Saturday, May 8, 2010

The Week Ahead

Well, hopefully the weekend will give our patient, the Market, a chance to calm down and stop foaming at the mouth. Who will show up on Monday - Dr. Jekyll or Mr. Hyde? I'm going to guess it will be the good Doctor and not the evil maniac. Look at the daily Dow:

The short term indicators are now extremely oversold, much more than they were on Tuesday when I thought we'd see a bounce on Wednesday. Unless some even more dreadful news comes out over the weekend about the PIGS, it's looking like the market may in fact close higher Monday.

Need convincing? Check out this dramatic view of the daily VIX:

Over the last two weeks, the daily VIX has gone ballistic. This is a classic exponential rocket, crazier than what happened in January, or even anything in 2008 at the height of the Lehman panic. I suppose the VIX could go higher Monday, but the odds are against it on a purely technical level.

That said, the weekly Dow has broken below its latest regression trend channel and amazingly is still looking overbought on all the indicators. So my plan right now for next week is to buy on Monday for a few very short term trades, then wait for this correction or whatever it is to work itself out. I'm still 40% in cash but not in a big hurry to do any major shopping just yet. Last week hurt, but it was not as bad as it could have been. I was down 4.12% on the week but that still beat the Dow which is about all the positive spin I can generate.

Friday, May 7, 2010

The 2 Biggest Lies in the Stock Market

1. "This time it's different".

Anytime you hear this,you can be sure that this time it's exactly the same as every other time. Who remembers the "New Economy" of the dot com years?

2. "XYZ is going to (price P)",

where P is some number far far away from the current level. Generally issued when XYZ has been on some extended trend. Not only is XYZ not going to P, but when you hear this it usually means the trend is over.

Remember Goldman's prediction that oil was going to $200 back in the spring of 2008? A few months later oil topped at $145. By the end of the year, it had collapsed to $30.

Remember when the Dow broke below 7000 last winter? We started hearing calls for "Dow 5000", "Dow 2000", even "Dow 1000". A month later, the Dow hit 6500 and then took off to eventually top 11,000.

And when someone tells you that XYZ is going to some crazy number because "this time it's different", then you know for sure they're wrong.

It seems to me there's a third Big Lie in there somewhere, but I can't quite think of it at the moment.

Thursday, May 6, 2010


I recently wrote a post about "psychoanalyzing the market". Well you didn't need to be Sigmund Freud to understand today's action. Today the market was a knife-wielding homicidal psychotic hearing voices telling him to slash everyone within reach. Today, the market was Charles Manson, Norman Bates, and Freddy Krueger all rolled into one. The 5 minute chart of Accenture below tells it all:

Does anyone seriously believe that ACN dropped in value from $38 to one cent in less than a minute? That's simply nutso.

The market is now clearly off its meds. The best course of action at this point is simply to stay as far out of harm's way as possible until the men in the white coats show up to take this lunatic away. Until then, I will continue to sit on the sidelines and watch the carnage. The last three days reduced my YTD profit from 13% to 7.66%. I'm just glad I was 40% in cash. The damage could have been much much worse. I'm hearing of people having their accounts liquidated - it's a mess. This is October 2008 all over again.

Yesterday, with the Dow at 10,868, I wrote that we'd see 10,610 before we went higher. I just wasn't expecting it to happen all in about 30 seconds worth of trading! Holy moly.

Oh, and thanks, Greece - for nothing.

Wednesday, May 5, 2010

Dow Forecast for 5/6/10

The dead-cat bounce I was expecting today never materialized. In fact we ended up lower by a non-trivial 58 points. Where next? Look at the weekly chart:

Yesterday we rejected the 200 week MA and moved lower today. Right now I see no support until the 10,610 level, marking what had been resistance earlier this year. That also corresponds to the lower edge of the regression trend channel starting at the low of March 9.

So I'm going to have to say we're going to see 10,610 (in the next day or two) before we see any further moves higher.

Tuesday, May 4, 2010

Dow Forecast for 5/4/10

It's important to acknowledge your mistakes, but it's also not a bad thing to recognize when you're right, and I called the last two days correctly.

I guess I ought to take my own advice sometimes :-) As I forecast last Friday, the market was indeed up on Monday. Expecting the market to go lower today, I took the opportunity yesterday to sell my holdings in NCZ at 9.87 (closed today at 9.52). That brought me to 44% in cash, the highest level I've had all year, and going back most of last year too. It's even a bigger fraction of my trading balance, since my portfolio includes a core of dividend payers that are in solid profit positions that I don't intend to sell (GE, MO, VZ).

Today, Wall St. held a sale so I bought some more DRYS at 5.77 and AA at 12.59. Both have been beaten down mercilessly and look quite oversold on the daily and weekly indicators. I just bought 100 shares each in case I'm wrong and the slide continues tomorrow.

However, at this juncture I'm expecting the Dow to close higher tomorrow if for no other reason than the fact that sell-offs of this magnitude on old news (the Greeks are lousy money managers, oh my) generally are followed by at least a dead cat bounce. After that, we'll see what's what.

Monday, May 3, 2010

The Name Game

Nothing impresses people more than the ability to rattle off a company's name given its stock symbol (or the other way around). I'm not sure why, but they think you must be a real stock picking expert if you can do that. Now there's thousands of different symbols so it would be pretty hard to learn them all. But there's a much easier exercise: can you name all the single-letter stocks? There's only 19 of them - seven of the letters are not in use.

And there's even an online quiz you can take, here:

It's pretty cool. The quiz even ranks your score compared to how others have done. So how to you stack up? I managed to name 7 of them.

May Musings

The daily chart for the Dow (and basically the market in general) is looking fairly positive for tomorrow. I believe the Dow will close up from Friday's close.

However, the weekly chart is quite the opposite. Where the daily stochastic is quite low, the weekly is quite high and the other indicators are at overbought levels. So I will be looking to take some profits tomorrow as I continue to move more into cash. I'm less optimistic about May, or at least the next week than I was a week ago (see my last post). If these expectations hold out, I will consider buying some SDS tomorrow. I like this and its Nasdaq cousin the QID, since they let me short the market with a long position.

Monthly performance update:
I am now 41.3% in cash, my highest level of the year. I finished April up 2.28% for the month, putting me up 12.1% year to date, which compares favorably to the Dow's YTD performance of +5.6%.