Bears Getting the Upper Paw

It happened again.

Everyone was awaiting a major economic report - this time, the GDP. It was revised up - way up - which no one expected. The result?

The Dow 30 - down.

The S&P 500 - down.

The NASDAQ 100 - down.

This is exactly what we want to see. For even good news to be powerless. Because when the good news runs out and turns to bad, the slide will quicken.

I don't have any new charts to add today. There have been plenty of those recently. Just wanted to share the joy.

Oh, one stock I will point out that looks like a good (shhh.....) buy (yes, buy) is Akamai (symbol AKAM). Take a look at the entire history (daily basis) of this stock. Lovely saucer pattern, breaking out on strong volume (I certainly hope you're using Prophet JavaCharts and not some lesser system).

Actually, let me amplify that remark. Perhaps you think I'm a "Johnny One Note" who only talks bearishness. Not true. There are a host of BEAUTIFUL stock charts out there for those who want to buy. I'm just too bearish in general to do so. But if you want to check them out, here they are:

ABI
AKAM
ASYT
BIDU
BLKB
CELL
CSC
GFI
IVIL
MCHP
NOVL
PAYX
Q
RADN
RATE
RBAK
SIGM
STAK
VIGN

When Good News Can't Help Anymore

There were two very important economic reports that came due this morning.

The first was Durable Goods Orders. The consensus on this figure ranged from -.5% up to +2.5%. The general consensus was 1.8%.

The figure came in at a totally unexpected 3.4%, far stronger than even the highest estimate.

Half an hour after the market opened, another key figure came out: the Consumer Confidence Index. Its consensus range was from 88 to 92, with 90 being the average consensus. Once again, the actual figure blew away the estimates and came in at 98.9

What'd the market do? It shot up, of course. The Dow was up 70 points early in the day.

Then it started easing. And kept easing. And kept easing.

Where'd the market close? Up 50? Up 25?

The answer: the Dow Jones 30 closed down 3 points today.

Now, why does a gentle technician like me care about all this? Because if fantastic economic news can't keep this market from going limp, what's going to do it? Anyone? Bueller? Bueller?

I think you see what I'm getting at. If even great news can't move the market up, we bears don't have to fear it. Because what's going to happen when bad news comes out? Well, it probably won't be great for the bulls.

The market peaked today at 10,960, just 40 points shy of the psychologically key (but otherwise completely meaningless) 11,000 on the Dow. Google, mentioned yesterday as a stock on which I owned put options, closed down nearly 20 points (20 points! Most stocks aren't even worth that much!)

In my view, the market (as measured by the $SPX) peaked on November 23rd at 1,270.64. Look at the graph below, and notice how beautifully all the Fibonacci retracements line up:


I'd also like to point out the amazing shooting star pattern on the Dow. It's absolutely textbook!


There's about a month left in the year, and the Dow is currently up 1.5%. Hopefully the Dow will close out the year at less than 10,783, which will "break" this decennial pattern and be another feather in the cap for the bears.

New Hope for the Bears?

The stock market has been going virtually straight up since October 13th, much to the chagrin of dyed-in-the-wool bears (waving hands wildly, pointing at self).

Nothing would be better for the bears than for everything seem to be in favor of the bulls and then have the carpet yanked out from under their grimy little hooves. As a reminder, what's in favor of the bulls right now is (1) the Decennial Pattern (2) strong seasonal bias (the so-called January effect, which tends to take place in December!) (3) recent broad-based strength, particularly in the NASDAQ.

One day does not a trend make (or break), but today was heartening nonetheless. Witness first that the market opened higher and spent most of the day sinking. The Dow, approaching 11,000, may be turning tail again. A double top would be potent elixir for the bears. (Reminder: click on the image to see a bigger version of this graph, then click Back to return to this scintillating post):



I also want to point out that, across the board, both indices and individual stocks alike had examples of the bearish engulfing pattern (one of the easiest-to-spot and powerful candlestick patterns). Check out the SPY, and notice how it stands out from the price action over the prior six weeks:



Google, which has had a swashbuckling year, seems to do little but go up. Although I am loathe to call a top on this powerhouse of a stock (which, by the way, happens to represent a very fine company!), here is another fine example of a huge bearish engulfing pattern.



It's important to get a sense as to the scope of the market. I am, for example, long puts on Boeing (symbol BA). This is based on a recent trendline break. Boeing has recovered from this break, but the damage may have been done already. Although the above graphs are very recent history, look at the graph of BA below which spans about 12 years. Witness just how far BA has ascended over the past couple of years, and imagine the possibilities should the market ever start really falling (ahem, if it ever gets any traction in the downward direction). There's a looooong way to go.



For those interested, below are my current positions. I will once again state that this blog is merely a place for me to spout ideas and thoughts on the market. Your analysis is up to you. So trade at your own peril! Anyway, the underlying symbols for my put positions are:

BA
CI
DIA
GOOG
MAR
MMM
SBUX
SPY

And the straight short positions are.....

AIG
APC
BMHC
BZH
DOW
EMN
ET
FDO
HLT
KRC
MON
PETM
SGMS
YELL

What's Next for the Bulls & Bears?

These are the times that try bears' souls!

Between the "decennial" magic and this bullish time of year, bears are getting smushed. Some major indexes are reaching highs never seen before - - ever! Examples include the very important Dow Transports ($TRAN), the MidCap 400 ($MID) and less known but still important indexes like the Morgan Stanley High Tech 35 ($MSH) and the Morgan Stanley Internet ($MOX). These last two look extraordinarily bullish.

The Dow Jones 30 ($INDU) is only 180 points away from the psychologically important 11,000 level. The last time it got close, earlier this year, it turned tail and ran. Clearly if it manages to get onto the other side of 11,000, it will be extremely heartening to the bulls (big, round numbers make for great press).

I still believe - yep - that the market is ultimately in for a huge tumble. But you can't argue with the prices and the strength. This market has been powerfully strong since October 11, and there aren't any clear signs of it abating for any technical reason in the near term.

I am not seeing a huge quantity of individual stocks that look like great buys. Once exception is Quest Communications (symbol Q) which has a beautiful - - albeit slanted - - inverted H&S pattern. Notice, too, the handsome increase in volume in recent months:



The $MOX, mentioned earlier, sports a similar pattern, although it's so level you could do carpentry on top of it:



One cautionary note for you bulls out there - the VIX has, naturally, descended given the market's rise. It has reached a level not seen since July of this year, which was a high water mark for the market. I've highlighted the area of the VIX when it bottomed out and, subsequently, the market went into a sustained dive.



One short that has done quite nicely for me is PetsMart (which I've mentioned once or twice before). It's a beautiful head & shoulders pattern which has ascended to touch its neckline and, starting today, is moving away from it.

The Bearish Case Weakens

Well, as much as I hate to admit it, the case of a downfall in the market anytime soon took another blow. Recent strength in the market - especially in the face of what should be viewed as weak economic data - speaks for itself. I'm getting very close to the point that even I'll have to admit the bulls are firmly in control for the forseeable future. (And some stocks are just beyond belief - check out NTRI and HANS!)

The S&P 500 ETF, the SPY, is getting terribly close to crossing above its highs for this year. If that happens, that will be the final nail in the bear's coffin for the time being:



Some major ETFs have already crossed into new high territory. Particularly strong is the Nasdaq 100 ($NDX):



Also strong, and until recently a favorite short of mine, is the MidCap 400 ($MID):



So, as long as I'm sheepishly visiting the bullish camp, how about some specific suggestions? The stocks below are in technical formations that appear quite attractive; I suggest you check out the charts and see for yourself:

ABI - Applera Corp
RATE - BankRate
JCOM - J2 Global
KYPH - Kyphon
NOVL - Novell
RBAK - Redback Networks
VIGN - Vignette

It will take a pretty serious swan-dive for the market to clearly be bearish again. I hope that it happens, but remember, the word "speculate" is derived from the Latin verb "speculare". Which means "I observe", not "I hope....."

Repelled!

As a devoted bear (ahem: duh) I have been nervously eyeing the Dow, which has been the strongest index of late and has threatened to cross above 10,725 in a meaningful way.

Over the past several months, the Dow has tried to pierce this level, as shown below. It has failed every time. And any failure to push past a resistance level only strengthens the bear's argument that that level will not be surpassed, and the fall will be just that much stronger when it comes.



I was disheartened to witness the Dow push through this level today, but the curious thing was that the 22 stocks in which I have short positions didn't follow suit. In spite of the Dow's strength, many of them remained weak.

Three hours before the close, the Dow peaked, it started falling, and it never looked back. Not to say today was some kind of amazing plunge - the Dow only lost about 10 points. But what's crucial is that the Dow was pushed away yet another time from this resistance level, and just about every index wound up in the red.

There are many time-based reasons the bulls have an upper hand. The decennial pattern (described here) is terribly potent. Plus the timeframe of November 1 to April 30 is traditionally the stronger half of the year. So the bears have plenty going against them. (I would note that, with 2005 almost over, the Dow is down a fraction of a percent. Hardly jibes with the awesome gains illustrated in the decennial pattern article).

As the Fibonacci retracement indicates below, this level of 10,725 is a key line in the sand. As long as it can stay below it, the odds of the market "cutting loose" to the downside stay strong. If this line is penetrated in a meaningful way and the prices close above this level, I will have to reconsider my position.

Using Retracements Short- and Long-Term

Today's entry is going to be about using multiple Fibonacci retracements in different timeframes. Now, wait, wait; don't roll your eyes and turn on the TV just yet. This isn't as dry as you might think. Stay with me on this one.

The general point is that using the Fibonacci retracement is very useful not just for long term analysis but short term as well. On one given chart, you might have two, three, or even more retracements drawn.

For those of you relatively new to these, they are quite simple to draw - typically the reference line is drawn from one price extreme to another, and the retracement lines are automatically placed on the chart. Take one of my favorite examples these days - the NZD/USD currency pair (New Zealand/US Dollar). I have been touting this as a short position for quite some time.

Look at the chart below (frequent reminder: click on it for a bigger view). It shows the NZD/USD over the past couple of years. I've highlighted in green where the price tends to "hug" or bounce off of the various retracements. I find this behavior uncanny.



Although you can just barely see it, I've drawn another retracement way up in the upper-right hand corner of the graph. This is for just the past few weeks of activity. Below is a zoomed-in portion of that graph. Once again, you can see how the prices line up beautifully.



As you can see, these retracement levels are invaluable. If you are "between the lines" and moving either up or down in price, you already have advance warning as to where the price is probably going to pause. In addition, once it breaks through a price level (either up or down), you can have a higher degree of confidence that it will move more smoothly from that point until the next level is reached.

Two Great Short Ideas

Since this market still can't make up its mind about which direction it's going to go, I thought I'd share a couple of favorite short ideas, both of them in massive head & shoulders patterns. I've mentioned each of these before, but they are both so good, I wanted to revisit their latest charts.

The first, PetsMart (PETM) broke beneath its neckline, took a sharp fall, and then has retraced beautifully to the neckline. This is a gift! It represents a much lower-risk place to put in a short order. Prices don't always return to the neckline, and the stock has already "tipped its hand" about the direction it will probably go. I've put an arrow indicating a target price.



The second, Family Dollar Stores (FDO) is a much, much larger pattern. In fact, whereas the chart above spans five years, the chart for FDO spans a much broader period. In addition to being in a head & shoulders pattern (albeit not as squeaky-clean as PETM), it has broken beneath a major ascending trendline. So you have a breakdown from not just one pattern, but two.



Two reminders - first, you can click on any chart on this blog to see a bigger version; and second, take these suggestions at your own risk! Your own analysis needs to drive your trading. I merely offer these as interesting examples of technical patterns.

Best of The Blog

I enjoy writing about my trading in this blog, but there have been so many entries, I thought some newcomers might like to see a few "best" choices of my favorites. Click on any of the links below to read the article, and click the Back button to return to this list.

Century-Long Pattern - Probably my favorite one, this shows the incredible convergence of Fibonacci fans showing major turning points of the Dow 30 index. Spooky!

The Bearish Big Picture - As will quickly become clear to newcomers, I am a raving bear. This shows the long-term picture of my opinion.

False Breakouts - My predictions are not always right! (Far from it.......) This gives you some guidance as to how a TA-based assessment is useful in helping you know when a breakout has failed.

VIX Tricks - The VIX is the widely-followed volatility index on the S&P 500. Here I describe the correlation between the VIX and market direction.

Russell 2000 Cracks! - I'm proud to say that I nailed to the day the top of the Russell 2000 (so far, at least). This post pinpoints the turning point.

Short Ideas - A post with some specific short recommendations; some worked, some didn't, but check out IVGN, CNMD, HSY, and KMG - they all got walloped after this posting.

Reasons to be a Bear - My five reasons for bearishness in this market.

Fabulous Fibonaccis - The crude oil market provides a stellar example of how useful Fibonaccis can be for providing price prediction.

Trendline Bounce - A marvelous example of those amazing trendlines in action.

Revisiting FOREX (NZD/USD)

I've posted a couple of different times about the attractive short position in NZD/USD (which basically means the New Zealand Kiwi should fall in relation to the US Dollar).

This continues to be a good trade. Over the past several days the US Dollar has been very strong, so NZD/USD continues to get pounded.

As the graph below demonstrates, these markets are extremely volatile (the graph on the left is the past several days of the EUR/USD and on the right is NZD/USD). As the highlighted portion shows, these markets can spasm on news in one direction and then flip around and rush the other direction. Trying to trade on too short a time horizon is almost always a money-losing proposition in the FOREX markets.



I am not sure if NZD/USD is temporarily oversold at this point; it was definitely hammering out a short-term bottom near the end of trading today. The big picture remains superb for shorts. But, having fallen so far, it isn't as safe a bet in the short term since it could recover to the upside. Over the course of weeks and months, however, this still looks terrific.