Today is going to be analysis-free, as I offer a couple of videos people have been pestering asking me to do. The first one introduces the Grid feature in ProphetCharts (sorry, it used the internal laptop mic, so the audio is a touch raspy).
And the second one is about Patterns within ProphetCharts (in which I actually managed to use the right microphone).
The chart below makes me uncomfortable, so I am taking index profits. I'm crazy about most of my equity positions, but as nasty as the past seven weeks have been, I am in a cautious and defensive frame of mind. The prospect that yesterday's romp was just a retracement back to a large breakout patten is too real, and the price action over the past few months has been constructive for the bulls. We haven't broken any serious levels of support. Thus, I'm going to play it safe on those index puts.
I've closed S&P and FXI for now, and I've got my finger on the button for RUT and NDX.
I haven't plugged my book, Chart Your Way to Profits, in a while, so - there - I just did. If you use ProphetCharts, you should seriously consider it. I think you'll find the reviews to be overwhelmingly positive. Check it out!
All right, on to the markets. The best news to me today wasn't whacking 200 points off the Dow or the big surge in my portfolios (which, ahem, aren't 50/50...........I guess my even suggesting that was a good sign, eh?) The best news was the divergence in where crude oil is heading versus where all the oil-related stocks are heading. In other words, we've got crude oil which went on to its umpteenth never-before-seen in human history high price............
And yet oil-related stocks, which to date have wallowed around in bathtubs full of gold coins during this entire melt-up, didn't have the power to participate anymore.
My point is that my abundance of oil and commodity related items is well-positioned to benefit from this divergence. Because if they fall on a strong day for crude, can you imagine the damage waiting for them when crude falls? (And, yes, it will fall; nothing goes up forever).
Likewise, my $XAU position did pretty well. The formation for 2008 is very similar to the smaller one spanning October-December 2007 (which didn't amount to anything), but a break from this pattern downward would easily send the $XAU to the mid-$150s.
And - tip of the hat to Jana - China is finally starting to get kicked around again. It was the best down day in seven weeks. A monster bearish engulfing pattern. A break below $212 (far away, I confess) would be highly destructive to this index.
And - perhaps my favorite pattern of all - the $MSH is obediently staying beneath that not-quite horizontal line you see below. A fully materialized head and shoulders breakdown would send this at least a hundred points lower.
I entered a put position on the S&P relatively early today, and it's nicely in the green. Perhaps 1423 is as high as this retracement is capable of carrying the market. I sure hope so.
Due to (of course) a lack of time, I can only offer the following charts without any commentary. I'll let the lines do the talking for me. These are some favorite shorts now.
I am delighted the Dow is down over 200 points. It's been a great day. So I've got a lot to say about where things are at, and where they've been recently. But I've got to do my TOS Talk! So I'll do a post later today. Join me on TOS for a chat (or to listen, at least) if you're a user.
If this is the turning point (and, so far, it feels like the day will actually stay down.......) here is my view of the three big indexes and their stop-loss points.
After the briefest of corrections, oil prices and stocks have moved onto new highs. The surge in oil past $120 per barrel dominated the market today, in part driven by a new report from Goldman Sachs that discussed the possibility of $150 - $200 per barrel prices. The most interesting aspect of the report was that it contained no NEW reasons for the higher price objectives. Rather the “drivers” remain the same, which are, in my opinion: 1) still growing world oil demand; 2) lack of non-OPEC supply growth; 3) tight spare OPEC capacity; 4) increasing resource “nationalism”; and, 5) geopolitical instability (read Iraq, Nigeria etc.).
What is different now, is that the global oil market has awakened to the fact that the demand feedback mechanism is broken and that it could take even higher oil price levels to cause a significant drop in consumption. I discussed this concept in a post on April 23. Specifically, the problem is that the bulk of the world’s energy consumers are shielded from the impact of higher oil prices by national subsidies. This is particularly true in China, India, the Middle East, Russia, Asia and Africa. In effect, every country except in the so-called OECD, or developed world.
The US is really the only major energy consumer with a “real time” price feed-back economic model. Even the more free market European countries have been shielded from the full impact of higher oil prices by the decline in the US dollar. The conclusion is that almost all of the burden of oil “demand rationing” falls on the US consumer. In fact, this is exactly what has occurred year-to-date as US oil consumption has declined. However, a projected 200,000 barrel per day decline in absolute US oil demand does not even put a dent in expected global consumption growth of over 1 million b/d. Bottom-line, oil prices may in fact have to rise another 50% to invoke the necessary demand response.
A Two Sided Coin: Oil stocks, particularly the pure plays like APA, CHK, DVN, NXY, OXY (and others) should continue to move higher on the back of higher commodity prices. What remains most problematic, in my view, is how the rest of the equity market works not only at $120 oil, but at an even higher potential price. The commodity market and the equity market appear to be in direct economic opposition. Ironically, if the global growth thesis so widely held is correct, the additional economic pain that could be inflicted on the US via a higher oil price is substantial. As a fading thought, it is probably premature for the Journal to call for an “end to the US Housing Crisis” as it did so in today’s Op-ed section. Also, the gold story may not be “over” if oil prices strike even higher. Interestingly, these stocks have experienced a significant correction over the last month.
Welcome to the first public sneak peek of the Slope of Hope on its new platform. Although there are bound to be plenty of rough edges, I look forward to your feedback.
Besides the goodies located on the right column, one of the nice features about this new blog system is the ability to see 'before' and 'after' charts. That way, when you look at older blog entries, you can see how charts have done since the original posting.
For instance, let's say I was writing positively about Mosaic (MOS). The chart would look like it does below as of the writing. But if, much later, you were looking at it, you could click on Present to see how it looks with all the up-to-date prices, and since this was a bullish idea, the area shaded in green would indicate what the chart looked like when I first wrote about it. Try it!
By the same token, a bearish suggestion (such as NutriSystem, symbol NTRI) made last year would look like the chart below, but now that several months have gone by, clicking the Present tab would update that chart and show the original area in pink.
The remainder of the charts are some of my current favorite shorts. Clicking the Present button won't really make any difference (unless you are reading this well past February 2008!) since these are new or at least very recent ideas. So here we go.......
Akamai (AKAM) did a nice break and retracement already, and there are actually two horizontal lines at play here. I've got a nice tight stop on this one, and a break beneath that lower horizontal line would be sensational.
Readers already know of my love for ATI. This has pushed up against its former support (now resistance) level, represented by the horizontal line. This is probably one of my favorite patterns right now.
Dryships (DRYS) is more speculative. I've drawn the Fibonacci retracements, and it already did a massive bounce from about $50 to $90. If this was truly a retracement, we could ride this all the way down to $35 or so, the next level lower.
Genco (GNK) is, like DRYS, also somewhat speculative, but there's a lot of potential "juice" in these puts, because intrinsic value gains or 10, 20, or 30 points are possible.
A much larger and more conservative stock, HPQ, had great earnings recently which caused a nice bounce. This, to me, was a super entry point, because it made it almost the entire way back to its major broken trendline. So we have two resistance levels working in our favor, represented by the broken trendline as well as the horizontal line.
I've been very bearish on the Dow Transports, but I haven't found a good way to short the index itself. Ryder Systems is a play based on my bearishness there.
Walt Disney (DIS) has been sporting a terrific cascading series of lower lows and lower highs, and I entered a put position in the $33 area during its most recent bounce.
Long term chartists could make a plausible argument for ACI being in a very bullish pattern. If it breaks above the horizontal line, I agree with them. But if it fails this breakout, as I'm betting it will, my puts will prosper.
My main purpose in this entry is for you to get a sneak peek of the new blog. Please add something to the Comments section with any feedback, and if you feel particularly strongly about something, drop me an email. Thanks for taking the time to stop by!
