Post Number D

Well, this is it.......my 500th post to this blog. I would have hoped for some kind of momentous occasion (like a corresponding 500 point drop on the Dow), but it was not to be. I never thought I'd be writing this blog for this long considering its humble beginnings as little more than a personal diary back in March 2005.

For anyone who has read my blog even a little bit, you know I'm a relatively incurable bearish sort. As such, the past couple of years have been rough sledding for me and other bears. Although there have been glimpses of hope (such as the early summer of 2006 or the brief plunge in February of this year), the market has, since October 2002, been owned and controlled by the bulls. Period.

Markets weren't always this way. Looking at over 80 years of the Dow in the 20th century, you can see a pretty even distribution of bullish years and bearish years (the latter shown in red).


But the past quarter century has been quite different. Offer any reason you like - globalization, mass credit, the benefits of computers - it hardly matters. The fact is that a down year in the stock market has become a rare exception.


And of course, the king of all bull markets, China, shows no sign of slowing down. The hiccup in February is becoming a speck in the history of this market. Except for a small ETF position now and then in some related Asian market, I stay far, far away from China (either bullish or bearish). It's a bubble that no one knows where or when will burst. A true bear market could be years off.


Closer to home, the Dow inched lower today, and a potential double top remains in place. Of course, one strong day could pierce that possibility instantly.


Most U.S. equity markets have a strong resemblance in that, over the past couple of months, volatility has increased (judging from the technical indicators), even as prices have plateaued into relative quiet. Here's the S&P 500......


And a very similar reading from the Amex Major Market Index.......


Today was a pretty hum-drum, do-nothing day, but there were pockets of interesting stuff. ALB, a short of mine, cut beneath its neckline nicely.


BTJ, another short, rose some. But I'm still feeling good about this chart.


Another short, Constellation Group (CEG), eased lower, and the reversal in trend seems convincing.


Housing stocks seem to be rather stuck, although they pushed down somewhat today. ESS is one of them, shown below. Many housing stocks bear a resemblance of this head and shoulders (ish) pattern, but the firmness seems peculiar.


I don't think I've mentioned Entergy (ETR) in a while. I entered a new short position on this today.


JC Penney (JCP), on which I own puts, also eased beneath its neckline (finally!) today.


I toyed with the idea of making my 500th post my farewell to this blog, but I figured that would be a bit too Nixonian. Plus, I do like writing this blog, for the most part. It's an honor.

The main reason I keep writing it is because thousands of people show up every day (for whatever reason) to read what I've got to say. And we've got somewhat of a culture built up around this place. So I might as well keep at it. And, believe me, I'm grateful for your interest and readership.

And, after all, every dog has his day. Stay tuned.

Son of a (Triple) Witch......

Well, what a difference three days makes.

As of Tuesday's close, things looked just hunky-dory for the bears. Although such a rapid, 400+ point drop from the Dow certainly suggested it was time for a bounce up. But the very unresolved question is whether the bounce was the contratrend in the scope of a real downtrend, or whether the 400+ drop was no more important than the one from late February.

One trend is clear - - comments are up. Even with anonymous posters shut out of the comments section, activity has been ramping up in line with the market's volatility. Big down days bring out the snarling bears, and big up days bring out the told-ya-so bulls. Of course, beanie11111 alone was responsible for 15 of the prior post's comments, so a few people are largely responsible for the activity. (And Beanie - we get it - solar, solar, solar - enough!)


Looking at the $INDU, the best the bears can hope for at this point is a double top. A neat cascade of lower lows and lower highs simply didn't happen.......today's push higher broke that theory to pieces.


If the market does continue its descent next week, the Russell 2000 is, in my opinion, the best place to play it. Not only because of the relatively decent bid/ask spread, but also because it is relatively weak in its performance.


I don't think I've ever mentioned ACL before, but this looks like one which has turned the corner from uptrend to downtrend.


I got into a short position with BEAS today, and it's a bit in the green already, in spite of the market's strength. The right shoulder of this pattern is half completed.


I shorted BTJ successfully a couple of weeks ago. It has bounced high enough for me to be comfortable re-entering this short.


Cardinal Health (CAH), a short I got into a couple of days back, is doing pretty well. It is encouraging to see stocks act weak when the market as a whole is very strong.


Constellation (CEG) has a medium term downtrend that is intact so far.


One highly liquid, low-risk short (or put purchase) are the Diamonds (DIA). A clean stop here would be 136.84


Now that Goldman's earnings are out, I think the risk is much lower to short this stock. The blow-out earnings yesterday actually caused the stock to declined, and it seems toppy enough to me - and far enough away from the trendline - to warrant another attempt.


I first mentioned CRDN as a long back on May 3rd. Since that time, it has push much higher on very strong volume. I guess the war in Iraq is actually good for this firm.


McGraw-Hill (MHP) is a new short for me, entered yesterday.


I added to my MMM puts today, based on the big rebound in the Dow. It closed the day with a nice shooting star pattern and without penetrating its prior high.


I also bought puts on another megacap stock, AT&T (T).


The rails were very strong a couple of months back due to Warren Buffett's investments there. I think it's time to sell into this strength. I sold short a block of Union Pacific (UNP) today.

Nattering Nabobs

It's a pretty predictable trend. It the market goes down hard, the comments section is filled with kudos, praise, and huzzahs. And if the market goes up big, the comments section is filled with barbs, told-ya-so's, and permabulls. Either way, it's pretty tedious.

As I've said many times, this blog's purpose is for one person - me - to share his thoughts about the market via some charts. Nothing more. You can get ideas from it. You can take those ideas and turn them upside down (short everything I buy and buy everything I short). It's really up to you. All I hope for in the comments section is a place for other people to offer other ideas. Because there's plenty of interesting opinions out there.

Today, like yesterday, was another "up" day (although not nearly as dramatically). That's fine by me. Now, if tomorrow is up too, I'm going to start to worry. A healthy snap-back rally is terrific in the scheme of establishing lower highs and lower lows. But a continuous push higher can result in what we saw back in early March, where the allure of a drop was squashed and the market simply sashayed its way on to new lifetime highs. My view of the S&P 500 right now is along these lines:


I've got some puts on the DIA with a contingent stop at 136.16.


Symbol CEG has a nice series of lower lows/lower highs. I'm short.


Malaysia (EWM), mentioned here before, continues to look toppy in spite of recent strength in Asia.


I mentioned Goldman Sachs (GS) before. It had pushed its way to a new high yesterday, but once earnings were released, the stock fell on the news. It's not that the earnings were bad - on the contrary, they blew away expectations. But "buy the rumor, sell the news" is as true now as ever.


My puts in JC Penney (JCP) continue to do well, although nothing really great is going to happen unless/until the neckline shown on the pattern breaks. But it could be soon.


Gary mentioned my "bearish" energy suggestions; not at all. I think in passing I mentioned CVX and/or XOM for those who considered energy overbought. But I've devoted whole entries recently (such as "Sheer Energy") to the fact that this is the one sector that looks really bullish. The new high on the OIH today is no surprised, nor is the strength of such stocks as APA, SLB, and SWN.


PEG is another promising-looking stock to short, similar to CEG's pattern.


Finally, your clip of the day. This beautifully captures how I've been feeling about the comments section (especially the TTT situation). There comes a point when I just want to jump off the train.

Short the iPhone (and everything else.....)

Let me save the bulls some time and say two things: first, I am jumping-up-and-down, wild-eyed, chart-crazed bearish right now. So if you want to take that as a marvelous contrary indicator, please do so. Second, I've even done some legwork for you. The call option on the S&P 500 for July at $1,625 (which, gosh, should be easy - that's only 7.5% higher than the current market) is a mere 40 cents asking price! The symbol is SPB-GE. Go nuts.

For the bears and my adoring fans: today's post will be more jaunty than usual.

Let me explain the title of today's entry a bit. First, by way of apology, let me say I've been Steve Jobs' Biggest Fan since before most of you people even heard of the guy. I've followed him since 1982, and one of the main reasons I even live in this area is because My Idol is here.

I think Steve's return to Apple in 1997 is one of the great acts of justice in human history. Displacing people like Michael Spindler and Gil Amelio - who have all the charisma of used shag carpeting - made the world a better place. And I used to be an Apple employee - number 9653 - back in the late 80s. So I've got no ax to grind.

But.

I also know that things run in cycles. And I also believe there is an inverse correlation between hype and results.

Take the Segway for example. Before this was introduced to the world, rumors flew around about Project Ginger (its code name). Breathless reviews from the likes of Larry Ellison and the aforementioned Mr. Jobs made people wonder what this miraculous creation was. I believe it was Jobs himself who said that entire cities would be designed around Ginger.

Well, they weren't. And won't be. The fact is, for all its hype, Segway has wound up to be little more than a curiosity. It still attracts attention. But most people gawking at a man buzzing about on a Segway are less interested in the mode of transportation than they are at the fact that the rider will probably die a virgin. At least, that's what I'm thinking. I'm a geek. But, Jesus Christ on a Biscuit, I'm not going to be riding around town on a Segway.

You know where this is all leading. That's right, the iPhone. Good God, I've never seen hype like this. You'd think that, given the price and hype, the phone would jump under your desk and pleasure you orally between calls. Two facts keep leaping to my mind. First, phones can be had for $9.99, far less than the $500 introductory price of the iPhone. Second, I don't know about you, but I've got a phone. And I'm pretty happy with it.

People are expecting the iPhone will perform miracles with Apple like the iPod did. It won't. Let's turn back the pages of time a bit and understand the iPod introduction better.

The first iPod was introduced early in October, 2001. This was not even a month after the terrorist attacks. People scoffed at the introduction. Call it anti-hype.....sort of the reverse of what we are seeing today. Here was this microcomputer company, which for years had sold multi-thousand dollar machines, entering the consumer electronics business dominated by low-end players like Sony.

Now, as you can see from the graph below, Apple's stock did pretty good after the introduction, but it faded back again, and it sank to even lower lows. The stock got down to something like $6.50 (don't you wish that time machine was handy, folks?) So the iPod clearly wasn't seen as any kind of savior for the company, nor was it the object of frenetic optimism.


So what happened next? Well, the Apple magic started to work. The brilliance of offering an accessible way to purchase music, great software to manage your music collection, and an elegant, highly mobile piece of hardware started to take hold. And Apple's stock moved up not hundreds of percent, but thousands of percent. The iPod made Apple more successful (and the stock more expensive) than ever.


Which brings us to today. Apple is deep into triple-digit territory. Steve Jobs would probably win the presidency of the U.S. if he ran. And there are thousands of Apple zillionaires running around Cupertino. The company seems like it can do no wrong. I notice even The Economist put Apple right on its front cover last week.

I took all this into account. And although I rarely depart from charts as my rationale for decision-making, I bought a bunch of Apple puts early this morning. And, as the market closed today, those puts were already up 35%. Not bad.

Now, it's not that anything horrible was announced from Apple today. Steve Jobs gave a talk at the WWDC, and everything seems pretty hunky dory. But if I can smell a top, folks, this is it. And I'm not predicting Apple will wind up like a completely devastated shell like, oh, Sun Microsystems. But if the contrary workings of hype have any merit, this has got to be one of the all-time great hype fades of modern history.


Phew. OK. Back to the markets. As I said earlier, I'm more bearish than normal. Which is saying something. Part of the reason is that, viewing the $SPX minute graph, I sense a sea-change has taken place in the trend. I've drawn it below.


I have acquired an ungodly quantity of Russell 2000 puts, predicated on the notion that the channel, drawn below, will likely be broken. And the beauty part is that if I'm wrong, I'll know swiftly, and my losses will be manageable.


I look at a chart of the $INDU below and get so excited I must excuse myself from standing for fear of embarrassing both myself and those around me. (In addition to generating pangs of jealousy amongst my bullish readers). To me, this is a chart jumping up and down, shouting "Top!" with great gusto.


Reducing the granularity of the chart to a weekly from a daily, we can plainly see the bearish engulfing pattern which took place last week. This week - Wednesday, Thursday, and Friday, to be specific - is loaded with important economic indicators. Here's hoping they shove the markets lower and help increase the minuscule bits of angst floating about into a growing sense of dread.


The S&P 500 weekly offers, to my eyes, similar conclusions.


Let's look at a handful of individual stocks. I'm going to get into a short position with Amazon (AMZN) tomorrow morning.


CAH, offered by a thoughtful reader, also looks like a sharp short.


As does CEG, also offered by a kind reader (and I do appreciate those emails and charts, folks).


Let's pause another moment and consider CROX. Let me say right now I am not short this stock, and I don't plan to be short this stock. I nibbled on some puts a couple of weeks ago, and I was promptly stopped out. I've learned my lesson. This is a momentum play, pure and simple. and I shriek like a little girl when I see this chart. No touchee.


We can compare CROX to a similar stock from many moons ago called Taser (TASR). Here's what TASR was doing back in the day. Check out the similarities of both price and volume action.


What happend to Taser after it peaked? Well, you already know that answer, don't you? Here's a percentage graph. Will CROX suffer a similar fate some day? I bet it will. I really doubt you can ply an ongoing competitive advantage off some cheap-looking fad-driven "shoes." But I, for one, am not going to guess when the momentum is going to run out. No thanks.


OK, back to shorts. Entergy (ETR) is a good idea to consider. And remember, folks, these are just ideas. Read the top of the screen. None of this is advice. I'm just spoutin' my feelings and notions. So settle down.


I mentioned GOOG as a long idea. Ya know what, I've changed my mind. I think I might buy some puts on this one, mostly for the same reasons as Apple, although not nearly to the same extent. I see a failed breakout happening here. Maybe.


And if you think the energy/oil run has gone berserk, Exxon Mobil (XOM) presents a relatively low-risk to play this on the bearish side.


That's it for the day. If the week rolls in my favor, you can expect more videos and such. Until then, please think about what I've said above. I'm right from time to time.