The Day that Was - July 24th 2007

Ouch... That is going to leave a mark!

I said this morning before the market opened that I was expecting a lot of companies to pullback today. I sure hit that one right on the nose.

We started out in pre market with some "not so great" earnings crossing the wires. Then AT&T reported theirs and I think most investors were just wanting to hear about how the iPhone was doing. What AT&T provided was not enough for the investor community to feel happy and AT&T gaped down at the open. But as the day went on they recovered some but at the end of the day they could not manage to close green (even though AT&T reported a good earnings quarter). Now the investors that were hanging on every word and figure from AT&T left them and went over to Apple and started cashing in their profits. They were fearful that the iPhone was not selling enough. Then a little while later financial analyst CIBC Securities released a statement about a study they just completed and found that store inventories of the iPhone were good (no one was sold out) and they observed customers passing by the iPhone. They summed up their analysis as the iPhone demand was "thin at best". Well that just pushed Apple over the edge and they fell throughout the day.

I expect to see some buying of Apple on Wednesday morning ahead of their earnings which will be after the market closes. I will have my popcorn ready because tomorrow will be one heck of a show to watch as Apple trades in the after market hours when the numbers are released. Will Apple be green or red this time tomorrow? Only Apple holds the answer to that question right now. My feeling is red. I think in Vegas right now they are placing odds on this very same question!

So, we started out the day with the Apple situation, then throw on top of that the bad earnings from Dupont and a big earnings miss from CountryWide Financial and the writing was on the wall that we were going to have a down day. But it only got more interesting when CountryWide held their conference call (which lasted almost 3 hours! That is NOT the norm). They indicated that they were seeing losses in the prime lending portion of their business. We all knew about the sub prime but this time a large mortgage lender was now saying they had troubles with the prime lending side. That was a nuclear bomb on the market, for months we have been hearing that the sub prime was "contained" or words similar to that. But now someone has come out and said the prime sector was being impacted now. I have been saying that we were not done hearing about this issue and that it would propagate into other areas.

And as if that was not enough the company said that the housing market was still weak and that they were seeing "home price depreciation at levels not seen since the Great Depression". It was as if someone yelled 'fire' in a crowded room, everybody started selling in a frenzy.

The financial sector I see continuing to fall over the next few weeks. There will be an occasional reaction bounce here and there but this is not over yet. This is why I have not been recommending any financial, banking, or mortgage sector stocks on RebelTraders. How far will this financial mess extend into other sectors remains to be seen. But I remain very cautious.

On the DOW chart we closed right at support. If the support level fails and we fall back down into the trading range we just broke out of a week or so ago then we have some initial signs of a bearish market coming. I said initial signs, not a confirmation. That would come if the DOW drops below 13250.

I expect to see a reaction bounce on the major indices tomorrow. And we may even close green tomorrow. But will it hold is the part that we will need more days to see. If we continue to fall tomorrow then that will likely amplify the bearish worry on the Street and take us down even faster.

I am not recommending any new long positions tonight, I will watch the trading closely before I attempt a new swing trade. Normally a pullback would be an opportunity to grab a quick swing trade as pullbacks are a normal process of any bull market. And good traders will always seize an opportunity for a quick kill when their prey is weak. But the ferocity of the selling today was concerning.

(Note: even on a pullback a good trader will wait for confirmation that a stock is starting to rebound before jumping on board, the expression: "Never catch a falling knife" means a trader should never buy something that is still going down. That is throwing money into a dark hole where you can't see the bottom)

I need to see where this is going before I would take on a new swing trade. Remember this: Smart traders know when to sit one out. One does not need to trade all the time.

Today I closed the ALGN swing trade when it was trading up on a pre earnings run. Always sell when possible into strength. If I had waited thinking I could get a better price I would have lost my gains as ALGN rolled over shortly after I sold and headed down. Selling into strength is a good habit to develop if your new to the markets. Never worry about squeezing every cent out of a trade. For if you do you will lose more in the long run than just those few extra cents.