Hello from beautiful North Lake Tahoe, land of Prophet North, the fabled and enchanted woods where bears roam and bloggers muse.
The last week was pretty hum-drum. I think everyone – bulls and bears alike – is waiting for "the big break". The bulls have enjoyed a relatively robust push higher from July 15th (and in some cases, not "relatively" at all, but multi-hundred percent gains with the likes of ABK). The amount of fear out there, particularly with respect to the financials, has really come down.
It would be more exciting to see the VIX at a nadir like in October 2007 or May 2008, but at least we're back in the teens. In spite of my portfolio being stuck in neutral for a while, if and when the "big break" does arrive, my financial goals will be done for the year. My only challenge at that point will be to basically go fully into cash and not commit a common sin among traders, which is to extrapolate recent gains out into the future. So do me a favor and remind me, if we ever do a major plunge, to basically go into cash and post funny videos for the balance of the year. It probably wouldn't profit me to trade any more until 2009 begins.
One big break we're all waiting for, of course, is the $UTIL, whose plunge will correspond to higher interest rates and a stronger dollar. We're right on the cusp. A push above the $477 zone would put this pattern into some doubt, whereas a drop beneath $458 would start the fire. This is, I say again, one of the cleanest, finest patterns I have ever witnessed as a chartist.
I was premature to say the EUR would strengthen short-term. The fast and furious drop beneath the red line you see below simply continued. Congratulations to those short the euro! I drew a new retracement pattern this morning, and it seems to me this could keep falling until around the 1.44 level. I still do think the euro will have a robust bounce sometime soon, but at the same time, I think the long-term prospects for the US dollar are pretty bullish.
The NASDAQ has been especially strong since mid-July, but as you can see with the channel drawn below, it is very close to the underside of that 25% median line. In addition, there is a large amount of overhead supply between 2475 and 2550. Interestingly, this index actually fell (albeit slightly) on an otherwise bullish day.
I've pointed out some diamond patterns recently. ANR is a very clean one, and it's pretty close to breaking down.
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CF has broken a major trendline and completed a retracement to the horizontal line you see, so this is one of my cleanest trades right now.
Another diamond pattern – – this one completed just one day after I mentioned it – – is Devry (DV).
Battered gambling issues had a big resurgence in recent weeks, which in the context of a broader bear market for these securities simply presents another shorting opportunity. I've acquired a put position in Las Vegas Sands, and the desccending trendline dictates my stop price.
I suggested MTL as a short when it was in the 50s, although I stupidly got out of it too soon (at a nice profit, but not nearly optimal). I think the retracement has given us a new chance, and the pathetic volume on the upswing is meaningful.
Agriculture stocks have been great shorts lately, and a modest bounce higher has likewise presented new shorting opportunities. I hope I am not being hasty with these, but the major broken trendlines I am seeing suggest a very good trade ahead.
Options on RKH have pretty wide spreads, but I've got a decent-sized position in this with a stop at about the $112 level. The resumption of a downtrend in financials (and tech, for that matter) is a important requisite to a meaningful new swing down in the market (which the Elliott Wave folks would describe as wave 3).
Here are a few favorite equity shorts right now – – CCJ's pattern is absolutely gigantic and, I think, quite potent for a huge fall.
CNI is in the midst of forming, simultaneously, a head and shoulders pattern and a diamond pattern.
Coca Cola (KO) has done a nice retracement to a major failure line.
That's it for now. I'm going to spend the weekend swimming and boating with my family. I'll probably do a one-sentence "comment cleaner" post Monday morning so people don't have to load this massive set of charts each time they post a comment. Have a good weekend!
