The day that was - July 10th 2007

Remember last night I said the market was trading like someone about to go to the dentist. The person going to the dentist got more and more nervous the closer he got to the door to the dentist office. That is how the markets traded yesterday as we got closer to the top of our trading range again.

Now today our "Mr. market" sat in the dentist chair, he was already nervous and then the dentist came in and began working him over. Then the dentist trying to make idle conversation with Mr. Market said things like:

• Did you hear about Sears? They had terrible earnings this morning. Their same store sales were way down. Sears (SHLD) tanked today. Lost 10% of its value in one day. For a company the size of Sears that is a LOT!


• Did you hear about Home Depot? They were gloomy on the housing industry this morning..

(Mr. Market gets his Novocaine shot, but he is getting even more nervous, he is sweating now)

• Did you hear DR Horton (DHI) lowered quarterly expectations due to a 40% drop in new home orders?


• How about that guy Ben Bernanke, he was speaking today and did not say anything to give investors much in the way of any comfort.


• Did you hear crude oil prices went back up again today? At one point today it hit $73 bucks.

(The Novocaine is not working, the more the Dentist was talking the more uncomfortable Mr. Market was getting, he is getting anxious)

• Did you hear that the sub-prime lending problem is back in the news? Looks like it is bigger than expected. And the financial sector got hammered today.


• Did you hear the US dollar dropped to a new low vs the Euro and a 26 year low vs the British pound.

That was it.. Mr. Market was now having a panic attack and could not take it any more. He got up out of the chair and ran screaming out of the office. And on the way out the Dentist said to him "Did you hear that Moody's downgraded 399 sub prime residential mortgage backed securities" ? That just made Mr. Market run even faster for the door.

Ok.. I made the market action today into a little story. But what happened is that we had a triple top today. Three times now the market has failed to break out of the trading range we are in. I said yesterday that we were reaching the top of the trading range again and the big money was nervous about that. When the markets are trading within a sideways trading range every bit of news is amplified. What may just roll off the shoulders of many in a strong bull market will instead weigh on the shoulders of the big money players when the markets are in a sideways state.

Every analyst and talking head on CNBC will say the decline today is due to this thing or the other. But few will say that the major indices were approaching the top of their respective trading ranges again and big money is cautious, so when ANY bad news comes along they leave the table again. I call it the way it is. Big money (who really are the ones that move the markets) all rely on each other to benefit in the markets. When the markets are trading in a sideways trading range the big money all tip toe through the sectors as to not make any big waves and hoping to catch a gain from some other big money holder and their play. And when some kind of bad news comes along they panic because they are concerned about how the 'other' big money will react. So they take their money out to protect their capital and the next thing you know we have a selling panic. Meanwhile us small traders are almost knocked over as the big money runs for the door. We do the best we can to protect our small money in the midst of the whirlwind of activity. We mind our stops and don't panic. We remain disciplined and calm. The market will come back. After we double check our wallets and make sure our trades are OK then we pull up a chair and wait for the big money to come back to play. How long it takes for them to come back? Well for that we keep watching the indices and charts for the clues.

Right now we are right in the middle of the trading range again. Will the DJIA 13260 hold again if the decline continues? It must hold otherwise the makings of a bear market will be set in motion.