Monday, July 02, 2007

The 7/4 Push

A number of readers have been remarking how strong the market is prior to the July 4 holiday, and how bears should sell into this strength as opposed to shorting too early (like last week). If today is an indication, it seems that was good advice. The market was strong across the board, with the Dow posting a better than 125 point gain.

My index-puts-of-choice are for the Russell 2000. I've got a pretty big put position on this index. As long as the series of lower highs and lower lows stays intact, I'm fine with this.


Remember, tomorrow is an abbreviated trading session (the equities market closes at 1:00 EST, three hours earlier than normal), so it's bound to be a quiet, low-volume today. I would think most of the pre-July 4 fireworks got taken care of today, but there might be another little push upward. The S&P 500 is also in a "lower highs" pattern, and it needs to remain so in order for the short-term bearish picture to remain decent.


One nice Dow stock for puts is Alcoa (symbol AA) which looks to be in the latter stages of a head and shoulders formation.


For big believers in the continuing ascension of energy prices, APA looks like a good bullish play. This is a really nice saucer breakout.


PSB is a short I closed a little while ago with a nice profit, but I re-entered it today, since it seems to have finished with its retracement.

36 comments:

maknak said...

Hi Tim,

Been reading your blog for the past few months, so let me say thank you! (and btw, typepad looks great).

Just 3 quick questions:

- which RUT options do you have exactly ? 840 july puts ?

- what do you think of ZOLL as a bullish play? what about TRA as a bearish play?

Thanks!

PS: Another thing I've been wondering.... in case of a World War III (hope not, but let's say), what the first thing to go down? or down the hardest?

JakeGint said...

Airlines.

_____________________

Tim,

Don't look now, but Trading Goddess is trying to one up you on the i-Phone hype-o-rama CrAAPL veteran spotting. She's got The Woz in his full Burl Ivesian Bear-like glory on her blog.

Mike said...

Tim,

I am interested in GOOG Calls. If you were to play that side what would you recommend from here.

Thanks,

Mike

Gary said...

Controlled,
Correct me if I'm wrong but wasn't your reason for shorting at 47.70-.80 because the Q's had failed repeatedly to break through resistance. They broke through resistance today. Why would you hold onto a trade that has clearly violated the premises by which you bought it?

Tom2oc said...

Hi Tim,

"As long as the series of lower highs and lower lows stays intact, I'm fine with this."

Hmmm.... Remember BG which you profiled numerous times as "The perfect presentation of lower highs and lower lows" (5/24)?

Was 79 then, now 86.55 up close to 10% since. This was not a bearish chart. It was a picture perfect bullish handle with textbook lower highs and lower lows and I even loaded a TA of it on my blog at that time to show the other side of the coin.

Same situation with GOOG on that breakout of the bullish handle above 485 on which you purchased puts afterwards on 6/11 on a possible failed breakout which you thought happened the next day when you wrote: "This is a failed breakout. On such an expensive stock, there is nothing sweeter". The breakout line was 485 after the completion of the bullish lower highs and lower lows patterns and not higher as you thought. It continued to push higher and only 10 days after you turned 180 degrees and wrote "This is a gorgeous bullish pattern..." Those puts most probably didn't come as sweet as you thought they would. GOOG closed at 530 today.

A lower highs and lower lows pattern can be a very bullish pattern at times so got to be careful with those. It's not that difficult to figure out because volume often tells the tale on whether the pattern is bullish or bearish.

Just my 2 cents to help for whatever it's worth. I know many traders who read your blog and I wanted to let them know to be careful with your take on this pattern and this market (RUT). This lower highs and lower lows pattern may not be what you think it is.

Best,

Gary said...

I've tried to point out several times that these "patterns" have about the same odds of producing a profitable trade as a coin flip. Apparently no matter how many times the patterns fail it still won't matter though. The COT on the other hand is performing right about normal 75% winning trades and the winners are larger than the losers. The VTO trade has also performed wonderfully profitable 85-90% of the time and the winners are typically twice as big as the losers. But then what do I know.

Controlled Trader said...

Gary: You are correct that I mentioned 47.80 is resistence but its not the real # but approx range that matters (last peak was 47.90 or 95 I believe). Many time resistence/support is a range. For first time it closed Higher but see the pathetic volume.

I'm bearish for now and looking for market to go lower. I can digest little swing in my a/c to get the profit later. Bulls are incharge when big boys are on vacation :-)

Following is taken from Worden:
"All four of the Major Averages were up on contracting volume, indicating shaky conviction about chasing stocks up. The leading Price-Volume relationship (based on the Russell-3000) was Price-Up Volume Down (1640 stocks)."

sam said...

Tim, new highs coming in the next few weeks in all major indexs. Sammy.

Gary said...

From Apr till the end of May the Q's moved up almost 8% on below normal volume. Are you sure low volume is a trustworthy signal that the market is going lower?

Gary said...

Sorry I meant 9%. I can't calculate today. doah

Tom2oc said...

Gary, I found out over the last year that Don Worden keeps on reading the volume patterns incorrectly. I can't believe he is giving any meaning to the low volume increase of today. Of course, it's going to be a low volume day, it's summer time!!!

Volume is the only indicator not derived of price so it's important to know how to read it right. Same as for patterns, they do give an edge for those who know how to read them correctly. As per Livermore, patterns keep repeating themselves because they are a reflection of human nature and human nature never changes. But if COT only works for you, stick to it. Best,

zeus111 said...

Nice work on your recent shorts. Now I say don't push your luck. Market feels it wants to go higher. It seems to me the laggards like home builders, reits, and financials want to have the rallies off oversold conditons while the leading groups want to make new highs bringing the market higher. WE also have a new group waking up from their dormant state, the semis. That is extremely bullish.

2sweeties said...

Tim,

I had a look at a weekly chart of the S&P 500 from 23.3.2003 to today and I have traced a linear regression trendline.

It looks like EVERYTIME the price took off from the line, it then came back down by magic...

It seems to be exactly what is happening again in these days, we are actually way too far from that regression line.

Did you have a look at this type of chart with this indicator?

I'd like to know what do you think about it.

yuri said...

A couple of thoughts on GOOG, which I was short last week, but closed out my puts on Friday morning as it was defying the market by refusing to sell off. I will look to re-enter if it breaks thru the top line of the triangle (wedge) it has been trading in for 2 years.
I follow this stock more closely than any other that comes to mind. Have made gobs of money, lost a fair bit as well. The points I would make are these: it has been trading in this defined wedge for 2 years and is getting to the end of it. Some decent resistance at $535. With earnings 2 weeks away, it may sell off a slight bit, as it has in the past just prior to earnings as the weak hands (and there are many loose retail holders of this expensive stock) take some profits & limit their exposure. There is solid support at $500, so it will take some bad news, disappointing earnings or external event to take out $500 in the short run.
The other very interesting thing you can only see on a weekly chart - namely a flattenly of the 30 week moving avg. - typical of Stage 3 tops (Distribution time). It could be that it is simply pausing before renewing its onslaught of $1000, or maybe earnings will disappoint for the first time (not very likely). This company is hard to figure - the stock could probably effectively be at $1000 now, if the dummies would do a 10 for 1 split. There is no doubt that it is one of the cheapest growth stocks out there right now - a 60% earnings grower, trading in the low 30's in term of 12 month forward earnings. It is trading like a cyclicle, not a secular - recognize it as a secular growth stock and it merits $1000 now (a 90 P/E, or 1.5 times its EPS growth rate). It is becoming the Rodney Dangerfield of stocks.

JakeGint said...

Blue Moon time, I'm coming in in agreement with Tuna Can Tommy.

Controlled, I'm surprised at your post. Talk about "reading into the charts what you want to see/hear."

This whole week is the Fourth for many on WS and Main alike. Do you think more bearish traders are vacating than bullish?

This thin hope that the "dumb retail" market is driving today's upswing is just that... thin. Unless you think the COT is lying (on the beach somewhere).

JakeGint said...

Yuri -- thanks for that look at GOOG.

Very helpful.

Controlled Trader said...

Read "Reminiscences of a Stock Operator" when Jesse Livermore met bankrupted cotton expert who convinced him to do opposite cotton trade and eventually lose.

Stick to whatever works for you, its different for everyone. I played long side when Q was 46.xx so I'm doing what I think will work out for me. Futures are pointing to higher open so tomorrow's day could belong to longs too.

BTW, Weekly chart does not show any low volume for 9% increase since March. Double check the chart.

beanie11111 said...

The shorts will not be able to stand the heat on Tuesday. Extreme implosion for all short positions.

Thursday the shorties get the warp 9 knockout punch.

beanie11111 said...

oh man, the futures are lookin very scary for the shorts. Very very scary.

Gary said...

Well maybe I'm not looking at it correctly but it appears that even on the weekly charts the volume was below normal every week except 2 which were only average. Definitely not above average. Are you sure you're not seeing something through biased eyes?

beanie11111 said...

Oh man, please don't bring up Jesse Livermore. He was a bad trader.

JakeGint said...

Oh Beanz, hasn't your credibility suffered enough?

plunger said...

I have to agree with Ctrader here gary. If the COT works for you , great, use it up, but quit pounding the table about it here, we're all aware of it.

If TA is only as good as a coin flip for you, maybe you're not that good at it, so stick with the COT. Controlled seems like he has a pretty decent grasp of his skillls and uses discipline so let him trade his style.

And yes, volume absolutely precedes price, always has, always will. As a "commercials controlling the market" disciple, you of all people should agree with that.

plunger said...

Gary said...
From Apr till the end of May the Q's moved up almost 8% on below normal volume. Are you sure low volume is a trustworthy signal that the market is going lower?

5:00 PM "

I'm not seeing it either Gary.

If you'll notice, on the daily chart there are only four [4] down days in all of May and only ONE actual "distribution" day, [which is the real tell].

More importantly, if you go to the weekly charts there is NOT ONE single down week. As a matter of fact, volume actually increases with the rally as time and PRICE increase, as it should for a healthy rally.

[I've often wondered why Tim rarely uses volume in his charts.]

plunger said...

Question,, how does one use/apply the HTML tags , bold , italics, etc. on your posts?

That way I wont have to capitalize for emphasis any longer.

Any educational help would be appreciated, I'm obviously pretty computer illiterate.
Thanks,

NEWEQUITY said...

The market cap of Google will limit the price appreciation going forward. $1000 stock, likely never. It will go the way of all great internet compainies eventually. Timing the fall is still the trick here.

NEWEQUITY said...

The market cap of Google will limit the price appreciation going forward. $1000 stock, likely never. It will go the way of all great internet compainies eventually. Timing the fall is still the trick here.

4profit said...

philippe- good call on Rimm so far. Congrats!

Tim Knight said...

plunger (and anyone else), a quick and easy reference to HTML is here:

http://werbach.com/barebones/barebones.txt

NEWEQUITY said...

Go market.

Controlled Trader said...

NewEquity: Following links will help you.

HTML Tutorial.
How to create links editor

Controlled Trader said...

Bulls are running the show, Looks like I switched sides a bit sooner. congratulations to bulls!
Happy 4th of July to all (Bulls and Bears :-)).

beanie11111 said...

jakegint,

Not so, my friend. We sliced and diced the bears to smithereens. Check the blog.

Gary said...

If everyone is aware of the COT then why do you keep ignoring what it's trying to tell you? Folks the markets are working up to a blowoff top. This is the time when greed and hope are going to take over. You can draw all the trend lines, regression lines, head and shoulder patterns, etc., etc. and they just simply are not going to mean a thing. The markets are going up and the big money recognizes that. Sure you might be able to scalp a quick buck here and there on a few short trades. What's the point when the easy money is going to be made on the long side. This is the time to use leverage (if you are so inclined) on any pullbacks. Look at gold and silver last year. Tell me how in the world you could make something like that fit to a trend line or pattern. Wake up and smell the roses we have a great opportunity right now and we'll get a great opportunity on the short side in the future but you've got to give the bull a chance to play out. We need to see rampant optimism first before this bull can die and we are just not even close yet.

Mike said...

For those interested in the long side of things --- Money is rotating into tech -- specifically the SOX is showing some life ---

SIMO -- young company with some promise (good #s) and a chart that looks like some Mo Mo past 26.5 and she is off the races.

Good luck all !!!!

Controlled Trader said...
This comment has been removed by the author.