Love So Deep, Kills You In Your Sleep

I'm no better. I just know I'm not any better of a person than any of the bulls that frequent this board.

When the market is roaring higher........when bears like me are getting slaughtered .........it's only natural that you gloat. You announce how the market is just going to keep going up forever. You wish for the destruction of all the bears. And you offer up reasons why It's Different This Time and there will never be a down market in your lifetime.

So - as the kids say, good on you, because I'm no better than that. The market is a battlefield. Wiser souls - of which many claim to be, but hardly any of them are - are truly neutral, and they position themselves to try to take advantage of the ebb and flow. Mere mortals, like your humble narrator, tend to be more dogmatic. History - and human nature - tend to make the vast majority of them bulls. And a vanishingly small number are bears. So - join hands around the campfire, and let's sing!

I hate you. You hate me. We're a trading family. With a big fat drop, and a knife from me to you. This one day, you get the screw.

So allow me to remind everyone of the disposition just four trading sessions ago. Last Friday, June 1st. Hardly a blip in time. The Dow had made another lifetime closing high. Let's review some of the comments offered up:

Permabull NewEquity wrote: I just bought 100 DIA calls mid-day for the ride back up through all time highs. No resistance at all and we should break 14k Dow in the next 3 weeks according to my tech analysis guy.

John (B) predicted, regarding the S&P 500, whose closing price today was 1490.72: "Putting these numbers in my model, the 500 fair value today is 2,300...and based on earnings for next year, fair value would be about 2,800."

And, lastly, Beanie11111 declared the bottom for a number of stocks: "...AKAM has bottomed...SBUX has bottomed.....WFMI has bottomed." As a follow-up, in the mere four days since that post, those stocks have declined 3.2%, 5.9%, and 6.5%, respectively. So I guess some people have different understanding of bottoms than others.

Suffice it to say, the past three days have been very good for me. Indeed, I had trouble deciding what charts to show, because they are all gorgeous. Every single one - every one - of my dozens of positions pushed way higher today. I even made some very profitable intraday option trades - both long and short! - with the Russell 2000.

The Dow fell 1.48% today. And, after the regular market closed, the ETFs on the indexes just kept falling. The DIA wound up down 1.96%.

I actually would not be surprised to see a very short, very sharp drop first thing in the morning followed by a rip-roaring push up. Looking at this channel, it seems to me the selling is a touch overdone (on the very short term) at this point. You hear me, fellers? I'm not saying we're going to enjoy another 4th day plunge. Nice as it would be.


Zooming in closer, you can see what I mean. Now, of course, all trendlines are eventually broken. And if the one shown here is decisively snapped, it could be a new ball game. But the past 11 months have made me paranoid, and although the last 3 days have been sensible, I still don't trust this market or its participants.


Akamai (AKAM) hasn't plunged as fast as I hoped, but it's doing OK. It's still a very nice pattern, and I've got some nice green on this one.


CSX is way the hell above its trendline, and it is sporting a cute little head and shoulders pattern to boot.


CVX would definitely pop up if the market strengthened, but that would just give me another opportunity to add to my bearish position.


I closed my Deere (DE) puts today at a nice profit. Not because I think the stock is going to be strong. But only because I'd like to re-enter them at a better price, assuming the market "recovers" some in the very short-term.


The Asian markets are having a touch of reality. My EWM (Malaysian market) short is doing nicely. I daresay the Asian markets will kind of freak out during their Friday session, which might make our Friday session interesting as well. But, if forced to bet, I'd say we'll probably close higher, Asian freakout and end-of-week jitters notwithstanding.


InfoSys (INFY) finally cracked its neckline, although it still seems to behave stronger than I'd like to see. Would you plunge, already?


JC Penney (JCP) - on which I bought puts yesterday - had a nice fall due to weak retail sales. Of course, a true break of this neckline - - - the pattern is only just forming now - - - would make these puts fantastically profitable.


Merrill Lynch (MER), along with my other investment bank shorts, soured (for the bulls) today.


Oh, a couple of final comments to two users before the video. TomTheTrader, please stop posting your URL. I consider that an ad, and I'm going to be more consistent about nuking comments that are ads in any way. And Gary - for goodness sake, we get it. COT, COT, COT. Message received and understood. Lordy. Oh, and as for you readers that only show up on big down days like this......shame on thee!

Anyway........

Some Day This War's Gonna End

It was a good day today. At first, I was distressed to see the Dow blasting higher, well past the 13,600 mark. It was up nearly 100 points. But I noticed something. Looking at the $RUT and the $SPX, they were not at new highs. In fact, it looked like the Dow's strength was just pushing them into making a right shoulder on an intraday head and shoulders pattern. So I bought more puts.

That was the right move. The Dow went limp, soft, and squishy, and we enjoy a nearly 200 point intraday turnaround. Every single position of mine was way in the green.

Oh, please remember to sign up for MyBlogLog, which now has nearly 100 members! It's free, and it's a fun way to see the other folks that have made the trip to The Slope of Hope.

Now, I am maintaining my cautious and newly humble disposition, so I will say, in the face of today's fall, that we must exercise caution. Just look at all the recent falls in the past few months. Every single one of them was just a blip - a momentary pause - before the market shot higher still. So a grudging respect for the bulls is in order.


I mentioned Bunge Ltd (BG), and it is doing beautiful. The perfect presentation of lower highs and lower lows.


I mentioned yesterday that housing stocks had pushed up to their necklines, and I was going heavily short to enjoy the hoped-for fall. It did just that. It's nice when patterns behave as they should. Here's Essex (ESS) as just one example.


InfoSys (INFY) at long last cracked beneath its neckline. Now we can get serious about making some cash on this one.


PSB also enjoyed the aforementioned housing H&S fall.


Vornado (VNO), suggested by a reader here last week, is another honey.


Whirlpool (WHR - has that for a boring company?) is flipping direction too. Good.


And now, your thought for the day.

Thanks, Alan

The market surged again this morning. The S&P 500 was at a new lifetime high. As was the Russell 2000. As was the Dow 30. It looked like Dow 14,000 was just around the corner.

Then Alan Greenspan - bless him - threw some cold water on the excitement by speculating the Chinese market was overheated and headed for a fall. That's all it took to render the breakout (shown in green) moot (shown in pink).


Now, the Old Tim would have been dancing around shouting about how it's the end of the world. But the New Improved Tim With Integrated Timing (figure the acronym out for yourself), severely humbled over the past year, will do nothing of the sort. Indeed, if you think back to Greenspan's most famous declaration ever - - "irrational exuberance" - - it might be instructive. He said it on December 5, 1996, and you can see the brief aftermath here:


But if you take a longer view, you will note that the irrational exuberance had barely even started. The market went up hundreds of percent more, as measured by the NASDAQ.


Not to say that I'm unhappy with today's small tumble. A look at the major indexes shows they are very tired. Here's the S&P 500:


And here is the broader Major Market Index ($XMI):


There's an interesting article by Herb Greenberg about the fact that brokerage margin debt is at a never-seen-before high. Obviously people are willing to go into debt on a widespread basis to buy into the recent mania. If you think the shorts are only going to get squeezed worse, you might want to check out this blog which focuses on opportunities to go long on stocks that may be squeezed up.

I am still short Akamai (AKAM), and its head and shoulders pattern (an obvious favorite of mine) is nicely intact.


AutoZone (AZO) is finally getting serious about falling.


Carnival (CCL), which had some recent strength, is again at a relatively low-risk zone for shorting.


Housing stocks, strong yesterday, are a safer short now. Here is Essex (ESS):


Infosys (INFY) is inching ever-so-slowly toward its neckline. If and when the neckline is broken, a substantial fall would seem in order.


Martin Marietta (MLM) may have double-topped here, and it is far above its supporting trendline.


Morgan Stanley (MS) is sporting a nice shooting star today. Granted, many recent shooting stars have been rendered moot by the market's strength. Still........


And Whirlpool (WHR) is likewise far enough above its supporting trendline to present an attractive short (or put-buying) possibility.


There's a ton of economic information coming out tomorrow morning. It should make for an interesting session.

Sheer Energy

Another record. This is getting really monotonous.

One index that hasn't actually reached a new record, but is within a hair's breadth of it, is the S&P 500. It peaked back in January of 2000, and if Monday is up at all, it will almost certainly reach a new record closing high (and I don't need to tell you the financial media will make a huge stink about it).


The $VIX remains very, very low, indicating widespread complacency. You can see how the VIX deteriorated from 2003 through 2005 and has remained low ever since. There was a time when the normal VIX range was between 20 and 50 or so. These days, it's lucky to even stay in the teens.


Real estate has been getting hit, in spite of the market's overall strength. I've got a number of real estate shorts, one of them being AIV.


Akamai (AKAM), which I am short, went up some today, but I am still comfortable that this pattern is safely beneath its neckline.


One days like this, if you see major stocks with weakness, that's usually a very bearish sign. The CME is a good example.


InfoSys (INFY) is an even better example, since its pattern is more clearcut.


The thirty stocks which comprise the Dow 30 Industrials have obviously been very strong, by and large. MMM is no exception, although it seems awfully lofty right now, and it is sporting an impressive shooting star with today's action.


Energy has been incredibly strong. I've mentioned some oil service stocks here recently as good bullish plays. But even looking at the general OIH stock, which represents an amalgam of oil service securities, you can witness the terrific strength lately.


PSB is an other short of mine that has been enjoying the real estate tumble.


Finally, VNO is another participant in the real estate slump, and it features a really nicely-defined head and shoulders pattern.

Snoozer

I see several dozen people have signed up for MyBlogLog. Cool. Basically what it lets you do is sign up with your name and a photo, and you can check out what your fellow readers are also reading. It's a pretty cool way to amble around the community of readers we have on this blog and find interesting new stuff.

Today was a rather yawner day. The Industrials crossed above the 13,500 market, and then slumped in the last part of the day to close slightly down. The Dow is really running on fumes at this point, given its rapid ascent.


I keep an eye on the currency markets too. I've mentioned the NZD/USD here many times before. As you can see, there is a very strong correlation recently between the NZD/USD and the U.S. Markets (I've used the S&P 500 here).


The $XMI is also a good illustration of how the market may be in a position to "roll over" after this explosive upswing.


I'm hanging onto my BSC puts. They are doing OK - nothing spectacular yet.


Energy stock DRQ, mentioned here bullishly before, looks better than ever. I'd put a stop of $44.11 on this.


A reader mentioned ESS as a good short idea today. I agree! (A similar conclusion could be had with VON).


My InfoSys (INFY) short is also doing pretty well, although it needs to break that neckline to get juicy.


It might be a good second chance for those of you wanting to be short JC Penney (JCP) to get in at a better price now.


PSB - like many real estate stocks today - fell pretty hard, and it is right on the cusp of violating its neckline. Lovely!


Another bullish energy play - SWN - looks terrific.


Go sign up for MyBlogLog if you haven't already! :-)