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Wednesday, May 31, 2006Charts and Targets
As I mentioned yesterday, I felt today would probably bring some strength since the $VIX had blown skyward so fast and furious. Below is an intraday chart of the $INDU over the past 30 trading days. As you can see, it seems to be giving quite a bit of compliance to its Fibonacci levels. It needs to break through its lows earlier this month to get serious about turning bearish.
http://photos1.blogger.com/blogger/4311/970/400/0531-fibs.jpg
I'd like to offer up a variety of charts I think represent good opportunities for bears. These are optionable, so July slightly-in-the-money puts probably provide the best bang for your buck. You might want to wait a day or two to see if the market's strength today continues before pursuing any of these. I've marked approximate target prices with green shading.
Here's BHI:
http://photos1.blogger.com/blogger/4311/970/400/0531-bhi.jpg
BSC:
http://photos1.blogger.com/blogger/4311/970/400/0531-bsc.jpg
COF:
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COF:
http://photos1.blogger.com/blogger/4311/970/400/0531-cof.jpg
CRR:
http://photos1.blogger.com/blogger/4311/970/400/0531-crr.jpg
DRIV:
http://photos1.blogger.com/blogger/4311/970/400/0531-driv.jpg
EME:
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EME:
http://photos1.blogger.com/blogger/4311/970/400/0531-eme.jpg
GPI:
http://photos1.blogger.com/blogger/4311/970/400/0531-gpi.jpg
HUM:
http://photos1.blogger.com/blogger/4311/970/400/0531-hum.jpg
IPS:
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IPS:
http://photos1.blogger.com/blogger/4311/970/400/0531-ips.jpg
NUE:
http://photos1.blogger.com/blogger/4311/970/400/0531-nue.jpg
PD:
http://photos1.blogger.com/blogger/4311/970/400/0531-pd.jpg
PENN:
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PENN:
http://photos1.blogger.com/blogger/4311/970/400/0531-penn.jpg
SHLD:
http://photos1.blogger.com/blogger/4311/970/400/0531-shld.jpg
Beauties all, aren't they? Some serious, consistent strength from the Dow might wreck these patterns. It's definitely happened before. For the moment, we seem range-bound between 11,050 and 11,280.
at 5/31/2006 7 insightful comments
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I'm a bit nervous that the market still has the opportunity for a bounce, since the resumption of the fall was so rapid. Looking at the $VIX (below), it seems that, in a single day, we've approach the recent extremes. If the market really starts to get hit hard, we could see those extremes beaten, because let's keep in mind, the VIX is historically still very low (it was three times this level back in the dark days of 2002). But I wouldn't be at all surprised to see some mild strength in the market tomorrow.
http://photos1.blogger.com/blogger/4311/970/400/0530-vix.jpg
The NASDAQ Composite is representative of pretty much all the indexes and major stocks right now - - - a fall from May 10th until early last week, followed by a short, sharp upturn, followed by today's big fall. If we take out the lows set in October (represented by the thick red line) there is no doubt about it - we will be in a bear market. No questions asked. (And it has nothing to do with big spooky round numbers like 10,000. Sheesh.....)
http://photos1.blogger.com/blogger/4311/970/400/0530-compq.jpg
at 5/30/2006 7 insightful comments
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Friday, May 26, 2006Busting the Bounce
I said at the start of this week that the market was going to go up for a number of days in order to create great selling opportunities for the bears. It seems this is precisely what has happened. The Dow had a particularly strong Thursday and Friday, and I'm sure the vast majority of people are thinking that the recent weakness was just a little correction so that the huge bullish gains can now resume.
Well, good. That's what we want them to think. The bull trap is just about finished being set. I wouldn't be surprised if the trap was sprung as early as Tuesday (remember, Monday is a market holiday). But even if not, it's coming soon. Almost certainly next week, by my estimation.
The $VIX, which had soared with the market weakness last week, has plunged back down again. This is great, because it makes those SPX puts that much more reasonable to purchase.
http://photos1.blogger.com/blogger/4311/970/400/0526-vix.jpg
Here's something interesting to note as well - look how the volume got stronger on the way down and is completely weak and wimpy on the way up (this example is the DIA ETF, which is very representative of the market as a whole). Limp retracements are just what the (bearish) doctor ordered.
http://photos1.blogger.com/blogger/4311/970/400/0526-dimvolume.jpg
As for the Dow itself, it looks like it's heading back toward its retracement level. We're very close at this point. A decently strong opening on Tuesday (up 40 points or so) followed by a loss for the day would be sensational. Not necessary, not nice.
http://photos1.blogger.com/blogger/4311/970/400/0526-indu.jpg
The NASDAQ Composite is also just about ready to kiss the underbelly of its broken trendline.
http://photos1.blogger.com/blogger/4311/970/400/0526-compq.jpg
As for the S&P 500, this likewise is moving toward the underside of a broken trendline, having bounced strongly off its Fibonacci support level a few days ago.
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As for the S&P 500, this likewise is moving toward the underside of a broken trendline, having bounced strongly off its Fibonacci support level a few days ago.
http://photos1.blogger.com/blogger/4311/970/400/0526-spx.jpg
Now for a few specific stocks to consider shorting (or, if you're so inclined, and if they're available, buying puts on). Here's Anderson (ANDE), a huge topping formation:
http://photos1.blogger.com/blogger/4311/970/400/0526-ande.jpg
EME also a nice rounded top:
http://photos1.blogger.com/blogger/4311/970/400/0526-eme.jpg
IPS likewise had a huge runup, a recent breakdown, and a subsequent partial retracement:
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IPS likewise had a huge runup, a recent breakdown, and a subsequent partial retracement:
http://photos1.blogger.com/blogger/4311/970/400/0526-ips.jpg
Lehman Brothers (LEH) is also retracing to the underside of the trendline (I'm not stating stops for these, but obviously you should have a sensible chart-based stop order for every one of these positions; oh, and as always, click on any of these images to see a much larger version).
http://photos1.blogger.com/blogger/4311/970/400/0526-leh.jpg
MBT has a beautiful, large rounded top:
http://photos1.blogger.com/blogger/4311/970/400/0526-mbt.jpg
And the topping pattern on WLP is kind of cool since it's actually tilted upward, but the retracement obeys this bend nonetheless:
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And the topping pattern on WLP is kind of cool since it's actually tilted upward, but the retracement obeys this bend nonetheless:
http://photos1.blogger.com/blogger/4311/970/400/0526-wlp.jpg
US Steel (symbol X - who knows why.....) is also a crystal clean retracement to the underside of the broken trendline.
http://photos1.blogger.com/blogger/4311/970/400/0526-x.jpg
Great stuff! A down week next week would make for some very happy bears, me included. Thanks for all the nice emails and comments, everyone. It's great to have such a smart bunch of folks reading and contributing to this blog, and it's encouraging that apparently people keep coming back for more each day.
at 5/26/2006 16 insightful comments
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Thursday, May 25, 2006Finally, the Bounce
Well, that was predictable.
The bounce that everyone's been waiting for finally arrived. The Dow was up nearly 100 points, and there were bounces pretty much across the entire spectrum, including energy. The S&P 500 graph below (intraday) shows how the market was finally able to get some real strength.
http://photos1.blogger.com/blogger/4311/970/400/0525-spx.jpg
The horizontal lines represent Fibonacci retracement levels as measured from the early May highs to yesterday's lows.
If you look at the intraday graphs of the $INDU, $SPX, and $NDX, you can see fairly clearly where they "should" pause. I put should in quotes simply because markets don't always obey technical analysis, and there's no doubt I've been wrong before. If they do (a) pause there (b) reverse (c) take out the recent lows, then we'll have an honest to goodness bear market on our hands. And it'll be about time.
I'm going to keep this brief today, but I'll offer one nice looking chart to you for consideration of a short sale - CRR, Carbo Ceramics. A retracement anywhere close to $50 probably represents a nice low-risk/high-reward trade.
http://photos1.blogger.com/blogger/4311/970/400/0525-crr.jpg
at 5/25/2006 4 insightful comments
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