Month: October 2005



Only have a minute since this is my third posting of the day, but I did want to point out Google’s (GOOG) action since last week’s earnings blowout and announcement that they will be taking over the world.  Notice the upward slope of the price and the downward slope of the volume?  That’s called “wedging higher,” and it’s not a good sign.  Also note the stochastic crossover in the lower part of the chart.  I took a flyer here to test out my new OptionsXpress account and try a $340 / $320 Dec GOOG put spread.  Stay tuned to see how it turns out.  I can tell you already that I broke a rule by entering the trade before a clear technical signal was given.  That’s what sometimes happens when you set a limit order away from the market and then go into a meeting…  The instruments actually come to your price.  That’s a kink I’m still working out, but at least I recognize it, right?  Ok, gotta hop.  Cheers!

Cheney / Rove Relief Rally


We’ll call today’s rally the Dick Cheney / Karl Rove relief rally.  Everybody has been holding their breath, some fearfully, some excitedly, waiting for Patrick Fitzgerald to announce his first indictment.  Yes, everyone knew it was coming today, when the grand jury was set to expire, and yes every expected Lewis "Scooter" Libby to go down, which he did, but still a Cheney / Rove Relief rally was in order!  How exciting, right!?  Not so fast.  Notice the anemic volume?  That’s a serious warning, so better curb your enthusiasm.


Record Inventory of New Homes

This is another example of fundamentals being a lagging indicator.  We have been shorting and covering multiple legs of the down trend in housing stocks for a few months now, as company after company beat earnings estimates yet saw its stock price fall.  Wha happen?  Same things that usually happens to beginning investors or anyone trading on fundamentals alone.  They usually get burned at "sell" time, because they don’t get their "fundamental" signal until stocks are well off their highs.  Why?  Because stock prices are forward looking and fundamentals are rearward looking.  Sounds simple, yet many an "investor" does not understand this most basic of points.  Sell primarily on the technicals. Cheers!


Words You Hear at Tops

"If I don’t buy now, I’ll never be able to…"  And, "We’re just in it to make some cash."  Or, "…engaged in some fancy financial footwork to win a contract…"  This is what people are saying about real estate today, a few months after the top has been put in place.  See below for the entire front-page Washington Post article these quotes came from.


One Day Wonder?


As mentioned in yesterday’s post, I am in the “bear market rally” camp. Today’s high volume reversal and close on the low adds to the probability that the rally attempt will fail.  Note the resistance at the 20-day and 200-day moving averages.  Also as mentioned yesterday, at least some of this volatility is due to options expiration.  Tonight’s Google (GOOG) earnings blowout and after-hours new highs will allow market forces to reveal themselves tomorrow.  Google either jump starts the market or it doesn’t.  If the market fails get much mileage off the news or suffers an intra-day reversal then look for new lows.  Cheers!

Ebay / Skype / PayPal

Below is a copy of my recent email to eBay (reply to be posted in later).  I think the Skype acquisition is going to open up some huge opportunities for eBay and is going to totally disrupt conventional business models in marketing, advertising, direct response, and paid voice and video services…  and that’s just for starters.  Granted, I am biased since I am an eBay, PayPal, and Skype user and shareholder, but I took today’s reaction to pick up a few more shares of eBay (just a few because of general asset market concerns and non-ideal EBAY technicals).  Ok, now on to the email to eBay, which only mentions the eBay-related possibilities, which may be very small in comparison to all the other opportunities.  Cheers!


Engulfing Pattern / Follow-Through Day

Qqqq_101905_2 Today’s action meets the generally accepted criteria for a follow-through day, with indexes rising 1%-2%+ on above average and increased volume on any day from the 4th day to the 7th day of a rally attempt.  Today was the 5th day.  The engulfing pattern and close on the high of the day both add to the credibility, although at least some of today’s action can be attributed to short covering and this week’s options expiration.


Two-Factor Authentication Tips in ’06

Most people don’t even know what two-factor authentication is, let alone use it…  but they will…  at least those that bank online or use eBay or PayPal (email soon too).  See the article below for the online banking details and see the following paragraph for the eBay/PayPal details.  And see some of my prior posts on RSA Security (RSAS), one of my fundamental picks in this space (I say “fundamental” because the technicals have been flat to down for many months now).

VeriSign (VRSN) is also high on my “fundamental” list based on its deal with eBay (EBAY), whereby eBay bought VeriSign’s payment gateway operation for $370 million.  As part of the deal, eBay will buy up to one million of VeriSign’s authentication tokens and distribute them to PayPal customers in 2006.  The tokens display a six-digit code that computer users type, along with passwords, to gain access to networks.  The code changes every minute, thereby deterring unauthorized access.

It should also be noted that AOL (a division of Time Warner, TWX) quietly rolled out RSA tokens last year and Etrade (ET) is promoting them heavily right now.  The bottom line is that two-factor authentication is coming on big time in 2006.  Sounds like a tipping point to me!  Cheers!  PS: Also watch for the wild stuff eBay is going to do with Skype, which it acquired a couple of weeks ago to the dismay of the herd of conventional-thinking reporters and analysts.


Weak Bounce / Watch for Rally Failure

Qqqq_101705 The rally that started three days ago has become incrementally weaker each day (volume-wise and daily-gain-wise).  Today the Cubes made it back to the 200-day EMA, but it seems the air may be thin up there, as volume came in at only 64 million shares.  Note, the rally has not technically failed yet, and in fact still has about a week to prove itself with an upside follow-through day.  We will know soon.  I added a small short position on the today’s action.  Cheers!

No Denial

As foreshadowed in my posts near the top and as we shorted down the first leg, the leadership has now cracked wide open for all to see.  Even the dreamers and margined longs cannot deny it now.  Former leaders will again be prime for shorting on weak bounces and failures that may develop (as long as the final capitulation remains in the offing).  My focus has been on shorting some of the apparel retailers and anything energy, housing, or mortgage.  We’re now well into the 2nd or 3rd leg down off the top.  As mentioned previously, capitulation will most likely be required.


Distribution Days Piling Up

Nasdaq_101105 Today (10/11/05 on the chart) was the Nasdaq’s fourth distribution day in the past four weeks.  Also you notice the close below the 200-day EMA and below last week’s intra-day low.  Generally not a positive development, although six red candles in a row is a pretty good run and at least a bounce could be in the offing.  After that we will see.  The public hasn’t seen a capitulation day in a few years and I think I smell one in the air.  Doesn’t mean we’ll get it soon or not, but people do need to be reminded sometimes.  Cheers!

Microsoft Opportunity?

Msft_101105 Most of you know that I’m more into "below the radar" type growth stocks, but today we’re going to take a quick look at the big boy of the Nasdaq, Microsoft (MSFT).  Today’s action shows the stock making a reversal candle (hammer) on increased and above average volume.  That was enough for me to pick up a small position.  The stock is pretty unloved right now and at a 16x forward P/E and 12.8x EV/EBITDA with a 1.3% dividend yield, its relative valuation is not bad.  Next year the new Windows Vista and Office programs will be released, but of course they will face much greater competition this time (from everyone from Apple to Sun Microsystems / Google and the project to open source developers).  Cheers!

Handbook for Bloggers and Cyber-Dissidents

Handbook_for_bloggersReporters Without Borders has produced the Handbook for Bloggers and Cyber-Dissidents to help bloggers with handy tips and technical advice on how to remain anonymous and to avoid censorship by choosing the most suitable method for each situation.  It also explains how to set up and make the most of a blog, to publicize it (getting it picked up efficiently by search-engines) and to establish its credibility through observing basic ethical and journalistic principles.  Check it out!

What’s a Dead-Cat Bounce Look Like?


See for yourself.  As always, we are not predicting the future, only pointing out current conditions….  but this is not a healthy looking rally attempt…  could short on next reversal signal, especially if it comes with a test of the 50-day EMA.  A failed test of the 50-day could lead to a test of the 200-day, which would be the next place to take profits, around $45 on the XLE (see chart). Same principle for most any other chart of a stock from one of the former leadership groups, such as housing, mortgage, certain retailers, or energy.  Cheers!