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Friday, December 01, 2006

A Bad End to a Great Day

Until about 2:45 EST today, this was looking like a fantastic, bears-are-back-in-charge kind of day. The Dow was down about 130. Every attempt to push the market higher was met with bears pushing it past the prior lows of the day. The direction of the market was everything we've been waiting for.

Unfortunately, the bulls have staggering firepower and confidence, and they wiped out all but 28 points of the Dow's lose in a little over an hour, tacking on 100 points to the Dow from its lows of the day. Very discouraging and disappointing. But let's at least take solace in the fact that the market was down for both the day and the week. Down is down, people. Let's not get too self-pitying.

Here you can see the areas I've highlighted, indicating the places where the bulls have slashed back at the bears by bidding up stocks.

I do get a sense, though, that the bulls' merciless grip on the market is starting to slip. There was no more succession of daily lifetime highs. For the moment, at least, the atmosphere in the market seems to have changed for the better. But one thing is certain: if we don't break below 1,375 on the S&P soon, this brief sense of bearish confidence is going to fade. We must break this level, period.

I've got just a handful of short suggestions today. GOOG is one I'm hesitant to put forward, but I feel compelled to do so. I don't have a strong technical reason for doing so (except insofar as the recent breakout really isn't going anywhere). I rely more on the notion that whatever everyone knows is not worth knowing. And what everyone knows is that GOOG is the king of the world, it can do no wrong, it's a cash machine, and it has stomped everyone else out of existence. Well, where do you go from there? When anything is priced for perfection, it seems an ideal time to fade the market.

A less dramatic suggestion is HES, which I think has recovered about as far as it's going to go.

Sears Holding (SHLD) looks like its recent bullish breakout doesn't have legs either.

Lastly, US Steel (X) seems to have fully run its course. The beauty of all four of these suggestion is that the stop-loss levels are not only obvious but not that far away, so the risk is quite manageable.

I appreciate your taking the time to check in with me. Have a good weekend.

Thursday, November 30, 2006

Isn't It Epic?

What a day! The bulls and bears are in an epic battle. First the market went up. Then it lost its footing and fell. Then it was down nearly 60 points. Then it erased all those gains and pushed up nearly 50 points. Then it fell yet again for the Dow to have a loss for the day! It's just getting shoved all over the place!

The market definitely "feels" different. I think this Monday's tumble has freaked the bulls out a bit. Our bullish friends aren't quite as cocksure as they were before. It's a nauseating battle for control.

The candlestick graph of the S&P 500 shows a big honkin' spinning top for the day, which is the very essence of the uncertainty going on. Neither side is in control. Know this: if we take out the lows from Monday, the bears are going to have the upper paw.

The purported reason for any recent weakness has been the U.S. dollar, which has tumbled again lately (take a look at the highlighted area below). I've drawn a horizontal line indicating the support level which, if taken out, will really start to freak people out.

Just to drive the point home, the S&P 500 has played the "I'm falling! No, I'm moving to new highs!" game before. Take a look at the areas I've highlighted below which shows quick tumbles recently. We saw what happened last night. Let us pray to the ursine gods above to have mercy on us sinners.

Like I said above, the market feels different. I think the chart below shows why. The unrelenting, horrible uptrend we've been burdened with was snapped Monday. As the lines indicate, this could be the day where the uptrend ended and the downtrend began.

A closer look just shows how fierce the battle is being waged. These is a minute bar graph. Just look how wild these swings are!

A daily graph of the Russell 2000 ($RUT) makes me think it would take a supercharged rally to elevate the market into new high territory again. The psychological damage done by Monday was pretty bad on the bulls.

One short that's been getting bludgeoned has been gold. In my defense, I never said this was a slam-dunk pattern. It was on the fence. But recent strength has been staggering. This position is close to getting shuttered.

Just one stock today - one I've shown before - Lehman Brothers (LEH). This continues to be weak. Nothing sensational. No collapse. Just a nice, steady weakening.

Wednesday, November 29, 2006

Recovery Holding Firm

Today's entry is going to be on the short side, since I've spent most of the day sitting in either airports or on airplanes.

As you well know, the market made an earnest move higher today. Around the middle of the day, it looked like the recovery was softening (the Dow went from up over 90 to up about 45 or so). But then the bulls got their feet back underneath them and pushed it to close near the high of the day. Disappointing. A failed recovery is exactly what we bears need right now, and we didn't get it.

Here's a daily graph of the Russell 2000. The market could easily push into new highs (yet again) in the next day or two. That would make memories of Monday's fall completely vanish.

Here's a closer view of the NASDAQ 100, and you can see here how helpful Fibonacci retracements can be, even on an intraday basis. I've drawn the Fib from the recent high to the low on Monday. You can see today we pushed up to a 50% retracement, fell back down to the 23.6% level (pretty much right on the nose) and then back up to 50%.

The graph of the S&P shows a similar behavior. This graph shows more time - the past ten days instead of the past two - and you can see here how we're at a crossroads. Either we break recent highs and go into full-blown bull party again, or we snap below Monday's lows, in which case - - finally - - we poor, beleaguered bears will get a bit more control over this market.

As you might imagine, the rise up in the market today and (to a lesser degree) yesterday took the air out of the $VIX in a big, big hurry.

I am doing today's entry in a mad rush to get on another plane, but I didn't want to leave everyone high and dry! More charts and analysis tomorrow - - promise.