Wednesday, June 20, 2007

Do We HAVE to Have a Bounce?

I started the day off, before the opening bell, feeling very discouraged. The market seemed inclined to stay at - to borrow from Irving Fisher - a "permanently high plateau". Today provided a welcome respite, with interest rates gutting the Dow for 146 points.

But surely you've seen a change in my temperment. Whereas typically I would be tooting the celebratory horns at such a thing, all I can think now is, "Great, we'll just go into another bounce now." And, perhaps, in my own twisted way, that's actually a really bearish sign. Because when I was feeling balls-out, it's the end of the world, the market invariably pushed higher. I regard these recent jolts downward not with glee, but with dire suspicion, bordering on a sense of dread.

Not to say that, from a chartist's viewpoint, the indexes (and carefully chosen stocks) don't look terrific for the bears. The S&P 500 looks gorgeous.

And yet, as I look at the minute bars of the same index over the past 60 days, unless the lows of last Thursday, June 7th, are taken out we're going to continue to stay stuck in this f*cking grind upward. If there is, in fact, a loving God, and we blow out the lows of June 7th, then it's time to rock. But I'm a doubter until it happens.

Another reason for my skepticism is that whenever the VIX goes rip-roaring higher, it is prone to ease back down (lately, at least). You can see the general range I've highlighted below. We're a bit above it.

Apple (AAPL), on which I own a small put position, edged down both yesterday and today. Next Friday is when the JesusPhone gets introduced. Obviously it will be fascinating on the 29th to see what happens to the stock. To say this product is widely anticipated is a gross understatement.

Let me pause for a second to make a socionomic observation. I saw a full page ad in the WSJ this morning for a series on CNBC (of course) called American Greed. Just another sign of the apocalypse, folks. The world's vomit-inducing obsession with cash, stoked terribly over the past few years, is reaching the saturation point. Barf.

Real estate stocks are a strange one to me now. They have very toppy formations. But they have also fallen far enough to be resting on some pretty significant trendlines. It is a difficult call. Apartment Investments (AIV) is a good example. I don't have a position in this one, although I do in some others, such as ESS.

Bolt Tech (BTJ) finally started to fall a bit today, although it would be hard for any stock not to do so on a day like this. I have great hopes for this one.

CVH doesn't have any particular bearish pattern per se, but it does look like what would normally be a really bullish breakout is going limp-dicked. And that's bearish. Oh, random thought: if you ever see anyone spell it per say, shoot them. Because they are an abomination to the gene pool. Aw, hell, let them live. Most people are idiots anyway. No harm in letting a few more loose.

I'm sorry to say I got stopped out of John Deere this morning, but it went on to form a lovely shooting star. Sigh. Could have to re-enter this sucker.

InfoSys (INFY) isn't my favorite pattern in the world, but as lower lows and lower highs go, it's not terrible.

Lehman Brothers (LEH) is mushed up against its Fib Fan. Nice.

My bullish notes on ONT have panned out OK, but, I dunno, I'd edge away from this one unless it busts through yesterday's high. Volume is slipping fast. And if you look at the entire history of this stock, it definitely is not beneath wrecking a perfectly good bullish pattern by going limp.

The SPY (whose options have a surprisingly sucky bid/ask spread) sports a nice bearish engulfing pattern. Heavenly Father, would you please make the market fall hard for more than one day in a row? Please?

Remember: it's a beautiful world.


Pivot Turner said...

Hehe, I got the first comments.

cheers! bears won the game today, and tomorrow, and next half year.

Is SPX, Nasdaq, DJI double tops? everyone is talking about the double tops?

Anonymous said... far as the Jesus phone you know darn well that AAPL will restrict supply. So, when T goes to sell the phones and they run out...OMG we need more phones there must be demand! Tada!!!

Knowing your style and can't resist a short position in AAPL a VERY SMALL PUT position is wise.

Like I said before, we'll see a choppy market with it inching higher.

For me, I just need a nice bear market to clean the crap from the gutters and when the bull comes back clean house.

Anonymous said...

Some of your readers may want to take a short position in FRPT...FUGLY chart.

Vic said...

Tim I concur it has been a frustrating market with no follow thru to the downside. Maybe this time it will be different and well get 5-10 % . Hermaphrodite? Is that like a H&S or is it a double bottom? SGP,POM

z-stock said...

I looked up target price, on APPLE...again, The target price changes by the minute, so a minute from now this info will be outdated.....
Credit Suisse ups Apple target price to $140; estimates 20 million iPhones by end of 2008

I think appl is too tough to call, because last week target was $125

yuri said...

My impression of today's selloff is that it had a lot to do with tremendous weakness in the energy sector and to some extent the financials altho I am long ICE, which has the good fortune of being both at the extreme low end of it's volatility range and a "smooth mover". And if you haven't noticed, uranium stocks are moving no matter what oil does - take a look at URRE & USU!
Back to energy - there are tremendous bearish engulfing candles everywhere. If this sector gets some downward momentum, I'm going to pile on - some quick cash can be had when these suckers start dropping!

Edwardo said...

As has been said before, it doesn't matter whether you (or anyone) is running scared, the market will do what the market will do. But for the record, IMHO, it's going down well below the prior lows, though it won't get there tomorrow.

newequity said...

""As for my tripling my account in a week comment. Well, it was true. I carry, as I have mentioned before, the largest amount of leverage I can. About 50:1. I could be trading forex at 200:1, but that's pushing it. As far as 6 digit account.... are you counting the digits after the decimal??? I trade for fun. I keep it "game like", I sleep better at night that way. I trade short time spans with very tight stops. My winning trade percentage is 46%. I do not trade my 401k or anything. I trade a cash account only and spend the profits as I go. Kind of like a supplimental income. I max at two trades a day, maybe up to 20.00 each (2.0x10 to maximize commisions). I place my stop at a dime. Also, I do not hold a trade overnight, on most occasions anyway. Maybe you should inquire about details newequity before jumping to assumptions. Yea, I could blow out my account, but the profits would still outweight the losses. I know the Q's and that's what I trade. Every trade has a risk:reward ratio. I make that ratio with stops. I trade deep in the money so gamma/delta weight in my favor. Theta is negligable also. If I every trade a six digit account, I most likely will never have more than 4 digits in the market at one time. And I have been shorting, everyday, for the last two/three weeks. On the Dows largest up day, I lost 7% of my trade. I don't find that to awful bad. Today was good, go bears! ""

So your retail broker throws you 50-1 margin on stock trades. Unless you are at a prop firm then I highly doubt you get this margin. If you trade with 1k on full margin you are risking 50k which will put your account at zero with a 2% swing in any security. You are crazy. Also, you clarified that it is only gambling money and you also have a 401k. You have to factor in everything when you say you made 3x your money. I could theoretically make 5x my money on one option trade using 1% of my account. I would not come and post a simple statement saying I made 5x, implying to people reading that my net worth went up 5x. You are misleading people by saying you tripled your 1k account when in fact you barely increased your net worth at all.

Dennis said...

I am tempted to short the market but I also need to wait for follow through. I am gun shy because there were too many one-day wonders.

Tim Knight said...

Well said, Dennis. One day wonders, indeed. I said it today, and I'll repeat it. Lows of June 7th MUST be taken out. PERIOD.

Winace said...

Man, lighten up. 50:1 as compared to shorting the stock outright. The option leverage itself makes for that. Two shares of the Q's will run you 94.00. one ITM put = around 94.00. 100 shares as compared to two shares = 50:1. Get your panties out of a bunch. As per "misleading anyone" read my previous posts. I am not hear to educate anyone, just for conversation. Do I need paralegal jargon at the bottom of my post to satisy you?

Tim Knight said...

Amazing that a day where 146 points gets chopped off the Dow is eliciting almost no comments except a running debate between winace and newequity. Oh, well. At least we're not hearing about solar stocks from beanie.

Pivot Turner said...

I am a trader but I'm heavily weighted bearish right now.

I'm short, and I just got too much action on the downside...bulls have fucked me in the goat ass lately.

Double tops, check 1990, 1987, 2000 double tops, that means SPX at least down 15% from here or more..

Arkady said...

they spy @ money contracts do indeed suck a .5 b-a, however the spx @ money is around $2 b-a! THat means you still better off buying 10 puts for every 1 spx put as you will be far better off on the slippage. Nothing beats the Qs contract b-a though, trades like a stock. IWM is next best thing. DIA is terrible.

SimpleTrade said...

Today S&P500 confirms a lower high (than June 4th), now we need a lower low than June 7th. If we get it this time, we can talk about a real correction. Otherwise, just another dip and buying opportunity for bulls.

b.healed said...

you blog seemed laced with cynicsm. strange read today.

nonsumdignus said...

"Oh, well. At least we're not hearing about solar stocks from beanie."

Our long awaited correction, like Beanie's appearances, will come without warning or a hint of propriety.

Tim Knight said...

"you blog seemed laced with cynicsm. strange read today."

Are you new here or something?

Controlled Trader said...

1% Drop and we started talking about 10- 15% correction instead of planning to take some money off the table (if you shorted in last 3 days, you have some profit). Human brain it strange thing.

I think we might see some weakness tomorrow but up trend should continue after 1-3% more correction.

BTW AH Market is showing higher open because overseas did not react to US. If it reaches today's high or so, I'll short again. I took some profit today.

JakeGint said...

Complacency reigns! Or is it Claude?

Well, at least today's post cleared up one thing: Now we know what Ralph Feinnes was doing before he hit it big in The English Patient.


Oh, and Tim, happy Belated 500th Postday. You're a treasure.

AssetStrategists said...


I looked at those Uranium stocks.

Even though it posted a gain today, USU is boasting a shooting star candle formation which is a Bearish signal signifying a potential reversal of the upward trend. If it does reverse, it will have formed a lower high which is also Bearish especially if it continues to a lower low.

URRE also has a "non-idealized" (to quote my friend David Johnson) shooting star formation which would also be a lower high and also would be bearish if the reversal follows through with a lower low.

Good luck with those trades!

AssetStrategists said...


I'm disappointed that you didn't chortle over the RUT today. What a beautiful Bearish engulfing pattern that broke a Bullish consolidation! You've got to be pleased with that.

Keep up the great work!

Kevin Fickle said...

Furthermore that same evening Fisher goes on to state, "I expect to see the stock market a good deal higher than it is today within a few months.". Amazing how the nature of the markets (or the opinions of "experts")have remained the same.

Gary said...

Do you really wish for a bear market? You do realize that a severe bear market will cause a lot of hardship for most Americans. If we get a bear market I will short but I would most certainly not pray to God for it to happen. Your not really that saddistic toward your fellow man are you?

Anonymous said...

So Greedy traders are good, gary?

Goes both ways. What a bear would do is it would give us the opportunities to find the TASRs and TZOOs...

Gary said...

I'm just saying a severe bear market and accompaning recession will cause severe hardships. Sure you might win on your shorts but at the same time you might lose your job. Nobody wins in a bear market. The winner is the one who loses the least. I remember the last severe bear market in 74. There was high unemployment. Quite a few homeless people wandering the streets. Not exactly something I would wish on my fellow man just so I could make a little money on some short positions. Yes I would much rather the economy stayed strong and the greedy as you call them made more money. That being said we will most assuredly have a bear market in the future I just won't be begging God for it.

Anonymous said...

So what about those who foolishly go out and levere themselves to the hilt because of feel bad?

I agree, those who are not directly involved in the market that get railroaded in a recession should be felt sorry for...but those who are greedy on the ride up and get foolish I do not feel sorry for. Its all about understanding consequences of your actions, if you do not understand pros and cons of a particular action you should not be involved. What ever happened to taking ownership of your actions??? Seems like ppl just want to blame GWB or someone else for their problems.

Author Ego said...

Gary, with all the respect that you're due, the prism through which you're looking at this is all wrong. Bear markets are good. Bull markets are good. We need both; people get rich, people get hurt, be it bear or bull. That's how it is. Praying a bear doesn't happen is, to my mind, much more callous as, in the long run, even more people will end up getting hurt, the pain would have just been delayed.

Tim Knight said...

"Do you really wish for a bear market? You do realize that a severe bear market will cause a lot of hardship for most Americans. If we get a bear market I will short but I would most certainly not pray to God for it to happen. Your not really that saddistic toward your fellow man are you?"

It's spelled sadistic.

And do you really think God reads this blog? He's got bigger fish to fry.

I don't wish for a bear market. I wish to be on the right SIDE of the market. And my analysis tells me the side to be on is bearish.

I've been dead-flat wrong on that for about the past year, and that hurts. But that's what my analysis continues to tell me.

Anonymous said...

well, I guess at some point you'll be on the right side.

I'm GOD by the way and I read your blog.

plunger said...

I have to agree with gary on this one, for most americans a recession is bad no matter what is happening in the markets. I am a somewhat active trader [small time compared to most here I'm sure] and the little money I could make on the bear side would in no way make up for lost income, higher prices and the consequences of a true recession. I enjoy trading up and down, but in no way am hoping for a true bear market. Hell, 2001-2003 was hard enough in my line of work, and the last year has been worse.

And author ego, you're wrong, bear markets are not good. The economy and businesses are cyclical and in being so the market follows, not vice versa, so when the bear markets hit, it means the economy sucks, which is bad for most. Yes, it is natural for the ebb and flow of innovation and business, but that still does not make it "good" to live thru those times.

Now as tim said, when it does come [ and it will ] ,sure we all want to be on the right side of it, but I still don't WANT it to happen, just to "keep from delaying it".

Be careful what you wish for you just may get it.

plunger said...

Tim said,
"I've been dead-flat wrong on that for about the past year, and that hurts. But that's what my analysis continues to tell me."

If your analysis has been so wrong, why do you continue to use it?

You seem to be a very intelligent person and A pretty damn good technician, but your timing is horrible. I believe when the bear comes, you will be rewarded greatly, but why continue to try and jump the gun and get the exact top? Why not wait for confimation of a top, dow, elliot, something, and then plunge? The market will continue to go up or down long after what is considered a reasonable point before reversing. Why not ride it out?

newequity said...

Wow, exciting up day.

Gary said...

Excellent point and one I've been trying to get across for a long time. So what if you miss the first 5% of the bear market. If the market goes down 20-30% you are still going to make great profits even if you only catch 80% of the move. Continually trying to call the top however is and will eventually reduce your account to the point where you won't have much capital left to profit from the bear when it does come. As I've said before the only way that I know of to have any success at all calling tops is to wait for the COT report to signal that the big boys are selling too. TA has failed for almost 5 years now. The COT has signaled every intermediate top so far except the 03 top. The commercials remained long throughout the correction in 04 and were eventually proven correct.

Author Ego said...
This comment has been removed by the author.
Author Ego said...

Plunger, putting all your other points aside: I do not "wish," as it were, for a bear market. I’m pointing out how markets that go up as if in perpetuity tend to crush more people than those that have normal, healthy pullbacks or, alas, bearish phases. Look at the Shanghai Index. How do you think that’s going to end? Hell must to be paid, Plunger, one way or the other.

“There is only one side of the market and it is not the bull side or the bear side, but the right side.” –Jesse Livermore

Also, what do you mean the “last year has been worse” than ‘01-‘03? Do you mean to suggest that we are in a recession?

Anonymous said...

Aren't we? I mean I watch NBC news all the time and they tell me the world is about to end. Unless of course we elect Hillary Clinton.

plunger said...

"Also, what do you mean the “last year has been worse” than ‘01-‘03? Do you mean to suggest that we are in a recession?"

No not at all, I strictly meant in my line of work, [homebuilding/genral contracting].

I must have misunderstood you then in your first post because I completely agree pullbacks are absolutely necessary for a healthy market. Parabolic runs always end badly for most.

I would like to see some correction if for no other reason than to get out of this trading range we're stuck in now [and probably will be for awhile.]

Great point with the Livermore comment as well. I couldn't agree more. I dont mind trading either way, up or down, but I like to be sure of trend direction when I do.

If and when the bear comes I most definately want to profit from it, because it will most likely be the only bright spot in my finances at that point, but with what money I trade with, the profits will pale in comparision to the loss of my income and damage to retirement accounts.
I think that will be true with most americans as well was my point.

JakeGint said...

While I love that Livermore book (even the archaic language is entertaining!), perhaps the best quote in it is not from Jesse, but from Lord Rothschild... something about how he got rich by "never getting in at the bottom, and never getting out at the top," but maneuvering in that safer 60% area (between the 20% top and bottom) and safely guarding principal.

Like in a lot of endeavors, this game becomes a heck of a lot more profitable when one learns to suborn one's ego. No easy task, I'll be the first to admit.

newequity said...

Closed out some longs for some hefty gains and grabbed 100 QQQQ puts. Ready for a swift move back down tomorrow and yes I am calling a top to this irrational market. Will cover on the first big down move.

Controlled Trader said...

I was expecting down day today (after little jump during mid day). Glad that I covered rest of my shorts in the morning. I opened some shorts when QQQQ were at 47.60 which are kinda red now but tomorrow can bring good news. Overall, trades in this week are not bad.

Bulls are kicking Bears balls once again and we are reaching top of trading rage so we should go down tomorrow.

Anonymous said...

SOX moving...breaking out infact. newequity you sure you want to be on the bear side of things?

JakeGint said...

SMH breaking out too. I think someone has kidnapped New Equity and is forcing him to type misinfo.

Probably TTT Tommy.

yuri said...

assetstrategists, I wasn't suggesting to jump into the uranium stocks this second - just that I don't see these hitting any resistance any time soon and URRE is up like 150% since Feb.; USU did a double from Jan to May. These stocks are rockin'.

Tim Knight said...

"Closed out some longs for some hefty gains and grabbed 100 QQQQ puts. Ready for a swift move back down tomorrow and yes I am calling a top to this irrational market. Will cover on the first big down move."

Oh my God, newequity and I are totally in agreement. Alert the media!

newequity said...

Yes we are in agreement. There is a striking resemblance if you look at the drop in February compared to the action over the last two days. Next leg should be down and it will come quick if history repeats itself.

Gary said...

New equity,
I hope you're not trading too large a position size with that 100 put purchase. If the Q's jump .70 tomorrow will you not be hurt? Remember the market can do anything so even though this sounds unlikely it could happen. Will you be OK if those puts get cut in half?

newequity said...

I bought the 50 strike so not to worried. I have my stop loss so if the Q's trade up another 1%, I'm wrong and out with only 5k in losses. This is a risk I am willing to take as the gain will be 10k-15k if executed properly. I am risking money only I can afford to lose in the trading account.

Anonymous said...

WOW - with the SOX jumping into new 52 week high territory and the NASDAQ coming through today on higher volume...


Tom2oc said...

Hey Tim, looks like you must be having a field day! Congrats! Will have to review the situation this week but so far I don't think my latest market TA review I worked on last night will be impacted. Lots of volatiliy in the coming months though but I remain sligthly more bullish than bearish. The full details are on my blog if you and others are interested. BKX is a big problem though today so I'm ready as never before to join your camp if required. No need to jump the gun! Have fun!