Tuesday, January 24, 2006Is Google Going Soft?
I have something amazing to show you.
Google's lowest price ever was on the day of its IPO. Its highest price ever was recently, on January 11th.
I drew a Fibonacci retracement from the lowest low to the highest high. The first retracement level indicated a price of $394.74.
During last week's fall, Google got hit hard. How hard did it fall? What's the lowest price that it reached? The answer: $393.97. Do you know how close that is to the predicted retracement? One TENTH of one percent! Incredible!
http://photos1.blogger.com/blogger/4311/970/400/0124-GOOGDaily.jpg
Taking this a step further, this morning I saw Google was strong. It bounced up quite a bit yesterday, and it was headed north again today. I was interested in going short this stock (buying puts, actually). I wanted to get in at a good price. So I drew another retracement on a much shorter time horizon, as shown below. As you can see, the price got right up to the retracement level and then softened up.
http://photos1.blogger.com/blogger/4311/970/400/0124-GOOG.jpg
Now, there's no guarantee of course that the price will plummet. But at least I have a nice clean stop-loss point (the same retracement level).
Monday, January 23, 2006NTRI Follow-Up and MTH
Today was a relatively quiet day in the market, which isn't surprising considering the sell-off last week. I see the major media wasted no time in declaring that, since the market was actually up 21 points today, we were "Back to Bullness" (that's the top headline at MarketWatch). I'd suggest a different eight-character word beginning with "Bull", but I don't have any sway at CBS.
I wanted to follow up on a short suggestion I made on January 12 regarding NutriSystem (NTRI). Well, so far, so good. Indeed, unless the stock blasts back above $46 unexpectedly, I nailed this thing 100% on the dot. Take a look:
http://photos1.blogger.com/blogger/4311/970/400/0123-NTRI.jpg
I have another short recommendation for your consideration - Meritage Homes (symbol MTH). This stock has already fallen a long way - about 40% since August of 2005. But it has formed a gigantic, textbook-perfect head & shoulders formation. Should it break the neckline at $57, traditional measurements in technical analysis target a descent to $17.50 (!). Here's a close-up of the chart:
http://photos1.blogger.com/blogger/4311/970/400/0123-MTH.jpg
I received a ton of emails and comments on Friday about my "Victory for the Bears" posting. Many questions, too, were sent along. I'll try to answer these in the coming days. Thanks for your attention!
at 1/23/2006 2 insightful comments
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resistance trendline. It touched this line first thing this morning and never looked back. Here's where we are at now (as always, click on the image to see a much bigger picture, then click your browser's Back button to return to this posting):
http://photos1.blogger.com/blogger/4311/970/400/0120-RUT.jpg
If you ever need proof of the power of leverage, just take a look at the chart below of Google puts. One class of these puts went up 9,900 percent today alone! Now this is obviously an extreme case. Stocks don't typically lose 40 points in the span of one day, and we're talking about an option that only had a few hours left to live. All the same, it's an incredible chart!
http://photos1.blogger.com/blogger/4311/970/400/0120-GOOG.jpg
Some of you have written to ask specifically what my short positions are. At the moment, they are as follows.......
at 1/20/2006 14 insightful comments
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Thursday, January 19, 2006Trendline Magic
Just a quick posting today. I've remarked many times about how almost magical trendlines can be. Particularly how, even on a steeply-angled trendline, support can change into resistance. It's as if the price is magnetically drawn to the line, but stays rigidly on one side or another.
Even unusual instruments seem to have this property - check out this mutual fund, symbol USPIX, which is a double-inverse bear fund from ProFunds (in other words, if the S&P 500 goes down 1% on a given day, this fund goes up 2%). Notice how this security's trendline changed from resistance to support.
http://photos1.blogger.com/blogger/4311/970/400/0119-USPIX.jpg
at 1/19/2006 1 insightful comments
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Thursday, January 12, 2006Dow 11k, We Hardly Knew Ye
Well, the Dow's triumphant mounting of the 11k level has come and gone. Three days of glory in the sun, and now we're back into the 10s. C'est la vie.
Here's a six month candlestick chart of the $INDU to put this into perspective:
http://photos1.blogger.com/blogger/4311/970/400/0112-11kBroken.jpg
I'd like to offer a pretty interesting short candidate - NutriSystem (NTRI). This was, I believe, the top percentage performer of 2005, and it's at an all-time high right now.
What's interesting to me about this graph is that NTRI broke its ascending trendline and now it's just kissing the underside of it. To me this implies strong resistance, and now is just about the ideal time to short this, because if you're wrong (e.g. the stock moves on to new highs), you'll know almost immediately!
http://photos1.blogger.com/blogger/4311/970/400/0112-NTRI.jpg
The stock topped out Wednesday at 45.65, so I'd say $46 is probably a pretty good stop-loss point. Good luck!
at 1/12/2006 0 insightful comments
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Wednesday, January 11, 2006Pushing at the Top of Resistance
A picture's worth a thousand words - so I offer you TWO thousand words today. The charts speak for themselves. Here is the S&P MidCap 400:
http://photos1.blogger.com/blogger/4311/970/400/0111-MID.jpg
.....and the Russell 2000......
http://photos1.blogger.com/blogger/4311/970/400/0111-RUT.jpg
Notice in particular the progressive breakouts in the Russell 2000, and how each one is shorter-lived and weaker than the prior one. These breakouts are indicated by the horizontal lines you see drawn four times on the graph.
at 1/11/2006 1 insightful comments
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Monday, January 09, 2006Dow 11,000: BFD
Well, the Dow finally crossed 11,000. Big deal.
Let's take a look at the index chart itself (reminder - click the graph to see a bigger version):
http://photos1.blogger.com/blogger/4311/970/400/0109-RutNear.jpg
at 1/09/2006 0 insightful comments
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Friday, January 06, 2006The Bulls Break Out
Well, there's no arguing with prices, and the market pushed through across the board to new highs.
Some of the ETFs - like the MDY - reached never-before-seen highs. Others, such as the QQQQ, reached multi-year highs. Gainers trumped losers by about 2-to-1, and there is a very bullish tone to the market in general.
Let's take a look, for instance, at the big breakout QQQQ had recently. Notice the former resistance line and how powerfully the QQQQs have burst through it (the arrow indicates the year-end pullback, which was a bear trap, and the subsequent rise in the market).
http://photos1.blogger.com/blogger/4311/970/400/0106QQQQBreakout.jpg
Now before we get totally carried away, let's take a look at a graph which you'll have to admit looks awfully similar. It's also the QQQQ, and a virtually identical breakout is shown. (This happens to be from a year ago).
http://photos1.blogger.com/blogger/4311/970/400/0106-QQQQOldBreakout.jpg
But look at what happened next (I've left the rectangle drawn so you can see the relative point of reference).
http://photos1.blogger.com/blogger/4311/970/400/0106-QQQQOldBreakdown.jpg
As you can see, the breakout didn't have a follow-through.
What's going to happen this time? Will the markets continue to surge upward? Or will the magical Dow 11,000 number be crossed only to be crossed back on the downside once more? I have no real way of knowing. At this point, the markets are clearly pointing skyward. Whether it can be sustained or not will be revealed over the balance of the month.
I will offer some evidence of froth, however. Google - which continues to blast upward - keeps drawing higher and higher target prices from analysts. Remember back in the late 90s how Qualcomm, which peaked at about $100, fetched an analyst target of $1,000? That's often held us as an example of how bonkers everyone went during the bubble. Today a report came out suggesting a Google price of $2,000. And - amazingly - the report stated how it was "different this time" (compared with the bubble). People never learn, I guess! Anyway, if you're interested, the article is here.
at 1/06/2006 1 insightful comments
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Wednesday, January 04, 2006A New Trading Year Begins
Happy New Year to one and all. My new year's resolution for this blog is to be not quite so dogmatic with my bearish views. After all, my role here is to be as objective as possible - - - not proselytize! So having said that, let's take a look at what the markets are doing.
The story is pretty much the same across all the major markets: for about six weeks, from October 11th through November 29th, the markets were strong. For the whole of December, the markets generally had a stair-step pattern downward. Nothing dramatic, but definitely a series of lower highs and lower lows.
With the first two trading days of the year behind us, the market has shown strength, ostensibly due to some clarity from the Fed that they won't keep cranking interest rates up forever. And January, being the strongest trading month of the year historically, has a lot of favorable bias to it.
Let's look at the three biggest ETFs - DIA, QQQQ, and SPY (respectively, the Dow 30, NASDAQ 100, and the S&P 500 ETFs). I've pointed out the "high water mark" for each of these. Simply stated, the prices must exceed these prior levels for the market to show continued strength. Otherwise, we're just looking at a start-of-the-year anomoly and little else. Here, then, is the DIA.....
http://photos1.blogger.com/blogger/4311/970/400/0104-DIA.0.jpg
The QQQQ.......
http://photos1.blogger.com/blogger/4311/970/400/0104-QQQQ.0.jpg
And, finally, the SPY (remember, you can click on any image to see a bigger version)....
http://photos1.blogger.com/blogger/4311/970/400/0104-SPY.0.jpg
I'd also like to point out an example of a stock in a nicely-shaped inverted head & shoulders pattern, which is typically seen as bullish. The symbol is ASYT. Below I've drawn the two shoulders and the head, and I've shown the neckline above which the price has already broken. As you can see, the price fell back to touch the neckline and is starting to move upward again. I've marked the target price for this stock - about $7.50 according to traditional measurement techniques.
http://photos1.blogger.com/blogger/4311/970/400/0104-ASYT.0.jpg
at 1/04/2006 3 insightful comments
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Tuesday, December 27, 2005Rudolph's Light Goes Dim
Shorting these momentum stocks can be risky business, but let me point to a recent example that was a pretty clean trade - Forward Industries (symbol FORD). Here's what the stock looked like over the past year or so. Notice this important fact - - although the stock was pushing higher, the momentum was clearly slowing.
I've circled the ascending highs to try to make this point more clear. I've also drawn a sharply ascending trendline to illustrate how its role as support plainly changed to resistance, thus indicating that at least the "straight up" direction of the stock was slowing down.
http://photos1.blogger.com/blogger/4311/970/400/1228-FORD.jpg
When I saw this stock a couple of months back, I was intrigued. What kind of business is this? I did a bit of research and found they were in the business of - - hold on to your hat - - cell phone covers. You know, like cases. I was floored. I don't pretend to know anything about that business, and I couldn't argue with the success of the company, so they must have been doing great. But cell phone covers? Was that really a rock solid high-growth business with high barriers to entry?
I kept an eye on the stock, and when it made another thrust upward, I shorted it. I've put a circle on the chart below to indicate where I went short the stock.
http://photos1.blogger.com/blogger/4311/970/400/1228-FORDDrop.jpg
A few days back, FORD announced revised expectations, and the price just swooned. You can even make out a pretty decent head and shoulders pattern. My point here is that waning momentum on a former high flier can make for a great short.
Some other high fliers (which may or may not turn out to be great shorts......only time will tell) including GOOG, HANS, WFMI, and, as I mentioned before, NTRI.
NTRI, shown below, has had a huge run up. If the broad market continues to weaken as it has been, and this stock doesn't regain its momentum, a trade like this could be a terribly profitable short, particularly if you're willing to take on the even greater risk of owning a put option position instead of a straight equity short.
http://photos1.blogger.com/blogger/4311/970/400/1228-NTRI.jpg
I'll be sure to put up a post shortly after Friday's close to find out if the Dow wound up in the plus or minus column this year. It's going to be a photo finish!
at 12/27/2005 0 insightful comments
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Monday, December 19, 2005The Bulls Will Fail
With each passing day I like this market more and more.
The sneering, smirking bulls, with their obsession over "Dow 11,000", keep failing to do it. They just can't. No matter what favorable news blows their way, and no matter how many millions of people are falling all over themselves to push the market higher, it's not working. The market's not going up.
What's cool is that every morning they try again, and they fail again. As I've said in the past, this is exactly what we want to see. The market opens, they stamp their little hooves and push the market 30, 50, 70 points higher.....and it stalls. And starts slipping. And spends the rest of the day giving those gains back and, more often than not, closing lower for the day.
There are now just eight trading days left in the year. At this point, for the entire year, the Dow has gain 53 points. I am hopeful that minuscule gain will be wiped out and replaced with a loss before the year is over so we can throw this decennial pattern in the garbage where it belongs.
http://photos1.blogger.com/blogger/4311/970/400/1219-Dow.jpg
Now let's take a look at the current insanity, Google. About a week ago or so, in an attempt to outdo other analysts, one stock analyst made a projected price target of $500 for Google. What's this thing with big, round numbers? Does this guy really get paid this much to just dream up a big round number? Is there actual analysis behind it? What about $600? Or $700? Why not a good old 1990s $1,000 price target?
Well, anyway, Google shot out of the gates today because they look close to catching some of that AOL magic (take a good look at the dog TWX stock to see how much life is left there). It was up $17 or so, blasting to another lifetime high. And it stalled. And started sinking. It finally closed down nearly $6 for the day. A daily range of something like $25. I actually had bought puts on it near the top but chickened out. Just look at this insane intraday chart (below is about the past 5 days).
http://photos1.blogger.com/blogger/4311/970/400/1219-Google.jpg
I am hoping 2006 will put us in a position where the bears really take charge. We're sort of gently tapping the bulls away at this point. I'm wanting to rip a few thousand points out of the Dow and see real blood in the streets. 2006 could be the year for that kind of action. Below is a list of all my current puts and shorts. All of them are already deeply profitable, and I'm counting on many gains to come. Let the games begin!
at 12/19/2005 9 insightful comments
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Thursday, December 15, 2005Bulls Still Struggling
Here's a chart showing the VIX (black line, right scale) versus the S&P 500 (blue line, left scale) over the past 3 1/2 years. As always, click on the image to make it larger so you can see it better. Look at the picture and judge for yourself what this chart might be telling us. I've put some green highlights to ilustrate how these two charts are often "mirror images".
http://photos1.blogger.com/blogger/4311/970/400/1215-VIXSPX.jpg
at 12/15/2005 0 insightful comments
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Tuesday, December 13, 2005Breakout........or Failure?
Today, for the 13th time in a row, the Fed increased interest rates. Perversely, the market rallied on the news (supposedly because there was a suggestion that perhaps the rate hikes would stop). It wasn't that many years ago there was a saying about "three steps and a stumble" (in other words, three rate hikes in a row preceded a bear market). I guess even 13 hikes haven't done the trick yet.
The market has been going nowhere for a long, long time. The flip side of this, however, is that when the market does finally decide to go somewhere, the move will be substantial. Even I, Mr. Bear, concede that if the Dow breaks 11,000 in a meaningful way, the market is going to rally strongly. There is simply too much pent up energy to hold it back. Conversely, if the market keeps failing to penetrate 11,000, as it has done repeatedly already, the market will finally succumb and wilt downward.
Take a look at the past couple of years of the Dow 30; notice where I have marked the 11,000 threshold:
http://photos1.blogger.com/blogger/4311/970/400/1213-Breakout.jpg
There have been two earnest attempts to pierce 11,000. If it can't "punch through", the bear market I've been yacking about all year will finally start to take hold. Until then, everyone - including me - is in wait-and-see mode.
The market will either have the strength to push itself past the resistance that's been holding it back for many months, or it will finally throw in the towel as people rush for the exit doors and take profits as quickly as they can.
at 12/13/2005 3 insightful comments
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Thursday, December 08, 2005Cute with a Capital Q
http://photos1.blogger.com/blogger/4311/970/400/1208-Q.jpg
I'll stifle all the bearish hoo-ha for a day and mention one honey of a stock pattern - Qwest Communications (symbol Q). This is a fantastic inverted head & shoulders pattern with a good volume and price spike today.
I've mentioned this stock in the past, but I wanted to put out a reminder since it's clearly broken above its neckline at this point.
at 12/08/2005 3 insightful comments
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Wednesday, December 07, 2005
Sunday, December 04, 2005
The Windup......and the Pitch!
As a new trading week approaches, most of the talk is about crossing Dow 11,000 (as if this is unprecedented; we were last there in June 2001). Clearly, given the market's strength since October 11th, it would be a psychological boost to the bulls to cross this threshold.
It could well happen. In fact, given the market chatter, it seems almost a foregone conclusion. But what if it does? What next?
There have actually been a number of breakouts over the past few years, and it pays to take a look at their respective "windups" (the amount of time they were forming before they broke out) and "pitches" (just how much oomph was in the breakout).
I offer below the Russell 2000 for the past three and a half years. I've taken the liberty of illustrating each major breakout, showing the length of time (in purple) and the subsequent rise upward (in green). Click on the image for a bigger version.
http://photos1.blogger.com/blogger/4311/970/400/1204-ProgressivelyWeak.jpg
You've probably noticed a pattern already. With each successive breakout, the length of time gets shorter, and the subsequent strength (and its longevity) gets weaker.
at 12/04/2005 1 insightful comments
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Tuesday, November 29, 2005When Good News Can't Help Anymore
There were two very important economic reports that came due this morning.
In my view, the market (as measured by the $SPX) peaked on November 23rd at 1,270.64. Look at the graph below, and notice how beautifully all the Fibonacci retracements line up:
http://photos1.blogger.com/blogger/4311/970/400/1129-SPY.jpg
I'd also like to point out the amazing shooting star pattern on the Dow. It's absolutely textbook!
http://photos1.blogger.com/blogger/4311/970/400/1129-ShootingStar.jpg
There's about a month left in the year, and the Dow is currently up 1.5%. Hopefully the Dow will close out the year at less than 10,783, which will "break" this decennial pattern and be another feather in the cap for the bears.
at 11/29/2005 1 insightful comments
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Monday, November 28, 2005New Hope for the Bears?
The stock market has been going virtually straight up since October 13th, much to the chagrin of dyed-in-the-wool bears (waving hands wildly, pointing at self).
Nothing would be better for the bears than for everything seem to be in favor of the bulls and then have the carpet yanked out from under their grimy little hooves. As a reminder, what's in favor of the bulls right now is (1) the Decennial Pattern (2) strong seasonal bias (the so-called January effect, which tends to take place in December!) (3) recent broad-based strength, particularly in the NASDAQ.
One day does not a trend make (or break), but today was heartening nonetheless. Witness first that the market opened higher and spent most of the day sinking. The Dow, approaching 11,000, may be turning tail again. A double top would be potent elixir for the bears. (Reminder: click on the image to see a bigger version of this graph, then click Back to return to this scintillating post):
http://photos1.blogger.com/blogger/4311/970/400/1128-DowDoubleTop.jpg
I also want to point out that, across the board, both indices and individual stocks alike had examples of the bearish engulfing pattern (one of the easiest-to-spot and powerful candlestick patterns). Check out the SPY, and notice how it stands out from the price action over the prior six weeks:
http://photos1.blogger.com/blogger/4311/970/400/1128-SPYBearish.jpg
Google, which has had a swashbuckling year, seems to do little but go up. Although I am loathe to call a top on this powerhouse of a stock (which, by the way, happens to represent a very fine company!), here is another fine example of a huge bearish engulfing pattern.
http://photos1.blogger.com/blogger/4311/970/400/1128-GoogBearish.jpg
It's important to get a sense as to the scope of the market. I am, for example, long puts on Boeing (symbol BA). This is based on a recent trendline break. Boeing has recovered from this break, but the damage may have been done already. Although the above graphs are very recent history, look at the graph of BA below which spans about 12 years. Witness just how far BA has ascended over the past couple of years, and imagine the possibilities should the market ever start really falling (ahem, if it ever gets any traction in the downward direction). There's a looooong way to go.
http://photos1.blogger.com/blogger/4311/970/400/1128-BAFall.jpg
For those interested, below are my current positions. I will once again state that this blog is merely a place for me to spout ideas and thoughts on the market. Your analysis is up to you. So trade at your own peril! Anyway, the underlying symbols for my put positions are:
at 11/28/2005 0 insightful comments
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