The Day that Was - August 1st 2007

Before I get started I want to ask everyone to keep in your thoughts the people involved in the terrible disaster in Minneapolis. And I know for my firefighter Brothers in that area there are some many long days and nights ahead of terrible and heart wrenching work to do. My heart and thoughts are with all involved.

Today was looking like we were going to end with another down day. Towards the end of the day the market sold off all the way until the S&P hit the support point. And as if it was right out of a text book the market bounced right at the support. What has taken place today is that once the S&P hit the support level some buyers stepped in as that is the most likely point where there would be the bounce. Once enough buying started those that were short in the market started covering at the same time. Those holding shorts also know that the support line would be the likely bounce point. So they watched for a few minutes when the buyers started coming in. When the buying was looking strong off of the bounce the shorts started covering in greater numbers. And the two together created the big run up at the end of the day.

So the end of the day rally was two things. The first was bargain buyers taking advantage of a likely bounce point, and the second is shorts covering. In extreme market volatility like we have been experiencing there are vast amounts of stocks being sold, shorted, covered, bought, shorted again, and so on.. that adds to the wild swings we see.

At the end of the day the S&P managed to just squeeze above resistance and close above the line, albeit just barely. So does this end of day rally provide some confidence to bring other buyers to the markets? Right now the market is being moved by the pros. The retail money (you and me) is not enough to have a significant affect on the broad markets during this volatile stage. What we are witnessing mostly here over the past few days is large amounts of money being moved into and out of various stocks and sectors by hedge funds and institutional money.

When the market is in this type of extreme volatility with big ups and downs the markets will be "tested" at each resistance and support levels. It is the reaction of what happens when these key levels are approached that determines if we move up or down. It is like what happens when you put your hand under the water to see if it is too hot or too cold before you get in the shower. If the market gets near a resistance point and it is too hot it pulls back. So now we have another level of resistance above to overcome. Remember my analogy the other night when I described support and resistance is like the floor and ceiling of a building. And that the market fell from the 4th floor down to the 1st floor. Today we climbed back up to the 2nd floor. Still have a ways to go.

The financial sector is still an anchor on the markets holding it down. Housing is just as bad and there is no bottom in sight yet.

Before I post some of the charts tonight I was to say that the new watch list that I am working on and which you will be able to download I am looking forward to everyone seeing. I feel everyone will like it when I make the first issue available for download. It will be a PDF file that you will be able to download and print. In it will be charts, buy points, a description of what it is that I like about the setup, the sector the stock is in, the short interest, and the next earnings release date. There will also be a weekly wrap up that can be printed and a full Microsoft Excel spreadsheet of all my trades showing date, price paid, price sold, gains, loss, etc. I hope all will like it!

Now some charts from today..

The S&P

The Nasdaq

The DOW