The Range

OK, let me get this out of the way: I was wrong about Apple. Back on June 11th, I proposed that the hype around the iPhone would be a precursor to the stock getting walloped. Well, on the first trading day after the iPhone's introduction (yesterday), the stock did indeed inch down (and on a 126 point up day on the Dow, no less).

But it reached a new record high today. And, looking at the chart, there is no technical reason for the stock to be weak. So I sold my puts at a (relatively modest) loss this morning, and shame on me for ever doubting the power of Steve Jobs, my lifelong hero.

Phew. OK, done with the self-flagellation. Today's entry will be very short, since I imagine most of you are already wrapped up in July 4th festivities. As I mentioned yesterday, it looks like the readers of this blog were correct in suggesting very bullish behavior just prior to the Independence Day holiday.

One thing is clear, though. Over the past five weeks, the markets have been bouncing around in a clearly-defined range, ending (temporarily, at least) the unabashed push upward preceding June.


Zooming in a bit on the Russell 2000, the range has actually had two stages, demarcated here with two different colors of highlight. The most recent range is more volatile, yet it has a higher base.


This becomes even more obvious when you look at the $VIX. The range between highs and lows on the $VIX has exploded higher since June 1st. It makes for some extremely jumpy trading, since bulls and bears are struggling more than ever for control.


As for my broad view of the market.......it's pretty simple. I chalk up July 2 and 3 to the aforementioned Independence Day strength. I would expect to see some meaningful weakness for the balance of the week. If that doesn't take place - - and certainly if we push above the range that I've illustrated - - it looks like the bulls will take back the control which they set aside as of June 1st.

Do We HAVE to Have a Bounce?

I started the day off, before the opening bell, feeling very discouraged. The market seemed inclined to stay at - to borrow from Irving Fisher - a "permanently high plateau". Today provided a welcome respite, with interest rates gutting the Dow for 146 points.

But surely you've seen a change in my temperment. Whereas typically I would be tooting the celebratory horns at such a thing, all I can think now is, "Great, we'll just go into another bounce now." And, perhaps, in my own twisted way, that's actually a really bearish sign. Because when I was feeling balls-out, it's the end of the world, the market invariably pushed higher. I regard these recent jolts downward not with glee, but with dire suspicion, bordering on a sense of dread.

Not to say that, from a chartist's viewpoint, the indexes (and carefully chosen stocks) don't look terrific for the bears. The S&P 500 looks gorgeous.


And yet, as I look at the minute bars of the same index over the past 60 days, unless the lows of last Thursday, June 7th, are taken out we're going to continue to stay stuck in this f*cking grind upward. If there is, in fact, a loving God, and we blow out the lows of June 7th, then it's time to rock. But I'm a doubter until it happens.


Another reason for my skepticism is that whenever the VIX goes rip-roaring higher, it is prone to ease back down (lately, at least). You can see the general range I've highlighted below. We're a bit above it.


Apple (AAPL), on which I own a small put position, edged down both yesterday and today. Next Friday is when the JesusPhone gets introduced. Obviously it will be fascinating on the 29th to see what happens to the stock. To say this product is widely anticipated is a gross understatement.


Let me pause for a second to make a socionomic observation. I saw a full page ad in the WSJ this morning for a series on CNBC (of course) called American Greed. Just another sign of the apocalypse, folks. The world's vomit-inducing obsession with cash, stoked terribly over the past few years, is reaching the saturation point. Barf.

Real estate stocks are a strange one to me now. They have very toppy formations. But they have also fallen far enough to be resting on some pretty significant trendlines. It is a difficult call. Apartment Investments (AIV) is a good example. I don't have a position in this one, although I do in some others, such as ESS.


Bolt Tech (BTJ) finally started to fall a bit today, although it would be hard for any stock not to do so on a day like this. I have great hopes for this one.


CVH doesn't have any particular bearish pattern per se, but it does look like what would normally be a really bullish breakout is going limp-dicked. And that's bearish. Oh, random thought: if you ever see anyone spell it per say, shoot them. Because they are an abomination to the gene pool. Aw, hell, let them live. Most people are idiots anyway. No harm in letting a few more loose.


I'm sorry to say I got stopped out of John Deere this morning, but it went on to form a lovely shooting star. Sigh. Could have to re-enter this sucker.


InfoSys (INFY) isn't my favorite pattern in the world, but as lower lows and lower highs go, it's not terrible.


Lehman Brothers (LEH) is mushed up against its Fib Fan. Nice.


My bullish notes on ONT have panned out OK, but, I dunno, I'd edge away from this one unless it busts through yesterday's high. Volume is slipping fast. And if you look at the entire history of this stock, it definitely is not beneath wrecking a perfectly good bullish pattern by going limp.


The SPY (whose options have a surprisingly sucky bid/ask spread) sports a nice bearish engulfing pattern. Heavenly Father, would you please make the market fall hard for more than one day in a row? Please?


Remember: it's a beautiful world.

Snapback and Logo Vote

Today's snapback rally - the best day this year for the Dow, I read - is no surprise. In fact, it's a bit of a relief. A number of readers wrote me before the opening bell today and expressed their desire that the market would push higher to give them a good chance to sell into the strength. So - wish granted!

I wanted to ask your opinion about something. I wanted to doll up the blog a bit with a logo, and I've got four choices. Instead of just me picking my favorite, I'd love to hear your opinion. It won't take a moment....

Here's choice One:


Two:


Three:


Four:


Which is your favorite? Please take a moment to vote; thank you!


The question on everyone's mind - mine included! - is whether the recent sell-off was just a bit of profit-taking in an otherwise uninterrupted bull market. Maybe. But a one-day rally isn't going to change my views. I closed out a handful of positions today, but by and large I am holding strong.


The Russell 2000 - which between puts on the $RUT and puts on the IWM seems to be the most tradeable index on the market - is at a crucial point. It pushed through the supporting trendline but is now within its channel again. The next two days are crucial. If the market pushes higher the rest of the week, a lot of my arguments over the past couple of days are kind of shot.


Apple, my "short it!!" topic earlier this week, fell nicely today in spite of the overall market roaring higher. That is a very, very good sign. My puts are up 75%.


A few reiterations of earlier bullish suggestions that still look good. JetBlue (JBLU):


ONT, with a stop at $2.56:


And Southwestern (SWN):


Side note to Timothy Sykes - thanks for the book. I'm flattered, and I'll check it out!

Short the iPhone (and everything else.....)

Let me save the bulls some time and say two things: first, I am jumping-up-and-down, wild-eyed, chart-crazed bearish right now. So if you want to take that as a marvelous contrary indicator, please do so. Second, I've even done some legwork for you. The call option on the S&P 500 for July at $1,625 (which, gosh, should be easy - that's only 7.5% higher than the current market) is a mere 40 cents asking price! The symbol is SPB-GE. Go nuts.

For the bears and my adoring fans: today's post will be more jaunty than usual.

Let me explain the title of today's entry a bit. First, by way of apology, let me say I've been Steve Jobs' Biggest Fan since before most of you people even heard of the guy. I've followed him since 1982, and one of the main reasons I even live in this area is because My Idol is here.

I think Steve's return to Apple in 1997 is one of the great acts of justice in human history. Displacing people like Michael Spindler and Gil Amelio - who have all the charisma of used shag carpeting - made the world a better place. And I used to be an Apple employee - number 9653 - back in the late 80s. So I've got no ax to grind.

But.

I also know that things run in cycles. And I also believe there is an inverse correlation between hype and results.

Take the Segway for example. Before this was introduced to the world, rumors flew around about Project Ginger (its code name). Breathless reviews from the likes of Larry Ellison and the aforementioned Mr. Jobs made people wonder what this miraculous creation was. I believe it was Jobs himself who said that entire cities would be designed around Ginger.

Well, they weren't. And won't be. The fact is, for all its hype, Segway has wound up to be little more than a curiosity. It still attracts attention. But most people gawking at a man buzzing about on a Segway are less interested in the mode of transportation than they are at the fact that the rider will probably die a virgin. At least, that's what I'm thinking. I'm a geek. But, Jesus Christ on a Biscuit, I'm not going to be riding around town on a Segway.

You know where this is all leading. That's right, the iPhone. Good God, I've never seen hype like this. You'd think that, given the price and hype, the phone would jump under your desk and pleasure you orally between calls. Two facts keep leaping to my mind. First, phones can be had for $9.99, far less than the $500 introductory price of the iPhone. Second, I don't know about you, but I've got a phone. And I'm pretty happy with it.

People are expecting the iPhone will perform miracles with Apple like the iPod did. It won't. Let's turn back the pages of time a bit and understand the iPod introduction better.

The first iPod was introduced early in October, 2001. This was not even a month after the terrorist attacks. People scoffed at the introduction. Call it anti-hype.....sort of the reverse of what we are seeing today. Here was this microcomputer company, which for years had sold multi-thousand dollar machines, entering the consumer electronics business dominated by low-end players like Sony.

Now, as you can see from the graph below, Apple's stock did pretty good after the introduction, but it faded back again, and it sank to even lower lows. The stock got down to something like $6.50 (don't you wish that time machine was handy, folks?) So the iPod clearly wasn't seen as any kind of savior for the company, nor was it the object of frenetic optimism.


So what happened next? Well, the Apple magic started to work. The brilliance of offering an accessible way to purchase music, great software to manage your music collection, and an elegant, highly mobile piece of hardware started to take hold. And Apple's stock moved up not hundreds of percent, but thousands of percent. The iPod made Apple more successful (and the stock more expensive) than ever.


Which brings us to today. Apple is deep into triple-digit territory. Steve Jobs would probably win the presidency of the U.S. if he ran. And there are thousands of Apple zillionaires running around Cupertino. The company seems like it can do no wrong. I notice even The Economist put Apple right on its front cover last week.

I took all this into account. And although I rarely depart from charts as my rationale for decision-making, I bought a bunch of Apple puts early this morning. And, as the market closed today, those puts were already up 35%. Not bad.

Now, it's not that anything horrible was announced from Apple today. Steve Jobs gave a talk at the WWDC, and everything seems pretty hunky dory. But if I can smell a top, folks, this is it. And I'm not predicting Apple will wind up like a completely devastated shell like, oh, Sun Microsystems. But if the contrary workings of hype have any merit, this has got to be one of the all-time great hype fades of modern history.


Phew. OK. Back to the markets. As I said earlier, I'm more bearish than normal. Which is saying something. Part of the reason is that, viewing the $SPX minute graph, I sense a sea-change has taken place in the trend. I've drawn it below.


I have acquired an ungodly quantity of Russell 2000 puts, predicated on the notion that the channel, drawn below, will likely be broken. And the beauty part is that if I'm wrong, I'll know swiftly, and my losses will be manageable.


I look at a chart of the $INDU below and get so excited I must excuse myself from standing for fear of embarrassing both myself and those around me. (In addition to generating pangs of jealousy amongst my bullish readers). To me, this is a chart jumping up and down, shouting "Top!" with great gusto.


Reducing the granularity of the chart to a weekly from a daily, we can plainly see the bearish engulfing pattern which took place last week. This week - Wednesday, Thursday, and Friday, to be specific - is loaded with important economic indicators. Here's hoping they shove the markets lower and help increase the minuscule bits of angst floating about into a growing sense of dread.


The S&P 500 weekly offers, to my eyes, similar conclusions.


Let's look at a handful of individual stocks. I'm going to get into a short position with Amazon (AMZN) tomorrow morning.


CAH, offered by a thoughtful reader, also looks like a sharp short.


As does CEG, also offered by a kind reader (and I do appreciate those emails and charts, folks).


Let's pause another moment and consider CROX. Let me say right now I am not short this stock, and I don't plan to be short this stock. I nibbled on some puts a couple of weeks ago, and I was promptly stopped out. I've learned my lesson. This is a momentum play, pure and simple. and I shriek like a little girl when I see this chart. No touchee.


We can compare CROX to a similar stock from many moons ago called Taser (TASR). Here's what TASR was doing back in the day. Check out the similarities of both price and volume action.


What happend to Taser after it peaked? Well, you already know that answer, don't you? Here's a percentage graph. Will CROX suffer a similar fate some day? I bet it will. I really doubt you can ply an ongoing competitive advantage off some cheap-looking fad-driven "shoes." But I, for one, am not going to guess when the momentum is going to run out. No thanks.


OK, back to shorts. Entergy (ETR) is a good idea to consider. And remember, folks, these are just ideas. Read the top of the screen. None of this is advice. I'm just spoutin' my feelings and notions. So settle down.


I mentioned GOOG as a long idea. Ya know what, I've changed my mind. I think I might buy some puts on this one, mostly for the same reasons as Apple, although not nearly to the same extent. I see a failed breakout happening here. Maybe.


And if you think the energy/oil run has gone berserk, Exxon Mobil (XOM) presents a relatively low-risk to play this on the bearish side.


That's it for the day. If the week rolls in my favor, you can expect more videos and such. Until then, please think about what I've said above. I'm right from time to time.

Twenty-Five-Peat

Yawn. The bull's getting boring. By my count, 25 out of the past 31 days have been up on the Dow. So much for climbing a wall of worry. It's skipping higher.

I mentioned yesterday that the US Dollar had to soften up to have any chance of market softness. Although it didn't help today, I notice the NZD/USD did weaken considerably and is sporting a pretty hefty bearish engulfing pattern.


One nice effect this did have is to soften up gold quite a bit. My $XAU puts continue to do well.


Apple traded over $100 for a while today, its highest price in history. I remembered Dell's famous quote in the late 90s about how Apple should just give up, so I decided to look up when he said that. Well, fancy that - - right near the bottom. Buyers of Dell on that day would have about 140% in profits by now. Buyers of Apple, on the other hand, have enjoyed more like a 1,600% gain.


Akamai, a short suggestion here, continues to fall on very significant volume.


I sold American Airlines (AMR) short yesterday near its high for the day, and it is sinking nicely away from its neckline. By traditional measurements, there could be another $9 in losses on this stock.


I've never charted Honeywell (HON) here before, but it's a Dow 30 stock and worth watching. No clear bearish pattern here, but clearly an opportunity for it to take a breather.


I've mentioned in the recent past how McKesson (MCK) is dancing around its Fibonacci fan lines. At long last, it started to fall away from one of those lines today. It took a while.


Morgan Stanley (MS) represents a relatively low-risk short here, since it has apparently retraced about all of the descent that it is planning to retrace.


PSB, which I've been short a while, continues to slowly form a potential head and shoulders pattern. So far, so good.


Questar (STR), mentioned several times recently as a long candidate, moved handsomely higher today.


In honor of Steven Hawking's planned adventure in weightlessness, I thought I'd share this funny (but slightly NSFW) clip.