The Day that Was - August 10th 2007

A quick summary tonight as the full market wrap will be in the Sunday Newsletter.

Charts of the indices are still very weak and any more bad news will send them down another flight of stairs. The DOW actually has formed a bear flag and that in itself signals further decline is likely.

The S&P 500 managed to close above 1440 which was important. But it closed under the 200 period moving average so this index is still showing weakness.

Check in Sunday night for the weekly Newsletter.

Good night Rebels...

The final hour was mixed

With Friday's being so volatile near the closing recently everyone was expecting another crazy ride. But today's close was uniquely different. And here is why I say this.

With the huge number of the short positions that are in place in so many stocks the lack of a huge rally in the last hour tells me that there are a lot of shorts that are still being held. It is obvious that there was a good amount of shorts that were covered throughout the day but the lack of a huge volume rally in the last hour signals that many shorts are still tucked away. Now remember what I said earlier today. If there are still questions on the minds of the money movers in the markets then they are going into the weekend by sitting on the fence. They are holding some shorts and at the same time holding some longs. They have their bases covered in anticipation of any news over the weekend and will be positioned to take advantage of a move in either direction on Monday.

The lack of a big volume close also tells me that the injection of money by the Feds into the market today is being second guessed as what will be coming next. With the Fed making 3 injections today (which is unprecedented) there are suspicions on the minds of the big money as to what does the Feds know that maybe the markets don't yet. Did the Fed inject that much to provide some calming to the markets only or are they now seeing some financial data that is akin to taking antibiotics before you get sick?

These reasons I feel is why we did not see a big volume rally into the close. There is still too much unknown and a fear of "what will happen next" on the minds of many.

The S&P 500 did close above the important 1440 level which keeps the market alive to fight another day.

Minutes after the markets closed Bloomberg reported that Goldman Sachs (GS) 'Global Alpha Fund' has lost 26% of it's value in 2007.

The current RebelTrader Swing trades are still doing good in spite of this market. A short leash is still the standing instructions for these swing trades. In Sunday night's newsletter I will provide more details of the swing trades and watch list.

Tonight some market index charts will be posted. Have a good evening and see you all later.

The Final Hour

Put your shoulder restraints on and snug up your seat belt. Were heading into the final hour.

Remember that very important S&P 500 technical level which must hold, we have to close above 1440 in order for the market to remain alive (at least for another day).

The Feds have just injected more liquidity again..

In an unprecedented move the Feds have just injected another pool of money. They added $3 Billion. That makes a total today of $38 Billion injected into the market today.

Three Fed money injections in one day is an unprecedented event.

Reminder..

Be sure to come back here for the next weekly newsletter. The weekly newsletter will always be published on Sunday evening and will be available for download (free). The newsletters contain weekly summaries, views of the upcoming week, important economic events coming next week, chart analysis of the major markets and sectors, and the watch list for swing trades.

So come back again on Sunday and download your copy of the free newsletter.

Buying and short squeeze moving markets up

A lot of short covering and quick profit taking has the markets inching upwards. But I am not counting on the market holding any gains going into the weekend.

But on the flip side of the coin one has to think of what might happen over the weekend. There will likely be a lot of the Sunday morning talk shows addressing the financial markets and the mess of the markets. If there are bearish comments from the Government over the weekend then longs will be burned and shorts will be rewarded. And if there are bullish comments about the markets over the weekend the just the opposite will be true.

So how do the big money movers position themselves before going home tonight. I suspect there will be a lot of hedged trades placed. For example, one might hold a long position in a badly beaten up bank stock and at the same time might go short on the XLF. Then on Monday morning he keeps the one that is gaining and closes the other. There is no clear direction of where the markets will be at the open on Monday morning. So most of the big money will most likely carry long and short trades into the weekend. And some will close out all trades and sit in cash until Monday.

Feds have injected another infusion of money...

Feds have now 2 times today pumped money into the markets to keep liquidity up.

The price of Gold has been rising this morning on the idea of a future rate cut from the FOMC. If the FOMC were to cut rates as a reflection that they fear a recession is possible (instead of always talking about inflation) then the value of the US dollar will fall. Gold becomes the safest place to hide in a recession.

Financials are rolling over

There was some upticks in the finance sectors after the bell. Now seeing a rolling over and they are heading back down again.

Remember that we are going to be seeing wild swings throughout the day.

European stocks continue to drop fast

Would expect to see our markets to follow their decline shortly.

Pre Market - August 10th 2007

Good morning rebels,

The first thing I want put up here is a chart for the S&P 500. In this chart I have highlighted the key support level that the market must stay above. If the market fails this important support level then we have another "signal" of a move lower could be in the future.

I want to express my sincere thanks to the many nice emails I have received from my post last night. It is my sincere desire to teach everyone how to be better traders.

The Feds have injected $19 Billion this morning. This has brought the fed fund rate back down to 5.25% (earlier it was up at 6%). Will this infusion of more liquidity control the bleeding? We can hope but the markets will answer this question.

Asian stocks had significant declines overnight and the European markets have been in the red by large amounts as well.

Goldman Sachs closes a hedge fund. Countrywide (CFC) issued a statement that they essentially do not know the extent of how this current financial situation will impact the long term health of the company. CFC is down significantly in pre market. Washington Mutual also down significantly this morning on (do I need to even say this anymore) credit worries.

On the last day of a very dramatic week in the markets I am expecting very wild swings today. There could be substantial dumping of shares and substantial short covering before the close.

You know who is going to be really making large profits from this huge volatility? The online trading companies. Those $7.00 trade fees are clicking in at a feverish rate with this huge volatility. I'm sure they are one of the few companies which are enjoying this volatility and record trading volume.

I am still very concerned of the longer term trickle down effect of this. I am watching same store sales data to give me an indication of where the economy is going. And this will assist me in finding good swing trade setups.

The Most Important Post Since This Service Began!

When I created RebelTraders it was to help other investors and traders learn the proper ways to survive the stock markets. I have witnessed too many things over time that just makes me even more passionate about doing this.

I have known people who have lost their entire capital and most of their savings by not knowing when to get out of a stock. I have known people who have gotten swept up in the desire to get rich overnight and then make bad decisions and lose it all. I have seen people get taken advantage of by unscrupulous people trying to line their own pockets at the expense of others.

We all know what Enron is, we all remember how advisers and analysts, who are people who are supposed to be providing objective advice to us were actually part of that cover up. Those analysts kept telling people to buy that stock even though the price was collapsing.

Then add to that the many, many companies that are not even around any more after the "tech bubble burst" in 2000 and 2001. So many analysts kept saying buy the stock, it is so cheap it is a bargain. And while the stock kept dropping the analysts kept saying to buy. Now I'm not saying all analysts are not to be trusted, some are good and honest people. The point I'm trying to make is that you should take anything you are told by an advisor, analyst, etc and then run it through a sanity check. And what is the sanity check? The chart !!!

Do you know that the "buy and hold" investors who were buying stocks in the 90's when the technology stocks were so hot ended up losing most of their money after the tech bubble blew up. Why did they lose their money? Simple, they kept telling themselves things like "the company will get better", or they would say "I'm in it for the long term so I'm not worried", or they fall in love with a company, or a product, or the belief that the analysts or company would never steer them wrong.

Now consider this, another type of investor also started buying stocks in the 90's, the same stocks as the "buy and hold" person. But this person did not lose his money, he did not get his savings wiped out, instead he is today a much more wealthy person with a large bank account. So what did this investor do to keep his profits while his friends were losing all of theirs? They followed the charts and let the charts tell them when danger is approaching. It is that simple. There is no rocket science, there is no black box of secrets, there is no magic, it is common sense applied to "reading the charts".

No matter how good you think a company is or how good their products are if the chart signals danger and there is a significant shift in the supply and demand of the stock then you need to get out. If you buy a stock many years ago and it has done well for you all those years then you have a good stock, but even a good stock will have it's day when there is a shift and it is no longer the stock to be in. The charts tell you when to get in and when to get out.

If your house was on fire would you stand out front and watch it burn without doing anything? Would you tell yourself "it will get better".. no need to panic. But as you keep telling yourself that there is nothing wrong the house continues to burn to the ground and then you have nothing. That is what happens with "buy and hold" investors who always think things will get better. And then they lose their money and later they say to themselves "what happened?

If you practice good money management, know when to spot danger, and know how to read the charts you will NEVER get wiped out. Let me give you a real example of "buy and hold" investment compared to technical analysis trading.

For this example I will use Nortel Networks (NT). Nortel Networks was one of the tech bubble companies. In the late 90's everyone who was buying it and thought nothing would ever go wrong. The stock was on a huge run, they had great products, they were growing by leaps and bounds. Then the bubble burst. For those that were "buy and hold" lost huge amounts of money. They lost the money because they were the type that would stand in front of their house and watch it burn down instead of calling the fire department right away to save it. IF you do not take an active role in managing your investments and practicing good money management (using stop loss, etc) then you are not going to survive in the stock markets.

Take a look at this screen capture from my MetaStock software program. MetaStock is an excellent software package for technical analysis. It also has a system tester to lets you go back in time and apply "what if" scenarios. Tonight I ran a test on Nortel Networks. And it is a VERY simple trading methodology, no black magic. I ran Nortel through a simple trading discipline plan which used a 5% stop loss, and to buy and sell on a very simple moving average indicator(in other words it uses moving averages to determine when to buy and when to sell, just like we use in our technical analysis now).

Here is the test:

On January 3rd 1995 you set aside $5,000 to invest in Nortel Networks. Your broker pays 1% interest on your money that is sitting idle (not in a trade), and you rollover your gains whenever you sell into the next time you re-enter the stock.

If you put that $5,000 into Nortel and you are a "buy and hold" investor then today your profit would be $-2,677.81, Yes that is a negative number!

Now if you used the charts to tell you when to get in and when to get out that very same $5,000 would today be $29,166.22! See how some very simple trading discipline and technical analysis turns a "losing your shirt" into making good money. And you did not have to be an active day trader to accomplish this. Using the technical analysis criteria for this test resulted in only 24 trades since 1995 when you first started.

We are currently in a very volatile market. There are many stocks that are now turning very bad. Some of the very best companies in the financial sectors that "buy and hold" investors will say "everything is fine" could end up just like those who invested in Nortel back in the tech bubble. IF the "buy and hold" people don't take notice to a significant shift in investor confidence as viewed on the charts and take their profits then they could end up riding it all the way down to the bottom. And you know what is even more sad. Some of these people who have lost so much money will still say "it will come back one day". That is nothing more than denial of what has happened. And people who are in denial of what is going on around them will fail.

The very best and smartest traders and investors know when to be in and when to be out. During this market turmoil we have now I have not been as active in the markets as I would be if we were in a normal bull market. I have some watch list items and I have a few open trades but I will exit them faster than you can say "fire" if they start to go red (that is what a stop loss is for). I am not trying to jump on every stock I see going up during this time. Because I know from experience that there is always a time to be trading actively and a time for sitting on your money and waiting for the storm to pass. You do NOT have to be trading every day. You must know when it is prudent to just sit it out and watch safely from a distance. I have been receiving some emails during this terrible financial market/credit crunch crisis about why I am not trading more. Some have emailed me and told me that they bought this stock or that stock and wanted to know what I thought of it. My first reaction is "WHY". Why would you be trying to buy stocks that are still falling. Why would you be buying a stock that is bouncing in an unhealthy sector. Why would you be buying a stock that some one said in an email SPAM message (stock pumper). Why? If you feel the "need" to be trading all of the time then you are more likely to lose your money than if you just use some control and know when to sit it out.

As a investor, swing trader, day trader, whatever kind of trader you are you have only 2 things you need to remember. And they are in this order:

1. Control your losses. Keep risk to a minimum. Only after you learn to practice this step can you move to step 2.


2. Make profitable trades.

The charts of the financial sectors have been signalling trouble for weeks. I have said a month ago that the financial crisis was going to spread. I stopped actively entering into new swing trades back then. I said that trading in this kind of environment is too risky. Now we see that it is getting worse. Many stocks of banks, brokerages, and other financial related companies have lost huge amounts of their value. IF your a "buy and hold" person you are feeling the loss hard. If you had used the simplest of technical analysis tools you would have known when to sell. You would have sold, taken your profits, and left your money sitting in your brokerage account (most of them pay a very small interest on money that is just sitting in your account and not in a stock) while you watch from a safe distance the market get worse. Then later when the storms are over you take your money and buy the stock again if you still like it. Now you are able to buy more shares because the price is less and then using technical analysis again you stay with the stock until you get another signal to get out. That is how you make money consistently. Take a look at the books I have listed on the right side of this web site. They are there for a reason. Every one of them I have read, every one of them is the best in my view, and they are worth every penny. If you are just starting out get the book written by John Murphy "Technical analysis of the financial markets". John is an excellent writer and his books are easy to read. Then get the book "Trading for a Living" by Dr. Alexander Elder, and then the book "Trading in the Zone" by Mark Douglas. If you start with those 3 books alone you will learn how to make good trades, learn how to get out of a trade to protect your capital, learn the art of technical analysis, and learn how to be a disciplined trader.

I will close out tonight's message with a quote from one of the best.. Jesse Livermore:

"A loss never bothers me after I take it. I forget it overnight. But being
wrong - not taking a loss - that is what does damage to the pocketbook and to
the soul"

A dangerous sign

Coming over the wire is word that on the floor of the stock exchanges now that some of the large financial institutions may now be selling parts of their stakes in large holdings in order to raise capital.

If this was indeed true then this means that large financial brokerages for example may be in a financial crisis and they need to raise money. So they are selling off some of their prize holdings in order to raise capital. This is a dangerous condition to be in if this turns out to be true and not just some rumor on the floor of the exchange. If a large institution firm needs to liquidate it's holdings to raise cash then they are not able to meet the demand for those wishing to pull money out from their other holdings. They overextended themselves if this is true.

I wish I had good news

For weeks now I have been writing that I suspected that the sub prime problems was not over and it would spread. And unfortunately that prediction has become a reality. If ever I wish I was wrong on a call I wish I was wrong on that one. But my call was spot on. The sub prime meltdown continues to spread.

And what makes trading for us even worse is that we appear to be on the way to a recovery (like yesterday morning) and then something else happened that sends the bulls running out of the building.

Now we wake up this morning to even more (and possibly more substantial) news of spreading credit crunch problems and the European banks having to pump money into the system to maintain liquidity. This news sent the bulls in our markets now digging a hole and hiding their heads trying to get away. Wall Street is completely over run with bears today. They are running through all the sectors breaking everything they get near.

In all my years of of being involved with investing and trading I have never seen a market that has been so volatile and so nervous. I want to be able to say we are doing great and like the old days in TV when breaking news hit they would say "We now resume our regular television programming".... I wish I could say that to all of you fine RebelTrader readers. Unfortunately the problems just keep getting worse. And the reason they get worse is because we don't know where it will end. One day a financial expert says "the sub prime is contained". And then days later we learn it is not contained and has spread. Then we keep getting additional news tid bits from mortgage companies, home builders, etc. that conditions are getting worse.

One day I hope my headline for a future post will be "We now resume our regular stock trading routine". But right now it appears that will be a ways away.

What is frustrating to me is that it is even difficult to short these reactions because one day we go up big and then the next day were down big. Can't swing trade those moves. The only people making money right now are day traders. And day trading is for professional traders. If you are new to the markets and/or just getting started with swing trading then you need to stay far away from day trading. Once you master the markets and swing trading over time (and I will help you all do that) then you can advance to doing some large money day trades. But for now best thing to do is to just stay clear of this and not try to get in it. It would be akin to crossing a 10 lane Los Angeles highway at rush over. You would surely be run over.

Intraday trading action in the financial sector

I spotted what is a sloppy head and shoulder pattern on the XLF. Head and Shoulder pattern is a signal of a trend change. The pattern happened around 10:30am this morning near the run up after the initial sell off.

If this pattern remains true then we will head lower before the day ends.

See this image:

Market Update

AIG states this morning that residential mortgage delinquencies/defaults are spreading.

H & R Block says Option One Mortgage plans deeper job cuts before Dec 31 .

There is now talk on the floor of the stock exchange that they are looking for the FOMC to do an emergency rate cut to save the markets.

Pre Market - August 9th 2007

** Breaking News **

Did you hear that big thump overnight? That was another shoe dropping.

The markets are in big trouble this morning due to news out of France that they now have a liquidity problem with funds that are tied to the US sub prime market.

This news is bad in that it shows that the problem is not contained to the US only. I had said a while back that the sub prime problems was likely to spread and today's news from 'BNP Paribas' of France has confirmed this. The traders this morning are seeing this news as increasing bad for the financial sectors this morning and it is reflected in the futures. Futures are down very big this morning.

And if the news out of France was not bad enough there was news from Home Depot this morning that they now have to restructure their pending sale of the Home Depot supply business. And that the restructuring would reduce the price by up to $10.3 Billion. This action is a result of the credit situation.

One more note this morning is Bernstein has cut their 2007 and 2008 estimates for the US securities firms Bear Stearns, Goldman Sachs, Lehman, and Morgan Stanley. The cuts are rather significant and they lay the reasons on (do I need to even say) the credit situation.

I have been saying we need to keep our guard up and this is exactly why I have been instructing my RebelTrader subscribers to use caution. Swing trading in this environment is tough. We can do our best but we have to keep our guard up and our trades on a short leash.

The action in the markets over the past 6 weeks now shows why the old "buy and hold" style of investing does not work anymore in this increasing global economy. So many stocks have lost gains going back many years now. Buy and hold style does not work. You need to know when to take profits and set them aside. For if you don't you can lose many years of gains and you end up right where you started. I will be doing a feature article on buy & hold vs swing trading in the near future to show how keeping money in dead stocks reduces your financial growth even more than if you sold it, took the gains, and moved it into a new stock. The concern over short term capital gains becomes a mute issue when your long term gains are wiped out by not knowing when to "sell and take you gains".

Today will be rough.. Hang on

A long day..

Normally I would have posted my nightly summary but I did not get home tonight until very late. I will post my summary in the morning.

I will say however that this was a very wild trading day. Everything was going along just great until about 2:30 when some mixed messages came out of the Government almost simultaneously about the housing / credit situation. That sent fear right back into the markets again and we had a very fast sell off that erased all of the gains the day had obtained in just a short period of time.

Then a quick bounce near the end of the day took us back into the green again. It was indeed one of the strangest trading days I have witnessed in some time.

The RebelTrader swing trades that are currently open did well today in spite of the wild day. This weekend you will be able to download a spreadsheet showing all of the swing trades (closed and current). And that spreadsheet will be updated nightly thereafter.

See you all in the morning. Have a great night.

Chuck

The last 90 minutes...

That is some of the oddest trading I have ever seen. I don't know what to make of that yet. I have to correlate the news events to the tape and see what really caused these really powerful swings in the span of just minutes into the close. I have never seen anything so crazy as that.

At least we closed in the green !

If we close in the red then that is a "failure rally"

And a failed rally is like setting raw meat out for the bears to come and get. this is now shaping up to be maybe a misunderstanding (or maybe it was no misunderstanding) on the part of the Governemnt talking about reforming Fannie Mae & Freddie Mac. Washington is sending mixed signals this afternoon on their understanding of the problem.

Thanks Mr. Bush and Treasury Secretary Paulson for your statements today. They really don't get it down there in Washington,D.C. This was a case where they should have said nothing. LOL

Now we have another full blown financial sell off.

Just like I thought..

There were indeed those sitting on the sidelines just waiting to make their move. They let the market run up to resistance and then they started cashing in on profits. Still so many people want out of the markets. Lets see where this selling levels out at.

I want to see us close ABOVE resistance levels. If we close back below resistance again it will be a negative signal.

I'm loving this action..

So far looks healthy. Always going to be that fear of a sell off waiting around the corner. But for now anyway this action looks healthy. What a relief to have something healthy happen in the market for once. Seems like ages since we had a healthy day in the markets.

But don't put away your bear repellent just yet. We keep our guard up at all times. But nice to see a good advance. Hope it holds into the end of the day. Still concerned that there are many sitting on the sidelines watching the action and will pounce on it to get out of certain equities, especially brokers, banks, and other financial stocks.

Today those sectors had a large squeeze and made big moves. Could be something many are waiting for to happen and will take it at the top and sell it to Sunday and back. But the rest of the market looks good. I'm looking forward to doing a sector analysis tonight.

S&P 500 makes it to 1500

1500 is a good psychological pivot point for the S&P. Coming into the final 90 minutes. Want to see the advances hold right up to the end of the session.

Don't want to see any pullbacks from here on out today.

Market Update

So far so good.

I do see profit taking on advances. Every now and then my screen goes completely red with down ticks after a run up. There is still those that want out.

Will have to see who wins out that battle near the end of the day.

I established my swing trade positions in ENG and EXLS this morning and will post the updates soon. The only thing I don't like here is that EXLS quickly reached the buy point ahead of their earnings which will be tonight. Normally I would not want to be in a position when the company is going to release earnings. I like to keep risk to a minimum. But in the case of EXLS I am going to bite the bullet and let my position stand going into earnings. I have a full position as of this morning. And I got in higher than my readers did who got in early. If you got in early your already up real nice. Sell 1/2 of your position before the market closes. Then let the other 1/2 ride through the earnings tonight. This way you will reduce your exposure to any bad news.

Other swing trade ideas that although are not in the current watch list (but still on my stockcharts.com charts page for watching) are making great moves. Starting this Sunday all previous watch list plays will be included in the newsletter, not only the new ones. There will be a section for new additions to the watch list, and a section for continued watching.

Stocks from the previous watch list:

GNLG- looking good
NVEC - is getting close to a buy
APKT- looking good
ABCO- has blasted off

My watch list charts and index charts are at:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2147404

Please be sure to vote for my charts if you like my work I do here. Vote once a day if you can. You vote by going to the link I just posted above a scroll down to the bottom of the page and click on the button "vote"

Pre Market - August 8th 2007

Futures are up at this moment. They have been jumping around and I'm closely watching the S&P 500 number. Today keep a watch on S&P 500 1480 to 1490 levels. If the market can manage to close above 1490 there will be some added boost to the markets going forward.

Beware however that there are still a lot of profit takers out there waiting to cash in on advances. The financial sectors I see will have the largest profit taking on any advances.

Volume is important here. So far volume on advances has not been good enough to sustain an upward drive. We need to see huge volume on advances with a strong close. Yesterday the close was weak and signaled a "no confidence" vote of the market. If that continues then we are no where near being out of the woods.

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!

The full market wrap up

I will post the full market wrap later tonight including an update on the current RebelTrader watch list plays. Two of which became buys today.

Caution is still needed in our trading...

See this intraday chart of the S&P 500 SPDR.

Another Mortgage Company went belly up

Just now it was announced by Bloomberg that AEGIS Mortgage has suspended operations.

This credit situation is far from over.

The FOMC and what they did "not" do..

They did not address the current credit situation in a manner which was adequate for many investors. It was widely expected they would leave the rates unchanged but what they would say was going to be the key. Their policy statement was still leaning towards inflation pressure and left little to be desired in how they addressed the declining retail spending, and the current credit situation.

The initial reaction of the hard sell off right after the statement was released in my view is the correct direction that the FOMC has set for the market. At least until there is something to rescue the mortgage/housing/financial sectors. We had wild swings all afternoon after the statement was issued. In the end the there was still selling to take the gains off the table. The feelings on Wall street is "bewilderment" at the moment. The gut reaction by the big money movers just after the statement was issued (the sellers) I feel is the correct reaction and will continue in the coming weeks. The last 15 minutes of selling shows a lack of determination to let the market go higher.

On the DOW we formed a 'DOJI' symbol (DOJI: A candlestick pattern that signal indecision). I would not be surprised to see tomorrow we have a down day.

After the FOMC statement was issued I did enter a swing trade on the SKF (2x short of the DJ Financial Sector Index). My entry price was $85.20 (originally I was going to wait until it got to $90.00 before entering but I dropped my buy price to grab a piece sooner). Even though the market ended the day up I'm still holding this position as I still see a potential for another leg down in the markets.

Pre FOMC announcement

In case your wondering what I am doing before the FOMC meeting I am setting myself up to short the financial sector by actually buying (long) symbol SKF. Symbol SKF when bought like a stock will increase 2x in price if the financial sectors go down. The moment I have a handle on how the market is viewing the FOMC statement and if it looks like the markets don't like it one bit then I'll buy SKF for a swing trade to take advantage of a possible sell off in the financial sectors again.

If on the other hand the FOMC comes out with something that surprises the markets and gives it a huge boost then I will buy UYG. Same as SKF however UYG pays 2x gains for the rise in the financial sectors.

RebelTrader swing trade ENG made it to the buy point this morning but with the pending FOMC statement I did not enter yet. I will wait until after to gauge that one. If you bought in already then don't worry about it. You followed the directions and that is fine. I'm just waiting for the smoke to clear from the FOMC before getting to busy with the "buy" button.

Pre Market - August 7th 2007

The only thing everyone is thinking about today is the FOMC meeting and what they decide to say and/or do. At 2:15pm the markets will go to a 5 alarm fire. Will it be a sell off or a buying frenzy will not be known until we see the FOMC statement.

RebelTrader watch list news:

ENG reported earnings this morning and the news was good. ENG reported Q2 earnings of $0.15 per share which is 2 cents better than expected. Revenues rose 19.3% year over year. ENG is on my watch list as the technicals were showing a good play in the making. Watch to see if the buy point is reached today and if so I will be adding ENG to a swing trade slot. IF your new to RebelTraders you must keep in mind that you never put all your capital into any one trade. You divide your capital into pieces and use only one piece on each trade. This limits your downside risk and the purpose is to preserve capital. A successful trader controls risk first, makes money second. See this previous post for guidelines on portfolio management. Click HERE.

RebelTrader swing trade watch list play EXLS is also looking good and is still setting up for a move.

Pre market futures is jumping around from positive to negative. Not really worth putting much faith in the futures here. Will be a slow day until the FOMC announcement.

The Day that Was - August 6th 2007

Ok.. we had a big up day. Many stocks had a rally... but don't get excited just yet. Tomorrow is a very significant day in that the FOMC meeting will set the track switch and set the course for the market train.

If you examine the SPY chart we stopped right at resistance today. There are still technical indications of a market that could still go lower. But right now the technicals will be violated if the FOMC does anything unexpected tomorrow. We have to wait and see. Today the volatility index set another new high, the highest in 4 years.

IF there is a market rally tomorrow after the FOMC statement is issued at 2:15pm then we need to watch to see if it is strong enough to indicate it is buyers coming in and not just more shorts covering their positions.

See the SPY chart:

Why do I say shorts added so much to today's big advance?

I said earlier that I believed that the big advance in the markets today was fueled by the short covering leading into tomorrow. There is a wide range of "what if" scenarios for tomorrow. What if they cut, what if they don't, what if they leave rates as is, what if they don't talk about the credit problems, etc... etc..

No one has a handle on what the FOMC will do and what the results will be. Only those taking big risks are trading long or short before going into the FOMC announcement tomorrow. The amount of shorts in the financial sectors has been HUGE. If the FOMC does something tomorrow that restores confidence to the financial markets then the shorts would be losing some of their gains because prices will run up even quicker because money on the long side would be pouring in on top of the short covering and climbing all over each other to get their shorts up. So they cover today and reduce their risk.

Look at the chart I created tonight and you will see that the three biggest movers and contributors to the market advance today is from Brokers, Banks, and other Financials. And with those sectors having the most shorts those shorts being covered today was the biggest contributor to the market advance today.

We can't view this market advance as the turning point. While it makes people "feel" good to see the market advance today there are more things that need to happen before the market regains enough health to advance on its own under normal buying and selling. Tomorrow after the FOMC meeting we will have a better idea of where the markets will go. Some of the talking heads say even if the FOMC were to cut the rate the market will rally and then fall even harder later. Almost like a you can't win no matter what scenario. We'll see tomorrow.

Tomorrow is the "Super Bowl" and everybody is making their wagers and placing their bets. Who will win the FOMC superbowl? I don't know, lets just hope we don't have any "wardrobe malfunctions" during the FOMC meeting!

Massive short covering up into close

Some back and forth, good news / bad news reports coming out all afternoon on the mortgage front. In the afternoon there was another company which announced it has suspended taking applications. Then later Goldman Sachs cut their rating on Bear Stearns. Appeared to be large short covering heading into tomorrow.

My thought on this is that no one knows what will happen tomorrow. I don't think anyone wants to be long or short as the key to the next market move is in the hands of the FOMC. What happens next will come from them, and only the brave are placing bets ahead of time.

I will wait until tomorrow when the announcement from the FOMC is made to decide if I will trade on the long side or short side of the financials. Keep in mind the move on the major indices today can have been very easily been mostly the result of shorts covering. Remember, it had been reported the levels of short positions in the market was anticipated to be at incredibly high numbers, if not historic levels in the financial sectors. Going into tomorrow if the FOMC says something to rally the market then the shorts will not only be fighting each other to get out of the way, but they would have been fighting big buyers on the long side. So it is not impossible to believe that a majority of the moves today were from the short side moving aside before tomorrow.

Market Update

Volatility has calmed down through the lunch hour. There has been a new story hitting the street now regarding AEGIS Mortgage Company. Speculation ranging all the way from they are going bankrupt to just cutting back on accepting new loan applications.

That news has the mortgage names in a pullback mode again.

I would not be surprised to see a run up in the volatility by the end of the day as everyone either places their chips or picks them up ahead of the FOMC meeting tomorrow. We are likely to see profit taking before the close so as not to risk having money in the market when the news comes out tomorrow.

Volatility Index $VIX hits another new high

Price swings are all over the place so far. Volatility hits another new high. Just about all sectors are getting hit.

Market Update

In a very short period of time the advance early in the session is being quickly sold off by those who just want "out" of the markets.

I expect we will see a day of wild swings..

Pre Market - August 6th 2007

As was expected American Home Mortgage (AHM) filed for bankruptcy this morning. No surprise here. With all the job cuts and bad news coming from AHM it was only a matter of time before they filed the legal paperwork for bankruptcy.

Over night the Asian markets were down huge. But before the end of the day in Asia they closed up from the lows. They still closed in the red but not as bad as it was at one point during their trading day.

US Futures were up earlier this morning as shorts in the markets started doing some covering in anticipation of any bounce in the markets. But during the past 1/2 hour the futures have been dropping. Will there be a bounce today? Following any huge sell off there is more chance of a bounce than not. It is a matter of large money moving into and out of short positions that mostly starts a bounce. But for the bounce to hold there has to be more than just short covering. There has to be substantial buying on the long side. Today will be a very strange trading day. I say that because I anticipate a large amount of continued fear in the markets along with risk takers doing some buying before the FOMC meeting tomorrow. A lot of speculation and taking any position (long or short) here before the FED meeting will be akin to dropping some quarters into a slot machine. There is no way to predict the reaction of the markets tomorrow. There are some well respected financial analysts who say that even if the FOMC cut the rate the bounce in the markets would be short lived and we will still end the year down. I feel that the financial situation has not been fully exposed yet. There is more to come and I anticipate that the unemployment rate report for next month will more accurately reflect the decline in the housing sector as builders have been cutting back in their work force. This will likely be reflected in the next jobs data next month. That kind of news would pull more money out of the stock market and into bonds and other perceived "safer" investments.

Fundamentally nothing has changed this morning from Friday's bloodletting sell off. So any advance today could be met again with those still wanting to cash out on any advances. If the markets close up today it will be a signal of huge bets being placed ahead of tomorrows FOMC announcement. I don't see any substantial buying today before the meeting.

Trading in this market is still highly risky. I do have stocks I want to watch but I any trade I take will be done with caution.

Stocks in the current newsletter are:

• Allion Healthcare (ALLI)
• Blue Dolphin Energy (BDCO)
• ENGlobal Corp (ENG)
• ExlService Holdings (EXLS)
• Layne Christensen Co (LAYN)
• NVE Corp (NVEC)
• Sun Cal Energy (SCEY)
• Syntax-Brillian Corp (BRLC)

For details on each item in the watch list download the weekly newsletter here

Do you like the work I do here at RebelTraders? If you do please vote for my charts on the stockcharts web site. Go to this link by clicking here. Scroll down to the bottom of that web page and click on the box "Vote Best Chart List"

The RebelTraders Newsletter has Arrived !

I am pleased to present the weekly RebelTraders Swing Trading Newsletter. Each Sunday evening a new newsletter will be released. Each newsletter contains a summary of the week that just ended along with my views of the upcoming week. Each news letter contains charts for the major indices, sector performance charts, and swing trade ideas along with the charts.

Each swing trade chart is also on my public charts list at stockcharts.com

The newsletter can be downloaded by clicking here.

There will also be a link for the newsletter on the right hand side of the web site under the heading "NewsLetters"

I hope all will enjoy the new service of RebelTraders !

p.s. - please vote for my charts on the stockcharts.com web site! Just scroll to the bottom of the page and click on the button for "vote"