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Random Charts and Big Picture Dilemmas


Welcome back Dr. Doom!


As we get ready to begin the Ojai festivus, here are a few charts sticking out like sore thumbs:

Toll Bros. (TOL): stark clear "dandruff" alert; Directional Movement Indicator has a 1 and 2 yr. return of 60% and 93% respectively. It gave a sell signal on 8/4 but only now the intensity of the trend (yellow line) is perking up to meaningful levels (>25); does it need some time to work though oversold stochastics before taking out the "dandruff" neckline?

Click here for the TOL chart

Beazer Homes (BZH): almost identical set-up as TOL. DMI returns were 55% and 29% for 1 and 2 years; DMI intensity weaker; noticeable difference is the rising 50 DMA below the current price, as opposed
to TOL's 50DMA now serving as resistance.

Click here for the BZH chart

Chicago Merc. (CME): lots of longs now trapped from the late June gap up; DMI has 1 and 2 years returns of 90% and 194%; just gave a "sell" signal but the intensity of it is still trending downward; oversold stochastics may keep Boo at bay for a while; Toddo would categorize this name as traders' "crack".

Click here for the CME chart

Southwestern Energy (SWN): 1 and 2 year DMI returns of 19% and 52%; DMI just gave a sell signal; this one has tortured Boo for sometime despite valuation levels well above its peers - as often pointed out by Prof. Dingmann. In the latest weekly by Raymond James' Jeff Saut, he turns short-term negative on energy, a group he has called spot-on for sometime. If Jeff is right, SWN could get hurt more than
its brethren. The SWN monthly adds that "vertigo" look to this whole affair.

Click here for the SWN daily chart

Click here for the SWN monthly chart

S&P 500 (SPX/SPY): The near term levels are regularly discussed in the 'Ville. Here they are in 60 min. intervals. The SPY 122 support is obviously very meaningful.

Click here for the SPX chart

Click here for the SPY chart

Speaking of the S&P 500 as a proxy for the market, a broader question for those of us in the "secular bear" camp is whether that posture still makes sense, and if so, where are we in the secular process of "denial", "migration" and "panic". Nothing has happened in the last few weeks to shine answers on these questions. But after taking a glance at a monthly chart of the SPX and reading yesterday's I/M exchange between Profs. Succo and Reamer, the following questions dawned on me:

A couple of generally accepted definitions of denial are: 1) a defense mechanism that denies painful thoughts; 2) a defense mechanism that is demonstrated by avoidance of disagreeable realities by the mind's refusal to acknowledge them at a conscious level. May or may not be adaptive, depending on the information being denied.

On a psychological level then, does the current convergence of reckless option selling, tight corporate spreads, and upside/down risk-reward equations in the real estate markets reflect the culmination of investors' denial? i.e. of investors' adaptive defense mechanism
aimed at avoiding the disagreeable reality of where we are in the secular cycle?

The market took 34 months to climb a textbook 62% Fibonacci retracement of the 32-month '00-'02 bear leg. Eerie coincidence of time and price, or forewarning symmetry?

These are not rhetorical questions by any means, and I certainly do not have the answers. Just more food for thought in very risky times.

Position in BZH, TOL, SWN, SPX, SPY
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