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First off, since my blog is suddenly so popular, a public service announcement: buy my book! Honestly, if you like charts, you'll love my book. And if you use the Investor Toolbox, you have got to get it - - it's the only way to become a ProphetCharts expert! Anyway......

Wow, no comments on how obnoxious yesterday's post was! I guess people have come to expect it. But that video was a kick, eh?

I woke up this morning - just like Tuesday morning - to a beautiful site. The GLOBEX totally smashed in by bearish action in China:

It was thrilling for a little while. The Dow plunged another 200 points. I watched my index puts (which I had stupidly sold Tuesday morning) move from $211,000 in "coulda" profit to almost $300,000. Ouch. Always nasty to see what could have been. The indexes were on a wild ride all day, at times even moving into positive territory. In the end, things were generally down a little.

I hate to say it, but I think it's more likely Friday is up than down. There are a couple of reasons. First, today's action was largely a freak-out session based on Tuesday jitters. Second, there are candlesticks all over the place - some of them gigantic. And third, people are talking bear talk now - - - it's best to maul bulls when they are not looking. That isn't the case now. The $VIX has exploded higher. (N00B alert: click on any chart to see a big version.)

A longer term look at the S&P shows how it could easily move back up to the underbelly of that broken trendline. At that point, it would be like shooting fish (or bulls) in a barrel. As it is now, I'm nervous.

It remains to be seen, but if we do sell off tomorrow, the Russell will have already accomplished its mission of pulling back to its own trendline. This is the only index on which I own puts right now. Puts are relatively expensive now, versus last week, because premiums have understandably exploded higher. So I'm afraid buying puts now is much riskier than just a week ago.

Just look at the candlestick on today's $TRAN action (wow, that sounds like something that would happen on a Castro street corner).

If we rally, the $XMI should do well. Look at not only the candlestick but also how nicely the prices have pulled back down to that former major breakout point (the horizontal line).

I bought some more CME puts today. It seems to me it has pulled back to resistance. I'd put a stop of $552 on these.

Here's a longer-term look at the same stock.

PICO, which I only just stumbled across today, has the makings of a good bullish pick.

I was really ticked this morning when I saw the NZD. I was short the currency. And it had plummeted overnight. So why I was upset, then? Because I had been stopped out on a margin requirement. See, this is something I hate about FX trading. It is so highly leveraged, it is very easy to get a margin call, and the broker will sell every single position you've got. So if you have a ten cent margin call, blammo, your entire account is closed out to cash. So I missed out on a huge move.

Just look at QID. Can you believe a security that started off with just over 100,000 shares traded in a day is now trading close to 20 million? What a success story!

RAI has formed a beautiful dome topping pattern.

And old favorite SHLD, my only bullish position, sported a nice candlestick today whose low met resistance. A stop on $172.49 is good for this one.

Friday should be really interesting, particularly since the weekend is upon us. If people are really shell-shocked and nervous, and they don't want to live through a weekend of uncertainty, maybe we'll get some downward pressure. But don't call me permabear if the market rallies tomorrow. I would say it's better than even odds on a good rally, in which case we'll have to sit things out until prices (and premiums) get reasonable again.

Wednesday, February 28, 2007

Animal Mother

I am channeling Animal Mother. Bulls, you have a real chance of losing control. Stay sharp!

Some folks (well, one - Health Affairs - only God knows what on earth that name is supposed to mean............) suggested I would falsely claim I called the fall. I didn't call the precise fall (otherwise I'd be on Time magazine), but, come on, I gave some pretty clear warnings.

On Saturday, my entry was appropriately entitled, "I'm Starting to Like This Market". I wrote:

The Russell 2000 has been unkind, but I think we're over the worst of this. Here is a sixty day intraday graph; the head and shoulders target of 30 points to the upside has been plainly reached. Clear as a bell.

On Monday, once again, an appropriate title - "Crossroads" - where I wrote:

Accept my good wishes that the higher highs/higher lows pattern be broken in the coming weeks. The bulls must be conquered, and breaking the pattern is the first step in breaking their spirit.

Finally, after the fall, on Tuesday Night...

...as for tomorrow - - again, I haven't looked at a single chart yet, but my early guess is a quick drop in the first half hour and then a big rally afterwards. Not hundreds of point, but maybe 100.

And what, dear readers, did the market do today? There was a quick drop in the first half hour. And then it rallied 100 points (well, 137 at its peak, but you get the idea).

Let's turn to the delicious Abby Joseph Cohen and see what she had to bark today......(this is just an image; don't bother clicking on it for the video; you have to go to cnbc.com for that).

In the video interview I watched (on perpetual rah-rah CNBC, which I never, ever watch, except in the rarest of instances), she stated that the market's "valuation, if anything, has gotten a little bit better". Yep, if you liked the Dow at 12,700, you'll love it at 7,000. She goes on to say that she (it is "she", right?) is targeting a 10% increase this year........and that's conservative....."assuming a deceleration in ...profit growth..."

AJC says of the U.S. equity market......"our market is underpriced....[and represents] very good value." Of course it does, you devilish temptress! The interviewer asked her what, if anything, would give her concern about the market. Her multi-million-dollar a year answer? "Events within the economy." Well, my scrumptious little sex kitten, you certainly know how to earn your keep. Rorrrrwwwww........

Let's put our brains back in and get serious. How high will the Dow go up (ahem - "recover" - - from the "correction") before we get a chance to really rake the bulls over again? Cast thy eyes this way:

.....and this.......

........and this.........

The $VIX pulling back to the horizontal line shown would make things more tempting. My God, the bid/ask spread on S&P options today was wider than Al Gore's waistline. (I think the man has decided to consume - live - anyone not living green. Notwithstanding his $30,000/year house bill on electricity and gas).

I'm going to break form and offer a few bullish ideas. Now, don't get me wrong. I don't actually buy any of this crap. I just get sick of being called a permabear. So I grit my teeth and throw some buys out now and then. Here's ABT:

LEH pulled back beautifully to its fib fan:

And SHLD, which I've mentioned repeatedly, remains a handsome graph:

I received many, many emails over the past 24 hours thanking me (some just in general, others with multi-hundred percent gains from my ideas). One kind gent even sent me a video. I share it with you now. Here, my friends, is how the bulls are coping with the market. (Although the bull is disguised as a giraffe here):

The Price of Tea in China

I am writing this Wednesday morning, a few minutes into the opening bell. I stayed up until 2 going through charts and resumed at 5:20 this morning. So this is a late post, but it is in the context of Tuesday's mini-crash.

It has been a long, long time since I have awakened to such a beautiful sight on Tuesday morning:

In the end, Tuesday turned out to be the best of times and the worst of times. It was the best of times since it was spectacularly to finally see a real fall, just like I had hoped for the previous day (see my Monday post). It was the worst of times since, for my index options, I closed them out when the Dow was down just 120 points. I made money on all my options, but there was a huge amount left on the table. Deeply disappointing, but nice to see the smart bears beat the dim bulls for a change.

A few interesting notes from yesterday:

I had a record amount of blog traffic. It's weird, because usually my traffic is very steady. Maybe my regulars came back repeatedly to see what crazy Tim was going to say. Or maybe those who visit me occasionally figured it would be a better post than most.
A number of people wrote me emails to thank me for the profits they made. I appreciate that, but the credit goes to you! I'm just here sharing my thoughts, for better or worse. What you do with them is up to you.
Quite a few people keep asking about the sales of my book (especially, strangely, my detractors). I have no idea! I do track its rank on Amazon, and it briefly made the "Best Sellers" list on the business books/investing section, but remember, this thing hasn't even hit any stores yet. It is just off the press. Only time will tell, but I'm pretty proud of my book. I think it's a good read!
On a personal note, I've been waiting for the perfect opportunity to use the subject I chose for yesterday's post ("I Am Become Death"), a reference to Animal Mother in Full Metal Jacket. I felt it fitting!

I think few stocks better represent the broken promises of this fraudulent bull market that Google. What a snoozer this thing has become! Just look how it's been doing a whole lot of nothing since November. This is a relatively blue chip high tech stock, but you can just hear the air coming out of the tires.

If you look at the NASDAQ over the long term, you can see we might have a loooong way to go before we reach bottom.

Looking at the same index with a shorter time horizon, we plainly bounced off the upper resistance line.

The Dow Industrials were just crazy yesterday. I was - - and this is further proof of just not God, but a Cruel God - - trapped in my car virtually all of yesterday, taking dangerous glances at my Treo. The market was down 200 or so for the longest time, then it was suddenly down 500. I honestly thought the president had been killed or something. But it was just this orgy of sell orders all at once, I suppose.

Looking at the long term industrials, one could easily argue that yesterday was an anomaly. There aren't any major trendlines broken here. Just some very shaken bulls.

The Russell 2000, which I've mentioned quite a bit as a good index to buy puts on, took a better tumble than most yesterday.

And just look at the QID (and its volume!) It's pretty clear there is a growing interest in this double-inverse funds!

Looking at the $SPX, you can see a brief pause about half an hour into the trading day. This is the point where I - shame on me, shame on me - did an "ad hoc" close (which I had forbade myself from doing). Pure idiocy.

But here is perhaps the most interesting chart I have for you today - the SPX on a daily basis. Take a good long look at those trendlines that made up the channel, above which the index had broken out. And to which point did the index fall yesterday? That's right - almost precisely at the same trendline! If any bulls are ready this, you can take that as an encouraging sign.

The volatility index went stark raving mad. This almost certainly cannot sustain itself.

A close look at the $VIX shows the amazing breakout. This borders on unbelievable.

I had no position on the $XAU, but I wish I had puts on this bad boy. The plunge in China had a profound effect on metal prices.

Oh, and the Dow Transports breakout I mentioned last week as great news for the bulls now is rendered moot. The pattern has been shattered.

Continental Airlines has broken its trendline. I've pointed out the target on this. I own puts on this (which I bought prior to the breakdown), and I have high hopes for this position.

One other stupidity on my part - I closed out my CME puts yesterday at a fantastic profit. But the profit became much more fantastic as the CME kept falling. These expensive stocks can make for fantastic puts, especially when volatility is low (as it was not long ago!)

Lastly, Goldman Sachs - - whose puts I've been derided for owning - - is another winner. I'm hanging on to this, although I sold my MER just to trim my investment bank exposure. But you can see by the trendlines there's plenty of room left to fall.

I apologize again for the late post, but I hope I made up for it by the size of this one! Thanks again for all the congratulations and pats on the back. I'll let you know if any bullish Australians have left any cowardly voicemails for me.