Here's Your Pickle Surprise, Pal....

One of the readers of this blog posted a link to an interesting article called The Last Bear Standing that you might find of interest. Here is an excerpt:

"As Grantham points out, a bubble needs two things: excellent fundamentals and easy money. 'The mechanism is surprisingly simple,' he wrote. 'Perfect conditions create very strong 'animal spirits,' reflected statistically in a low risk premium. Widely available cheap credit offers investors the opportunity to act on their optimism.'

"And it becomes self-sustaining. 'The more leverage you take, the better you do; the better you do, the more leverage you take. A critical part of a bubble is the reinforcement you get for your very optimistic view from those around you.'"

"My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right. ... In which case, pessimists or conservatives will take considerably more pain."

So - encouraging in a way, although discouraging in another. I strongly believe, as readers of this blog know by now, that we are in the midst of the hugest Ponzi scheme in human history, and one day it's going to completely collapse. The question is whether that "day" is tomorrow or five years from now. One thing in certain - between now and then, the bulls will persist in posting their taunts here. Although at least to a lesser degree, now that the shield of anonymity has been taken away.

One other article of interest is Dead Market Walking, emailed to me by another thoughtful reader.

Today is the best day I've seen in a long time for my portfolio. I sometimes wonder on days like this is our national nightmare is finally over. One day does not a trend make (or break), so that remains to be seen. All the same, as you can see from this chart of the $INDU, the big boys gave up some ground, and the cyclic indicators are looking mighty encouraging.


The NASDAQ Composite, which has been weaker than the Dow, also fell. The key difference is that it was down pretty much all day, whereas the Dow sported a 40+ point gain at one point in the day before shriveling away.


My favorite index, the Russell 2000, fell the hardest. I like what I see here.


The S&P 500 remains above its former resistance, but any further drop will pierce that line and put us back into that gigantic upward-sloping channel.


The Gold & Silver index, which has been mercifully weak, continued to fall today. This is one of the cleanest, prettiest channels around.


As for the $XMI, it has kissed the underside of its former support line and is now heading in a more intelligent direction.


Ironically, I don't have much time today, so this is going to be a quick post with hardly any specific stock symbols. I offer here a few short suggestions (but not nearly as many as I could.....) There's Akamai (AKAM):


Affiliated Managers Group (AMG):


Avalon Bay (AVB):


MWP is turning down hard:


PVH is not as clean as the others, but it has certainly lost a lot of momentum.


Hopefully I will have more time tomorrow. Thousands of people come to read this blog every day, and I'm flattered and grateful for your interest. If the blog is this popular during this air-headed runup in prices, I can only imagine its popularity when we actually enter a honest-to-God bear market. Until then, I can only yearn to trade stupid, except for occasional days like today.

The Price of Tea in China

I am writing this Wednesday morning, a few minutes into the opening bell. I stayed up until 2 going through charts and resumed at 5:20 this morning. So this is a late post, but it is in the context of Tuesday's mini-crash.

It has been a long, long time since I have awakened to such a beautiful sight on Tuesday morning:


In the end, Tuesday turned out to be the best of times and the worst of times. It was the best of times since it was spectacularly to finally see a real fall, just like I had hoped for the previous day (see my Monday post). It was the worst of times since, for my index options, I closed them out when the Dow was down just 120 points. I made money on all my options, but there was a huge amount left on the table. Deeply disappointing, but nice to see the smart bears beat the dim bulls for a change.


A few interesting notes from yesterday:

• I had a record amount of blog traffic. It's weird, because usually my traffic is very steady. Maybe my regulars came back repeatedly to see what crazy Tim was going to say. Or maybe those who visit me occasionally figured it would be a better post than most.
  
• A number of people wrote me emails to thank me for the profits they made. I appreciate that, but the credit goes to you! I'm just here sharing my thoughts, for better or worse. What you do with them is up to you.
  
• Quite a few people keep asking about the sales of my book (especially, strangely, my detractors). I have no idea! I do track its rank on Amazon, and it briefly made the "Best Sellers" list on the business books/investing section, but remember, this thing hasn't even hit any stores yet. It is just off the press. Only time will tell, but I'm pretty proud of my book. I think it's a good read!
  
• On a personal note, I've been waiting for the perfect opportunity to use the subject I chose for yesterday's post ("I Am Become Death"), a reference to Animal Mother in Full Metal Jacket. I felt it fitting!

I think few stocks better represent the broken promises of this fraudulent bull market that Google. What a snoozer this thing has become! Just look how it's been doing a whole lot of nothing since November. This is a relatively blue chip high tech stock, but you can just hear the air coming out of the tires.


If you look at the NASDAQ over the long term, you can see we might have a loooong way to go before we reach bottom.


Looking at the same index with a shorter time horizon, we plainly bounced off the upper resistance line.


The Dow Industrials were just crazy yesterday. I was - - and this is further proof of just not God, but a Cruel God - - trapped in my car virtually all of yesterday, taking dangerous glances at my Treo. The market was down 200 or so for the longest time, then it was suddenly down 500. I honestly thought the president had been killed or something. But it was just this orgy of sell orders all at once, I suppose.


Looking at the long term industrials, one could easily argue that yesterday was an anomaly. There aren't any major trendlines broken here. Just some very shaken bulls.


The Russell 2000, which I've mentioned quite a bit as a good index to buy puts on, took a better tumble than most yesterday.


And just look at the QID (and its volume!) It's pretty clear there is a growing interest in this double-inverse funds!


Looking at the $SPX, you can see a brief pause about half an hour into the trading day. This is the point where I - shame on me, shame on me - did an "ad hoc" close (which I had forbade myself from doing). Pure idiocy.


But here is perhaps the most interesting chart I have for you today - the SPX on a daily basis. Take a good long look at those trendlines that made up the channel, above which the index had broken out. And to which point did the index fall yesterday? That's right - almost precisely at the same trendline! If any bulls are ready this, you can take that as an encouraging sign.


The volatility index went stark raving mad. This almost certainly cannot sustain itself.


A close look at the $VIX shows the amazing breakout. This borders on unbelievable.


I had no position on the $XAU, but I wish I had puts on this bad boy. The plunge in China had a profound effect on metal prices.


Oh, and the Dow Transports breakout I mentioned last week as great news for the bulls now is rendered moot. The pattern has been shattered.


Continental Airlines has broken its trendline. I've pointed out the target on this. I own puts on this (which I bought prior to the breakdown), and I have high hopes for this position.


One other stupidity on my part - I closed out my CME puts yesterday at a fantastic profit. But the profit became much more fantastic as the CME kept falling. These expensive stocks can make for fantastic puts, especially when volatility is low (as it was not long ago!)


Lastly, Goldman Sachs - - whose puts I've been derided for owning - - is another winner. I'm hanging on to this, although I sold my MER just to trim my investment bank exposure. But you can see by the trendlines there's plenty of room left to fall.


I apologize again for the late post, but I hope I made up for it by the size of this one! Thanks again for all the congratulations and pats on the back. I'll let you know if any bullish Australians have left any cowardly voicemails for me.

Grinding the Gears

I appreciate everyone's patience while I got my entry done for the day. I went on a whirlwind adventure to Florida to speak (five times) at an investment conference.

Many people were asking me about my book. You can buy it from Amazon right now, and I imagine it will be in your local bookstore within a few weeks. I see it's zoomed from #400,000 to #3,800 in just a couple of days. Harry Potter, look out!

I was really disappointed in the market on Tuesday (yesterday). It started with a quick drop, and then it punched and clawed its way back up to another lifetime high on the Dow.

The bulls are ungodly powerful right now. The reason is simple. This entire basis for people buying into this market is no different than the reason any six year old offers for doing anything..........."everyone else is doing it!" And that kind of sheeplike behavior has been creating graphs like that of the Dow Composite, which is straight up, grinding higher, and higher, and higher, annihilating us poor bears the entire way......


The Dow, which fell nearly 50 points today, continues to offer a flicker of hope for the ursine among us.


The S&P 100 likewise shows a continued reduction in upward momentum as viewed via the RSI.


Today I'd like to offer a mix of both short and long suggestions. As always, check them out more deeply for yourself. Let's start with the shorts. BP, mentioned here a couple of times, pushes closer and closer to breaking its huge head and shoulders pattern.


Carnival, also a repeated mention, looks better too.


CNX is another short energy play, in spite of recent strength in the OIH.


EXC seems to have clearly broken its upward trendline.


Now let's break tradition and pull up some bullish ideas. The balance of today's post is bullish suggestions. Starting with Genentech (DNA), where I've highlighted some similar patterns in the past and their subsequent upward breakouts.


FedEx, moving on to new highs.


HOLX also looks good, and has strong volume backing up its breakout.


IPS is also good for aggressive bulls.


The trouble I am having with conjuring up bullish ideas is that it's tough finding safe bullish patterns in a market this high. I could point out plenty of momentum plays, but I'm not really into taking advantage of the Greater Fool theory.

Good night, and I'll see you after the close Thursday.

Stalled Bull

Even the most fervent bull would have to admit at this point that, at least for the immediate moment, things have stalled. The week as a whole was down for the markets, and in spite of a lifetime high on the Dow this week, there's plenty of news and market action out there to scare our bullish friends.

Let me show you something interesting. Below is a chart of the S&P 100 ($OEX) over more than a decade. I have drawn a Fibonacci retracement from the peak in early 2000 to the nadir in October 2002.


Now let's take a closer look at the same index. The 61.8% retracement level was 702.13. And what was the peak this week before it reversed? 699.99. In other words, the market climbed to 99.7% of its anticipated retracement before reversing. Pretty impressive!


The Dow Transports continue to be relatively bearish. I've marked the level they need to crack before we can consider this a new series of "lower highs/lower lows."


Although the S&P 500 pierced its retracement level a while ago, at least it neatly bounced off its trendline.


As I've said repeatedly, this is not a bear market until we break the uptrend. And we have not broken the uptrend! So the bulls still run the show. It is heartening, at least, to see what a monstrous divergence exists between the price action and the RSI.


For more bearish evidence, take a look at the NASDAQ. If you consider this price channel to be meaningful, take a look at the bullish upside (green) and the bearish downside (red). One is a lot bigger than the other, isn't it? I'd say the risk/reward ratio gives the favor to the bears.


Now - as always - some bearish ideas worth examining. Behemoth Microsoft (MSFT):


FCX:


ETR:


Camden Property Trust (CPT):


CKH:


It's been a pretty good week. I'm sure those who follow NutriSystem, mentioned here several times as a bearish idea, enjoyed the drop today.

Thousands of people stop by each day to read this blog, and I want you to know I appreciate it. Doing this blog helps me think more clearly about the markets, and it's fun for me to share my views. Do keep swinging by!