Monday, November 21, 2005What's Next for the Bulls & Bears?
These are the times that try bears' souls!
Between the "decennial" magic and this bullish time of year, bears are getting smushed. Some major indexes are reaching highs never seen before - - ever! Examples include the very important Dow Transports ($TRAN), the MidCap 400 ($MID) and less known but still important indexes like the Morgan Stanley High Tech 35 ($MSH) and the Morgan Stanley Internet ($MOX). These last two look extraordinarily bullish.
The Dow Jones 30 ($INDU) is only 180 points away from the psychologically important 11,000 level. The last time it got close, earlier this year, it turned tail and ran. Clearly if it manages to get onto the other side of 11,000, it will be extremely heartening to the bulls (big, round numbers make for great press).
I still believe - yep - that the market is ultimately in for a huge tumble. But you can't argue with the prices and the strength. This market has been powerfully strong since October 11, and there aren't any clear signs of it abating for any technical reason in the near term.
I am not seeing a huge quantity of individual stocks that look like great buys. Once exception is Quest Communications (symbol Q) which has a beautiful - - albeit slanted - - inverted H&S pattern. Notice, too, the handsome increase in volume in recent months:
http://photos1.blogger.com/blogger/4311/970/400/1121-Q.jpg
The $MOX, mentioned earlier, sports a similar pattern, although it's so level you could do carpentry on top of it:
http://photos1.blogger.com/blogger/4311/970/400/1121-MOX.jpg
One cautionary note for you bulls out there - the VIX has, naturally, descended given the market's rise. It has reached a level not seen since July of this year, which was a high water mark for the market. I've highlighted the area of the VIX when it bottomed out and, subsequently, the market went into a sustained dive.
http://photos1.blogger.com/blogger/4311/970/400/1121-VIX.jpg
One short that has done quite nicely for me is PetsMart (which I've mentioned once or twice before). It's a beautiful head & shoulders pattern which has ascended to touch its neckline and, starting today, is moving away from it.
http://photos1.blogger.com/blogger/4311/970/400/1121-PETM.jpg
at 11/21/2005 0 insightful comments
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Thursday, November 17, 2005The Bearish Case Weakens
Well, as much as I hate to admit it, the case of a downfall in the market anytime soon took another blow. Recent strength in the market - especially in the face of what should be viewed as weak economic data - speaks for itself. I'm getting very close to the point that even I'll have to admit the bulls are firmly in control for the forseeable future. (And some stocks are just beyond belief - check out NTRI and HANS!)
The S&P 500 ETF, the SPY, is getting terribly close to crossing above its highs for this year. If that happens, that will be the final nail in the bear's coffin for the time being:
http://photos1.blogger.com/blogger/4311/970/400/1117-SPY.jpg
Some major ETFs have already crossed into new high territory. Particularly strong is the Nasdaq 100 ($NDX):
http://photos1.blogger.com/blogger/4311/970/400/1117-NDX.jpg
Also strong, and until recently a favorite short of mine, is the MidCap 400 ($MID):
http://photos1.blogger.com/blogger/4311/970/400/1117-Mid.jpg
So, as long as I'm sheepishly visiting the bullish camp, how about some specific suggestions? The stocks below are in technical formations that appear quite attractive; I suggest you check out the charts and see for yourself:
at 11/17/2005 1 insightful comments
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Tuesday, November 15, 2005Repelled!
As a devoted bear (ahem: duh) I have been nervously eyeing the Dow, which has been the strongest index of late and has threatened to cross above 10,725 in a meaningful way.
Over the past several months, the Dow has tried to pierce this level, as shown below. It has failed every time. And any failure to push past a resistance level only strengthens the bear's argument that that level will not be surpassed, and the fall will be just that much stronger when it comes.
http://photos1.blogger.com/blogger/4311/970/400/1115-DowGreen.jpg
I was disheartened to witness the Dow push through this level today, but the curious thing was that the 22 stocks in which I have short positions didn't follow suit. In spite of the Dow's strength, many of them remained weak.
Three hours before the close, the Dow peaked, it started falling, and it never looked back. Not to say today was some kind of amazing plunge - the Dow only lost about 10 points. But what's crucial is that the Dow was pushed away yet another time from this resistance level, and just about every index wound up in the red.
There are many time-based reasons the bulls have an upper hand. The decennial pattern (described here) is terribly potent. Plus the timeframe of November 1 to April 30 is traditionally the stronger half of the year. So the bears have plenty going against them. (I would note that, with 2005 almost over, the Dow is down a fraction of a percent. Hardly jibes with the awesome gains illustrated in the decennial pattern article).
As the Fibonacci retracement indicates below, this level of 10,725 is a key line in the sand. As long as it can stay below it, the odds of the market "cutting loose" to the downside stay strong. If this line is penetrated in a meaningful way and the prices close above this level, I will have to reconsider my position.
http://photos1.blogger.com/blogger/4311/970/400/1115-DowFib.jpg
at 11/15/2005 0 insightful comments
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Thursday, November 10, 2005Using Retracements Short- and Long-Term
Today's entry is going to be about using multiple Fibonacci retracements in different timeframes. Now, wait, wait; don't roll your eyes and turn on the TV just yet. This isn't as dry as you might think. Stay with me on this one.
The general point is that using the Fibonacci retracement is very useful not just for long term analysis but short term as well. On one given chart, you might have two, three, or even more retracements drawn.
For those of you relatively new to these, they are quite simple to draw - typically the reference line is drawn from one price extreme to another, and the retracement lines are automatically placed on the chart. Take one of my favorite examples these days - the NZD/USD currency pair (New Zealand/US Dollar). I have been touting this as a short position for quite some time.
Look at the chart below (frequent reminder: click on it for a bigger view). It shows the NZD/USD over the past couple of years. I've highlighted in green where the price tends to "hug" or bounce off of the various retracements. I find this behavior uncanny.
http://photos1.blogger.com/blogger/4311/970/400/1110-NZDLongTerm.jpg
Although you can just barely see it, I've drawn another retracement way up in the upper-right hand corner of the graph. This is for just the past few weeks of activity. Below is a zoomed-in portion of that graph. Once again, you can see how the prices line up beautifully.
http://photos1.blogger.com/blogger/4311/970/400/1110-NZDRecent.jpg
As you can see, these retracement levels are invaluable. If you are "between the lines" and moving either up or down in price, you already have advance warning as to where the price is probably going to pause. In addition, once it breaks through a price level (either up or down), you can have a higher degree of confidence that it will move more smoothly from that point until the next level is reached.
at 11/10/2005 0 insightful comments
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Tuesday, November 08, 2005Two Great Short Ideas
Since this market still can't make up its mind about which direction it's going to go, I thought I'd share a couple of favorite short ideas, both of them in massive head & shoulders patterns. I've mentioned each of these before, but they are both so good, I wanted to revisit their latest charts.
The first, PetsMart (PETM) broke beneath its neckline, took a sharp fall, and then has retraced beautifully to the neckline. This is a gift! It represents a much lower-risk place to put in a short order. Prices don't always return to the neckline, and the stock has already "tipped its hand" about the direction it will probably go. I've put an arrow indicating a target price.
http://photos1.blogger.com/blogger/4311/970/400/1108-PETM.jpg
The second, Family Dollar Stores (FDO) is a much, much larger pattern. In fact, whereas the chart above spans five years, the chart for FDO spans a much broader period. In addition to being in a head & shoulders pattern (albeit not as squeaky-clean as PETM), it has broken beneath a major ascending trendline. So you have a breakdown from not just one pattern, but two.
http://photos1.blogger.com/blogger/4311/970/400/1108-FDO.jpg
Two reminders - first, you can click on any chart on this blog to see a bigger version; and second, take these suggestions at your own risk! Your own analysis needs to drive your trading. I merely offer these as interesting examples of technical patterns.
at 11/08/2005 0 insightful comments
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Friday, November 04, 2005Revisiting FOREX (NZD/USD)
I've posted a couple of different times about the attractive short position in NZD/USD (which basically means the New Zealand Kiwi should fall in relation to the US Dollar).
This continues to be a good trade. Over the past several days the US Dollar has been very strong, so NZD/USD continues to get pounded.
As the graph below demonstrates, these markets are extremely volatile (the graph on the left is the past several days of the EUR/USD and on the right is NZD/USD). As the highlighted portion shows, these markets can spasm on news in one direction and then flip around and rush the other direction. Trying to trade on too short a time horizon is almost always a money-losing proposition in the FOREX markets.
http://photos1.blogger.com/blogger/4311/970/400/1104-FXSpasm.jpg
I am not sure if NZD/USD is temporarily oversold at this point; it was definitely hammering out a short-term bottom near the end of trading today. The big picture remains superb for shorts. But, having fallen so far, it isn't as safe a bet in the short term since it could recover to the upside. Over the course of weeks and months, however, this still looks terrific.
at 11/04/2005 2 insightful comments
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Monday, October 31, 2005Knowing When You're Wrong
For those of you who follow this blog regularly (and there are millions!) you may recall I made a strong suggestion that Carter's (symbol CRI) was headed for a tumble in
http://photos1.blogger.com/blogger/4311/970/400/1031-CRIAway.jpg
at 10/31/2005 0 insightful comments
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Wednesday, October 26, 2005The Bull & Bear War of 2005
Until Friday of last week, the market was a bear's dream. On Monday the 24th it became what looked like a nightmare, as the Dow rocketed over 160 points and there was strength across the board.
Now that a couple more days have passed, I have had the opportunity to look again at the markets overall. My point-of-view remains utterly unchanged. I still believe we are at the beginning of a major descent, and Monday's action was one of many "one-day wonders" that we are bound to see that will frighten less stalwart bears away.
As you may recall from my earlier postings, the market (specifically, the IWM, which is the broad Russell 2000 ETF) "kissed" the underside of its broken trendline not once but twice (as shown by the down-pointing red arrows on the graph below). On Monday it kissed it again, then it kissed it good-bye as it jumped to the other side.
This was discouraging at first, since it seeemed the broken trendline had been overcome. But look at the graph below. A violent war is ensuing between the bulls and bears. You can practically see the opposing sides shoving the price from one side to another of this "line in the sand" that is so important to the market's future direction.
http://photos1.blogger.com/blogger/4311/970/400/1026War1.jpg
The key, as always, is which side has more strength. Judging from the charts I am looking at (and I look at hundreds), there is an overwhelming case for a severe downfall. Trendline after trendline, Fibonacci after Fibonacci, they all point to the same thing - - that the market IS broken already, and we're going to keep heading lower in fits and starts.
Since I mentioned my beloved Fibonaccis, I'll point out again how marvelously helpful these can be in trading. OIH, which is representative of the oil group, descended sharply from its wild ride recently. It bounced perfectly off the retracement line, as you can see in the highlighted area below.
The upward bounce has exhausted itself. I re-entered the oil market on the short side in a big way today. Just look at the massive shooting star pattern (for you candlestick fans out there). As always, just click on the image to see a bigger version.
http://photos1.blogger.com/blogger/4311/970/400/1026-OIHFib.jpg
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Thursday, October 20, 2005You Knew This Already
See my post and then look at the chart below, which brings you up-to-date:
http://photos1.blogger.com/blogger/4311/970/400/1020-ToldYa.jpg
The market was repelled again. "The kiss of death" - twice - is what's happened this week. And you knew what to do a day ahead of when it actually happened!
Such is the beauty of technical analysis.
at 10/20/2005 0 insightful comments
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Wednesday, October 19, 2005Kiss Me Twice!
I wrote yesterday about how the IWM had "kissed" the underside of a huge three-year long trendline, indicating how clearly support had turned into resistance.
After an initial softness this morning, the market firmed up and exploded higher. As you can see with the chart below, it once again "kissed" the underside of the trendline precisely!
http://photos1.blogger.com/blogger/4311/970/400/1019-KissMe.jpg
The key question, of course, is what will it to tomorrow? If it is once again repelled, this will encourage the bears and discourage the bulls. If, however, the line is penetrated, it makes for a more shaky bearish argument, and the line becomes less meaningful for either camp.
I wanted to offer another example of how useful Fibonacci retracements can be. Over the past week or so, I was extremely short various crude oil markets, particularly oil service stocks. These positions (both shorts and puts) did quite well, but it's nerve-wracking to have a position racking of profits if you don't know when it's going to turn and go the other way.
That's where Fibonacci comes to the rescue. All I had to do was take a look at one chart - the XLE - to see that it was approaching a retracement level, meaning that both the XLE and the oil stocks were likely to bounce up.
http://photos1.blogger.com/blogger/4311/970/400/1019-XLEFib.jpg
And bounce they did. I closed out everything (and even bought XLE calls) just as the market whipped around the other direction. Thanks, Mr. Fibonacci!
at 10/19/2005 0 insightful comments
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Tuesday, October 18, 2005Kiss My Trendline
On Friday, Saturday, and Sunday, I was speaking at a trade show in San Francisco about Prophet.net, and I was enjoying talking to users of our products (both current and prospective) and sharing ideas about the market.
Because I did a lot of demonstrations, I had more time than usual to look at charts, and I was amazed at just how beautifully bearish everything seemed. I can't remember a time when everything seemed to line up so well.
So much so that I told many people my belief of what the market would do when the new week began - - and not in general terms, but in specific, to-the-penny terms.
My prediction was that the market would open higher on Monday, carrying through with its upward momentum on the prior Friday. But that it would "kiss" the bottom of its major ascending trendline and start reversing, and that it wouldn't look back.
My term "the market" is specifically about the IWM, although the market in general applies. Below is the intraday, minute-by-minute graph of IWM. Notice how, early on Monday, it kissed the underside of the now-broken support (which means it's resistance at this point) and fell.
http://photos1.blogger.com/blogger/4311/970/400/1018-KissMyTrendline.jpg
To........the............penny! (I would hasten to add that I don't "adjust" my trendlines after the fact; this is a well-established, multi-YEAR trendline; you are just zoomed in very close to it).
I am writing this on Tuesday afternoon, after the close, and one of the most critical earnings reports has just been issued (Intel, INTC). Revenues and earnings were sensational, and INTC shot up higher shortly after the announcement. Then it was breakeven. Then it's down. Last I looked, it had fallen about 3%, even on that terrific news. They haven't even held their conference call yet, so who knows if INTC will be up or down tomorrow.
But having a down market on bullish news can only bring tears of joy to a bear's big brown eyes.
at 10/18/2005 0 insightful comments
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Friday, October 14, 2005Oh, Baby!
I could go on and on about the breakdown in the market this week (oh, Tim, please.....) but I won't. This Friday - like last Friday - our dear friends the bulls bid the market up in a one-day rally. Sorry, guys, it's too late. The giant ascending trendlines have been broken, and you were only able to push prices up to the underbelly of your former support. Game over, man. The bears are ready to party.
So while we look forward to next week, let me offer up just a single stock - a short, naturally. This one is baby clothes maker Carter's. A stellar head & shoulders pattern that holds the potential for a terrific drop, as indicated by the chart below.
http://photos1.blogger.com/blogger/4311/970/400/1014-CRI.jpg
at 10/14/2005 0 insightful comments
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Tuesday, October 11, 2005Crack.....
The "recovery" from last week's selloff lasted all of one day - - specifically, last Friday. And it could hardly be called a rally. The selling simply abated for a few hours.
The selling has resumed, and chart after chart looks like the one below (which is the symbol IWM), with major ascending trendlines being shattered to the downside:
http://photos1.blogger.com/blogger/4311/970/400/1011-IWM.jpg
I've highlighted the point where today's prices punched through the trendline as well as when this last took place in late March of this year. You can see what happened next.
at 10/11/2005 0 insightful comments
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Thursday, October 06, 2005Boing!
I want to show you something fascinating - look at this graph of IWM (which is the ETF of the Russell 2000). Notice the lower trendline. It is VERY old (about 3 years) and, as the red square indicates, its price was getting extremely close to touching it today.....
http://photos1.blogger.com/blogger/4311/970/400/1006-IWMLong.jpg
Near the end of the day, the price of IWM did touch this trendline, and just look at the incredible and instant turnaround in the price!
http://photos1.blogger.com/blogger/4311/970/400/1006-IWMShort.jpg
Is that not amazing? Think of it! A trendline spanning three years is so strong that the price is only permitted beneath is for about 90 seconds before whipping around!
Don't get me wrong; I still think the market is doomed. But, for the very short term, I'm long the market. I merely think it's oversold for right now, and I'd like to ride a quick bounce up in the meantime.
at 10/06/2005 0 insightful comments
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Wednesday, October 05, 2005Those Fabulous Fibonaccis
As happy as I am with the market's plunge recently, I'll just have a short entry today to comment about crude oil.
The graph below shows crude oil (specifically, the December 2005 contract) over the past year. I've drawn a Fibonacci retracement on it. Notice how amazingly it forces support and resistance on the price. I've highlighted areas of particular "bounce".......
http://photos1.blogger.com/blogger/4311/970/400/1005-FibCrude.jpg
I am short quite a few oil service stocks now (which already have shown a nice profit), and this chart indicates that crude oil is going to take a fall more due to the nice head & shoulders pattern. I imagine the next stopping point will be at about the $59 Fibonacci level.
at 10/05/2005 0 insightful comments
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Tuesday, October 04, 2005Five Reasons This Bear Loves This Market
(c) Bounce Off Resistance - Take another look at the same graph. See the descending trendline at the top? A series of lower highs and lower lows. And today the price couldn't penetrate this resistance line. Just another affirmation of a top.
http://photos1.blogger.com/blogger/4311/970/400/1004-Candlestick.jpg
(D) Major Trendlines are Broken - On all the indices, multi-year ascending trendlines have been broken to the downside. You can see an example of this in the longer-term MDY chart below (reminder: you can click the image to see a larger version). There is another, lower, trendline that hasn't been broken yet, but I'm confident it will be sometime this month.
http://photos1.blogger.com/blogger/4311/970/400/1004-MDY.jpg
(e) Utter Complacency - People still think the bull market is intact. They still think that, at worst, the market will return 5% each year (indeed, this is the 'bad news' that is shared in popular circles.....that modest returns must be accepted instead of 25% annual returns). Here, for instance, are the subject lines over the past several weeks from a major technical analyst - look how, day in and day out,
at 10/04/2005 0 insightful comments
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Tuesday, September 27, 2005NZD Forex Revisited (Again)
The timing just was about perfect. The market "topped out" the very next day, sank, recovered some, and then really starting sinking.
http://photos1.blogger.com/blogger/4311/970/400/0927NZD.jpg
So the NZD/USD market moved from about 71 cents to 68 cents. Three pennies. So what, right? Well, the FOREX market is so highly leveraged, that three penny move would have resulted in a three hundred percent return over the course of those five weeks (e.g. a $10,000 account would be worth about $40,000).
What's exciting to me about this graph is how cleanly it played within the Fibonacci retracement. NZD/USD is considered an exotic currency market. But it's a terrific-looking graph. I'd step aside at this point, although long-term I can see this graph heading much lower.
at 9/27/2005 0 insightful comments
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Tuesday, September 20, 2005Eleven Steps then a Stumble
Finally, some direction! It's about time.
There's an old saying about the market - "three steps and a stumble" - which implies that if the Fed raises rates three times in a row, the market will fall. Well, the Fed has raised rates ELEVEN times in a row, and finally the market looks like it is starting to take notice.
Below are three charts of the largest ETFs - our old favorites SPY, QQQQ, and DIA. Each of them tells a similar story of a slow shift from upward market to downward market.
The first chart of the SPY (the S&P 500 "spiders") shows the ascending trendline which the prices are approaching. This trendline is still a ways away, but if it's cracked, it bodes well for the bears out there (like me).
http://photos1.blogger.com/blogger/4311/970/400/0920-SPY.jpg
Next are the "cubes" (QQQQ, the NASDAQ 100 ETF) which have already broken their ascending trendline. This market has never recovered quite as well as the other markets (especially the Mid Caps and the Russell 2000, which hit lifetime highs not long ago). All the same, it's just as vulnerable as everything else. I've drawn the ascending and descending trends to make it more clear. You can see where the ascending channel has been clearly violated.
http://photos1.blogger.com/blogger/4311/970/400/0920-QQQQ.jpg
Finally are the "diamonds" (DIA, the Dow 30 ETFs). As with the SPY, the ascending trendline has yet to be violated. But if it is, bulls need to watch out. The shifting tide continues to work its way in favor of the bears.
http://photos1.blogger.com/blogger/4311/970/400/0920-DIA.jpg
at 9/20/2005 1 insightful comments
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Friday, September 09, 2005Redback Recovery
Just one stock to mention for this post (which is my 50th one, by the way! Did anyone bring a cake?) Redback Networks - RBAK - is in a fantastic inverted head & shoulders pattern, with good volume to boot. This is a terrific long opportunity (as always, click on this image to get a much bigger picture):
http://photos1.blogger.com/blogger/4311/970/400/0909-RBAK.jpg
at 9/09/2005 3 insightful comments
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Tuesday, August 30, 2005More Short Ideas
I continue to be very pleased at the structural breakdown of the stock market. It's like watching a cruise ship turn around; it's slow, it's steady, and it's massive.
Below are a bunch of different short positions I'm in right now; as always - (disclaimer-time here!) - these are just for your observation, entertainment, and further analysis. These aren't recommendations. But they're worth checking out.
Here's Comtech (CMTL) in a very toppy looking pattern with a nice clean stop price.
http://photos1.blogger.com/blogger/4311/970/400/0830-CMTL.jpg
Next is Conmed (CNMD), which I've been following a long time. It broke beneath this neckline a couple of weeks back and has now retraced to the underside. Looks like a nice short opportunity to me.
http://photos1.blogger.com/blogger/4311/970/400/0830-CNMD.jpg
Everyone's favorite Internet stock, Google (GOOG), is below; once again, a nice clean break with the price kissing the underside of what used to be support:
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