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March 1, 2007
Cara’s Daytrader Bull Board, Thurs., March 1, 2007, 7:28 AM
The story yesterday was money flow. A Dow 30 +52-point gain on NYSE volume of 3.774 billion shares (2019 stocks up vs 1181 down) does not compare favourably to a -416 point loss on 4.127 billion shares (2832 stocks down vs 410 up) the prior day.
Yes, on Tuesday’s bad day the NYSE down volume was 4.079 billion with only 41 million shares up, while yesterday’s so-called rally day had only 2.412 million shares up with 1.291 million down.
So what might be happening here is that the major accounts might be running scared. A couple more days will serve as a better indicator.
If the Japanese Nikkei 225 earlier today is any indicator, the signs don’t look good.
Let’s look at the Nikkei Dow. On Monday the world’s second most important stock index closed at 18,215. On Tuesday, while the China market was rattled, the Nikkei had a relatively modest loss of -95 points (-0.52 pct). So maybe my presumption earlier in the week that it was the Greenspan use of the “R” word that upset these export markets was not totally accurate and there was some other explanation.
Maybe the trip by VP Cheney to Japan and Australia was really to parlay the message that the US intended some type of action against Chinese exports or currency, which would have benefited the Japanese exporters? I think that’s a possibility.
Maybe the Americans expressed their private concern about the Japanese carry trade? I doubt that because I believe the carry trade has helped the US Treasury finance its needs.
Maybe on the other hand the Chinese capital markets got rattled by word from the Peoples Bank of China that there would be a clamp-down on speculation in trading? But the BRIC markets (Brazil, Russia and India as well as China) have all been running into stiff headwinds since the beginning of the year, so maybe that's not the cause.
Maybe, maybe, maybe. That’s my point.
Maybe the big investment funds have just decided to pull in their horns and the process has started with the more volatile BRIC markets?
The point really is that global markets do not operate in a vacuum. Prices are not random. They are pushed and pulled by economic and financial forces. Sometimes we discover later what those forces are. In the meantime, we just have to watch those prices.
And that is precisely why I believe that Relative Strength Index (RSI) is the most important technical indicator available to traders. You see, RSI helps me assess when prices are very high and when they are very low. I believe in the practice of selling high and buying low. Over the years, I found that’s a practice that has never failed me.
To help with specific tactics for selling, I watch for cases when RSI-7 (Monthly-Weekly-Daily-Hourly price series) has risen above the 70 line. Maybe it will go to 75, 80, 85, 90, or even higher. Since you don’t want to sell a stock just because the price is rising, you have to be satisfied when the RSI-7 is above 70 across the board.
But this is also the phase of the price cycle I call the Distribution Zone, which is another word for “extremely over-bought”. That doesn’t mean that it’s time to sell. No, you ought to be looking for a break-down in that pattern. For me (based on a trading time horizon I feel comfortable with), I look for the time when the RSI-7 on the Hourly and Daily then falls below the 70-line and, if so, I look to see how close the Weekly RSI-7 data is crossing back below the 70-line. If it’s close I probably sell.
But I seldom look at a single stock to make any decision. It’s true that the concept of a “broken” company or a “broken” stock occurs at times, but typically the price of stocks move up and down in groups. That’s because traders buy and sell ETF’s, or mutual fund managers tend to buy industry ideas or traders generally play follow the leader. So I look at the market by group, and when I see the RSI-7 going above the 70-line for several or all stocks in the group, and then the RSI-7 falls back below 70, I believe that a sell-off has started.
As for selling short, that’s not a practice I have succeeded at. But I do believe that short sellers of individual stocks who are successful probably have better “inside” info than me, so I leave it at that. If I see the heaviest capitalized stocks in one of the 10 GICS sectors fall below the 70-line, I may be thinking about short selling in that sector.
If I see the same thing happening across the one of the three segments of the market, ie, the interest-sensitives, the consumer-sensitives or the capital-sensitives, then I am more likely to want to short stocks in that part of the market.
But, truly, it is only the very infrequent times when the majority of the sectors are falling back below the 70-line of the RSI-7 that I am inclined to short. By then, many stocks are well past their peak, but the point is that I never try to catch the tops and bottoms of market price cycles. I am ultra-cautious and usually only head for the exits (ie, widespread short selling) only when I see evidence of panic in the crowd.
But that is me, and not you. In fact, I do not know you other than as somebody who is a student of the market who reads trading blogs like mine. So when readers ask whether I should do this or that in this circumstance or that, I tend not to reply because (i) I am not their financial advisor, and (ii) I have no clue as to the circumstances involved, nor do I want to be personally involved.
Add to that statement is the fact I do not want to possibly mislead readers with the no-win position of printing trade slips or stating that a stock was bought or sold at specific prices, which encourages others to take similar action. Any writer who does that is inviting calls from the securities regulators.
That brings to mind the question as to why the authorities are not clamping down on “pump and dump” spam. But that’s a different story.
Today, it behoves all of us to stay on point, which is that stock markets may be in the process of reversing from Bull to Bear. Maybe this is a short-term, intermediate-term or long-term trend reversal. The thing is you never really know until it is a historical fact. So, it’s best to be cautious.
At 1:00pm in the Japanese stock market, prices turned stronger. Was that the market speaking or market intervention by governments and central banks trying to keep a semblance of orderly markets? I don’t know. But I’m watching.
And now it’s March. Isn’t there something to the story of the Ides of March?
Here’s the week’s trading in the Nikkei 225. I don’t think there was enough pumping in the afternoon session to display any sign of a broad recovery.
Interactive links
General weakness happened in these markets despite a late session correction. Tokyo closed down -0.9 pct. Shanghai closed down -2.9 pct. Taipei down -2.8 pct. Hong Kong down -1.6 pct. India on the other hand recovered a bit with a gain of +1.7 pct, but the Indian market is not as important (yet) as the others.
European stocks are edging higher this morning. Do traders there have staying power?
U.S. Treasury Bond Mar. contract
Crude Light in NY is almost $62.
After the mid-day smash to the gold and silver markets, the spot gold price is edging back (from 658 to 674).
Spot silver bottomed yesterday at 13.95. This morning it is trading at 14.26.
Yesterday and the day before, while gold and silver were being hammered, platinum and palladium were on the rise, which makes me think that the gold and silver prices were being hammered by the Fed, and not by the public.
I still believe that the Fed is trying to hold the Precious Metals group from a serious rally at this point.
Spot platinum is back to 1242.
Spot palladium is back to 348.
The $CRB closed yesterday at 312.39. It seems headed inevitably to a test of the 200-day Moving Average at about 320.
General Electric (GE), a market leader, is now in the 34’s, down from 38 earlier in January.
The commercial loan business is looking shakey. This problem is not just the sub-prime mortgage backed asset lending business although the housing industry is still a downer, so lenders in that market are a long way from bottoming out.
Oracle (ORCL) has agreed to buy Hyperion Solutions for about $3.3 billion cash.
Here are the current Cara 100 RSI-7 values, sorted by highest and lowest, first by Daily values and then by Monthly, prepared by “David”.
Interactive link to Monday unsmoothed Daily RSI-7 >70 in Cara 100 (zero)
Interactive link to Monday unsmoothed Daily RSI-7 <30 in Cara 100 (12 of 34)
Here is a list of Cara 100’s trading at what I consider to be extreme RSI values:
SanDisk (SNDK) and Micron Tech (MU) are almost in the Accumulation Zone. But not quite. I’m expecting more broad market downside, which keeps me out.
Yesterday’s portfolio movers from the Cara Watch List:
Here are the top gainers from Wednesday from the Cara 100.
Interactive charts of the top 12 Watch List gainers
Here are the top losers from Wednesday from the Cara 100.
Interactive charts of the top 12 Watch List losers
There were two 52-week lows (SanDisk and Micron Technologies) in the Cara 100 yesterday, but no new highs.
These are tense times in global stock markets. Increasingly the quants are crowding out the rest of us with their programmed trading that is causing temporary but extreme fluctuations between futures and cash markets. But at the end of the day, remember, the (intermediate-term) trend is your friend.
This TV commercial from Stockholm made me think of days I experienced in past Bear markets. Watch it until the end.
Posted by Posted by Bill Cara on March 1, 2007 07:28:38 AM | Category: Cara's Bull Board
Discourse
Bill/All-
I shared the extreme price move downward (90 mins)in the FTSE in another thread.
As Bill has warned, doesn't look good.
Posted by: MarkM ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 1, 2007 8:18 AM [link]
As you know, I'm a big fan of Gary Kaltbaum (GaryK.com). He is calling a market top as of Feb 27. Like Bill and others, I believe him to be an honest market commentator who considers himself an antidote to the pablum served up by the media and the shysters and hucksters who are anxious to pick your pocket. Here are some excerpts (my translation though I tried to be accurate).
"We think a top is in. We do not know what it is going to lead to, we do not know how long it is going to last, we do not know what it will lead to. We are not telling you to sell, we are not telling you to short, we do not know how it is going to play out. Ladies and gentlemen, you have to decide for yourself what you need to do with your money. Could I be wrong. Yes. If I'm wrong, we will know in a few days. When I call a top we are never going to know if we are going to head into a bear market. But I do know it means to get more defensive and to play it as it goes.. . You don't know that you are in a bear until you break the 200 day moving average."
--------------------------
The above caveats are the type of language that I want to hear (just as Bill said today in his column)from people of whose opinion I value and on whose opinion I depend.
Posted by: Leisa at
March 1, 2007 8:42 AM [link]
Leisa-
Good post. (But didn't I say 12660? (wink)) But I agree, prognostications are a hit or miss thing.
Cascade of bad to iffy economic news this morning from core CPI to jobless claims to corporate layoff announcements. No wonder the FTSE tanked and the futes took a nosedive.
http:http://www.marketwatch.com/news/story/us-weekly-initial-jobless-claims/story.aspx?guid=%7BEA73BD94%2D0785%2D4A62%2DBC56%2D01B355EE9B10%7D&dist=morenews
//www.marketwatch.com/news/story/inflation-ticks-higher-january/story.aspx?guid=%7BC69E4CF4%2D8673%2D438E%2DB2D9%2DD47CC5F3583E%7D
Posted by: MarkM at
March 1, 2007 8:51 AM [link]
I am very sorry for the serial posts but buried inside one of Marketwatch's stories was this nugget:
"Before that data wave [claims,CPI, etc], the dollar dropped about 1% against the Japanese yen, after the International Monetary Fund reiterated concerns about yen carry trades, while the buck was up about 0.1% on the euro."
Now read this note from the other day from EverBank and Chuck Butler:
" The yen continued to gain yesterday, climbing more than 2% against the US$. The Swiss franc also rallied yesterday, and with the emerging markets selling off we saw many calling it the beginning of the end of the "Carry Trade." Others said this was simply a flight to quality and didn't have anything to do with the carry trade. It was likely a combination of the two. There did seem to be a flight to quality, as the emerging market currencies of the Turkish lira and Brazilian real were down 3% and 2% respectively vs. the US$.
Mike Meyer, who sits next to me on the trade desk, pulled up a chart yesterday, which made it abundantly clear that the carry trade was being reversed. The two best-performing currencies yesterday were the Swiss franc and the Japanese yen. The worst performing were the traditional benefactors of the carry trade, the high-yielding currencies of South Africa, Brazil, Iceland, Mexico, and New Zealand. While the sell-off in the South African Rand could be blamed on the big drop in gold, and the selling of Brazil, Iceland and Mexico could be blamed on a flight from emerging markets, the sell-off in the New Zealand dollar confirms the beginning of a reversal of the carry trade.
Like the equity markets, the currency markets will be watching what happens today to see if this reversal is continued. If the yen and Swiss franc continue to rally while the kiwi, Icelandic krona and rand fall, it will be a confirmation that a reversal of this massive carry trade is underway. Again, Chuck has warned readers that the carry trade is not a "one way bet." The Japanese economy continues to grow and interest rates will have to be raised, making the carry trade more expensive. As with any highly leveraged trade, you don't want to be the last ones to unwind your positions, so we look for increased volatility in these currencies and some more large jumps by the yen and franc."
If the carry trade is unwinding these markets could be in for a severe beat-down. Let's see what happens.
Posted by: MarkM at
March 1, 2007 8:57 AM [link]
10 or 30 percent lower?
-----> Marc Faber Says Global Stock Markets May Fall Further This Year
March 1 (Bloomberg) -- Marc Faber, who predicted the U.S. stock
market crash in 1987, said global equity markets, including the U.S.,
may fall further this year and may prompt the Federal Reserve to cut
interest rates.
Faber expects the Standard & Poor's 500 Index to decline as
much as 15 percent followed by a cut in interest rates in the U.S.
as the economy deteriorates later this year. The decline in the U.S.
economy may lead to a ``big selloff in equity markets around the
world,'' predicted Faber, who oversees $300 million in assets at
Hong Kong-based Marc Faber Ltd.
Faber says Asian markets including China and India may decline
further. Some Asian markets could decline as much as 30 percent
before they become buying opportunities, he said.
``The buying opportunity will either occur 5 to 10 percent
lower or 30 percent lower,'' Faber said.
Posted by: tinman at
March 1, 2007 9:09 AM [link]
MarkM:
Glad to see you back posting no matter how many times a day ;)
Posted by: C.Note at
March 1, 2007 9:10 AM [link]
Our buddy Paulson speaks today at 12pm ET. Could we have a rally ? Its alway Bernanke, Bush and Paulson who rally the market. Take away the days those guys speak and we'd probably be at Dow 9,000.
Posted by: TheAdonis at
March 1, 2007 9:13 AM [link]
Jeffrey Saut is another one of those folks I like to listen to. He has mentioned FXY, the ETF of the yen, to play the yen.
MarkM...yes I remember your prognostication and I'll by you a drink at the Woodshed Bar!
Posted by: Leisa at
March 1, 2007 9:30 AM [link]
Bill,
You mentioned a couple of days ago the miners would go on sale. Do you have any "accumulation zone targets" for GFI, SLW, and GG?
Posted by: 2nd_ave at
March 1, 2007 9:40 AM [link]
Leisa-
You bring the wine. I'll bring the beer and smokes, and we'll laugh and taunt all the bottom pickers on this one as they bail on their "bargains". See you there! :)
Now, if you recall, I also said that from the Jan/Feb top we'd decline into an April/May low according to my cycle work. Time will tell if that is just the 22 week cycle low or if that becomes the 4 year low.
Posted by: MarkM at
March 1, 2007 9:51 AM [link]
I'm trying to stay away from talking heads at cnbc etc, and just focus on a few blogs and hard data..and a premium service (informedtrader.com) that got me out tuesday morning. Who knows how these things work out, but the peace of having my retirement account in all cash is worth it. FWIW they do a good job of combining fundamental analysis and TA (rsi,trendlines), stocks and etfs, and they are risk adverse. Sorry for the promo, not my style, but I just want to show my appreciation as many other subscribers are feeling the same way.
On another note, the format of bill's screen suddenly changed; words on one line are running out of view. Wish I knew how to get the prior format back.
Posted by: jasper at
March 1, 2007 9:55 AM [link]
Bill said he'd be a buyer of GFI under $16.
Posted by: C.Note at
March 1, 2007 10:00 AM [link]
Jasper, if you are using a browser where you have favorites listed on the left, close that column. I'm having the same difficulty. It's happened before--I think it is due to the earth being wobbly on its axis.
Posted by: Leisa at
March 1, 2007 10:03 AM [link]
Thank you, C.Note. SNDK acting well this morning.
Posted by: 2nd_ave at
March 1, 2007 10:08 AM [link]
SNDK
Wanted it in the record book that I bit on SNDK this am at 37.13.
Posted by: holdenll at
March 1, 2007 10:19 AM [link]
ALOHA !!
Back in 2004/2005 the US government did a US dollar repatriation(based on tax savings to corporations)in order to scrape the US dollar off the floor and drag gold down at the same time. Thats a win-win since in an import based economy(spend)retail price don't go up.
What about Japan whose export(saving)driven economy needs a weak Yen? Repatriating Yen is the last thing Toyota wants since their car prices will increase and not be competitive. For decades the Japanese government put out cheap exports while its citizens were stuck with $8(USD equivalent)cups of orange juice.
Its almost laughable if it weren't so sad that a "flight to quality" could be defined as bloated fiat currencies instead of monetary metals. I consider very doubtful that the smart money is staying away from gold and silver and piling into more depreciating fiat. Like Bill says it is highly suspicious that gold and silver go down and platinum and palladium gain ... Even more suspicious is how gold and silver trade up in Asia and as soon as NY opens they're down. Asians are well versed in the value of gold. Americans are not. Reserve currency status tends to make for Empire and misplaced arrogance. The FED will do what ever it can to preserve the reserve status, while Japan has historically lent a helping hand in that endeavor since their exports depended on it. At some point when the US consumer is done Japan will need to go to "Plan B" on that one! Doubtful that will include propping up a dollar in a country where they have a substantial loss in sales.
The China/India industrial expansion is ongoing no matter what the Shanghai Index does or the DOW. To see the real state of affairs and the future you have to go look at five year charts of LME Metal Stocks. In other words you have to look at how much actual metals like copper, aluminum, zinc, lead and nickel are actually being stored in warehouses. If you look at a five year chart the stored metals necessary to run an industrial revolution in China and India are record lows! Here is a link to base metal charts showin LME Stock values. Click on the "historical charts" and scroll down to the bottom to see the five year charts.
Link: http://www.kitcometals.com/charts/aluminum_historical.html
The game is on ... Those in the know want you to believe hard assets are nothing more than the latest financial fad. Governments have a vested interest to keep consumer prices down and you can't do that if labor and raw material costs are rising. Futures can cap prices but they can't create metal and at some point three much needed manufacturing metals will be gone, their inventories are that low! What will happen to prices then?
Of course printing more dollars or Yen(monetary inflation)is never to blame ... Arrogance is governments believing they can have their cake and eat it too! Propaganda tactics say that if you tell a lie long enough people will believe it.
There used to be an old saying in the Vietnam War era ... QUESTION AUTHORITY !! That saying is the very essence of what our Founding Fathers fought for yet back during Vietnam and today during the Iraq War that saying, QUESTION AUTHORITY,is considered radical and unpatriotic! My how times have changed since 1776 !!!
Posted by: kaimu at
March 1, 2007 10:53 AM [link]
The Fortress (FIG) article is a fascinating detail of getting rich by plundering a company (and a bank) and then taking it public.
Notice the Directors who joined in February 2007, and the American senator who joined in 2005.
http://www.fortressinv.com/site_content.aspx?s=17
One was a special advisor to Bush senior. Another is CEO of Fannie Mae.
Interesting...
Did anyone catch Kudlow's Op-Ed piece this morning in the journal?
I would provide a link but wsj.com links only work for subscribers and unfortunately I am a print subscriber.
How this guy can look in the mirror and respect himself after some of the things he says amazes me.
Posted by: brianr at
March 1, 2007 12:41 PM [link]
Who was the grumpy bugger that kicked silver off the cliff at lunchtime? Down 5%.
Posted by: manx928 at
March 1, 2007 2:16 PM [link]
Another crazy day. No need to be a hero, so I'm gonna wait for lower prices in PM shares. Let's see what happens went gold nears 650.
Posted by: mogwai8myball at
March 1, 2007 2:27 PM [link]
Notable: Today's trading divergence between HL (+5%) and SLW (-2%). (Long both)
A lot of commercials are short silver as mentioned here a few weeks ago.
You hear a lot about hedge funds and their impact. Why? There's about 8000-9000 hedges out there and they're highly leveraged.
Good luck & good trading.
Posted by: Seamus at
March 1, 2007 2:50 PM [link]
INTC at 18/36/41, dropping more than DJIA and AMD.
Posted by: SiO2 at
March 1, 2007 3:05 PM [link]
Wow,go Hecla. Looks like this gonna overtake PAAS as the silver bellcow. I have opined that SLW is getting pinned by the thousands of March 12.5 calls.I guess another issue is how good of a silver deal they get from GG regarding the Penasquito project.
Posted by: mogwai8myball at
March 1, 2007 3:06 PM [link]
I noticed that MU bounced of the Andrews trend line I had drawn in at 11.50 from the April 04 high. I expect 11 or so it will find its bottom in this cycle.
I was stopped out of wgdf(Western Golfields) at 1.89. I'll look at it again in the summer.
I'm sitting on all cash now waiting for the mkts to sort things out.
Posted by: dabonenose at
March 1, 2007 3:46 PM [link]
mogwai8myball---Re: SLW
There are even more March calls at 10.
At the close, big divergence between HL and the SLW, PAAS & SSRI.
Posted by: Seamus at
March 1, 2007 4:00 PM [link]
Seamus: You're right about those March 10 calls. I thought that 10 would act as the floor but i guess all bets are off after this week. SLW hit 8.90 in the the beginning of the year downdraft. gonna watch to see if it goes that low again.
Good trading.
Posted by: mogwai8myball at
March 1, 2007 6:29 PM [link]
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hello from germany
speaking of pump an dump!
here is one that reminds me of 1999/2000.
you really should read this to believe that this kind of action is from feb. 2007 and not from pets.com in 1999 :-)
plundering fortress / pump and dump at its best!
http://immobilienblasen.blogspot.com/2007/03/plundered-fortress-pump-and-dump-at-its.html
Posted by: jmf![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 1, 2007 7:34 AM [link]