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Wednesday, December 06, 2006

On the Runway

Folks,

I've got to make a 2 minute post today, as my flight back home is about to leave. I see the market is down somewhat, as I much as I'd like to talk about it, I simply won't have time for a post today! I am truly sorry.

I will mention, however, one interesting comment made to my post a couple of days ago comparing the recent market to 1973-1974. The poster wrote:

"I think the various trading and credit derivatives, huge amounts of liquidity, international markets, massive hedge funds, private equity traders, and last but not least, the creation of the PPT are all noteworthy differences between the markets of 1973/74 and today's markets."

Repeat after me, bulls: it's different this time.

Greetings from Times Square in New York City, where I am sitting in my hotel room in what must be earth's most uncomfortable chair. How did they pick these things? I think a milking stool would be preferable.

Of course, a down market would be preferable too, but God's not taking any wishes at the moment. The U.S. stock markets went on yet again to new highs in many cases. Below is the Russell 2000, for instance. For those desperate for a sliver of a silver lining in on a very big cloud, you can at least take heart that there was a spinning top today. But.........big deal. The markets have done little but climb for the past five months. It is absolutely unrelenting.

One fellow wrote and made a good point in the comments section. He said he was a bear, but he had basically stayed out of the market during this time. That actually makes abundant sense. You can have a point of view and still wait for the insanity to pass. You might miss the exact top of the market, sure, but more likely you'll miss a lot of pain (such as the last five months). Having a neutral position makes a lot of sense these days. You can have your opinion, but wait until a better time to act on it!

One mild curiousity is how the $VIX has actually been edging up in spite of the market's strength. The graph below shows how the $VIX and the $SPX have been pretty much mirror images of one another. But the past week, the $VIX has started acting differently. I think last Monday's big drop shook things up.

The Major Market Index ($XMI), shown below, is absolutely in a bullish formation. There's no denying it. I have posted this index many times in the past few months. I keep looking for weakness, but it's not happening. If you're a bull, this is exactly the kind of pattern you want to see.

In spite of plenty of bad homebuilder news, homebuilder stocks have shown recent strength. Take a look at BZH.

I'm loathe to point out short ideas right now, but Capital One Financial (COF) seems so toppy to me I am compelled to mention it again. A person purchasing puts on this might want to make the expiration pretty far out there.

NutriSystem (NTRI) is a stock that had been weak earlier this year. But the volume and strength of this stock have shaped up into something that looks plausibly bullish. A breakout above the (roughly) horizontal line shown would be very bullish for NTIR.

Ouch. Another big up day on the market. New never-before-seen highs on a number of major indexes. These are the times that try a bear's soul.

I'm not going to share many charts today. Mainly because my picks have stunk so badly recently! I really wanted instead to address some of the comments I have seen recently in this blog.

From what I can tell, there are at least three different kinds of readers here. I'm sure there are others, but the three I've identified are:

The Ra-Ra: Tim for president! Tim is my hero! There hasn't been much of this lately due to the market exploding higher, but it happens on occasion. I don't deserve any adulation at all. If the market free-falls for a year, sure, I'll be glad to wallow in it! But until then, it's embarassing.

The Disser: Tim's an idiot. I come to this blog as a contrary indicator. Come on, now. That's just rude. The blog is free, and it takes effort on my part to do these posts every day. You don't have to be fawning, but don't be a jerk. OK?

The Even Keel: I come here to look for ideas. Some I use, some I don't. But it's nice to have another opinion. Yes! Right! That's all this blog is for!

Now, one criticism offered recently is that the blog simply isn't technical enough. One reader wrote:

I would think that with your book coming out, you would want to at least seem to make picks on technicals. That is why it is so confusing that you don't seem to use much of any technical analysis at all when pick stocks. You seem to just look for strong stocks with simple double or triple tops and say short them.

...and another reader....

I do have a question for you: when you trade by "technicals," do you actually use anything OTHER than Fib lines? I see a couple of charts here and there that point out simple candlestick formations, and maybe an occasional RSI line, but nothing else.

Let me be clear: even though I have access to every indicator under the sun, I use hardly any of them. I'm a simple soul. I'm interested in (1) patterns (2) trendlines (3) Fibonacci studies. That's really about it. I've been tossing in some RSI here and there to spice things up a bit, but honestly, if you're looking for something like the graph below, you might be better off hanging out at the public chart site of StockCharts.com (which is where this graph is from):

Oh, and there was one other (anonymous, of course) comment I must address.

I think Tim has a secret agenda. Tim is certainly not a technician because the number one cardinal rule is trend is your friend. He clearly violates that rule repeatedly. Personally, I think he subconsciously hates American capitalism. He wishes the economy will go sour and companies go bankrupt.

Ummm, actually, my love of America as well as capitalism runs pretty deep. Need I remind you that I built, grew, and sold my own company? And it continues humming along to this day. I am proud to have created employment, created value for subscribers and users, and made enough money to afford the overpriced real estate around here. So you, sir, are wrong.

As I mentioned, there were some new lifetime highs today on such things as the MidCap 400 ($MID), Russell 2000 ($RUT), and some others. The Dow 30 is within spitting distance of another lifetime high, and the S&P 500, while still a little ways from a lifetime high, pushed into territory not seen since autumn of 2000. The bulls are extremely strong now.

But getting back to the bit about being a technician. At the moment, this really isn't a technician's market. Sometimes the market is more favorable to technical analysis than others. And I'm speaking of both bullish and bearish plays. The kind of analysis I do, described above, really isn't yielding much these days. Yes, GOOG and SHLD could wind up being fantastic buys. I guess I'm just having trouble getting past their nosebleed levels to believe they would burst hundreds of points higher from here.

Let me point out one interesting parallel, however. Take a look at this graph of the Dow 30 leading up to the bear market of 1973-1974. What we have here are four interesting steps: (1) a gigantic secular bull market (2) a moderate bear market (3) a backlash higher, pushing the market back to its prior high (4) a push above the prior high into new record territory, although not much higher than previous.

Take a look at the Dow 30 of the present day. I've provided numbers for easy reference. Do you see the parallel?

You can tell I'm pretty disheartened since I'm offering not a single stock suggestion. But I at least wanted to respond to the recent comments and share some thoughts on what I see as an interesting historical parallel.