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Monday, June 11, 2007
Short the iPhone (and everything else.....)
Let me save the bulls some time and say two things: first, I am jumping-up-and-down, wild-eyed, chart-crazed bearish right now. So if you want to take that as a marvelous contrary indicator, please do so. Second, I've even done some legwork for you. The call option on the S&P 500 for July at $1,625 (which, gosh, should be easy - that's only 7.5% higher than the current market) is a mere 40 cents asking price! The symbol is SPB-GE. Go nuts.
For the bears and my adoring fans: today's post will be more jaunty than usual.
Let me explain the title of today's entry a bit. First, by way of apology, let me say I've been Steve Jobs' Biggest Fan since before most of you people even heard of the guy. I've followed him since 1982, and one of the main reasons I even live in this area is because My Idol is here.
I think Steve's return to Apple in 1997 is one of the great acts of justice in human history. Displacing people like Michael Spindler and Gil Amelio - who have all the charisma of used shag carpeting - made the world a better place. And I used to be an Apple employee - number 9653 - back in the late 80s. So I've got no ax to grind.
But.
I also know that things run in cycles. And I also believe there is an inverse correlation between hype and results.
Take theSegway for example. Before this was introduced to the world, rumors flew around about Project Ginger (its code name). Breathless reviews from the likes of Larry Ellison and the aforementioned Mr. Jobs made people wonder what this miraculous creation was. I believe it was Jobs himself who said that entire cities would be designed around Ginger.
Well, they weren't. And won't be. The fact is, for all its hype, Segway has wound up to be little more than a curiosity. It still attracts attention. But most people gawking at a man buzzing about on a Segway are less interested in the mode of transportation than they are at the fact that the rider will probably die a virgin. At least, that's what I'm thinking. I'm a geek. But, Jesus Christ on a Biscuit, I'm not going to be riding around town on a Segway.
You know where this is all leading. That's right, the iPhone. Good God, I've never seen hype like this. You'd think that, given the price and hype, the phone would jump under your desk and pleasure you orally between calls. Two facts keep leaping to my mind. First, phones can be had for $9.99, far less than the $500 introductory price of the iPhone. Second, I don't know about you, but I've got a phone. And I'm pretty happy with it.
People are expecting the iPhone will perform miracles with Apple like the iPod did. It won't. Let's turn back the pages of time a bit and understand the iPod introduction better.
The firstiPod was introduced early in October, 2001. This was not even a month after the terrorist attacks. People scoffed at the introduction. Call it anti-hype.....sort of the reverse of what we are seeing today. Here was this microcomputer company, which for years had sold multi-thousand dollar machines, entering the consumer electronics business dominated by low-end players like Sony.
Now, as you can see from the graph below, Apple's stock did pretty good after the introduction, but it faded back again, and it sank to even lower lows. The stock got down to something like $6.50 (don't you wish that time machine was handy, folks?) So the iPod clearly wasn't seen as any kind of savior for the company, nor was it the object of frenetic optimism.

So what happened next? Well, the Apple magic started to work. The brilliance of offering an accessible way to purchase music, great software to manage your music collection, and an elegant, highly mobile piece of hardware started to take hold. And Apple's stock moved up not hundreds of percent, but thousands of percent. The iPod made Apple more successful (and the stock more expensive) than ever.

Which brings us to today. Apple is deep into triple-digit territory. Steve Jobs would probably win the presidency of the U.S. if he ran. And there are thousands of Apple zillionaires running around Cupertino. The company seems like it can do no wrong. I notice evenThe Economist put Apple right on its front cover last week.
I took all this into account. And although I rarely depart from charts as my rationale for decision-making, I bought a bunch of Apple puts early this morning. And, as the market closed today, those puts were already up 35%. Not bad.
Now, it's not that anything horrible was announced from Apple today. Steve Jobs gave a talk at the WWDC, and everything seems pretty hunky dory. But if I can smell a top, folks, this is it. And I'm not predicting Apple will wind up like a completely devastated shell like, oh, Sun Microsystems. But if the contrary workings of hype have any merit, this has got to be one of the all-time great hype fades of modern history.

Phew. OK. Back to the markets. As I said earlier, I'm more bearish than normal. Which is saying something. Part of the reason is that, viewing the $SPX minute graph, I sense a sea-change has taken place in the trend. I've drawn it below.

I have acquired an ungodly quantity of Russell 2000 puts, predicated on the notion that the channel, drawn below, will likely be broken. And the beauty part is that if I'm wrong, I'll know swiftly, and my losses will be manageable.

I look at a chart of the $INDU below and get so excited I must excuse myself from standing for fear of embarrassing both myself and those around me. (In addition to generating pangs of jealousy amongst my bullish readers). To me, this is a chart jumping up and down, shouting "Top!" with great gusto.

Reducing the granularity of the chart to a weekly from a daily, we can plainly see the bearish engulfing pattern which took place last week. This week - Wednesday, Thursday, and Friday, to be specific - is loaded with important economic indicators. Here's hoping they shove the markets lower and help increase the minuscule bits of angst floating about into a growing sense of dread.

The S&P 500 weekly offers, to my eyes, similar conclusions.

Let's look at a handful of individual stocks. I'm going to get into a short position with Amazon (AMZN) tomorrow morning.

CAH, offered by a thoughtful reader, also looks like a sharp short.

As does CEG, also offered by a kind reader (and I do appreciate those emails and charts, folks).

Let's pause another moment and consider CROX. Let me say right now I am not short this stock, and I don't plan to be short this stock. I nibbled on some puts a couple of weeks ago, and I was promptly stopped out. I've learned my lesson. This is a momentum play, pure and simple. and I shriek like a little girl when I see this chart. No touchee.

We can compare CROX to a similar stock from many moons ago called Taser (TASR). Here's what TASR was doing back in the day. Check out the similarities of both price and volume action.

What happend to Taser after it peaked? Well, you already know that answer, don't you? Here's a percentage graph. Will CROX suffer a similar fate some day? I bet it will. I really doubt you can ply an ongoing competitive advantage off some cheap-looking fad-driven "shoes." But I, for one, am not going to guess when the momentum is going to run out. No thanks.

OK, back to shorts. Entergy (ETR) is a good idea to consider. And remember, folks, these are just ideas. Read the top of the screen. None of this is advice. I'm just spoutin' my feelings and notions. So settle down.

I mentioned GOOG as a long idea. Ya know what, I've changed my mind. I think I might buy some puts on this one, mostly for the same reasons as Apple, although not nearly to the same extent. I see a failed breakout happening here. Maybe.

And if you think the energy/oil run has gone berserk, Exxon Mobil (XOM) presents a relatively low-risk to play this on the bearish side.

That's it for the day. If the week rolls in my favor, you can expect more videos and such. Until then, please think about what I've said above. I'm right from time to time.
at6/11/200754 insightful comments  Links to this post
Labels:aapl,amzn,cah,ceg,cpt etr,crox,goog,iphone,tasr,xom
Friday, June 08, 2007
Nice
After Thursday's big drop, I speculated that today we would see a short, sharp drop followed by a big rally. Well, even I can get it right every now and then. That is precisely, 100%, what happened.
I think there's a decent chance, however, that we may have moved into a new phase of this market. Maybe that is just wishful thinking. But I don't think today's big 150+ upside move on the Dow is the beginning of yet another assault onto new highs. Instead, I think it's just a pullback in what seems like could be a staircase down. We'll see.

One of the main reasons I thought we'd see a big move up today is because of the many instances of supporting trendlines around the closing levels of yesterday. This graph of the S&P 500 shows how the upper trendline of the (now broken) channel represented meaningful support for the index. Sure enough - boing! - it bounced right off of it. But I really think we're going to re-enter channel-land next week.

I tripped across Checkfree (CKFR) and got into a short position there. This is a honkin' big head and shoulders pattern, although as yet incomplete.

Goldman Sachs represents the kind of stock on which I'd like to own puts once the relief rally peters out (which could probably be about 30 minutes into Monday's session). I closed out the vast majority of my positions and am sitting on a ton of cash right now, waiting to re-enter shorts and puts at good levels.

NutriSystem is definitely on my list, too. This seems like a great bearish play, now that it has pushed its way up to formidable resistance.

I took the plunge with ONT today, buying a large block of shares. It's my only long. But this is a sensational-looking graph, particularly with the explosion in volume, and it has fallen to a price level that is reasonable compared to where it was at a couple of weeks ago.

Whirlpool (WHR) did what so many large stocks did this week........fell hard, and then recovered to a neckline (more or less) today. These are great set-ups.

Rock on. See you next week.
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at6/08/200727 insightful comments  Links to this post
Labels:$indu,$spx,ckfr,gs,ntri,ont,whr
Thursday, June 07, 2007
Love So Deep, Kills You In Your Sleep
I'm no better. I just know I'm not any better of a person than any of the bulls that frequent this board.
When the market is roaring higher........when bears like me are getting slaughtered .........it's only natural that you gloat. You announce how the market is just going to keep going up forever. You wish for the destruction of all the bears. And you offer up reasons why It's Different This Time and there will never be a down market in your lifetime.
So - as the kids say, good on you, because I'm no better than that. The market is a battlefield. Wiser souls - of which many claim to be, but hardly any of them are - are truly neutral, and they position themselves to try to take advantage of the ebb and flow. Mere mortals, like your humble narrator, tend to be more dogmatic. History - and human nature - tend to make the vast majority of them bulls. And a vanishingly small number are bears. So - join hands around the campfire, and let's sing!
I hate you. You hate me. We're a trading family. With a big fat drop, and a knife from me to you. This one day, you get the screw.
So allow me to remind everyone of the disposition just four trading sessions ago. LastFriday, June 1st. Hardly a blip in time. The Dow had made another lifetime closing high. Let's review some of the comments offered up:
Permabull NewEquity wrote: I just bought 100 DIA calls mid-day for the ride back up through all time highs. No resistance at all and we should break 14k Dow in the next 3 weeks according to my tech analysis guy.
John (B) predicted, regarding the S&P 500, whose closing price today was 1490.72: "Putting these numbers in my model, the 500 fair value today is 2,300...and based on earnings for next year, fair value would be about 2,800."
And, lastly, Beanie11111 declared the bottom for a number of stocks: "...AKAM has bottomed...SBUX has bottomed.....WFMI has bottomed." As a follow-up, in the mere four days since that post, those stocks have declined 3.2%, 5.9%, and 6.5%, respectively. So I guess some people have different understanding of bottoms than others.
Suffice it to say, the past three days have been very good for me. Indeed, I had trouble deciding what charts to show, because they are all gorgeous. Every single one - every one - of my dozens of positions pushed way higher today. I even made some very profitable intraday option trades - both long and short! - with the Russell 2000.
The Dow fell 1.48% today. And, after the regular market closed, the ETFs on the indexes just kept falling. The DIA wound up down 1.96%.
I actually would not be surprised to see a very short, very sharp drop first thing in the morning followed by a rip-roaring push up. Looking at this channel, it seems to me the selling is a touch overdone (on the very short term) at this point. You hear me, fellers? I'm not saying we're going to enjoy another 4th day plunge. Nice as it would be.

Zooming in closer, you can see what I mean. Now, of course, all trendlines are eventually broken. And if the one shown here is decisively snapped, it could be a new ball game. But the past 11 months have made me paranoid, and although the last 3 days have been sensible, I still don't trust this market or its participants.

Akamai (AKAM) hasn't plunged as fast as I hoped, but it's doing OK. It's still a very nice pattern, and I've got some nice green on this one.

CSX is way the hell above its trendline, and it is sporting a cute little head and shoulders pattern to boot.

CVX would definitely pop up if the market strengthened, but that would just give me another opportunity to add to my bearish position.

I closed my Deere (DE) puts today at a nice profit. Not because I think the stock is going to be strong. But only because I'd like to re-enter them at a better price, assuming the market "recovers" some in the very short-term.

The Asian markets are having a touch of reality. My EWM (Malaysian market) short is doing nicely. I daresay the Asian markets will kind of freak out during their Friday session, which might make our Friday session interesting as well. But, if forced to bet, I'd say we'll probably close higher, Asian freakout and end-of-week jitters notwithstanding.

InfoSys (INFY) finally cracked its neckline, although it still seems to behave stronger than I'd like to see. Would you plunge, already?

JC Penney (JCP) - on which I bought puts yesterday - had a nice fall due to weak retail sales. Of course, a true break of this neckline - - - the pattern is only just forming now - - - would make these puts fantastically profitable.

Merrill Lynch (MER), along with my other investment bank shorts, soured (for the bulls) today.

Oh, a couple of final comments to two users before the video. TomTheTrader, please stop posting your URL. I consider that an ad, and I'm going to be more consistent about nuking comments that are ads in any way. And Gary - for goodness sake, we get it. COT, COT, COT. Message received and understood. Lordy. Oh, and as for you readers that only show up on big down days like this......shame on thee!
Anyway........
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at6/07/200788 insightful comments  Links to this post
Labels:$rut,akam,csx,cvx,de,ewm,infy,jcp,mer
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