Apple, Baidu, and Google Look Ripe for a Fall.

Apple computer is completing the right shoulder of the head and shoulders base. Head and Shoulders base is a bearish chart pattern that has preceded stock price declines that are considered significant. At this time, it appears $89 is the resistance, and if the market conditions continue to deteriorate, it is possible to test the $83 mark within next week. How can I make this call since Standard and Poors and others are so bullish on this stock? It is because we are in a new down trend with high volatility. Trend must be obeyed. Additionally, during market corrections (although I believe we may be entering a bear market phase), many of the fundamentals of the stock and analyst opinions are contrary. There seems to be a lot of things going for Apple with the iPod sales, introduction of the new iPhone which is scheduled to be released in May, and increasingly popular Macintosh Computers. Additionally, they also blew the doors off of their earnings report last quarter. So why am I bearish?

1. Apple has been a top performer, a darling of many mutual funds and analysts, and an American Icon. But deep down, what matters most is institutional sponsorship and with the performance that it has generated over the past 5 years, most big money institutions probably bought it. In Wall Street, it is the institutions that move the markets. Not retail.
2. On the chart, it appears that Apple had topped on the week of 1/19/2007.
3. Economy is not okay. It is not healthy. Given the praises of Paulson, Bernake, and all others including CNBC, the economy will cool faster than people expect. The subprime market will bleed into other mainstream financial markets. Credit will be tougher to obtain.
4. Inflation is not under control. But more importantly, I think we have to switch our thinking and consider stagflation, a combination of high inflation and slow to zero economic growth. Just look at today's jobs report, which was good. However, no sooner was this announced then fears of inflation took over. I don't think any economic report will help this market right now.

My price target for Apple is $75 by June. I believe another shoe is ready to drop in the near future.

Oh yeah, did anyone see the bearish action in BIDU and Google despite analyst upgrades this week?

Please be careful out there!

MARKET COMMENTARY FOR TODAY

I would like to recap the "dead cat bounce" that occurred on Tuesday to today. I like to follow the price to volume action of the market to assess the general health of the market. On Monday the markets lost on heavy volume and ended on the lows of the day. On Tuesday, the market started a rally attempt on low volume but big price gains. On Wednesday, stocks started strong but finished weak. These price actions are what bear markets are made of. It creates an illusion of strength and bottoming but I fear we are far from that point. When that day comes, I will change my stance and go with the "trend" and go long. I think a lot of people will get hurt by going long too prematurely. Stay in cash or go short at the opportune time. AAPL, GOOG, BIDU is nearing a new short entry points right now.

Tomorrow is the jobs report. I don't know what that report will hold but if the jobs report is weak or below the consensus of 100K jobs created, we will see a sharp sell off that may trigger the next leg down. Also, keep your eye on the "benign" subprime mortgage lender crisis and keep a watchful eye out for its spread into conventional mortgage lenders as well. I am waiting for the next shoe to drop. Until then, I patiently wait for shorting opportunities.

APPLE AND GOOGLE BEGINNING TO ROLL OVER AGAIN.

Apple (AAPL) is finishing the right shoulder of its head and shoulder base and is poised to break down. This represents a good short opportunity. Google has also been exhibiting bearish chart patterns showing that it closed the last two days in lower price range. It has filled the gap between $459.80 and $463.75 and may test and possibly breach the 200 DMA. It should be high noon for those attempting to find high percentage short position to look at Google while it is in midst of the dead cat bounce.

I have established 3 contracts of GOOG April $440 put positions and look to add on continued dead cat bounces on low volume.

Watch List: CME, AAPL, RIMM, GOOG, BIDU, AKAM to short.
LHCG, CROX, HLYS to go long.

CORRECTION OR BEAR MARKET OR IS IT ONE AND THE SAME?

There are two camps in the market currently. Those who keep calling the bottoms and those who claim that we are in the bear market. What's the difference? All I know is that we are badly broken technically and most leaders have rolled over and have broken at least below 50 DMA and are flirting with 200 DMA. I think that today's benign action on low volume is more of a warning shot that should be heeded by both the shorts and the longs.

Markets have a tendency to act contrary to popular opinions. But what is popular right now? Is it that the market has bottomed and is ready for the next leg up? Or are we due for further pain and deterioration of market technicals and fundamentals? I believe that we are at about 50/50 in terms of popular opinion but everyone is scared. That however has not washed away complacency in the markets. Just listen to Ben Bernake, Paulson, and other "experts" who claim that we are fine and that the global markets are fine. If that is the truth, then can we adequately attribute last week's blood letting as just part of the over due correction? I can harken back to the 2000-2001 when the market experts advised everyone to buy on the way down, to cost average down, that the bottom has been reached, all the way down to the abyss. I feel that those type of psychology or denial is prevelant in today's market.

All of these views are my opinion and what I bring to the table with my experience in the market place. I see that the majority of the market players seem to favor short term correcdtion that was badly needed. Perhaps they are right. But popular consensus or psychology in times of disruption in the market trend is often wrong. As I have been saying all along, this is the market to get contrarian against the market gurus, against human psychology. It is the time to look fear straight in the eye and laugh in the face of seeming danger. It is at that moment, money is made. You must buy the weakness and sell the strength. That is, sell if you are giddy and buy when you are fearful.

You'll know that moment of fear because buying opportunity in this market comes with Armageddon like fervor with noises rivaling those of the valley of death, the groanings of thousands victims, the dark days that are promised to come. At that moment, you must take a deep breath, calm your nerves, and buy for short term scalp. Conversely, when the trumpets of Angels sound, when the music of harps rings so sweet, when the soothing words of perma-bulls ring all clear signal, that is the time to short and short heavily, for the market rewards those who are on guard and respect the "system".

My analysis of the market today is that the volume plays a key pivotal role. On Tuesday the market made first attempt at a rally. While the price gains were broad based and spectacular, the volume lagged. That means that it was day 1 of the "DEAD CAT BOUNCE". Today, the market action was unspectacular and mixed and many stocks gave back their gains on, again, low volume. The price breakouts were from laggards ;such Chicos FAS (CHS), ASSET ACCEPTANCE CORP (AACC). Another absolute leader Intercontinental Exchange (ICE) rolled over on three times normal volume and pierced the 50 DMA. ICE is arguably the "best" stock of prior market uptrend that started in July 2006. So this tells me that underneath this "relief rally" or "dead cat bounce (more like it)", silent distribution is taking place. It is not yet time to get long folks. Will this rally continue? Yes, I think we will continue to show some price appreciations but I believe that we will continue to see lower highs and lower lows in the coming days. Do not underestimate the significance of the subprime market and the rest of the mortgage lending industry. I do not agree with Alan Greenspan (where did this guy come back from anyways, I always thought he was buried with his retirement) when he predicts that the housing market has bottomed. This is coming from a guy who couldn't call a market top or bottom if his coke bottled glasses depended on it. So here's to you Mr. Magoo, lest you forget your "irrational exhuberance speech" that was 4 years too early, that the housing market has yet even began to bottom and that there is, unfortunately, more bloodshed and gnashing of the teeth to come. This will have global consequences.

There are some factors then that will contribute to continued market weakness.
1. US subprime and prime mortgage blow up.
2. Loss of global liquidity from rising YEN which will abolish YEN Carry Trades.
3. We should worry about stagflation and not inflation, which is worse I think.
4. Iranian menace and geopolitical instability.
5. Oil is rebounding, has anyone noticed this?

As always, I am looking to short BIDU, GOOG, CME, RIMM.

Market Bulls Return

bt least temporarily, the market, as expected, had a "dead cat bounce" on lower volume today. Much of today's action is due to the fact that many shorts covered their positions, adding fuel to the fire. The put to call ratio leading up to today was 1.45, a very high number. The market remains technically broken and any upside move, even strong moves on lower volumes must be shorted, but I do not believe tomorrow is the top. If you should want to play the market, the best position is to take the contrarian position at extreme movements in stock prices. I do not think that the underlying fundamentals of this market and the global market is sound. I believe we are in a sick market and the real pain will start after the excess bullishness and froth has been wiped out. Judging by today's action, the bullish sentiment still prevails which bodes well for establishing further short trade.

Baidu and Google both broke to the upside in spectacular fashion, especially for Google, as the longs who bought the weakness got rewarded. As I said before, "buy the weakness and sell the strength". This is a highly volatile market place, and the sooner you get nimble and readjust your thinking, the sooner you can make money.

-By Thursday, I will be adding to BIDU and GOOG shorts with put options. Google should test $465 to $470, where there will be an excellent short opportunity. BIDU should test the $110 level, though I do not think it will breach that mark, which will make a good short entry for the down leg, which hopefully will test the 200 DMA at $93.

The bulls will enjoy one more day of gloating and the shorts will have to endure at least one more day of pain. Cheers!

Rumblings of Bottom

I was reading through Jim Cramer's blogs at The Street.com. He is talking about the market and some high flying momentum stock such as F5 Networks (FFIV) and Akamai (AKAM) as "putting" in the bottom. What the hell does this mean? The daily chart does show that Akamai has finished the day in the upper range and did not sell off today. So does that mean that this stock is ready to go up? I think Mr. Cramer forgets that a down trend has been firmly established and to buck this trend before the market confirms an uptrend, would be asking his faithful readers to go jump off the cliff. I believe that he has hurt a lot of people the past few months with his irresponsible rants on The Mad Money, such as Mastercard (MA), Google (GOOG- remember Google to $600!), Cisco calls, his bold predictions about the top 3 stocks for 2007 (Apple, New York Stock Exchange, and Cisco). Did anyone see where these stocks are at since he recommended them? Sure, we can blame the market right now but I believe that his call that the market bottom is near is irresponsible and is likely to get other people in serious financial trouble. Perhaps they deserve it for listening to Mr. Cramer.

Today was another confirmation of what's ominous about the markets currently. Everything, I mean everything is selling off. Gold, Oil, Equities are all selling off globally. I cannot fathom the underlying reason for this sell off. I have learned long ago not to question the market.
The historians will rightfully assign the reasons and analysis of the current de novo sell off that we are experiencing. Whatever the reason, it is troubling.

The bears are in firm control of the markets right now. As I alluded to before, this market presents a unique opportunity to trade the short term movements. But it would be suicidal to start nibbling at the beaten down stocks in hopes that the bottom is near. No one knows. It is far better to sit on cash or go short I think.

I added to my BIDU short today as I took advantage of the "dead cat bounce" today above $100 level. It has breached the $100 level and tomorrow is a big test to see if it can stay below that level. If it does, it will create a powerful resistance at $100. None the less, if I had to be a betting man, I would say that we will be testing the 200 DMA soon at around $93 level. Time will only tell.

I also started a small April $30 put position (20 contracts in all) in LHCG (LHC Group), a home health care delivery company. It has acted very strong in light of recent market melt down. The law of probability says that when a stock is strong in the face of overwhelming counter trend, it will succumb and base below the gap level. In this case, the gap is near $27 to $28 level.

Tomorrow appears to open higher from today's thrashing of the markets. Astute traders can look to reload on their short positions or scal to the long side as a day trade. The same names that I have been tracking will be followed: GOOG, RIMM, CME, BIDU, LHCG

Good luck everyone, stay safe!

DO NOT BUY THIS FALSE RALLY!

This is a dead cat bounce today. Please do not go long! It is not time, as I foresee more pain ahead for the markets. The pain has not subsided. Most of the longs will sell into the strength and the most prudent thing to do is to go to cash or if you're adventuresome, to short into the short term strength.

SHORT:
GOOG, RIMM, BIDU, AAPL, LHCG

DO I FEEL LUCKY? WELL DO I?

So the Asian markets are selling off which is causing US futures to sell off. This indicates a low open tomorrow. I would caution against jumping into the short side of the trade tomorrow. While the markets may sell off early morning, I believe if there is no negative news concerning the subprime lenders and if the economic reports are not bad, we may actually see a bounce off the lows tomorrow causing a bear trap, at least for tomorrow.

One might say, "but look, Asians are selling off, and our futures look horrible!". Although I agree, sometimes futures and Asian markets have little correlation to the US markets. Why do I say that even though I have been so bearish over the past few weeks? Shouldn't I embrace the encouraging data for the shorts? Well, I would like to remind everyone about volatility. It is nobody's friend. If history has taught me anything, it is easier to take the contrarian position at the extreme points rather than going with the flow during the massive sell offs. One thing is clear. This market is dangerous for even the most seasoned traders. I still think that it would be wisest to sit in cash and wait this storm out. I do not know how this will play out but already, the message boards and news media alike are harping on the impending downturn that will rival 1987 and all of the other worst stock market crashes that preceded us before. The other thing is that it is very rare for the US market to follow Asian markets as it has been the past few weeks. Additionally, I must admit is that the majority of Asian markets are selling off on fears of US markets. It's funny, I thought it was the other way around. So the game goes on.

One interesting thing I did notice few days ago is that gold is also selling off. In times of uncertainty, traders and investors alike flock to either bonds or gold. But gold is selling off! To me that is a negative divergence, which usually state that gold should rally in perceived weak economic environments and decline in periods of economic prosperity. Gold was down $42 last week. I thought based on the gloom and doom that is ahead, we should see gold close to $700, not at $640's. What gives? This is a troubling divergence for me. I will continue to monitor this, but if gold continues to churn or go lower on sell offs, that would mean that the market is not convinced about this recent sell off, and it may just end up being a correction.

So what gives? Do I feel lucky? Do I? Well I don't know. I did get whipsawed a few times last week. I am not sure what the market holds for us tomorrow or even today. As the market is getting ready to open low tomorrow, I see the chances of anything happening at 50/50. It is a crap shoot. I think I may have better odds in Vegas. I think that the payoffs can be huge by playing the game during recent volatility, but the down side can be harrowing. I may just sit tight and wait this one out, at least for tomorrow. If the maket starts to show some life, I may take a long position in CME or RIMM which seems to have not broken down as much as say Google. I think that Google can show a strong bounce if the sell off loses steam tomorrow.

If I was to short tomorrow:
-BIDU
-LHGC
-SHLD
-RIMM
-CME
-GOOG
-AAPL

If the market shows strength go long:
-GOOG
-LHGC
-CME
-RIMM

Stay safe!