Monday’s Trading
It’s Sunday night and as I expected, the oil futures are up a bit, and the S&P 500 futures are down a bit. If oil can close even modestly higher on Monday, we will have a good test for this rally. If stocks get slapped around by oil, then that will be a piece of evidence that the rally lacks animal spirits.
I’m thinking about putting on an Apple short Monday; maybe half before the earnings report and half afterward. Apple is a great company which I’m sure will continue to do well, but that didn’t prevent its stock from plunging in January, and it will probably fall again as the recession rolls on. The chart is clearly rolling over, and the stock is hanging by a thread. The big institutions also seem to be dumping tech, so Apple looks like an attractive short play.
Watch the comments as I make updates throughout the day.
July 20th, 2008 at 11:32 pm
I discovered this site 3-4 weeks ago and have made note of the increasing bearishness as the market experienced a mini-crash from SPX 1400s-40s to 1200.
Having traded the markets since the late ’80s, I would caution you to rein in your greedy bearish sentiment, as being short here with the SEC, Treasury, Fed, and i-banks determined to squeeze the shorts is likely to be quite disappointing for bears, if not outright bloody, especially leveraged short positions.
Technically, the SPX has likely put in a short-term bottom and is setting up for a continuation of a bear market rally of ~6-10% off the 1200 low, projecting a target of the 1270s to 1310s-20s before yet another bearish seasonal setup for the next mini-crash into Oct.-Nov. to the 900s-1000s.
FWIW, AAPL is setting up a technical structure implying the $20s-$50s by late ‘09 to early to mid-’10.
Bears, beware of the short squeeze; don’t be greedy.
Bulls, be prepared for another crash after a further rally with poor breadth, distribution, and bearish technical divergences; protect yourselves.
The Fed will likely panic again this fall and cut rates to 1% and later 0%, pumping the monetary base at 12-17% per yr. for yrs. to come, with most of the credit-money cash flowing to banks to shore up their balance sheets and not to the economy in the form of money supply/deposit/loan growth.
July 21st, 2008 at 1:23 am
On oil: from Friday, I can see how you could play oil for a bounce up short-term, even if the trend has changed down mid-term. Going the other way in the past, oil wouldn’t cahnge direction for long, so you would have had to take your profit quick.
I think Apple is a coin-flip. It will likely do well, but I don’t know what expectations are.
Referring to the huge Sep put position you mentioned, keep in mind that those options have 9 weeks to profit. Most people are saying that we haven’t reached the bottom, but we won’t take a staright path there.
Also, as someone else had mentioned, you are only seeing part of the trade. They could have sold Aug puts. Judging by MSFT and GOOG, I agree that tech is showing weakness, but I think that the bear rally can continue depending on earnings, primarily AAPL (strongest QQQQ leader, no disappointments yet) and WB (laggard among the big banks). Perhaps you can go short QQQQ (ATM/OTM puts) and long SPY (ITM calls) to hedge your bets.
July 21st, 2008 at 1:43 am
Asia is rocketing up. 3% in HK, Korea and Australia. I think we should be able to define if this is a bear-market rally or not on Tuesday lunch time EST. Watch the VIX.
Today I’m losing big money on shorting Sydney and probably in Oslo later.
July 21st, 2008 at 8:43 am
i would short BAC at the open as a quick day trade.
July 21st, 2008 at 9:14 am
I have covered everything today. Out of the market. Have a feeling the bear-market rally has started again. Things are way too calm.
Will wait for VIX to fall below 20 and then enter again.
Good luck folks! If I miss the crash I will join you for the next one.
July 21st, 2008 at 9:19 am
Oil up, but stocks up too. Looks good, except that the Q’s have turned down over the past 15 minutes. Let’s see if the i-banks turn on their buy-oil-sell-stocks programs at 9:30.
July 21st, 2008 at 9:28 am
Regardless of what stocks do today, my take is that this bear rally is only half done.
July 21st, 2008 at 9:37 am
Crimson, the last one lasted 2 months. This one has lasted 2 days.
And we might be wrong. Anyway, taking no chances. Sitting out.
July 21st, 2008 at 9:42 am
USO has fallen into its opening gap, and looks weak. Stocks are doing well, but are totally dependent upon oil. So while this looks like a strong open, it is really just about oil. Make an intra-day chart with SPY and USO on it and you will see what I mean.
July 21st, 2008 at 9:47 am
I just bought some Apple puts. August $160, APVTL.
July 21st, 2008 at 9:55 am
Apple has taken out Friday’s low. Market internals are weakening.
July 21st, 2008 at 10:00 am
The SPX touched 1267-68 at the open, which is a potential target in the 1268-78 range before a possible pullback to the ~1226-42 area.
If 1226-42 holds, SPX 1310s-30s is the target range and likely major resistance for the bear market rally before the next mini-crash into the fall.
If 1225-26 is taken out, SPX 1200 becomes the next level of support with targets in the 930s-1070s to 1120s-70s.
Because we are possibly completing a 5th wave of an A wave to the target area of the 1260s suggests that the bear market rally is only half over, and the next move will be a B-wave correction followed by the final C-wave terminal move to the low to mid-1300s.
FWIW, don’t short this rally; rather, short from at or above SPX 1300.
BTW, the BKX appears to be approaching technical resistance and will pullback before a final bear market rally to the mid-70s; thereafter, expect the BKX to lose 90-95% of its value into late ‘09 to early ‘10 with widespread bank failures, the FDIC overwhelmed, and the Fed pumping the monetary base 24/7 to bail banks and monetize the trillions of dollars of US Treasury issuances to bail out everyone and everything in sight.
Good trading.
July 21st, 2008 at 10:03 am
Solid posts today!
Rich,
Great post. Keep ‘em coming.
Matt,
Too early to call a crash. Too bullish out there. We need an oversold condition, among other things. Could occur after this big clearing rally.
Crimson and Larry,
Agreed. No hurry to dive in on this move. Time to be selective.
July 21st, 2008 at 10:04 am
Stocks did OK in the first half hour on an expiration-hangover Monday, so that was strong. However, with oil flopping over this morning, stocks should have done much better. Stocks are very vulnerable to even a modest rally in oil.
July 21st, 2008 at 10:20 am
A couple of minor short-term (ST) bearish divergences now occurring for the SPX at 7:20 AM. Resistance at SPX 1265-66 implies ST 1257-58.
Stay tuned . . .
July 21st, 2008 at 10:24 am
Bought the gap up QID @ 44.80 daytrade.
July 21st, 2008 at 10:41 am
The SPY stopped at the 20 EMA (give or take 10 cents), on decreasing volume over last Wed, Th and Friday’s rally. This is where first resistance tends to show up on stock advances. This will be a good sign that the rally continues if it takes out the $127.00 level.
GOOG, AAPL and MSFT are flat as well, which is weakening the NAZ.
July 21st, 2008 at 11:06 am
Trade idea: buy puts on FXB (the british pound). UK is in worse shape than the US. see Mish’s article for more detail.
July 21st, 2008 at 11:40 am
I just bought some August $20 XLF puts (XLFTT). Couldn’t resist. The thing is just way over-bought and due for a correction at the least.
July 21st, 2008 at 11:45 am
Matt,
Any thoughts on SKF. Sold my UYG way too early last week. I almost bought SKF during the gap up today for a daytrade, but went for QID. Looks like a bad move since UYG gapped up almost 6% and lost most of it. I would have put on a trailing stop already. Oh well…
Isn’t it about time the Boyz go after the new weak retail Bulls buying Financials. I’ll bet CNBC is pushing them like a used car salesman… Easy money now, right… Ha. Maybe it is!
July 21st, 2008 at 11:48 am
Matt,
I saw your post about XLF after I posted mine about SKF. You must be sending out some ESP Bear Waves… ha..
July 21st, 2008 at 11:53 am
Hi Robo,
Somebody is sending out some bear waves. The tape has weakened badly over the past 20 minutes. The new lows on my high-low meter has been very red for quite a while now.
XLF is trying to hold its opening gap now…
Matt
July 21st, 2008 at 11:59 am
Matt,
UYG jumped up to 21.63 and is now 20.59.. It’s ok, looks like I can make some pocket money with my QID. I’m going to watch now, I don’t want to give back my gains since this is a daytrade… Any thoughts on the close?
July 21st, 2008 at 12:07 pm
Lower oil is not doing much for the overall market but is doing wonders for the refiners.
Some of them up 20% from the lows WITHOUT a big short squeeze.
July 21st, 2008 at 12:22 pm
bulls get this around 11800 you can bet they will push thru 12 so be careful here
July 21st, 2008 at 12:35 pm
Looks like we just had a little counter-trend rally as oil dipped. But Dolly’s winds are up to 50mph now, and USO looks like it wants to break above the resistance at 105.
Robo, I don’t know about the close. However, since the market is over-bought, I am betting on at least a correction.
July 21st, 2008 at 12:41 pm
Matt,
Yep, same here and holding QID for now. Thanks!
July 21st, 2008 at 12:42 pm
If anyone wants to venture a long, the RUT looks stong today, and the IWM with a stop just below $69 looks attractive. It held support there nicely on the pullback today.
July 21st, 2008 at 12:45 pm
The market looks even more rudderless than it did on Friday. IMHO, earnings are still going to count for more than technical short-term over-bought, mid-term over-sold conditions, at least until Wednesday. This will be a 500 point week, direction TBD.
I’m sitting on some spreads, more bullish than bearish, but neutral overall. I’ll check on MSFT, GOOG, XLF, and the VIX after 3 to see how things are going.
July 21st, 2008 at 12:50 pm
The XLE is making a bear-flag on its daily chart. I may short it in the next day or two if it can make it up to the resistance around $79.
July 21st, 2008 at 12:52 pm
USO is steadily chewing away at the resistance at $105. The last two trips up to that level this morning were strongly rejected, but not this third attempt so far.
July 21st, 2008 at 12:55 pm
SPX 1257 support and 1262 resistance achieved with 5m and 10m bearish divergences; next comes 1241-48 or so hereafter.
Bears should remain on alert at that point, as the correction could be over in the 1240s, setting up for as high as the 1330s later this week or sometime next week.
July 21st, 2008 at 1:24 pm
Stocks appear to be defying oil’s breakout. However, I think we may be seeing an intra-day short-squeeze rally that was sparked after the 11:30am air-pocket when bids were pulled, as Bob Pisani reported on CNBC. Let’s see if stocks can hold up, but air-pockets like that are usually a warning sign.
July 21st, 2008 at 1:25 pm
Took small position long osebx (80% oil/shipping). Rich, I will join you up there at 1,300+.
Wake me up when the waters are really calm and it’s time to take the market where it belongs. Into the ground.
July 21st, 2008 at 1:39 pm
Huge rally in refiner stocks bullish for overall market IMHO.
Shows that the smart money thinks oil is going lower.
July 21st, 2008 at 1:45 pm
i haven’t seen this in a while —- oil and stocks falling at the same time. whats going on?
July 21st, 2008 at 1:50 pm
The Big trade is gone - short Financials and long oil.
July 21st, 2008 at 2:31 pm
SPY, QQQQ, and IWM volume today is miniscule. The big players are not joining the rally, at least not today. XLF has better volume, but it is still half of its recent average.
July 21st, 2008 at 2:37 pm
IWM is falling on heavy volume. Not good.
Google is making new lows.
July 21st, 2008 at 2:42 pm
SPY is testing the noon “air pocket” lows.
July 21st, 2008 at 2:58 pm
Apple’s intra-day chart now looks like an “ascending triangle” so maybe it will finish strong. The rest of the market looks weak though, and the financials are rolling over.
July 21st, 2008 at 3:21 pm
At the widespread recognition of a resumption of an ongoing bear market and deepening recessionary conditions worldwide, virtually all sectors should converge to the downside, with commodities prices falling perhaps quite sharply as the HUGE leverage in the commodities complex is unwound to the downside as ALWAYS happens following a bubble, i.e., faster-than-exponential, terminal-velocity blow-off.
Don’t be surprised to see hedge funds imploding, further exacerbating weak bank stock prices, as bankers have loaded up their books and off-balance-sheet “assets” during the terminal phase of the commodities bubble.
July 21st, 2008 at 3:22 pm
The market is fighting back, but may be running out of steam. The explosion of IWM volume is trailing off.
July 21st, 2008 at 3:43 pm
I imagine one could also look at today as a backtest to the break of the TLR on the SPY at $125.10- $125.20 on low volume.
July 21st, 2008 at 4:00 pm
Apple saved the market in the afternoon, so a lot is riding on its earnings report. The S&P 500 held up better than I expected, though SPY was stopped at the March intra-day low around $126. It won’t be easy getting through the March low, but the market is still within striking distance.
July 21st, 2008 at 4:25 pm
American Express just turned in a disastrous earnings report, and the XLF is down big on heavy volume after hours. My XLF puts are looking good!
UPDATE: SanDisk missed too, and the Q’s are down after hours though the volume is light as the market waits for Apple to report. SanDisk makes parts for the iPhone…
UPDATE: Both Amex and SanDisk said business was tough. Surprise! It’s still a recession!
UPDATE: Apple failed to live up to lofty expectations and is down big after hours. So are the Q’s. And yup, I bought Apple puts this morning too, to go along with the QQQQ puts that I bought on Friday.
UPDATE: Texas Instruments missed too. Q’s taking another leg down.
July 21st, 2008 at 5:13 pm
Looks like the Q’s will soon be testing the July 15th low soon; maybe even tomorrow. The rest of the market is in far better shape.
July 21st, 2008 at 5:19 pm
Well, I guess we know where the market will be tomorrow. It was looking like a bull week to me (as of last Friday). Good call on the Q’s, Matt. I thought that GOOG and MSFT were hit harder than I expected last week, so I should have read the tea leaves.
PS. Merck got hammered as well. They were in-line on the top-line and bottom-line, but haven’t released a 2008 forecast…
July 21st, 2008 at 5:40 pm
I think you’re right about the July 15 QQQQ low. I don’t expect YHOO to help out, but AMZN might provide a boost on Thursday.
It also looks like with the luster off Tech, when SPY tests it’s July lows (whenever that occurs), QQQQ will be testing its March lows.
July 21st, 2008 at 5:51 pm
Matt, great call both on the Q’s and AAPL. I’ve been short AAPL for a while and not really getting a great return, even though the stock has dropped over 20 points since buying puts and shorting the stock. Today the volatility on the options just died today, along with the value of my Oct 115 puts. Tomorrow it should be way up though! I was considering selling a bit of my QID to fund some more gold purchases and your commentary made me wait and see instead of executing. Very happy about that now!
July 21st, 2008 at 6:19 pm
Reggie warned on AXP July, 11:
http://tinyurl.com/AXPJuly112008
July 21st, 2008 at 6:43 pm
SPX futures are touching the 1242-47 support zone after hours. While it is too soon to tell without one or more ST bullish divergences, the 1240s could be as low as we go before a resumption of the bear market correction from oversold at SPX 1200; one alternative is a further selloff to the 1220s-30s before resuming the corrective uptrend.
Failing to hold SPX 1225-26 would suggest another test of SPX 1200 is ahead, which will likely fail. The next major SPX support zone is at the weekly-close lows and cyclical 50% Fibonacci level from ‘02 at the 1160s-70s.
BTW, the VIX and index and equity p/c ratios indicate more complacency than fear at this particular juncture.
July 21st, 2008 at 11:31 pm
Matt, great call on the QQQQ puts and shorting AAPL. i was tempted to short apple but didnt. why are these tech companies only now being candid with investors? they had to feel the weakness last quarter yet they all had very bullish language and expressed rhetoric such as strong global growth more than offsetting domestic weakness. i’m very salty about this b/c i had heavy shorts in place at the time.
July 21st, 2008 at 11:39 pm
Tony G. Emerging markets didn’t feel the slowdown before 10-15th of June. Still management out there not knowing what’s going on.
Money and credit is tightening all over the place (google India credit). But people don’t understand what happens on the other side of the credit/money bubble.
Markets are calm right now. Panick is over. Asia is up again today.
I am out of the market till the waters are really nice and calm. 1-4 weeks.
Also watch Olympics and the end of stockpiling of commodities. Working against that are stupid price controls put in place by the Chinese, which leads to energy shortages.