Today was a welcome relief, but it still doesn't get us over the fact that this summer's frenetic up-and-down motion is agonizing for bulls and bears alike. Even if we had a single week of a consistent downturn, I'd nail all my financial goals for the year. As it is now, I have to play offense one day, defense the next, offense the next day, defense the next. Feh!
The $UTIL, which you all know I'm especially bearish on, is on the right track again. A break beneath 460 would spell doom for this index and usher in the 20% drop on which I am counting.
I've got a medium-sized position on QQQQ puts; the $NDX is below its retracement line (barely) and below its fan line. Weakness in the $NDX would send it, I am supposing, about 150 points lower.
Every technician on the planet is eyeing 1265 on the S&P. I've tinted in the key area. I know I've said it ten times already, but I'll say it again: a break beneath this level will make the job of the bears really, really simple. Until then, we remain mired in this dread battle. September, "the month of the bear", will hopefully smile kindly on us.
The recovery in financials is starting to peter out, I think. The rally following July 15 was gigantic, but the volume is shriveling up. I repurchased puts on BAC today, and both FNM and FRE had sharp percentage drops today.
I am finally (!!!) going through the last several days of comments, trying to get back into the Slope Flow. One person mentioned ENR; I had never looked at this chart, but it's pretty intriguing!
As an aside, some people ask me what the difference between "Original" and "Present" is in the charts. Take a look at this post from just a couple of days ago. Click on "Present." As you can see, it illustrates what the stock has done since I made the post (in this instance, I was bullish on MER, and it shows the past couple of days how much MER has gone up; nothing huge, but it makes the point).
And the words of the prophets are written on the subway walls and tenement halls and whispered in the sounds of silence.
To me, nothing is more representative of the low quality of the recent rally than the kinds of stocks which have been rising the most. Just look at this detritus:
To be blunt, I think the people piling into such issues are fools. They may have not looked foolish through yesterday, but I think the entire bounce higher is simply a pause in a much bigger trend.
As for today, it's nice to get some relief. As of this writing, the Dow is down triple digits. If it holds, we're going to wind up with another complete waste-of-time of a week, since the lurching up and down merely continues. Regardless, as we bid August farewell, we can look forward to September, which has the distinction of being the only consistently "down" month in the year.
Well, there is one and only one trend in place - - - that is, me bellyaching about the markets and saying my post will be relatively short today.
This whole Sisyphus thing gets really old. Up, down, up, down, up, down - - all month long. You may ask: "Tim, why not take profits on days you are up?" Because the only way to make real money is to ride a trend...........at least for more than 6 hours at a time! My equity curve resembles the edge of a saw. Up, down, up, down, up, down. Insane!
The broken trendline is still intact and still has meaning. But by exceeding last Friday's highs, the market did some damage to the bears today.
It was even worse in Russell-land; the resurgence in battered financial stocks helped the IWM and $RUT quite a bit, and the series of higher lows and higher highs, shown below, is troubling. Particularly since the downturn we were starting to enjoy a couple of weeks ago was stopped cold.
I am feeling better about my bearish positions on oil and gold, however. Early this morning, oil and gold were briefly strong, but they gave up these gains and moved into the red. The horizontal line on the $XAU at 157.50 is formidable.
I was looking at the S&P 500 chart, and I found something interesting. Look at the three sharply ascending trendlines I've drawn (not the long purple ones, but the blue ones, below). It may not look like it, but all these lines are the exact same 70% angle. What I find kind of riveting about this chart is how, for the third time in a row, the market's countertrend is cleanly tracked by this line, and eventually prices fall away. Plus, with each succession, the amount of "recovery" time is getting shorter, and the amount of "climbing" time is shrinking too.
I have avoided pursuing dead cat bounces in the financials. Those that have, for the moment, have prospered. Just look at the 300% gain in MBI, for instance, over the past six weeks.
The biggest sign of my nausea with the market these days is my complete absence from the comments section. I usually really enjoy reading the comments, getting new ideas, and answering questions. But I am again (for the moment, at least) so put off by the market's whipsaw action that I don't even want to go there. Let's see if Friday does any better for us, or if this week is going to end on a sour note...........
I've been mentioning recently about the risk of strength in financials - - well, that's happening. From FNM to FRE to MBI and FED, they are all flying higher. That goes for bigger issues like JPM and MER as well.
Gold and oil remain weak, and the dollar strong, which is what I expected. I am far less sanguine about the strength in equities. It is still below the busted wedge, but this kind of strength is certainly unsettling!
Trapped! Trapped, I tell you! If this stupid market would just make up its freakin' mind, maybe someone out there - a bull or a bear - could make and keep some cash! Jeebis!
The reason for this post's title is that two of the nine positions I got bounced out of this morning were BLK and ICE, and I thought I'd do a quick post about the value and rationale behind stop prices.
To my way of thinking, 80% of the value in technical analysis comes from knowing when you are wrong, not knowing when you are right. Dealing with things when you are right is a cinch. There's nothing I love more than resetting a stop on a position to an increasingly favorable price with the purpose of locking in better and better profits.
That doesn't always happen, of course, and the more important situation is getting pulled out of a position when a given thesis of yours turns out to be incorrect (or at least delayed).
Take ICE, for instance, which has long been a favorite of mine. Based on its pattern, what it should have done is broken beneath its July 11th low of $80.20 and plunged. What has been happening for the entire month of August, though, is a consolidation in the $80 to $90 range and, this morning, a small breakout above that range. Thus, I was stopped out for a loss on the position.
Does this mean ICE will never plunge? No. Does this mean that my observation of the pattern's potential was wrong? No, unless it eventually pushes above $117.25. What it does mean, though, is that this stock is not behaving in the way it needs to behave for me to make a profit, and I'm not comfortable waiting for "something else" to happen; I would rather be out of the position altogether and continue to observe for another possible opportunity.
My portfolio took a 5% haircut today. That's no surprise, considering the strength in both equities and commodities. Oh, well; not every day can be a winner!
I have been very absent from comments lately, so please don't be insulted if you think I'm ignoring you. I'm not. I don't even have the chance to ignore you, since I'm not there! I am simply mired in other activities.
As was the case yesterday, I don't have a tremendous amount to say about the markets; there simply isn't much from a technical perspective happening. It was interesting to see AMLN, which I've mentioned a couple of times in this blog, take a 25% tumble. Sometimes it takes a little while for a stock to finally succumb to technical forces. Needless to say, that horizontal resistance line proved important.
A variety of issues that were severely battered by the credit crisis have, over the past several weeks, been up in some cases even hundreds of percent. FRE and FNM have been very strong this week, but to my eyes, this is nothing more than another lurch toward that sharply descending trendline.
The "Jesus Pattern" of ANR (click on Present Chart to see it more plainly) isn't spiritually inspirational yet. A push above the high set early in August would take me out of this position. At least the volume has been withering away.
I am, however, pretty pleased with GOOG. In spite of some big strength in the NASDAQ, GOOG has been sinking. Some overall weakness in the markets could push this back into the three hundreds.
That's it for me today; I'm not trying to squander the wonderful traffic I've built up over all these months with lame posts, but today just doesn't call for any more commentary. And with that, I shall return to my work! See you tomorrow.
I'm not too shaken up by the charts I am seeing, but I will note, as I did yesterday, that some of the financials may have been battered enough to mount a rally. MER in particular, based on the retracements, looks enticing. I'm not going to act on it, but I wanted to share the chart.
Looking at the Russell 2000 (and, ergo, the IWM), it seems to me we've returned to June 16th. We're in a situation in which:
we surged inexplicably above the retracement line;
we broke a countertrend rally;
we fell back;
we surged again, but not as high
If we are simply repeating this cycle, what we expect to see next, of course, is a trip back to plunge-land. That would be nice. This morning has been pretty rocky so far; I was stopped out of XLU, FINL, DVN, ANR, FLR, and CMP.
Some of my posts are measured in feet rather than inches. This is going to be a short one, because there's not much new to say.
As a thought experiment, I'm going to take the viewpoint that I'm wrong on the markets and that things are going to go the opposite of how I'm positioned (perish the thought!) I think it's healthy to look at what things would look like it they "went wrong" so you can be prepared.
The S&P is just grinding away at 1265. This is not good. This might form into a base from which a small rally could be launched. This level must break; there's just no two ways about it. It will take, I suppose, a catalyst in the form of one of the economic reports coming out this week to do so.
The story is much the same with the Dow 30. We have been monkeying around below the Fibonacci line, with the exception of last Friday's thrust toward the broken trendline.
Just to keep on the "worst case" theme, the $NDX (and remember, these are intraday charts, not daily) could be interpreted as having made a nice basing pattern which has retraced to the horizontal line, preparing for an upward thrust.
There, I am through thoroughly scaring myself. But it is very dangerous to get totally wed to a certain point of view. You never know what form the next government bailout is going to take. And I'll be the first to admit that, given any reason to do so, the investment banks and financials in general are in a position for a big push higher, given how horribly battered they've been.
That's honestly all I have to say at this point. Maybe tomorrow will give us some direction. But some days are just like today - - - just not much to it, and not much to say!
And so, yet again, we are grinding away at about the 1265 level on the S&P 500. To say it's exasperating witnessing the support here is an understatement.
Stocks that are headed for oblivion - - think Enron - - don't go from $90 to $0 in one day. They get there in lurches.
It can be tempting to buy a stock for $5 that used to be $60, thinking how easy it would be for it to pop 25% overnight. It happens all the time. And for a few lucky ones, it can be really profitable.
But I urge you not to do this. The FRE and FNM of the world are very dangerous, and during each of the tinted times shown below, people thought they had nailed the bottom. I imagine most of them sold only when their profits had turned into painful losses.
Not much going on at the moment; this is one of those comment-cleaner posts, mainly. As long as USO stays below 98.54 on this little bounce higher, I'm feeling good about my energy bearishness.
In this weekend's post, I wrote, "Zooming in to the intraday level, however, you can see how technically
perfect all this price action has been. An ascending wedge, a break,
and a perfect retracement to the underside. I would be very, very
surprised (and disappointed) if we didn't see a down day on Monday."
Well, I was neither surprised nor disappointed. I got the "one-two punch" I was hoping for............a drop across the board in oil, gold, and equities. The notion that these are inversely correlated is, in my opinion, total nonsense, and I am positioned as such. Today's 241 point drop on the Dow was welcome, and the last three days of this week are packed with important economic reports.
Observant readers may notice that my performance figures have dropped from something like 95% to 77%. The reason for this is that we've changed how this is calculated. Last week, a reader pointed out what he felt was a mathematical flaw in the calculation; I agreed, and I asked an engineer to correct it. This has been corrected, but still, the figures shown are not bad! Please keep in mind my caveat about this figure, no matter what it says.
Today I'm simply going to show you my favorite current positions. I've got a total of 109 - - yes, 109! - - positions, every single one of them bearish. But here are my jumping-up-and-down favorite ones.........
In spite of my three rules being very simple and easy to understand, I tend to blow it on the second rule ("never do an ad hoc close") way more than I should.
This morning I closed out my IWM and SPX puts (both at a profit) simply "because." Well, to be fair, the reasons were more than that, but none of them were based on technical analysis. I am a genius at justifying why I should sell certain positions; some of you might hear yourselves with this kind of self-talk: "Well, the market is down a lot this morning. I should take a profit while I can. And these are September puts. You don't want to hold onto September puts, do you? After all, these are the only Septembers you have. If you sell these, you can take your profits, and you can be devoid of any Septembers. Wouldn't that feel good?"
About sixty seconds after I sold these, the market plunged another 100 points.
I am writing this not just to bellyache or self-flagellate, but to say that even with an "expert" like me who has been doing this for a couple of decades, screw-ups still happen.
And, setting all this aside, let us remind ourselves not to become enamored of the material things of this world. Love and truth are timeless. Beauty fades..........and can even become terrifying.
I'm glad to see that Slope isn't the only corner of the web dedicated to giving the citizens of the United States at least a 3rd grade education when it comes to spelling, grammar, and syntax.
This has nothing to do with charts, I realize, but I'm still recovering from seeing the ridiculously dishelveled and rumpled Mayor of London at the closing ceremonies last night, looking like a buffoon as the elegant and poised Chinese Premier and IOC Chairman passed him the Olympics flag. Wow.
Good (Saturday) morning, everyone. I was too wiped out Friday night to do a post, but here I am.
In spite of me being very "on" about gold, oil, and the dollar last week, it was still pretty much a grind in terms of portfolio value. In order to really blast my value higher, I need the "one-two punch" of both energy/oil/gold falling and equities falling. That will supercharge everything, based on how I am positioned.
Crude oil is really interesting. Although I didn't draw the neckline in the chart below, it cuts across about the $123 level. I'd say we're heading for the psychologically significant $100 level on oil within the next month.
I don't really look at commodities very much, but it is pretty remarkable just how fast commodities across the board have collapsed. I'm sure you recall earlier this summer how everyone was running around, screaming about exploding food prices, rationed rice at Wal-Mart, mega-wealthy farmers, and so forth. You could probably pinpoint the peak in prices across the board with all the squealing. Since then, things have absolutely plummeted. Just look at corn, below - from about $800 to $500 in a matter of weeks. I daresay the collapse in prices across the board has a long way to go.
As for equities, we continue to push into increasing complacency in bull-land. The VIX range since "the new market" began (that is, last July) has been from 16 to 37. We're at about 18 now. We are getting near the lowest levels of the VIX within this range. Historically, this means a nice surprise is around the corner.
The surge in equities Friday pushed things to very nice shortable levels. I also find it interesting to note how volume zoomed higher during the plunge in June and early July, and it has been withering away all through August. The market really doesn't know what to do with itself, and I think a lot of people are starting to lose interest. A watched pot never boils, and bulls and bears alike are growing weary of watching.
Zooming in to the intraday level, however, you can see how technically perfect all this price action has been. An ascending wedge, a break, and a perfect retracement to the underside. I would be very, very surprised (and disappointed) if we didn't see a down day on Monday. (this is Gary's cue to tell me that the 25th of the month is usually an up day 97% of the time.....)
My "short of the year" $UTIL has been higher, naturally, due to the recent strength in the Euro, but I think this is about to change. I say again: I think interest rates are heading much higher, the dollar is heading much higher, and the $UTIL is heading 20% lower.
Indeed, if you want a chart expressing the potential strength of the dollar, look at USD/CAD, below. If this was a stock, wouldn't you want to be long? Just wait until that descending trendline is broken. The push above the horizontal line you see was major news.
The IWM, on which I bought puts late Friday, also pushed nicely to its Fib level. I've boldfaced the two critical levels. We are just going to continue to watch (a) paint dry; (b) grass grow; until such time as that low Fib is snapped.
As for the rest of the post, a variety of charts I think bears may find of interest, some of which I've never mentioned before. Have a good weekend, and I'll see you Monday!
