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Wednesday, March 28, 2007
Stuck inside of Chicago with the Memphis Blues Again
Well, all the flights from O'Hare have been cancelled, so I am unexpectedly stuck in Chicago instead of winging home to my beloved family. Grumble.
I'll do a nice long post later tonight after I drink my troubles away with my colleagues......see ya then!

at3/28/20075 insightful comments  Links to this post
Tuesday, March 27, 2007
Freedom of Choice
Subtle product placement prior to writing this post: buymy bookBetter your life! Be the envy of your neighbors and the hero of your friends! God knows you could make your life better than it is now.
I thought my soul-baring post yesterday onwhy I am a bear would attract some interest, but I didn't quite anticipate what kind. I'm starting to feel like a polemicist. A lot of comments, a lot of linkbacks, and a fair bit of rabble rousing.
Markets aren't typically very easy to explain, but right now, it is. So here we go: if the indexes soon push above the highs we saw last Friday, it's back to wait-and-see, gosh-life-sucks mode for the bears. If we stay in the trading range established over last week and the week prior, we could be stuck there a while. And if we break beneath the low seen two weeks ago, it's party time. Simple as that.
Let me offer one potentially short-term bullish scenario in the graph below. It could be conjectured that the strength we saw last week was the true direction of the market, and the past couple of days have simply been a retracement. It could be argued that this is just a launching-off point for the bulls and we will continue with last week's strength.

Judging at least from this evening'sGLOBEX session and the news that amajor homebuilder is looking at sweepingFederal fraud charges, maybe the descent of the past couple of days is more representative of the market's direction. After all, plenty offeckless speculators in the real estate world are just starting to get slammed.
Let me show you what I mean by the highs of last week by way of the S&P 400 MidCap index. $857.23 is the stop price. Bang, it's just that simple. Cross above it, and Tim is unhappy. Continue to sink away from it, and Tim is glad. And the latter is what we all want, isn't it?

Here's perennial favorite $RUT, the Russell 2000. The lines speak for themselves:

The minute graph of the same index shows the support zone the bulls have on their side. There needs to be a robust run through this for the bears to survive.

I like Chevron (CVX) as a short (long puts). Looks like a potential double top, and the risk is quite low.

The DIA is the umpteenth example I could show how this market has shaped up. The stop-loss point is close enough to be relatively low risk, and the potential gains from that huge air pocket beneath makes it worthwhile. The green tint shows the bull zone. The red tint shows the bear zone - - which, as with most things associated with bears, is bigger.

Goldman Sachs has the potential to be a train wreck, which would be fantastic, of course. A stock this expensive can probably some incredible juicy returns for put owners.

Same story with MER. I really like how the investment banks are behaving.

PG represents a more conservative play. I like these giant consumer stocks because the options volume is big enough to get the bid/ask reasonable, and you are not going to wake up one morning to hear that the toilet paper they sell is a miracle cancer cure, sending the stock up 100 points.

RYAAY is tumbling nicely, moving away from that busted trendline.

I've highlighted SPY to beat this dead horse.

Lord knows you're probably not here for charts for instead of the occasional videos I find. Pull out your Facts of Life commemorative bong, light up, and enjoy:
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at3/27/200720 insightful comments  Links to this post
Monday, March 26, 2007
Why I Am a Bear
Quite often people write to me (or comment on this blog) asking why I am a bear.
Let me first state that I am quite aware of a couple of reasons why a person shouldn't be a bear:
(1) The whole world is against you. From the investment banks, to CNBC, to Jim Cramer, to the brokerage houses, everyone on the planet wants the market to go up forever. There is a huge, huge, huge vested interest in the markets going skyward for all eternity.
(2) No one gets rich being a bear. Fortunes like Warren Buffet's are made by investing in stocks that reap multi-thousand percent gains or more. There is no one on the Forbes 400 that got there by being a bear.
Having said that, allow me to explain myself and hopefully set this question to rest.

For the sake of organization, I will break my reasons into three sections: Personality, Rational, and Irrational. I feel a little awkward posting a blog entry like this, since it resembles more of a confidential therapy session than technical analysis, but I want to be very clear about why I am disposed the way I am to shorts and puts instead of longs and calls.
Personality
Impatience: I'm not the most patient soul in the world. And the fact is that markets fall much faster than they rise. For instance, on February 27th, the market plummeted over 500 points in just a few hours. It takes weeks to go up that much (usually). So I'm drawn to fast-moving markets.
Worrywart: I'm a worrier by nature. I wouldn't go so far as saying I'm a pessimist, but usually I tend to see the things that will go wrong faster than I will see the things that will go right. Hence - - bear-dom!
Unconventional: Somehow I'm wired to want to be different. I like to stand apart from the crowd. Per my introductory paragraph, being a bear is by its very nature weird and different. If you happened to be this way during the 1980s and 1990s, it's also terribly unprofitable! I guess I could file this under 'Irrational', but it's part of my personality, so I put it here instead.
Rational
The Macro Economy: There is simply too much evidence of a sea change afoot for me to ignore. When I was growing up in the 1970s, things were generally pretty bad for America. We were coming out of Vietnam. There was stagflation. Carter was president. Media images of long gas lines and unemployment lines were a daily fixture. And out of that malaise came a huge resurgence. America was essentially "basing" for a very long time and exploded into success, wealth, and power.
That doesn't last forever, folks. Once you're really, really fat and really, really rich, you get soft in the middle. There is way too much mega-wealth sloshing around for anyone to believe that the U.S. is a lean, hungry machine waiting for burst into newfound success. Everyone in the Forbes 400 is a billionaire now.
Don't get me wrong, I love America, and I remember well during the early 1980s the feeling of pride that America was on the move again. But things move in cycles, and a big down cycle is coming. The grotesque wealth among a powerful few is a harbinger of a change. The forthcoming IPO of Blackstone is just another sign of this.
Long-Term Charts: I'm a chartist. I believe in what charts can predict. And every long-term chart I see (and when I say long-term, I'm talking about over a century in some cases) absolutely screams "TOP!" to me. And if you study the charts well, it doesn't predict a few hundred points off the Dow. It predicts a cataclysm. I want to profit from it.
Social Observation: One of the few verbs I remember from four years of Latin in high school is 'speculare', from which we derive the term 'speculate.' This verb doesn't mean "to gamble" but instead means "to observe." I am a speculator, and as such I am an observer. I consider myself pretty tuned-in to the social mores and climate of the U.S. and, in particular, the Silicon Valley where I reside.
I can tell you everything I see is far more indicative of a late 1990s style arrogance and bravado than a mid-1970s humility from which great companies like Apple and FedEx were born. What kinds of companies are being born today? The United States is populated in large part by a young generation that has never experienced a bear market in their lives.
The Irrational
Revenge: In the interest of full disclosure, I will be the first to admit that a portion of my bearishness comes from a sense of feeling cheated out of the amazing gains of the 1990s. So I'm wanting my share of the pie, having missed out on the amazing bull market. This isn't logical, it isn't sensible, and it clouds my thinking. But I at least have the clarity to recognize it.
And there we have it. As the tired cliche goes, the good, the bad, and the ugly. Today's market had enough interesting things going on that I could have spoken about it instead, but I felt it was high time to tell my thousands of daily readers just how my head was screwed on, for better or for worse. Good luck to you.
at3/26/200734 insightful comments  Links to this post
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