Associated Press - Market Minute

The Day that Was - August 17th 2007

Well today is one for the history books. The rumors of an emergency meeting of the FOMC yesterday were true. And the results of their meeting was disclosed this morning before the market opened.

Now we see clearly why so many of those that were short in the market yesterday started covering when the rumor that the FOMC was going to hold an emergency meeting. They did not want to be holding onto anything in case the FOMC did something to restore some order to the financial sectors.

Many people are saying that yesterdays big drop and then the sudden reversal was due to buyers stepping up to the plat in force and causing the market to rebound into the end of the session. It was not buyers that caused that move yesterday. It was massive short covering by those with very large stakes in the financials who were short. Playing back the tape from yesterday the moves came right at the time the rumor of the FOMC emergency started circulating through the trading pits. I just wish the media would report accurately. They instead try to make it into a big deal that the markets just sold off so much that buyers just had to come in a start buying in droves. Not true. If it were not for the FOMC news yesterday we were possibly going to have even more selling yesterday and would have ended the day very badly.

But regardless of what caused the reversal yesterday the fact remains that the market printed a 10% pullback on the S&P. That reversal would have been more comforting if it had been bulls making a stampede to the keyboards and hitting the 'buy' button as opposed to shorts panicking and hitting the 'cover' button (cover and buy, same thing. I know.. just trying to make a point). Everybody was jumping up and down saying we had 'hit bottom'. Saying that we had hit a bottom and it was time to starting "loading the boat" was and is just nonsense. Those that were claiming we hit a bottom and everything is over now were simply caught up in the excitement of the moment, nothing more.

The news of the FOMC cutting the discount window rate by 50bp's in the pre market this morning sent a shock through the entire world in a heartbeat. In pre market there was many more shorts covering and that sent the market up before the open. So when the markets did open we essentially gaped up on just about everything. While watching the tape in real time once the market opened I saw a gradual decline of buying interest start to show itself. The reaction of the FOMC cutting the rate was being received as mixed by many and it was showing itself on the tape. But frequently the first 30 minutes or so after some big news the market will be very volatile. In a previous post I had laid out a plan for how to capture a broad market rally by going long on certain ETF's. And that plan is still valid for any good rally. But this morning when I saw how 'confused' the market was appearing I scaled back my plans to buy all of those ETF's. Instead I only went long on the financial sector ETF in the hedge that the volatility would subside and a strong rally would follow. Next I added GLD (Gold) to my long term portfolio as this rate cut is most likely only a stepping stone to a full rate cut on the Fed Funds Rate. And if that happens the US Dollar is expected to melt away and Gold would ramp up. So for a longer term hedge I added GLD to that account.

Throughout the morning the markets were attracting very little buying interest. All of the big gains you saw on your screens this morning was mostly the gap up difference. If you looked at a chart of many stocks what you saw was the quick gap up at the open and then a flat line. So while our trading screens were filled with lots of green it was mostly from the pre market gap up. Once the market did open it just flat lined. No buyers were willing to carry that and make it into a rally. That tells me that so far the markets were not confident enough yet to buy into what the FOMC did as a "cure all" and rightfully so. What the Feds did only took care of the liquidity issue for the banks. It does not address the economy which is what (regardless of what politicians will tell you) started this mess. The credit crisis is a manifestation of an economy that is weakening and the mortgage companies are losing money on loan defaults. Everyone can probably point to one thing or another of what started this. But underneath who or what pushed the first sell button 5 weeks ago the cause is the economy and the value of the markets were too extended above real value. What we had is a conflict between 'perceived' value and 'real' value of the markets and this time the 'real' value won and stocks sold off fast as people started realizing that things are not so great as everyone was thinking. When you think all is well in the world you buy and buy because everyone else is doing it. You think the stocks will go up forever. Take Apple for example, I said a long time ago that Apple was topping out, the signs were clear and evident that Apple was going to rollover. People emailed me and told me I was nuts. They said Apple would go to $200 in a matter of weeks. And what happened, Apple rolled over. Apple was the canary in the mine to the rest of the market. the perceived value of Apple came into conflict with 'real' value and reality set in and it sold off. Then the markets followed soon after. I'm not saying Apple caused this, not at all. Just saying that Apple was one of the first clues. Every stock has it's period of hype and rallying that pushes the price up beyond what it really is worth. And then it pulls back for a 'reality check'. Then slowly works it's way up again over time. Our financial markets got it's reality check 5 weeks ago, and once reality set in and the problems were brought out from the closets of the banks, mortgage companies, and insurance companies, and on and on we saw just how bad the economy was getting. Things were no longer so rosy as the media and the Government want you think it was.

Reality sucks.. as some will tell you. Just let me live in my dream world where everything is happy and wonderful. But every now and then you have to wake up from your dream and see things for what they really are. And it was an ugly picture. So that is why we are now where we are. People started waking up.

The market action today said to me by the afternoon that I don't trust it. I did not want to be holding onto the long position on the financials in case it started selling off again. When the market goes almost the whole day basically flat after big news like we had this morning from the FOMC that tells you something. The news was not being received well. At least not well enough to bring buyers into the market in droves. It was like a store having a big grand opening bash with party favors, the media, entertainment, and then when the fan fare dies down the store owner sits in front of his shop with the "open for business" sign and nobody was going inside. That is what our markets did today.

Will things be any different on Monday? We can't say yet. We have to wait until Monday gets here to find out. Over the weekend people, hedge fund managers, institutional money movers, and the like will be planning their next moves. Only when we see their moves executed on the playing field will we get a flavor for what is going to be served to us.

In my Sunday night newsletter I will have an article that details what I use to help me in my market analysis. Some have sent me emails asking me what software I use, what magazines I read, what web sites I monitor, etc. So this weekend I will provide you some insight into what I find to be valuable resources. A successful trader surrounds him or her self with quality information and people. If you allow yourself to be surrounded by garbage information then you will make garbage trades. Being the very curious person that I am by nature I have spent much time checking various places to get news, or trying different software to assist me with technical analysis, etc. So Sunday night I list what I use and why.

And to leave off for this Friday night I will tell you that I am not convinced this FOMC action today is going to restore the markets. We will have some upward advances but I feel they will not be smooth and there will also likely be some more sell offs because there is more bad news out there still to be unveiled to the markets. I do not see the DOW getting back to 14000 this year based on current economic conditions and I anticipate this will start showing itself more in consumer sentiment in the coming months. But we will still find good trades to make money on. The past 5 weeks has been extremely challenging in the markets, more so than in recent memory. And since RebelTraders portfolio started on May 24th (just a short time before this mess started) the portfolio is still a positive gain and well ahead of the S&P 500 for the same period. So following my logic and style has helped my readers and subscribers maintain their cash, and make some additional cash as well while all those who kept buying on the dips were losing money. And those who kept buying on the dips as stocks kept dropping may be in for even more losses in the future if the markets do fail down the road and we go even lower.

Discipline, keeping a cool head, and protecting your capital works. And I'll do my best to try and keep finding ways for you to make money in this market. It is easy for anyone to make money in a bull market. It is another thing if I can still show you a profit during the past 5 weeks of 'blood in the streets' type market we have been in, and a profit I have.

Good night Rebels, enjoy your weekend. Be sure to check in Sunday night for the weekly newsletter.

The market is lifeless

The news this morning send waves of people scrambling to position themselves for what was thought to be a bull rally. Shorts covered in droves again this morning. The talking heads said we were going to have a huge rally.

I saw the pre market trading activity and saw a battle. I would have expected to see more buying in pre market but it was not as strong as one would expect if the market was going to rally big. It was this reason I cut back on what I was going to go long on. I took the position on the UYG in the event the financials were going to run. Of any sector that would benefit the most from the news of the Fed lowering the rate for banks it would be them. So I took only the one position in the view that if there was going to be a rally with great strength then that would be the place to capture it.

But what has happened is that just about every stock gaped up pre market on the short covering and once the market open everything has basically flat lined. No one is buying them up. Bring up a chart for just about anything (even the financial stocks) and they appear stalled. There is no interest out there yet to jump in and buy. Before the day is done we may even see a sell off. Hard to say. But from the lack of anyone buying I don't see any bull rally here yet.

Some people were screaming "bull market", "buy everything". That is irresponsible of people to say that. People have to remain cool and play it for how it looks. If this is the start of a market recovery then so be it, we will be there to catch the real moves once the volatility settles down and we can see our prey with ease.

The market today is a mess.

Cool heads that don't go loading up their portfolios with everything in sight will be the winners. Those that buy everything without looking both ways first will be run over.

I'm dumping the UYG

This market so far has not demonstrated any real strength. I’m concerned of a red market before the day is over

Profit takers are doing their thing

On the quick pop this morning the profit takers have stepped in. Market will hover here for a bit before it makes its next move.

I'm sticking with the UYG only at this time

I'm being more conservative then you may want me to be. If you take a trade on anything today use caution. There are many who want to sell the news out there. I'm not going to hang out at the pool party too long.

Buying UYG at 59.00

Update

I will post when I buy into the ETF's I mentioned.

Update

I talked about what would happen to the US dollar and Gold if the Feds cut. Although the Feds only cut the discount rate Gold is already heading up on the belief that the Feds will eventually cut the overnight rate before 2007 comes to an end.

I am going to add GLD to my long term portfolio this morning as I expect Gold to up significantly by the end of the year.

Update

I am buying the SPY, UYG, and DDM and I'm going to leave it at that for now. Protection of capital remains the number 1 priority in any trade.

Pre Market - August 17th 2007

The Asian markets fell overnight by large amounts. The Nikkei closed down -5.4%. The Hang Seng down -1.4%.


Feds have cut the discount window rate by 50 basis points

So the rumor of an emergency FOMC meeting turned out to be true. And that is why so many people that were short the financials yesterday started covering.

Before the announcement this morning the futures were down significantly in reaction to the events that happened in the Asian markets which were down large overnight.

Does this move by the Feds cure everything? No, but it is a start. Futures are reacting rather violently to this news so far. Futures have jumped but they are VERY volatile. Moving quickly up and down. The markets may stumble a bit but as this news is absorbed and we are likely to have a rally. Just beware that if there is a 'sell the news' as the rally takes place today don't be surprised. Still many people hedging that the economy will continue to decline and may be taking the profits on the pop.

Use the list I gave you last night if you want to take a ride on the enthusiasm of the market. But still use caution because there could be other surprises that will bite the market. And the Feds move may backfire somehow down the road. So we will take a ride on enthusiasm but we will keep our seat belts on.

The Day that Was - August 16th 2007

Let us rewind the day..

6:00 - Asian markets tanked. NikKei -2.0%, Hang Seng -3.3%

6:30 - European markets down significantly. FTSE -2.6%, DAX -2.4%

6:35 - Bloomberg reports that William Poole of the St. Louis Federal Reserve Bank said in a statement that "only a calamity'' would justify an interest-rate cut now" and also went on to say "no one has called up and said the sky is falling". He went on to say that the mortgage situation does not threaten the US economic growth.

7:15 - US Futures down substantially

7:30 - Bloomberg reported that a run on US Treasury bills because of the sub prime paper contagion was at levels seen few times in history.

7:30 - Country Wide Financial (CFC) taps credit facility for $11.5 Billion to maintain liquidity. This is a major event. The company needs to borrow substantial amounts of money to continue operating.

7:45 - The Japanese Yen rises overnight and now is creating the "carry trade" unwinding effect.

8:00 - Nollenberger reported that the retail environment remained challenging for the second quarter. Mall traffic appeared down from this time last year.

8:25 - Feds inject reserves through 14 day repo to keep liquidity in the market.

8:30 - Housing starts data released. Lowest since June 1995, building permits lowest since December 1996.

8:30 - Initial jobless claims: highest number since June 15th, numbers are creeping up now.

8:40 - Fannie Mae files 10-K, in their statement they indicate they believe average home prices will continue to decline through the rest of 2007.

9:45 - Feds inject a second infusion of funds, $12 Billion on this shot.

10:00 - Market is selling off

10:30 - Moody's sees the possibility of a major hedge fund collapse.

10:30 - Markets selling off hard.

10:35 - Moody's sees "sizable" impairment losses at many banks.

12:00 - Philadelphia Fed survey shows no overall growth in the region's manufacturing sector for the month. (0.0 vs 8.0 consensus).

1:50: Market talk that Fed is holding or will soon hold an emergency meeting.

2:00 - Markets start rising.

2:15 - Markets rising on increased short squeeze (rapid need to cover short positions before they become a loss)

3:00 - Market selling again

3:30 - Shorts start covering again on the pullback and take it right up to the close.

4:00 - Markets ended the day essentially where the day started off.

Now I turn on the TV and all the talking heads are blowing party favors and saying we have hit bottom and are on our way back up. Everything is well with the world again.

I ask you this question, and answer this question honestly. What changed today? Did the credit crisis get fixed today? Did I miss the memo? Did the housing slow down turn around all of a sudden mid day? Did I miss that memo too? Did the banks and mortgage companies all of a sudden solve all of their financial problems? Well, I guess I missed that memo too...

The point I am trying to make is that while everybody is saying how great the bounce was today you have to remember that nothing has changed. What started this mess in the beginning is still there. It has not gone away.

What we did have today was a market that reached down to a key technical support level (see at the bottom of this post for the charts), bounced as most support levels will provide to some degree, and then news of an emergency FOMC meeting was/or will be taking place made those who were short in the financial sectors to start covering. The short covering started the rally in the afternoon and it continued all the way to the close (I should point out that all the while the shorts were covering there were still those selling out on the advances). Every share of just about any company that could be shorted was being held by someone. And no one wanted to be holding onto those short positions with the FOMC rumored to be getting together for an emergency meeting as it was being reported on the floor of the exchanges. They wanted out of their short positions in the event the FOMC does/or says something that would restore some stability into the markets and bring a calm back. At which point normal buyers would be coming back in and the short holders would be losing out. So they were tripping over each other this afternoon to get out.

So at the end of the day with everyone saying the worst is over and we can all go back to being happy and care free and buying stocks again must be the same ones who got the memos today that I never received. They are signing that song "Don't Worry... Be Happy" !

But nothing has changed. Every problem that got us here is still there. We had a rally on a technical bounce which was then accelerated by shorts covering ahead of a possible FOMC meeting. Ok.. so what do we do now? Regardless of how we got our rally today (and the forgotten reasons why the markets sold off over the past 5 weeks in the first place) we are likely to see a continuation of this rally on
Friday only because of the psychological impact of what took place today. They overlook (for now) what started the market sell off and will all jump back into the pool thinking all is well again.

Will I be jumping in the pool carefree like the rest of them... no. What I will do is I will go to a couple of pool parties, one here, one over there. Spend a little time. Have a beer, take in the nice weather. But I will no over stay my welcome. While the party is still going on I will just quietly exit and go home. The ones that stay at the party all night could end up getting rained on by a big thunderstorms that comes out of no where. So while the party animals are carefree, swimming in the pool of the market, and thinking all is well again they will be the ones to get rained on. While I will be at home nice and dry with my souvenirs (money) from my short visit to the party.

In market terms what I just said is that I will take advantage of any big moves and try to capitalize on them but I will not leave my money in the markets for long periods of time. I will look to make some gains on short swing trades by taking advantage of other peoples emotional exuberance. But I am going to remain cautious and not get too extended because as quick as a rally may come it may go again (especially when they realize the original problems have not changed).

On CNBC tonight I was fortunate to catch an interview with Dennis Gartman, who publishes the well respected "Gartman Letter". He spoke tonight that we are still in a Bear market by his perspective. That he is a seller on strength, not a buyer on weakness. When someone like Dennis Gartman says that you have to at least take some note of it and keep it on your mind as we go through the coming days and weeks.

But remember the market is driven by greed and fear (emotional responses). If everyone thinks it's party time then Mr. Gartmans statement may be like your Mother yelling at you to turn the music down, you don't hear her over the noise level you created around you.

So what happens if all the people who are now saying we have hit bottom and the only way from here is up turn out to be wrong. What happens to them when some other bad economic or financial news hits and the market starts selling off again. They come crashing down. Where will I be? I will be in my little hideout counting my money because I did not over stay my welcome.

From a technical perspective we did hit a key support region today. Now in order for the market to show what it has in store for us we have to test the resistance that is about half way back up to where the markets started the drop. What happens at that resistance level will determine if the market is truly strong enough to keep going up. If they are not then we will pullback to where we were earlier today. And it is at that point we know if we will drop further, start a ping pong match of trading sideways stuck in between two support/resistance zones, or if we will bounce back up and then truly be on our way to a real bull market. Many unknowns still. That is why I play with caution.

I will say this time and time again. Don't let your emotions get in the way of solid thinking and planning. If you get too carried away and start buying everything in sight you could end up holding onto too much at once if the market takes a bad down turn then your losses will be big. There is no rush to be a millionaire overnight, no matter how bad or how fast you want to become rich you can be guaranteed of this one thing: If you think you can be rich overnight, you won't. You will lose more than if you plan your moves and don't get carried away.

Now what to do about tomorrow? That is a big question. If in the morning the markets are looking like a strong open then I will buy the following:

(one swing trade for each, no more 10% of my capital on any one trade)

DDM - pays 2x for each point gain on the Dow Jones Industrial Average (the DOW 30). Why? if there is going to be a large 300, 400, or more point rally then a 2x pay out of a move like that will be a nice quick trade.

SPY - An ETF that mirrors the whole S&P 500 index.

UWM - ETF that pays 2x for each point gain in the Russel2000.

UYG - ETF that pays 2x for each point gain in the financial sector.

And one swing trade of your favorite stock.

Why the ETF's? With everything so oversold and if a rally is going to come then I want to capitalize on the whole index rising instead of trying to find a few stocks within that sector that may or may not do as well as the whole sector. The ETF's are easy and you know that as long as the sector is making big moves then your making money. Normally I never play ETF's. For me there is only one time they are useful. And it is during times like these when you want to capture broad market moves (up or down).

But, and I say this again, but... you still have to watch them closely. If the broad markets get the scent of some bad meat and the bulls go running for the hills again then you get out fast. Don't risk holding them through a big down turn. You can always buy them back again later.

My fellow Rebels.. the past 4 or 5 weeks has been the most turbulent, violent, and volatile market of which the likes have not been seen for many, many years. And the return to a normal market (if that happens) will not be smooth either. There will be many bumps on the way back to a normal trending market. So don't try and go out and buy everything in sight. Remember what started this mess has not gone away !

If more bad news hits and we don't have a rally. Well then we are right where we started the day today, in the middle of a storm. And we wait for a trade to present itself (like CAT and UAUA did yesterday, both good winning trades).

Good night Rebels !

Strategy if FOMC were to cut rates

Lets suppose for a minute the the FOMC surprised everyone and cut the interest rate. And if their wording is soothing to the markets (their statement must acknowledge that they understand that recession is possible, or at least that economic growth is slowing more than they expected) and in invokes a big buying rush.

What would I do?

It would be difficult to pick one stock over another as just about everything is oversold all the way to China and back. So how would I play a massive market bull rally. I would buy ETF's for various unit and/or sectors. I would take advantage of the general market advances by taking advantage of the ETF's.

I would buy the following: (in normal swing trade size increments, 10% of capital on each trade)

QLD - a 2x gain for each point advance in the Nasdaq 100

DDM - a 2x gain for each point move in the DJIA 30

SSO - a 2x gain for each point advance in the S&P 500

UYM - a 2x gain for each point advance in the materials sector

URE - a 2x gain for each point advance in the real estate sector

GLD - Tracks the price of Gold. (a rate cut could impact the value of the dollar in which case it would be expected to see the cost of Gold to rise)

Of course each trade still has to be monitored closely and if a rally is real then these put you into a good spot to capitalize on a broad market rally. IF the rally is a fake and it pulls back then you sell these quick.

This is how I will play if there was a surprise rate cut and it is viewed by the market positively.

Market Update

There is not much to do here but watch at this point. The market is just nuts. I said we were going to have wild swings and that we are.

The news of the FOMC emergency meeting is making its way around Wall Street. Don't know when or where. Just talk going around that they are getting together. How soon they issue a statement is up in the air.

SDK Ultrashort Russel MidCaps update

I'm selling my ultra short position (SDK)... locking in the gains here.

The afternoon market may have a deeper sell off or it will try and bounce. So I will play it safe and take my profits here.

Caterpillar (CAT) short update

I'm going to cover my short position here on CAT at $71.01 and capture the gains. We done good on this trade! It is likely to still go lower over the coming days and weeks but I want to lock in profits. In this crazy market we have one never can tell what will happen next. So The gains on UAUA and CAT were super for a 2 day trade.

I'm still holding onto my Ultrashort of the Russel Midcaps (SDK). And that too is doing nicely for me today.

United Airlines UAUA short position update 2

Covering short position on UAUA at $37.16

May still go lower but want to lock in the good gains on this

United Airlines UAUA short position update

Alert.. I will be covering my UAUA short soon

Pre Market - August 16th 2007

On Tuesday I posted the chart for the Japanese Yen and said that we had another crisis that could be in the making. Overnight that became a reality. The yen is up significantly and is creating the carry trade unwinding scenario that was being seen as a potential reality.

Also this morning CountryWide Financial (CFC) made it known that is has had to borrow $11.5 Billion from their credit facility. This is akin to you or I withdrawing cash from one credit card in order to pay another. With CountryWide Financial doing this it means that the company is adding debt to their balance sheet and companies that carry debt are viewed as "trouble". Well CountryWide is in trouble and that was amplified this morning by this news. CountryWide is in serious trouble and their ability to remain above water looks bleak at this time. CFC is trading down again in pre market on huge volume.

And also overnight William Poole, president of the St. Louis Federal Reserve Bank, said the subprime mortgage rout doesn't threaten U.S. economic growth, and only a "calamity" would justify an interest-rate cut now. That statement is also causing the drop in futures this morning because it reinforced the feel on Wall Street that the FOMC and the Government are out of touch with reality. I guess we will now see another outburst from Jim Cramer on this new statement form Mr. Poole. I rarely agree with anything Jim Cramer says but in this one case I will say that Jim is correct in that the FOMC is asleep. In my own view there is too much politics behind the FOMC and the US Government will go to extremes to never say the word "recession". Unfortunately that puts the economy at further risk.

We are seeing deeper sell offs in stocks that have been running up hard earlier this year (ie: Apple, CROX, etc). Stocks that have been running on hype and cult followings are the being hit as investors want to hold on to what money they have. If you were a large money trader and had to choose between pulling your money out of Apple or a General Electric you would choose Apple and sell it.

Housing starts data came out this morning and it is the lowest since June 1995. Initial jobless claims are on the rise again.

Some talking heads on CNBC have used the term "the perfect storm'. I won't say it is a perfect storm, but instead I call it a super cell thunderstorm. Like the one we had come through my town last year and knocked down numerous trees, damaged houses, downed power lines, etc. That storm had us very busy at the fire house as we had to respond to 46 calls for help in one night (and normally we only have 350 calls in one year). The markets are in the middle of a storm and there is no let up in sight. If I wake up one morning and I see a 50 feet high wall of water moving towards Wall Street then we will have the perfect storm. But 20 miles off shore the water is stirring!

This is an ugly market, the likes of which have not been seen for many years. I'm afraid the US Government will let this go "too far" before they acknowledge that recession is a possibility. But that word is hard for them to say with elections coming here in the US.

Today will be very wild. Lots of swings up and down. How will we close? If you have only 1 hour today to watch the markets then watch the last hour. That will give the better clue as to where we may be going next.

Update

The Asian markets have been open for a little while and are down significantly. The Hang Seng is down 3.6%, the Nikkei is down 2.6%, Korean Composite down 6.2%, Taiwan down 3.5%. All of this is likely in sympathy to our markets decline. Recall that recently that Japanese mega banks have disclosed that they have exposure to our sub prime market. So our credit crisis is becoming theirs as well.

The Day that Was - August 15th 2007

The S&P 500 has now lost all of the 2007 gains. The S&P closed on top of a relatively weak support level. But the DOW closed on a strong support region and this will likely give some of the brave the desire to try and do some buying tomorrow (reaction bounce). A reaction bounce can be short lived and we pullback again or it can be the start of a return to normal.

The famous Charles Dow (yes, the same person that the index is named after) developed the 'DOW Theory' back in in the early 1900's (there is an excellent chapter in the book "Technical Analysis of Stock Trends" by Edwards, Magee, and Basetti that talks about the DOW theory). It is the DOW Theory that to this day has a significant relation to our understanding of technical analysis. Charles Dow wrote that in order for a bear market to be 'confirmed' we will need to see a bounce back up to the first dip we had in the DOW (13200) last week. If we get a bounce and head back up towards 13200 and it can NOT break above it and then it starts to turn down then we are well on our way to confirming a bear market. As per the writings of Charles Dow we will be in a bear market if we drop below our current (12860) level. In technical analysis what this means is that when the DOW bounces up to the dip we had early last week and we can't get past it then we are seeing the evidence of investors not willing to pay any higher for stocks. This is a psychological failure to try anymore. When the desire to buy up the market and send it higher weakens then it is like being rejected by your first high school crush. You turn away and feel you will never try again. Then the sellers take over on the failed attempt of the buyers to move the market any higher and then we fall back even lower than before.

Now you may laugh at this description and you may even think it is all nonsense. But you must remember that the numbers and graphs of the various markets and stocks you see on your computer are connected to people. Those people are buying and selling. It is people that move prices. So when people see other people unable to break through a road block (resistance) then they turn away and go the other direction.

The study of technical analysis is at its core the study of human psychology.

The materials sector is in a free fall now and I see more pullback in the materials and this will be heavy on the markets. Financials just keep getting worse. And we have the Yen carry trade sneaking up on us again possibly. A bounce tomorrow does not cure the market. The underlying concerns of the people moving it is still there. And when (and if) we rally over the next few days and if it fails to move above the 13200 area then the fear remains just as strong and we turn back again and will likely go lower then where we are right now.

Tonight there is word that the FOMC may be forming an emergency meeting. If the FOMC does something dramatic then that will impact the fear levels (either raise them or lower them) and then the market will react accordingly. We don't know what the FOMC will do, or say, or what smoke signals they will send. The markets will react violently to anything bad and they will react feverishly bullish if the FOMC does anything that puts to bed all of this credit crisis the economy is facing.

In my opinion the FOMC is only seeing a few trees and they are missing the forest. There are signs of a weakening economy and they need to address this in a stronger language. If they continue to speak about the need to curb inflation then I feel you will see a strong market sell off. The markets are screaming recession now. The FOMC will need to come up with a plan so as to not create any more weakness in the markets and the economy as a whole.

Charts:

Crude Oil

Holding my shorts open

The UAUA and CAT shorts worked beautifully. The charts told us to go short and they do not lie.

I am holding my shorts overnight. If you on the other hand want to take your profits here I would understand. I will hold mine and see what the morning brings. If there is any sign of a pop tomorrow in the morning then I will pull up my shorts and cover my behind.

The ultra short on the Russell MidCap is also doing well. I will hold that overnight also.

Some good profits for the Rebeltrader portfolio today.

P.s.: please remember to vote for my charts on stockcharts.com , and vote once every day .. Many thanks!!

Chuck

My Shorts are still down !

And I'm told everything looks great! LOL

Ok.. a little humor to lighten the day. UAUA short is looking good. Right here it is at some resistance around 39.00/39.10.

The reason I took only half entry was because of this crazy up and down market. It is like the weather, come back in an hour and it will change. If UAUA drops below $38.25 I will add another 1/2 to my short on UAUA. I will be prepared to close the short if there is a "powerful" upward rally and everything rises very fast. Now that the trade is working out I'm going to lower the stop loss (to protect our capital) to $40.35 (want to play it safe in this market).

Another Short play

Just got an alert on UAUA. Broke below 200MA.

I will enter a 1/2 swing short on move below $39.80. My Stop Loss for this short will be $42.50

Am a little nervous here this morning. The overall trading volume is weak. Market really can't decide where it wants to go. Taking a long or a short these days is risky but I am going to go by the charts

Daktronics (DAKT)

One more short trade idea. This is a short trade on good earnings and the expected result that traders will sell it off when it his resistance.

One more Short idea

This is a plan to buy the 2x short of the Russell MidCap Growth. Symbol SDK.

Keep an eye on SDK and if you see the price move above $71.10 then I will be buying (long) SDK. Remember that SDK pays 2x for every point drop in the Rusell MidCap.

Correction: sorry, typo: buy on move over $72.10

http://www.proshares.com/ for information on how the ETF's work

John Deere earnings & another short trade idea

John Deere (DE) reported their earnings and they beat on the quarter EPS but forward guidance was mixed. We may see Caterpillar (CAT) trade up in sympathy but there is significant resistance at $78.00 and at $79.00

If CAT makes it up to $79 and appears to be rolling over then take a 1/2 swing short. When CAP drops below $76.00 go in the remaining short position. There is too much fear in the markets to sustain any advances. If CAT can't push above $70 then there too many people selling to get out and used the advance to get out.

Another short trade idea. Wind River Systems (WIND) is a mess of a stock. There is very light pre market trading (so far) on WIND taking it up to resistance $9.60. See chart for my short trade idea plan. WIND is trading up on speculation that the company is up for sale, and that IBM may be interested. But rumors in this type of market could give us a nice pop to take advantage of. If the price moves up to resistance and can't get through then then people are not buying the rumor of a buyout and still want to sell it down. Will be a battle between those who beleive and those who don't beleive.

Repricing of Risk

I am getting tired of the talking heads that keep saying the market is undergoing "A repricing of Risk". Give me a break.

The market is selling off on banking fears, fear of liquidity drying up, homes dropping in value, and a possible economic recession...

..... Repricing of Risk.... Does this mean that if you are late on your mortgage payment you can tell your mortgage company that "I will pay you after I reprice my risk"

Jim Cramer Famous Meltdown!

I just had to throw this up here for entertainment value! IF you are one of the few people in the world who has missed this then you need to click on this video to watch it.

WalMart and Home Depot

News Stories

Occasionally I will include a video or news items from Reuters, Wall Street Journal, MarketWatch, or the Associated Press. I am able to provide these videos to you for free because they have an advertisement on the window.

Let me know if you like these once in a while.

Thanks..

Early Asian Market trading

The Asian markets open only a short time ago but the Hang Sang and the Nikkei are down large. Down 2% so far.

The Day that Was - August 14th 2007

Today was more bad news on top of more bad news. Nothing held the markets together today. The selling today now is approaching panic levels.

The news from The Sentinel Group today that they were running into problems with redemptions from Money Market accounts... Wait a second! What did that RebelTrader guy just say? "Money Market", you heard me correctly. This was the news that created the near panic selling today as anything that threatens what is thought to be a 'safer' investment turns out to be not safe anymore then you start having a run on banks if something like that continues. This was the kind of news that sent the financials down fast today.

And the financials were not the only thing that went down.. It is becoming harder to find anything that goes up these days.

The S&P 500 has now erased nearly all of the gains earned in 2007. If we drop to the expected target we will then the market wiped out nearly 2 years of gains. Once gains are erased they don't come back as fast as they went down. Which only reinforces the need to always sell your investments/trades when a major trend is broken. Why wait what could be years to get back to 'breakeven'. Remember that if you own a stock that drops 50% of your investment value. Then that stock has to gain 100% to get you back to break even. A drop of 50% comes faster than a gain of 100%.

So if you sold at a major trend line violation then you kept your gains safe and you could then move that into another investment that will earn additional gains on top of what you have. As opposed to holding on for it to come back and maybe waiting a very long time to just get back to where you started.

On top of everything else we have going on we have to introduce the possibility of another crisis in the making. That old "carry trade" problem again. The Japanese Yen is gaining strength and if that continues we will be in an unwinding scenario again. That on top of our own financial crisis could be the push that takes us into a bear market. See this article from Forbes:

http://www.forbes.com/markets/feeds/afx/2007/08/14/afx4016094.html

Now for some charts:

The Day that Was - August 14th 2007

Working on the charts and commentary now..

Thornburg Mortgage (TMA)

After the market closed Thornburg Mortgage announced that is was delaying their dividend and also stated that they have been experiencing increased margin calls and they also are experiencing delays in its ability to fund mortgage loans to its lending partners.

Another mortgage company about to go under?

A Rough close

Sellers outnumber short covering and buyers together. I was expecting to see at least a small rally right at the close as shorts covered before heading into tomorrow. But the intensity of outright sellers was far greater and kept the markets pushing lower and lower.

An ugly close and now we are in new territory (to the downside that is). The S&P closed at a new low since the time this mess started. A target for the S&P 500 of around 1390 is now likely. Financials just drag us along with no end in sight yet.

Charts tonight..

Selling more intense then previous sessions

The selling is increasing on more volume. There is not much escaping this sell off.

Current swing trades EXLS,LAYN,NVEC,APKT hit the stop point and I am out of the trade and have my capital protected.

This is why we use money management. To protect our money. That is always you're first job in getting into the stock market. Protect your money first and above anything else. The making money part comes after only you practice money management.

So while the market continues to sell down I have my money nice and safe in cash while the others keep losing theirs. Always practice safe market trading by knowing where the exit is at all times. The "Buy and hold" investors never have an exit. They only have a 'hope'. And you can't make money on a "hope". Once you rely on hope you have already lost in the stock market jungle.

This sell off has us now reaching deeper than we have been since this whole mess started. If the S&P closes at a new 45 day low (since this market pullback began) then we are seeing signs of the market getting still weaker and we have to be prepared for even bigger downward moves.

I'm watching CAT for a short position. CAT appears to have lost investor confidence and it on the verge of a significant trend change. I will short CAT on a move below $76.00

Just a bad day all around.... again

Financials taking the markets down like a lead weight. Reminds me of a movie I once saw called "The Abyss". In that movie an underwater mining company rig is almost dragged and pulled over a cliff when a crane on the ship top side loses the crane they are attached to. The crane falls to the bottom of the ocean and then starts to drag the rig to the edge of a bottomless drop off.

The financial sectors are the markets 'dropped crane'.. pulling us to the edge of a cliff.

Markets drop on news of another redemption issue

There is some news this morning that The Sentinel Group has sent a letter to their clients stating that they could not honor redemption requests from money market accounts. And went on to say that the only way they could honor the requests would be to sell securities at deep discounts which would be significant losses for their clients.

This is another significant event in the financial sector and has the big name brokerages and lenders down.

Financials and Retail Taking market lower

Financials continue to be under downward pressure and today the retail sector is taking a hit after the news from WalMart.

Not looking like a good day (again). But as they say on Wall street these days. "Wait an hour, it might change again"

But so far the drive has been downward. Important to keep an eye on the S&P 500 1440 level. That is an important support line.

Financials are moving lower at the open

It is early but right after the bell the financial sector is dropping. The XLF is moving downward again. If the XLF drops below $32.50 then watch for the financial sectors to start selling faster again.

Pre Market - August 14th 2007

Waiting for the PPI data at 8:30. This will be a market mover.

This morning WalMart (WMT) released earnings and the big news out of WalMart was the comments from the CEO. He reported that their growth is now less than expected and the company lowered their full year guidance. This is rather significant because in a slowing economy the lower priced retailers usually do better because as shoppers cut back on spending they shop at the discount stores. Does reduced revenues at WalMart signal the economy is even worse or does it mean WalMart is just not a well run company and they got sloppy? I think it is a little of each.

Bloomberg reported this morning that economic growth in Europe is slower than previous expected.

Shareholders of Thornberg mortgage (TMA) wakes up this morning to bad news. There is growing concern about the ability of company to stay afloat amid reports that the company may have to start liquidating assets to remain cash positive.

Futures are currently up slightly but the volume is light. All are waiting for the PPI data says before making moves.

The Day that Was - August 13th 2007

Today the trading in the markets was completely void of courage on the part of buyers. The market started up right after the bell but all through the day is was a slow bleed as more people just kept quietly taking money out. We basiclly ended right where we were on Friday.

The financial sector gaped up at the open but just sold off as the day went on and the XLF (Financial sector SPDR) ended the day lower than the close on Friday. Even with the sense of a calm in the markets this morning as events in the Asian markets overnight seemed to be tame it still was not enough to provide any confidence in our financial markets yet.

The charts have been and still show the potential for more significant downward moves in the broad market. The analysts will still keep saying (and a complete disservice to the average investors) that the fundamentals of the economy of the country is great. But that is there game. They have too much to loose in a recession and will say that everything is great all the way up to the point their voice creates bubbles on the surface of the water as they keep going down.

When the markets look healthy I say it, when the markets look sick I say it. I am not a bull or a bear. I just report what the charts say. If there is no intervention by the FOMC or other major news to change the greed/fear ratio as it stands right now then the charts will remain intact and that is a slowing economy that will start reversing.

We still have some rough days and weeks ahead (hopefully not months or dare I say years) but the current course is for a weakening economy, regardless of what the Ivory League economists will tell you. Follow the charts and you will protect your capital in an up market or a down market.

EXM reported their earnings tonight and they beat expectations very nicely. Keep watching EXM for the first buy point in the newsletter.

BDCO is being removed from the watch list. They reported earnings tonight and they were lower than expected. This never became a trade so nothing lost.

Tomorrow is another day and another opportunity. .

Market Update

There is no ambition on the part of any market participants today to buy anything in great moves. With so many stocks marked down to basement prices that tells me that there is still too much fear that the markets are still going lower.

The charts tell me we stand a chance to drop more before this ends so maybe the market movers are paying more attention to the charts now that they realize that charts are "leading" indicators to the fundamentals. Remember that important statement as you begin your journey into the wild game we call the stock market. Old school, conservative, fundamental analysts and the belief that everything one ever needs to know can be found in a company financial statement will fail. This is no longer your Grandmothers market, with the increase in large money moves, computer trading, global economies tied closely together, and the increased scrutiny of company watchdogs, the press, etc. We have more company wrong doings being uncovered then we used to.

When your Grandmother bought stocks she put her certificates under the mattress and never looked at them until 40 years later. Doing that today will lead you to your savings being wiped out. You must monitor your investments and know that even if a company looks good on paper it has no meaning at all to how it looks to those with money in their pockets and wants to put into a stock. Public perception of a company (as reflected in the stock price) will migrate into and show itself in fundamentals in due time.

The movement of money into and out of stocks in great amounts is what needs to be looked at to determine if the public thinks a company is worth anything. And P/E ratios are meaningless calculations. Price to Earnings is subjective at best. The price of a stock is not established by their earnings, it is established by what the markets are willing to pay for it. It is that simple.

Always follow a chart. Taking profits before a long downtrend is always better than looking up from the bottom and saying to yourself "wow... it will take a long time to get back up there". Stocks always fall faster than they will rise. And as you wait in some cases many years for a stock to get back to where you have a profit (if ever) your money could have been in another investment that was growing, not just recovering.

The technical analyst experts , such as John Murphy (and others) will tell you that the price of a stock contains all known knowledge, perceived knowledge, earnings, earnings projections, the confidence in the company, and the the quality of the products. Everything known and perceived about a company is reflected in the price of the stock at the very instant you look at the ticker price. To say that the price is undervalued or overvalued is subjective. The only real gauge of undervalued or overvalued is what the market says it is worth. Not a P/E ratio.

This is why so many long term investors fail. They rely too heavily on only fundamentals, P/E ratios, earnings, and the like. But they lack the key ingredient to determine when to be in and when to be out of a stock. And that ingrediant is the public perception as reflected in the share price. No matter how good a company is on paper if the public does not trust it, is suspicious of it, is fearful of it, or just does not like it then all of the financial statements in the world will not make the price go up. Only when the perception of those buying and selling it change will the price go up.

When we do swing trades based on technical analysis we are following the changing attitudes of the public by the movements in the charts. Remember that a stock chart is simply a mirror of the human emotion. It is people buying and selling which makes the prices move. So we follow the charts to tell us when the perception of a company is turning favorable and that is how we profit.

A 'buy and hold' type investor today is placing his money into a company that will only have one thing controlling its price. And that is the public view of that company over the years, only the public moving the money will move a stock price. Not what the company says or does. When your Grandmother bought stocks and put them under the mattress the markets were a different animal then. Times have changed over the years and so must investment methodology.

Breaking News

You don't see this very often. Goldman Sachs has just been downgraded to a "sell" by Ziegel Analyst & Co.

A sell rating is not a rating you see very often. (remember my views of analysts, they will always say to buy no matter how bad things are). But a sell rating on big name Goldman Sachs is now bringing the other big brokerages down. Who would have thought we would ever see a "sell" rating on 'ol Goldman Sachs..

A 'short' trade idea...

If we get any more bad housing and construction economic data this week then Caterpillar (CAT) is on the brink of failure. It recently printed a head & shoulders pattern which is typically a strong technical indication of the shifting greed/fear of a stock. I have identified on the chart the entry point to grab some shorts.

I see the potential for a 10 to 15% drop in the making.

Market Update

Financials now rolling over and heading south again. Still no confidence in the markets. Will watch for a late day buying spree. So far not seeing anyone on the sidelines that looks interested in spending yet. Lots of spectators.


P.s. - Please remember to vote for my charts on the stockcharts.com site. Click on this link and at the bottom of that web site is a button to click on to vote for my chart work.

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


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Market Update

So far not seeing any determined buying pressure. Buying is weak and the financials appear to want to rollover here and head down again. There is still no confidence in the markets and bargain hunters are still staying off to the sides waiting for the ball to be kicked to them instead of them going onto the field to make a play.

Pre Market - August 13th 2007

Currently US futures are up ahead of the open. A surprise Goldman Sachs conference call has been called for this morning to discuss their financial situation. What they say in this call will have an impact on the market today.

Retails sales data was released and it was slightly above expectations and this is adding to futures being to the upside this morning. I still watch same store sales data to view the longer term outlook of the economy. I'm working on some graphs which will appear over the coming days.

The energy sector is up a bit this morning with a tropical storm in the making in the Atlantic. Whenever there is news of a tropical storm or the talk of a possible hurricane the energy sectors will move. Oil is up to $72.34 currently.

The Feds will decide if it will be necessary to inject anymore cash into the markets at 9:30am. Overnight in Japan they injected cash into their markets to improve and the Asian markets ended up slightly.

The coming week will continue to be volatile. No doubt about that. Watch for upward rallies to still be taking advantage of by those wanting to take cash out. There is a lot economic data hitting the markets this week (see the current issue of the RebelTrader newsletter for the calendar of events).

While any advance it a good feeling don't get too complacent and jump in head first. I still see a bear flag on the DOW so I do still predict more declines coming.

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