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.
Many years ago, when I worked at investment bank Montgomery Securities, there was this technical engineer named Bob that dealt with phones, computers, and communications equipment. Since I worked in a technical part of the company, we saw him quite a bit. My boss couldn't stand him, and he referred to him as "Bob from Hell" (since there was more than one Bob in the business, as you might guess).
The main reason for his distaste for Bob was that Bob always had some lame-ass answer why something wasn't working. One time took the cake, however. I was at a remote location, and we had set up some 14.4 modems (this was 16 years ago, remember). The connection was having serious trouble, and we asked Bob what the problem was. "Well, it's raining outside" - - he said this with a straight face. He was hoping, I suppose, that we would believe him and stop pestering him about the issue, since we couldn't do anything about the rain.
I was reminded of this today by the extremely weak retail sales figures that came out. Since the entire earth - and God knows, the financial media - is overrun by bulls, they had to come up with some lame-ass explanation. Their excuse? They took a page from the Book of Bob........
OK, different subject. Ken Fisher. Now, you've probably heard of Ken Fisher, since he advertises just about everywhere that there is financial information. He is a very well-known investment adviser whose company (cleverly named Fisher Investments) is just a few miles from where I'm sitting right now. His claim to fame is the column he writes on a regular basis for Forbes.
Now, let me preface this by saying that Mr. Fisher is a sharp fellow. His market observations are sensible and usually pan out quite well over time. However, he definitely has a lot more bull blood running through him than bear, and this can sometimes weigh heavily on how he views things.
Let me give you specifics. Take a look at the chart below, and take note of the seven numeric demarcations I've laid out.
Now follow along with me, boys 'n' girls, as we read the essence of his market disposition during each of these seven instances. I have provided hyperlinks to each Forbes column.
1 - posted on 10/18/1999. "Remain 100% in equities"
2 - posted on 2/7/2000. "While still 100% equity...60% in Europe and Japan..40% in the U.S."
3 - posted 3/6/2000. "I forecast a flat S&P in 2000"
"I'm outright bearish for the first time in a decade". (Editor's note: the market actually rose 10% in just a few weeks after his column, although generally speaking he was right, albeit a year late in declaring the bear was here.)
5 - posted 9/6/2002. Described U.S. stocks as "a beautiful market" - he nailed this one, absolutely.
6 - posted 12/8/2003. Predicted it would be "a three-year bull market". He was right, but, umm, aren't those three years over now?
7 - posted 5/7/2007. This inevitable "it's different this time" posting.......Ken declares simply to "Buy good stocks and enjoy the ride".
What do we conclude? I dunno. Maybe that if a bear market does start, Ken will let us know about it a year or so later. Until then, it's buy, buy, buy.
Now, today was a good day.......down a meaty triple digits (for the first time in nearly two months - it's about f*cking time). But a concern I have going into tomorrow (which is a critical day, which both Retail and Inflation reports coming out an hour before the open) is the graph below. Will the $RUT bounce off the trendline I've drawn? Or break it? Those economic indicators will absolutely dictate that.
More than one person has scolded me for not showing some Fibonacci extensions on the markets. Well, let me give it a shot, although I'm not sure how helpful these are. First, here's the Dow 30. According to the extension displayed, we've got a ways to go - the next Fib level is at 14,563, well over 1,000 Dow points above the current level.
Yet if you look at the Russell 2000, we passed that extension a long time ago. I've shaded in the entire area above this extension. I can't really drawn any conclusions from this. I love Fibs for the "in between" bounces, but I'm not so sure how germane these extensions are for these markets.
As for the NASDAQ, it obviously weakened substantially today, pushing away from that major resistance line.
And the $SPX is still above its former resistance line, although technical indicators are definitely giving off sell signals.
I don't typically follow DNDN, but this is a pretty fascinating graph. Just look at all the shares trading hands (on ungodly volume) - - first a massive gap up, then a massive gap down. Can you imagine the zillions of dollars of paper losses holders of this stock have due to that mania? I guess Jim Cramer was vindicated in the end.
Finally, LGBT got walloped today. Again, I don't normally follow this stock, but the graph is cool. It's particularly unusual since its ticker symbol stands for Lesbian Gay Bisexual Transgender, surely the only ticker with such an interesting basis. I know nothing about the site itself, but maybe ericbolling or NewEquity can help us out.
Time for a shameless plug. My book is rolling off the press right now. You can click here to go to Amazon if you'd like to pre-order a copy. I paid my way through college writing computer books, but it's been a very long time since I've had the thrill of seeing something I've written in a book store. I hope people enjoy reading it as much as I enjoyed writing it.
I've drawn a channel representing the NASDAQ 100 (which, in spite of a really strong general market today, is relatively weak). As you can see, we remain very much at the high end of this channel.
I've pointed out the huge divergence between the major indexes and their RSI. This holds true for $OEX as well.
Tomorrow is going to be really important. If we fall tomorrow, today may have been nothing more than a retracement. If we push higher, than we're probably looking at the umpteenth time that the bears have had a little hope injected into their system only to have it ripped away. Today's rise can be explained away. Any more rise could not - - we'd have to concede to the bulls yet again.
Capital One (COF) is still a possibility, even though it's holding up far longer than I ever expected.
John Deere (DE) remains at the high end of its channel, and it actually fell a bit today, in spite of a very strong Dow.
HealthNet (HNT) is approaching both its former high as well as the upper range of an upward-sloping trendline.
Interactive Data (IDC) has a rather toppy looking pattern and is worth a look.
Like I said, tomorrow is key. It was a very tough day for the bears today. Let's see if hope gets yanked away or is allowed to linger just a bit more.
What is with this crazy market? Don't get me wrong; a triple-digit down day on the Dow is terrific. But this market is heading for the nut house.
Over the past trading week, there have been two instances of big bearish engulfing patterns on the $NDX. Today's was a whopper. Having a superstar like EBAY up in the double digits at the open and yet have a wipe-out like this is really encouraging.
The $SPX bounced off that resistance line beautifully. The market still has no direction, though. It's neither bullish nor bearish. Just schizo.
The most important fact of today's activity is the S&P 500 didn't breach 1400. The horizontal line you see below is substantial. For many weeks, it provided a formidable resistance to prices moving above it. Once clearly pierced, it transformed into support. This barrier is crucial......unless it is cracked soon, hope will fade (for the umpteenth time) for a meaningful drop in the market.
The NASDAQ has been especially strong recently. I'm sure Apple, Inc. (AAPL) can largely be credited for this.
Finally, the Dow Transports remain safely bearish, but if the downward sloping trendline is broken (which would be at about the point the arrow is pointing), that would be really bad for the bears.
Just a couple of stocks to mention today - one short and one long - - and both tech. The short suggestion is gigantic Microsoft (MSFT). Years ago, this stock minted millionares and billionaires. Now it's just a big, fat bore. But its recent rapid ascent makes for a nice shorting opportunity with very low risk, since the stop-loss point is to close.
On the flip side is none other than Sun Microsystems, which has been in the process of either getting blown to pieces of marking time since the turn of the millineum. It finally seems to have done something exciting, and there's no doubt that the burst above the huge area of resistance drawn here is unusual and meaningful.
As regular readers know, although I'm a bear (in both real life and my Second Life), I do publish bullish charts some of the time (maybe 10%). One stock I've consistently point out as having a handsomely bullish pattern is RBAK, which I first mentioned over a year ago in my September 2005 post. At the time, RBAK was about $9 per share. It was purchased today for $25 per share, and the stock price actually closed north of that.
The calls I bought on RBAK a month or so ago more than tripled in price over a small amount of time. Now this is a beautiful example of an inverted head and shoulders pattern in action!
What's funny to me is some highly-paid analyst published a report in the wee hours of this morning stating, in brief, (1) RBAK had reached its target price, so they were downgrading it (2) a buyout was not likely "in the near future" (which, given the outcome, I guess meant within the next 30 minutes following the publication of the report).. Wow, what an embarassment. Analysts have never been worth a sack of crap, have they?
The $INDU reached yet another all-time intraday high today (turd monkeys!) but closed down a bit. The divergence between the RSI and the price action is absolutely huge. Come ON, you stupid market, would you fall already? Jesus H. Christ!
The NASDAQ continues to look weaker than the U.S. stock market as a whole.
...and the Dow Transports continue to act (alone) in a truly bearish fashion.
CDX, a short I've suggested before, had a nice down day - - I suppose led by FedEx's action.
And speaking of FedEx, another item I've suggested shorting, it had a nice down day, although it certainly was no demolition of the stock. These things can take time, I suppose.
One could make a flimsy argument that GOOG is sporting a petite head and shoulders pattern. I wouldn't even mention it. Oops, too late. Anyway, I have high (low) hopes for GOOG in January.
Finally, TSO continues to be well behaved. This looks like a nice, fat toppy pattern to me.
Someone commented (and let me say, I really appreciate the comments section - - I read it religiously) that yesterday's graph of the coming disaster in Medicare has nothing to do with stocks or the financial markets. I dunno, I think the insolvency of the United States will surely be germane at some point.
Oh, I forgot. Liquidity. There's liquidity. And all that money needs a place to go. (Where it came from, no one knows - - actually they do - - leverage, leverage, leverage. Which, oh, is a two-edged sword). Anyway, liquidity is the current This Time It's Different argument. Just like how the Internet's productivity enhancement changed everything and justified the valuations of 1999.
People just never learn. Never. I simply cannot wait for those Liquidity twits to get blown to hell. Then at least we can wait a few years before we have to endure them again with another fabricated story.
Tim Knight founded Prophet.net, considered by Forbes and Barrons to be the #1 technical analysis site (sold in early 2005 to INVESTools, where he is the SVP of Technology now). Tim has been trading actively since 1987 and focuses mostly on option positions. He is a dyed-in-the-wool technician, leaning heavily on marked-up charts for his analysis. The contents of this blog are NOT to be considered investment advice, and you should know Tim may or may not have positions in the securities mentioned here.
