Month: August 2005

Follow Through Day – Almost / Maybe


This last day of August flashed some eye-catching excitement as the major indexes made relatively big percentage moves on relatively big volume.  Many stocks made multi-percentage-point moves on volume as well.  If this action had come any day from tomorrow through Friday of next week it would have been called by most a follow-through day and would have confirmed the rally that began on Monday.  However,


Still Alive — But


This is a 2-day chart, with each candle representing 15 minutes of trading.  You can see that Tuesday gapped down, tried to rally in the 10:30 AM timeframe, failed and set a new low 30 minutes later, then got it up again for a rally attempt in the early afternoon, failed after 30 minutes, then managed to rally into the close to close near the highs of the day.  What’s it mean?


First — Maybe-Credible — Rally Attempt


This morning, in textbook fashion, while the newscasters where doing their “Cat 5 Katrina” dance and singing the “doomsday scenario” song, with oil spiking over $70 and the Superdome roof peeling back, the market and many stocks stood their ground and turned into the wind to begin marching upward from the first 15 minutes of trading.  In the face of such action, many a trader, myself included, saw fit to cover some shorts and place bids on the long side (I covered my KBH, ANF, and QQQQ shorts in the morning then bought back the QQQQ puts at the close for 43% less than I sold them for in the morning).  By the end of the day the newscasters had changed their tune and…


OptionsXpress Holdings Inc.

Oxps_82605 This chart shows the entire trading history of OptionsXpress (OXPS), the top-rated online broker by Barron’s, Smart Money, and Forbes.  Option trading is one of the fastest growing areas of online trading and OptionsXpress has some of the best tools, order entry, execution, and prices available.  Besides options trading, OptionsXpress offers all the usual trading that people are used to, such as stocks, bonds, mutual funds, ETFs, etc.  I opened an account with them for a test drive and have been quite pleased so far.  Okay, back to the chart, notice the past three weeks action of extremely tight closes (within $0.10 for three weeks straight) and low volume?  That is a sign of support.  In this situation it’s actually a sign of outperformance since it comes at a time when many/most other stocks and indexes have given ground.  Check it out.  Cheers!

Alan’s Bubble — The Rinse Cycle

Greenspan The following is “Greenspan Speak” for “Oh shit, I’ve created the mother of all asset bubbles and when the rinse cycle comes it ain’t gonna be pretty… and I’m gonna be remembered as the man who made it all possible… They might even call it ‘Alan’s Bubble!’”

In Alan’s own words:


“History has not dealt kindly with the aftermath of protracted periods of low risk premiums.”


“What they perceive as newly abundant liquidity can readily disappear,” Greenspan said.


“Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher prices.”


“If we can maintain an adequate degree of flexibility, some of America’s economic imbalances, most notably the large current-account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.”

That last bit means this:

Asset prices ==> down

U.S. interest rates ==> up

U.S. dollar ==> down.


Pitiful Recovery Attempt


Yesterday pretty much all the major indexes and many stocks posted nasty reversals from intraday gains to close lower on significant volume, especially considering it is the end of August and everybody’s on vacation (so you’d expect lighter volume).  Not only that, but our menacing tall-shadowed red candle crashed right on through the 50-day moving average on this chart and those of many other stocks and indexes.  What’s it all add up to?  Notable distribution.


Maybe I Really Am a Chicken Little?

From Today’s LA Times:

August 23, 2005

Bubble? What Bubble?


SO, you’ve been thinking about buying that first home, but you keep reading reports that this "housing bubble" may finally be nearing its peak. Things are cooling off; better sit things out for a while, right? Well, you’ve never been more wrong in your life.

As an expert in the field – I’ve spent my entire life living in or behind homes – I can assure you that aside from any moment in the past decade, there has never been a better time to enter the real estate market. Here are two important reasons.


Condos Top Becomes Obvious

The report speaks for itself.  From the National Association of Realtors and

Condo sales dropped 5% in July to a seasonally adjusted annual rate of 915,000 from a record 963,000 pace in June. Despite the decline, it was the third-highest sales rate ever. Condo sales had set records for four months in a row before July’s decline.  While condo sales remained very strong, inventories rose and price increases slowed in July.

Inventories of unsold condos rose by 24% in July to 406,000 from 328,000 in June (they rose 67% vs. July of 2003). It’s the largest inventory of condos on the market ever. The number of condos on the market represents a 5.3-month supply at the July sales pace, the most since February 2003. An inventory-to-sales ratio of about six months would start to show up in smaller price increases.

The median price of a condo sold in July was $219,300, up 11.3% in the past year. By comparison, the median price of a single-family home sold in July was $217,900, up 14.6% year-over-year.  It’s the first time since October 2001 that prices of single-family homes have risen faster than condo prices.

Point / Counterpoint

The following are reprints from: (1) a letter to the editor / commentary from the July 28th edition of the Wall Street Journal, and (2) an excellent rebuttal I found while doing some research to write my own rebuttal, especially to the point that homes have no intrinsic, measurable value, which is so asinine that even a small child could understand that home values can and are measured against: (1) rents, and (2) incomes.  Anyway, click below to read the original WSJ commentary and the excellent from  Cheers!


Mixed Signals — Or Just Noise??


Today’s chart gives a mixed message.  On the one hand the market and the Cubes began a rally attempt as indicated by the white candle, on the other hand volume was weak.  Those are the obvious pluses and minuses of today’s action.  Hidden in plain sight, however, we see an interesting 2-day candlestick formation that is called a Harami (Japanese for “pregnant woman”).  The pattern is composed of two candles, the first of which is the same color as the current trend (in this case, red for the 3-week minor downtrend).  The second candle can be either color, but is usually the opposite of whatever trend is in existence, so in this case today’s white candle is what you would expect.  Back to the Harami’s first candle, its body is long and the second’s is smaller and is contained within the first candle’s body, hence the name of the formation.  The appearance of a Harami means that a downtrend may be ending (i.e. changing to sideways or up).  So there you have it, a mixed message from the market.  Something for everyone!  I personally put more weight on the cons mentioned above, but figured I might as well point out the Harami.  Cheers!

Retailers May Be Topping Too

Aeos_81605 American Eagle Outfitters (AEOS) has been one of the hottest retailers over the past couple of years, however what we see here, and on the charts of many other of the "hot" retailers, such as Abercrombie & Fitch (ANF) and Nordstrom (JWN), is a similar pattern as we discussed yesterday (see KBH Update #4): Potential topping formations are clearly visible, stocks have broken below their 50-day moving averages on volume, then made weak, low-volume rally attempts that have failed, and now these stocks appear to have started their next legs down, offering favorable shorting opportunities.  Note: Today’s AEOS, ANF, and JWN charts show 4% – 9% gaps down on earnings reports.  Cheers!

KBH Follow Up #4


Today’s action might not look like much on first glance, but subtle clues suggest that the KB Homes — and home builders in general — are ready for their next leg down from the top.  Notice how KBH opened higher and rallied for a spell, then turned tail and sold off for the rest of the day on increased volume.  The total decline was $1.32, which is why today’s candle is larger than those on previous days of the fairly pitiful, low-volume rally attempt off the low of the first leg down, which bottomed six days ago.  This whole chart and many others like it in various potentially topping leaders is worth paying attention to and potentially shorting, at least for quick trades.  Cheers!

Distribution and Break Below Support

Qqqq_81605Just a quick note to mark today’s distribution day and break below the range that developed over the past week or so.  This is likely to result in a leg down.  Good place to enter selective shorts.  Cheers!

Brokedown Palace

I wasn’t going to do a posting to mark the 10 years since Jerry Garcia died, but after receiving an email from a friend (FD) entitled “10 Years!” and seeing a few images, including this one and the two others on the next page, I just started writing and this is what came out:

I know, I can’t believe it…. I was on my way back from a week trip in the Adirondacks in NY. Here:

and I kept hearing the Grateful Dead and JGB on the radio, but whenever I heard them going to a commercial break or start talking I changed the channel…. then after maybe a half hour or something, after I figured out that all the stations I was flipping around to were playing the Dead and Jerry, I decided I better see what was going on…. and I found out…. and I drove for 8 hours by myself doing a lot of crying. I made it home to DC at sunset and went straight to the Lincoln Memorial, knowing there’d be others there for the same reason… I have pics from that too:

A couple of strange coincidences:

The night before, or maybe the night of, Jerry’s death we were in a field in the mountains in the Adirondacks. This field:

listening to music, hanging out, etc. when we saw the entire sky get lit up by the biggest, brightest, most amazing shooting star we ever saw… It seemed to go from horizon to horizon, leaving a trail so thick, bright, and long-lasting that its reflection lit up each others astonished faces for many a hearbeat. To this day I have never seen anything like that.

The other coincidence was that, even though I went to the Adirondacks every year with my parents when I was a kid, I had not been there in 11 years, but now I was back… And it was that summer 11 years prior — the summer of 1984, when I was barely 15 — that I saw my first Dead show and embarked on an era of my life that was amazing in all kinds of ways… and then to come back to the Adirondacks, after all that time, changed by the experiences of 11 years, yet still with the same core…. it was like coming home in a way to go back there, because I love it so much… and it was like leaving home — and leaving the era — hearing and thinking about the news and all things that happened, all the friends, concerts, and experiences, over those 11 years… Those were magical years. The Grateful Dead and Jerry Garcia enabled a connection to be formed, on an individual and group level, that I have never seen before and will be lucky to ever see again. The experience, bond and the values last a lifetime… And for that I am thankful.

Fare you well, fare you well, I love you more than words can tell, Listen to the river sing sweet songs, to rock my soul.

Distribution Day

Qqqq_81005Quick note: The first 100 million share volume day in a month came on: (1) a gap up open, (2) then a failure to follow through, (3) then distribution for rest of the day, (4) with a recovery attempt in the final hour.  Similar distribution was seen on various indexes, including the DJIA, S&P 500, and Nasdaq.

KBH Follow Up #3

Kbh_81005Only have time for a brief update, but since we’ve been shorting in and out of this one since it’s big reversal candle on massive volume in the middle of June and since yesterday’s trading was notable, I figured an update was due.  First the background, KBH made a marginal new 52-week highs in June on light volume, then it failed, then it crashed through its 50-day moving average on a volume spike.  Granted it’s only been a few days, but since its breach KBH has failed to recover.  It started to try to two days ago (the small white candle), but today’s action looks like a possible failure: KBH gapped open $1.50 and proceeded to sell off for the rest of the day, giving back all its gains to close with a $0.25 loss.  The only "bright" spots were that volume didn’t spike, KBH didn’t violate its low of three days ago, and it recovered a little bit in the last hour of trading (have to look on an intraday chart to see this).  I took the gap up open as a chance to open a new short position, which I’ll look to close within a week.  Looks like a pretty good risk reward right here, with a stop above today’s high of $74.75.  Cheers!