Monday, January 11, 2010

011110 QQQQ charts

Welcome to 2010, the year of the even binary dates. For those of you who aren't a math geek or an electrical engineer like me, today's date (011110) is the second of nine binary numbered dates in 2010. I find today's date particularly cool because of the symmetry in it, the decimal equivalent is 30 by the way. No, no, I won't be posting 30 charts. And no, I don't think that the perfect symmetry in today's date means that we hit a major top today in the stock market, although that would be pretty cool. Nope, its just a day like any other, a day that nerds like me take note of.

Since 2010 began last week I have been wanting to post kind of a summary of where I think the markets are as we start the new year. I also wanted to make a few comments about how the past three years started since we all know that "it will be different this time" are famous last words. So without further adiu...
Obviously, the market we all care about most is the stock market. In particular, we care about the segment of the market that is currently leading and for the past year or so that's the nasdaq 100, also known as the Q's (QQQQ). The Q's are at 2007 levels after having nearly doubled since last March. Above I've got a monthly chart of QQQQ over the past decade plus the last year of the 90's for context. Late '99 and early '00 marked the end of the 90's bull market, in hindsight it was a bubble because we're still down by over 50% in the past decade.

If we zoom in a bit to a three year weekly chart (below) then you can see more detail of the top, subsequent decline, and recovery. There seems to be reason to expect some resistance at the apex of these symmetric triangle patterns, and despite having rolled over a few times, the market miraculously moves higher almost every week. Dead bears have been left in the wake of the $9 trillion tsunami.
With unemployment at 20 year highs, earnings generally declining and credit still super tight, we all know that this rally is not even remotely related to any fundamental improvement in publicly traded companies. No, its a bubble of a risk taking frenzy fueled by shamefully low interest rates (read free money from the fed at the US dollar's (and anyone who has savings') expense). In fact, the chart above is misleading because if you price QQQQ in terms of something with real value, like oil below (QQQQ/USO), the "rally" from last March barely even appears.
I've compared it to a game of musical chairs since the goal is to not be the odd man out, or to not be the last to buy. Without many pullbacks to form support I would expect the eventual break to be more of a crash. Its really turned into a question of when not if, in my view, after having watched this bull market go parabolic. One day the big money behind this rally will throw their hands up in the air and revalue all of this a lot lower but for now no one can deny that the trend is up.
To support the notion that this day may be soon approaching, the first quarter has been bearish for each of the past three years. Despite the prevailing trend (up or down), stocks have been sold leading up to March in recent years. I'm not saying this will guarantee that Q1 of 2010 will be the same way, but its something to consider. Do you see a pattern here?So we'll see, I can't imagine anyone would want to be long right now but clearly there's lots of capital heading in that direction in a big hurry. I also can understand why investors wouldn't want to short in the face of such a high octane uptrend. Lets see what happens when the music stops.

Disclosure: I own QQQQ puts (hurting)


pythagoruz said...

"The Standard & Poor’s 500 Index dropped for the first time this year"

Now that just cracks me up, here we are on day 12 of 2010 and this is the first down day? Silly market doesn't know how to be healthy anymore.

chintan shah said...

You will be handsomely rewarded in this are extremely overbought anytime ~5-10% correction may happen.