The Financial Ad Trader
The Financial Ad Trader

August 26 2005 Worth shorting for a quickie

Given the generally treacherous nature of signals in this (as in all) sideways markets the piercing of a trendline and a s/r line is worth a gamble. We imagine you might hold this short for a couple of weeks or a couple of years. In addition to the rounding pattern we noted last week there may be a large rounding top beginning in April. The very bearish long term implications of this must be weighed against the present tendency of the market to keep its head firmly in the sand as to long term implications of anything.

What explains this conundrum? The public has poured money into funds this year. What explains this conundrum? It's nature's way of telling us that the public has too much money.

And that nobody learning anything from the little excursion to the 7000s.
Again in the SPY a rounding pattern may be inferred, but it may be part of an even more alarming complex top.
Meanwhile, the buck stops here. Or does it? At the moment no one knows where the buck stops because after recovering nicely from an oversold low it weakened in the to be expected retracement. Now it is betwixt and between the nearby high and low. We think the cards are in place for further strengthening. Even though the March trendline took a hole in it. Easy decision. Either the high is taken out or the low falls.

August 19 2005 Rounding tops and the big picture

A clear little rounding top in all the major indices. This should presage a decline of minor proportions. The top however is so small that it should not be a major move.

This is in keeping with the general sideways nature of things. We are working overtime to read the entrails as to the start of the avalanche, but as always the present trend will continue.

Why the Dow won't be going anywhere this decade

The blue numbers with arrows can be disregarded -- or maybe not. They are the Dow Theory signals. What is crucial in this chart is the humongous bulge in volume from '97 to '01, and the humongous top formation from '99 to '02 (?) '05 (?). They represent supply and resistance. This looks like an enormous trading range to us. Top 11700, bottom 7500. We have repeatedly pointed out the similarity of these markets to the period of 1965-1982 when the market took 17 years to break through the 1000 level. (See below.) That is what is happening now. 10000 is a numinous number. It will be years before the big bull resumes. Meanwhile the predicted range will furnish lots of fun for technicians and grief for investors.
17 years of the Dow with Dow Theory signals marked. These charts may be ordered from us in large sizes to impress general investors and awe small children.

August 5 2005 Mules, dog days, snakes that bark in the night to sell their dollar shorts... a pandemonium of delights

In mule (or sideways) markets such as these the ruling line is horizontal. While the sloped trend line here has not been violated the recent excursion to 107 (m/l) (more or less) is an effort to find out how gullible the general public is (Generally, pretty gullible.) But it's a great story being put out -- happy days are here again. Just don't look at that ugly deficit and real estate bubble pulling the levers behind the curtain.
There is a divergence to keep one from being too certain or smug. The S&P makes a new recent high. We are prone to associate it with the Dow poking its nose up to 10700 (m/l) and it never does to scoff at the chart. After all the chart doesn't scoff at us. It just sits there telling the truth day in and day out.
The Qs are more in keeping with the Dow. There is no chart reason (except analysis of long term overhanging resistance) to sell these indices. It is a contrarian play. And (see below) the dollar appears to have finished its run for the moment and there is a feeling of change in the air (or call it rhythm).
If not a change of trend this is certainly a major retracement or action of some sort here in the dollar index. Or, not to be long at the moment. Longs in the Canadian and the Swiss and the euro are probably in order, but it is too early to say the dollar is finished liquidating Warren Buffet's distribution. You did know it was Warren Buffet selling you his short dollar positions, right?

July 25 2005 the long view

ALERT ALERT ALERT: NO LETTER THE 29TH UNLESS PEACE IN IRAQ OR A MARKET CRASH IS AT HAND.

Two years of the DIA which interestingly does not show the same Jan. 04 high as the INDU, which is higher -- around 107.50 this scale. The nine month bear market which ended with the election now looks more and more like the left side of a massive complex top. We can easily expect nine months more of work here before the roof caves in. But remember we were the ones who were a year off in the prediction of the 87 (the Ronald Reagan memorial) crash. We were looking for it a year later, although we were right on the money with our trading, because trading is different from forecasting, which generally speaking is not worth the bull manure used in its creation. We think long term shorts can be put on anywhere here. This is definitely not a classical chartist call. Magee would wait for the lows to be taken out. It is a contrarian call and as Victor Niederhoffer knows those positions can get uncomfortable.
Silver, on the other hand seems to heading for a resolution. Note the coiling steadily diminishing range. But we don't think the economic conditions are right yet for the roaring bull market. We think it will be more trading. Bullion buyers will tell their grandchildren how smart they were to buy bullion here. What was the name of those corrosively cynical people who told us to do that? If we charged them a percentage of the profits they wouldn't forget our name.
The long term trend is clear here also in the Qs. Mule Market. The purpose of price trend from here until further notification is to discourage shorts and suck in bulls.

July 15 2005 Momentum markets

Which we conjecture will soon run headlong into 8 gazillion shares overhanging the market from 99-2000. But the soul of the bubble is still alive! It didn't get punished enough in the perfunctory bear markets so it has come back to haunt us. See Google. Our immediate forecast (remember we never stand behind our forecasts) is for the sideways markets to continue. And we should shortly see the down leg. Under some circumstances the gap here might be thought a breakaway, but like the gap in May it is most likely a pattern gap designed to shake loose shaky bears.
Same stuff in the Qs. Charts all say bull and more pundits (James Fallows, Atlantic) anticipate Armageddon. Actually we already have Armageddon in Iraq, but, hey, $2B a month expenses there is going to stimulate some corporate profits, which is what it's all about. Especially Haliburton. Remember when Ronald Reagan maxed out the country's credit cards? Remember what happened afterwards?
Meantime, back at the dollar corral it looks like the trend in the dollar is due for a pause. And just last week we told you how to get rich quick and now we snatch it away.
I looks like the end of a buying cycle to us. Dollar. Crude is topping most likely, though it could go either way, but the most likely is sideways or down. Stay tuned and buy your gasoline in very small amounts. A gallon here a gallon there.

What do those guys buying like crazy know that we don't? They know that at any moment the music is going to stop and the Old Maid card is going to land with someone. The most likely candidate is anyone who is thinking long term, because this momentum is driven by short term trading.

July 8 2005 The months of living dangerously

As in, just one false signal after another. Islamic (actually just mad dogs, not really Muslims) terrorists lacerate London and the market barely winks. Lamentable and despicable and our sympathies go out to innocent victims. And interesting from the analysis point of view. Does this mean that the shock value (catastrophic risk) has been diminished for pit bull attacks. You know, after so many dog bites man stories only a komodo dragon bites man story (see S.F. Chronicle) gets a reaction. We are thinking about revising our policy of never being short puts. If you know what you are doing short options is not a bad strategy in mule markets.

And these are certainly mule markets.

Further demonstration that it's mule time.
Market up. Oil up. What's up?

No one here but us mules, boss.

DOLLAR INDEX JULY 8 2005 HELLO HELLO

What else is up? Dollar index. All those stories you read about the dollar dropping through the floor were clever disinformation to get you to short some. Duh.

SEE BELOW.

FROM OUR LETTER OF MARCH 25

DOLLAR INDEX MARCH 25 2005 HELLO HELLO

The bottom is in on the dollar we think. Conservative traders would wait for the break out above the Feb low -- and/or the breaking of the top trendline. Early birds after a bigger worm might already be in. The dollar will go back to a reasonable relationship to the euro -- probably about 1.08 $/E, but we haven't attempted to predict a time frame yet -- and there is certainly no hurry. Selling weak European issues might be a good tactic.

A NOTE TO THE DOZING: WHEN WE SAID TO BUY THE EURO AT $.82 WE DIDN'T BERATE OUR READERS OR HOUND THEM INCESSANTLY. YOU EITHER GET THE MESSAGE OR YOU DON'T. AS HERE, THE MESSAGE WHEN HEEDED CAN BE VERY PROFITABLE.

July 1 2005 Dog days -- or doggone days

Bored? Right after you get bored you do something stupid then you're not bored any more. On the other hand (as the two handed economist said) there are some real good long term values for short sellers here and if you just don't go to sleep you'll make a fortune shorting REITs which will shortly join our weekly analysis and accumulating precious metals which have already joined us. The chart shown here is nothing but a minefield for anyone but scalpers and short term traders. On the other hand, if you're really bored you could sell some options because the present likelihood of a breakout appears pretty remote. We say that while remembering that a major terrorist incident will wreak terror on the markets. Or, from dead to night of the living dead as in ultimate horror. In our view the terrorist training ground (Iraq) guarantees us a long term supply of terrorists, but they're busy there right now. Unfortunately the smart ones don't blow themselves up, but live to fight another day. Maybe right in your neighborhood.

Crude goes down. Crude goes up. That foot you see in our mouth is not really in our mouth, but in the bear trap so beautifully set up in May. Actually a good stop would have saved your bacon, nonetheless no one likes such beautiful traps. So crude is not done yet. And rushing into the next trap, we think the break above the old high is a bull trap. But not for us. Unless we had a big big bankroll we'd be confining our dealings with oil to the local service station. This is a market where you can get your leg ripped off.
Ought to be a good price in GLD with behavior like this in the futures. But the bet shouldn't be very big yet. This looks like a big sideways action with some pretty good suppo0rty around 420 and we would be buyers there -- or earlier depending on the chart.
The silver market continues to validate our idea that physical silver is the way to go. Here's some punishment for early bears and it implies more sideways movement rather than a breakout of a triangle. Of course, ta-dum, the Lone Ranger cometh bringing with him an ETF in silver. Or does he? Read Ted Butler at gloomdoom.com. Do we think there will be a roaring bull market in silver? Absolutely. Do we think all the silver bulls will be broke and dead before it happens? Absolutely.

June 25 2005 Turbulence on the way to 36000?

If you believe what you read and hear (except what you read here, where disbelief is a way of life) you would think the sell off at the end of last week was divinely inspired in Mecca or some other oil capital of the world. Actually friends it was technical as you will see by the last chart in this week's letter. What happened was some big smart guys got out.

Here the DIA playing sideways games and throwing off regular false signals.
The start of the avalanche? No. But long term short positions appear to have very little risk here. From our readings of the headlines, (REAL ESTATE CRASH ANY MINUTE) we would say the avalanche is a couple of years away, but it starts with one snowflake, and although this snowflake is not positioned right to be the one which starts it is an interesting little snowflake. It is in the right place to say that support and resistance analysis still have some validity, and we really like the fact that prices managed to suck in all the unwary before hitting the turbulence. In the SPY very toppy behavior, or trading range stuff. But definitely not bull fodder.
Thinking about it we knew beyond a doubt the Reagan Crash of 1987 was coming (and even made a killing at the time) but we really thought it was another year or so off, but the older you get the more you learn until you're dead or broke. Remember it was Keynes (still a great economist in spite of Karl Rove) who said the market can remain irrational longer than you can remain solvent. The good news of course is that in the long run Karl Rove will be dead, but not, unfortunately before the U.S. is broke.

Here, not even a trading range, but a rally in a downtrend.
For this they took the market down hundreds of points? It hasn't even broken the previous high. When we heard they spooked over the price of oil we immediately rushed to the chart to see what up spike had occurred, the we were reminded of Keynes dictum that the market participants could remain eternally irrational. If they could see past the end of the permanent tax cuts they'd be putting their money in Swiss francs and emigrating to

June 17 2005 Fool me once...

Anyone who has a long term view and perspective on the markets can watch with bemusement (or amusement) as the shells get pushed around on the three card monte table here. But what's going on is 100 % tactical. And designed to whip saw anyone whose focus is mid term. When this business goes on a while longer we will probably be adding to our shorts. Still it is a fun little pattern the business over the last week or so, as it inches up like a gopher and pokes its nose over a resistance line. Gopher markets.
So they're not worried about oil anymore? Somebody must be worried about oil because based on what we see here we could look for higher oil prices, after a neat bear trap in May. Is there a certain air of unreality about this? How high does oil have to go before Uncle Alan realizes that it's a flammable situation?
Meanwhile, unbugged by it all the gold bugs know a good thing when they see one and a gap and a run day should be enough to get your average speculator long. Those smarter than you average speculator know that you can't confirm a bull market until the November top is taken out, but, hey, there's lots of room to play in here for your smarter than average bug.
Your smarter than average bear (Yogi Beara?) will not take any short positions in silver, and will watch with interest at silver coils and coils. The only way to play this market for the conservative investor is in physical silver. Although a very well financed conservative could do futures, but the stop would be back under 680.

June 10 2005 Sidewinders

As every westerner knows a sidewinder can kill you more than one way. Its favorite way is to take small chunks of you with false signals. But in view of the minimal risk on the upside short positions here appear to us to have the main danger of occupying capital with limited return -- unless and until the implosion begins, which we expect will begin with an explosion. But like Iraq it's hard to forecast until it blows up under you.

Of course you can always sell options. That's a fun thing to do in sideways markets.

We can't imagine why anybody would be long the indices.
As long as we're smoking something (rattlesnake meat) we wonder if the S&P is building some monster sideways formation, or a monster complex top, which would be our suspicion. Again, we think any longs here have been smoking something too.
More sideways, widely whipping. All those horizontal lines in all the charts tell the story and rule the day.
If bored you could short the bonds. It looks like our pipe dream of last week -- that the bonds had topped, at least for the moment maybe had something in the pipe bowl besides bull manure.
June 3 2005 Funny Friday Feeling

Friday had a funny feeling, like the crest of a minor wave. What do our black box systems say in such cases? They say, where's Karnak now that we need to create some b.s.? So mostly, black box notwithstanding, we make an analysis using those old E&M methods and then try to figure out what the analysis is saying. Here it's saying looks like this little rally in a sideways market has run up against resistance. And Friday is saying, this might be the end of this phase.
The SPY looks to be in a broadening pattern which might argue for a higher high. Right now we think (notice, think, not analyze) that it won't make it based on the action in the other markets. Namely the action of the day in bonds, gold and stocks. But there is nothing substantive in the SPY pattern, or (see below)
the QQQQ pattern which says this is the wave crest, just that one day and the position of the price in relation to resistance. This run right here looks ripe for correcting also.
But Friday here looks like a reversal in more than one way. The other way being a key reversal. Truly, interest rates will stop falling and blow the roof off. Pretty soon you can take a fundamental position and get rich. Stay tuned we'll let you know.
Although Friday was a key reversal day in GLD it followed a gap and jump across a tight trend line. Something of a mixed message but we might be buyers here with a stop under the nearby low. Certainly for a short term trade. Then let it run a little and sell a call. (Keeping the stop of course.

May 27 2005 Waiting for the bubble to burst

Like waiting for Godot, sometimes. One of those times being now. Major indices back with noses up against long term resistance zones. Short term picture here of Dow. Long term below of NDX. You could be trading here with every puff of the wind and whipping yourself to death, or you could watch in bored fascination as the economic geniuses running the country run it into the ground. Krugman in the NY Times has asked where do you go for smoke and mirrors when the real estate bubble bursts? What is gong to be the next shell game? We know. Investments in Tom Delay. Always paid dividends so far.
Gold looking listless. May be time to dip a toe in and break the rule that you don't put money in until the instrument breaks out. We still think it's a good long term investment, with a prudent stop under the low here. Is that an oxymoron? Or is it just moronic? Only the morons know for sure. And they're all up to their earlobes in lies in Congress. Listen sports fans. When the inflation fire starts it's going to be like a prairie fire and there is not going to be time to get out of its way.
NDX breaking away/ Like Lance Armstrong? Consider picture. More bull traps? Or more bull s? All the news is good in tech so could be another cross current.
You could make a case for an even bigger triangle in silver -- one which encompassed the whole chart. Clearly getting ready to do something. Considering the economic situation we would expect upside. Then considering the political context and the need to disguise the bankrupt political policies more obfuscation (as Tom and Ray are wont to say) may be in order. We vote for expensive silver. Physical buyers here, and well financed futures buyers (i.e. willing to set a big wide stop) may never see silver this cheap again. But remember Ted Butler and the silver manipulators (some of whom are now facing prosecution).

May 20 2005 Fool me once, shame on you. Fool me over and over again and you'll drive me nuts.

These markets are bringing to the fore the essence of technical analysis: Analyzing and understanding from the analysis the importance of context, or the trend state of the market. As there is no broad up or down trend otherwise actionable signals become invitations to lose money via the Chinese technique of death through a thousand small cuts. Thus, the piranha markets, or eat or be eaten. And the broad trend is sideways with plenty of whipsaws. What does the skillful technician do when in a market of vicious cross currents? Either trades or sits. Or takes really long term positions.

And looks around to find long term investments in other areas.
As an example of the overwhelming influence of context is the S&P. The formation here might be a double top in less treacherous times. Here it might be a broadening of the trading range.
This watchamcallit top looks dependable in Crude. Might be a head and shoulders with a hunchback. Might be a triple top. The breakaway downgap should carry price down to 48. You could even bet on it if you were very brave and well financed.
Gold is currently shaking out the weak holders. The fall out of the big range (sort of a monster triangle) here is a message to wait. Buy time will come and when it does it will be a very long term trade. Or you can buy bullion here and use it for your yacht anchor. $20 -- $25 bucks? Nothing in the long term. We opine that 400 is about the bottom here.

May 13 2005. Yawn. What did we tell you about hedge funds?

When fools rush in capital is lost. The mere law of averages, if not the law of nemesis of the markets would indicate that whenever a lot of smart market players rush to get on a bandwagon (by forming hedge funds) that the piper will have to paid pretty soon. Also the guy cranking the music maker on the band wagon. The markets went into deep anxiety over news that some hedge funds got their tails caught in the wringer over GM. What's interesting about this is not the news, but the reaction to the news. After fixating on oil for months the market chose to worry about a different subject, just as oil was giving them a reason to run the markets up. Of course, we technicians know that there are technical reasons for the market to balk here. Namely all those horizontal lines.
At least the NDX took solace from crude, or from something in a barrel. One index going one way and another going another. Signs of the times, namely trading markets with lots of false signals.
If this is a false signal it's one of the best we've seen. What might be either a triple top or a head and shoulders, with the price gapping over the neckline. All the signs are for lower crude here.

Every possibility that crude will come back to 48 here and maybe go as low as 44. Big bucks. Big cojones.

Caution is advised, especially when you can be mousetrapped so easily by those middle eastern camel jockeys.

May 9 2005 More of the same same. Sideways sidewinder.

While the trendline was not expected to hold the price it is always wise to heed the crossing of a trendline, and this one now is about 2 months long. Nonetheless we consider the horizontal lines here of primary importance, and we judge the price to be sideways in a trading range and so will sell some more if it gets back up to the top, and depending on its behavior maybe more before then.
The market may be taking courage from a barrel, if not a bottle. A hint of broken uptrend is here, along with two lower lows. Would we short it? Not this century. On the other hand would a big bold trader short it? Perhaps, if he had the capital to put his stop above 58. What do we think is prudent to do? Our favorite recommendation. Nothing.
Meanwhile gold seems to be working its way through a triangle to a resolution, very much in doubt here technically, but likely downward. Good. We'll be looking for good prices to get in where we can't get dislodged. GLD is a good instrument, and we are just biding our time on it.

April 29, 2005 Zip, Walter Lippmann wasn't brilliant today. Zip, Will Saroyan ever...

The horizontal lines give some idea of what DIA has to get through to begin to make a bullish case. Given the goings on since November we wouldn't bet against anything except significant upside.

The S&P is even deeper down, nowhere near the tulip high. And in the same hot water as the Dow. When the market can be lit up that much by a fall in the oil price we're looking at some pretty tense people.
Silver is an up/down case. Buy breakouts and weakness. Sell strength. Or buy bullion. Unfortunately most of us don't have a $B (billion) to put in silver like Warren Buffet. The last time we were this inspired was when Enron went to 6 cents.

April 22 2005 Don't worry the big guys will support the market -- just as soon as they've finished selling you a pig in a poke

And right after they finish making every body dizzy with their bungee jumping. What spooked the markets this week? Alan Greenspan admitting he made a bad mistake about taxes? Hey, deficits don't matter. Ron proved that. Sky high oil? No problem. Every body knows gasoline is price inelastic. John Bolton over his ears in (much deserved) hot water? Nuclear suitcase bombs in the Senate? Imminent full moon? Wife's birthday? Realization that China has us by the throat economically with so many of our bonds in their hot little communist(?) hands? No Virginia, there is a Santa Claus and it's the jihadist Congress giving away $8B in tax breaks to them Texas oil typhoons. But it is none of the above. It is market investors and traders looking over the abyss of 10000 and experiencing extreme vertigo.
Hugest one day up in some time. What it mean? It mean big short covering and naive buying. It mean life and death struggle at edge of abyss.

It mean heaven on earth for Jon Stewart and humble number 1 market satirist. We haven't had this much fun since Grandma fell in the well and the cat got his tail caught in the wringer.

Look at these ranges. The day traders must be having more fun than hogs in a wallow. We're having that much fun just watching them.
A gap off the bridge and then the gap covered by the Big Day. Folks this is all naked mud wrestling, Entertaining, but obscuring the real theme which is illustrated below.
Which is big damn top and bull trap and prices right back into the 9 month bear market aborted by the November rally. With 100% certainty (well, 50% anyway) this market will go nowhere but sideways or down for years.

And we can prove it. Anytime the NYSE offers you a piece of the action it's dead certain proof of a top.

LINK TO PREVIOUS LETTERS THIS YEAR