Slope of Hope with Tim Knight

The Thrill Can Kill

On January 23rd, I was very correct in saying.........

I do, in fact, think we're in for a bounce. Looking at any market - even those outside the U.S. - it's plain as the nose on my face (to me, at least) that worldwide equity markets have topped out, and we're about to commence a recovery back to the break point. That's what I think most thoughtful readers of this board are waiting for. Now, waiting is boring. It doesn't make you money. And it's tempting to rush in too early. But patience pays.

Ya know, one of these days I might actually learn to listen to myself. Because I'm pretty good at this stuff. But the impatience is a killer, and like I said, "it's tempting to rush in too early." Which, errr, is pretty much what I did.

The bounce, in retrospect, started on the 23rd (exactly the day I wrote the above), and it's continued, more or less, to this very day. Sure, there were some bearish days in there, but by and large, it's been an upward push. And, at present, I think the market has reached some attractive, relatively low-risk levels for re-entering bearish positions. The S&P MidCap, for instance, has covered the entire span of two retracement levels, and it's back to to its "pre-failure" point.

The Morgan Stanley High Tech index, which has a superb head and shoulders pattern, is also almost back up to its neckline.

Although I think there might be a skosh more bullishness ahead for the markets, you can also see on the S&P 100 (the $OEX) how close it is getting to its retracement level (and a mountain of overhead resistance).

And our old standby, the Russell 2000, has also done an entire "Fibonacci round trip" and, having pushed the lower bounds of its Bollinger envelope, appears almost to the other extreme.

Action in the world of brokers/dealers is even more dramatic, and the Bollinger is already being pushed hard on the upper extreme.

So, upon quiet reflection, I realize patience would have been prudent. But, having reviewed this charts, I do not feel it would be impatient to get more aggressive next week. The charts are telling me that the bounce has played out and is over or very nearly over.

 

Pounce the Bounce?

There has been a fascinating symmetry to the "big break" from January 8th to January 22nd and the "big bounce" from January 22nd (which was the reversal) to February 1st, today. January 22 is the center point, and there are 10 trading sessions on each side. When I do my "chart" post much later today (or tonight), I'll show why I think (not just hope) the bounce is just about wrapped.

In the meantime, I've been strangely obsessed with the video I posted last night. In case you missed it, here it is.

This, to me, begs the following questions:

• Why at the beginning of the clip does Ricky look so depressed? Is he fantasizing about death?
• Why in the name of God in heaven does Ricky rapidly increase the speed, obviousness, and vigor of his self-abuse when his mother actually walks in the door and catches him?
• Doesn't it seem like he's still at it while she's talking to him?
• While I'm at it, is the Mom actually a young Joyce Brothers?
• When Mom mentions her gratitude that he is doing this in the privacy of his room, where else might she think he would do it? The dining room table?
• What does she do immediately after leaving the room? Make dinner? Cry silently in a chair in a darkened room? Call her friends and laugh about it?
• And, finally, doesn't she realize the expensive therapy Ricky is going to have to undergo after having been told by his own mother, "It felt good, didn't it?"

One thing is clear. It's going to be an awkward time at Ricky's house during dinnertime tonight.

 

YHOO+MSFT=NSCP+AOL

I haven't read any of the analysis on the YHOO/MSFT deal, but it reminds me of the last time tech jumped the shark and AOL acquired NSCP. Basically a bloated, cash-rich company that's completely out of new ideas acquires a has-been leader in a hot space. I daresay YHOO will ultimately wind up about the same as NSCP did. I've always been astonished YHOO had any users at all. Even in 1996, I thought it was horrible and used Alta Vista instead. Congratulations to all the YHOO call owners who accidentally tripped into this good fortune.

We had an early surge in the markets so far, but the Fib lines seem to have repelled it reasonably well. There was a little bit of an overshoot, but nothing worth worrying about. I'm not that thrilled with the modest series of higher lows, however (circled in red).

Listening to Peachin

Early on Thursday morning, before the market opened, it looked like the market was going to open down hard. The IWM was down an especially large amount, and as the holder of a large $RUT put position, I was pleased to see this. But I glanced in the comments section and saw this item:

Now, I respect the commenters on this board a tremendous amount, particularly frequent contributors (with one notable exception, whose name I shan't cite, except inasmuch it rhymes with "weenie".) In any case, this one comment got me thinking, and I decided that peachin was right - - - I should chill out and take a hard look at my two index positions ($NDX and $RUT).

When the opening bell rang, my (more objective) eyes told me that it was time to head for the exit with my profits, which I did within the first minute of the trading day. That was smart, and my hat is off to peachin.

What wasn't so smart is that I was itching to get back into the $RUT put position, so not that much farther into the trading day, after the $RUT had erased much of its early morning loss, I re-entered the position. It moved up higher, so I added to the position. Needless to say, on a day with a more than 400 point range on the Dow, this did not serve me well. So shame on me for not being content with my profits and letting the market march higher to a comfortable entry point.

As I am typing this (about 1:30 in the morning, God help me.......) I have no idea what the jobs and ISM reports are going to do to the markets. GOOG's big after-hours drop doesn't exactly seem to be ripping the market to shreds. The GLOBEX, as I'm typing this, is down only a little bit. Having reviewed the big index charts, however, I am feeling pretty comfortable about good entry points being at hand. With good consistency, I am seeing the index prices approach major Fibonacci retracement points from beneath, which seems to fulfill the retracement marked since the lows marked on the 22nd and 23rd last week.

Here are the stocks and indexes whose puts I am considering buying, and the respective contingent stop prices.

MMM 88.70
AG 68.53
AA 37.48
T 42.38
CELG 57.21
COP 89.89
FDX 101.53
BEN 116.40
AEM 65.04
GM 29.99
$NDX 1864.01
$RUT 726.06
$SPX 1391.99

And, with that, I shall take my leave. Off to bed........

Fibs+Channel=Perfect FXI Exit

Early this morning, I saw the FXI was almost perfectly at its lower channel boundary and, simultaneously, its Fibonacci retracement level. I exited my FXI puts at once with a nice profit. Technical analysis can be your friend!

Waiting for a Good Entry

I've closed my NDX and RUT puts, both profitably, but the RUT exceptionally so, because I entered it during yesterday's surge.

I am still holding on to my zillion equity puts, because I think they are terrifically positioned. But I'd feel a little more comfortable at a higher entry point for index puts. To really get seriously back into bearish mode, we need to break January 28th's lows (circled in red below). I'm comfortable watching IWM creep back up at this point.

The Overview

Have you seen the little piggies
Crawling in the dirt?
And for all the little piggies
Life is getting worse
Always having dirt to play around in

Have you seen the bigger piggies
In their starched white shirts?
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in

In their styes with all their backing
They don't care what goes on around
In their eyes there's something lacking
What they need's a damn good whacking

Everywhere there's lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon

The Best Possible Outcome

Having read the prior post and the hundreds upon hundreds of comments within it, I learned two things:

1. Slope readers are a ridiculously lusty crowd. Jana, IRideSnow, Avalon, and MichaelD were causing real damage to TypePad's servers with all their flirting.
2. All the dickheads that normally would have posted a Nelson-like "Ha, Ha!" when the Dow was up nearly 200 points today are at least smart enough to realize taunting this blog's author is suicidal, so they didn't even try.

I also want to tip my hat to what I believed were some of the best comments. As follows:

UberBearMike
I think we go down tomorrow no matter what the fed does. At least that is what my crystal ball is saying. (Tim sez: precisely right!)

2sweeties
GSCO told my guys in the mens room that the cut would be .50% at 1:16 Chicago Time (2.16 EST) (Tim sez: I hope you had a wide stance at the time)

coyot01
Max correction 12651 DOW and then back to bear business. (Tim sez: the high was 12,681. Very close!)

zodiacz
Pop and Drop coming soon to a screen near You....

and, later......

The market behaved like a spoiled child who asked for an expensive toy, got it and quit playing with it a half hour later.

Fuzz
Ben blew his wad and I'm still standing. (Tim sez: ohhhh, the imagery)

winace
Don't get sucked into this rally. Those who sold into this will prevail. All the indices on a daily chart nailed, to the penny, resistance. This was at their highs. (Tim sez: it takes basketball-sized cajones to brave a day like today - - hats off, fellow bears!)

Oh, and to thatguydrinksbeer.....you are a very good sport, my friend!

Now, I wasn't thrilled when I saw the IWM explode higher. I felt sick to my stomach when I saw the indexes blasting away. A portfolio screen that was hugely in the green quickly turned hugely in the red. So I'm not going to pretend that I stood there, hands on my hips, feet far apart, chest thrust out, screaming "Bring it on!" to the world. I thought it sucked.

But the cold fact of the matter is that I let my stops do my thinking for me. And the other cold fact, which the bulls will learn once it gets through their thick skulls, is that the bears own this market now and your buddies in Washington are out of ammunition.

FACT LAID BEAR: The moronic tax "rebates" are an infantile idea that will fail completely and plunge this fading republic only further into debt.

FACT LAID BEAR: With interest now at 3%, which is what the most desperate and hopeful bulls were praying for, there's very little room left to go.

FACT LAID BEAR: With every day like today, when the bulls rush in thinking the bear market is over, they will get smacked across the head with a shovel and their spirit will get a little more broken. Rallies have only one purpose now: to give us bears the chance to make more green.

Terrified though I might have been at the explosive rally, I was heartened (as much as I was able to be) to see the Dow bang up against its broken trendline and start to reverse. You can see how it played out the balance of the day (which, by day's end, had my portfolio more in the green than ever).

From a candlestick perspective, it's also quite clear:



Nice retracement to the Fibonacci, S&P 500!



I'm going to head out for a bit, but I've gone through the end of day charts, and these are the issues I am seriously considering buying puts on tomorrow (on top of the bazillion other puts I already own).



Finally, I offer you Great Moments in MarketWatch Reporting.

Classes of Patterns

This isn't going to be another "this entry is no good, please forgive me" post. I do regret not having the time to hang out with my peeps in the comments section. It's always fun to see what folks are talking about.

With some indexes, I feel pretty good about the bounce being played out. The Dow 30 comes to mind.

In other cases, I feel there is a case for more "bounce" left, particularly with Fed day upon us. This is why I sheepishly exited my Russell 2000 put today (yet held onto my NDX and SPX puts). Here's the Russell, for example, with the tinted 'risk' area.

The same is true for the NASDAQ, since it could easily push its way back to its channel median.

I've got 70 positions right now - - two index puts and 68 equity puts. The post-Fed announcement behavior will be crucial, but having gone through all these charts (again.......) I'm feeling pretty good about my stance.

I'll share a few of these charts now, and as a change of pace, I'm going to group them based on the general "family' of chart type.

The first class is what I'll simply call Major Ovehead Resistance. Many of these exhibit head and shoulders patterns or have some other kind of clean line in the sand. These are among my favorite charts.

\

The next set is what I call, for lack of a better term, Penultimate Tops. This is sort of my own concoction (or at least I haven't read about them elsewhere). These are stocks whose recent high price is less than the high price set before the lifetime high (no, I have no scientific basis for this; these charts simply strike me as having commenced a fundamental reversal). Here are a few:

Finally, there are the Lower Lows/Lower Highs group. I remember in Bulkowski's encyclopedia of patterns, the "cascade" pattern was the most effective of the bearish graphs. I believe these would fit within that category.

I'll see you after Wednesday's close. I imagine I'll either be feeling exuberant or defeated. We shall see!

Biding Time

My severe case of Slope Guilt (created by a failure to post updates several times daily) is bubbling away, but things aren't going to get any clearer until tomorrow's 1:15 EST Fed announcement. The market is definitely banging its head against resistance so far today. I've been (nervously) keeping my eye on the IWM, and in spite of early morning strength, it's weakening again. I shed my $RUT put (out of a sense of angst with respect to tomorrow) but loaded up on a variety of smaller equity puts in its stead.

I'll see you after the close. Hats off to the active comments section, which has sort of become bigger than the blog itself.