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Monday, June 04, 2007

How Now, Mao Dow?

There was a time, not long ago (like, ummm, early last week) that I would have felt cheated and flustered by the Chinese market's tumble not having a bearish effect in the U.S. But at this point, I am so utterly distrustful (and numbed) by this market that I'm not at all surprised.

The Shanghai index fell the equivalent of over 1,100 Dow points last night, and our market - of course - went up. I truly believe - and I am seriously not exaggerating - that a nuclear bomb on a major city would not cause a major disruption in this bull market. I swear to God, this market is insane, and even the death of a million people would not stop it. It has lost its mind.

So. Having said that, let's look at a few charts.

Crude oil is pushing higher. Looking at the continuous futures chart, it seems to have plenty of room on the upside.

The strength in crude is obviously good for oil service stocks. The OIH is at a new lifetime high and had a very strong day today.

I mentioned last month how bullish energy looked, and stocks like Apache (APA) have been stars.

Conversely, companies which suffer due to high fuel costs got hurt today. My short recommendation of American Airlines (AMR) is doing well.

One I don't think I've mentioned in the past on the short side is BEA Systems (BEAS).

I have, however, mentioned Bunge (BG) a few times, and this one is shaping up nicely.

Capital One (COF) is sort of stuck right now. I own puts on it, and they haven't done a thing, but I am still hopeful about this position.

Federal Realty Trust (FRT - "don't giggle at our ticker, please") looks like a clean bearish trade to me as well.

I don't mention Google (GOOG) much, but this stock looks like a strong buy (yep, buy). This chart is strong, and the volume has been inching higher. Obviously this company is an ungodly powerhouse and is doing well at the expense of poor Yahoo, which seems to be dying an agonizing death.

I bought puts on Honeywell (HON) today. Maybe a lil' double top here.

The investment banks seem to be edging south, in spite of the market's continued strength. Merrill Lynch (MER) in particular looks good for a short play.

Friday, June 01, 2007

Some Weekend Ideas

Another day, another record in the markets. So it goes, right?

Looking at the long-term Dow 30 chart, I frankly don't see any clear place where the push higher is going to stop, at least from a technical standpoint. We are sort of in unchartered territory. Only a sea-change in something.......a monstrous terrorist attack......a fundamental downturn in the economy......is going to make a difference.

Ken Fisher has a pretty good point where he talks about the spread between the E/P value (that's not a typo - earnings divided by price) and prevailing corporate interest rates. I'm paraphrasing, but his rationale goes something like this - the average P/E on the S&P 500 is about 17 right now, which means the E/P is akin to an interest rate of 5.8%.

However, the cost of borrowing money (for which a corporation can deduct the interest) is, once you factor the tax savings, less than 4%. So it's more economically efficient to borrow tons of cash and buy back stock. In his view, until that gap is closed, the market should continue to go higher. Assuming neither interest rates nor earnings (the "E") change, a rational value of the Dow would be at something like 18,000.

I've been battered enough over the past year to not question that kind of assumption. I'm not putting my money on it, but there's no reason to say it couldn't happen.

The American Stock Exchange's $XMI index had looked like it was going to start heading south again, but nope - it pushed to another lifetime high.

I've got a few specific stocks you might want to check out. If you think just about all the good news that can be had about Apple (the AppleTV/YouTube functionality, the forthcoming iPhone, the raging success of the iPod......) is out there and that AAPL is price for perfection, consider some puts on this high-flying stock.

Coach (COH), the purse/leather giant, also might be prone to a fall.

I like the look of Excelon (EXC) here too, for a bearish play.

For bulls, Micron (MU) seems to be turning higher after a prolonged slump. It had a really good day today, and volume has been surging over the past several months.

Those who miss the goofy videos and funny pictures will have to wait until this market gets easier for me to understand. For the time being, it's just dry charts and sober analysis.

Thursday, May 31, 2007

Talk About the Weather

I've always felt a bit sorry for meteorologists here in the San Francisco Bay Area. Because, between about April and October, they really have very little to say. The forecast is, more or less, as follows: "There will be patchy morning fog, clearing by late morning. Highs on the coast will be in the lower to mid 60s, with lower to mid 70s around the Bay and low 80s farther inland." It varies little from day to day, week to week, month to month. No rain. No hail. No nothing.

I'm starting to feel a bit like that about the markets these days. "Horrible economic news was reported to me. The markets rallied on the news to historic new highs. Bearish patterns were laid waste."

Oh, well. At least we didn't go up another 120 points today. The economy came in with the weakest numbers since 2002, and the Dow was basically unchanged. Looking at the RSI and slow stochastic, you can see how the market is seeming awfully tired, in spite of the progression in prices.

Much the same can be said of the S&P 500 ($SPX).

I was distraught at all the gorgeous real estate head & shoulders patterns getting trounced yesterday, but maybe there is hope yet. Apartment Investments (AIV) is no longer a perfect H&S, but today's weakness is a good sign.

I haven't posted American Airlines (AMR) in a while, but this is a head and shoulders pattern which remains cleanly intact with what appears to be a nice retracement to the neckline in progress.

JC Penney hasn't completed its pattern yet, but - - - it could! Keep an eye on it.

A lot of investment banks seem exhausted lately, whether you look at GS, LEH, or any of many others. Here is Morgan Stanley (MS), which seems to have made a bit of a double top.

Whirlpool (WHR), a Dow 30 component, is very lofty right now. This seems to me a short with an attractive risk/reward ratio.

And the Big Oil stocks - Exxon Mobil (XOM) is a favorite of mine to watch - likewise have an attractive risk/reward ratio for shorting right now.

There's a ton of economic news tomorrow morning. Let's see if June gets off to a better start for the bears than May was.