Your RIMM runneth over?

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On Jun 25, 2008, at 1:33 PM, I wrote the following comment, but on June 26th it was accidentally deleted, so here it is again:

CHART AU COURANT: Research In Motion, RIMM, missed their earnings by a penny today (Wednesday), and the stock is down 14 points in the overnight session. Many people will try to tell you that the earnings miss was the cause of the decline, but I beg to differ. As I have shown in recent entries, fundamentals don't dictate price. In fact, psychology dictates price. When we (the 3 billion or so people that bet on the markets) feel good, any news is seen as positive and the price moves higher. Conversely, when we feel bad, any news is seen as negative and the price moves lower. Our collective feelings about anything are visible in the price action as seen on the charts of what we are looking at, as well as the technical analysis of various studies available. I've shown previously how things called standard deviation bands, stochastics, elliott waves, fibonacci ratios, and other tools can be used to guage those feelings. Above is the weekly bar chart of RIMM, using some of these tools, with the clear message that a change indirection is imminent. I took the picture of this chart a couple hours prior to the earnings announcement, when the stock was trading at 140, prior to closing at 142. As I write this comment, it's trading around 130, up from 127 a few minutes ago. You can see that the stochastics analysis is in extreme overbought territory at the bottom of the chart, as well as the recent extensions above the upper yellow standard deviation band in mid June and back in mid May. When this happened back in late '07, the stock fell from the 135 area to the 80 area in the following two months. Here again, the "market" is telling us that RIMM is very dangerous here, and at risk of falling easily under 100, perhaps to test that 80 low of early '08. I'd allowed a quick spike up toward 155-160 when I drew the blue lines at the far right of the chart, which could still happen. However, the big drop after hours may have eliminated that option. We'll see by the end of this week. Bottom Line: Prudent investors should have been lightening up into the 140-145 area in the last few days to weeks, and should be standing aside or shorting for the next 'big' move, which should test 110-100 at minimum, with 80-100 well within the realm of possibility. Any near term bounce into the 130-135 area would be the gift exit, if you missed the first one higher. If my labeling is off by one degree of trend in either direction, either 160-180 is still possible, or the 45-60 area. The weight of evidence is clearly on the side of lower pricing, rather than higher in the coming months.
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MARKETS: Several interesting developments are surfacing this week. The recent highlight of the Hindenburg Omen was very timely, as prices have fallen 800 points since the signal was confirmed on 6/16. And, the 12,000 level on the Dow has failed to hold prices, significantly increasing the odds of the Hindenburg Omen fully manifesting in a blood bath by this Fall, not needing to wait that long however. Review the last posting to get the specifics on what a confirmed HO has historically meant for the market. All markets are very oversold short term (daily charts), not having been this this oversold since March. They can still get more oversold, since they still haven't beaten their January extremes. After a few weeks of weak rally from these levels, those extremes should be taken out, as the decline enters its sweet spot in August/September, perhaps setting up the low for the year (but not for the entire decline). In a big bear market, like we are evidently in, the counter trend rallies are short, but sharp, and can kill those that try to jump in too early. Caveat Emptor!

Crude is in the manic spike I mentioned could happen, prior to burning out in a blaze of glory. It touched 140 today. This is classic 'late stage' behavior, and should NOT be followed on the buy side. Leave crude to the hedgies that are about to get slapped, like they were by staying at the derivative loan party too long.

The FOMC voted to keep interest rates stable at their meeting this week, as the market expected, but commented that they were renewing their watch for inflation, and were prepared to act as soon as they see it. When they finally verbalize that "de"flation is the real issue, not inflation, we'll know that the worst is over. Unfortunately, that will be Thousands of Dow points lower (notice the capital "T"). For now, they are unlikely to lower anytime soon, and will probably put off the tightening until after the election, but won't wait if absolutely needed. The "market" will guide rates where it wants them, and after a little summer bump higher, will bring them down as the deflation rolls in. Don't get too excited though, as this will not be widely followed by your bank, since they don't want to make loans at all right now. In fact, as the government bond yields decline later in the year, the rates on our loans will rise, further hampering economic conditions.

Speaking of inflation, have you looked at the Emerging Markets at all? Their economies are experiencing serious inflation, which typically means their markets are peaking. Extreme caution is warranted.

The big three car makers just announced that they have 6 months of inventory on their lots, and can't figure out how to move any, especially the big ones. The used car market is collapsing as well, so make sure you begin your offer at 30-40% below their posted price, and be happy if you can get 20-30% below it. You have the power, as they may even have to take losses on cars in order to move them.

Housing, you ask? Fo-gedda-boud-it...no hurry, no worry. Prices are still falling and have at least another year, probably more, before reaching any lasting lows, at least on a national basis. Unless you are itching to by a flat in Manhattan for 2-4 million dollars for 1,500 square feet, waiting will be rewarded. Donald Trump just stated that Manhattan real estate has reached historic levels at $3,000 per square foot. He's not developing in Dubai, where he sees prices moving into the $5000+ per square foot range. Wow, I thought my Green Lake area was outrageous at $350 per square foot.

According to CNBC's David Faber in his recent story on the "super rich" in our population, the wealthiest 1% of Americans are now worth more than the next 90% of the counrty combined. Think about that for a few minutes; it's just an awesome fact. Most of these people live in Manhattan, no doubt.

Popular stocks to lighten up on at current prices or higher are (note that almost every one on this list is significantly below the price I've been listing to lighten up, exit, or short at): CSCO above 25 (but buy near 18-20), 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 under 19), YHOO above 27 (touched 20.75 and profits from 27 could be taken +19%, but wait to buy under 19), SNDK above 30 (touched 20 and profitsfrom 30 could be taken +33% , but wait to buy under 18), RIMM above 145 (touched 116 so far very quickly, so if you nailed it up there, consider taking at least half your short off under 118, +18%, and re-shorting into 135 for eventual test of and buy point of 80), AAPL above 180 (touched 166 so far, but buy near 100), BA above 82 (touched 66 so far and profits from 82 could be taken here +18%), GOOG above 560 (touched 515 so far and profits from 560 could be taken +8%. Any new test of 600 could be used to exit if you didn't already, or to re-short, and under 400 should eventually be seen, and buy near 280-320 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 and add into 18, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks (touched 55 so far and if you didn't take those profits from 42, +30%, hold for the next run above 55) could test 60-75, AMGN from 40 (touched 47 and profits from 40 could be taken +18%, while any re-test of 38-42 could be bought again) 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 and add into 16 , C below 20 and add into 12 which could test 40 in coming 12-24 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, BA under 68 for bounce to 77-80, adding in the 45-55 range. More to follow in coming months as prices decline.

For what it's worth,
Ken

Rare HINDENBERG OMEN floats over Wall Street

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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.
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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