The S&P 500’s Next Move
The market closed Thursday with a two-day candlestick pattern that is pretty close to a bullish “Tweezer Bottom.” The matching lows from Wednesday and Thursday (around $139 for SPY) indicate that there is some support there.
So, what might be next? Since holiday periods are usually positive, I’m thinking that a consolidation pattern is in order. Perhaps a nice flag, pennant, or triangle. Don’t look for a rectangle; those are not often found in bear markets.
I wouldn’t expect this consolidation to last more than a few days since there are tons of bulls looking for an exit. When you consider how much oil dropped on Thursday, and how little the market rallied, you have to think that a giant herd of bulls used the good news on oil to bail out of stocks.
Another spike in oil could cause stocks to just flop right over here in this vulnerable spot.
I don’t think it is too late to sell here. I think the odds of the bear-market rally resuming are just about zero.
I used the market’s feeble strength on Thursday to pick up some QID. Many analysts think that the small, domestic companies in the Russell 2000 will suffer more here in our domestic recession. But those stocks have been under-performing, and don’t have any where near the amount of froth in them as the tech stocks do. When the big profit taking comes, in can only come from where the profits were to start with, and one of those places is tech.
The techs also sell a huge amount of gear into the financials, and that looks like it will come to a dead stop. Banks are laying off thousands of workers, and will have big piles of un-used computers stuffed into their closets. They also won’t need any new computers to run mortgage-security valuation models any more. You can pretty much do those calculations on napkin now, right? I mean, how hard is it to draw a big zero onto a napkin with a carrot during lunch time?
Cisco also mentioned in its last earnings report that it’s overseas business was decelerating. As our recession spreads to the rest of the world, techs should take another big hit there too.
May 23rd, 2008 at 7:23 am
how hard is it to draw a big zero onto a napkin with a carrot
Matt,
you are mean
I bought QID as well for the same reasons you did, btw. You are smart!!!
May 23rd, 2008 at 3:17 pm
Re Techs… Not to mention that only the Marketing department “out BS’s” I.T. in most corporate organization. But, at least Marketing’s official job function is spewing BS. If reality ever returns to American corporate management, the I.T. “shakeout” will be more severe than expected. I don’t see that happening though… opps, I need to get back to “levelsetting my tablesteaks to better orchestrate our core-competencies, in a going forward space”.
May 23rd, 2008 at 3:24 pm
Hi Dressguard,
The Q’s held up relatively well today, so it looks like we might be early with QID. However, as great as the iPhone is, it can only hold up the Q’s for so long. I hate being short Steve Jobs (via QID), but I don’t mind being short the momentum traders still holding his stock. Apple got a nice upgrade today, but the stock couldn’t rise much beyond its opening gap. It looks like quite a lot of traders used the upgrade to exit the stock today.
Matt
May 23rd, 2008 at 3:28 pm
Hi John,
As oil soars and squeezes profit margins even harder, costs will have to be cut hard somewhere. That can’t be good for IT spending.
Matt
May 23rd, 2008 at 4:50 pm
Hi Matt,
iPhone is a thing of the past. Last year everybody was talking about the iPhone in Dubai where I have been living for some time now. This year nada. Same in Germany where I originally come from. Every T-Mobile shop was advertising the gadget. This year nada. They sell it now for €99 with contract. Most of the iPhones are unlocked anyway and don’t generate recurrent revenues. iPhone is highly overvalued as the competition can now offer similar phones.
BTW, do you know the European word for mobile phone? Handy!!!
May 23rd, 2008 at 9:54 pm
Hi Dressguard,
The iPhone, along with every thing Apple, is still very fashionable in the USA. It’s better to think of Steve Jobs as a world-class fashion designer than a tech CEO.
Every day, after school, high school kids flock to the nearest Apple store to drool over the gear. The Apple store by me is always packed no matter what time I go by. The Radio Shack down the street, which also sells iPods, is always empty.
Jobs is likely to capture a huge share of the tax-rebate money that we Americans are getting now. He timed the 3G iPhone release perfectly. Of course, just like last year, the stock is likely to see a sell-the-news reaction if it can levitate until then.
Matt