Friday, July 06, 2007

Prophet North

Up, then down. Up, then down. In spite of my optimism last Friday, I'm feeling that dealing with the markets these days is a Sisyphean task. We've been range-bound for many weeks, and it looks like we're at the top of that range again. Here's the Russell 2000 on an intraday basis.


Of course the big question......and it only gets bigger every time we find ourselves at the extreme of a range.....is "break or bounce?" As with anything else in the world of charts, the longer a time period that price action is range-bound, the more dramatic the "escape" from that range.

So whereas I was optimistic before when we were near the bottom of the range (emotion check: greed), now I'm concerned we could bounce above this range and get back into full-blown bull mode (emotion check: fear). It's pretty clear that this week will give us the bounce-or-break answer. Here's the S&P 500 on a daily basis, and you can see the consolidation period over the past five weeks or so:


On an intraday basis, this range is very clear to see. Although prices typically take longer to climb than the fall, it seems that within this range, the motion is happening with similar speed. It only took a week from me to change my attitude from "oh, yeah!" to "awww, crap."


I haven't been following gold too closely, but wow, the $XAU chart is really in motion now. It is still in the range shown here, but Friday was a big day for the gold bulls.


Akamai is in an interesting breakdown pattern, albeit at an angle. Worth watching.


Chicago Mercantile (CME) is a good example of why it's important to wait for patterns to complete (I am guilty of ignoring this rule on occasion). As you can see, it was in a tremendously toppy pattern, but then it skittered away from the breakdown point and has done sensationally well since to the upside.


If you do believe the market is ready to head south again, a short position on the DIA or puts on it are a pretty good bet, since both the stock and the options are so liquid.


Micron (MU) is a stock I've mentioned as a bullish idea for the past couple of weeks. It looks better than ever. Just look at Friday's push upward.


I'm sorry this post was late; as I mentioned, I was heading to Lake Tahoe and that took a big bite out of my day. Enjoy your weekend, and I'll see you Monday evening.

65 comments:

beanie11111 said...

BIDU:

Cramer in his MadMoney segment recommended BIDU today.

It's gonna be on fire!!!!

Do you believe?


Chinese internet stocks are also in a bull mode:

http://biz.yahoo.com/ibd/070706/general.html?.v=1

That's why i think BIDU is a great place to be if you want a piece of china. In fact, i believe BIDU is by far the best China play bar-none.

beanie11111 said...

BIDU:

U really need to be in on Monday if the stock clocks $200. Remember what happened to RIMM when it took out $200? Well, BIDU has a much lower float.

Note there are alot of call options being bought for Aug. 240 . Traders are betting that the stock will trade above that by Aug. expiration.

b.healed said...

i love lake tahoe...i am there all of the time. i live about 2 hours from there.

sam said...

New highs in the indexs. Nasdaq there. DOW & SP to follow. Sammy.

beanie11111 said...

BIDU hasn't even doubled yet from its ipo price of $125.

So no bubble here.

BIDU is really too cheap to ignore any longer.

Tim Knight said...

If I got paid for repetitious comments, I'd be a rich man. Sheesh.

sam said...

you are rich, tim. sammy

robert said...

the bears have been sharpening their claws the last few weeks and have many sharpeners ie., the carry trade unwind,creeping interest rates,housing quicksand,oil surge ...to mention a few ......mix in some fear ,our friend, and some more claw marks will appear ...perhaps even a deep cut ..........whatdaya think beanie? think bidu will go up ? what are you on anyway?

Tim Knight said...

What bugs me, Robert, is that bears have had all those things in their favor, and the stupid market still stays high. I dread to think that 20 years of training in the art of technical analysis has left me defeated in the face of Gary and his flippin' COT number.

niko said...

So, uh, what does it take to get banned from posting on this blog? I'll admit that Beanie was right about solar stocks, so bravo, but I feel like I'm reading spam whenever his 85 quick-fire posts come up.

How about just recommending and analyzing, rather than writing like you're promoting a tractor pull?

so-lar, So-lar, so-lar!!!

robert said...

patience , grasshopper, the fear will rise and then we'll use your great charts....assume nothing, be ready for anything

John said...

Tim said "I dread to think that 20 years of training in the art of technical analysis has left me defeated in the face of Gary and his flippin' COT number."

This approves that TA is a useless long term indicator but works only short term.

Gary said...

Tim,
Do you want to know why the COT works? Because it shows you what the big money in the market is doing. As long as the players that control 80% of the capital are buying then how can we expect the market to fall? It really is as simple as that. Just wait for them to start selling then all your TA will start working again. BTW the COT for gold is extremely bullish. Anybody here think gold is going up raise your hand. Well I didn't actually raise my hand but I did double my position in silver Monday. (silver will normally follow gold up and usually it will show a bigger % gain than gold)

Gary said...

Let me just make a quick point. When you let your bias determine your decisions then you tend to look for bearish patterns that may not actually be there. Ex. when all the bears saw a double top I saw a 2b reversal. These have a fairly high probability of success at catching the exact bottom of a move. It did catch the exact bottom in Mar. and it is certainly looking like it will catch the bottom of this move. When the bears saw weakness in the S&P I noticed that the more speculative Nasdaq was not confirming that weakness. The Nasdaq almost always leads a decline. The difference of course is that I have a bullish bias because the COT is long. Now if the COT was short I would look at the market in a completely different light.

Tim Knight said...

Your point about a bearish bias is spot-on. It's something I have tremendous difficulty shaking.

The silver lining is that when I do offer up bullish ideas, they are usually fantastic, because they have made it through my bear goggles! If I had any sense, I'd only do my bullish plays, because they've survived a really severe bias on my part.

Gary said...

Did we just witness a breakthrough here today? You have no idea how big a step you just took. You've finally admitted that you have a bias that is clouding your perception of the market. You've also aknowledged that when you do pick bullish plays they are normally very good. Another huge plus. Now just do me one favor for the time being concentrate on your superior bullish plays. Every seasoned trader knows the odds are in their favor on the long side. Stocks can only go down 100% and that happens very rarely but they can go up an infinite amount. Lets just wait till we get the odds way in our favor until we take a chance on the short side. We need to have the big boys selling. I'll let everyone here know when that starts. I promise. Until then just concentrate on you bull plays.
You are a seasoned trader and I think I can say with confidence you know in your heart it is practically impossible to pick tops. Its time to quit trying to do what you really know can't be done.

Gary said...

Dive,
Where are you buddy? Haven't heard from you in a while. You still alive over there on the other side of the pond?

Sqroot said...

Wow, all over the web the bears are crawling back in their caves. Hmmm...

zeus111 said...

Tim I am glad that you are getting rid of your biases and Gary congratulations on your posts, they are excellent, as well as your blog.

Something else I need to tell you Tim. Stop reading the postings on prudentbear.com and David Tice and I am talking from persoal experense. When I stopped reading their site my trading got better. Lets get real these guys have been wrong for 5 years now.

Tim Knight said...

Zeus,

I actually don't read those guys - or any other permabear sites, for that matter.

I actually don't think my "confession" is as big a deal as you might think - - if you go back to my "Why I am a Bear" post back in March, you'll see I offer up ample hang-wringing over my biases.

The only "new news" I am stating is that it finally occurs to me that if a bullish pick survives the Tim Bear Filter, it's probably a damned good pick.

But I think this kind of conversation is one of the best uses of a comments forum - - so people can exchange ideas and - God forbid - maybe even change some points of view!

BB said...

Tim,
Why don't you use straddles to play the market in both directions?

Inquiring minds want to know.

Thanks.

JJ2000426 said...

Tim:
You never paid attention?
Mistery around the Russian Strategic Stockpiles gets deeper!

Price of a strategically vital metal, palladium, rallied from $145 in 2003 to almost $400 recently, this happened with global production of 7M ounces per year, and on top of that the Russians dumping 1.8M ounces per year from their strategic stockpile. With such extreme over supply palladium should be extremely bearish, but it had been very bullish for the past four years? WHY?

Many experts believe the Russian stockpile is running low today! They can NOT continue this massive dumping. Lots of investment entities saw this and positioned themselves and silently loading up physical palladium. Once the huge Russian dumping is cut off, expect palladium price immediately shot to sky high!

This speaks extremely bullish for a little known stock called SWC, the only US based palladium producer, and richest palladium mine in the world.

An explosive 20 folds gain within 4 years or shorter can be expected. That's 2000% gain!

The perfect technical chart should convince any one the right entry point is right around the corner.

JakeGint said...

Posting from Vacation on the South Carolina coast... not many more beautiful places for wildlife/nature lovers, fwiw....

________________________

Willy Bills had an extraordinarily important post last set, and unfortunately, he has not yet figured out the eminently simple process of html linking. Don't feel bad Bills, Beannie hasn't either and he has his own, relatively popular blog.

In any case, if you Google "html links" you will figure it out in no time, I promise. In the meantime, I'm reposting your link about the do it yourself LBO's because I think it's THAT important for the permabears safety:

This means you, Tim!

JJ2000426 said...

All I want to say is I am really inpressed, Tim. You are a very good technical guy. But have you looked at any stock from a fundamental point of view?

How do you like this perfect chart?

http://stockology.blogspot.com

JakeGint said...

BTW--- Have been in accordance on MU for about a month now, since the SMH turned around...

I think they're the next PE play, personally.

DirtyTed said...

Gary,
Gold and silver are currently in intermediate downtrends. Enough said. Everyone seems to be talking about how they are about to rocket. Hunch: look out below!

yuri said...

As somebody said "Technical Analysis is always right, except when it's wrong."
As I've said before, the Market's job is to take your money - it benefits the few (in the know) at the expense of the many.
Having been a disbeliever in this rally for nearly a year now, I must admit that it has defied explanation along purely fundamental grounds. I am no longer in denial - there is no denying the persistence and dogged determination of this market. It has been absolutely fascinating to have observed.
That being said, anyone familiar with Arthur A. Merrill's analysis of the presidential cycle going back to 1886, would know that Q3 & Q4 of year 2, as well as Q1 & Q2 of year 3 has typically seen fabulous gains for the market. What usually follows that is 4 quarters of a steady drift downward, followed by a rally in Q3 & Q4 of year 4. This little bit of technical analysis has proven to be remarkably consistent over a period of more than a century.

Controlled Trader said...

Looks like all posters are bulls now. 4 days of light volume trading could have done it. It does not mean that market can't go higer coming week, just observation.

beanie11111 said...

oh no, please don't go all bull! lol

We need em bears.

Winace said...

Tim,
A post related to exclusively technical analysis (go figure). A few questions, or confirmation of observations anyway. I have noticed, on numerous occasions, a security, or index, pull out of it's current channel on low volume just to return later. It appears as if they "mark" a technical objective that later becomes pertinent. I see this currently on all the indices I follow (DIA, SPY, QQQQ, and IWM). It is as if they are "allowed" to go higher on light volume to check this objective or resistance. I went back 5 years on all these indices and looked for the same behavior. They all, except one occasion, prove to be false breakouts, or "Bull Traps". The entire week of volume barely exceeds 1 day of sell offs seen in the last few weeks. If these bearish days were in deed "profit taking" (hate that cliche), would not current volume be higher as the "smart money" (hate that one too) bought back in to support the rally? My opinion, the market is trying to get the "not so smart money" to buy into the rally. I also keep in mind, opinions are like assholes, everyone has one, and some of them stink. Do I have any pertinent ideas here? Or am I trying to justify wearing my bear goggles?

Gary said...

Sure "they" would like to get the public to jump in. That's how the smart money gets the market to top out and allows them to sell their positions to the dumb money. My guess is it's coming if not in the fall then the begining of next year. Thats just a guess of course.

Winace said...

Tim,
MU is looking rather bearish to me. It closed Friday at a fib 50% retracement of the October gap and is getting ready to bounce off both a 1 year down channel and 3 month down channel. Note, also, the Nov-Jan support/resistance line. Better yet, look at the 5 year chart, a perfect retracement to check reistance of the potentially failed ascending triangle. Other than volume, what is making this chart look bullish to you? I would at least wait until 14.00 was taken out before looking for bullish signs.

Winace said...

Gary,
I am lloking much shorter term. I am speaking of the last 4-5 days of activity. Does it not appear abnormal?

Gary said...

Well the period right around the 4th of July is historically one of the strongest times of the year. So in that sense I guess nothing unusual happened.

beanie11111 said...

winace,

forget your bear goggles for this week. It's going higher.

Gary said...

I'm no expert on individual stocks but MU looks like it had capitulation selling days on Apr. 5th and 6th then again on May 17th and 18th. The selling in May couldn't take the stock back down below the old lows. Seems like a sign the selling pressure has dried up. Now it's making higher highs and higher lows. The semis are strong right now. I personally wouldn't want to bet against this one.

beanie11111 said...

All eyes on BIDU tomorrow. Taking out that $200 barrier mean you go ALL IN. (jk.)

DirtyTed said...

If the market is higher tomorrow i'm going to double up on september index calls. I feel a big rally coming for the next two months.

thedocument said...

Sisyphus? Isn't that something bears get when they short without protection?

beanie11111 said...

You still don't believe in solar stocks?

Well, FSLR got upgraded this morning and solars are off to the races again.

Huge upgrade. In FY10, FSLR is expected to make $7.50 per share! Isn't that GOOG-like earnings?

beanie11111 said...

SOLAR STOCKS INDEED WILL BECOME THE GREATEST INVESTMENT OPPORTUNITY OF A LIFETIME.

Today we got our first confirmation in the FSLR upgrade.

Don't waste your time being a permabear. Get in solar!

Market Speculator said...

Bean - e

I heard the Titanic couldn't sink.

Gary said...

Alternative energy is probably a good idea. However if you don't feel like getting in after most of these stocks have already made huge moves you might want to look for something that's extremely undervalued. Precious metals have lagged the rest of the commodities for a while now. It's about time for liquidity to start flowing into these undervalued areas. If you want to get in BEFORE somethings moveed 100% I would suggest gold and especially silver and to a lesser extent gold and silver stocks.

JJ2000426 said...

Gary:
How about something which is BOTH precious metal play AND alternative energy play? You need PGM (platinum group metals) in a number of alternative energy applications: Ethanol, hydrogen economy, fuel cell, solar panel, etc.
The best precious metal play is palladium. The best and only palladium player in the US is SWC. There can be explosive growth. Have a look. It's in rally today.

Tom2oc said...

Tim: "Of course the big question......and it only gets bigger every time we find ourselves at the extreme of a range.....is "break or bounce?"

My take is that is that a pullback is soon to get under way. Whether it will be another buy the dip opp or the start of a prolonged downtrend remains to be seen and analyzed.

So I joined finally joined your camp Tim. Let's see if we can get some downside now.

G/L to us!

beanie11111 said...

Please folks, you already missed that 10 bagger in TSL calls.

Now i give ya another one:

STP aug 40 calls @ 2.20 (or less) is a buy!

STP trades at 39.74 right now.

If it breaks $40, you need to get in!!!

JJ2000426 said...

An absolute break out. MGN up more than 9% today. This is one hidden treasure that can return 100 folds in 5 years! Have a look.

It's basically a silver/copper mine which is in a process of re-apply for a permit which was granted decades ago but previous owner let it expired. Once it has the mining permit the mine is worth at least $500 a share. Now you can buy for $3.65 a share!!

beanie11111 said...

STP:

once $40 breaks, you probably got to pay above 2.20. But any pullbacks can be accumulated.

DirtyTed said...

god damn look at FSLR! Following the leaders and ignoring the talk really pays off. my calls on it are through the roof

beanie11111 said...

STP is gonna blow thru the freakin roof today once the barrier breaks/

beanie11111 said...

You didn't believe in solar? Now you got no choice. It's gettin shoved up your totem pole.

STP is flyin now!

Mike said...

The new stock I like today is SAY --- Notice the chart pattern where we had a nice consolidation and then a back to back breakout pattern on it as it moved into new highs. Big numbers here on this company as they are rolling in the cash to the tune of 400 Million a quarter and 40% increases on both their revenues and earnings. I will wait for a pullback on it now and look to get in by the end of the week. This one could double.

Andrew said...

dudes,
we all know it doesn't make sense, but if that is the way the market plays out, let them do it. there will be one day that the market plunges 3% on some type of "event". I don't have a crystal ball to tell when but my sense is that it will be during this week.

disclosure: I long OEX July 700 puts and short OEX July 695 puts for a spread of 1.05. I will get a full spread (5) when OEX settles below 695 upon expiration.

Mike said...

Andrew -- the bears will have their day again -- until they do, I for one will not fight the tape. Making money on the short side in a bull market may prove to be very difficult. We are in a bull market and I suspect this will go on at least another 18 months with some 3% pullbacks here and there. Good Luck.

beanie11111 said...

TSL july 45 calls @ 2.20 (or less) already a 10-bagger!!!! More to go!!

beanie11111 said...

if you want a very speculative solar play, i give you August calls on SOLF.

Andrew said...

Mike,

Not sure. Especially you see no volume, even today - SPY & QQQQ's volume tracks low-end of last week. The market is being poped up by big buyback news. I don't even think this is anything which worth celebrating about. I normally won't leave position overnight but I will do this time.

beanie11111 said...

oh man oh man!!!

FSLR = the next JSDU of the 1990's, but bigger.

wow, $7.50 earnings per share in FY10!!!!!

Google-like growth!!

Gary said...

For any who want to follow the COT.

here
is the link to the SMT.

newequity said...

No more beanie, market will fly up this week as bulls turn bearish trying a little short-term timing.

JJ2000426 said...

No body paid attention when I meantioned SWC? It's up +7.2% today. Maybe now you pay attention to what I said?

The grwoth potential is explosive. 7.2% up a day is nothing.

Gary said...

JJ,
SWC has a nice earnings yield of 89% but the return on capital is a fairly paltry 8%. I like to stick with companies that have an earnings yield of at least 25 or better AND a return on capital of at least 25-50%. SWC has half the requirements. It is a bit worrisome that while Palladium has been consolidating SWC has been declining rather steeply. I think I'll have to pass on this one. I like to have the odds a little more in my favor but goodluck to you.

z-stock said...

hey tim i just did a google search xom cot report and your site came up here's kink
http://www.google.com/search?hl=en&lr=&safe=off&q=xom+cot+report&btnG=Search

AZO and ESI look toppy....
zee

TSP Trader said...

Tim - who cares where the markets go tomorrow, today we're all a little smarter thanks to your wiki lesson in Greek mythology. My goal tomorrow will be to personally use "Sisyphean" in a sentence.

JJ2000426 said...

Gary:
If SWC is already making tons of money, would you be able to buy it so CHEAP? It is a great investment exactly because few people want it now so youc an load it cheap, and in the near future it will be making big money so every one will wants it and you can sell high.
The bullishness of SWC lies purely in the palladium metal. If the metal is bullish then SWC is bullish, if the metal is bearish then SWC is bearish. So do some study of the palladium metal. The metal has been on a bull run for four years and it is expected to continue. Read articles on my blog, then draw your own conclusion. This is one stock that can easily return a 20 baggers in 4 years, CONSERVATIVELY. I am not even talking about ridiculous high P/E, but assume a reasonable P/E is 10.