Friday, October 31, 2008

Zombies Overrun Wall Street

Eat those useless malfunctioning brains! Zombie images from here.

More on the melting economy Manhattan ice sculpture and source here.

From The Big Picture.

Comic from Cat and Girl.

Jack-o-economy from here.

Happy Halloween everyone!

Awesome Examples of Failed Breakdowns

This is the 400th post, hurray! Both of these failed moves came from blowout earnings report and great guidance, I'd encourage you to look into these reports. FSLR and ICE both gaped higher and ran to the highs today on massive volume. In doing so they reversed significant chart breakdowns from the days prior. As I mentioned on Sunday, failed moves lead to fast moves and that's exactly whats going on with these two. Its hard to see these slowing their ascent for a few days. Click on the charts for more details.And by the way, yes, I am now bullish on First Solar. If you recall my multiple bearish posts before about FSLR, I thought it was an over bloated pig at $300 with a 150 PE. I said my target for it was $120 and it went there. Now their PE is a more reasonable ~25 and FSLR does have some good things going for them; Obama's energy policy, residential expansion, lowest cost per watt and they are demonstrating resiliancy in the face of economic hardship. I currently don't own any FSLR but looking to add and I have some JASO and SPWRA calls.

Tuesday, October 28, 2008

Failed Moves Lead to Fast Moves

What we had today was an orgy of failed patterns. As I mentioned on Sunday, all of the major indices had broken down out of huge symmetric triangles with the NASDAQ and small caps making new 5 year lows. I won't speculate on why, though I have some ideas, but the breakdowns all failed. I got the title of this post from Brain over at Alpha Trends and it nails exactly what happened today. All last week and yesterday you had bears banging their fist on the table calling for an "extreme capitulation" event where everyone goes into a state of panic and the Dow drops 1,000 or so more in a day. Wouldn't that have been nice? Everyone was expecting it and just when it looked like it might happen, reversal. From that failed breakdown we got this massive rally, the biggest in history. All major averages except the Russell 2000, curiously, were up more than 10% today. I think this chart from Moontrader over at Luna $ Ticks really captures the significance of the reversal and ensuing breakout:

I love this chart, it really demonstrates the power and utility of technical analysis. So where do we go from here? As I have been saying for weeks, I am looking for a bear market rally that will last 3-4 months from this bottom. Was today the bottom? We will only know with certainty after a few follow through days but after today I think the odds are very good that the lows for 2008 are in. Tomorrow is a big day with the FOMC meeting, then the negative GDP data is Thursday and I would expect a bear attack after both. Also, I am worried somewhat about the weakness in the Russell 2000 which, as you know, I think leads the way. We need to see that index play catch up over the next few days as the other indices consolidate. Despite some issues, I think the tide is finally turning for the bulls but I'm going to try and remain objective.

It's over nine thousaaaaaand! (the dow)

Monday, October 27, 2008

New York Times, 1911 on the Panic of 1873

I thought this old article gave some interesting perspective, its incredible how little we have learned in all these years. I got this from The Big Picture blog, one of my favorites.

Sunday, October 26, 2008

Stocks are back in freefall or Why stops are essential

There's just no way around it, stocks remain in freefall. Hopes for an intermediate term bottom failed miserably last week when the major indices broke down out of their famed symmetric triangles. While the dow jones and S&P 500 have not made new lows, this appears a technicality with the leading indices (nasdaq 100 and Russell 2000(above)) getting crushed to new five year lows on Friday. This scenario has set up a test of the 2002 bear market lows and brings new measured rule targets into play, all of which are significantly lower. Here's the dow's traingle:

The best thing for the stock market now would be a quick panic of "extreme capitulation" down to the lower 7,000's on the dow or lower 700's on the S&P. With the failure of the early October bottom the market needs some sort of extreme event to entice investors to come back to the market and shorts to cover. Right now we are back into a steady free fall so it is more important than ever to honor stops. The obvious example here is JASO. When JASO broke that 5.3 area (IPO support) the stock was crushed beyond belief, falling almost 40% in two days. The problem is that 100% of investors in JASO are now at a loss and most of them probably would be happy just to get out break even. There will be enormous resistance for JASO to rally now. That's why I suggested a stop at $5.2 when I mentioned it last week. From a technical standpoint it is impossible for me to like JASO while it remains below that IPO price.

I guess the next step here is to exploit (profit from) the weakness yourself. If stocks are gonna get crushed after breaking support then we might as well short that break and go on the offense. Take a look at ICE:
Now I realize ICE has fallen a large amount, my target was met a while ago and the PE and PEG look very attractive especially with all this volatility and volume to boost earnings. But none of that matters if the stock is going to keep making new lows. In fact the irony and absurdity of a stock falling so rapidly in the face of booming business might even accelerate the downside as panic ensues. If stocks are going to be massively devalued here I want at least some exposure to that downfall. I'm trying to keep my eyes and mind open to anything in this crazy market. Right now things look and feel pretty damn foreboding.

Sunday Morning Cartoons: Duck Tales on Inflation

More on that here.

Wednesday, October 22, 2008

One triangle to rule them all!

I will add more comentary to this later tonight if I have time. This thing could go either way, up or down big in the next few days, but its going to move. Theres been alot of talk lately about triangles in the Q's, S&P and Dow and I just wanted to throw my weight behind that IWM triangle because thats the index that leads. Most atre expecting a downwards breakout of this trangle which targets about 7,000 on the dow, 700 on the S&P and 400 on the RUT. This isn't a bad expectation because the prevailing trend is down. But the overwhelming bearishness out there and panic leads me to think the real move will be up. But you have to be careful and go with the flow.

Sunday, October 19, 2008

Signs of a Bottom in the Q's

I'm seeing the early stages of an intermediate term (months) bottom in the Nasdaq 100 (QQQQ etf). Last week the panic lows from two weeks ago were tested and held, which I see as a big plus for the bulls. The candlestick Friday on the Q's as well as the other indexess look ominous and bearish due to the late sell-a-thon Friday afternoon but I'm not going to put too much weight in that because end of week selling is now typical due to expectations of weekend news (and any news is bad news right now). I'm also seeing some strongly positive divergence on the CCI as well as a weak buy signal on the stochastics. Confirmation of the intermediate term bottom will come when the Q's break last week's high at $36. I'm looking for a retrace back up to previous support at $43 or the 200 dma, which ever is lower. All bets are off if the Q's break $29 which is a great place to set stops.

If you are looking for an idea in tech land you might take a look at GOOG. The GOOG chart actually looks alot like the Q's, unsurprisingly, but I especially like the surge in volume Thursday and Friday which would make me feel like the recent lows have very strong support. Furthermore, GOOG recently had earnings and beat the street, this means options are cheap now and the risk of earnings is gone for three months. If GOOG breaks $395 the measured rule target is $480. Good luck next week, and remember to always set stops!

On a side note, even with all the carnage in the financial world China is still growing at 9% per year. One has to think that the collapse in their stock market has created some even more enticing buying opportunities than in the US. You might want to take a look at FXI.

Steve Cohen to his traders: You're all idiots"

"We have it on very good authority that on Wednesday in Stamford, Steve Cohen told his trading floor, "You're all idiots. We're going to cash. I'll see you in January." They are not closing down; just sitting out the bull shit. No follow-up joke. Because it's apparently true." -source

Saturday, October 18, 2008

Saturday Rock Blogging: Harvest Moon

Sorry for the late rock blog today, I've been writing code (programing) for the past 24hrs. I did this Morgan Stanley 24-hr auto-trading bot competition and my three member team was up against 15 other teams here at the UofI. We were given the details of a market yesterday at 6pm and had to have a bot ready to run by 6pm today. I can't go into details about it because today's event was the first of four events with MIT, Stanford and Carnegie Mellon next. I wouldn't want to make it easy on anyone now would I? Our team chose python (.py <- nice file extension huh?) and used a moving average cross over system which performed quite well considering two of us (myself included) had never written in python before. We came in third overall, and by the way, we have a good computer science program here to say the least. As many of you know, I'm not in that department but Youtube was invented by some UofI computer science alums. So the competition was fierce and I have my segue into this week's rock blog:

That one was warmup for the real one in January, which I am signed up for and eagerly anticipating. But first, time for sleep.

Friday, October 17, 2008

Going out out on top, the Lahde letter

Check out this letter from a California hedge fund manager to his investors today. Andrew Lahde is calling it quits after returning 870% to investors last year betting on the sub-prime collapse. He talks about his disenchantment with the industry, the idiocy of Wall Street, a new world order and even the legalization of marijuana. I'd sure like to meet this guy,

"Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.

Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

From Portfolio: Who Got Screwed in the Wall St. Bailout?
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country?

Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde"

Thursday, October 16, 2008

Ten reasons I have to buy JASO here

This crazy market sure has created some amazing opportunities, I think one of the best ones is JA Solar (JASO). This is a stock that I have been in and out of many times since their IPO a few years ago. When I first bought it I definitely underestimated the potential of the stock and sold way too early. That was summer of 2007 before the stock split when their growth really started to pick up speed. Well, here are ten reasons why I have to get back into the stock here for the long haul.

1. Its extremely cheap and profitable growth. Using lazy yahoo stats, the current PE is 15 and because their quarterly earnings growth is 321% (ttm), the forward PE is a mere 4. This growth is organic too, revenue grew 170% yoy last quarter.

2. It's a photovoltaic producer, and solar energy is the future.

3. It's China, and Jim Rogers is buying China.

4. Energy has fallen by more than 50%, it can't it go much lower.

5. Buying here is like buying the IPO, it went public just over $5.

6. JASO repeatedly found support at its 50 dma on the way up and resistance there on the way down. Currently JASO is a 100% gain from the 50 dma ($13) where I'd expect it to find resistance.

7. Positive divergence on the daily CCI.

8. It's oversold on the stochastics.

9. There are multiple unfilled gaps just above, any rally will find pockets of air up to $12-$13 (a double), which is where I'd target in the intermediate term.

10. The stock recently found support from post-IPO consolidation levels near $5.50. After breifly breaking to new 52 week lows (below this level) today, JASO sharply rebounded and now has the look of a failed breakdown. Failed moves lead to fast moves.

This situation has set up a very low risk to reward ratio. A stop can be set just below at around $5.2 and a good target would be $12. I would expect it to really take off once $7 breaks and so I've been buying March calls.

Tuesday, October 14, 2008

Sunday, October 12, 2008

Bullish Setups for Knife Jugglers

Where to start? This market is full of amazing buying opportunities. Tonight I'm going to throw a few long ideas out there in stocks that seem to have stabilized and a few more that might get a dead cat bounce. Obviously, its going to be very hard for any stock to rally if the market continues to collapse next week but I think we have reached a point where buying stocks is extremely low risk. There is no reason to think that the bear market is over but there are alot of reasons to expect the market to bounce after the Dow had its worst weekly loss ever.

This weekend everyone is talking about AAPL which had a 9% gain Friday and barely had a loss for the week despite the broader market getting crushed. I see AAPL finding support at $87.5 and not having resistance till $115. I would note however, that AAPL is in a severe downtrend (see the cross of death) and there is no reason to expect anything more than a bounce based on this chart. I'm targeting $115 and keep a tight stop at $87.

The reward to risk ratio on that trade is not very high and you might be looking to hold AAPL for longer than the week or so it should take it to hit $115. A decent looking longer term pair trade is to short three QQQQ's for each AAPL that you go long. The AAPL/QQQQ ratio has found long term support at 2.7 and is showing positive divergence on the CCI. This chart really emphasizes the relative strength in AAPL lately:

Two others that I ran into this weekend were ICE and IBKR. These are both companies that I have liked for a while and the stocks seem to be finding some serious support. I had been tageting $65 on ICE since June and buyers have sure stepped in at that level. It looks good for a rally back up to that breakdown area at $115:

IBKR looks good up $26 but might find resistance at the declining trendline shown in red. Part of IBKR's business is in options market making and you have to think they are making a killing right now in that area. This is one I would want to buy and hold.

Other stocks that I won't bother posting charts for but have been crushed and might get a big dead cat bounce are CHK, CVX, NVDA, JWN, GM, JASO & SPWRA.

Disclosure: I own AAPL calls

Saturday, October 11, 2008

Saturday Rock Blogging: The World is Spinning (Out of Control)

Jim Rogers is covering US stocks, buying Yen, Francs, agriculture, China. Watch the dow ticker!!

I really like his perspective on the issue of government intervention in the stock market and how it will actually destroy liquidity.

Friday, October 10, 2008

Bad Google, bad, bad

If you search google for "Dow Jones index" you get this ad sometimes, but I didn't when I tried just now. You'd think google would have a little more class than that, but then again their stock is down more than 50% in less than a year. More on this craziness here. I found out about it on reddit.

Thursday, October 09, 2008

Like a hot knife through butter, the Dow slices through 9,000 and the bears are ready to feast

The bears are dining at the Ritz this weekend, meanwhile AIG canceled its luxurious spa getaway. Looking forward, I still see no bottom at all whatsoever. Buying here it definitely trying to catch a falling knife but stocks are insanely oversold. To look for support in this market you need a ten year chart. I see 8,000 as a major level with the confluence of a 90's trendline and horizontal support. Then the next levels to watch would be the 2002-2003 bear market lows at 7,533, 7,416 and 7198. If you're looking at the S&P 500, 875 looks very solid but after that expect a panic down to the last bear market lows at 789, 776 and 769. We have a situation where you have to be crazy to buy given such a massive downtrend but even crazier to not take advantage of this frenzy of fear. I'm hoping to add near 8k tomorrow, good luck!

Lanworth Expects USDA to Raise Estimates

Yesterday, Lanworth 's Nick Kouchoukos said he expects the USDA to raise their corn estimates based on higher acreage. This is somewhat unusual as they normally don't release any info publicly ahead of USDA reports. Their clients pay to know that info ahead of everyone else. Kouchoukos said he thinks frost is pretty much a non issue now but interestingly, he seemed to suggest that high demand will lead prices higher. Tomrrow we'll find out if Lanworth was right about their USDA projections.

Watch the video here.

Tuesday, October 07, 2008

Dow Down, down, down, down

Unfortunately, there's still no bottom in sight. It really would have been prudent to listen to what the small caps were telling us last week. I'm still expecting a prolonged rally, but from what price? Stocks are slicing through support levels like a hot knife through butter. Unless there is some extremely bullish news that comes out tonight or tomorrow morning it looks as if we will could see the 8,000's on the dow tomorrow. Even some bullish headline like a rate cut is likely to get faded in this environment, its a crisis of confidence and the bears rule the world right now.

Monday, October 06, 2008

My crystal ball cracks as the dow breaks 10,000, H&S target acheived, end of the bear market?

Well I was right about a rally but I was dead wrong about the price from where it would start. The dow broke well out of that declining broadening wedge I posted last night. Today had pretty much all the qualities of a classic capitulation bottom. The price action felt like panic, volume surged, the VIX exploded, nice round numbers were crushed (Dow 10,000, Nasdaq 2000), Cramer capitulated and we were left with a very large candlestick tail (possible reversal. I'd note that the massive head and shoulders top on the dow had a target of about 9,500 which was hit today. Here's the weekly time from notice how this week's entire candlestick is below the lower Bollinger band and note that we still have four days left to work on that closing price:

I still stand by what I said last night and think the argument is good for a multi month rally up to 12k but things are changing. Breaking out of that descending broadening wedge indicates to me that the downtrend is accelerating (and why shouldn't it be?). This means one of two things to me, either the bear market is ending, in which case the lows for this cycle will be the ultimate lows. Or, this bear market is going to be a lot deeper and more severe than most expect. I don't claim to have a clue which of the two it will be, we'll just have to wait and see how the economy develops over the next year. What I am pretty certain of is a rally up to 12k, and it looks as though that move began today when the dow hit 9,500. To put things into perspective check out this video from 1999:

Disclosure: I went very long today, own calls on QQQQ, SPY, IWM, AAPL, MOS among others.

Sunday, October 05, 2008

My Crystal Ball Says We Rally (for a bit)

Tonight I'm going to say pretty much the same thing I said two weeks ago, that the second leg of this bear market appears to be over. It is true that we made a lower low last week on all the averages, but that lower low came on decreased volume and we are nudging up against the lower end of a descending broadening wedge. In addition, all indicators are at extreme oversold levels and volatility/fear is at all time highs. Meanwhile, governments around the world are taking unprecedented measures to re-store liquidity and confidence in the markets. There's an election coming up which tends to be a good period for stocks historically and I think all the elements are in place technically for a sustained rally. I'm modeling this bear market using a standard 5 wave pattern which includes three stages or "legs" lower (denial, acceptance & despair). I'm suggesting that we are finished with the "acceptance" stage, its all over the news right? If you asked me to estimate the price action going forward I would use the previous three waves as guides for the next two. I come up with a four month 16% rally from here to 12,000 followed by a four month 27% decline to 8,700. This puts us at the next major top in January and estimates the end of the bear market some time in mid 2009. This is rough and will have to be adjusted as we go forward but I continue to expect a sustained bear market rally. On the other hand, my crystal ball might be broken.

Saturday, October 04, 2008

Saturday Rock Blogging: Dow Jams 500 Points on PHISH Reunion

Rumors began circulating
of a re-union announcement Tuesday morning igniting a massive 500 point rally in the Dow. Then on Wednesday the official news broke of three shows next march in Virginia. Unfortunately the extreme euphoria eventually wore off and led to a "crash," something common with hippie traders. Interestingly the market reacted quite the opposite to news that the emergency bailout bill passed congress. Shorts be warned, Phish could announce more shows as early as next week. Furthermore, if traders are able to actually get tickets to the Hampton shows next March we could see a sustained rally in stocks. For those of you who think this is just a joke, Phish is big money. This tour could easily surpass any previous economic stimulus packages:

Friday, October 03, 2008

Small Caps Crushed, H&S Top Completes

Its a disturbingly beautiful pattern, this massive head and shoulders top on the Russell 2000 (previous post on it). I've been talking about the bear market in the small caps for nine months now and there is still no end in sight. In fact, based on the topping pattern above we are only about halfway through this thing in terms of price decline. Late this week the small caps accelerated to the downside losing 12% this week and closed at three year lows well below the neckline at $66 (IWM). I encourage readers to not take this breakdown in the small caps lightly. If you are still holding stocks for the long term you might be thinking that its too late to sell. Based on the measured rule I'm expecting a decline to roughly $45 on the IWM, that's a 30% decline. Selling before a 30% decline is not late in my book. I will note however, that the markets are getting very, very oversold and the VIX is at nosebleed levels. Then theres this bailout thingy and an emergency fed rate cut any day now to juice the market. The odds of a big and possibly prolonged bounce remain high, but thats all it will be, a bounce. More later this weekend.

Wednesday, October 01, 2008