Monday, July 16, 2007

Any Gas Left?

Dow 14k is in the air, and it's all the pundits seem to want to talk about. I've already mentioned here that my 'upper limit' is 14,100 on the Dow based on its breakout. Even though the Dow was up today to yet another lifetime high, the broader indexes were down, and my overall portfolio climbed by 5%.


When I showed the "mother of all double tops" by way of the S&P 500 graph, many people remarked that the S&P was cheap since profits have doubled on the S&P 500 since the prior high in 2000.

That may be true, but the logic is flawed. That's the equivalent of a Republican declaring the White House could be won in 2008 if only they could find a candidate twice as popular as George Bush. Just because something is double something else doesn't mean the opposite result will take place. If the P/E in 2000 was 500, would a P/E of 250 make it a bargain? Of course, those weren't the real P/Es, but hopefully you can see my point.


The daily chart of the Dow 30 helps illustrate how this market is in the toppermost of the poppermost. I see a fall ahead.


On an intraday basis, it's clear to see how strong the price movement has been since the breakout. I've tinted in the target zone. We have moved through most of the pain already.


A daily chart of the NDX - which I've been avoiding for many months - suggests this graph could be running out of gas too.


My favorite, the Russell 2000, edged down nicely today.


Even though the Gold and Silver index ($XAU) broke above its channel, recently history indicates the RSI has been a reliable bearish indicator; note the areas I've tinted and the subsequent price action.


Akamai (AKAM) looks like a potential bearish play; note the series of lower highs.


ALB also looks nice for a short.


I bought puts on Colgate (CL) today.


I continue to hold onto my CROX puts, which are doing OK.


I also bought puts on CVX this morning. So far, so good.


And I shorted DST (a busy day.....)


I mentioned puts on FXI last week. These look better than ever.


JC Penney has been a favorite of mine recently. My puts on this stock edged higher today due to the stock's weakness.

40 comments:

ctkwtk said...

Re: Any gas left? Looks a little constipated to me. Nothing a nice smooth movement (down) won't cure.

VC said...

Tim,
you're hilarious man -- in a very esteemed way do I say so. all the time you mention how your puts are fairing nicely, and how various charts seem toppy, and so on. I truly enjoy seeing all this. But I do take exception to your sugeestion that the NDX chart looks weak. It actually has traded "strong like bull". Now while i think tomorrow may be a down day, it seems to me that in general this market has ways to go, for the simple reason that it's not just you who's been buying puts. I don't see that much complacency. With all the geopolitical risk and curerncy risk and credit risk, everyone and their retail kin have bought some for m of protection. this usually leads to muted pullbacks and intermediate term stability. While I have defined bear in me, I have been known to buy dips. I love reading how your puts are fair though, so please keep it up! B.regards

bear said...

there is a super large supply of liquidity (laxatives) available, courtesy of Mr Ben Bernanke and 0.5% interest rates in Japan. so the smooth ride will continue till 15000.

VC said...

indeed bear...that is the essence.

Tim Knight said...

Just to be clear, I have NO position in the NASDAQ (and, if memory serves, not even any individual NAZ issues!!) It's been too strong for my liking lately.

Winace said...

VC,
Although I am always looking for bearish signals and such, I do have to state that NDX and the Q's have definately been performing exceptionally strong considering all other indices. I see strong resistance in DIA, IWM, and SPX, along with most of the major high liquidity securities. The NDX has yet to unfold it's intentions. This one will be the exception that can only be identified in hindsight.

Winace said...

That was scary

newequity said...

"yet another lifetime high, the broader indexes were down, and my overall portfolio climbed by 5%"

I think you meant .5% tim.

VC said...

yep, that clinches it, NAZ is getting hammered tomorrw :P

(thanks for the replies)

Tim Knight said...

"I think you meant .5% tim."

No. Five percent. As in "five percent of the population has a male member smaller than newequity's".

Five.

newequity said...

You are arrogant and I hope you lose all that tomorrow.

Winace said...

Uhm..... Newequity, I would take that as a compliment.

Tim,
You concern me at times.....

Winace said...

Tim,
If you gained 5% in a day, I would say your not propperly position sizing. LOL, at least that's what Gary might say......

zeus111 said...

Tim, you wrote on your blog:

"When I showed the "mother of all double tops" by way of the S&P 500 graph, many people remarked that the S&P was cheap since profits have doubled on the S&P 500 since the prior high in 2000.

That may be true, but the logic is flawed. That's the equivalent of a Republican declaring the White House could be won in 2008 if only they could find a candidate twice as popular as George Bush. Just because something is double something else doesn't mean the opposite result will take place. If the P/E in 2000 was 500, would a P/E of 250 make it a bargain? Of course, those weren't the real P/Es, but hopefully you can see my point.

Lets take your first example which you claim that the logic is flawed "That's the equivalent of a Republican declaring the White House could be won in 2008 if only they could find a candidate twice as popular as George Bush". I think that YES the republicans can make that claim in your example. It is logical to claim that since GW won the White House a republican twice as popular as him could win the white house. The key word here which you chose to use is "could", it is not an absolute. I see nothing wrong with that logic. If popularity increases then the odds of becoming a president increases as well. It makes a lot of sense and you are proving your own logic as flawed by bringing this example.

Now lets take your second example. "If the P/E in 2000 was 500, would a P/E of 250 make it a bargain?" Instead of talking about a hypothetical situation why don't we talk reality. For examle instead of giving the S&P 500 a 500 PE ratio why don't we give it its real PE ratio which was 30 in 2000, and instead of giving it a current 250 pe ratio why don't we give it a 16.5 PE which is it's present real PE ratio. So a PE of 250 does not make it a bargain, but a PE of 16.5 makes it close to being a bargain.

As I said in my previous post the PE of 16.5 is not extreme. If we were to reach, lets say an extreme PE of 20 that translates to a 20% gain from this level. Now I would be the first one to tell you that earnings are not 100% of the picture. I think earnings are important but psychology and perception is even more important than earnings. Look at the chart of NILE and see the power of psychology. Earnings grow 20% per year and this stock has gone up more than 100% in 6 months. It is all phychology, the stock is rising, people are making money they feel good about owning the stock and they buy more regardless if the pe ratio is at 80, they keep buying. A good way to measure pcychology is technical analysis. If a trend is rising and you see higher higher and higher lows that means that investors are confident they are buying and are not scared bidding up share prices. A pattern of higher highs and higher lows is obvious on the S&P 500, the trend is up and the psychology is getting stronger. Every time the market had a pull back it has turned around and has accelerated the trend to the upside. If the pattern of higher highs and higher lows does not break then I dare not talk about a top.

Can we make a retracement? Absolutely. I think if we fall 250 points on the DOW, it will be a normal retracment, just the type that bears declare victory only to see their profits turning into losses before a blink of an eye.

beanie11111 said...

hmmm... so we got some detractors of the solar revolution, eh?

Mr. Plunger and his ilk, if ya think ya know what you're talking about, by all means feel free to short solar stocks. As they say, "Put your money where your mouth is." Honestly, you might as well paypal me your money. That'll save ya the time and the headaches of being pulverized to the brink of destruction by these ginormous solar flares.

Solar stocks will continue to rock. Nonbelievers will be in shock and awe. Believe it! :)

beanie11111 said...

I guess you bears want some more beating. The market is down a few points and there you go shortin again.

Yikes!

Gary said...

Tim,
Winace took the words right out of my mouth. Even if you were short the IWM that means you would have had to be leveraged 10 to 1 to gain 5%. Are you trying to achieve the same outcome as Winace? Surprisingly enough with that very same outcome plainly displayed in his portfolio he continues to deny that the problem was not ignoring his stop but position sizing. If he had used correct position size he could have ignored his stop a little bit and still not gotten hurt. Tim you are an experienced trader what are you doing? This sounds like desperate tactics are being taken to try and recover losses quickly. Some of your comments to fellow posters are starting to become rather crude, I'm guessing another sign of deperation. Tim I think you might need to take a break. If you keep this up I will also guarantee that you too will have the same outcome as Winace.

Gary said...

Beanie,
I don't think anyone is willing to short solar it's just that there are much better companies to buy than solar. I personally don't buy a company just because a line on a chart is going up. It has to be a great company or the odds of that line turning around and going down are good. IMO

sam said...

Tim your argument on the s&p is correct, it is even worse if the s&p where priced in gold or 1998 dollars. We would be trading at new lows. Sammy.

newequity said...

Another great day to be on the right side of the market. Go bulls go.

newequity said...

CL up
DST up
^RUS up
Market up

TIM down 5%, priceless.

Market Speculator said...

Tim your argument on the s&p is correct, it is even worse if the s&p where priced in gold or 1998 dollars. We would be trading at new lows. Sammy.

What if the S&P were priced in Sugar?

JakeGint said...

I prefer my S&P priced in charcoal briquettes.

The little ones, that fit in the round Webers.

Gary said...

Jake makes a point albet with a little humor. BTW I enjoy getting up every morning just to see what kind of crazy post you're going to come up with that day! Ah but I digress. Sure you can price the S&P in gold and show that it's nowhere near an all time high. That just means you should be investing in gold not shorting the S&P. Trying to rationalize why the market should be going down is a sure fire way to the poor house.

Tim Knight said...

"I enjoy getting up every morning just to see what kind of crazy post you're going to come up with that day!"

That's obnoxious, Gary. I work hard on this blog for no money, and believe me, my paying job has needs too. So don't be an jerk.

cantdrive55 said...

Oh give us a break .Gary has been trying very hard to get you to see the light and change the errors in your thinking about the market and it's mechanisms for movement and direction.And generally he's been corerct.And usually he been pretty damn nice to you about it. And he's also been giving you/us this info for free.Be damn grateful he's contributing "insightful comments" over here on a regular basis.

bt said...

Hey Tim don't let tools like Gary irk you. The guy goes to a TRADING blog and posts his investor-timeframe and position-sizing crap. Either he never tried to trade short-term, failed at it, or is afraid to try. He's just trying to scratch up some subscriber fees like that TTT guy.

cantdrive55 said...

Well ,there's both sides of the "GARY" opinions for you !

DirtyTed said...

A portfolio equity swing of 5% in a day, depending on the positions, is usually not overtrading.

Tim Knight said...

"And generally he's been corerct."

Well said.

Market Speculator said...

I generally feel happy, generally speaking.

cantdrive55 said...

Well, thats the end of my responding from the Blackberry without my contacts in .

Market Speculator said...

SOX screaming...what a day. I am glad I don't watch CNBC, just walked by the TV here and saw there was a panel discussion on the market...YUCK!

Bears will have their day, at some point. Just not at that euphoric state where we get a tremendous correction.

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