The Day that Was - September 7th 2007

The charts are leading indicators of the fundamentals

People who study the charts and learn the ways of technical analysis all come to the same basic understanding. And that is that price movements reflected on the stocks, indices, etc. are leading indicators to the overall fundamentals. When the price of a stock breaks a trend line which had been in force for a long time then there is a signal that something is not right. Something is happening that is shifting money out of that stock for reasons which may not be fully identified yet in the fundamentals. In more times than not the price movement of a market or a stock will later end up being the warning sign of trouble which shows up in the fundamental data later. Since July I have been showing you various charts and providing commentary on price patterns which have been signalling trouble. Be it the 10 year T-Note yield showing money making the flight to safety, or a chart of the ratio of new highs vs new lows and the declining trend the point has always been this: To educate our readers on the markets movements and how to protect your capital and then how to make money in the markets.

Some people may have even considered the commentaries have been too bearish in stance. They appear that way because we are simply reporting what the indicators are telling us. RebelTraders is neither bullish or bearish, we are realists. We see the market for what it tells us and we react accordingly. If the markets are in a bullish state then we do not argue with it, if the market is in a bearish state then we don't argue with that either. The market is always right and no one can tell it that it is wrong. The only way to hold on to your money and to make money is to play the market in the direction it is going in, you can't fight it.

This morning the markets received a jolt from the employment data. Everyone was expecting that the data would be soft but the surprise was that the data was actually a negative growth indication. Employment had stopped growing and was now going backwards. This moved the market from "a rate cut will stabilize the credit situation" to now being "the economy is approaching a full blown recession possibility". And even if the FOMC were to cut the Fed Funds rate it may now not do anything for the markets. When it was thought to only being a liquidity issue centered on the credit situation then a rate cut may have stopped the bloodshed and stabilized the markets. But now with recession being a distinct possibility we have moved beyond a simple rate cut cure all.

If the employment data this morning was 'soft' it would have provided the economic evidence needed for the FOMC to do a rate cut and the market would have probably rallied on the news in that a rate cut would have probably been a sure thing and the liquidity crisis would be put to rest for the time being. But the sell off today was due to the negative growth employment data and the knowledge that this is much more than a credit situation. Now the economy as a whole is in jeopardy and a rate cute (sure thing or not) was not going to be the cure all. When the economy is heading into a recession a rate cut will not fix everything. Especially when the value of the dollar is already at all time lows.

So what now? What do we need to do and what do we need to watch for next? On Sunday night Lisa & I will have some guidelines for you and possibly some positions that you need to consider taking in order to protect your long term portfolio and perhaps also some short term trades which you can be on the watch for to take. This morning was a turning point in the markets we feel. We have moved beyond just a short term liquidity issue to now facing the possibility of a recession and a bear market in the future. Come back again Sunday night for ideas Lisa and I will have for you.

I will show you one chart tonight. It is the 10 year T-Note yield. I have shown you this chart in previous postings but what I needed to show you tonight is what happened today. Look at the chart and observe the intensity (length of the candle) of money moving to "safety". In all the days since this credit situation began never has been the greatest flight to safety then there was today. When birds fly south for the winter then you too need to start thinking about protecting your own assets and install the storm windows!

Market news from the wires

Pre Market - September 7th 2007

Breaking News

The Government employment data was just released and the numbers were much lower than expected. This was the first decline in payroll numbers in four years and the largest decline in manufacturing jobs since July 2003.

Ok, now what does this mean? Traders were looking to this employment data to get a clue on what the FOMC might do on September 18th. The thinking was that if the employment data was 'soft' it would add to the traders confidence of a coming rate cut. But with the numbers we got this morning it may have actually crossed an invisible line in the sand and now traders are more concerned now with the chances of a recession are higher. So a rate cut is now secondary to the concerns of a recession.

With the employment data showing negative growth today the chance of a rate cut is certainly raised, but now the reaction may be more centered on the recession possibility and is why we are seeing a large drop in futures. It may come down to things are worse than thought and a rate cut may be too little too late now.

At this time the futures are all down very large. What happens when the markets open remains to be seen.

Again, this is why we have been telling you to sit in cash and not be in there trying to fight this market. If you took long positions yesterday there is a high probability chance that all of your trades will be wiped out today. While others keep saying to buy we are telling you to wait it out and preserve your capital. Let others throw their money away, we are saving ours and NOT LOSING IT !

Knowing when to trade is just as important as what to trade!

The Day that Was - September 6th 2007

The Daily Telegraph reports that a sharp drop in foreign holdings of US Treasury
bonds over the last five weeks has raised concerns that China is quietly
withdrawing its funds from the US, leaving the dollar increasingly vulnerable.
Data released by the New York Federal Reserve shows that foreign central banks
have cut their stash of US Treasuries by $48 bln since late July, with falls of $32 bln in the last two weeks
alone. "This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency
chief at BNP Paribas. "We won't know if
China is behind this until the Treasury releases its TIC data in November, but
what it does show is that world central banks are in a hurry to get out of the
US. They don't seem to be switching into other currencies, so it is possible
they are moving into gold instead..." courtesy: Briefing.com

Wow.. that is a lot of money and something which should raise more than just an eyebrow in the market. And could also be one reason we are seeing Gold prices running lately. There is a genuine fear and a lack of confidence worldwide in the health of the US economy. This is something which will need to be monitored. But take it as a sign of perhaps more weakening of the dollar.

After the market closed today Thornburg Mortgage (TMA) filed an 8-K discussing recent developments of their business. I would suggest you read the entire filing here. But in summary Thornburg discusses that they have not been able to fund $231.6 Million worth of loans and may be forced to sell more assets to meet other obligations. Not looking good for Thornburg. Also of note is the continuing decline in Countrywide Financial (CFC) share price.

Today's trading was almost a non event whereas a market direction is concerned. The markets did end the day up but the trading range was rather confined and the volume was weak (again). None of the movements in the markets today was with any confidence at all. And trying to take on swing trades would have been nothing more than a 50/50 bet on which way the market will go tomorrow.

Tomorrow the markets will get the Government issued unemployment data and that may provide a catalyst but one must be cautious in that it may be just one more piece of information which provides nothing but more questions. Today there was a plethora of Fed speakers and each of them had different takes on how the economy is and what the future may hold. If anyone was trying to read into their statements the outcome of the FOMC meeting on the 18th then they were left with nothing but a headache trying to figure them out. One could take away the opinion that even they don't know what they are going to do!

A chart worth its weight in Gold:

Pre Market - September 6th 2007

Mixed pre market data with the futures moving in the same fashion. Initial claims came in and were slightly better than expected. But the key will be tomorrows employment data.

Same store sales data being released this morning has been on the upside and a surprise to the markets. This in conjunction with the rise in the LIBOR rates has the markets 'confused'.

Mixed signals for those wanting a rate cut on September 18th. Market will be floating today until any other news which gives the market a sense of the intentions of the FOMC. ISM data will be released at 10am. And in addition to that there are various Fed members that will be speaking today: Poole (11am), Yellen & Kroszner (11:30am), newbie Lockhart (12:25pm), & Fisher (2pm). This is a lot of Fed talking heads in one day! And the market will react to every comment they say.

The Day that Was - September 5th 2007

Fear and Greed

The markets move on fear and greed everyday. It is how the markets work. Fear and greed is another way of expressing "supply and demand". What makes a stock go up or down is the supply (too much supply it goes down) or the demand (the price goes up when everyone demands to own it).


When fear strikes the market then the supply goes up as people don't want to be holding the shares, so they start selling. When greed takes over then people are paying up the stock in order to get their hands on some shares. This is the normal day to day process that makes the stock market what it is. But since mid July when the whole market came tumbling down on the credit crisis the market has been running on extremes of fear and greed. And in these extremes it is difficult to try and make money consistently without beating your head against your monitor. This is why we have remained on the sidelines and have continued to tell you to do the same by not providing you with swing trades to enter.


Lisa and I are absolutely amazed at some of the things we are reading around the net. There is some outright reckless advice being given to people who are feeling as if they need to be in this current market battling it out with the rest of the bears and bulls. And to only be carried out on a stretcher barley alive. The markets are currently trying to digest a number of economic situations which have the potential of having a very substantial impact on the health of the US economy. And the wild swings up and down is a result of the extreme fear and greed that changes on the slightest bit of news.


Do you want to make money by investing and trading in the stock markets? Of course you do. As I stated a moment ago Lisa and I are absolutely amazed with some of the things we are reading. There are plenty of web sites telling people to buy this, that, or the other thing to only be stopped out of their trade (stopped out means the use of money management to protect the trader from extreme losses by closing the trade when it starts to eat away at your capital). And some traders don't even know or understand the proper money management techniques required in order to survive. Lisa and I are very disturbed by the advice out there on the net. They are being reckless with other peoples money and that is sad. Some people are addicted to trading and feel they "must" be in there and they are going to lose. But they don't learn from their loss and they just go in for more punishment.


RebelTraders is and always will be dedicated to honest, objective, and to provide trading advice that is in the interest of making money, not throwing it into a blender and hope for the best. We are establishing ourselves to be one of the most respected sites available, not by just providing you trading ideas one after the other every day just for the sake of it and not worry about what the whole picture is (too many web sites simply look at a chart and tell you to buy something and not give any regard to the whole picture. That is the wrong way to trade). Rebeltraders is about educating you, provide you with swing trade ideas, explain why we recommend a particular stock, help you protect your capital by teaching you the proper money management techniques, and help you become a better trader by understanding that the market is always right, we have to play by it's rules. When a trader tries to buck the rules of the market they will lose. A trader who think they will 'beat the system' will lose, a trader who thinks that "the market is wrong and I am right... will lose".


So many things Lisa and I want to teach and to do to help our readers and subscribers make money. Is is a passion and we put a lot of our time into this as it is becoming our dream to create something that people will want to have. What has been our biggest lesson to you so far... keeping you from trying to be in this market until their is a clear direction established. We will never tell you to buy a stock on the 'hope' the trade will work out. We will only provide stock trade ideas when the charts and the broad markets are supportive of a better chance the trade working. Trades that are based on plans will have a higher success rate then those that are based on hope.


Now today, early on we had employment data from ADP (which usually tracks the official government data when it comes out). The numbers from ADP were pointing to a further decline in the employment picture. This gave cause for the bulls to think that it would bolster the FOMC that they need to cut the Fed Funds rate. Then a short time later the market got the pending home sales data and it was much worse than expected. This actually gave the market a chill down the spine of everyone on the trading floor. It was a signal that things could be actually much worse and this was a shock to the system. The market became weaker on this news as the idea the economy was in worse trouble than thought. Then at 2pm the Beige Book (it is called the beige book simply for the color of the cover) was released and in it is a collection of comments and data collected from all of the different regions of the country. The general wording of the beige book today was that the FOMC does recognize the decline in the housing sector and also acknowledged the financial situation but they went on to say

"Outside of real estate, financial market turmoil had limited effect on economic
activity".

This kind of talk from the FOMC now increased the fear in the markets that there may not be a rate cut coming. I said last night that a rate cut has been priced into the market. The beige book took some of the air out of that idea and the markets reacted violently and sold off.


These are very bad times to be trying to be in the market swing trading.. Holding onto your cash safely tucked away while the markets establish a direction is actually putting you far ahead of those that are trying over and over to make a buck by trading in this mess. You are the winner here. Those in this market battling it out are losing.


Lisa and I have many things that we are discussing and the future of this web site will be something we all feel you will enjoy and the services we will offer when it becomes a paid subscription will be of exceptional value. But don't worry, when this market shows a sign of clear direction we will be posting our swing trade ideas here for all to see. Someone asked what the cost will be. That has not been established yet but it is our desire to be attractively priced! And the charter members of RebelTraders will enjoy the move over to the new site when that happens. It will not happen overnight, but it is being worked on. We want you to profit and we want to be the ones to help you do it.



Now for some charts:

Apple gets eaten by the worm

Today Apple made some announcements and none of them were received well by the investors. There were some new iPod products announced but nothing earth moving. What has caused Apple to rot today was the news that they are slashing the price of the iPhone. And doing away with the lower 4Gb model. This is saying that Apple is NOT selling the iPhones as well as they had hoped. The hype had worn out and they were no longer moving. why else would a company slash prices on their product after only being on the market for a matter of weeks!

When a company releases a new product and the demand is high then there is no reason at all to cut the prices. So Apple coming out and announcing that they are discontinuing one of the units and slashing the price on the other says things are not going well for the iPhone.

I said back in May that it was time to get out of Apple, the hype had run it's course and that would be all there was going to be. Apple shares tried to get back above the trend line but failed, now the news of the iPhone will likely send Apple packing for some time.

Market Update

Pending home sales data was released. And the sales data fell for the fifth time in the last seven months; biggest drop since the index began tracking in 2001

The market took this data as a blow to the chin and made a quick drop.

This is why we were not telling you to buy swing trades yesterday! The downside risk was higher than the upside reward potential. And today that risk became a reality.

RebelTraders is much more than just telling you to buy this or that stock... we are all about helping you keep your money too!

Pre Market - September 5th 2007

The US futures are down across the board. Hesitation is the key word this morning as some are taking profits on yesterdays run up to resistance. Additionally, the ADP report issued earlier showed an increase in unemployment and this is sending some caution back into the markets this morning.

Of note from the retail sector Costco (COST) missed their same store sales estimates. Stock is trading down about 5% in pre market. Costco is considered a bellweather stock by many for the retail sector as they are a well run company with a good mix of products. So with Costco down that has a chill running through the retail establishment today.

We will watch for what is said in the Beige Book Data when it is released this afternoon. We're looking for an opening to the downside and it remains to be seen if the weakness extends or turns around.

The Day that Was - September 4th 2007

The first thing I want to address tonight is the fallacy that exists with the notion that the lack of trading volume in the markets is a result of investors, smart money, hedge funds, etc. being on vacation. So many times we hear in the media the volume is low due to so many people being on summer holidays. Twenty years ago this would be true, but today everyone who has a substantial stake in the markets is only a wireless laptop or a cell phone call away from making a trade. Historically speaking it is true that volume is light during the summer months but when there is trouble in the markets it does not matter if it is the summer trading season or not. Especially in our technological age where anyone can make a trade from just about anywhere in the world with a wireless something.


Ok, I needed to get this volume issue on the table. For so long during this market bounce we kept hearing from some talking heads that the volume is weak because everybody is on summer break or something along those lines. Take a look at the DOW chart shown here and observe the volume levels I highlighted. Those that control large amounts of money had no problems selling their shares when the markets were heading down, and that was during a summer month. Do you think that those who make a living of controlling vast amounts of money simply sold in early to mid August and then just said "ok, pack the kids, were going to the beach"? Of course not, when there is danger or even the hint of a super money making opportunity they do not just go away for a holiday and let the markets sort themselves out. For they are the ones that make the markets move. Again, look at the DOW chart, notice the large volume while the selling was taking place, now that the market is attempting a bounce the volume has not shown any substantial strength, even today when supposedly everyone would be back to work and the volume would increase substantially it did not.


There is a reason why the volume was high on the way down and is still low on the way up. It is because the large money movers are not jumping in yet. There are no "cannon ball" flips off of the diving boards by the smart money into the markets here yet. They are seeing the same signs of a market and an economy that looks too questionable to just jump in. The market had a rally today on weak volume still and it stalled at an important resistance level that I provided you during the afternoon update on the S&P 500 chart. The market is trading on low volume and on expectations that the FOMC is going to cut the Fed Funds rate on September 18th. This is called "priced in" and is a term you as a trader will hear many times. If you are new to the markets what it means is that the market is acting as if something has already happened when it actually has not happened yet. They are trading as if the the FOMC will cut the rate and that there are no doubts about it. This is a dangerous environment for a market to be trading in for if the market starts to question if they will or won't cut the rates again then those that priced in the cut in their actions now start backing it out. And the market falls.


Trading on a perceived or believed action which has yet to take place leads to high risk trading. It is essentially placing a bet. Smart traders don't place bets on a hope, we place a trade on a good reward/risk profile. That is what separates us from those who are trading on emotions and the fear of "missing out on the big move". There are very strict rules to making money consistently in the markets. One of them is to never trade on 'hope', for if you do you have already lost. Looking around on some of the message boards (and yes, I confess I did peek at the yahoo boards to see what the mind set is) you can see that there is a lot of retail money running on emotional highs right now. Too many statements around the internet chat rooms and trading forums like "get in now", "buy now or you will regret it", and on and on and on. This is what I call the "dumb money" sentiment indicator. When the dumb money sentiment indicator is peaking it usually signals that the emotions are in control and not logic.


Logic is looking at the charts and seeing that the vast amounts of volume that sold on the way down is still not in there on this bounce. If it were indeed the bottom (August 16th) as the some would say it was then one would expect to see even higher amounts of volume during the recovery side. The problems that got the markets in this situation are still there, the only thing that has changed is the amount of people 'betting' that the FOMC is going to cut the Fed Funds rate. Late in the day today the President of the Richmond Federal reserve made statements which would take some of the air out of the idea that the FOMC will cut rates on September 18th. Although he is not a voting member of the FOMC committee his statements still sounded an alarm and we saw the market pull back some into the close today.


So as nothing has materially changed in the markets concerning the state of the economy and/or the health of the financial system (remember sub prime? Remember the notes being traded between mortgage institutions which can't be valued? Nothing has been solved yet) the only thing which is different today is the 'hope' that everything will be OK is higher, not the proof.


Rebeltraders don't trade on hope and perceived events which have not happened yet. We trade on fact and logic. Anyone that entered into a swing trade (long) today has placed themselves at a high risk of losing money. Some people get lucky trading in the markets and then think they know it all and that their system must be working. Then when luck runs out they get mad at the system and think the markets are out to get them. Unless you learn to trade like a machine (void of emotion) then you will lose.


Your money should be very important to you... don't throw it into a trade on a hope and a prayer... Lisa and I go through charts, we keep our ears open and we listen to what key people are saying, we watch the action in the markets (reading the tape), we surround ourselves with objective opinions and sources of information in order to arrive at our collective decision. If we wanted you to be in the market trading today we would have said so this morning.


Reward MUST outweigh the risk before we will tell you to put your money on a trade. We won't do it with our own money and we won't tell you to do it with yours either.

Market Update

You tune into CNBC or you look up your favorite stock on the internet and see that many stocks are currently in the green today. Those of you that have been with us for a while understand why we do or do not take trades. We wait for the conditions to be in "our" favor. Today is not in our favor. If you look at the S&P 500 chart shown here you will see that the market is running right into a significant resistance level. And more importantly this level failed to hold back in early August which makes it even stronger the next time it is tested.

With the market so close to a large resistance level and the odds of a pullback are high then why would we want to take on new long positions under those circumstances.

Currently the market is not able to break this level today. Each advance is being met with an equal amount of selling which is holding the market from moving any further.

Pre Market - September 4th 2007

Good morning Rebels. I hope everyone had a happy and safe holiday weekend.

And while I am on that subject let me briefly comment on the widely talked about situation of the trading volume (and the lack thereof) over the past week. Many of the news media and others want you to think it has to do with the holiday. That many traders, hedge fund managers, and the like are all on vacation and that is why the volume has been so low. Rebeltraders does not hold the same belief as the media does on this subject. If you go back 20 years ago then the claim about vacations and the low trading volume is valid. Today every hedge fund manager is a cell phone call away from making a trade, a wireless laptop keystroke away from making a trade. Technology today has enabled those in power to remain in power, even if they are sitting on the beach somewhere.

With the markets in one of the most volatile states in recent memory do you actually think that those who are in control of vast sums of money are just closing up shop and heading out for a long holiday? Of course not. Even if they are not in the office they are STILL in control of their investing capital and will move it if needed. Vacation or no vacation.

The lack of trading volume during the previous 10 trading sessions is low because of the uncertainty in the markets. I am still looking for more market sell off in the near term. The markets are not out of the woods and there is more downward pressure still out there. When reading the tapes I still see selling on the strength. Someone is taking money out in bits and pieces.

The charts are footprints of the smart money (smart or not is is essentially the large money that matters here). These footprints tell us where the markets are going. If the volume is light then that means that the large money is stepping lightly. If they step lightly then who are we to try and trade against the ones who truly move the markets.

This morning the futures are down and have been floating around in negative territory. Today we watch for the construction spending data and the ISM manufacturing data to be released at 10:00am. Vehicle sales data will be released throughout the day.

When the market opens today I am adding to my position in Gold (GLD) in my long term portfolio. As I explained in previous commentaries Gold prices have traditionally been a 'safe place' during a recession and on a weakening dollar. Both of which are distinct possibilities in the future.

We are watching the markets and when the time comes to jump in then we will be jumping in and we will hold your hands as we go in to help guide you to the best places in the pool to be in.