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.

Is 14K Up Next?

On the whole, it was a great week for the bulls. The Dow, the S&P, the Major Market Index, and a host of others climbed to all-time, never-seen-before high prices. So where does it stop?

The Dow's high on June 1 was about 13,690. Its low on June 8th was about 13,250. That's a 440 point difference, and that's the approximate range of the rectangle out of which it just emerged. By traditional measurement, you take the high of 13,690 and add 440 points and get the target of 14,130. That's 223 points or 1.6% away. It won't take much to get us there.


The Russell pushed into new high territory, but by the slimmest of margins. I'm not sure I would call this a breakout on this particular index yet.


I rarely use arithmetic scale, but I am going to do so here on the S&P 500 to make a point. What I want you to see is the amazing drama that has taken place over the past quarter century, with the S&P exploding to a high in January 2000, collapsing terribly in a bear market, and then flying yet again to the prior high. Is this the mother of all double tops? Only time will tell. Although the bulls that visit this blog certainly would say no.


My puts on Baker Hughes (BHI) did well today. The oil service sector seems like it may be ready to drop a while.


Colgate Palmolive (CL) has tipped its hand by cracking beneath that supporting trendline. It also seems to be in the throes of a triple top. I'm going to buy puts on this Monday morning.


My CROX puts went up some today, as this high-flying stock actually eased a bit in an otherwise very strong market.


Chevron (CVX) printed a terrific shooting star candlestick today.


If you are dying to short (or buy puts) on a Dow stock, you could do worse than IBM.


My puts on Radio Shack (RSH) had a nice day too. It's pretty easy to see why. New highs on the market mean ecstasy without the need for batteries. Demand drops. Sales drop. Battery Club suffers.


Have a good weekend.

Melt-Up

Well, it finally happened. We broke out of the consolidation that's been grinding along for six weeks now. The action was just bizarre. I suppose shorts were getting squeezed left and right, and bulls were jumping in with both feet. It was like an orgy of buying.


Based on traditional technical measures, the target for the Dow at this point would be 14,100. I'm not saying it will necessarily get there, but this has been a really clean consolidation, and it seems a sensible conclusion. Particularly given the strong psychological import of the Big Round Number 14,000.


My index-of-choice for puts, $RUT, wasn't as strong as the other indexes, and luckily I was kicked out of my puts the moment the market opened (sparing me most of the day's strength). The high price of 856.39 is awfully close.


Looking at a long-term S&P 500 chart, you can see the index is approaching its lifetime high reached nearly eight years ago.


Now, a moment about the comments section. I totally expected the bulls to rip off their bras and swing them over their heads today - - that's fine, because I would be just as obnoxious if the Dow was down 283 points. There's one particularly poster who doesn't crawl out from under his rock very often, but when he does, his posts are little more than hate and vitriol (he is hiding behind a screen name, but his name is Ryan and he lives in Phoenix). I look forward to being on a new blog platform where I can block sub-humans like this.

In the middle of 1999, Newsweek proved once again the "cultural saturation" rule by having the cover below. The market still had six more months of climbing before it started eroding (not going into full bear mode for another six months after that), but it definitely was a signal of a looming top.


A new best-seller reminds me of the same cultural phenomenon. I actually picked up this book a few days ago and am looking forward to reading it. I guess I'm a frustrated sociologist.


The $VIX has been beaten back into submission again. I'm surprised how cheap puts are these days. I am seeing lots of November puts that are priced no higher than August puts - - - time premium seems to be about zero for some stocks. In most cases, I am seeing in-the-money puts that are barely higher priced than their intrinsic value. So they're basically giving them away.


Apache (APA) is a pretty promising bullish pattern.


And Blockbuster (BBI), which I've mentioned before, also looks bullish.


I think JC Penney (JCP) is at or near its full retracement today. I'm ready to jump into puts on this one again.


There are three stocks that look surprising flaccid given today's action. The first is Baidu (BIDU), which is part of beanie's bombast.


The second is CROX - - I admit, I see the shoes everywhere (ahem - I only wear Eccos, in case you were going to send me some shoes) but I still think it's a fad stock.


And finally, Google (GOOG). For a stock like Google to go up 0.16% on a day like this is pretty lame.


Today's rally was supposedly prompted by strong consumer spending. For a real view of American Consumerism, enjoy this clip from George Carlin - - the portion on consumers starts at the 4:00 minute mark.

When It Seems Easy, Feel Queasy...

I began this blog over two years ago, and I think that it has made me a better trader. Having to step up to the podium each day and offer up opinions (which are subject to scrutiny, disparagement, and future review) makes me think long and hard about the market. And the occasional public floggings I have received have imbued with me a healthy dose of humility that I think is essential to profitable trading.

Trading profitably has become far too easy recently for my liking. If bearish trades start becoming like shooting fish in a barrel, I know it's time to take profits. There have been times in the past.......and this is very common among traders.... when easy profits encourage more trading. And the tide starts to turn against you. So you pile on more. And the losses start to pile on. And, before you know it, all your fantastic profits from the last downturn are M.I.A. I really don't want to go through that again.

So as the trading day ended, I was kicking myself for having such a substantial position of puts on the Russell 2000 in place. There are some areas in my life where "irresponsibly large" is welcome, but options positions is not one of them. Let's just say I hope I don't wake up to a huge gap-up in the indexes. It could happen.


The basis for my nervousness.......besides my own angst........is the $VIX. Just take a look as this multi-year graph. For ease of viewing, I have circled peaks and troughs. We have certainly had $VIX levels higher than the present one, but let's face it, this is pretty peak-y. As I said: I'm nervous.


The Russell 2000 is below its supporting trendline, but this trendline isn't horribly significant. In other words, I don't put a heck of a lot of weight into the fact that it is broken. I'm glad it's broken, to be sure, but there's still a fair amount of support at these price levels.


One way to look at the market is that, for the past month or so, we've been caught in a trading range, and we are at the bottom of that range now. I've highlighted the range area on the S&P 500 daily graph here. I do not think we would break into new highs from here, but we might wind up with a triple top or at least partially retrace our way back up near the former highs.


One could look at the market another way........it is pretty easy to lay out a massive rounding top. Just look at the intraday chart of the S&P 500, where I've embellished it with probably one of the worst arcs drawn in human history. (I am not much of an artist).


Returning to the $VIX, however, the zoom upward has been swift. And if the market settles down and starts marching upward again, the premium values built into options are going to shrivel up faster than Strom Thurmond's johnson on a chilly southern evening.


OK, a few stocks. Stocks like CROX! I have, as I've mentioned before, lost some cash on buying CROX puts before. Fool that I am, I gave it another go today. My puts are slightly profitable. I was inspired by an article this week in Barron's. They say that easily 20% of this stock's value could be blown away just by right-sizing it to its industry. Plus, I think it's a fad.


One similar shoe fad which is already "post-bust" is Heelys (HLYS), those obnoxious shoes that kids wear with the wheel on the heel. As you can see, the stock is doing poorly.


I hate to mention JC Penney every day, but this continues to do beautifully. I've highlighted my price target. The puts I bought on this are up huge.


Vulcan Materials (VMC) has a plainly defined range which seems to be breaking down. I'm short this, and it's got a nice ways to fall to the trendline.

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.