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.

A Call For Bull Content

Over the past 25 trading sessions (March 29th through May 3rd), the Dow 30 closed up 22 times and down only 3 times. That means only about 12% of the time, we were down for the day. The net change was up 941 points.

During the 25 trading sessions prior to the above (February 22nd through March 28th), the Dow 30 closed up 12 times and down 13 times, meaning the Dow closed down 52% of the time. The net change was down 438 points. Quite a change, eh?

Given the above, you can imagine how the brawling in comments has been getting worse (and only God knows how bad it would be if anonymous people were still allowed to post). Back on April 17th, I asked all the bulls to make some recommendations. Only a couple of folks did. One of them had a bunch of options, which frankly I'm too lazy to look up, and another - TomTheTrader - listed a bunch of equity symbols.

I decided to do an experiment and entered a hypothetical portfolio of 100 shares of each of his recommendations, using a price of the opening on April 18th (the morning following his comment). In other words, I'm assuming you decided to buy, at the opening price, an equal number of shares of each of the stocks suggested (the weighting would vary quite a bit, obviously, since the share prices were so different). The symbols and their "entry" prices were:

DOW 45.29
EMC 15.12
GLW 23.40
GSK 58.4573
GS 213.75
GSF 62.31
INTC 21.35
MYL 21.60
MS 81.50
NDAQ 31.20
SMH 35.22
QCOM 43.19
QLD 85.85

By way of comparison, I decided to compare it to the Russell 2000. Over the period since Tom's suggestions, the Russell has moved up from 827.41 up to 828.87, which is a small change of 0.18%. Tom's suggestions were also up .18%, but with a 3 in front of the decimal point as well (e.g. 3.18%). So - - great work, Tom!


Now, as regular readers know, we get our fair share of bulls in the comments section that yell and scream daily about how stupid bears are. That's fine. But what interests me is to find out how smart our bullish colleagues are. Specifically, I'd like to hear what they have to say (in a constructive sense).

So here's my offer - - anyone who has bullish recommendations, commentary, or market views, I'd like you to send them to email address (which you can find in my profile). I will print any specific suggestions or market analysis without comment or editing (except for spelling). Consider it an opportunity to demonstrate the market prowess which you possess.

The NASDAQ is threatening to push above its resistance line, similar to the fashion that the S&P 500 did a few days ago. If tomorrow opens higher, we can pretty much count on a new surge by the NASDAQ. It's all up to the employment report.


The Russell 2000 is also threatening its stop-loss price of 835.17, which is its lifetime high.


Notice how the S&P 500 is staying above its former resistance line. Even earlier this week, on the one day the market dipped lower, the S&P closed above this former resistance line.


I shorted BID yesterday, and it fell nicely today.


I am also short CCL, which seems to have a lot of potential to fall.


InfoSys(INFY) is in a small H&S formation. Plus, when a major stock like this goes down on such a strong day, that's a good sign.


Retailer JC Penney (JCP) remains below its busted trendline.


I went long CCJ (the uranium producer) today, and it's already in the green.


CRDN is shaping up as another prospective long, assuming it breaks above the line I've drawn here.


WBD has been on a tear for months, but I shorted this one earlier today, and it fell nicely. It is sporting a hefty bearish engulfing pattern, although for a stock that is relatively thinly traded like this, it isn't such a big deal.



Finally, just to ensure I am going straight to hell, I offer you Merrill Howard Kalin, who is a mentally retarded adult that broadcasts his own cooking show. And does imitations. Poorly. This must be seen to believed, but if you're the impatient sort, skip ahead to about 4:30 and watch it until the end.

I, For One, Welcome Our New Bull Overlords.....

Thanks for coming back this weekend (or Monday......) to see my post. I had to do some thinking, charting, and scanning to reassess the market.

Oh, before I begin, a shameless plug: for those who have been holding off buying Chart Your Way to Profits, check out the reviews of my book. You'll be able to get some third-party opinions from those who have actually read it. The one negative review was from someone who didn't realize the book was largely about ProphetCharts and JavaCharts. So, consider yourself warned.

I really tried to look at the whole market with a very open mind, because the strength of the bulls since July has been frustrating, confusing, and vexxing. I keep coming back to the graph below, which shows the S&P 500 over the long haul. I simply cannot see that we are set up for a bullish surge. I don't want to hear about liquidity, the global economy, or the trillion dollar oil surplus seeking a home. This blog is about charts, and the charts, to me, don't say "buy."


Looking at a short-term S&P chart, we can see that we're getting dangerously close to the high set back in February. It isn't the all-time high (set early in 2000), but it's getting close to that as well. The big question now is, does the market (a) sink from here (b) push up to a double top and then sink (c) blow past the February high and make an assault on the all-time high from the bubble.


To me, an important indicator to watch is the NZD/USD market. The New Zealand kiwi has been extraordinarily strong. The weakness in late February was a good early indicator of the tumble the markets took. But, since then, this currency has basically been going straight up.


Another item I watch is China - one shorthand way to do it is via GCH (Greater China Fund). One interesting tidbit is that it seems to have retraced up to a retracement level. We'll see if it backs away or not.


I wanted to show a few examples of why it's careful not to fall in love with a particular point of view. In particular, why it's important not to anticipate pattern completion.

Technical analysis is a helpful tool - especially in markets that are friendly toward one's general investment disposition. For instance, if the market were, by and large, weak, the short ideas I've suggested over the past months would have been quite successful. But the fact is that we're swimming against the tide, and that makes it very, very hard.

And I'm not saying the market would have to be in some horrendous free fall. But if things were easing down, week to week, and month to month, that's where using T.A. to smoke out good short opportunities is invaluable.

But when you're swimming against the tide, you have to be extra vigilant. Take BP, for instance, shown below. I mentioned this as a potential short. It had a beautiful topping pattern. It broke below its neckline. And it started falling.

But what happened next? It got strength. It went above the same neckline. Thus, the pattern was rendered moot. And then it soared! Being able to escape the "jaws of death" like this is a real sign of strength that must be feared by bears.


Here's a similar situation with FTO. A gorgeous head and shoulders in the making. But the pattern did not complete! You can see what happened next. That's why scoring a little more profit by seeing a completed pattern in your mind's eye is seldom worth it.


For our next example, here's HES. I've often pointed out how, once a trendline is broken, the price obediently stays beneath it, and maybe "kiss the underside" of the trendline. That's all well and good, but it doesn't mean a collapse is at hand. A price can stay beneath its trendline for a very long time and still make tons of money for the bulls.


My general feeling toward the index is simply that I don't know what the hell is going on. A terrible confession, eh? But these markets are bewildering these days. You're going to hear the same story from me - - we're pushing toward either a double top or to new highs. We're awfully close to one or the other.


$NDX is a skosh weaker. It could back off from the horizontal line I've drawn. Or not.


I was blown out of my precious $RUT puts. But that's what stops are for, right? I don't like the look of this index nearly as much as I used to.


Some indices - such as the $XMI, shown below - have wasted no time in going to new lifetime highs. Disturbing. The bulls are in their ninth month of totally owning this market.


Most of the strength these days is in really "old school" stuff. I'm talking about Steel.....Uranium......Copper........and, for God's sake, Railroads! This is no "new economy" play here. It's 19th/20th century stuff. Here's uranium company CCJ, for instance:


Goldman Sachs gave me at least a little relief. Even on a strong up day, it was weak.


Tech giant IBM, on which I also own puts, also was surprisingly weak.


I'm looking at MLM for a new short position.


I've been short MSTR for a couple of weeks, based on the failed breakout you see highlighted here. So far, so good.


MWP is in a tight range. It's going to break one way or the other soon. I have no position at this time on this one.


Someone mentioned last week the stock ONT. I felt strongly bullish on it based on the breakout and volume strength. It has moved up handsomely since then and looks better than ever.


SCHN (Schnitzer Steel - try saying that five times fast) has a hugely bullish pattern too.


SWN, mentioned here bullishly before, looks even better.


If you think oil stocks are going to weaken, XOM is a pretty-good looking short/put candidate.


As you can see from today's posting, it's more of a bullish/bearish mix. My frothing-at-the-mouth bearishness has become really attenuated by the market's action recently. It's disappointing. I shall continue to watch, wait, and hope.

Earnings Season Begins

Earnings season is upon us again. So our chances of turning the corner downward appear briefly once more. Unless earnings are, on the whole, not up to expectations, Dow 13,000 seems all but inevitable.

Intel (INTC) is down after-hours, in spite of hitting expectations. And Rackable Systems (RACK) is getting completely clobbered:


My colleague Michael Kahn wrote this morning, "The rally rumbles on and quite honestly we are out of new ways to say that this should not be happening." Well said. The NASDAQ Composite is above even the high water mark of its channel. This rally is based on the same sensibilities as late 1999/early 2000. Just insane.


The S&P 500 is much the same story.


Of particular concern is the Dow Transports. Just take a look at how swiftly it has managed to retrace back to the descending trendline. I have a feeling it could pierce above this, which would weaken the bearish argument further still.


Looking at more history of the $TRAN, you can see how prior breakouts preceded substantial moves upward.


ANDE, mentioned in this space before, remains a good speculative bullish play. It all depends on the stock pushing above the neckline you see drawn here.


BP, which has been much in the news lately, looks like it is forming a tremendous top.


CCJ, although not in any crystal clear pattern, is a short I entered today. It seems to have a very good risk/reward profile.


And Cigna (CI) may have formed an important double top. As always, you must use stop-loss orders!


A short idea I haven't offered here before, I don't think - symbol GEF.


Now GOOG is interesting. It matched a lifetime intraday high today, but actually fell a little bit. Is this a double top? Or does it simply proceed a rush to $600 when they announce their earnings? I certainly don't know.


McKesson sports an interesting pattern with those Fib Fans as a backdrop. Might be a triple top here.


As for MLS, shown below, I'm not saying buy or sell. It's simply a fascinating study in how, once higher highs/higher lows are broken, the trend shift can be devastating. Because it completely morphed into a series of lower highs/lower lows. Fascinating stuff.