Politics and the markets don't mix

Fade this rally. I did.

New short on the bounce: EZCorp (EZPW)

One thing that I'm learning about bear markets is to never worry about missing an entry point because there will always be a bounce. I've been watching EZCorp because it looks to be entering its mark down phase. EZPW used to be #1 on the IBD 100 and is now showing signs that it is finishing off a rounded top pattern. It is also consistently below the 10 week moving average. Fundamentals might say that a pawn shop company might be coming into its sweet spot with all of this sub prime crap, but the chart certainly says something different. I think EZPW might be a victim of being over owned by the fund managers. I think 90% of the float is owned by institutions.

When the market looked like it was bouncing this morning, I put in a order to short EZPW at 12.16. My target for now is 10.50 and depending how the volume looks, I might hold longer. Notice the weak volume on the bounce and how it stalls inside the swing point of 7/25/07. There are also some nice TDST lines to guide the resistance and support areas.

CNBC Sucks!

I'm up a little early today and I made the mistake of listening to CNBC's Squawk Box. They are hammering two points that I find unbelievable! First, they keep saying that insider stock buying are at record levels, emphasizing the financial sector in particular. What they fail to tell us is that there is no buying going on at the big broker/dealers like Goldman Sachs and Bear Stearns.

Second, and certainly more irritating to me is that they keep saying that volume was very light during yesterday's sell off so the loss shouldn't be taken seriously. Where was this concern about volume when the S&P was climbing on progressively lighter volume last week? The reality is that volume was higher yesterday than what we saw on the counter trend bounce. I don't care about their bullish bias, but don't mislead people.

Major Index TD Sequential Count

Index	Setup	Countdown	Perfection?
S&P 500	8/01	8	No
Nasdaq	8/01	8	No
Dow 30	8/01	7	No
Rus 2K	7/30	5	No

Worst Chart Nominee

You can find this "double bottom" or "bullish W" post on the Resource Stock Guide. You can also find it at SafeHaven.com.

Just looking at the chart, does this look like a bottom or a top? If this is a bottom, like Boris Sobolev says, why is the whole pattern above the rest of the price movement? It is garbage like this that gives technical analysis a bad name. Obviously a pattern has to be identified within the context of the larger picture. You CAN'T have a bottom at the TOP of a price pattern no matter how nice a W is drawn on it.

If anything, this chart looks to be forming right shoulder of a head-and-shoulders pattern, which is definately NOT bullish.

Go check out the previous post and there you will find a "bullish W".

I wonder if Boris is related to Miss South Carolina?

Update to Fast Money

I made a stink about Fast Money the other day when they claimed that rising price on weak volume is bullish.

Here is a quote from Bill O'Neil regarding rally attempts off of market bottoms.

"You'll know the initial bounce is feeble (after a correction begins) if the index advances in price on the third, fourth, or fifth rally day but on volume lower than the day before. "

I'll take O'Neil's advice over the "Fast Money Five" any day.

V-Shaped vs. Double Bottom

I have watched Fast Money for the last time. On Friday they declared that the bottom is in and that a retest of the lows is not needed. They also stated that rising on lower volume is a bullish sign.

Wow, how crazy is that? Volume confirming price is a general rule for technical analysis.

I looked back at some recent corrections and the mild bear market of 2004. While it is true that volume can be light while coming out of a correction, if that correction comes in the midst of a bull market, a retest of the high volume lows almost always takes place. Anytime you see a V-shaped base that is usually a bad sign for the medium to long term. William O'Neil has studied many bases of many stocks and he always says to avoid the V-shaped base. They work sometimes, but have a high failure rate.

I'm showing the correction of 2005, 2006 and the bear market of 2004. Notice the 3 V-shaped bases during the bear market. You will also find many V-shaped bases during the 2000-2003 bear market. Notice also how well the TD-Sequential worked for the two corrections I show below.

Must read post at The Big Picture

If you haven't had a chance, go check out this post on "The Big Picture". It is a collection of letters written by quant funds "explaining" why they have lost so much money recently.

Thank you Barry Ritholtz for providing such valuable and fascinating information to the rest of us.

Low risk entry point for Metalink (MTLK)

I mentioned that MTLK is coming into strong support and, despite my bearish outlook, I'm looking to buy.

I like to use Tom O'Brien's methods as well as Tom DeMark's. I especially like it when they both line up together. MTLK is coming into a TDST support line, which matches up nicely with a Tom O'Brien swing point. Check out the charts.

Ok, well not today.

The bounce looks to continue higher. I'm still shocked by low volume and will be ready to enter more short positions as we move higher.

On the long side, I might add to my Metalink position soon.

This Bounce is OVER!

I'm entering short positions again tomorrow. I posted my bounce targets a few days ago and we are getting close. I especially like the fact that we are nearing the 20 day moving average on both the Dow and S&P, which acted as resistance on the first bounce, and volume is totally nonexistent. The Nasdaq seems to be the strongest index and is not offering any clear signals.

Wild price swings?

It seems that no matter where I look people are talking about how volatile the markets are. Whether it is on TV or on someones blog, they usually say the same thing. It usually goes something like this, "I don't know about you guys, but these daily price swings are the largest that I've ever seen in my career". Such statements always struck me as strange so I decided to check the charts.

What I have plotted below are the daily percentage differences between the high and low of each major index. Low and behold, I found that the recent daily price swings are not even close to the days of the late 90's and most recent bear market. I have a yellow line pointing out the recent swings.

So are these people as new to the market as I am or do they have extremely short memories?

Karl Rove: The Great Uniter?

I avoid politics on my blog, but I just can't resist this post. I was watching Bloomberg and saw this headline pass by.

"Karl Rove says he built coalitions and Democrats divided country"

Thank for the good hard laugh Karl and good riddance to you sir!

TD Sequential Buy using Blocks 2.0

Ok, it took some work but I had to rewrite the TD Sequential indicator for Blocks after my old hard drive crashed. If you don't know what the indicator is you can click here for a brief description.

The first thing to do is to write the code for the setup. Use a bar to T/F custom block.

Now, use that custom block in the following block diagram. This will show you when you have a completed TD Sequential countdown.

Next, I show the simple TD countdown and the TD Perfection code. The block diagram is also shown.

Here is the final result. A chart that gives the TD Setup, Countdown, and Perfection buy signal.

To intervene or to benignly neglect, that is the question

It will purge the rottenness out of the system. High costs of living
and high living will come down. People will work harder, live a moral
life. Values will be adjusted, and enterprising people will pickup the
wrecks from less competent people.

Secretary of the Treasury Andrew Mellon, commenting on the panic of
1929.

Wow, that worked out well. I've been hearing a lot of the same sentiment recently, but mostly from the other side of the isle (Mellon was a Republican). The argument goes, why should the government bail out all of these hedge funds for taking on too much risk? While such arguments appeal to my sense of justice, they seem to forget the fact that many more people will be hurt if the Federal Reserve doesn't step up and provide some help.

Quoting Kindleberger in "Manias, Panics and Crashes":

...while it is desirable to purge the system of bubbles and manic
investments there is the risk that a deflationary panic would spread and wipe out sound investments by the non-speculators who would not be able to obtain the credit they need to survive.

All I can say is that I wouldn't want to be in Ben Bernanke's shoes right now.

On a related note, there is one critical advantage that a Fed policy of benign neglect might bring that I think most people have forgotten. It goes nicely with the arguments of Mr. Mellon. With a little pain and suffering comes excellent rock and roll! Just think of it. What was the last band that mattered? We have to go back to the last housing market downturn in the early 90's when grunge took over the world. While there have been some good bands since then, no band has struck a chord with the country's state of mind as did Nirvana. A recession would probably purge the country's obsession with celebrities as well.

Dead Cat Bounce

I was watching Fastmoney and I was thoroughly disgusted and amused by the "Bulls and Bears" argument. It wasn't really an argument given that Doug Kaas (the bear case) totally outclassed his competition on all levels. To sum up Najarian's arguments (the bull case), "the market went up today, so this is a bull market". After such violent selling, you would think that a professional would not say such reckless things. Hasn't he ever seen a dead-cat-bounce?

I'm amused by Fastmoney at times but it is quickly going downhill. I don't like the Najarian brothers and wish that the "risk doctor" would return to the show.

For the bulls out there, check out the above chart. It shows the earnings of the lower 10% of the S&P 500. Look what happened when earnings turned down in 2000. Looks to me like the same thing is happening right now.

We got the bounce...now what?

The charts below show where I think the markets are headed. I'm going to short the hell out of them when they get there. Notice the huge volume today, which means that we will be back down there to test the lows. I think we will go lower.

Good luck!

US Gold Corp (UXG)

What a wild ride today. From down 20% to up 3%. Check out the sweet inverted head and shoulders pattern on the 2 day 10 minute chart. All done on low volume. I'm glad I didn't get shaken out today.

Run for the hills!

Now today there is real panic!!!

I bought some Goldcorp call options today. I'm looking for that bounce.

Bounce coming?

I'm looking for a bounce in the next few days. If you are long, I would suggest that you get the hell out when the markets get back up to their 20 day moving averages. These markets are sick.

Here are some charts and their TDST support lines.

I can smell the fear!

Today was the first day people started to really sound worried. Looks like it is time to run in all those panicky shorts in the next few days.

Incredibly, MIND has held up pretty well. I plan on riding this out with GBN and UXG, both of which got hammered today.

I'll be looking for a long play on one of the indexes if we open down tomorrow. If we get that bounce, I'll dump MIND and load up short again.

I'll publish some index charts soon.

Blocks Program

I'm thinking about upgrading to the new Blocks program from Worden. They just put out a new training video and I thought that this was very interesting.

Check this vid out.

It looks like another case for the bearish camp.

My Hard Drive Died!

My hard drive on my machine at home died.

Oh well. I did exit my IWM put today. I purchased it at 3.85 and sold today at 5.75. Not bad.

I wish covestor would allow you to enter them as trades.

Gammon Gold (GRS): Climax bottom

Here is a nice climax bottom forming at support for Gammon Gold. I'm showing the current chart and two previous high volume bottoms at the same price levels.

It might be worth a shot.

Helicopter Ben

Here is a quote from Helicopter Ben Bernanke.


..."people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation."

It was always clear to me that the government, with all its debt, would always prefer inflation over zero inflation. What has been confirmed today is that the Fed is absolutely petrified of even the slightest threat of deflation.

Rates will be cut! The dollar will be trashed! I'm betting that gold will be benefit. It won't be because of inflation, it will be from a fear of financial collapse.

Crazy!!!

I was stopped out of the TWM yesterday (2% inverse of the IWM) and was not too happy about it. Today, however, I picked up some IWM puts when the market rebounded this morning. I bought the Sept 81 puts for 3.85 and caught the day's high.

LMC reversed hard from yesterday but finished pretty strong considering the market's weak close. I was really amazed my how MIND acted today. Up 2.3%! Amazing.

UXG is doing fine, but GBN had a horrible day. I'll keep an eye on that.

Metalink (MTLK): Best-of-breed in the wireless chip sector

Metalink always describes itself as the "best-of-breed" in the wireless networking chip sector and if you would like some evidence for that claim just read the article below. This is pretty cool stuff. Here is the link.

Metalink Ltd. (NASDAQ: MTLK), a provider of high-performance wireless and wireline broadband communication silicon solutions, announced that its WLANPlus(TM) chipset has achieved impressive performance results in independent tests conducted by The Tolly Group. These rigorous tests benchmarked Metalink's WLANPlus against three products using different 802.11n chipsets. The tests confirmed that the use of Metalink's solution doubled performance as compared to the closest competitor tested, and in many of the tests by as much as ten-fold. These tests further position WLANPlus as the best-of-breed 802.11n draft 2.0 compliant product and the only one powerful enough to enable high-performance wireless applications.

Kevin Tolly, the CEO of The Tolly Group, noted: "To 'push the limits' of these chipsets, we introduced a new set of challenging criteria, including zero-loss tests as a necessary de-facto standard for the home entertainment space. We were impressed with Metalink's WLANPlus, which clearly outperformed the others in both the 2.4-GHz and 5-GHz bands, as well as being the only chipset tested to achieve zero-loss in UDP tests." Tolly added that the tests indicated that Metalink's product also achieved the best results in TCP tests.

The Tolly Group's tests took place in a large U.S.-based home (a 6,000-square foot, three-floor structure with a basement), enabling a wide variety of performance tests. The tests included measurement of throughput, full home coverage and transmission quality. These tests demonstrated that WLANPlus offers superior performance in the 2.4-GHz band (the band commonly used for data services), and that it is the only chipset tested which provides robust performance in the 5-GHz band (used for high-quality applications such as video and gaming). As such, WLANPlus has emerged as the clear best-of-breed foundation for 802.11n home networks with a proven ability to support the delivery of multiple simultaneous HD video streams throughout the home.

"The fact that the Tolly Group's independent tests have singled out Metalink's technology confirms WLANPlus's status as the market's highest-performing solution for wireless home networks," said Barry Volinskey, Metalink's Vice President of Marketing. "Our product achieved the best results in both TCP and UDP tests, as well as in the 2.4-GHz and 5-GHz bands, making it the only wireless technology capable of supporting the new demanding requirements of wireless home networks. This further establishes Metalink's positioning as a major player in the fast-growing home networking space."

Bought Lundin Mining (LMC) and added more Mitcham Industries (MIND)

Sure was wild out there today. I was stopped out of my TWM trade but I did pick up some LMC and added some MIND shares today. I got lucky with the MIND buy, as it exploded about an hour after I got in. LMC looks strong but it has some work to do to make it up to 14.40, which is my price target.

US Gold Corp was huge today! That was nice to see.

This market still looks like a dead cat bounce to me, but that move today was powerful!!!

TD Sequential Signal for Lundin Mining Corp (LMC)

The TD Sequential signals have been working very well for the mining stocks. Being bearish on the market, I have missed many of the big moves, but as Tom O'Brien has been saying, the golds seems to have bottomed before the wider market tanked.

Check out LMC. Lundin is coming into a swing point on lighter volume and has also just finished a TD sequential countdown. Tomorrow looks like a good long.

TDST Support Levels in the Markets

Every index has held support pretty well except for the Russell 2000. The small caps are very sick and continue to get worse. I shorted the small caps on today's strong close.

Stock fluctuations lead to a crash?

With crazy days like today I am reminded of a paper I read recently where a group studied the price fluctuations leading up to the market crash of 87. They found that abnormal volatility on the 10 minute scale increased to a critical value just before the crash. The paper was published in the top physics journal, Physical Review Letters. Perhaps the most interesting aspect of the paper is that they found a connection between the math that describes a market crash and the math that describes a phase transition (i.g. a solid that melts into liquid).

It doesn't get more volatile than today!