(click on image to enlarge)
On Jun 20, 2008, at 7:58 AM, I wrote the following comment, but on June 26th it was accidentally deleted, so here it is again:
CHART AU COURANT: Above is the weekly bar chart of another national obsession, Amazon (AMZN). Notice that after the parabolic rise into the all time high of 113, the crash to the 5 area that always follows. What an opportunity that was to buy if you knew what to look for. Notice the current situation...the stochastics have reached the extreme overbought level of 80+, while the price is drastically lower than the last time stochastics were at these levels. This suggests late cycle buyers are running out of money, and "smart money" is selling into the rally. A common target for the next 'big' move in these situations is reached by taking the distance from the recent high at 100 to the recent low at 60 (100-60=40), and projecting down from the most recent, but lower, high at 85 down to 45. Even if AMZN stretches to 90 in the next few weeks, we can see that the risk is down to 50-60. Bottom Line: prudent investors would step aside here, take profits, and wait on the sidelines until at least 60 is seen again.
_______________________________
MARKETS: There is a little publicized, but ominous indicator called the Hindenburg Omen, that has been present in 100% of the stock market crashes since 1985. It doesn't guarantee a crash, but no crash has happened without a HO. In fact, once confirmed, which happened Monday the 16th, there is a 25% probability that there will be a full blown crash, and a 41% probability of only a panic selloff, within the next 120 days. This time range takes us into mid October, which history tells us isn't a good time to be invested in the market. In fact, there is an old Wall Street saying that one should "sell in May and go away (until November)". For a definition, check http://en.wikipedia.org/wiki/Hindenburg_Omen. Compared to the normal probability of a crash of less than 1%, with a HO on the clock, caution is a good idea, to say the least. The last HO showed up in October '07, when the Dow was above 14,000. It fell for the next 3 months, bottoming at 11,600 (a mini crash for such a short period of time), over 17% from the appearance of the HO. I'm just saying...
Many of you have emailed or called about the break of 12k yesterday in the Dow, the first time trading under 12k since March 17. Although this is true, it only traded under 12k for 3.5 minutes, and didn't close under 12k. As described in my "12,000 or Bust" comment recently, the number itself is less critical than the "look" of the market as it "tests" the 12k zone. That said, a close under 11,800 suggests that 12k failed to hold, and a close under 11,600 will be the clarion call of imminent panic, plunging prices, and the Dow testing 10,750 within the next few weeks. It will take a close above 12,800 to suggest that the 12k area was successfully tested, and a close above 13,200 to signal the "all clear" for higher prices into 2009.
Friday is quad witching, the quarterly expiration of futures and options that is replete with emotion and programmed trading games. It would not surprise me if a short term low is being established around 11,800-12,000 this week. This would set up a bounce for a few weeks, at most, that is supposed to get us thinking 12k held. July would then become the ideal point to exit, prior to the magnetic, historic pull down into the Sept/Oct zone, which would allow the Hindenburg Omen to manifest. Again, 11,600 is the finger in the dike.
Growing rumors of the Fed preparing to raise rates is interesting after I only began talking about it here a week of two ago, when nobody was talking about it, but the market was beginning to signal that further, near term rate declines were unlikely. Evan though I said that the Fed rarely hikes rates prior to a Presidential Election, the market can raise them on its own. How? Big money players can drive intermediate and long term rates higher by selling bonds (bond price and bond yield move in opposite direction). Typically, the Fed actually "follows" the market, rather than leads the market. In other words, the market tells the Fed where rates should be by buying or selling treasury bonds, which MOVES rates by force in the opposite direction. The Fed then follows by raising or lowering short term rates to keep in step with the longer term rates, which are controlled by the market. Another raiser of rates are corporations and even us little guys. As lending gets tighter, due to poor lending practices at banks and lots of bad loaning, we offer to pay banks more and more interest to get the loan. So WE push rates up as well. Prepare for higher rates over the next few years.
Crude did spike to $140 on 6/16, as allowed in recent comments, but has reversed and closed at the low of the past two weeks today. This close under $132 suggests the "smart money" has left the building, and only the little guys are left to bet on $150 and $200 proclamations. Don't be surprised to see crude testing $100 in the surprisingly near future. In addition, a bunch of oil control freaks are meeting in Jedda, Saudia Arabia this weekend to talk about not doing anything. Whether they increase production or not is barely worth considering, as the price is driven by sentiment (fear and greed), not fundamentals (production, weather, demand).
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (touched 21.75 so far, but buy under 18), SNDK above 30 (touched 22.60 so far, but buy near 15), RIMM above 151 (but buy under 80), AAPL above 180 (touched 166 so far, but buy near 100), BA above 82 (touched 73 so far, but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (cover here under 550 as a bounce to 618 will be a better exit or reshort level, but buy under 300 if ever so lucky), DELL above 23 (but buy under 15) to name a few.
Interesting stocks to add to gently (if you have to): GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks (touched 55 so far) could test 60-75, AMGN from 40 (touched 45 so far) could test 52-58, ABK from 2-3 could test 20+ if not in bankruptsy a year from now, WM from 5-10 could test 18-23 also if not in bankruptsy, BAC from 27-32 could test 42, C below 20 could test 40 in coming 12 months, and MSFT from 24-27 could test 31 by year end, GM under 12, adding in the 6-8 range, for at least a test of 30 in coming 2 years, . More to follow in coming months as prices decline.
For what it's worth,
Ken
On Jun 20, 2008, at 7:58 AM, I wrote the following comment, but on June 26th it was accidentally deleted, so here it is again:
CHART AU COURANT: Above is the weekly bar chart of another national obsession, Amazon (AMZN). Notice that after the parabolic rise into the all time high of 113, the crash to the 5 area that always follows. What an opportunity that was to buy if you knew what to look for. Notice the current situation...the stochastics have reached the extreme overbought level of 80+, while the price is drastically lower than the last time stochastics were at these levels. This suggests late cycle buyers are running out of money, and "smart money" is selling into the rally. A common target for the next 'big' move in these situations is reached by taking the distance from the recent high at 100 to the recent low at 60 (100-60=40), and projecting down from the most recent, but lower, high at 85 down to 45. Even if AMZN stretches to 90 in the next few weeks, we can see that the risk is down to 50-60. Bottom Line: prudent investors would step aside here, take profits, and wait on the sidelines until at least 60 is seen again.
_______________________________
MARKETS: There is a little publicized, but ominous indicator called the Hindenburg Omen, that has been present in 100% of the stock market crashes since 1985. It doesn't guarantee a crash, but no crash has happened without a HO. In fact, once confirmed, which happened Monday the 16th, there is a 25% probability that there will be a full blown crash, and a 41% probability of only a panic selloff, within the next 120 days. This time range takes us into mid October, which history tells us isn't a good time to be invested in the market. In fact, there is an old Wall Street saying that one should "sell in May and go away (until November)". For a definition, check http://en.wikipedia.org/wiki/Hindenburg_Omen. Compared to the normal probability of a crash of less than 1%, with a HO on the clock, caution is a good idea, to say the least. The last HO showed up in October '07, when the Dow was above 14,000. It fell for the next 3 months, bottoming at 11,600 (a mini crash for such a short period of time), over 17% from the appearance of the HO. I'm just saying...
Many of you have emailed or called about the break of 12k yesterday in the Dow, the first time trading under 12k since March 17. Although this is true, it only traded under 12k for 3.5 minutes, and didn't close under 12k. As described in my "12,000 or Bust" comment recently, the number itself is less critical than the "look" of the market as it "tests" the 12k zone. That said, a close under 11,800 suggests that 12k failed to hold, and a close under 11,600 will be the clarion call of imminent panic, plunging prices, and the Dow testing 10,750 within the next few weeks. It will take a close above 12,800 to suggest that the 12k area was successfully tested, and a close above 13,200 to signal the "all clear" for higher prices into 2009.
Friday is quad witching, the quarterly expiration of futures and options that is replete with emotion and programmed trading games. It would not surprise me if a short term low is being established around 11,800-12,000 this week. This would set up a bounce for a few weeks, at most, that is supposed to get us thinking 12k held. July would then become the ideal point to exit, prior to the magnetic, historic pull down into the Sept/Oct zone, which would allow the Hindenburg Omen to manifest. Again, 11,600 is the finger in the dike.
Growing rumors of the Fed preparing to raise rates is interesting after I only began talking about it here a week of two ago, when nobody was talking about it, but the market was beginning to signal that further, near term rate declines were unlikely. Evan though I said that the Fed rarely hikes rates prior to a Presidential Election, the market can raise them on its own. How? Big money players can drive intermediate and long term rates higher by selling bonds (bond price and bond yield move in opposite direction). Typically, the Fed actually "follows" the market, rather than leads the market. In other words, the market tells the Fed where rates should be by buying or selling treasury bonds, which MOVES rates by force in the opposite direction. The Fed then follows by raising or lowering short term rates to keep in step with the longer term rates, which are controlled by the market. Another raiser of rates are corporations and even us little guys. As lending gets tighter, due to poor lending practices at banks and lots of bad loaning, we offer to pay banks more and more interest to get the loan. So WE push rates up as well. Prepare for higher rates over the next few years.
Crude did spike to $140 on 6/16, as allowed in recent comments, but has reversed and closed at the low of the past two weeks today. This close under $132 suggests the "smart money" has left the building, and only the little guys are left to bet on $150 and $200 proclamations. Don't be surprised to see crude testing $100 in the surprisingly near future. In addition, a bunch of oil control freaks are meeting in Jedda, Saudia Arabia this weekend to talk about not doing anything. Whether they increase production or not is barely worth considering, as the price is driven by sentiment (fear and greed), not fundamentals (production, weather, demand).
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (touched 21.75 so far, but buy under 18), SNDK above 30 (touched 22.60 so far, but buy near 15), RIMM above 151 (but buy under 80), AAPL above 180 (touched 166 so far, but buy near 100), BA above 82 (touched 73 so far, but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (cover here under 550 as a bounce to 618 will be a better exit or reshort level, but buy under 300 if ever so lucky), DELL above 23 (but buy under 15) to name a few.
Interesting stocks to add to gently (if you have to): GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks (touched 55 so far) could test 60-75, AMGN from 40 (touched 45 so far) could test 52-58, ABK from 2-3 could test 20+ if not in bankruptsy a year from now, WM from 5-10 could test 18-23 also if not in bankruptsy, BAC from 27-32 could test 42, C below 20 could test 40 in coming 12 months, and MSFT from 24-27 could test 31 by year end, GM under 12, adding in the 6-8 range, for at least a test of 30 in coming 2 years, . More to follow in coming months as prices decline.
For what it's worth,
Ken
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