Thursday, December 16, 2004

Bill Cara's words of caution noted

Today GOOG, SIRI, and OSTK got pounded for 3-6% losses, but AAPL, NVDA, and NGPS all held on to 1-3% gains today (the naz lost 16.5 points). All-in-all, my watch list (posted a few days ago) has been dead in the water for a couple of weeks now, so I don't feel like I've missed anything even though the market has been creeping higher. If the leaders aren't taking it higher then I figure it isn't worth playing.


Here is a passage from Bill Cara on the Trader Wizard Daily Show, December 16 2004:



  • "The more ridiculous this stuff gets, the lower the USD will fall, and the higher gold will go. When paper (securities and currency) becomes meaningless, gold, which is real, will inflate in price.

    I have a busy day today in and out to meetings, so I'll have to take a bigger picture view for now. Mergers & Acquisitions, which is always a sign of an equity market top, and the falling dollar, will continue to dominate.

    Risks to capital ownership are rising, which is not to say that this situation could not prevail for some time. Look at 1999 and how long the top took to form. But at a 10,400 Dow, which is 300 points to the south, I thought the equity market had become unreal. So I stepped back...just as I did in December 1999.

    Every day and week now, the technical indicators are showing a riskier position if you are long and in debt. I think leveraged holdings of equities here is a bad thing. The risk/reward ratios are getting completely out of whack.

    The number of new highs versus new lows is declining. Momentum indicators are rolling over and falling. Price to earnings multiples are out of line."


While I take everything anybody says about the market with a huge grain of salt, I know that Cara is not a perenial bear so it is well worth noting his words of caution. I have no open positions right now, but I am watching TASR, TZOO, GOAM, and CAAS very closely. There is a lot of tension coming to a head, especially in TASR and TZOO. You can see a huge wedge coming to a point on both TASR and TZOO's daily chart. Both of these stocks will probably resolve in the same direction, which can be used in conjunction with the direction of the market as sort of a confirmation signal.

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