a bearish bias. All detailed on the blog, so far this market has been following that cup and handles theory I mentioned to you way back early March when the market was taking a beating. No doubt a real bear market is about to start but at this moment odds still are that I might get my blow-off top phase first. GS reaction tomorrow is key by the way for financial stocks and the broad market. Getting ready to join your bearish camp at any moment as this is quite a crucial period.

Oops, lunch time over. Got to go back to work!

Have fun!

Tom (the Tom2oc one)

newequity said...

Ouch, bears getting stomped again. I bought some Russell puts on this pop.

Tim Knight said...

Kapil,

Your question about my rationale for AAPL can be found in the prior day's post.

- Tim

bearfuud said...

Comment I found Reading from another blog about you, ouch tim you gave back all your gains it sounds like:


damarketman said...
Here's an example of the beige book eating the shorts although I'm starting to feel bad for him. Trader Tim posted his portfolio of loads of shorts and puts plays last night. I entered them in a watchlist. Here's what I have:

- 34 short positions opened
- Only 3 are down (AAPL -3.3%, GOOG -.25% and CAH -.6%)
- 31 are up with most of them strongly up.
- 13 out of the 31 are up more than 2%.

Djeez, this is like being eaten alive. Unbelievable.

I'd rather be a long! Hey, that's what I am! LOL!

toober said...

Stuttering Maria and Cool Breeze Bobo just said today was the best market day since July 06. For whom?

downosedive said...

TIM
WHERE WHERE WHERE DID IT ALL GO SO WRONG?? THE DJA CHART YOU PUBLISHED LOOKED SO CLEARLY BEARISH, EVEN IF JUST FOR A SHORT SHARP SHOCK, BUT AFTER TODAYS PERFORMANCE THAT HAS BEEN TOTALLY BLOWN AWAY?? HOW CAN THE CHART BE SO MISLEADING?

downosedive said...

Gary
The floor is yours! The bull trend call you have stuck to and backed by COT appears to be spot on. Im left bewildered as I really thought this correction would have more down thrust and for longer than just a few days. Others need to shows more respect for your interpretation of COT. Damn it all, what the hell does it matter how many times you post and include COT, as long as it has merit, thats all that matters. And merit it certainly does have. I will continue to follow your posts in detail !

Tim Knight said...

The spirit is willing, but the flesh is weak.

SimpleTrade said...

My head is bloody, but unbowed.
I'm short and I'm bearish, I appreciate your posts Tim!

For these who jumped out and attacked the minutes the market had a rally, you can't wait just a few days before you say it's a fine day for bulls.

I think today is a good day to incrase shorts and puts, just like yesterday is the day to reduce puts and shorts.

TOMTHETRADER said...

OUCH !!!!!


TTT

jakethesnake said...

Sure hope tim did n ot add more puts halfway through the day like yesterday, losing all of your gains in a matter of a day must hurt saying 95% of your shorts were up big(some over 2-3% according to the other posters). Bulls are stronger and much younger/dumber than bears which help us make big moolah. Booyah longs.

kapil khanna said...

Tim,
I was refering to your rationale posted as on yesterdays post. The reasoning you provided there is really not technical. It based on hype and other news type factors.
Technically what we see on AAPL is a pull back before the primary trend should continue. Any retracements should be seen as a chance to buy versus your logic thats predicting a top in hope of a retracement. In other words, trading against the primary trend or prediciting a change in the primary trend is really not a sound strategy.