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Food for Thought
I agree that this wave could be over but I hesitate to say that it's definitely over. I actually think that the technical picture is fairly ambiguous right now. While some oscillators are bearish other technical signals are bullish. The strongest bull case is the stubborn support of the 50DMA. The last few days are the first instance in a year that the 50 day has held multiple and consecutive tests on the daily chart. There's also a catalyst for a bull move in FASB announcement on mark-to-market accounting rules tomorrow. It's dicey to take on a whole lot of weight on the bearish side until 780 is breeched. SPX can hit 870 from here pretty easily.
Yes its a massive conspiracy ginned up to make rich people richer by raising their taxes...that theory needs a little work. If you want to run another one by me I'll be in my bunker underneath the grassy knoll wearing a tin foil hat desperately trying to prove that the lunar landing was a hoax.
Dude, the Obama administration is barely over two months old. I know we as traders strive to make as accurate a decision as possible with as little proof as we can but that training fails away from the trading arena. You don't strike me as a member of the rabid right. Conservative is one thing, ridiculous is another.
whatever, you don't need a lecture from me.
Hyperventilating about hyperinflation
There's no debate that the long term implications of the Fed's actions this week (i.e. making it rain on the economy) are very inflationary. However, that's not a very sophisticated observation. I vaguely remember learning about that in AP History just over a decade ago...it's high school insight to say that loose and prolonged monetary policy will lead to runaway inflation. That's a luxury that observers are allowed to enjoy; they get to criticize the solutions without the obligation to address the problems.
I, for one, would much prefer the late 70's to the ENTIRE 30's. Bitching about hyperinflation is akin to a cancer patient regretting the hair loss and nausea that result from chemotherapy. No rational doctor would recommend chemo unless the risks were outweighed by the potential rewards.
We know how to address inflation; you cut government spending, cut taxes, and tighten money supply: Reaganomics. However, we don't know how to prevent a depression (anti-Hoovernomics?). Under these specific circumstances its better to risk over-inflation that to risk over-deflation and there's not an economist worth his or her salt that would disagree with that statement. The real debate is whether or not the Fed (Bernanke) will be able to make the necessary moves at the necessary times and we wont know if they can't until they haven't. Relaxing, I know...
There's no question that the road ahead is treacherous; but, I would prefer that we try to steer around the iceburgs over trying to plow through them...The chips are on the table fellas; time to deal.
I don't know S2...
HUGE positive divergences (RSI; MACD vs Price) on the weekly SPX chart.
The 5-period RSI on an index is a new concept for me so I won't speak to it's effectiveness but you know all oscillators can stay oversold/overbought for long periods of time. Just look at the period between Feb 17 and Mar 9; the RSI(5) was oversold basically the entire time yet the $RUT lost over 20% during that timeframe. It isn't implausible to think that the same index could gain 20% while the oscillator is in an overbought condition.
That said I agree that the market should take a moment to consolidate right here; I'm just not sure how long or deep the consolidation will be. I think the SPX can make it to the 815-830 area before staging that consolidation and we have no idea if this wave ((4),5,A) will is over...theoretically it should be a 3 wave move that peaks in this general area.
Finally, this move by the Fed is a major shift in fundamentals, the wave count may need to be revised...its hard to imagine anything short of a retraction that can counteract a catalyst like this.
What I was getting at was that in order for Wave B to retrace 38% of the move down in wave A, the index would have to trade above the 200DMA. I say that because of the fact that since the 200DMA uses data going back about 10 months its slope will continue to be negative for at least 3-4 more months. Once the drop at the beginning of October rolls off, the slope of the 200DMA will turn less negative unless we make new lows...
Each day that goes by a high number from 10 month ago (June) gets replaced by a number about 700 points lower which means the MA drops, just simple math. As such, the 200DMA will fall below 1000 well before the index retraces to that level. Which means that in order for wave B to retrace to or above the 38% level of wave A, the market would have to trade above the 200DMA for a few weeks...that is very unlikely to happen unless the markets think the economy is improving significantly.
That can only happen if the government intervention that people having been griping about actually works...in which case Obama will become virtually untouchable.
The cheap money out of the Fed is obviously helping the banks since they can raise their own capital by virtue of earning profits through old school banking (positive yield spreads). A revision to mark-to-market that would allow them to show assets without necessarily having to hold capital reserves against them would open up even more capital to work with. Those two things alone will loosen the choke hold the financial industry has on what little capital they have right now allowing them to make more loans and raise even more capital.
If TALF then does what its supposed to and helps the loan securitization market get flowing then consumers with less than perfect but still good/very good credit will be able to get access to credit they are currently cut off from thus enabling them to work through the ridiculous levels of inventory in the economy. Once that happens industry can get back to work and the death spiral will become a virtuous circle; recession will be over.
Not to mention Treasury's plan to deal with toxic assets is still behind the curtain...another potential driver for a true bull market.
At that point we would only have a Housing problem but hey, who wouldn't take that right now?
There are definitely HUGE catalysts that could make S2's projection to 1200 possible but those are a lot of IF's that need to go our way. In that case I would have to conclude that this A wave was actually the C wave for a corrective that started in 2001. This would be the Doug Kass scenario.
Just my take. That's a lot of imagination.
Cold Shower
Ok I see it....Maybe
Not a bad call, S2. Maybe its a little too early but a move like this doesn't seem to be a fluke. Uptick restore plus possible mark to market revision plus better than expected operations at the banks looks to be the fuel for a solid bear market rally. Not to mention that at some point Geithner will flesh out Treasury’s plan to deal with toxic assets. Sure, he hasn’t been all that smooth but at some point he has to show why people liked him so much in the first place. Time will tell especially with this market.
Just a quick question, which wave are you using to draw your expectation for the rally that looks to have started today? I’m a little confused by your chart on the main page because you only show three waves yet refer to 3 and 5 then wrap it all up in an A wave retracement projecting to 500-600 on the Russell 2000. If A truly is an impulse, composed of 5 legs by definition, then wouldn’t the retracement have to include the entire span from 1 to 5? The only reason I ask is because, by my estimation, the A wave from the peak in 2007 isn't resolved yet, I think we have 1 wave to go.
I took a shot at a wave count I think makes sense. Following some basic eWave rules like wave 3 has to be the longest, etc. There are some unpretty implications to this chart like wave 5 of impulse A has yet to be seen and the bear market is only just about done with beginning. Then again, you could say that we’ve been in a bear market since the 2001 peak in which case we are in wave C of that 3 wave correction (trough in 2003 = A, peak in 2007 = B, trough in 2009? = C) which would mean that a new long term bull market may be about to start…have you heard anything about this type of interpretation? This type of situation is exactly what Kondratiev (the K in K-wave) described...
At any rate I think this move stalls at the 200DMA which I expect to meet us in the 950-1000 range in the May-June time frame. Need to conquer the 50DMA then pass a retest first…
The housing bubble isn't as simple as sub-prime lending. Yes, if sub-prime lending didn't exist we wouldn't have this problem. But the real problem started when the net capital rule was suspended for the TARP who's-who list (Bear, Lehman, Merrill). Regulation defines the problem; the market either solves it or fails to solve it. In this case it failed...historically. Thank you Bush-Cheney for creating an insolvable problem...
Tell me Philth, did you omit reference to the net capital rule intentionally or are you just ignorant?
The free market isn’t as efficient as all the brainiacs would like to think. Read on to learn more.
The effectiveness of cutting taxes to spur the economy is inarguable; it flat out works. There’s no doubt, in my lay opinion, that the fastest way to reestablish growth is through supply side economics; incentivize people to provide goods and services that are in demand. The only problem with that it doesn’t have any effect on what is in demand and that’s where things get uncomfortable in the good ole US of A.
The Achilles heel of the mythical free market is that while it is efficient at finding a solution, it is slow at defining/identifying the problem and it has no restraint. I call it mythical because the only true free market that exists is the black market and even the most hardcore yet still sane capitalist would agree that markets do need to be fettered to a certain extent. Anyway back to the heel, the free market only acts in two ways: either someone stumbles across a paradigm shift (Karl Benz invents the modern automobile; Henry Ford makes it affordable) or there is a monumental crisis (can’t think of an example perhaps because the free market has never solved a crisis).
I’ll look past the financial crisis in this discussion (caused by the free markets lack of restraint) and talk about energy in general and the automobile specifically. Energy has been a problem longer than I’ve been alive; first as a political problem (1973 oil embargo), then also an economic problem (1979 energy crisis), and now finally acknowledged as an environmental problem. The first two legs of the energy issue are less controversial but even if you don’t think climate change is anthropogenic, you must admit that its better to not dump pollution into the atmosphere. More than 1/3 of a century has passed since the energy problem was first posed and what has Pegasus given us on it own? Nothing.
In contrast we can see tangible effect on how regulatory requirements can define specific problems for the free market to solve as well as how the free market behaves when there is no regulatory demand for improvement. CAFÉ standards were first enacted in 1975 and the requirement grew from 18 mpg starting in 1978 to 27.5 mpg in 1985 and has basically stayed flat since then. The free market responded to CAFÉ by improving the fuel efficiency of automobiles by 46% in a 7 year period (18.8 - 28.8 mpg from 1978 -1985). When there was no economic incentive or regulatory requirement the market did nothing as one would expect (1985 - 2001). When there was only economic incentive the market drove a 5% improvement in performance versus a 66% increase in the price of gasoline (28.8 - 30.3 mpg from 2001 - 2006).
http://en.wikipedia.org/wiki/Corporate_Average_Fuel_Economy
The point of all that is that the free market lacks the vision necessary to solve the problems that the United States faces today. And that’s only on energy policy.
A Couple Things
Max Pain
SPY max pain for FEB is 85; any thoughts on the market taking a quick stab at that level by op. exp? I've never watched max pain on an index proxy so I don't really have a good feel either way. Things do feel temporarily oversold to me. I think we make a run at the November lows on this swing but that expectation doesn't preclude an upside zag. Just something to watch for; we'll see.
Other than that I think the market will drift until Treasury comes out with the specifics on the plan to work out the toxic assets. There's nothin' doin' until we start to get traction there. Geithner was talking about a few weeks of canvassing before they lay out the full plan...probably after this housing plan gets installed. I heard somewhere that the housing plan wouldn't really get rolling for a couple of weeks but can't remember where and can’t find a link anywhere. At any rate if that's true then the timeframes line up. Not to mention all the cycle stuff S2 has been mentioning.
The Politics of Recovery
Love it or hate it, there's a huge political incentive for Obama to roll out home-owner (or should I say home debtor) relief before the administration rolls out Wall Street relief. Bottom line is that the people getting laid off elected Barak Obama, not the banks. That’s not to say that he doesn’t care about the banks but he would loose all kinds of credibility and support, the kind that got him elected, if he were to come off as putting the stock market ahead of the kitchen table.
Obviously the stimulus package wont fix the economy. No amount or type of stimulus could fix the real problem with the economy, which is credit and housing. The only thing it could do is reduce the number of jobs that are lost and tide those that do lose their jobs over until they can find another one. This package will do that.
So the pass the Novocain Package & roll out this homeowner thing to soothe main street, then have treasury roll out the plan to unwind the toxic assets to soothe Wall Street. If it all works out (big if) then he’ll have thrown bones everybody and still get to say that he held Wall Street accountable by making them wait and berating them publicly like he's been doing. When the next election comes no one will care about what he's saying if the economy recovers. Even if it doesn't work flawlessly or completely he'll be able to claim, legitimately, things were too effed up when I got here, I need more time. Personally I think it’s the shrewd way to play it. Not bad for 100 days work (probably less).
Simple support & resistance. The entry mechanism isn't the edge even though it is a bit tricky. The real edge kicks in on the exit mechanism. Basically just ran a boat load of stats on my entries to see what kind of move I can count on then trade it blindly.
Its sounds too simple but I think that is why it works. And to be honest its not sexy at all; I actually risk more per trade than I'm looking to make. Thing is that the win-loss ratio is big enough to yield positive expectancy even though one loser wipes out a bunch of winners.
In short it goes against damn near every trading rule I've ever read but since I studied so much data to come up with the system I can trust I without hesitation. Every trading buddy I've talked to about it says it wont work yet...voila three straight months of profit almost exactly on glide path.
Anyway, its a method that requires faith and patience; a very obnoxious combination.
I've been day trading ES since November with a solid method that's dependable. Still a long way from being a full timer but after three full months I think I'll get there in the next few years.
Always on the look out for a good system though; would love to hear more about what you've got there.
S2, I have a slightly different take on interpreting the Summation Indices right now. Market action during this last run up in the Summation Indices has been flat which, as you know, is abnormal. Usually when the indices turn up, so does the market. I think this is should be interpreted as institutional accumulation. There is simply too much value available for there to be any significant downside in the market. I still think that any broad selling that happens will find eager buyers on dividend yield alone.
Granted, I think there is some significant overhead resistance that should keep things throttled through the summer but I fully expect that we've seen the lows of this thing. Reconciling the action of the summation indices, we could see negative divergence with the NYSI weakening as the SPX grinds up. That's totally a guess but definitely plausible as we saw the same thing going into the top in Q1 2007.
IF, we can conquer (upward excursion & successful retest) the 50 DMA then I think we run to the SPX 1000 - 1050 level with the 200 DMA being a stubborn lid.
This week's housing numbers were a really good sign and Case-Schiller doesn't even include much of the December action that showed up on Monday. Once all that Fed money starts to gain traction and the Stimulus package gets deployed I'd be shocked to see new lows. I mean, even during the depression things didn't go down continuously...
Follow Up eMini Question
Simple one: is it true that Day Trading account balance requirements do not apply to futures? I.E. You can trade in and out as many times per day as you want regardless of your account balance. I heard that from a customer service guy at the futures trading desk for my broker (MB Trading). Can't find anything on the SEC website...big surprise there. As always, any help is appreciated.
Not So Fast, Amigo
That's very reasonable discussion and commentary S2. There’s no denying that last week’s action calls a bullish outlook into question but I think it’s too early to stick a fork in an upside run. Here’s some of my reasoning:
Summation Indices
Since I first heard about these I’ve found them to be very reliable weather vanes. Not to say they are perfect but they’re very nature captures the action in the entire market unlike an index, which only captures what happened with a selection of stocks. These indicators don’t turn idly and it behooves us to trade in there direction. The fact that they are still headed north indicates that demand has dominated recent trading on the exchanges overall.
Volatility
The VIX and VXN are still very, very high. I’m sure everyone here knows that high readings indicate high levels of market fear and uncertainty. Obviously this is true with what’s going on in the financial industry. However, VIX/VXN actually peaked a couple of weeks ago and last week’s action was net positive from bullish perspective. I imagine we need to get back down to the 35-30 area before the market at large gets too relaxed.
Price Action
I’m WAY premature here but that’s not going to stop me. Switch to a chart that plots only SPX closes and you see the makings of an inverse head and shoulders pattern projecting to the 1150 area. I don't actually think we'll make it that high, probably more like 1100.
Obviously more information will clarify things one way or the other. If Hedge funds still have to liquidate by any means necessary—a plausible scenario—it will be very obvious and we’ll see a new low in all indices with a volume pick up. Even so, I would think that there is enough ‘value money’ out there willing to absorb that selling. There's clearly no guarantee of that but with folks like Buffet flowing money into the market, there's clearly value available.
Tear Down My Sandcastle
I wanted to run an email I sent to a trading buddy over the weekend by this group. I was running a Long Side Trading thesis by him. After today a lot of this seems like its written in retrospect but S2’s last post regarding trendline resistance makes me want to verify the idea. Charts have a way of misbehaving and can morph very quickly into a nightmare. Anyway, all constructive input/rebuttal is appreciated.
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As I sit and evaluate the technicals of the broad market I see a lot of things I like. I know bottom picking is a dicey game but there are some really strong indications showing up right now.
Capitulation
Though recent market action does not seem to support it (lower closes), I think we did in fact see capitulation on Oct. 10. Future retests are not out of the question but it feels like this will be stubborn support going forward.
Long Term Support
This point is very wide spread but worth considering. All indices are at or near the bottom of the last bear market ending at the end of 2002. Further, PE ratios, dividend yields and other fundamental measures are very attractive. I know these things don’t matter to swing and momentum traders but they do attract value investors which provide the action that creates momentum in the first place.
Possible Bear Trap
Since Oct. 10, all major indices have entered into a triangle pattern that has already broken out to the down side as of mid last week. I see two problems with this pattern: 1) weak volume on the breakout and 2) it’s way too obvious. I’m not saying it won’t work but…let’s just say my spider sense is tingling.
Positive Divergence
Take a look at the SP500 on a closing basis along with the 14-period RSI. You’ll see lower closes in price yet the oscillator isn’t penetrating as deeply into the oversold area. This is a picture perfect specimen of a divergence. Again, the weak volume on the new closing lows shows me a lack of conviction in the market.
Purists will balk at the omission of intraday highs and lows from the chart. But, I think there is so much noise in trading that one can take some slight liberties in interpreting the chart as long as an honest attempt to error on the side of caution is made.
Catalyst(s)
The first one I think will be the conclusion of the election one way or the other. Whoever wins, I think the market will react positively once they know what the rules are likely to be over the next four years. I think the fact that many things are unknown is dragging on the market. That’s a big news item just one week away.
The other one that is flying under the radar for the moment is the bailout. Yeah, the bill got passed but we still don’t know where the money is going. Once this cash starts finding homes, both figuratively and literally, things will begin to swirl down the drain and get things moving again.
Question for eMini Traders
I'm finally in a position where I feel comfortable--from both an understanding and financial standpoint--about adding eMini's to my trading. Something I've learned as I got into stock trading and then option trading is that back testing and study can only get you 80% (tops) of the way to being successful; the rest must be learned the harder way.
One of the things I think this group might help me with is determining which contract to trade (front, second, third, fourth). I'm trying to decide between the front contract and second one, currently Z8 or H9. What I’ve noticed is that these two contracts track the $SPX the closest but /ESZ8 and /ESH9 are still something like 5 points or so off the associated index depending on the trend.
So I have two questions.
First, if you day/swing trade eMinis which contracts do you trade?
Second, is there a good source of information (book or website) to learn more about futures pricing? For example, do futures have ‘greeks’ like options do? I’ve heard there is no time value to futures but that doesn’t make sense to me as the back months have larger discrepancies to the index than the front months do.
Thanks in advance for any help and I hope to be valuable addition to the discussions that take place here.
Yes and No. I finished under grad about 5 years ago and have been working in industry ever since. I'm finishing up my engineering master's this semester. I think I might have another degree in me, either MBA, MS in Finance, or Financial Engineering. I want to wait a year to decide what I want to do, if anything, and see if my expectation for the trading system I'm honing is warranted. So far so good but the current climate is THE worst case against it and I'm excited to see how things play out. My money mangament strategy will let me live through some historically nasty scenarios but I'd prefer not to verify that.
Anyway, I can't tell you specifically what my system does because I've worked way too hard on it to give it away. I use Yahoo!Finance for my end of day data and I don't use real time data. I will tell you that my specific entry criteria, while I beleive are unique, aren't even the most important part of why I beleive it will work. I think most successful traders would tell us that managing the trade/investment is way harder than deciding when to get in. Besides there are many viable entry mechanisms published already, MACD crossovers, RSI overbought/oversold, etc. S2 has discussed numerous approaches on this very board. What published systems dont tell you is what to do once you're in. I beleive that is why so many people hate on S2. He knows what to do when something he says doesn't pan out, they do not.
Sure, you could use the converse of the entry rules to exit and/or reverse but if you back test those approaches, and I have, you'll see that a large portion of your gains, if not all of them and then some, are eaten up by whipsaws, transaction costs, and opportunity cost. Not to mention subscriptions to data feeds, trading platforms, and taxes. This is the classic argument against using TA, and its an accurate critisism. There are countless rigorous and thourough academic studies that back it up. The problem is that the studies dont account for the human factor--we don't have to follow the rules if we think they'll lead us to ruin. Humans flinch. In reality, technical trading is like a game of chicken, who will flinch first the human or the rules (i.e. the market)? By the way, rules can't flinch. What I've tried to do is to figure out when to flinch, when to have courage, and how to protect myself when I'm wrong. Then there's money management, hedging, leverage, on and on.
If you read and understand William Oneil's book, 'How to Make Money in Stocks' you'll see he covers every aspect of what I think it takes to have a successful systematic trading method. I personally have not been satisfied with his method but the structure of the system is solid.
No I'm talking SPX. MRVL is nothing but a bad memory to me at this point. I still trade it from time to time but that's it. You probably wont beleive it but I've been using Excel and suping it up with Macros and functions I've written to handle the computations. It's pretty labor intensive and probably impossible if you dont know Visual Basic, which sucks by the way, but it's definately possible. I'm not doing anything that can't be done with MetaStock or OmniTrader.
For what it's worth, I agree. Since I bounced on MRVL I've been studying, developing and refining a trading system that has done very well for me. A while back I did an analysis of how many active trades it shows at any given time in order to work out the details of my money management strategy. Anyway, I scan about 125 stocks on a daily basis and when things are normal, there'll be less than 5 trades on at any given time. Sometimes the number will swell to 10 on the high end but that's still pretty normal. Today, I got 21 triggers hit pushing the total number of active trades to 25; that's extreme. For reference, there have only been 7 excursions abouve 15 since 2000. The last one, peaked at 40 on Aug 17, 2007.
I should mention that while most spikes come near the ends of corrections in the market, a couple occured on initial thrusts downward from the tops. Given the action of the market recently, I beleive this will be the good kind of spike.
This lines up with my short term expectation of a bounce that will struggle at the 200 DMA.
Aroon…nice. Don’t see that very often.
I agree that the very near term is oversold but I don’t see new highs being made this year with any real authority. Maybe we dilly here and dally there but there simply isn’t any evidence to believe that the market has any real upward thrust to it anymore. The argument that companies, specifically tech, make more money now than they did back in the day yet are relatively cheap is irrelevant because the valuations of tech at the turn in 2000 were, as we young bloods say, retarded. That was known even in the heat of the moment. Anyway, low prices can mean that supply is too high, demand is too low, OR both...time will tell.
Moving on to TA, there are various bearish technical conclusions shown on your rebuttal chart, the first being a wicked negative divergence on the StochRSI that shows that the market has been topping since last June. The fact that the StochRSI is oversold only means that a sell-into-“strength” opportunity is imminent. It doesn’t necessarily mean that a market participant should pile into long positions for the long haul.
Secondly, the upper limit of the ‘04-‘06 channel is now likely resistance. Layer in the downtrend since October and the divergences that occurred during the last half of the year and .again I say that the bearish technical interpretations outweigh the bullish interpretations handily.
Finally, people familiar with the Aroon Oscillator know that it can be pretty slow in terms of the lag between the actual top and the signal it provides. However the upshot to it is that it’s very definitive…when it goes, it’s gone. As such it’s most valuable use is as confirmation. If you look into how the oscillator is constructed you’ll see that last weeks’s SPX low of 1411ish is less than 3% from making the Aroon go negative. HOLY…! Given the current set up in overall market dynamics I don’t think we’ll see that happen for a little while longer but rest assured, “Dawn’s Early Light” will be snuffed out sooner rather than later.
Per usual, I don’t want to over argue my point because TA just isn’t precise enough to make a last stand on. If the fundamentals change (tax cut etc.) then bullish possibilities become more likely. Until that happens though, be careful with wishful thinking.
It's been a while since I bailed but it doesn't look like much has changed for MRVL. Kind of highlights that whole irrationality-solvency dichotemy, huh? Anyway, regarding the broader market,the bull is dead. Fundamentally, the story is well known. Technically, two of the three major indices (INDU, SPX) have already had 50/200 DMA bearish cross-overs. COMPQ will come along shortly. This hasn't happened since the 2000 top. Many leading stocks confirm the notion of a top with 50 DMAs rolling over and prices failing under resistance. I agree that last week's action got a little ahead of itself and think there'll be some upside in the coming weeks. However, I expect the market to fail at the 200 DMA or if it does break through, the OCT-DEC down trend will reject it. This is no mere correction, its the first thrust of a secular bear market.
I’ve been kind of quiet lately because I haven’t had much to add to the chatter. Frankly all of the catalysts we had discussed turned out to be pretty damned anticlimactic. There really is nothing new to say about MRVL that hasn’t already been said. Things are back to business as usual. I suppose that’s a good thing.
Whatever. In the broad market, I think this week’s action is a very valuable case study in trading and technical analysis. No disrespect to the teachings of Buffet but, to me, his saying ‘all you need to worry about is fundamentals’ is like Michael Jordan saying, “Dunking isn’t that hard to do…all you have to do is jump high enough to dunk.” My response, ”That’s exactly right but, HAVE YOU SEEN MY SKINNY ASS LEGS?” I’m sorry, but people who don’t understand the value of technical analysis, need to learn more about technical analysis before they judge its value. I guess that can be said about any topic. I don’t mean to call out anyone’s opinion but we can’t have a meaningful discussion without opposing and educated views.
Here’s an example. The famous double top we talked about a few weeks ago has played out how I thought it would almost to a tee (check out message 6053). The only thing I didn’t really expect was that so many people would bet triple top thereby short circuiting the resistance. There was no specific fundamental data available at the time that could have led you to that prognostication. If there was, I didn’t see it; and still can’t. Very basic principals of TA and trading have allowed people that acknowledge those principals to throw parades this week in honor of themselves. Sell resistance + buy support = KACHING! The last 4 days of trading are proof positive to that fact.
The posts regarding GM episode over the last several weeks have been equally educational. There are posts on GM going back to 6/15 on this board. In that span, S2 identified the opportunity, I called the top at least a week in advance within $0.25 and S2 actually called the top on the day it happened! Check it out, it really is/was remarkable! I leave it up to people who are interested to harvest the knowledge contained in that case study. Sure the future is never known, but good/great odds aren’t that impossible to find.
My bottom line is that TA may not be a hard science like physics is, but that fact doesn’t mean it’s a random coincidence either.
Oops, busted. I am Don Hays.
Psych, never heard of him. I copped that from my high school english teacher, Mr. Hays.
Double psych. I'll stop now.
Yikes, not many ways to trim that. Only things I can think of top of mind are reduced incentives (which would tie into higher average transaction prices) and reduced fleet sales (as in rental cars). Both of those things are ultimately good but show up in scarry headlines like this one. Vehicle sales numbers have a lot of husk like this to peel before you get down to business. I'm not saying that's not an ugly number, just giving some leads to follow while conducting proper DD on automotive OEMs. It's like a banana. Sometimes brown skin means rotten banana, sometimes it doesn't.
Anyway, this is the sort of headline I thought you guys were missing on this trade. This coupled with the state of the indicators increases the odds of success. Not to metion the light trading this week will be clowns like us who will knee jerk on the headline and provide smart money a buy op if, of course, things are still ok underneath the fat. If the trade doesn't run away from me I'll be looking to play the July 35 puts with an appropriate exposure in my portfolio.
Net, I’ve had mixed success with short term option plays so keep that in mind. With that said, I've gotten better. The fly in the ointment has always been over coming the bid/ask spread in the face of theta decay as well as accounting for implied volatility levels. In general, you want to short options when IV is high, and buy them when IV is low. That’s the nature of short term options; you can be right and still struggle to make profit. I think it was cbs who said that short term options are best used as position hedges and I agree with that opinion.
If you insist on playing options straight then I think you have to be fast and/or have threshold triggered order in place at all times. I know there are people here who disagree with that, and that’s their prerogative, but that’s how I roll. That means you must have predefined exit points on both the profit and loss side prior to entering the trade. For these types of trades, I personally look to have good support or resistance levels as appropriate to buoy the trade in my favor. Having a catalyst on the horizon is also a good thing to have laying around. Look at the AAPL post I put up in mid-April as an example.
As for MRVL, I’m long since about week after I nervous nellied out. Other than the associated commissions, no harm done.
Regarding GM
GM remains a dangerous short in my opinion. Jeff Macke—the bald dude who calls himself the Lone Wolf (how lame is that, btw)—agrees and mentioned GM as a buy on tonight’s show. That isn’t meant as an in-your-face, just an FYI. Here’s more.
Monthly Sales numbers are obviously important but they aren’t everything. Remember Revenue = Volume x Price. Therefore there is some theoretical elasticity between Revenue and Volume meaning if you play your cards right, you can sell less cars and not impact your top line by as much as you might think.
Also remember that Revenue isn’t the whole story either. Profit is what matters, not volume, not revenue. Profit = Revenue – Cost. There is similar elasticity here. Volume and Cost can be related; more elasticity. If you sold less because you produced less, is that such a problem?
Finally, I'll underscore a point S2 has hinted at many times. The fundies don’t matter in and of themselves. They only matter because they effect the street's perception on the company underlying the stock. Thus the apparent disconnect between earnings headlines and action on the tape. GM's EPS (ttm) is about -$4.50/share yet look at what the stock has done in that time.
Obviously S2 doesn’t need me to hold his hand through a trade, but I suspect that there are those among us who are counting on him to do their homework. That's really shitty. I don't currently have a position in GM and I'm not trying to per-/dis-suade anyone, just counter pointing...and doing it waaaayyyy better than sly's method if I say so myself.
Like I said in my last post on this topic, I think a short play can work because of how overbought virtually all oscillators are on GM. However, raise your hand if you've been burned by sticking your head in the TA sand before. S2 has given some reasonable downside objectives on this trade but ask yourself, when will you bail if last week's action wasn't just window dressing?
I’ll get down off the soap box by saying that GM’s production rates are down and its average transaction prices are up qtr/qtr. The ATP is up about $650 over 2006 and $960 over 2005, note the acceleration. Those that care will verify for themselves with their own sources. GM isn't doing as bad as everyone thinks they are.
Ok already. You've made your point, 8 posts ago. You're like the reincarnation of rambos_10. I'm all for counter points, regulars of this boad know that but damn dude, you got something new to add?
In case anyone is interested, there is a way to ignore a poster, you dont have to wait for s2 to banish them. Click on the user's message, click on their username, then click on "ignore this poster" at the top of the page. Just FYI.
I’ve been pondering the same questions—Why would Apple shy away from XScale?
The argument that they wanted to avoid any potential turbulence while the baton was passed from Intel to Marvell is fine but wouldn’t a simple handshake handle that? Would Marvell say no to Apple if all they wanted was a design and manufacturing freeze for the first run of iPhone? I doubt it.
The other plausible answer would be that Apple never intended to use XScale. That’s where cbs’s last question comes in: “who is better?” Smartphone manufactures, including Samsung, have spoken on this. Are we to believe that Apple disagrees with virtually the entire industry including the current front runner (RIM)? If the ad hoc group on this board figured it out SJ and his peeps surely did.
There’s no question that the Samsung processor would fit the bill. We have to acknowledge that, but it’s definitely not the best choice from a capability/efficiency standpoint. Samsung would have had to completely underbid Intel/Marvell to win the contract. Completely plausible. Would they do that on their best chip in order to sell a few million units? A company that size? Whatever these are all rhetorical questions but it just doesn’t add up from a market strategy perspective for me.
The only reason it matters to me is because of the notoriety it would bring to Marvell. S2, is right. The impact on the bottom line earnings wise would be nice but not game changing. The Apple seal of approval however is a totally different issue. It’d be like the commercial that S2 was going on and on about a few weeks ago only we wouldn’t have to pay for the campaign or convince people it’s the best. It’d be all John Q. Public would need in order to exclude anything without XScale from consideration for purchase. Just like Pentium. I guess that would be the reason why Samsung would give their best processor away. But if its so sweet, why dont they use it themselves? Round and round...no answers.
Oh well. I’m still holding my towel but it doesn’t look good for our contender. Hopefully there are analysts out there who are smarter than S2 gives them credit for and will see what XScale is for Marvell.
If it weren't for Laker, I'd be half way down the building right now. Figuratively of course.
So is what's the bottom line? We have to wait for either MRVL or AAPL to confirm or deny XScale?
I obviously know jack about chips but I gather that the black cover comes off to reveal the raw silicon underneath. Is that true? Would the wafer itself be stamped with a MRVL p/n or logo?
Good Catch dapro
I googled the mark on the chip (K4X1G153PC XGC3)
got a link to samsung.com
line 2366
http://www.samsung.com/Products/Semiconductor/DivisionPolicy/Ecoproduct/Eco_search/download/Rohs_com....
GM is a local story for me and I did well with them last year. GM had some big news this week and it obviously leaked last week. The story is that Delphi and the UAW reached an agreement in regards to their bankruptcy/restructuring. GM was on the hook for some of the fallout (up to $15B I think) and a strike at Delphi would have crippled GM's supply chain, big time. Delphi is GM’s largest supplier (I’m pretty sure). The agreement lifted some major concerns for the company.
Another thing that is helping the stock move is that the Delphi situation represents about a $2B/yr cost saving opportunity for GM. Yeah, with a B and per year. Due to the history between GM and Delphi—GM spun Delphi off in the late 90’s—GM pays a premium (the 2 billion per year) for the parts Delphi provides. The reason is complicated and even the little bit I understand is difficult to explain, besides it’s so stupid its not worth wasting brain power on. So the bolts they get from Delphi are more expensive than the ones they get from supplier X for no reason other than its Delphi. Like I said…dumb. Anyway, because of the bankruptcy and the Delphi/UAW resolution, GM is now free to renegotiate those agreements with much better terms. There is other positive fundamental movement in GM (demographics of the retiree base, people don’t live forever) but the time horizon for them is a little too far out to try and game.
Technically, in the very near term, its as S2 says. GM has run very far, very fast (about 25% in 4 weeks) and the daily indicators are ultra overbought. The move is a breakout from a rectangle and I recently read an article (sorry, it was hardcopy) in regards to rectangle breakouts that suggested a breakout target price for GM in the low 38’s. We’re pretty much there so I would think that short term technical trading might start to take over here.
Taking a step back and looking at a longer-term chart shows that GM is on the verge of busting out of a massive inverse head and shoulders pattern that goes back to early 2005. You could argue that the breakout of that pattern is happening right now. A rectangle shows up here as well (in the right shoulder complex) and the target per the article I mentioned is about 45; the traditional target is 42-ish. Net already pointed out the 50-200 cross.
Anyway, just food for thought. I think a quick short play could work here. But if the market takes off, I think GM would go with it.
S2, quick question about YM
What's the typical bid/ask spread on those? 1 point? 50?
A Few things
First while it’s pretty clear that the market is on a coffee break right now, I think talk of a double top is premature. That said the picture is what it is. Be careful though because it could change VERY quickly. Jumping the formation is dicey, we’ve seen it before on this very board. What looks like a double top today could turn into a rectangle (aka channel) consolidation pattern with a swing back to the top. At that same point in time, the chart might be read as a triple top. And on and on…It always depends on what happens next. That’s the nature of TA; it gives a record of the past and a veiled preview of the future at best. I’m not saying don’t short— that’s none of my business—I’m saying be nimble.
Second, I doubt we’ll go too much further until the fed speaks next week. Until then I suspect that the low will be 13300, 1490, and 2550 on the DOW, SPX, and COMPQ respectively. The fiddy is nearby also so that’s another significant source of support. The bollies are also in the mix. That's three levels of support. If a double top is confirmed by a break of those levels, then I’d be looking at the February highs for support followed closely by the 200.
Third, and last, I don’t see that happening. Barring adverse geopolitical developments, the only thing I can think of that would take the wind out of our sails is the fed jacking interest rates up. Why would they do that? GDP is on the money and Inflation is in check. A cut would also be uncalled for even though housing could use a hand. Whatever though, bubbles pop, c’est la vie. I know there are people with contrary opinions out there and I’d really like to hear them.
dude...where the hell were you 4 hours ago?
Here’s what I came up with:
I put together a list of devices I thought were comparable (if not competitive) to the iPhone. Sorry Laker, I didn’t think your suggestions were reasonable comps. I see why you put them out there but those things aren’t near the same league as iPhone.
The idea was to look at use times and processor types to see if there was any correlation between the two. After noodling on it a bit, I realized that the storage capacity of the battery is a necessary factor to consider so I went back and dug that up. I only considered talk time because the data for other functions is sparse at best as one of Laker’s recent posts showed. I also ignored stand by time because who buys a phone to have it stand by…whatever the hell that means.
I took the numbers and came up with some scores in order to help level the playing field between batteries of different capacities. First I divided the Talk Times by the battery capacity. This gives you a value similar to miles per gallon for a car and a higher score is better. But then I thought that you could get good fuel economy by driving a Pinto around too. While efficiency is great, you’re driving a Pinto…not so great.
Anyway, I decided to take that battery economy score and multiply by processor speed. I think this score gets to the heart of the matter. You need processing speed to do the sexy things people want their phones to do. The problem is that requires power, which drives down your battery economy. This score combines efficiency with performance. It’d be the same as multiplying fuel economy with horsepower in order to decide which car gets you a given level of performance as efficiently as possible. In other words, its how fast can you go a certain distance with a given amount of fuel.
Before I get to my finding I want to point out one thing. Sometimes efficiency just won’t get you there. If you want a really fast second 0-60 time, you need as many ponies as you can round up. Similarly, in order to do all of the things the iPhone does in the commercials as fluidly as it does them, you need a fast, power hungry, processor. This score (Hz per milliamp) favors high-speed processors but lets an efficient processor close the gap considerably.
It all boils down to these three concepts:
1. Long Life is good.
2. Big Batteries should be penalized.
3. Fast Processors are necessary and good.
I found that XScale is the best choice by a hair over the Samsung 400 MHz chip. Also, it looks like the most likely competitors are the RIM BlackBerry Curve with XScale PXA27x @ 312 MHz and the HTC TyTN (a.k.a. AT&T 8525) with the Samsung 400MHz chip. XScale really stands out on the second tier. Due to the competition issues that have been mentioned on this board before, I’d be surprised to find Samsung in there. It’s in MRVL’s best interest to have a Monahan in there. It looks like a PXA27x @ 520Hz would more than do the job but MRVL needs to start cashing in on that 600 super large. Even if it’s at lower margin, the exposure the PXA3xx would get from being in the iPhone would be priceless.
Note: I tried to score the iPhone with conservative assumptions...it BLOWs everything away based on 8 hrs of talk. Either the battery is enormous or the Monahans are about to take over.
Here’s my data:
Anybody know the closest competitors to iPhone that are currently availble? I thinks it'd be interesting to see if there is a correlation between battery life and AP processor. We can assume the answer (XScale) but it can't be too difficult to get some empirical evidence to support that conclusion. I imagine that we'd be able to get down to it pretty quickly. I'd do the leg work myself but I don't know which products to use as proxies.
Thanks for the info, makes sense.
Out of my wheelhouse, please help
Can anyone help me make sense of the implications of the 10 year Treasury bond yield?
Please correct me as needed.
The way I understand it high yields attract money from other investment classes because the ‘no risk’ return is better. That’s why high yields are bad for the stock market. Yields go up because the price of the bond is going down. Price goes down because there are more sellers than buyers. My question is, where are the sellers putting the proceeds of the sale? Obviously not high yield bonds because that’s where the money is coming from. Real Estate? I think no. Commodities? I don't know enough to know either way. Cash? Maybe and bad.
Another question is about earning yield. The Ken Fisher hypothesis says that the market is undervalued because the inverse P/E ratio (aka earnings yield) is/was higher than the bond yield (at the end of March). Currently, according to marketwatch.com the SP500 P/E is about 18.26 giving an earnings yield of ~5.48%. Bonds are catching up…fast. Isn’t the activity in bonds jeopardizing a sustained rise in stock prices?
My last question is, what is the Fed going to do? Do they really want people to be in cash? If people aren't investing money in companies, the already slim GDP growth is done. The only thing they can do is cut interest rates, right?
Again, this is not my bag and I have more questions than answers. I figure someone on this board knows at least some of the answers. Any insight will be appreciated.