The Day that Was - July 31st 2007

Before I get started with tonight's market summary I want to once again thank all the people who have been sending me emails and complimenting my charts and analysis. As I have said some days ago, if I can help prevent someone from losing money in the markets then I had a good day, if I help someone make some money then I had an even better day! Again, thank you for the many emails and the kind words. While I may not always get time to respond to all your emails right away please note that I do read them and they are greatly appreciated. I will try to respond to each of you personally.

In the pre market we had some relatively good economic news. Nothing to write home about but it was more of a 'relief type of news' in that there was no bad news and that gave a boost to the futures in the pre market. Then General Motors (GM) beat the street and that gave a substantial boost to the market on the open. Very early in the trading day the markets reached up and tickled the resistance line. The resistance line did not say "uncle" , the resistance held and the markets gave up and started falling back down. Then there was some news that a tropical storm had formed in the Atlantic. While it does not appear to be of any threat to the US Gulf coast (where the oil rigs are) it was a reminder that we are in hurricane season and perhaps we are now seeing the hurricanes begin to get active. That added to the anxiety over the oil inventory data to be released tomorrow added new things for the market to worry about today.

Then American Home Mortgage (AHM) walked onto Wall Street and yelled 'fire'. American Home Mortgage released a statement that they could not make the payments for their loan obligations, and they were looking into ways to save the company. It could come down to liquidating assets. In other words AHM is on the brink of bankruptcy. Everyone knew that at some point someone was going to go bankrupt from the sub prime / prime lending disaster. But the news of it actually happening now sent the bulls running for the doors faster than you can say "bankruptcy".

Ok.. So guess what. Tonight we get news from the Wall Street Journal that Bear Stearns has another hedge fund in serious trouble. The fund which has $900 million in mortgage investments is in big 'doo doo' trouble. It is reported tonight that one investor in the fund had requested a redemption (withdraw from his account) and the request was postponed. Apparently because it has lost so much value Bear Stearns was hoping it would rebound and then they would have enough money to make payments. Well it looks like this is going to be a big issue for Bear Stearns. What is more important here is that Bear Stearns is not honoring redemption requests. Instead they said the following: ...

"we believe by suspending redemptions, we can ensure the best long term results
for our investors. We don't believe it's prudent or in the interest of our
investors to sell assets in this current market environment."

If I were a client of Bear Stearns and they refused to return my money that would be a big problem. And that is what they are doing. In after hours Bear Stearns was trading down even more.

I provided some charts of stocks that were good swing trade ideas. Intel (INTC) and Varian Semiconductor (VSEA). Both did exactly as I thought they would. They rallied and then the big market sell off hit and they pulled back. Before the bad news of the day hit I entered a 1/2 swing trade position on Intel (INTC). With the market being is turmoil I was only going to test the water with limited funds and would not establish a full swing trade unless it reached the next point (confirmation stage). My entry into Intel was a hedge that if resistance was broken and the market was able to rally through it then I would have established a good entry point right off of the trend line. Even though the market could not make it above resistance (and subsequently fell hard later) Intel stayed above the trend line so it is still healthy.

Now for tonight's charts: (click on the chart to see a larger image)

The DOW

The S&P 500

The Nasdaq

Crude Oil

Housing Index

Intel (INTC)

See you in the morning Rebels.. Tomorrow may be a bumpy ride.