The Day that Was - August 7th 2007

Hello my fellow Rebels!

A very quiet morning while everyone was waiting for Santa Clause (Ben Bernanke) to come and bring gifts to the markets. But instead of gifts he gave us a get well card instead. Tonight there are more opinions of what the FOMC statement will do for the markets than there are shares in a cheap pink sheet stock that has been diluted to death.. LOL

The initial reaction was a quick sell off on rather heavy volume. The major indices hit an intraday support level and then bounced. The bounce was shorts covering and some new money coming in. The new money I suspect is people hedging that we have now seen the bottom. Will they be right? Or will they be part of the sellers adding to more down volume if the markets digests the news for a while and decides they don't like it. Time is now a factor in where we are going. All over the world tonight hedge funds, institutional money, and other very large market movers are planning their plays. Will they pile on the shorts on advances or will they buy on dips? I wish I could tell you what they are going to do. What I can say is that it will likely be a battle for a while. Until the major indices can make a substantial move (with very heavy volume) above resistance levels then we still have a market that is unsure of itself.

One thing I observed today while watching the SPY (S&P 500 SPDR) was that the volume during the initial sell off was heavy, then the bounce was lower volume. and that volume got weaker up to the close. That showed a lack of conviction on the buyers to jump in. Will the buyers think about it overnight and jump in tomorrow or will they still sit and wait? Tune in tomorrow for the answer..

I view the FOMC statement as weak. While they did acknowledge there is a problem with the credit situation they did not provide an answer of what they would do to address it if it gets worse. I would like to have see more wording addressing a possible weak economy instead of still talking about inflation. I am still bearish on the financial sectors. After the FOMC statement was released I took a position in SKF (SKF is an ETF that is a 2x short of the DJ Financial Index). Did I do the right thing? I believe there is still more bad news coming in the financial circles and the financial sector has not seen bottom yet. If I am wrong then I will exit the trade and take my lumps. But just like any swing trade I will keep my loss to a minimum. My entry on this trade was not part of the RebelTrader tracked portfolio. I just wanted to pass along what I was doing in my other trading account. The position in SKF that I took is more of a hedge against a market change. If the market drops hard again then the SKF will pay very well. And this would soften losses from other trades that are on the long side of the markets.

It is my opinion that consumer spending will continue to weaken as the housing and credit crunch get worse. If people can't get credit, or they are paying higher and higher rates for their money, and they can't sell their homes because the value has dropped too much, and if new home buyers can't get credit to purchase a new home then this will a trickle down to the consumer spending. People will cut off spending on high ticket luxury items. No big TV's, no fancy iPhones, no shopping for clothes at the high end clothing shops. Trickle down economics is a real thing. It starts with the big stuff (housing) and is felt later in other sectors. When it comes to consumer spending we have already been seeing a downtrend of discretionary spending. and if the credit crisis gets worse then discretionary spending will also accelerate downwards. It becomes a situation that gets worse and worse until someone (FOMC) comes to the rescue to control the bleeding.

Keep in mind that politics also plays a part in what happens in the markets. The Republican party (Bush administration) would like to make everybody believe the economy is wonderful and doing great. Elections are coming down the road. The last thing they want to do now is acknowledge there are problems brewing in the economy. I strongly believe the Bush administration would like to just keep making everybody think that the economy is just peachy keen and will let the next administration deal with it. So it comes down to a race. Will the economy get worse before elections or will they have to acknowledge in stronger terms that people may be losing their homes and home builders can't sell new homes because buyers can't get low interest rate loans? It is a game of poker.. who will fold their cards first? Think about it.

Two of my watch list stocks hit their buy points today. See the two charts shown here. ENG and EXLS both became "in play" today. If you were watching it and took the recommended entry then that is fine. Your still safe because with every trade there is always an exit in clear view in case the market turns out the lights on the whole neighborhood. I myself did not enter these swing trades today because I was too concerned about what the FOMC reaction would do. But I will enter them tomorrow if they are still within the buy point. If they should continue running up I will not chase it. Instead I will maintain my observations on them for you but for me it will be a missed opportunity. Never "chase" a stock to get in. chasing a stock is like chasing a train going down the tracks because you just missed it. But you never know, as soon as you jump on the train may stop once your on it. For all of your trading throughout life, if a trade gets away from you don't worry about it, another train will come along later. If I get an entry on ENG and EXLS it may turn out that you got a better entry price than I will so your gains will be higher than mine. My swing trade portfolio performance will always be based on the price I get in at. So with these trades my gains will be less than yours if the market strength builds (or at least holds).

I have some market index and sector charts tonight. Take a look and see the notes I wrote on each. This will give you a feeling for what I'm looking at. After the market closed today there was news of another mortgage company going under. AEGIS Mortgage suspended its operations. Don't know how this will be perceived in the market tomorrow.

Cisco (CSCO) had super earnings after the close today and this will be a good psychological boost to the tech sector. If you see CSCO having trouble keeping the gains from their great quarter then view this as fear growing in the markets and people still wanting to get out.

Have a great night Rebels!