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.

Careful What You Wish For!

A rare intraday post......

I said in my post from late last night that I wish the market would break out of its consolidation and give us some direction. Well - it did - to the upside!

For the Dow Jones at least, there's no doubt about it - this is a clear breakout. I guess this market won't stop going up until every last public company has been acquired and made private. Then we can just shut the equity markets down for good.

How Now, Mao Dow?

There was a time, not long ago (like, ummm, early last week) that I would have felt cheated and flustered by the Chinese market's tumble not having a bearish effect in the U.S. But at this point, I am so utterly distrustful (and numbed) by this market that I'm not at all surprised.

The Shanghai index fell the equivalent of over 1,100 Dow points last night, and our market - of course - went up. I truly believe - and I am seriously not exaggerating - that a nuclear bomb on a major city would not cause a major disruption in this bull market. I swear to God, this market is insane, and even the death of a million people would not stop it. It has lost its mind.

So. Having said that, let's look at a few charts.

Crude oil is pushing higher. Looking at the continuous futures chart, it seems to have plenty of room on the upside.


The strength in crude is obviously good for oil service stocks. The OIH is at a new lifetime high and had a very strong day today.


I mentioned last month how bullish energy looked, and stocks like Apache (APA) have been stars.


Conversely, companies which suffer due to high fuel costs got hurt today. My short recommendation of American Airlines (AMR) is doing well.


One I don't think I've mentioned in the past on the short side is BEA Systems (BEAS).


I have, however, mentioned Bunge (BG) a few times, and this one is shaping up nicely.


Capital One (COF) is sort of stuck right now. I own puts on it, and they haven't done a thing, but I am still hopeful about this position.


Federal Realty Trust (FRT - "don't giggle at our ticker, please") looks like a clean bearish trade to me as well.


I don't mention Google (GOOG) much, but this stock looks like a strong buy (yep, buy). This chart is strong, and the volume has been inching higher. Obviously this company is an ungodly powerhouse and is doing well at the expense of poor Yahoo, which seems to be dying an agonizing death.


I bought puts on Honeywell (HON) today. Maybe a lil' double top here.


The investment banks seem to be edging south, in spite of the market's continued strength. Merrill Lynch (MER) in particular looks good for a short play.

The Pain Grows Stronger/Watch It Grin

Years ago I remember seeing a Dilbert cartoon where Dogbert had yet another get-rich-quick scheme. This one was a generic newspaper which featured headlines about "Unrest in Middle East" and "Government Proposes More Taxes". It was basically a newspaper you could read any day for the rest of your life, and it would always be true.

Much the same can be said of the market - at least in terms of the Dow 30. I'm starting to lose track. What would today make it......the last 27 out of 30 sessions up? Something like that. It's starting not to matter. As you can see from the graph below, it essentially never goes down.


I am staying far away from SPX puts (or DIA puts, for that matter). The only index put I've been accumulating is on the Russell 2000. Earlier in this cycle, the Russell was strong than the Dow, but recently, it's been falling behind. It also has the added advantage of falling faster on the rare occasions when the market is weak (notice the recent dip, shown in blue).


A closer look at recent activity illustrates the relative weakness better. Today the Dow was up yet another 50, whereas the Russell - a broader index - actually fell.


The NASDAQ Composite is also relatively low on steam compared with the mega-caps.


And the $XMI is continuing the exhibit the rather fascinating "hug just beneath the broken trendline" phenomenon.


I have no position in the CME, but it's interesting how this is shaping up recently. It's not really a head and shoulders pattern, but it definitely looks toppy.


My puts on INFY did pretty well today. Infosys (INFY) fell on a good pick-up in volume.


Symbol MEE is a pretty massive head and shoulders pattern, although frankly patterns this big don't have as much weight with me, since it has already kind of done the retracement-and-fall-again dance. But your eyes have every right to make an independent judgment.


Symbol MS is doing the same shtick as $XMI.


Airline RYAAY finally took a tumble, losing about 20% of its value in the past week or so. It was really overheated earlier, and I don't see any clear pattern at this point.


Long suggestion SCHN continues to do well, although I'm sure the massive buyout news regarding AL/AA had everything to do with today's rise.

A Call For Bull Content

Over the past 25 trading sessions (March 29th through May 3rd), the Dow 30 closed up 22 times and down only 3 times. That means only about 12% of the time, we were down for the day. The net change was up 941 points.

During the 25 trading sessions prior to the above (February 22nd through March 28th), the Dow 30 closed up 12 times and down 13 times, meaning the Dow closed down 52% of the time. The net change was down 438 points. Quite a change, eh?

Given the above, you can imagine how the brawling in comments has been getting worse (and only God knows how bad it would be if anonymous people were still allowed to post). Back on April 17th, I asked all the bulls to make some recommendations. Only a couple of folks did. One of them had a bunch of options, which frankly I'm too lazy to look up, and another - TomTheTrader - listed a bunch of equity symbols.

I decided to do an experiment and entered a hypothetical portfolio of 100 shares of each of his recommendations, using a price of the opening on April 18th (the morning following his comment). In other words, I'm assuming you decided to buy, at the opening price, an equal number of shares of each of the stocks suggested (the weighting would vary quite a bit, obviously, since the share prices were so different). The symbols and their "entry" prices were:

DOW 45.29
EMC 15.12
GLW 23.40
GSK 58.4573
GS 213.75
GSF 62.31
INTC 21.35
MYL 21.60
MS 81.50
NDAQ 31.20
SMH 35.22
QCOM 43.19
QLD 85.85

By way of comparison, I decided to compare it to the Russell 2000. Over the period since Tom's suggestions, the Russell has moved up from 827.41 up to 828.87, which is a small change of 0.18%. Tom's suggestions were also up .18%, but with a 3 in front of the decimal point as well (e.g. 3.18%). So - - great work, Tom!


Now, as regular readers know, we get our fair share of bulls in the comments section that yell and scream daily about how stupid bears are. That's fine. But what interests me is to find out how smart our bullish colleagues are. Specifically, I'd like to hear what they have to say (in a constructive sense).

So here's my offer - - anyone who has bullish recommendations, commentary, or market views, I'd like you to send them to email address (which you can find in my profile). I will print any specific suggestions or market analysis without comment or editing (except for spelling). Consider it an opportunity to demonstrate the market prowess which you possess.

The NASDAQ is threatening to push above its resistance line, similar to the fashion that the S&P 500 did a few days ago. If tomorrow opens higher, we can pretty much count on a new surge by the NASDAQ. It's all up to the employment report.


The Russell 2000 is also threatening its stop-loss price of 835.17, which is its lifetime high.


Notice how the S&P 500 is staying above its former resistance line. Even earlier this week, on the one day the market dipped lower, the S&P closed above this former resistance line.


I shorted BID yesterday, and it fell nicely today.


I am also short CCL, which seems to have a lot of potential to fall.


InfoSys(INFY) is in a small H&S formation. Plus, when a major stock like this goes down on such a strong day, that's a good sign.


Retailer JC Penney (JCP) remains below its busted trendline.


I went long CCJ (the uranium producer) today, and it's already in the green.


CRDN is shaping up as another prospective long, assuming it breaks above the line I've drawn here.


WBD has been on a tear for months, but I shorted this one earlier today, and it fell nicely. It is sporting a hefty bearish engulfing pattern, although for a stock that is relatively thinly traded like this, it isn't such a big deal.



Finally, just to ensure I am going straight to hell, I offer you Merrill Howard Kalin, who is a mentally retarded adult that broadcasts his own cooking show. And does imitations. Poorly. This must be seen to believed, but if you're the impatient sort, skip ahead to about 4:30 and watch it until the end.

Bespoke

I guess I first noticed it about a month ago.

I took my family to North Lake Tahoe, where we've got a place, so we could enjoy the last days of skiing. I saw an issue of the Robb Report, which is basically a magazine for wannabe zillionaires. It is full of ads for Rolls Royces, exotic vacation destinations, and the like. In a nutshell, the essence of tacky.

I used to actually subscribe to this thing when I was a teenaged twirp, dreaming of having a fortune some day. I suspect that I had the same idea that many readers of this magazine have, which is that somehow wealth would rub off on me if I read about it and coveted it enough.

Well, I hadn't seen this magazine in over twenty years, so I thumbed through it. What struck me the most was a single word that kept appearing again and again - bespoke. It had to be the most frequently used adjective in every ad and article. Everything was bespoke this, and bespoke that.

It actually got kind of comic after a while. The actual definition of "bespoke" has a lot more to do with tailoring clothes than wealth, but I guess the idea is that if you throw money at products, you will get something specifically suited to you and you alone, as opposed to the unwashed masses beneath you.

People often look to the 1980s as the decade of greed, but frankly the symbols of greed from the 80s appear quaint today. For one thing, the Dow topped out at about 2,700 before it crashed, which is a small fraction of its current value. Obviously the asset bubble in real estate, stocks, and just about everything under the sun has made a lot of people far more fabulously wealthy than at any prior point in human history. Even house porn has become a favorite fixation, particularly in the SF Bay Area where I live.

Because of this wealth, the symbols of greed and covetousness abound. Since I'm pretty well past my adolescent craving for "stuff", I generally find the whole Gimme Gimme Society as a mix of interesting and stomach-churning. But it reached a new low yesterday when I thumbed through my personal mail.......I got this:


I stared at the cover in disbelief thinking, "You have got to be kidding me." I get the fact that Trump will whore himself out for just about anything with his name on it. But putting your name on hotels, condominiums, houses, and even a TV show is one thing. But - - - meat? A grocery item? What's next, toilet paper? ("Now you can wipe your ass with the same quality paper product that I do....")

If you believe - and I hope you don't - that money equals class, you are sadly mistaken. There are plenty of billionaires that don't have an ounce of class, and there are plenty of thousandaires with gobs of it. For a superb perspective on this subject, read Paul Fussell's Class. It is many years old, but it is absolutely on the mark.

Anyway.

Well, the asset bubble kept expanding today, although it moved away from its highs. I watched the Dow cross the 13,250 mark, and at one point I think it was up something like another 130 points. The "melt up" started to simmer, however, and it closed "only" about 75 points higher, yet another all-time-high.

My portfolio has been doing an admirable job of holding its own. In fact, it closed the day virtually unchanged. This is very encouraging to me. If I have constructed a bearish portfolio that can weather this kind of abuse, then I know any weakness will be richly profitable.

Here is an intraday graph of the red-hot Chinese market (which is basically a verbatim repeat of the NASDAQ bubble of 1999). I've drawn a neckline here on what seems to me to be a nicely formed head and shoulders pattern.


The Dow 30 has obviously been the strongest index of late, although its lurches forward seem to be getting more spasmodic. But it certainly has not broken its upward pattern yet.


My concern yesterday about the candlestick formation of the Russell 2000 was well-founded. I am glad I closed those puts - - and at a very handsome profit, I might add. But I was aggressively re-entering the position today when the Dow was in the +100 points zone.


The Dow Transports have not been sharing in the glory, and this looks toppy to me:


As for the $XAU (gold and silver index), I hate for you to think I see an H&S pattern everywhere I turn, but there's really no doubt in my mind as to what we're looking at here.


Now, it's confession time. As you may recall, I was short BankRate (RATE). I had a stop in place. And, first thing this morning, I overrode it and closed out the position.

That was stupid, it was a mistake, and it was against my rules (in particular, "Never do an ad hoc close.") The stock closed up for the day, but substantially below its highs, and the chart is still a reasonable bearish play. So this is a bit of public flagellation for jumping the gun. I don't do it often, but when I do an ad hoc close, I almost always regret it.