The day that was - June 29th 2007

Some early buying on low volume led to end of day selling on higher volume. The DOW experienced an intraday swing of over 200 points. Up almost 100 by mid morning to down almost 100 by late afternoon. The combination of higher crude oil prices, the car bombs discovered in London, the holiday coming up, the already volatile markets conditions, and the end of the quarter "shifting" of assets by the money managers at mutual funds all led to the markets behavior.

Look at the DOW chart I have in my public chart list. Keep in mind that we are still inside a trading range. The markets are still undecided here. While I am bullish on the markets for the near future the fact that we are in this sideways trading range makes it difficult to get too heavy on new trades. What is happening here is that for every attempt the bulls attempt to rally the bears come to the party and kill it. Makes swing trades very difficult.

The one current open position in the FP80 portfolio (BIG) also pulled back on Friday but is still above the buy price. We are waiting for it to advance above $30.50 as a confirmation of more buying intensity before we go in with an additional 1/3 of our swing trade funds. Scaling into a swing trade or position trade is the safest and smartest way to trade. You get the advantage of having some of your money in at the lowest price while at the same time we are testing the trade (dipping our toes in the water). And if everything is OK then we go in all the way. Normally I would scale into a swing trade by starting with 1/2 of my normal swing trade funds allocated for any one trade. And upon confirmation of a successful setup I add the second portion. But with the increased volatility right now I am temporarily using 1/3 as my starting position. By doing this the risk is reduced even further if the markets take a dive and the stop loss point is triggered then the loss on the trade is even less than if you had gone all in from the start. Reducing ones risk is always a key to success.

To help illustrate the concept of how one should divide up their capital for swing trading see the chart here (click on the chart to enlarge). Remember, it does not matter how much you set aside for swing trading. The concept is to take whatever that amount of funds is and divide it up into 10 slices. And then each swing trade becomes one slice of your total swing trade funds.

I am working on some new swing trade charts and ideas. And I will post new charts by Sunday night for you to view.

Final thought for the day. The hype in Apple (AAPL) is done. The excitement in the iPhone is done. And for now the stock price of AAPL will likely pullback as the hype is quickly vanishing.

Sell off Friday

Selling is picking up as we get closer to the end of the day. With the news of another bomb found in London there is some additional apprehension about leaving money in the market over the weekend.

All sectors are selling off here into the close. Our play (BIG) is also taking a hit but it is still above the buy point and I have no worries about it. Looks like my prediction on Apple will come true and may close in the red. Big share holders in Apple have been selling today on the increased volume brought on by the iPhone hype.

As expected.. profit taking now taking over

Apple is now heading down, again as I predicted it would. Large sales of Apple now passing through the ticker as the large money traders are cashing in.

The broad market is also selling off here. Will there be any brave soles to step up to the plate to take a swing at a few trades before the end of the day? Can't say. But at this point during the lunch hour it looks like the pros are taking their money and calling it quits for the day and heading home with their loot.

Mid day update

The buying volume is generally on the light side. I'm expecting to see some profit taking in the afternoon leading into the weekend. Also with the additional news of explosive devices being discovered in London and the announcement that New York City is tightening security because of the events in London will likely have an added effect for the market today. The last thing the pros want to do is leave their money in the markets over the weekend when there is news that may give investors fear. So they like to take the money out and keep it under the bed until the "all clear" is given.

Apple is trading on high volume so far and soon I am expecting to see a lot of profit taking. I would not be surprised if Apple ends up closing in the red today.

Pre market view - June 29th

Trying to find something to gauge the market this morning and so far there is nothing notable to to get a clear picture of where we are going today. With the news this morning of a car bomb discovered in London I looked at the FTSE index and find that it is down currently. I don't see any evidence that the London markets are being impacted by the news of the car bomb in their Country but instead it looks like it is down over concerns over our FOMC statement from yesterday.

The only stocks doing good this morning in London are energy related stocks. Oil producers and services are up while the financial sector in London is taking a hit. If we are to get a feel for how our markets will do today then I would expect to see some volatility in the financial sectors here today. And the oil and energy sector may have some buying today.

The Asian markets were up a little and Toyota was a big winner there.

Futures are down, gold is up a little bit, and crude is up a little and is over $70 (70 seems to have become a psychological number, people hear 'over 70' and it has an impact on people. So whenever we see crude go above 70 the impact starts to increase).

Yesterday after the market closed Research in Motion (RIMM) released their earnings and it was good. RIMM is trading up in pre market. This may have an impact on Apple (AAPL) today. With Apple already having a good run over the past couple months and today being the big iPhone day there is likely going to be some profit taking on Apple now. Remember that in trading the pros will use liquidity (volume) to get out at a decent price. Think of it this way, if you owned 50,000 shares of Apple and you wanted to finally take your profits you will wait for some big news event on the stock to sell in to. You take advantage of others buying so you can sell yours without it having a big impact on the price. Selling while others are buying is how large shareholders take their profits and slip away without it being noticed too much. With the iPhone being the big news all over the media it will probably bring "new money" into the stock as the retail investor will now want to get into the action. So they start buying and the big money will take advantage of that and get out. So we will see some added volatility in Apple today.

As I said last night I believe we will have another pullback in the major indices again soon but my long term view is still bullish at this time. We are still in a trading range in the indices so until we see the the break above this range we are still in a "yellow flag" condition.

The day that was - June 28th

All morning the markets were quiet. Everybody was just standing around waiting for the FOMC statement. It was expected that they were going to leave the rates unchanged so there was really no anticipation over that matter. What everyone was waiting for was how they were going to word the statement.

It's interesting, the FOMC statement is gone over with a fine tooth comb looking for clues like it was something from Miami CSI! The analysts tear apart every word in order to determine what the FOMC members are really thinking. They are trying to read into the future. It is not good enough to simply take what the FOMC statement says on the surface, it has to be analyzed, x-ray'd, dissected, and scrutinized in every which way. In the end the general consensus is that the FOMC members feel the economy will continue to grow at a moderate pace over the next few quarters. And that inflation was generally in check but they did add this statement: "sustained moderation in inflation pressures has yet to be convincingly demonstrated". That gives them wiggle room for the future and that kept the market from turning completely bullish. The overall mood of the statement was good whereas the markets are concerned, but it was not a strong call to arm for the bulls.

The FOMC statement can be read here.

The reaction after the statement was as expected, about 15 minutes of whirlwind gale force winds as everybody scrambled as the analysts started dissecting the statement. In the end the market still finished "OK".. no bull rally, but no bear stampede either.

Tomorrow will be a real test as the statement will have set in overnight in all the market players and they will have been working on their playbooks for tomorrow. We will have to see what plays they have planned before we really know who wins this game.

But for us we will carry on as usual and let the market tell us what side to be on. Remember, in the markets we really don't care who we root for.. we just root for who ever will make us money! If it is a bull market then wave the bull flags... a bear market then we wave the bear flags.. pretty simple. Right now it is a tie ball game.





The DOW chart shown here from today shows we ended the day in a 'doji' (means indecision). We also hit a minor resistance level today. I anticipate another pullback in the broad markets coming up. Will it retest support and bounce like it did yesterday? Or will it fall through? My felling is that we will go back up.

Our current open position (BIG) is doing well and almost hit the second buy point today. Original buy price yesterday was $29.20. It closed today at $30.41. Stop loss for this trade is $28.20.



I will have some new chart setups and watch lists soon. Note that on the right side of the web site I have added a section where current open positions will be listed as well as watch list items when they are added in the future.





Fp80

FOMC issues statement - looks bullish for markets

The FOMC statement left the rate unchanged as everyone expected. Their wording said they expect economy to grow at a moderate pace over the coming quarters. Mostly bullish for the stock markets.

Keep an eye on BIG. It is getting close to the next buy point. Add another 1/3 to your position in BIG on a move over $30.50

Fp80

Calm before the storm ?

The markets are generally quiet so far. Most people of course are waiting for the 2:15 announcement from the FOMC before knowing what direction the market may take. Until then a lot of folks are taking a few zzzzzz's before then.

My new position in Big Lots (BIG) is doing fine. It is just churning around a little like a lot of other stocks right now. Next buy point for BIG will be when it moves up over $30.50.

Once this market finds some direction and settles out I will be posting new charts and setups for us to watch.

Fp80

The day that will be..

Is in the hands of the FOMC and what their statement is when it is released at 2:15 today. So far it is a fairly quiet morning in pre-market activity. The Asian markets closed up a bit following our rally yesterday.

Apple (AAPL) is trading up a little bit pre market on light volume so far. The hype surrounding the iPhone is priced in to the stock at these levels I feel. Once the iPhone is released if there are any problems at all that make it to the press (dropped calls, phone locks up, problems with the battery life, etc) then some of this hype that is now built into the stock price will dwindle away. How do I feel about the iPhone? I'm not going to stand in line for one. I'm more than happy with my iPod and my Verizon Wireless phone. But I will say the iPhone is really cool! :)

So we wait for the FOMC statement. Just before 2:15 be sure to set paperweights on top of your desk to keep everything in place in case there is a windstorm reaction to anything they say. Usually when the FOMC issues their statements there is an initial reaction gust that lasts for about 10 to 20 minutes before settling down. Sometimes these initial gusts can be hurricane force and other times they are a mere sneeze. But with our turbulent market over the past couple weeks I predict strong winds around 2:15 today. Which way will they blow, now that I can't predict. Only Ben Bernanke, FOMC Chairman, can answer that.

Quote of the Day

To affect the quality of the day, that is the highest of the arts.

... Henry David Thoreau 1817-1862

The day that was..

Good evening fellow Rebels..

Today started out with the futures down and that is how we started out the trading. I said this morning that I expected some buying to come in on the theory that some large money movers would step in on the decline and start buying up some things at a big discount. Not that their action means the market became safe again, but instead was a signal that many have positioned themselves for the chance that the market had bottomed in this recent turbulent period.

If you look at the DOW chart from today you will see that the index bounced right at the bottom of the trading range that I had identified last week. This is why some of the large money holders placed their bets today. They were keying in on the trading range support and that would be as a good of a spot as any right now to take a position on the chance the market will recover from here. The question still remains of course and that is will this recovery be short lived or not. Will the markets test their support ranges again or not? On Thursday the FOMC will release their statement following their two day meeting. A lot of where the markets go from here will rest on what they say.

Even with the news this morning from the CEO of Toll Brothers (housing sector) that he did not see a recovery until next year did not seem to keep the large money from making a stab on some very oversold stocks.

At lunchtime I was observing the trading on Big Lots (BIG) and we had good up volume following a few days of churning at the trend line support area. I like the play in BIG because the support is strong and the potential is good for about a 15% gain. In other words this play has a good risk/reward ratio. The only thing is that the broad market we are in has been nothing but risky. So that is why I decided to take an entry on BIG with only 1/3 of my normal swing trade funds. This way I got in on the bottom bounce and will add more when the next technical confirmation takes place (which will be on a move up past $30.50). But in the event something else happens in the markets and BIG fails then I am only in with a 1/3 of my normal trade size so if I get stopped out then my loss will be very minimal. But this is a good trade with good potential. Now we just have to get the broad markets to stop playing around and continue it's uptrend :)

The chart shown here is the play I identified on 6-19 for BIG. It is the current chart from today and you will notice that it is very oversold but has been holding up well right around the trend support line during the market turbulence of the last couple weeks. Today's move off the trend line was a signal that the sellers had left the room and the buyers had control. Now we have to find the key to the door and lock it to keep the sellers out ! I'm using a stop loss on this play of $28.20 which is just a hair under the Fibonacci retracement level shown on the chart.

All eyes and ears will be on what comes out of the FOMC meeting on Thursday afternoon. At 2:15pm we will get a read on what their thoughts are. Expect the broad market to be volatile at that moment.

A big thank you !

For all of the emails I have been receiving saying how much they enjoy the new rebeltraders site. And for the compliments on my market commentary and other articles that I write.

I enjoy making the site work and I am even more happy that there are people reading it and gaining something from it. The number of users signing up to receive the updates is increasing each day and I thank you for that.

Again, many thanks for the nice compliments. :)

Fp80

Big Lots (BIG) - buy 1/3 position

This morning the markets traded down as expected by the pre market futures. And I stated this morning that there may be some buying in the morning as the major indices have bounced from support (see the DOW chart in my public chart list, the DOW bounced exactly at the point I indicated would be a major support area).

With that in mind and right now there is still some buying I want to take a position in BIG as this chart is still one of my favorites right now. For the past few days it has been churning right at it's long term trend support line. And that support line has been keeping the stock from falling any more. What I am going to do since we are still in a volatile market is I'm going to go in with only a 1/3 of my normal swing trade size to start with here at these current price levels. This way we position ourselves with only a small amount of our swing trade funds in case the market takes another big dive then our stop out will be on only a small amount of funds.

If we get some market recovery then we will add another 1/3 on the move above $30.50. And then the final 1/3 I'll decide after I see how the chart ends the day.

You can buy here now 1/3 of a normal swing trade on BIG. Don't be too concerned if the price moves around a bit today as it is churning here. The key support level is $28.65. So as long as it stays above $28.65 it is still safe to buy a 1/3.

Long BIG @ $29.20 (1/3 of swing trade funds)

Stop Loss: $28.20

Housing sector

This morning the CEO of Toll Brothers said he did not expect to see a rebound in the housing market until at least April 2008.

What a bummer.. any more bad news someone wants to throw at us do it now and lets get it overwith so we can get the markets back in shape!

Pre Market - futures dropping

The 'durable goods' data was just released and the numbers were not well liked by Wall Street. Futures take a sudden drop.

Is this setting the stage for another down day in the markets? Or will this be the proverbial "last straw" that opportunity hunters will pray upon and thus start buying? I think we will see some buying early on that very idea by large money speculators. But what will happen by the end of the day is the question that can not be answered yet.

Remember that the FOMC meeting begins today and the results to be released tomorrow at 2:15pm.

Fp80

Quote of the Day

Some men see things as they are and say "why?" - I dream things that
never were and say "why not?"

... George Bernard Shaw, 1856-1950

Buying on the way down...

Last night before I had to leave the house to go to a meeting I caught a few minutes of Cramer (the TV was still on CNBC from the morning.. really, it was). He was in the middle of a discussion on buying a stock each time the stock price went lower. He said if it drops a point then buy another 100 shares, drops another point go in even more, and on and on. What was completely void in his discussion was the topic of charts. Not once in the time I was watching did he say anything about long term trend support, support & resistance, etc. Nothing at all about the chart. He only said to keep buying as the price went down.

This has got to be the biggest and worst things I have ever heard him say. To me it is irresponsible to advise people to do that with their money. That is the wrong money management plan and is a potential disaster in the making for your capital.

Remember that the chart is our x-ray into the company. The chart tells us the health of the stock. For it represents all forms of money involved in that stock. It shows the big hedge fund money, it show the mutual fund money, it shows the investing public money (you & me) and everything else in between. The chart does not filter out anyone. It displays all monies involved day to day in the stock. So the chart is the most important tool we have in our trading arsenal (second only to our own grey matter) to read the health of our stock.

When you have a chart that has been trending up for many years and can be identified by major trend lines on weekly and monthly charts then that trend is your key to knowing when there is a significant shift in the people moving money in and out of that stock. In chart analysis the break of a major trend line is the most significant marker of a change. Pullbacks to moving averages, breakouts from consolidation, triangles, etc. don't measure up to the importance of a major trend line break. A trend that has been in force for 5 or more years for example is paramount in its significance to the health of the stock.

So when Cramer started speaking about how to keep buying when a stock starts dropping is irresponsible without addressing limits and charts. If the uninformed investor who watches his show decides he is going to do as he suggested and he has a stock in his IRA that has been dropping and he decides to keep buying more (based on Cramer and his buy, buy, buy idea on the way down) what is to prevent this investor from buying more shares of a stock that is in serious trouble? Without consulting a chart and understanding some basic technical analysis concepts this investor will just throw more money on a potentially already bad stock. When all is said and done this poor investor (and he will be poor when his investment turns to nothing) will be wondering why years later he has not made any money, or even worse has lost money.

Mr. Cramer has made it clear on numerous occasions that he does not believe in technical analysis. As he so demonstrated one night when he stood on his head and said he was a "head and shoulders" pattern and mocked people who study the charts. Well if he ran a hedge fund years ago then he had to of used charts and understands how to read them. So why would he now boo hoo charts and technical analysis? Guess only he knows that answer. Perhaps he does not want to give any power to the viewers to see through his recommendations???

The point I'm making here is that no one should ever buy on the way down unless they fully understand the chart and can identify the major trend lines. This way the investor could tell if the drop in price was nothing more than a sector rotation drop or some other minor cause and can say that the stock is still healthy (because it is still above the major trend support). And I should add that adding to your position is only acceptable for long term investments. But the chart still takes priority in the decision making process, even with a long term investment. I feel bad for the investors who blindly follow Mr. Cramer and don't take the time to understand for themselves the risks of buying on the way down. Without knowing the danger signs that a chart can signal then that person could be buying more shares of a stock that is on its way to the stock cemetery.

Did you know that during the Enron collapse some major investment analysts were advising their clients to add more shares, to buy more! Yes, it is true. While the smart investors who looked at the chart knew it was in trouble and got out before losing everything.

I want to quote another passage from one of William O'Neil's books (founder of Investors Business Daily)..

One of the most unprofessional things a stockbroker can do is hesitate or
fail to call customers whose stocks are down in price. That's when the customer
needs help the most. Shirking this duty in difficult periods shows a lack of
courage under pressure.
About the only thing that's worse is for brokers to take themselves off the
hook by advising customers to "average down" (buy more of a stock that already
shows a loss). If I were advised to do this, I'd close my account and look for a
smarter broker.
Everyone loves to buy stocks; no one loves to sell them. As long as you
hold a stock, you still have hope it might come back up enough to at least get
you out even. Once you sell, you abandon all hope and accept the cold reality of
temporary defeat.
Investors are always hoping rather than being realistic. The fact that you
want a stock to go up so you can at least get out even has nothing to do with
the action and brutal reality of the market. The market obeys only the law of
supply and demand.

My advice is to never average down. If you have a trade that is not working then why throw more money into the fire. If the trade is not working then you should not be in it anyway. Because your money management rules would have you out of the trade when it went the wrong way. Protect your capital! This is key to winning. Never deviate from your stop loss rules, ever!

Volatility kills the market again

That darn $VIX !! Today, just like yesterday the VIX spiked again and today it ended the day at the highest level of the week. The chart below is the volatility chart for the past two days (5 minute chart).

The markets have become extremely hostile for us traders. Even long term buy and hold investors are seeing some of their gains from the early part of this year slip away. Again, just like yesterday some money was placed on the table to only have the pit boss (bears in this case) take it away. More later...

Fp80

Once again the indecision has turned into hard selling

At 2:30 the sellers are picking up the pace (again!). Now the major indices are red (again!). The gains of the morning have all been taken away. This is why we are not in there trying to fight this action right now. The big money is causing this price action right now, hedge funds, large money speculators, day traders, and other large money controllers are what is moving the markets right now.

We are just small potatoes and if we try to trade in their with this mayhem we will be mashed potatoes!

We are stuck in this range still

Trading is oscillating back and forth within a range. there is no conviction at all to the market direction. Again, this is why I'm not taking any new trades just yet. And you should not be trying to enter new swing trades here either. With the trading moving back and forth within a range the chances are good you can get stopped out of your trade.

Remember that as swing traders we want as many forces working in our favor for us to succeed. This volatility is not one of those forces we want.

Today the market has gone up fairly well at one point to again have it all erased. There is no need to fight this action.

The house won that bet..

In 90 minutes those that were betting on the long side have already lost. In a short period of time we have been up and then quickly those gains were in one swoop taken off the table and house won that round.

Volatility is high yet again. Continue to stay on the side lines and watch from a safe distance. This is not a market to be trying to get in a swing trade yet. There will come a time that we will spot an opportunity to squeeze in under the mayhem. But right now.. lets watch.

If you feel the need to be "in a trade" right now then you are not adhering to a disciplined plan. To be trading just for the sake of trading will lead your capital down a hole fast. The real winners in the markets are those that wait for the right moment to make their entry.

Place your bets..

Well not really, but that is what the market is going to do today. There is no clear direction here. So any money put into the market this morning is a bet. No different than putting money down on the roulette wheel in Vegas.

It won't be until after a few spins of the wheels will more money either be put in or taken out. There may be some bears hiding under the wheel controlling it. The brave souls placing the initial bets will be the lab rats for the rest of the investing community. They will be looking over the shoulders of those placing the bets to see what kinds of odds the table is paying. If they like what they see then we will have some more players as the day goes on. But be warned.. we can see another running for the doors again if anything spooks the players.

We are still in a "trend-less" period in the market as it is deciding what it will do. I still have some charts I like and I want to play them. But only when the time is right. And as of this moment the time is not right... yet

Welcome to the new members of Rebel Traders !

The word must be spreading because the number of people subscribing to the Rebel Traders site is growing rapidly. I welcome all of you and hope you will enjoy this site as well as prosper from it.

Please feel free to email me to ask questions or to just say hello. I look forward to the future when Rebel Traders will have additional web pages setup for the members to interact with each other and to provide their own thoughts and charts. This is being worked on and in the future Rebel Traders will grow into an interactive site for all members to use.

Your host,
FP80

The market is a tennis match

And we are all sitting right in the middle of the court. We are in the middle of a war here in the market right now. We have a situation where the markets are "trend-less". It is trading in a range of indecision and any news sends the bears or the bulls running. Only to have another piece of news switch the ball to the other side of the court.

When I sold all my open positions last week it was to protect the gains I had accumulated up to that point. And I have not recommended taking any new positions since that time because when the market is lost, like it is now, and trying to find a road to take we don't know if the trend will go up or if the trend will be to the downside once it makes up its mind.

When the major indices are trading in a range between two points it is pointless to try and take new long or short positions until the market shows us her cards. The key is when the indices move up or below the current range they are in. Only then we can determine some sense of market direction. Until then it is safer to wait it out. I feel the only thing that will have a large enough impact on the market direction will be the FOMC meeting announcement on Thursday. The wording of their statement will be pivotal in helping set the market on some sort of course. Until then we may have some more extreme swings in the markets. And trying to swing trade while these emotional fluctuations in the markets are taking place is just asking for trouble.

Some would say that since the market seems to be in trouble here should going short be the best thing to do? Yes, if the market trend was to the downside. But we don't have a trend here. What we have is fear and greed battling over every morsel of news thrown into the pits. At some point either the bulls or the bears will be driven out and what were left with will decide how we should position ourselves for our financial benefit.

An example of the feeding frenzy today is the news that came out around 2:30 that Goldman Sachs may have some problems relating to the sub prime woes. That news sent the bears charging into the pits and devoured all the bulls within a couple of hours. The chart shown here is a 5 minute chart of today's trading on Goldman Sachs. Pretty scary chart.

Now what happens next to Goldman Sachs will depend on what the details are of this sub prime issue. The sell off in Goldman Sachs today was more of a "sell and I'll worry about it later" reaction. People did not want to take any chances and they sold out quickly. Now it may turn out that the news is not so bad after all and then we will have a surge of bargain bull shoppers running in to grab up the pieces left by the bears. But only time will tell.

The financial sector was a big downer today (helped along by the GS story). When financials start selling out then that sends a new type of fear into the markets. And a type of fear that we have to watch and see how it unfolds. Adding more salt to the wound was a report that the SEC is looking into Bear Stearns and their restatement of losses at one of their hedge funds.

And to top off the day (actually started the day off) the housing data was released and it showed that existing home sales fell to the lowest level since 2003.

Just where does all of this leave us? A lot of people are licking their wounds tonight. They got burned big time by the massive drop today. At mid day we were having a bull rally and then all of a sudden panic fear took over and selling took over in force. Left a lot of people with wounds to take care of tonight. Tomorrow should be a lighter than normal trading volume day because nobody knows what the market is going to do next. And because of this more people are going to nurse their wounds instead of getting back on the horse.. just yet.

Fp80

Market nose dive

This is why I did not recommend any new trades today. The market volatility is just too high for comfort. And now we are seeing the results of that volatility again. And the bears have been very sneaky lately. Better for us to sit on the side lines and watch the battle with our money safely inside our pockets for now.

An earthquake through the financial sector just hit

Reports that Goldman Sachs may have some issues with the sub prime woes are crossing the wires. Don’t know to what extent it is but the report alone is sending tremors down Wall Street. Will this be a small tremor or are we going to have a blown 8.0 on the Richter scale?

People are dumping shares of GS here right now like they were hot coals. This is sending bad vibes through the market here big time. Another situation going on right now of “sell now and we’ll ask questions later”

Someone just opened the cage on the bears...

Once again the bears stayed in hiding just long enough to let the bulls think it was safe to come out. There was some good buying going earlier on was has been perceived as some "bargain prices" following the big drop in stocks over the past week or so. At first this morning the buying was cautious followed by a little more enthusiasm. Then all of a sudden all of the gains that people had bought into this morning have all been chomped to bits by a stampede of bears through Wall Street. We just saw an 80 point drop in the DOW in a very short time.

Reminded me of the days when I was a small kid on Halloween and I would have my bag full of candy and treats only to be stopped by the bully in town and he would steal my candy from me (really did happen!). So the bulls had their bags loaded up with some stocks today as they were on a shopping spree (blue light special!) and then stopped at the door by a pack of bears and they took the bags away.

This is the kind of action that makes the market potentially weaker. What happens if you keep getting beat up when you walk down a certain street.. you don't go down that street anymore. Self defense mechanisms kick in. Same thing applies to the markets. We still have 90 minutes left in the market today. If we don't see some strength in the bulls by the end of the day then we may have more battles ahead of us.

Monday Update

So far today we have seen some wild swings in the market. On the $INDU DOW index there is some weak resistance at 13500 and so far today the DOW has hit that point to only be pushed back down. The market is stumbling a bit on trying to recover.

Still watching Big Lots (BIG) for an entry when the time is right. There is a healthy amount of volume churning on this stock right now but the price needs to move up before we get in this one. There has to be some confirmation that the sellers have had enough of chewing on this and will let the bulls get their turn at it. There are some signs that this is happening, but not good enough for me yet to say were buying.

So far today the sectors that are lagging are energy, oil, coal, natural gas, gold, tech, and silver.

Sectors carrying to torch today so far are telecommunications, tobacco, utilities, restaurants, transports, drugs, banks, healthcare, and media.

FP80

Quote of the Day

"The knowledge of past times.... is both an ornament and nutriment to the human mind."

....Leonardo da Vinci (1452-1519)

DOW Double Top ?

In technical analysis a double top pattern is a warning sign of a possible trend reversal. Two things have to happen for a double pattern to "confirm"

1. A double top price action has to occur. And that has happened.
2. The price must fall to a point below the recent trading range. That is what we have to watch for. If that does happen then it is considered a "confirmed" double top pattern and subsequent trend reversal is in process.

We need to watch the DOW carefully for 13275 to hold. See chart.

Why do we wait for prices to go up?

Someone once asked me...

"Why do you wait for the price of the stock to go up before you buy it? If
you like the stock so much why don't you buy it now when it is cheaper".

Well that is a question that any sane person would ask, and it makes perfect sense why someone would ask a question like that. Isn't the whole concept of buying stocks to buy low and sell high? The answer is that even though you may believe a stock (and the company behind the stock) is good we traders need to know how the market thinks of them. It does not matter what we think, but what does the people in the market with money think... that is the key!

Perhaps you have heard good things about a company and their products, maybe something about a good management team, or perhaps they have released some incredibly good sales data. Some nice starting points for any investment research. But what does the market think about them? I'm not talking about analysts at the big investment firms (who may have their own agenda) but what do the people with money in their pockets and big investors think of the company?

To answer that question we read the tape. Yep, reading the tape (technical analysis of the charts). Understanding the price movement of a stock is reading right into the minds of the investors putting their money into (or taking money out of) the stock. It is important to remember that any stock price moves up or down for only one reason. And that reason is people moving their money... in or out of the stock.

The science of technical analysis of stock charts is the study of human behavior. By interpreting the movements on the charts we are seeing the greed & fear behind the scenes of the people with the money. When we see a stock price begin to fall and the number of people selling is tiny compared to when the price was going up that tells us that as a collective the majority of the money is "sticking with it". Only a small amount of people are taking money out. On the other hand when we see a large number of people (volume) taking money out as compared to the volume when the price was going up then we have a big warning sign before us. It is telling us that the mass collective thinking on the stock is to "get out".

So how does this benefit us? In every way it benefits us. We use the charts to tell us what the market thinks of a stock. And we do this by applying technical analysis to the charts. Technical analysis on the surface may sound very geekish, nerdy, or downright complicated. But what it is at its core is the study of people. It is nothing more than that. We only want to buy stocks that people are putting money into. This way we have a better shot at the price going up. Even a great company with good sales figures and super products can be a loser on Wall Street. To know a winner from a loser we have to know where other people are placing their money. Because in the markets we really care only about one thing.. to have the stocks we are trading go up.

So getting back to the original question. Why do we wait for the price to go up before buying? The answer is that we want proof that people are buying a stock before we hop on also. When we look at a chart and if I put some notes on it that says "wait for a break above a certain price" that means that the stock is currently in a state of indecision perhaps, and that we want to see a continuation of more money flowing into a stock before we jump into it. If we were to use the buy it now premise without waiting for a clear sign then we could be jumping onto a train that is dead and is not going to go anywhere.. We could be sitting on that train waiting for a long time before, if ever it moves up. And even worse it could go down. That is why we wait for the train (stock) to kick up its engine and blow the whistle that it is going to start moving. That is when we get on board. The charts tell us where the money is, and we want to be on the same side of the trade as the rest of the money. Forget about how you feel about a company. What you always need to ask yourself is "What does the market (money) think about the company".

A passage from Jesse Livermore in the book "Reminiscences of a Stock Operator"... (by Edwin Lefevre)

Not so long ago I was with some friends. They got to talking wheat. Some of
them were bullish and others bearish. Finally they asked me what I thought.
Well, I had been studying the market for some time. I knew that they did not
want any statistics or analyses of conditions. So I said: "If you want to make
some money out of wheat I can tell you how to do it"
They all said they did and I told them, "If you are sure you wish to make
money in wheat just you watch it. Wait. The moment it crosses $1.20 buy it and
you will get a nice quick play in it!"
"Why not buy it now, at $1.14?", one of the party asked.
"Because I don't know yet that it is going up at all".
"Then why buy it at $1.20? It seems a mighty high price."
"Do you wish to gamble blindly in the hope of getting a great big profit or
do you wish to speculate intelligently and get a smaller but much more probable
profit?"

They all said they wanted the smaller but surer profit...

The Week Ahead

Looking at what is coming up this week we have some events that could be significant market sentiment movers.

• Monday: Existing home sales data


• Tuesday: Consumer Confidence, New home sales data


• Wednesday: Durable goods data, FOMC meeting begins


• Thursday: FOMC decision, jobless claims, natural gas inventories,


• Friday: Personal income & spending

The ones that will have the most impact will be any surprises in housing data, unemployment data, and of course what comes out of the FOMC meeting.

While it is not expected the feds will do anything with the interest rates this week it always comes down to "how" they say it. A lot of people hang their hats on the what the feds say in their statement following the meeting. They essentially are looking at tea leaves to determine how the feds are feeling about the overall economy. In other words, they look for any clues about what the feds will do down the road.

The week we just got through ended on Friday with a pretty sour note. The selling was heavy and it was pretty much a constant event the whole day. The major indices took a dive and did not come up for air. The financial sector was the biggest impact on the market Friday with more concern over the subprime mortgage lending issue. This added to the selling intensity and by the end of the day it was a market wide "sell now and ask questions later" reaction.

So where are we going this week? I feel this week will start off with some of the large money folks 'testing' the markets. Friday was like someone turned up the heat on the hot tub and everybody was jumping out of the water as it got too hot. Now we will be seeing some cautious people dipping their toes in to see how the water feels. And I think that it is going to take strong signs of people getting back in the water before everyone joins in. The summer months are usually slow in the markets as history has shown us, but there is still good money to be made even in the slower months. We just have to get passed the nervous market right now.

There are still some good chart setups, albeit slightly damaged from the past week. But still some potential in a few stocks. There will be some new charts put up soon that I will be watching. And when people start getting back into the water again then the charts will stand a good chance of being winners.