Nice

After Thursday's big drop, I speculated that today we would see a short, sharp drop followed by a big rally. Well, even I can get it right every now and then. That is precisely, 100%, what happened.

I think there's a decent chance, however, that we may have moved into a new phase of this market. Maybe that is just wishful thinking. But I don't think today's big 150+ upside move on the Dow is the beginning of yet another assault onto new highs. Instead, I think it's just a pullback in what seems like could be a staircase down. We'll see.


One of the main reasons I thought we'd see a big move up today is because of the many instances of supporting trendlines around the closing levels of yesterday. This graph of the S&P 500 shows how the upper trendline of the (now broken) channel represented meaningful support for the index. Sure enough - boing! - it bounced right off of it. But I really think we're going to re-enter channel-land next week.


I tripped across Checkfree (CKFR) and got into a short position there. This is a honkin' big head and shoulders pattern, although as yet incomplete.


Goldman Sachs represents the kind of stock on which I'd like to own puts once the relief rally peters out (which could probably be about 30 minutes into Monday's session). I closed out the vast majority of my positions and am sitting on a ton of cash right now, waiting to re-enter shorts and puts at good levels.


NutriSystem is definitely on my list, too. This seems like a great bearish play, now that it has pushed its way up to formidable resistance.


I took the plunge with ONT today, buying a large block of shares. It's my only long. But this is a sensational-looking graph, particularly with the explosion in volume, and it has fallen to a price level that is reasonable compared to where it was at a couple of weeks ago.


Whirlpool (WHR) did what so many large stocks did this week........fell hard, and then recovered to a neckline (more or less) today. These are great set-ups.


Rock on. See you next week.

Talk About the Weather

I've always felt a bit sorry for meteorologists here in the San Francisco Bay Area. Because, between about April and October, they really have very little to say. The forecast is, more or less, as follows: "There will be patchy morning fog, clearing by late morning. Highs on the coast will be in the lower to mid 60s, with lower to mid 70s around the Bay and low 80s farther inland." It varies little from day to day, week to week, month to month. No rain. No hail. No nothing.

I'm starting to feel a bit like that about the markets these days. "Horrible economic news was reported to me. The markets rallied on the news to historic new highs. Bearish patterns were laid waste."

Oh, well. At least we didn't go up another 120 points today. The economy came in with the weakest numbers since 2002, and the Dow was basically unchanged. Looking at the RSI and slow stochastic, you can see how the market is seeming awfully tired, in spite of the progression in prices.


Much the same can be said of the S&P 500 ($SPX).


I was distraught at all the gorgeous real estate head & shoulders patterns getting trounced yesterday, but maybe there is hope yet. Apartment Investments (AIV) is no longer a perfect H&S, but today's weakness is a good sign.


I haven't posted American Airlines (AMR) in a while, but this is a head and shoulders pattern which remains cleanly intact with what appears to be a nice retracement to the neckline in progress.


JC Penney hasn't completed its pattern yet, but - - - it could! Keep an eye on it.


A lot of investment banks seem exhausted lately, whether you look at GS, LEH, or any of many others. Here is Morgan Stanley (MS), which seems to have made a bit of a double top.


Whirlpool (WHR), a Dow 30 component, is very lofty right now. This seems to me a short with an attractive risk/reward ratio.


And the Big Oil stocks - Exxon Mobil (XOM) is a favorite of mine to watch - likewise have an attractive risk/reward ratio for shorting right now.


There's a ton of economic news tomorrow morning. Let's see if June gets off to a better start for the bears than May was.

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.

'Til Tuesday

It's really simple.

Tomorrow morning, the CPI will be released. The market will react. If it reacts poorly (which means down, which is a good thing), it's party time. If it finds the report vigorous and exciting for some reason, that's a bad thing for us. Because, simply stated, today made a lot of sense to me, virtually all my positions went up, and all my charts are positioned for juicy profits tomorrow. But a perverse reaction to the CPI could muck that all up in no time.

I said last week that Massey Energy (MEE) was looking like a good short, given its head and shoulders pattern. One person wrote in that evening's comments section.....

I'd stay away from shorting MEE... One of these Merger Monday's it's name is going to be on the "acquired list" and that's going to suck for anyone short it. Crappy management, but great reserves, and the coal bidness ain't going anywhere soon....

Well, the stock took a big fall today, and based on this pattern, there could be plenty more room to fall.


Indeed, some of the put options on this went up literally thousands of percent. Not bad!


On a more bullish note, another stock I've been mentioning as a beautiful buy is ONT, and it continues to do terrific. Check out the strength of that volume!



Because the market is so complacent right now, many puts are being sold on the cheap. Check out this chain from earlier today for MMM. Just look at the October put. For 63 cents (if you strip out the intrinsic value)......63 cents per share!......you get the right to sell the stock at a fixed price of $95 any time between now and October. Even more interesting is the fact that time premium is just about zilch.....July is the same as June....is the same as October! Incredible.



The Major Market Index ($XMI) does a nice job of showing where this market stands. If - - and I say if - - the market even freaks out a little at the morning's CPI, tomorrow is going to be a fantastic today. Today was really good, only because I was running around buying puts when the Dow was up 50 and everything else was basically stalled. I knew it wouldn't last.


I've got to blast off to a meeting, so I'm just going to throw you raw symbols now, all of which I have either puts on or I am already short. Here we go.....AKAM:


BEN:


CROX (can you say fad?!!?!):


CRR:


DE:


EWM:


INFY:


MMM:


RIMM:


WHR: