Slope of Hope with Tim Knight

Our Market Has Finally Arrived

I'm liking 2008 an awful lot so far, I must say.

Today I saw one of those sites where all the visitors vote whether they think the market (or particular stocks) are going to go up or down. I like the entire "Wisdom of the Crowds" concept, but the general public is so brainwashed by CNBC and the like that the opinion of most people isn't worth crap. Let's see how they fared today.

I'm kind of "sloped out" right now - this is, what, my 5th post of the day? - so I'm going to go engage in some non-chart activities that will round out this perfect day. I'll do a post early in the morning. In the meantime, here are my 70 - count 'em - 70 put positions (I added the $RUT one, in spite of my earlier post, not long before the close). (UPDATE: OK, it's Saturday morning now, and I got up on the late side, so a chart-fest won't be happening today. I'm sorry. I'll see if I get a chance this weekend sometime.)

Free Fall

I just wanted to make sure my last post about a possible bounce wasn't at the top!

Clearly it's an awesome day for the bears. I think all of us are expecting dumbshit Bernanke to show up and get on his knees for the bulls like he always does with a 300 basis point cut this weekend or something. Try not to worry. I made this just for you. Enjoy it:

Charts That Suggest a Bounce

This is one of the days that must be handled adroitly. Being ham-handed on a day like this can cause huge damage (or at least blow big opportunities).

I'm out of my index puts. I've bought S&P calls (yep, calls). I've still got a bushel of equity puts, but I'm trimming here and there. As I look at the index charts, I see mounting evidence for a bounce here. The big picture looks better than ever for a bear market. But I'm profoundly nervous about a bounce at this point and feel compelled to hedge against that possibility. Here are the charts, without commentary:

(UPDATE: Well, that was a profound waste of money on my part. I bought SPX and RUT calls. Saw things weaken. And thus generated my only multi-thousand dollar losses for the day. Stick to the bearish plays, dickhead.....)

This is the Day God Has Made-Let Us Rejoice & Be Glad In It

HOWEVER.........I am very, very, very nervous about what the market tends to do on days like this. Look at the S&P 500 and its 400 day moving average plus its Fibonacci fans. Shudder. I wonder if we're at a turning point.

November Lows Breached!

The IWM fell so hard that it actually broke  to prices not seen since October 2006! It pierced beneath the lowest Fibonacci line I've drawn on the IWM (for the medium term). There may be serious buying going on at these levels.........maybe the ISM report in at 10 EST will shed more light.

HUZZAH!

Wow. It is a beautiful morning.

It is pouring rain outside (which is my favorite kind of weather), and the jobs report came out, immediately following by the market taking a crap on itself.

If I smoked, I'd probably need a cigarette right about now.

Hoping the Economy Blows Jobs

In recent history, there have been six trading days when the Russell 2000 got within range of the critically important support level at about $735: August 16, November 20, 21, 26, 27, and December 18. Every time it does so, it gets more annoying, and that support level's validation and import is strengthened. Even after the bears are in control for a while (such as very recently), this price level represents a state of equilibrium. Buyers get confident again, the market gets pushed higher, it reaches the upper part of the range (which is its own equilibrium), and the absurd little opera starts all over again.

This trading range bit gets really old after a couple of months grinding up and down, but unless tomorrow brings an "oh sh*t!" moment to those following the economy, we're going to stay stuck in this price prison. If we get a jobs report which provides a break beneath support, things could get very interesting. And by "break", I don't mean a penny or two beneath prior lows. We've played that game before. It needs to be a real break. I don't know what that is to the penny, but I'll know it when I see it.

One mistake I've made in the past has been, in the face of bullish news, hoping the market would shake it off and turn lower. As I've illustrated with the blue tinted areas, bullish news takes hold and stays in charge. And it moves fast. So if the market responds bullishly to the news, I'm getting the hell out.

Oh, and here's the retarded headline of the day, courtesy of Marketwatch. So let me get this straight. The first trading day of the year, the Dow falls 220 points. The second trading day of the year, the market goes up 12 points, and you decide to provide this rosy headline........

The world is full of nitwitted bulls. God.

I don't tend to use technical studies much, but out of curiosity, I fired up my trio of moving averages and was intrigued to see that, for the first time in a long time, the 50 and 100 day moving averages are both below the 200 day. That's pretty cool.

 

As for the Transports, these still provide good hope to this bearish heart.

One other index to note.........the $XMI is getting tantalizingly close to breaking a long-term trendline. Nice.

I'm a simple soul, so sometimes I'm not sure what to do about patterns that should be elementary. Any thoughts on this pennant shape in the Chinese market, readers?

I've had my eye on battered housing stocks, toying with the idea of buying them "on the cheap." But I've resisted, because what is cheap often gets cheaper. It's sort of like saying GOOG was expensive at $300. Then $400. Then $500. And so on. Playing with stocks that are zooming up or zooming down is dangerous. I think I'd better leave all of these alone.

Which begs the question........I wonder how books like this are selling?

Trendlines are one of my favorite tools for charting observation. I'm starting to see some major stocks break some very basic bullish trendlines, like Ciena (CIEN).

On the other hand, on positions where I'm enjoying a profit, I like to take my profits and assume the trendline will be honored. I did this with FDX, selling my puts on it yesterday.

Sorry to harp on GBY/JPY again, but this is just amazing. Those short this are basically printing money at this point.

A couple of thoughts on General Motors (GM). What possessed people a couple of months ago to think that GM was some kind of marvelous turnaround? They make crappy cars, just like every other U.S. car maker has for.........well, since Henry Ford. And it's obvious Japan and Germany are going to own the worldwide car market. So what was going on in the circled green area? GM has since lost about half - yes, half (this is GM we're talking about!) of its value in very short order.

....all of which makes General Motors worth less than the notional value of Facebook (a company that, it is believed, has never earned a single penny in its existence). Crazy world, ain't it?

Ah, JCP again. The one that got away. All the crappy retailers (Sears, et. al.) are really getting hammered.

I sold my LVS puts yesterday since they expire this month. Unfortunate. This one keeps falling.

What more can one say until the report comes out? I'll be here, 5:30 a.m. PST, watching that bid/ask on the IWM. It will catch fire, one way or the other, within seconds of that time passing.

Teasing Support

I was actually contemplating RUT calls (yes, calls) when the IWM was pushing its way up to the 75.33 level, but it started to sink, actually getting down to 74.63. Breaking 74.47 would be pretty exciting, although not nearly as big news as breaking 72.74. We watch and wait.

Holding Fast

First, I have to ask...........does anyone really want their lips to be this big? I keep seeing this ad on the web (it's animated, so you can see the woman stroking her lips left and right). I keep thinking I'm looking at a pair of inner tubes from a child's Huffy Bike. C'mon, America! Knock it off!

Having said that, I return to my twin daily obsessions of (a) the IWM and (b) its Fibonaccis. We seem to have held fast beneath the 23.6% line, which is at 75.56 (we sneaked up to 75.62, but six pennies of overshoot is OK). The green lines I've drawn shown the (huge!) range we've been in for oh-so-long. The market may just niggle away the way, waiting for tomorrow's jobs report. But I like the fact things are squishy so far.

Angels in the Architecture

2008 is off to a fine start. Let us pray for the annus ursi to finally be upon us.

You've probably heard the old saw about "As goes January, so goes the year." Of course, January is far from over, but I was curious about this and did a little digging. It turns out that an up January turns out to be strongly predictive for an up year - - - 86% of the time over the past several decades. A down January, however, has only led to a down year about half the time. All the same, odds will be better for us if this month ends up lower than higher!

With well over 200 points off the Dow in the first session of the year, it was a great start to 2008. I was trading the Russell actively today - sometimes profitably, sometimes not. But overall my  portfolio was up about 10% today. The blue area I've tinted is all that stands between the present and party time. The longer we're in this range (which seems interminable), the more powerful the upside or downside breakouts will be.

I sold my NDX puts today at a handsome profit. It's not that I don't think it has a ton farther to go. I simply am nervous about any reversal. All eyes, of course, are on Friday morning's employment report. That will be the first major report of the year, and it could make for a multi-hundred point up OR down day Friday.



Even the most pitiful CNBC addict would have to confess the Dow 30 looks sick. This is not a bullish pattern. End of story.



I was dead wrong on the $XAU, and it serves me right. When I showed the head & shoulders pattern, the retracement had already violated the neckline. One of my readers slammed me about it, and he was absolutely right to do so. The retracement made the pattern moot. So this was just plain stupid (or at least disingenuous) on my part. I'm sorry.



My trendline for Citigroup, however, is accurate. You can hardly see the violation, but the fact of the matter is that this three-decade long trendline has been broken.



Take a closer look so you can see.



Honeywell has been surprisingly strong the past few months, but we might be witnessing a triple top here.



ICE has been the bull's best friend for ages. My puts on this did nicely today, but one day does not a trend make. I just want the momentum to come out of this fluffball.



I've mentioned my love of the H&S pattern on MS. It may seem hard to believe, but classic measurement techniques would indicate a target price for MS in the mid-30s!



The pattern for PPG has a lot more rough edges, but it's still one of my many positions (and the quantity of positions has reached a figure so high that it's embarrassing).



Although oil briefly pushed into the triple digits, I've found a few energy stocks I like for bearish positions. I've got puts on VLO since it not only has broken its trendline, but it fell today. And any oil related stock that managed to fall on a day like this has got to have something going for it on the bear side!



Let's have a little musical celebration to salute this terrific day!