Click chart to enlargeAbove is a one year chart of the Dow. The moving average shown is the 75dma. It is not as significant as the 100 or 200dma, but it's what the Dow has been responding to (bouncing off of) all year long. In our minds, this makes it more significant than the 50 or 100dma. We're going to sell about 1/4 of our shares tomorrow, hopefully into strength. If the Dow should break the downtrending resistance line and moving average, it should be seen as the strongest move it's made for the past year. These lines are not set in stone. There is an art to drawing channels, it's not an exact science. The channel drawn could be off by a couple hundred points depending on its slope. Although we use a computer generated center line, the start and end points of the line can alter its slope. Nevertheless, the basic concept is sound. A significant break of the channel and moving average would suggest that sentiment wants to change for the better. It would not rule out a return to the lows, but would make it more likely that the recent lows will hold. If instead we start dropping from here, there would have been no change to market sentiment with this recent rally. In that case, it would just be another bear market rally, setting latecomers up for rapid losses.
Either way, this is our cue to become a little more defensive. We bought at Dow 6800 or so. Selling those shares here just makes good sense, considering we'll still be holding the majority of our stake.
42 comments:
I'm playing my 401k by pretty much the same strategy. I pumped my entire 401k into KSCVX very close to the bottom. I'm happy with a 22% gain. Its enough to get me bragging rights to say that I'm the only one at my company whose 401k is actually worth more than it was a year ago.
In the previous thread I set a target for financials (IYF @ 36.50) but I forgot to list my target for IYR. That's going to be 29.30. SRS should be around 43 or 44, but I'm just going to use a trade trigger to buy it.
got to ask -- what do you do for a living, icon? (me: unemployed set builderish in nyc)
I'm an engineer by profession. A few years ago I wrote some software that analyzed Analog/Digital converter data for certain patterns within the bell curves and fft's. So I've analyzed a lot of histograms and other charts that looked somewhat similar to candlestick charts. At the time I didnt believe there was any value in technical analysis... I figured it was all hogwash (and pretty much still figure its mostly all hogwash, especially elliot waves and "head and shoulders neckline nonsense" I still laugh whenever I read that stuff.). So I went and found my own method. I do like to look at price channels though, they've been very valuable, especially last year around this time with the fertilizer stocks.
Snot - Please comment on your call Friday that "the channel has clearly been broken." I respect your posts and understand that this is not a science.
Anon, you're asking Snot to comment on the comments that he attached to the post entitled "Channel Break"? Isn't the title alone self explanatory after looking at the chart provided? What more do you want? For him to come to your house and execute the trade for you?
Anon, technical analysis gives you a heads-up as to the bias of the market. When the channel broke, the odds favored the market going lower. The next day, the economy got a $1 trillion bailout. Needless to say, $1 trillion trumps the break of the channel.
Think of technical analysis as being similar to the nation's security threat levels. Red alert does not mean we are going to be attacked, but that we are in more danger of being attacked than when it's orange. A break of the channel should put you on red alert, even though anything can happen. There was no other point over the past several weeks where we had any concern that the market could break down. We were comfortable holding the long positions until the Dow reached 7800-8000. Only when the channel broke did we think twice. That's the purpose of TA... not to give you hard and fast info, but to give you a heads-up. Barring a $1 trillion injection, the market was ready to sell off on Monday.
Good news! The high end residential market has picked up an enormous amount of steam over the past several weeks. At this point, there's no way it's just a fluke. The momentum of it is huge. People with $100M to spend are buying up houses and land like there's no tomorrow. This is the smart money at work. It may be a year before the rest of the world feels that we've hit a bottom, but we're confident now that both the stock market and real estate market have bottomed. That's not to say that we won't return to the lows, but that we won't break them.
Snot, Thanks for your reply and explanation. Point taken. I look forward to your posts and charts. Have you sold since the DOW has basically reached the upper trend line?
Snot, you have said it may be a year before a leading sector emerges with its own group of leaders like MOS and POT used to be a year ago. Many people are predicting that we will soon be facing inflation because of all the money the gov't is printing. What sectors tend to do better in an inflationary environment as an economy is coming out of a recession?
You said this: "The high end residential market has picked up an enormous amount of steam over the past several weeks."
Where? At what areas?
I should say "in which areas", sorry.
Snot, do you play any of the short ETFs? If you are you in any at this level?
Why not, if no?
Anon, we're far away from seeing leading sectors emerge with new, leading stocks. That only comes with innovation. We don't believe in fundamental analysis enough to pick companies/stocks based on such macroeconomic things as inflation. It's not that we don't believe in fundamentals, but that technicals/momentum/sentiment play such a larger role that fundamentals is the minutae behind the market, not the driving force. If you get caught up in the minutae, you'll get stuck in a cheap stock that is bound to get a lot cheaper.
seeer, hamptons
GlobalRout,
We sometimes dabble in the short ETF's but only as a hedge. They really are dangerous because their value deteriorates over time. Either your timing is just right, or you get burned. We believe that the market has hit a bottom and will never go lower than 6500, so we are 100% focused on buying, not selling.
Sorry Snot, have to call you on this one. Just because a very small portion of the real estate market "high end" is picking up steam, does not mean real estate or the stock market have bottomed.
"The median price of an existing home decreased to $165,400 from $195,800 in February a year earlier"
That tells you all you need to know. The masses are screwed and it is going to get still worse. The mass of US consumers is dead, dead, dead. The few richy-rich's are hardly a speck on the windshield.
Yeah, an attorney in my office has put $500K bids on several 2MM plus bank owned homes in a posh Atlanta suburb. Probably will hit on one. And you think the willingness of some to try to scalp expensive housing at a 75% disccount means we are saved???
We may have bottomed, but not because "high-end" real estate is picking up.
Randall, let's face it, the guy working at the corner deli is not going to be the one to jumpstart the economy. It's going to be the movers and shakers of the world. Billionaire investors are coming out of the woodwork to buy up the houses and land to build anew. Each house creates hundreds of jobs, and puts money from the sidelines back into the system. Granted, it's only the beginning, but this is where it all begins.
Snot,
That is an insightful look at the high end real estate market. I would not have found that information anywhere else! Though, I don't blindly believe everything I read, so can you point to any other evidence? Did the same actions of the smart money buying up high end real estate from our past recessions signal the start of a slow recovery? If so this can be powerful information and I highly doubt people would be spreading the news, hah.
Anon, we have inside information (totally legal) about the health of the near term future of the high end residential spec market in New York. After a 2 year freeze, activity is starting up in force. In wealthy areas, recessions are shorter and shallower. They don't feel the economy slowing until 6-12 months after everyone else. In this way, building activity in these areas does not signal a downturn in the economy. On the other end, however, this activity does signal a change for the better. That change is happening now. It may not be felt by the broader economy for some time, but considering the stock market is 6 months ahead of the economy, our guess is that it, too, has bottomed. You don't have to take it from us. In 4 to 6 months, look at the number of building permits issued in affluent neighborhoods and compare them to the current number. What we're saying will make sense then.
Snot, is the high-end spec market being re-vitalized by the AIG folks who were just paid millions in bonuses?
snot, thanks very very much for the housing info! i am in the market to buy a farm in tennessee. should i jump now or can i wait a few months? i know its hard to predict, but what do you think?
888888s
Just sold some DDM. We were waiting for Dow 7800-8000, so today's the day. Maybe we're at a near term top, maybe not. But with the Dow now within striking distance of the top of its longer term downtrending channel and its moving average (75dma), it's a good time to be cautious.
We were about 35%-36% invested going into today, and now we're about 32%-33% invested. If the Dow adds another 300-400 points, we'll get back to about 30%.
Anon, anyone depending on a bonus whose company recieved TARP money is not spending until the issue is clear. We don't think the 90% tax on those bonuses will become a reality. It may work for the CEO with the $43M salary, but it isn't fair to the guy on the 28th floor making $250k, over half of which was the year-end bonus.
88888's,
Not sure about Tennessee. Would imagine that the higher the stock market goes, the less willing people will be to sell at firesale prices. We would take the same approach to buying land as we do with stocks. Buy half now and wait. Either way, you win.
Snot, you are convinced we have found a bottom. We may revisit that bottom and we may not. You are invested in your and your friend's retirement fund at 25% to 35%, but you keep adjusting it back to about 30%. If we revisit the lows, will you go in at a higher percentage? Other than a revisit to the lows, what scenario will result in you being invested more than 30%? Thanks?
LDK has hit my target. Smoke em if you got em...
With the 75dma being so close (9.60), its "gravity" is pulling it down and preventing my target from being hit. That's my theory anyway. My target is currently 10.30, and increasing by 15 cents a day. I am going to hold off on trading my target until we have sufficiently diverged from this key moving average. In the meantime I am playing the bounce off the 75dma with FAZ at 18.40. No doubt lots of traders are doing this...
After some research myself, I have to agree with Snot that the market has hit a bottom based on the recent housing market data. Housing has shown to be the most accurate indicator of the health of the economy. That is observed in the recovery of all recessions in the past.
wb
Anon (wb),
It's not just housing, it's speculation in the housing market. That's the part that has us convinced that things will be looking up soon.
Anon,
We sold some DDM only because we bought some when the Dow was at 6700-6800, and it has done nothing but go up since. A return to the lows would get us to be 70% invested. A break of the lows, even if only by 500 points, would have us 100% invested. If the lows are never broken, then 25-30% of our capital will stay in cash.
hello again snot, have you shelved your plan to be net short the market at some point? (srs, skf, fxp, faz.) what has changed your thinking on this? aren't all the businesses still going under? (you got me to dump all my shorts this am after i just bought them all last nite.) thanks again, 8888888s
It is the height of folly to think we've put in a bottom. Not even close. If you look at what the banks have written down, they are still valuing assets at 90% of par. They are living in an alternate reality. Even if real estate gains 20% from here, the banks books will still be overvalued. There simply is not and will not be the money to pay for Obama's fascist takeover of the country. If they attempt to print, the explosion in commodities will cause an ever larger wave of defaults... Remember the ONLY reason the rate of defaults has slowed is because energy costs have fallen. We are in Kondratieff Winter. The debt overhang is colossal. This chart IS going to play out until the debt is cleared. It cannot be stopped. We're halfway to the bottom... But just like in the 1930s, there were huge bear market rallies where everyone thought we had bottomed. So be it. There is a sucker born every minute, and every minute AIG bleeds some 8 million dollars. That money is never coming back.
On a lighter note, I've created a chart of LDK, analyzing the last month of activity. I've listed the last 7 sell signals and the 3 recent buy signals, as well as the rules I used to generate the signals.
hello icon, that sums up what i have believed, however something feels different. the market wants to rally. i think our fearless leader is thinking the same due to the realestate buying spree. they are giving us an opportunity to get out of the market with some money before the big bottom drops out, probably when/if it becomes obvious the stimulus has failed, at least a year(?) away. 88888888888s
Real estate and building has always been a bit of an enigma. Even in the height of the depression, buildings such as Falling Water (a private residence), and the Fisher Building (built by the Fisher family of Detroit fame), were being erected. The point here is that the (smart) very rich, the ones who have preserved their capital, are enlarging their wealth by buying low now. In a few years the property they are buying now will be worth far more. They will probably sell a portion, and own outright the rest. This is how permanent real wealth is sometimes created. Sure, they have an eye on the stock market, but chances are that they are not heavily invested there.
I tend to agree more with Icon in that I think this mini recovery is a house of cards. The principle that is being used, namely to spend our way out of the recession, is fundamentally flawed. Bernanke can't stand the idea that home values will fall futher, and has decided to artificially prop up something that was already artificially too high. The Chinese have voiced a real concern about their 1.4T investment going down the tubes if the dollar tanks. Why are they the only ones with the nerve to say so?
I jumped in last Fri. late in the afternoon, and watched until mid-morning the events unfold. Of course, I was thinking the market would go down, so I was caught on the wrong side right away. Sold everything around 11. I did everything right, but did not see the 1T coming over the weekend. Ah, well, and so it goes. It looks like we're back to weekend finagling again.
A question for the blog group. Most everyone here expects another leg down. One half looks for a correction before we head back up. Another half looks for an end to this bear market rally as we continue on our way down. Either way, earnings season may be the next catalyst to initiate it. What is usually considered the beginning of earnings season in earnest? Is it Alcoa (April 7th) or MON (April 2nd) or something else? I'm slowly moving toward cash: 26% to 39% today as I took some profits. It should be over 50% shortly after the open tomorrow. Futures are up for tomorrow at the moment. TIA.
Joe
My goodness, if ever there was "technical analysis" that is pure, unadulterated hogwash it's "chICON little's" chart of LDK. Gimme a break dude! You caught a dead cat bounce on a piece of garbage that's going to 0.14 cents. Nothing to huff and puff about.
Get a grip.
Violet, actually Icon's chart merely reflects the underlying fundamentals and the news, if you have been following it. LDK's earnings last quarter were bad, coupled with the decline of oil of late, but then they got things going in Germany so they pulled out of their death spiral. If it works for Icon, so what. Why don't you offer your approach and method instead of just pissing. I found Icon's chart very interesting.
The whole solar sector has broken out. I can do the same analysis with all their charts. What did you do Violet? Short LDK? lol.
Note the next highest rsi resistance line on the chart is at 62. When LDK's rsi is at 62 its price will be 7.50. LDK could easily surge to precisely that level and bounce hard off it today. ... In fact it just did. That's how and why I pick my sell targets. 7.50 is a great sell target. I unload a chunk every time we reach one of these points.
How do you explain that hogwash? The indisputable fact is that rsi resistance and support lines create tradeable bounces in much the same way that moving averages do. When an rsi resistance line coincides with a moving average, you have a situation where a tradeable bounce is a near 100% certainty.
Icon, thanks for posting your charts, beautiful. I have two questions about your method.
1. Except support/resistance lines, do you also watch the support/resistance on the horizontal level and the rsi chart patterns such as flag, triangle?
2. To my understand, you place orders at the touch point of support/resistance line of rsi. Do you project target price using rsi data or using the corresponding value on the stock price chart? What moving average do you watch?
Thanks in advance.
1a. I do look at horizontal lines when I analyze mutual funds. Especially the 50 rsi mark. I consider the 40 and 60 lines to be "half-signals". On individual stocks I dont weigh horizontals very much unless they have been shown to respond in the past.
1b. Yes I do look for triangles and flags. But obviously when a triangle breaks it must also break a support or resistance line, so there is no real need to look for triangles or flags. I guess my point is that I dont assign any extra weight to them. A broken triangle mean the same thing to me as a broken support line.
2. I project target price using rsi data. I take the rsi and price at two different points in the day, then use very basic algebra to extrapolate what the price will be when a certain rsi value is hit. Then I check that value against the moving averages to see if there is any "contention" (moving averages will "pull in" a price and hold it like a magnet). If I dont see any contention then I submit my trade. In the case of XLF this week, I'm seeing contention with the 50 and 75 day moving averages. I'm assuming XLF will break the 75 and stairstep straight up to the 100 dma. If it does this tomorrow it will also strike an rsi resistance line. So I have my trade triggers all set to trigger a market order for FAZ when XLF hits 10.27 and 10.32 and 10.37. Meanwhile I'm still trading FAZ off XLF's 75dma... there is still a good possibility that XLF wont even be able to break the 75dma.... especially since SPX is only 7 points away from its 100dma. I'll be underwater on FAZ again if XLF does jump higher, but these moving averages provide plenty of opportunity to do damage control.
Window dressing time by money managers for the next three days. The plunge after that?
Icon, thanks for answering my questions. It is very kind of you.
Post a Comment