Trader Tim: "Being exasperated gets old." The buy-the-dippers were out in full force today, as this very overbought market simply refused to go down. Resisting the temptation to"> Trader Tim: "Being exasperated gets old." The buy-the-dippers were out in full force today, as this very overbought market simply refused to go down. Resisting the temptation to" />

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August 30, 2006

Impetuous Bulls

Today's session can best be summed up in the words of Trader Tim: "Being exasperated gets old." The buy-the-dippers were out in full force today, as this very overbought market simply refused to go down. Resisting the temptation to put on some shorts was a very difficult task, but until the bears convince me they've wrestled back control, I am sitting with most of my firing power sidelined.

For a day when the NDX was up a little over a half percent, there were some rather powerful moves in previously beaten stocks. SanDisk added another 3% to its recently magnificent run, while Nvidia popped a healthy 2%. The biggest head-scratcher, though, was the 7.3% bull run in Lam Research... a move that forced me out of what I had viewed as a very promising short. As you can see in the chart below, LRCX put in a well-formed head and shoulders pattern, broke the neck line, and then back-tested it a couple of times while building what appeared to be a classic continuation triangle (green). By all accounts, these shares projected to the low 30s.

stock chart

And then today happened. In retrospect, yesterday's solid volume could have provided a warning, but at most, I would have expected the shares to bounce off the upper bound of the triangle. Not so. LRCX not only took out the triangle, but its neck line as well. I still believe the shares are doomed, but now must wait for a new setup.

In the news, an upwardly-revised GDP number for last quarter bolstered hope for the soft-landing camp, which is just about everybody. I suppose people cannot be blamed for their optimism. A friend of mine with whom I chat frequently makes the good point that no one under the age of 40 has really seen a hard recession in their adult lives, so why expect one now? When reality slaps these people in the face, things are going to get ugly. If you are shrewd enough to pinpoint the psychological tipping point, the markets will be your treasure chest.

Disclosure: Long SNDK, NVDA Puts

 

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