Home In the Range

What a week! And a great week it was.

For those of you insane enough to have owned July puts on Google until today, congratulations. The slight earnings disappointment from GOOG nicked $40 off their stock price at one point, and naturally the options were going insane.


The sea-change that has taken place is that all the sub-prime woes have elevated the volatility in this market. It's very plain to see from the $VIX graph below.


But this market right now is all about one thing - range, range, range. As David Byrne once sang: "I go up and down/I like this/curious feeling." If you are able to pay close enough attention to it, and you've got your groove on, you can make a lot of money.

But a glance at the Dow graph below shows that the price is currently about in the middle of a very sweeping range. And now we're in no man's land. Do we bounce off the horizontal line and fly well above 14,000? Do we push our way through the muck beneath that line and start and honest-to-goodness bear market? Or do we continue to fart around ad nauseum. I dunno. And you don't either.


The Russell is even more "range-y". Hell, I was in and out of calls AND puts all day long on this, and nary lost a cent in the process. It was quite a ride. But I'm about as flat as Kate Moss right, since I'd rather enter Monday morning with a relatively clean slate. (e.g. mountains of cash).


One last intraday index to show you - the S&P 500. I'd say we are at an important "bounce or break" point here. It will take a lot of strength for either the bulls or the bears to reach escape velocity from the range shown here, but once either side wins, it's going to be dramatic.


The rest of the charts are just short/put ideas. I sold a lot of "I told ya so" graphcs today (e.g. items I had suggested which went very much as planned), but I don't want to waste your time with those. You know I've got good ideas from time to time, don't you? Once in a while?

Here's BP.


CAH looks ready to break its neckline.


Colgate (CL) might have finished a nice triple top here.


CVX also looks good.


I'm putting GOOG here not as a suggestion, but mainly to show how nicely it retraced its entire hard-fought gain in just a single day. Who knows - those who bought in the low 500s might be very happy in the long run. After all, it's still a nice bullish pattern. But today it was a better buy!


HES, like many oil-related stocks, looks great to short.


I suggested MLM a while back (howdy, Leisa!) It's doing well.


I made so much cash today I decided to risk a bit on a couple of RIMM puts. This sucker has to fall some day.


Here's a final thought for you. See ya Monday.

Red Rubber Ball

It was an interesting day on the market. Non-amazing earnings from YHOO and INTC, coupled with the continuing problems at Bear Stearns with their hedge funds, took the Dow down about 130 points or so. Looking at the 60 day intraday minute bar graph, I thought that was about all that was going to squeezed out of the market for the day, so I sold all my index puts.

This doesn't always work........back on February 27th, I also sold my puts at what I thought was the bottom, when the Dow was down about 130 - - and it continued to fall hundreds more points.

The only honest-to-goodness bear market right now is anything to do with residential real estate. It's a slow death.


After the close today, IBM reported good earnings, and the after-hours market is up a little. At this point, it's simple a question of whether we shake off the worry and truly blast through 14,000, or if the weakness will get us down to at least that breakout point from last week.


The intraday of the Russell 2000 shows how nicely we swooned and then recovered up to what is a pretty substantial point of resistance. Falling today was easy. Pushing through this resistance area will be tougher.


Much the same can be said of the S&P 500. This longer-term graph shows the small rounded top, the fall, and the recovery.


I'm staying away from the Gold and Silver index ($XAU). I'm not sure what it's going to do next. But it has clearly made the (former) long-lasting channel irrelevant.


Longs might want to consider CCJ. It seems to be bullish and is done with its retracement.


Although residential real estate is getting thrashed, these problems seem to just be starting in the commercial real estate world. Maybe there's an opportunity to short these and enjoy a spill similar to what we're seeing now in residential real estate.


I don't think I'm going to take a position in Union Pacific (UNP), but this is an awfully terrific looking shooting star candlestick.

Any Gas Left?

Dow 14k is in the air, and it's all the pundits seem to want to talk about. I've already mentioned here that my 'upper limit' is 14,100 on the Dow based on its breakout. Even though the Dow was up today to yet another lifetime high, the broader indexes were down, and my overall portfolio climbed by 5%.


When I showed the "mother of all double tops" by way of the S&P 500 graph, many people remarked that the S&P was cheap since profits have doubled on the S&P 500 since the prior high in 2000.

That may be true, but the logic is flawed. That's the equivalent of a Republican declaring the White House could be won in 2008 if only they could find a candidate twice as popular as George Bush. Just because something is double something else doesn't mean the opposite result will take place. If the P/E in 2000 was 500, would a P/E of 250 make it a bargain? Of course, those weren't the real P/Es, but hopefully you can see my point.


The daily chart of the Dow 30 helps illustrate how this market is in the toppermost of the poppermost. I see a fall ahead.


On an intraday basis, it's clear to see how strong the price movement has been since the breakout. I've tinted in the target zone. We have moved through most of the pain already.


A daily chart of the NDX - which I've been avoiding for many months - suggests this graph could be running out of gas too.


My favorite, the Russell 2000, edged down nicely today.


Even though the Gold and Silver index ($XAU) broke above its channel, recently history indicates the RSI has been a reliable bearish indicator; note the areas I've tinted and the subsequent price action.


Akamai (AKAM) looks like a potential bearish play; note the series of lower highs.


ALB also looks nice for a short.


I bought puts on Colgate (CL) today.


I continue to hold onto my CROX puts, which are doing OK.


I also bought puts on CVX this morning. So far, so good.


And I shorted DST (a busy day.....)


I mentioned puts on FXI last week. These look better than ever.


JC Penney has been a favorite of mine recently. My puts on this stock edged higher today due to the stock's weakness.

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.

Poetry in Motion

I've got a riddle for you.

What well-known Jewish personality made a bundle of money on Wall Street today and needs to have their back hair waxed? If your answer is Abby Joseph Cohen, you are technically correct, but the answer I was seeking was Stephen A. Schwarzman of Blackstone.

OK, here's the second part of the riddle (isn't this fun, kids?)

What percentage of public investors have profits on newly-minted Blackstone Group (BX) today, now that the trading day is through? The answer: basically zero. Oh, I'm not talking about the midget founder of the place. He's doing just fine with his billions, thanks for asking.

I'm talking about the poor schlubs who thought they could get inside the club by buying into this stock. Virtually every single share bought is in a losing position. Nice going, folks.


Yesterday, if you'll recall, I wrote:

But tomorrow is - at last - the big day. That's right - it's Blackstone day. Apparently the demand for shares in BX is about seven-fold oversubscribed. Nothing would be more poetic than the market taking a fall tomorrow.

Well. Down 189 more points. Nice.

I actually had a great day, making money both on the short side and - for the brief bounce of the day - on the long as well. I remain cautious and humble in the face of a massively moronic and gullible public that could be coaxed into buying again. Thus I tighten my stops every day.


The Russell has been stronger (relatively) than I'd like to see. But it remains attractive to me largely due to its reasonable bid/ask spread on the options. I remain dumbfounded at the complete rip-off represented by the S&P 500 options market. It's just criminal.


Oh, speaking of the S&P - - - in spite of the recent fall in equities, we remain absolutely sky-high. Dare I even say grotesquely overvalued. Oh, well. It'll take years to sort out. Long story short, don't be fooled with the tiny inching down we've been doing. It's nothing compared to the radical overvaluation still present. Trillions of dollars of equity need to be destroyed before we are at interesting values again. Whether the top has passed it totally unknown. And it doesn't matter to me, as long as I manage and maintain these stops responsibly.


Symbol ALB bounced up to a perfect retracement, thus permitting me to re-enter the position which I closed profitably just a couple of days ago.


Symbol CAH isn't doing badly for me either. I own puts on this.


Although Cigna (CI) is too big to simply collapse, it's got a cute little H and S pattern whose neckline was broken today.


A new short I think I'll enter next week is - again - Malaysia (EWM).


I've got to hand it to Google (on which I have not had a position in a while) - - they seem to be doing everything right. This is a gorgeous bullish pattern - just beautiful - particularly in light of today's market action. Poor old Yahoo is just a mess. Why anyone ever used Yahoo in the first place - - I thought they sucked in 1996 when I first tried them - - is beyond me.


Goldman Sachs (GS) suffered some today, so my puts prospered. This isn't a big fall by any stretch. I guess maybe the lame-o BX reaction hurt them? I don't know.


I continue to hold my JC Penney (JCP) puts, which push a little higher into the green each day. This is a dynamite pattern. Never has polyester clothing been so good to me!


I haven't shown Meritage (MTH) in a long time, but I just want to use this to illustrate the kind of slow grinding death equities can go through. I think this is a good proxy for just about the entire stock market, although housing got a head start on the rest of us.


It's been a good week. Particularly since the detractors are too sheepish to show their faces around here during down days. So let's celebrate: