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.

The Price of Tea in China

Unstoppable. The bulls are simply unstoppable.

As you know, before the market opened this morning, it was greeted by the news that China's stock market had fallen more than 6% (that would be like the Dow falling over 800 points here). Naturally, our markets opened lower. And they spent the day pushing higher.

To a new record close.

The Dow's at a lifetime high. So is the Russell 2000. And, unless I'm mistaken, so is the S&P 500. It's enough to make me consider renaming this blog The Wall of Worry.

In a balls-out bull market, traditionally bearish patterns get squashed. The chart below is a good example. This is a great-looking head and shoulders pattern. Or at least it was, as indicated by the highlight. But the market doesn't care. It's simply too strong, and this pattern - as with so many others - has been neutered.


I am buying energy stocks, because they are just about the only bullish charts that look like they have firepower behind them, as opposed to just being momentum plays. Here's Apache Corp (APA). Notice the good surge in volume on today, a very good "up" day.



Much the same can be said of Southwestern Energy (SWN).


That's about all I have to say today. This is just getting to be a bit much!

Indecision

For those of you who didn't read this morning's post, please check out The Chart Project, which is a little something I've been putting together. I'd love it for some of the readers here to contribute.

The market is in a pretty serious state of indecision. It could be just gathering its breath before it makes an assault on Dow 14,000. Looking at the Dow 30 over the past few months, however, it seems the technical indicators point to a reduction in prices as opposed to a fresh surge.


The Major Market Index ($XMI), although shaped differently, seems to present a similar argument. Especially if the old saw "Sell in May and Go Away" holds true.


The head and shoulders pattern, a favorite of mine, showtimes holds together and sometimes doesn't. Akamai (AKAM), mentioned here often recently, seems to be moving in accordance to its pattern.


Real estate stocks, on the other hand, seem to have violated their recent head and shoulders pattern across the board. Essex (ESS), shown below, is a good example - as is the much broader IYR. This doesn't necessarily mean the bearish pattern is moot. But it definitely diminishes its credibility, since prices have soared above the neckline.


Symbol ALB seems to be forming a nice trend change as well. I would say this is another head and shoulders pattern as well. They seem to be common these days.

The Chart Project

I do a lot of reading about electronic communities in my job, and I hit upon an idea that I call The Chart Project. Simply stated, it's like a Wikipedia for chart images.

I'm not sure if people will ultimately submit zero charts or hundreds, but I'm hoping to get some activity there. I've started by submitting dozens of my own chart samples. If you have any charts that are good example of technical patterns in action (channels, head and shoulders, saucers.......what have you) please submit them! I would love to see this little project get some traction. Thank you!

Chart-Free Memorial Day

From time to time, there's just nothing new to say, and I don't want to waste your time with the same old charts.

Turn off your computer and enjoy the long weekend. We all could use a graph-free break! See you all again on Tuesday.....

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.

Small Caps Catch Up

The market pushed higher today in fits and starts, and in the end, the Dow and S&P 500 closed down a little while the Russell 2000 - home of smaller cap stocks - pushed to a new high.

Even though the market seems unfazed by the weakness in NZD/USD, it is still worth watching. This currency pair has done a decent job indicating recent turning points in the market.


One stock I don't think I've mentioned before is Bunge. This has made a flag pattern recently. You can make of the pattern what you will:


BTJ has been a recent high-flier that might make a good short candidate:


CRS had a nice breakout a few weeks ago, but this breakout seems to be losing steam in a big hurry. Failed breakouts make great shorts.


Much of the housing sector - - lenders such as AHC as well as builders like BZH - had a nice bounce higher today. I took it as a good opportunity to enter some shorts of stocks that were retracing their head and shoulders pattern to the neckline, such as ESS, shown here.


Honeywell (HON) is starting to lose ground.


....as is Microsoft (MSFT)...


A couple of long suggestions. JetBlue, mentioned here not long ago as a potential buy, looks good. A series of higher lows and agreeable volume trends make this a handsome candidate for puchase.


And Questar (STR), also mentioned in the past, continues to prosper after its well-formed breakout.

The Indexes Change Places

I've noticed - anecdotally, of course - an interesting trend recently. It occurred to me when I went to the Maker Faire in nearby San Mateo, which is basically a get-together of do-it-yourself types. And I don't mean Bob Villa. I'm talking about people who make their own stuff, from robots to housing to computers to clothes.

As I milled around - and this was a very crowded event - I noticed how many nerds, geeks, and Melvins (my term) there were. And I was transported back to 1980, when I attended the West Coast Computer Faire (there's that olde English spelling again....) as a youngster.

It seems to me there is a backlash going on amongst nerd-dom with respect to computers. In 1980, you had to be pretty hip and with-it (ahem....) to really be into personal computers. Nowaways, anyone with a room temperature IQ has one. Sort of the same with cell phones.........if you had a mobile phone in, say, 1986, you were hot stuff. These days, even homeless people have them.

Another thing I've seen supporting this trend is the recently bestselling book The Dangerous Book for Boys, which features not the latest information on PlayStation 3 but instead discusses kites, marbles, and handy Latin phrases. If this cultural counter-trend has anything to it, I find it all quite charming.

As long as I'm ignoring charts, I'll also say that I just finished The Wisdom of Crowds by James Surowiecki. On pages 224-228, he writes:

In 1995, the finance ministry of Malaysia suggested that [short sellers] needed to be punished [with] mandatory caning....Napoleon deemed the short seller "[an] enemy of the state." Short selling was illegal in New York State in the early 1800s while England banned it outright in 1733 and did not make it legal again until the middle of the nineteenth century...shorting was denounced on the [U.S.] Senate floor as one of "the great commercial evils of the day"'...one reason why there isn't more short selling is that most people are not psychologically built to endure constant scorn.

We poor bears! Hated throughout history.

I noticed MarketWatch was touting the idea that the S&P was at a new high. Not quite. With their tortured logic, the S&P's high today was higher than the highest closing price. Well, yeah, that's true. But that's comparing apples and oranges. Who cares?

According to my data, the highest price reached by the S&P on an intraday basis was 1552.87 on 3/24/2000, and the highest closing price was 1527.57 on the same day Today's high was 1529.87 and the close was 1525.10. It's a pretty sure bet there will be a new high on the S&P 500 tomorrow, but let's at least wait for it to happen before touting the news, shall we? Anyhoo, here's the $INDU:


The indexes, until recently, have had all their firepower in the Dow 30. That was not the case today. The Dow actually inched down in price, whereas the Russell 2000 blasted higher by 1.21%. It seems the small caps are finally playing catch-up.


The Chicago Mercantile Exchange (CME) inched down today and continues to shape a nice topping pattern.


I like to look for stocks that are far away from their supporting trendline and seem to be flipping around to a downward direction. CSX fits this.


ESS looks like it is inching up toward its neckline, which could make for a relatively low-risk head and shoulders pattern to play on the short side.


JC Penney also is forming its head and shoulders cleanly. Of course, one must be cautious to trade incomplete patterns, as a single price bar would render it moot.


KRC is another homebuilder with a similar pattern forming like ESS.


On a final note - one frequent commenter, Gary, has mentioned the Commitment of Traders many times in the comments section. I was intrigued and did some basic research, but I find this data difficult to interpret. I guess I'm a sucker for easy-to-read graphs. I would appreciate his illuminating this issue in the comments section to give us a bit of a tutorial on the subject, since it sounds interesting; thanks in advance.