Tuesday, July 03, 2007

The Range

OK, let me get this out of the way: I was wrong about Apple. Back on June 11th, I proposed that the hype around the iPhone would be a precursor to the stock getting walloped. Well, on the first trading day after the iPhone's introduction (yesterday), the stock did indeed inch down (and on a 126 point up day on the Dow, no less).

But it reached a new record high today. And, looking at the chart, there is no technical reason for the stock to be weak. So I sold my puts at a (relatively modest) loss this morning, and shame on me for ever doubting the power of Steve Jobs, my lifelong hero.

Phew. OK, done with the self-flagellation. Today's entry will be very short, since I imagine most of you are already wrapped up in July 4th festivities. As I mentioned yesterday, it looks like the readers of this blog were correct in suggesting very bullish behavior just prior to the Independence Day holiday.

One thing is clear, though. Over the past five weeks, the markets have been bouncing around in a clearly-defined range, ending (temporarily, at least) the unabashed push upward preceding June.


Zooming in a bit on the Russell 2000, the range has actually had two stages, demarcated here with two different colors of highlight. The most recent range is more volatile, yet it has a higher base.


This becomes even more obvious when you look at the $VIX. The range between highs and lows on the $VIX has exploded higher since June 1st. It makes for some extremely jumpy trading, since bulls and bears are struggling more than ever for control.


As for my broad view of the market.......it's pretty simple. I chalk up July 2 and 3 to the aforementioned Independence Day strength. I would expect to see some meaningful weakness for the balance of the week. If that doesn't take place - - and certainly if we push above the range that I've illustrated - - it looks like the bulls will take back the control which they set aside as of June 1st.

45 comments:

philippe said...

Whew! What a day.
My Oct AAPL calls up 32,98% and my Jul RIMM puts up 36,21%.
I did warn you about AAPL, Tim...

Market Speculator said...

I told you so is kind of getting old.

Tim Knight said...

I presume you are speaking of Phillipe and not my post, which doesn't have any "I told you so" in it - - on the contrary, it has an apology for screwing up!

As for Phillipe - for God's sake, this is an American blog. Would you please use punctuation in our style instead of the bewildering European style? A comma is NOT a decimal point! Currency symbols PRECEDE numeric figures. And puts are described in terms of contracts, NOT the shares they control!

JB said...

Yo Tim

Other than standard index & individual security charts do you look at any other data, such as breadth and sentiment indicators? Just curious if your market views are strictly based on price action alone.

Thanks
John

thedocument said...

Back in March, when we were coming off the Feb lows, I postulated in this blog's comments that the SPX had just formed the left shoulder of what eventually would be the mother of all HS patterns. I know it was quite premature to be calling for an HS. After all, we had yet to even form the head. (If you look at a weekly chart, you will see it coming along nicely, by the way). However, my reason for expecting this path was that housing came down with the same pattern, and since housing is pretty much what propped up this equity bubble, it seems to reason the market run would terminate the same way. I know it's a loose connection, but that's what I see. The head may yet stick its head a little higher, but we have got to be close to the end.

philippe said...

Tim, I'll conform to everything you ask, once you can spell my name correctly.
It's ONE 'l' and THREE 'p' s in case you're wondering.

Tim Knight said...

Touche.

(Too Shay).

maknak said...

Some light reading for tomorrow:

"Mutually Assured Mayhem "

"Wall Street is on edge, scrambling to buck up Bear Stearns and avert a domino-effect debacle"

http://www.businessweek.com/magazine/content/07_28/b4042037.htm

JakeGint said...

Ahhhh, Business Weak.

Say n'more.

NEWEQUITY said...

Apple is acting dirty, sorry you lost money tim.

Glen said...

I mentioned earlier the strength expected in the markets prior to the 4th of July holiday. I didn't mention that the 2nd day after the holiday (in this case Friday) tends to be even stronger, especially in the third year of a presidency (only 18 more months of corruption!).

Suggest shorting, if so inclined, on Friday afternoon or Monday but not until. BTW the day following the holiday tends to be slightly down, so don't get suckered by a little weakness on Thursday.

william bills said...

i called for a crack of 1490 - it didn't happen. i don't think it will anymore. and the relatively high vix is "proof" in my mind that it wont. i don't think the vix is a measure of volatility, i think its a measure of the premium market participants are willing to pay for insurance. now, obviously, the more the market goes down, the more participants demand protection. as for the whole CDO fiasco, the rise in the vix accompanied by the relatively weak sell-off in equities, leads me to believe that the market is prepared for the known "black swan" - i.e. 87 - but i don't think anyone is prepared for 99 - the true "black swan" in this scenario - because no one believes it can happen so shortly after the previous one.

with this in mind - if the market is making all-time highs in the first week of earnings..........the top is gonna be blown off - and this glorious bull run will end, when, i don't know, at what price, i don't know.

Andrew Dai said...

Glen,

Are you sure? Based on stats in my database, I just did not see the pattern you mentioned even for pre-holiday surge. There is simply no consistent pattern.

Unless I missed something, but.... You can actually go to Yahoo Finance and download all historical prices into a spreadsheet. If you do not know how to program, just look at them manually.

What I have seen is that since the market was thin for the week, it tends to have sharp ups and downs... Oh, well.

beanie11111 said...

Yippee! Blackstone (BX) acquires Paris Hilton! lol

BX:

Just announced they are acquiring Hilton Hotels for $26 billion!

I wonder if that is good or bad for the stock BX. I assume it's good. I mean, isn't it what BX does - to acquire companies?

http://money.cnn.com/2007/07/03/markets/blackstone_kk

2sweeties said...

I suggest everybody to draw a linear regression trendline on the S&P 500 weekly chart, start point: 23.3.2003, to today.

Then draw a linear regression trendline from 18.12.1994 to 16.04.2000.

Compare the two periods with the linear regression.

You can see the following clear pattern, ALWAYS TRUE: as soon as the S&P500 takes off from the linear regression line, in a few weeks (3 to 15) it gets pushed back on that line (or under...).

At the moment we have been already 15 weeks above the linear regression and it is one of the highest flight the S&P500 has done in his history (similar flights only in the 1998-2000 period).

Tim, I can send you the chart if you want to post it.

The conclusion, IMHO, is that the market will correct its price down at least to 1450 (according to the linear regression line), before resuming its obvious main uptrend.

beanie11111 said...

BX - the sleeping giant - is about to wake up!!!!!

FIG's ipo was priced at about $18.50 and it went to as
high as $37 (after opening around $31) and now settling
at $23 - still above the ipo price. At some point, 2
months later, FIG got back to almost $34.

BX is sitting below the ipo price of $31. At some point
soon, i expect BX to at least see $35.

It could very well be this month. The chart shows
bottoming, and today's acquisition of Hilton Hotels for
$26 billion (Note that BX has about $88 billion under
management) could be a mighty catalyst BX needed to
move higher.

I have a feeling it's time to back up the truck on
BX!!!!!!!!

JakeGint said...

Because they overpaid for Hilton Hotels?

Buy Gladstone's companies if you want solid, conservative LBO fund publics. That sexy Schwartzy stuff is just gonna leave you holding the bag.

stevegill43 said...

Tim:
I posted last week asking about the "shooting star" candlestick on the Russell 2000. Aside from the discussion if it was or wasn't one, today's looks even more like the classic Edwards and Magee's shooting star. The thin volume makes me less confident. I have a small position in MZZ and IWM July84. Good graphics today.

beanie11111 said...

This is truly amazing for BX. Hilton Hotels would be their biggest investment to date.

Most of their portfolio companies are so small relative to Hilton Hotels. Most on the list i personally would not invest in them.
http://www.blackstone.com/private_equity/portfolio.asp?Order=ByPortfolioCompany&ll=&ul=b

Go with BX.

beanie11111 said...

BX 's porfolio - the full list:

http://www.blackstone.com/private_equity/portfolio.asp?Order=ByInvstDate


This acquisition could be the permabears killer. Just when the bears think private equity is dead, BX slams them with Hilton Hotels.

KC Equity Trader said...

Hard to believe people want to pay $500+ for the iPhone even with the ridiculous activation and monthly service fees by AT&T, but they do. The margins for the iPhone is just eye popping. The mixed analyst sales expectations new on Monday might have gotten some big money short to only have to cover today in Apple. I believe it was Goldman who was bullish on the sales. Last year the talk was about Apple going to $100, now it should be is it going to $200?

plunger said...

Gary said...
If everyone is aware of the COT then why do you keep ignoring what it's trying to tell you?


Tell you, you mean, its an arbitrary assesment of data, not a proven formula.



" The markets are going up and the big money recognizes that."

I thought the big money was the market, therefore they would be causing the market to go up not "recognizing" it?


"Sure you might be able to scalp a quick buck here and there on a few short trades.

SNCR - [activation software co. for the IPHONE] july $30 calls, up 289% today, not a bad "scalp".


"What's the point when the easy money is going to be made on the long side."

Not everyone here is a permabear.

"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."


I see a few tradable patterns in both charts actually. [ hindsight, I know] I actually have been saying I think SLV is breaking down and headed for $105-$110 area, based on the breakout to the downside. A retest of that triangle will tell if the BD is valid.

"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."

I completely agree here. But there will be corrections along the way, and tradable patterns throughout. Some like to trade , some don't, [i.e. you.], and you should just let us trade, and keep us informed of your take on the COT, periodically.

I actually do appreciate your opinion on the COT and markets [periodicaly] as just another veiw of the markets from what seems like an intelligent person, and and use that information, with a host of many, to determine my veiw of the markets.

Glen said...

Andrew Dai,

See Safehaven.com, Technical Market Report by Mike Burk. He says his report is free to anyone who wants it, and I copy a section of it here:

Seasonality

Next week includes first 4 trading days of July during the 3rd year of the Presidential Cycle.

The tables show the daily returns for the first 4 trading days of July during the 3rd year of the Presidential Cycle. NASDAQ data covers the period from 1963 - 2003 and SPX data from 1931 - 2003. There are summaries for both the 3rd year of the Presidential Cycle and all years combined. The SPX summary for all years combined begins with 1928.

During the 3rd year of the Presidential Cycle the SPX has been up 89% of the time and had an average gain of 1.57% making it one of the strongest weeks of the entire 4 year Presidential Cycle. The NASDAQ hasn't been too shabby either up 73% of the time with an average gain of 1.19%.

Over all years the SPX has been up 71% of the time with an average return of 0.90% while the OTC has been up 57% of the time with a very modestly negative average return of -0.01%. The OTC had two very bad years in 2001 (down 7.4%) and 2004 (down 4%) pushing its average return down.

First 4 days of July.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 3
Year Day1 Day2 Day3 Day4 Totals
1963-3 -0.12% 1 -0.30% 2 0.30% 3 0.30% 5 0.18%

1967-3 0.49% 1 -0.10% 3 0.17% 4 -0.01% 5 0.55%
1971-3 0.62% 4 0.28% 5 0.42% 2 0.71% 3 2.04%
1975-3 -0.79% 2 -0.80% 3 0.65% 4 -0.70% 1 -1.63%
1979-3 -0.83% 1 0.04% 2 0.55% 4 0.62% 5 0.38%
1983-3 0.90% 5 -1.38% 2 0.63% 3 -0.04% 4 0.11%
Avg 0.08% -0.39% 0.49% 0.12% 0.29%

1987-3 -0.05% 3 0.33% 4 -0.18% 1 -0.13% 2 -0.03%
1991-3 1.13% 1 -0.53% 2 -0.93% 3 -0.06% 5 -0.38%
1995-3 0.12% 1 0.78% 3 1.18% 4 1.77% 5 3.84%
1999-3 0.77% 4 1.29% 5 -0.15% 2 0.23% 3 2.13%
2003-3 1.07% 2 2.35% 3 -0.91% 4 3.44% 1 5.95%
Avg 0.61% 0.85% -0.20% 1.05% 2.30%

OTC summary for Presidential Year 3 1963 - 2003
Averages 0.30% 0.18% 0.16% 0.56% 1.19%
% Winners 64% 55% 64% 55% 73%
MDD 7/7/1975 1.63% -- 7/5/1991 1.51% -- 7/5/1983 1.38%

OTC summary for all years 1963 - 2006
Averages 0.02% -0.16% 0.02% 0.12% -0.01%
% Winners 57% 52% 48% 52% 57%
MDD 7/6/2001 7.24% -- 7/2/2002 7.20% -- 7/7/1970 4.16%

SPX Presidential Year 3
Year Day1 Day2 Day3 Day4 Totals
1931-3 1.62% 3 -0.86% 4 2.14% 5 -1.05% 1 1.85%
1935-3 0.49% 1 0.10% 2 0.58% 3 1.16% 5 2.33%
1939-3 1.01% 6 0.27% 1 1.82% 3 -0.09% 4 3.02%
1943-3 0.08% 4 -0.08% 5 0.16% 6 0.00% 2 0.16%

1947-3 1.64% 2 -0.13% 3 1.04% 4 0.06% 1 2.61%
1951-3 0.67% 1 0.62% 2 1.93% 4 0.00% 5 3.22%
1955-3 0.39% 5 1.21% 2 3.57% 3 -1.39% 4 3.79%
1959-3 0.86% 3 0.53% 4 0.62% 1 0.60% 2 2.61%
1963-3 -0.74% 1 0.87% 2 0.69% 3 0.40% 5 1.23%
Avg 0.56% 0.62% 1.57% -0.06% 2.69%

1967-3 0.30% 1 0.49% 3 -0.04% 4 0.41% 5 1.15%
1971-3 0.08% 4 0.00% 5 -0.02% 2 0.28% 3 0.34%
1975-3 -0.36% 2 -0.71% 3 0.19% 4 -0.87% 1 -1.74%
1979-3 -0.89% 1 0.10% 2 0.33% 4 1.16% 5 0.70%
1983-3 0.48% 5 -1.37% 2 1.13% 3 -0.55% 4 -0.31%
Avg -0.08% -0.30% 0.32% 0.09% 0.03%

1987-3 -0.35% 3 0.89% 4 -0.23% 1 0.81% 2 1.12%
1991-3 1.82% 1 -0.12% 2 -1.10% 3 0.20% 5 0.81%
1995-3 0.43% 1 0.03% 3 1.23% 4 0.43% 5 2.12%
1999-3 0.60% 4 0.74% 5 -0.22% 2 0.56% 3 1.68%
2003-3 0.80% 2 1.16% 3 -0.81% 4 1.90% 1 3.06%
Avg 0.66% 0.54% -0.23% 0.78% 1.76%

SPX summary for Presidential Year 3 1931 - 2003
Averages 0.47% 0.20% 0.69% 0.21% 1.57%
% Winners 79% 63% 68% 63% 89%
MDD 7/7/1975 1.73% -- 7/7/1955 1.39% -- 7/5/1983 1.37%

SPX summary for all years 1928 - 2006
Averages 0.30% 0.25% 0.33% 0.04% 0.90%
% Winners 69% 61% 59% 58% 71%
MDD 7/2/2002 4.30% -- 7/6/2001 3.73% -- 7/7/1986 3.42%

The evidence is pretty convincing that Friday will be an up day. I just advocating a little patience here.

Andrew Dai said...

Glen,

Just offer another opinion from thestreet.com:

"There's not too much to say about today's session, even though there was a little buying ahead of the holiday," said Michael Sheldon, chief market strategist with Spencer Clarke LLC.

"Historically, the two days following the July 4th holiday haven't been positive for markets, so we could see profit-taking at the end of this week," he added. "Whatever traders that will be around will be focusing on Friday's important nonfarm payrolls report."

If someone tells me that Feb. 29 will be the strongest day for every leap year based on historical data, I still want to know: does that make sense?

Tim Knight said...

"Tim, I can send you the chart if you want to pos"

Sure!

Tim Knight said...

"Other than standard index & individual security charts do you look at any other data, such as breadth and sentiment indicators? Just curious if your market views are strictly based on price action alone."

It is almost entirely price action. I glance at sentiment charts now and then, but to me they border on meaningless. Any graph of so-called contrary indicators looks like an ECG readout from a hospital.

I've always back macroeconomic and socionomic (so to speak) information banging around my empty head, but the trading actions are based on price patterns only.

newequity said...

BX buying Hilton. Someone was not surprised by this and it should add even more upside to the markets come Thursday.

bh_prop said...

"BX buying Hilton. Someone was not surprised by this "

Gee, ya think? Take a look at HLT on "quiet" pre 4th of July trading. But people wouldn't buy on inside info would they? I mean after all, that would be illegal . . .

As far as that event propping up the entire market - looks like we will open up on thin air. Whether that euphoria holds or not is an entirely different story.

Gary said...

Plunger,
Maybe I wasn't clear. I meant scalp some small profits on the short side. I was kind of directing my comments to the bears who keep trying to pick a top. Sure you might make a little now and then by catching a pullback but it seems very dangerous because you never know when the secular trend will take hold again and erase your profits in the blink of an eye. Just seems much safer to buy the dips that way if you misjudge your timing then the secular trend most likely will save you eventually. Nothing wrong with trading if your good at it I was just suggesting to trade in the direction the market is moving.

beanie11111 said...

BX on fire this morning.

The fact that it didn't go down after acquiring a $26 billion company is pretty amazing.

Keep an eye on it!

plunger said...

Gary said...
Plunger,
Maybe I wasn't clear. I meant scalp some small profits on the short side. I was kind of directing my comments to the bears who keep trying to pick a top.

....suggesting to trade in the direction the market is moving.

5:06 PM

I Agree completely, an unwavering, biased opinion of the market is a losers game. And I also agree with the trend trade, much easier and usually, bigger profits when played with the trend. I think the market has settled into a range as Tim mentioned in his post, and I'll continiue to wait for confirmation of a breakout or breakdown, but I'll let the market tell me which.

All the while I'm actually still holding long stocks [4-5] with protective stops.

John said...

Shorting is like crack...and crack kills.

I have been short MAR and it has been weak relative to the mkt and was a dreamy short until Tues. The HLT news has this thing up about 7% today. I am a deer in the head lights. Not sure if it will come in a little so I can get out.

4profit said...

BX is really fabulous. IPO opening day high of 38. Week later its at 30.48. YAWN.

beanie11111 said...

Shorts get reamed by RIMM

RIMM currently trades @ 214

After years of fighting the red tape, China finally allows RIMM to sell the blackberry inside of China. Already 5000 companies have pre-ordered. This i think is huge for RIMM.

Buy the stock, or the Sept 220 (around $10) or Sept 230 calls (around $14). The reason for the september calls, instead of July or Aug.? The stock splits 3:1 on August 20th. The september calls allow you to take advantage of the split run.

beanie11111 said...

JSDA wants you!!!!

Time to rock n roll on this nice chart.

beanie11111 said...

JSDA: you know it ain't gonna stop today. Got more to go.

Gary said...

4profit,
Its only been trading 8 days. I would hope that most of the investors that bought BX have a longer attention span than that. After trading for 3 days goog proceeded to lose almost 10% of its value. So did the original investors that bought on day 3 lose because the stock was volatile or were they big winners if the had a slightly longer investing horizon. Like maybe July 07 for a 600% gain. Americans are so focused on short term gratification nowdays. What a shame. I suppose it will eventually change at some point. it always does.

beanie11111 said...

BX will run like MA! Believe it!

Save this post, ok?

John said...

Beanie

I like your ideas on RIMM. Don't you expect a pullback soon. I'd like to see this before I buy, but like BIDU, I might not get a chance.

4profit said...

Gary,
Thanks for the lecture. I know how the IPO market works. I made a ton of money on googles first earnings announcement thank you. I can make money in the short term and the long term. Too bad your narrow mind thinks the short term is a bad thing.

Market Speculator said...

Time to rock n roll on this nice chart. - Beanie

My god, this is the worse looking chart for any type of bullish mind. It was bullish in early March NO WHRE NEAR BULLISH NOW. It has done a round trip in 4 months...

beanie11111 said...

market speculator,

JSDA sports a bullish chart for the next run. The stock was oversold beyond belief. The gap from 3 months ago got closed.

This chart is no different from TSL, which yielded over a 7 bagger had you bought those july 45 calls at 2.20 (or less). Same chart. The only caveat is that JSDA isn't in as hot of a sector as TSL, where solar stocks reign supreme and unstoppable.

beanie11111 said...

john,

my god, don't you think RIMM already pulled back yesterday when it traded to $207? I can't see the big boys slammin this down below $200, especially when it's been trading above $200 for several days now. That tells me the boys are interested in taking this monster higher. Next stop $250.

If the stock goes higher tomorrow, you need to be in! If it goes lower, then you can wait.

beanie11111 said...

I get the feelin the markets gonna fly tomorrow.

Be ready.

Mad-As-Hell-Bears, please don't pray for nuclear devastation. It's just not right.

z-stock said...

Not liking transpo stocks...first sign of weakness and these stocks head straight for the door....I try to hand them their hat, but they are in just such a hurry...
CSX at 47...needs it’s hat...
XAL...53 double top...asking for hat too...
The bad news....
we get a summer rally... dow at 14,100 coming to a theatre, soon...