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camistocks (< 20)

still riding the 20 DMA; bears angry, bulls speechless

Recs

21

May 14, 2009 – Comments (22)

Only short today, but I think it could be worth.

OK, so we had a broad sell off on Wednesday 13 but it was on relatively low volume. As you can see on the chart of the S&P 500 the 20 DMA held so far and the neckline of a possible bullish inverse Head and shoulders formation is being retested at the same time. If it holds the target would be around 1050 (870-666 = 200. 870+200= 1070). The momentum indicator RSI has never been overbought and continues to remain above 50. Will we continue to ride the 20 DMA...?

The bears are jumping in with the house money, because "roar" now we will finally fall below 666 and slaughter all those bulls like camistocks and become filthy rich. The possible buyers on the sidelines (trillions of money held as cash from mutual funds and Hedge funds) want to wait if there will be a retest of the 666 low. 

Contrary to what the "smart" bears say there are only very few "stupid" bulls in the market. They have been surprised by the continous rise and always hoped for a correction to get back in. Bull markets in the early phase try to rise with as little people on bord as possible and destroy as many bears as possible.

There is a saying that goes: in bear markets everybody loses, first it's the bulls, then the bears.... ;-) 

Jesse Livermore, the famous speculator made and lost entire fortunes twice. First he made $3 million (in old dollars) in the 1907 crash selling short, but then lost 90% of it again. He later declared bankruptcy. Thanks to the WW1 bullmarket he regained his fortune and continued to make money in the roaring 1920s. In 1929 he noticed that there would be a bear market and shorted stocks. His fortune grew to $100 million in 1932 during the Great Bear market. However somehow he managed to lose most of his fortune and was bankrupt in 1934! He then suffered clinical depression and in 1940 he shot himself in a toilet in a hotel bar...

http://en.wikipedia.org/wiki/Jesse_Livermore

So, let's see if the supports hold and we continue to stampede ahead riding on the 20 DMA...

22 Comments – Post Your Own

#1) On May 14, 2009 at 8:29 AM, binve (< 20) wrote:

cami, for what its worth i did see that. I plot the 50day MA, 200day MA, and 20day EMA (but it still gives basically the same curve for a short time frame as the MA), and I agree, it has been riding that (the 20day MA/EMA) the entire rally up. A break of that is needed first. Thanks for the post! Today will be interesting :)

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#2) On May 14, 2009 at 8:42 AM, StopLaughing (< 20) wrote:

Finally some sanity.  This article by the Cato Institute explains why Shiller, Roubini and the Bears have miscalculated.

 

http://www.forbes.com/2009/05/11/price-earnings-ratio-interest-rates-stock-opinions-contributors-shiller.html

This is just basic common sense and basic finance theory. The P/E ratios do not have to be at historic lows for the market to bottom. They are directly and strongly correlated to interest rates and should be adjusted for interest rates. 

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#3) On May 14, 2009 at 9:46 AM, REITDUDE (90.68) wrote:

Great blog, appreciate the writing style & (differing) opinions of an intelligent bull. 

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#4) On May 14, 2009 at 11:52 AM, drummnutt (< 20) wrote:

Ditto (see #3).

What I can't work out, is that if you write a blog here that says the sky is about to fall, and the government is going to intentionally inflate your money away, and the Chinese economy is about to colapse (the biggest joke), and your grandmother needs to buy a Smith and Wesson, then you will get 50 recs. BUT, if you write a balanced, intellikgent piece, 8 people think that it is a good read?!?!

Surely Caps members aren't REALLY fools...?

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#5) On May 14, 2009 at 1:18 PM, Robynbird (< 20) wrote:

Thanks cami - well thought-out and insightful (and amusing too - wow, you're good)!

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#6) On May 15, 2009 at 11:21 PM, mistermiranga (96.70) wrote:

Rec from me, but... 

Do you really think the bears are "jumping in" with real money right now? The bulls seem to be looking at each other trying to determine who's buying this thing. Oh wait...it is the bears covering up...the bears that have been doubling down since SPX 810.

I agree with you here - Mr. Market does seek to drag in the maximum number of victims as possible and doesn't discriminate.

there is a Jesse Livermore in all of us. over a long enough time frame all of us will be right but very few will be wealthy based on our predictions.

real estate is a great example...there is all this talk about distressed assets...opportunity funds, etc. The investors that make the real money won't be the smart money...it will be crazy Jesse.

Crazy Jesse went double short Crude last week. 

Eventually I will be right...will I be wealthy? 

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#7) On May 15, 2009 at 11:55 PM, goldminingXpert (29.55) wrote:

"sky is about to fall, and the government is going to intentionally inflate your money away, and the Chinese economy is about to colapse (the biggest joke), and your grandmother needs to buy a Smith and Wesson, then you will get 50 recs. BUT, if you write a balanced, intellikgent piece, 8 people think that it is a good read?!?!Surely Caps members aren't REALLY fools.."

other than your comment about the Chinese economy--it is indeed collapsing, the rest of your statement is correct. There isn't going to be crazy inflation and there is not going to be anarchy in the streets. Those sorts of bears drive me nuts; go build your bomb shelter and leave me alone I say to them.

and the Chinese economy is about to colapse (the biggest joke)

Only partially true, the correct statement would be "and the Chinese economy is collapsing." That is correct, as the collapse has already begun, saying "about to" is inaccurate.

-------------

-That's a really sloppy inverse head&shoudlers. If it confirms up to 1,100 as it would suggest, I will lose all my investing capital. However, technical analysis doesn't work in a vacuum, if the fundamentals aren't there, you'll get a different technical outcome. The more likely technical view at this point is that the market tried to take out the 200DMA and high of the year (as I called back in January) at 943 and failed, now we've reversed and are starting a new wave down to ~800. We will then launch one last push to try to get a new high, it will fail and then we'll retest 666 this fall. Find me a historical example where a bear market ended with a "V" bottom. I'm not holding my breath...

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#8) On May 16, 2009 at 2:14 PM, binve (< 20) wrote:

Cami, Hey man. I just wanted to discuss this and the larger picture a little more with you. I know you will not agree with 100% of what I am about to write, and that is totally fine. I am not out to convince you of anything, I am just sharing my thoughts. But I recently revised a few of my wave counts since 666 and I wanted to share a setup with you, similar to what you describe above… but bigger :)

So first I want to say that I am not an uber-bear. I am a timeframe dependent bear. … and even that is not exactly accurate. I am trying to be a realist. When I do my analysis, I am trying to look at the fundamentals as well as the technicals. And if they are out of whack with eachother, then I adjust my stance. So there are some things I am bearish on for the short term (a few weeks) that I may become very bullish on for the intermediate term (a few months). This bring me to my analysis and the following charts.

I still stand by all of the analysis that I put together in my last blog post. I really think the fundamentals for the economy stinks. And I think this rally was a bear market bounce, technically driven, and nothing more. I mean we had a 45% rally in 2 months with no significant pullback. Even you have to admit that these don’t happen in bull markets. I have looked at all of the bear market bottoms for the last 100 years and absolutely none of them that had a bounce like the one we just had without some significant retest of the bottom (usually 62% to nearly 100% retracement as a retest).

Here is a chart from my last blog post that shows the S&P 500 monthly chart for the last 20 years. The bounce occurred on indicator channels on the MACD and RSI and with the Full Stochastics at a lower level than they had been for 20 years. It was simply technically unsustainable to keep dropping. Hence the bounce.

But for the same exact reasons we had the bounce, are the same exact reasons I think we COULD (very conditional, let me explain in a minute) rally more. We still exceptionally oversold in monthly terms. But I believe the stage could be set for a much larger rally:

First we need a retest. If this rally continues like a shooting star it will burn itself out prematurely. Because there are no fundamentals driving it a the current moment! . But instead, if we pull back we will shake out all of the unhealthy bulls who jump on in the last month when the rally was already overbought, the same ones who will jump ship at the sign of a turnaround. Once we lose the gamblers and pullback for maybe 4-6 weeks to 750ish, then the stage is set. If Q2 numbers start coming out, and they are better … no, wait, let me be realistic … if they are not as bad as they are now, then we will have just enough of a fundamental reason for the rally to continue. General Pessimism is still at a huge high, and so it will take only the slightest sign of good news (the unemployment rate which will most likely not drop, but perhaps slow down in its growth. The housing market decline begins to slow down for a quarter, etc.).

I am still bearish on the economy longer term, but I recognize that the general level of bearishness is supportive of a continued longer term rally. But there is no way for it to happen (well, at least I don’t think there is, but that’s just me :) ), without some shakeout of the bullish euphoria that is present in the market right now.

Wow, sorry for the spiel. But here is the count and POTENTIAL projection that I am thinking about. I think it could happen with a shakeout / pullback and then just the slightest upturn in fundamentals next quarter.



Enlarge

We have had discussions for over a year now. And even though I don’t always agree with your positions, I always value your thoughts. You are very smart and express your opinions well. I would love to get your thoughts on this. Thanks man!

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#9) On May 18, 2009 at 11:07 AM, drummnutt (< 20) wrote:

GMX, If I was an American citizen, I would find 10 Chinese ar$e$ to kiss, and would recommend all of my buddies to do the same! They are about the only ones who are buying your government's bonds so that the US economy can provide stimulus to its economy in order to avoid GD2 and fall in to oblivion.

The Chinese - American relationship is a bit of a mutual "needy" type affair, but China won't need America forever. It is about to be their time in the sun once more. If I had to bet between America and China for the next 20 years, my money is on China hands down!

My word of advice is that you'd better be nice to them!

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#10) On May 18, 2009 at 11:14 AM, portefeuille (99.61) wrote:

There is one other buyer: the Fed ...

Fed plays proxy for China

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#11) On May 18, 2009 at 11:41 AM, drummnutt (< 20) wrote:

Thanks for the article. I particularly liked the paragraph,

"No one in Washington was insane enough to call the bluff of China and others in March this year. The profoundly weakened US economy and financial system could not at present(ly) endure a contest of wills with the East. So, no one in Washington had the stomach for putting to the test the popular notion that China and others in the East are stuck with the dollar and therefore could not even begin to divest of US financial assets without hurting themselves as much as they would hurt the US"

Here's another good read. 

Asia is looking like the place to be at the moment. Australia and Canada are looking good within this framework. China has started to do a very smart thing. They are now buying less US treasury bonds, and instead buying raw materials. Obviously they can't cease overnight buying the bonds for reasons outlined in the article you provided. But this big buy up of raw materials will give them better cost-benefit. I've gone on too long, so I will try to give reasons in a blog sometime.

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#12) On May 19, 2009 at 9:26 AM, camistocks (< 20) wrote:

Thanks all for your comment and sorry for the delay, but I needed a CAPS break.

I will reply to your comments tomorrow.

However just this: yesterday the indices bounced off the 20 dma in a strong 90% upside day, or buying panic. Now, usually after a 90% upside or downside day you get 2-4 days of consolidation, but you never know... Oh yes, yeehaw, as we continue to ride on the 20 dma...

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#13) On May 21, 2009 at 1:36 PM, camistocks (< 20) wrote:

stoplaughing - this was a great article. I think this paragraph sums it up best:

"""I first met Bob Shiller in the early 1980s, when I invited him to speak at Lew Lehrman's Institute in Manhattan. He thought stocks were grossly overpriced then too. Indeed, Shiller always seems to see the current P/E ratio as too high relative to some historical average. But the stock multiple is not a mean-reverting series. On the contrary, the height of today's P/E ratio relative to the past tells us nothing except that (1) interest rates are far below average and (2) future earnings are very likely to rise from today's depressed base."""

Note: the great bull market started in 1980 and lasted until 2000. So Schiller would have missed it all... 

However it is not that simple, because while it is true that the PE was below 10 from 1977 to 1983 and the bear market in 1974 bottomed below a PE of 10 (during high interest rates) there also was a period from 1948 to 1952 where the market had a PE of below 10, and that was during very low iinterest rates (2%) or so. Here''s a chart going back to 1925. Maybe PE ratios are simply not that important...?

spperange25today

 

REITDUDE - thanks, I really appreciate that!

 

drummnutt - I got 16 recs as per today... hmm, I think I will write a couple of doomsday posts just as a test to see how many recs I'll get. :-)

 

Robynbird - that's very kind "blush"...

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#14) On May 21, 2009 at 1:41 PM, goldminingXpert (29.55) wrote:

Every time you could buy the market under 10 P/E you made a lot of money. I'm content to wait for it to come back again.

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#15) On May 21, 2009 at 1:52 PM, camistocks (< 20) wrote:

mistermiranga - """over a long enough time frame all of us will be right but very few will be wealthy based on our predictions.""" That's a nice piece of wisdom and you should be quoted forever...;-)

Also as to who is buying stocks. It's a mix of traders, short covering and, yes, the "smart" money, see my next blog.

 

gmX - I see the Chinese economy recovering and the world wide economies bottoming about now (+ - 1Q). "It's all in the charts" meaning that fundamentals are already included. Also, fundamentals are lagging indicators, the stock market looks forward. I'll have a blog on stock markets bottoming soon...

 

binve - later, I promise.

 

drumm - yeah, they are 1.3 billion people down there. If only 20% of them would be in the middle class that would be 260 million people, almost the entire population of the USA. And their middle class is growing...

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#16) On May 21, 2009 at 2:06 PM, UKIAHED (37.90) wrote:

Rec from me - please no doomsday posts! ;)

 

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#17) On May 21, 2009 at 2:26 PM, camistocks (< 20) wrote:

portefeuille - great  and informative article that sums it up nicely. Quantitative easing... and it's not just the Fed it's central banks worldwide. Even the Swiss National Bank is taking part...

But wait, PIMCO is also there... they will also buy everything... ;-)

Maybe they should rename the long term treasury bonds to patriot bonds...? Or freedom bonds? I guess then they would find enough Americans buying that stuff... :-)

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#18) On May 21, 2009 at 2:46 PM, camistocks (< 20) wrote:

drummnutt - very informative article about the situation in Asia. Yeah, Asia is already recovering. The US economy should bottom out soon too and Europe should follow 6 months later or so.

"bamboo shoots" this must be the expression of the year :-)

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#19) On May 21, 2009 at 2:51 PM, PSU69 (88.11) wrote:

I luv charts (being a BSME at heart).  I luv history and word-crafting to align unrelated issues to charts (like the Hawthorne experiments).

 http://en.wikipedia.org/wiki/Hawthorne_effect

 I enjoy this post for many reasons.  Madoff and other thieves were flushed out during this bear ride and this "don't trust 'em" has added to a lot of clamor further driving negative ideas.  Many of my pals who are kinda bright and self made boys cashed out, saying they are DONE with WALL STREET.  They got afraid.  I wonder how many out there in the NON-MF silent gang are similarly fearful waiting to get back in the game.  I like to watch the cash flow of wounded stocks and I strive to relate that to their value when I pull the trigger.

"Madoff shifted investors' fears from the risk that they might lose money to the risk they might lose out on making money.

If you did get invited in, then you were anointed a member of this particular club of "sophisticated investors." Once someone you respect went out of his way to grant you access, says Prof. Cialdini, it would seem almost an "insult" to do any further investigation. Mr. Madoff also was known to throw investors out of his funds for asking too many questions, so no one wanted to rock the boat."  WSJ.

The comfort of charting is good.  Anti-Madoff'ish.  I will let time resolve the issues while you guys share your ideas about the rate of change in slope angles.  Meanwhile I try to keep my eye on the cash flow and the demographics.  I look at lots of charts while reaching for the trigger.  I am not talking about the trigger Jesse Livermore pulled either.;)  Suicide, the untimate self criticism.  Jesse was another type of Fool.  RIP Jesse.

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#20) On May 21, 2009 at 2:56 PM, camistocks (< 20) wrote:

UKIAHED - hmm, hmmm, OK OK, no doomsday... I already had the vision of starting a blog like: "dear CAPS community, I admit I was wrong... and my compliments to the bears. Everything is much worse than we know.... blah blah blah" and I would have received at least 80 recs. Ah well...

gmX - but then you would have missed many opportunities like the entire bull market in the 1960s, if you started in 1960. Or the bull of the 1990s. You would even have made money if you bought at the top of the 1987 crash. It's not that simple. I think it has more to do with the amount of money around. But again, it's only one factor.

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#21) On May 21, 2009 at 7:29 PM, binve (< 20) wrote:

cami, Hey man, no worries. :) I know you are a busy guy!

I actually took my comment in #8 above and turned it into a blog post. Here: More Thoughts and Analysis: Timeframes – Bearish, to Bullish, ...to Bearish. When you get a chance you should check it out!. Ii is basically comment #8 above with a lot more TA and some more thinking/reasoning along those lines :) I think you would enjoy it!. 

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#22) On May 21, 2009 at 8:02 PM, wuff3t (98.51) wrote:

Are you sure? Looks to me like we leant towards a leaning post today, with a 5/2 excuse for a retrieval. The retrieval was anchored, but only if you follow the 22/24 upward swing. Seems like a lot to dig into, but the shovel suggests that anyone hanging onto the lower bypass will realise more than they have ignored. Averages are overblown, but so are the bubbles.

Good luck all....

 

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