The Day (and the week) that Was - September 14th 2007

Good evening Rebels...

Over the weekend there will be much more posted on out thoughts for the upcoming week. And you will definitely want to check in Sunday night to catch up on what our views are for next week.

Today started out on really bad news out of Europe. NothernRock (a company that is equivalent to CountryWide) which operates in the United Kingdom, reported outright terrible news concerning their financial situation. The company may be the next in line of many that will not last in the long run. In the U.K. today there was long lines of people withdrawing money from the savings side of NothernRock business. A rather gloomy picture of fear and some panic mixed in.

Our market reacted this morning with some large selling at the open. And the rest of the day was a very casual and low paced short covering, selling, and some buying. For the most part the smart money is remaining on the sidelines waiting for next week. Speculators and high risk traders are buying into the market on the hope there will be a rally next week. However Lisa and I are very concerned with the anticipation the market is "building into" the price and we see a risk for for a "sell the news" situation once the FOMC releases their statement. More on that over the weekend.

Tune in over the weekend for expanded information on what we see for next next week. Keep in mind that Lisa and I are also working on improving the access to our site. As stated in a previous post we have very quickly outgrown this web hosting service. It was a great way to get started but the readership and subscriber levels continues to grow and we need to move the site to a dedicated web host in order to provide clean and fast access to the site. Many good things coming for our followers..

Have a great weekend Rebels.. and don't forget to check back in over the weekend for more on events for next week.

Market Update

Early morning selling with somewhat high volume ended with low low volume buying and short covering as more and more people just want to "get out of the way" of next week.

Next week the fun really begins and the markets are going to rally or tank. No body has a clue which way the FOMC is going to go. Everyone has a guess, but no one knows for sure. And because RebelTraders plays on facts we are not going to place bets ahead of the FOMC in 'hopes' that the ball lands on our number.

At this time no one should be trying to take on new positions with just two sessions left before the FOMC announcement. Next week will be wild indeed. And the volume WILL return next week after the announcement, regardless of any holiday, or any other reason the talking heads on TV have been trying to claim as the reason for the low volume. Low volume is lack of confidence in the market and waiting on the sidelines waiting for a sign from the FOMC (and the economy) on where they should put there money. Holidays have nothing to do with our current low volume situation.

Pre Market - September 14th 2007

Futures are down rather significantly thus far this morning on news overnight from Europe that Northern Rock, a mortgage company is now in trouble by the fact that they have had to seek emergency funding in order to remain solvent. Also this morning retail sales figures were released and the data was a downside surprise. A weaker retails figure add the fear back to the markets in that a recession may pan out and become reality.

The pre market volume is higher than it has been in recent days. And on the subject of volume I want to address a comment left last night that the low volume is a result of various religious holidays. One can always find an excuse for low volume, but these days the prevalent reason is, without a doubt, investors/traders sitting on the sidelines. As long as "down" days show higher volume than "up" days, any other excuse is just that--an excuse.

An alert for the short trade on AZO. We want our readers who have entered a short position on AZO to close that trade today while you still have a profit. The reason is that next Tuesday AZO will report earnings. While the recent trading would suggest that there is more downside potential it isn't prudent to hold through earnings. There will always be another opportunity to enter again if earnings prove to be negative.

The Day that Was - September 13th 2007

Low volume was the primary indicator that stuck out like a sore thumb, but in this case not a swollen sore thumb but instead one which was chopped off. The moves the markets made today was on volume levels which are even lower than over the previous days of movements. When volume is low any move is exaggerated. One can not put faith into any movements in a stock or index when the volume in which is driving it is very low.

There was some early news which drove shorts (and there are a lot of them still) to cover some of their holdings. The biggest was in General Motors (GM). They announced early this morning that they may have a plan that will remove from their books billions of dollars in current and future debt by moving certain retire benefits over to a union run benefit package. This news of a potential debt reduction followed by an analyst upgrade this morning sent GM running as shorts were covering. As of the last update on short interest GM has 11% and that is a rather healthy amount considering the float structure of GM.

Also this morning there was a report that the LIBOR rate had stopped going up as has been the case over the past few sessions.

In addition to the above the initial claims data this morning gave added hope that the Feds will cut the fed funds rate next week. But as I said this morning it is not proof until it happens. The markets could very well be setting itself up for a hard fall. We still remain firm with our position and will advise of any changes, however at this time the market is moving solely on speculation and not fact. Everyone is guessing what will happen next week and unfortunately the market may be in for a big disappointment.

Today the DOW attempted to break resistance but it was unable to close and fell back to the resistance levels. This would give us a technical indication of a possible sell off tomorrow.

Pre Market - September 13th 2007

Bad news turns to good news in the futures. Ironic that the markets 'hope' for bad news and that was received this morning in the form of the initial jobless claims. Although the number this morning was not extremely high it was just the fact that it was higher. Traders view this as another sign that the FOMC will cut the fed funds rate. However we note that nothing is a sure thing until it happens.

Over the coming weeks watch for Rebeltraders to move to a dedicated server with a new software platform. This is the next step in the process of Rebeltraders moving to a complete web site with member forums, chat, etc. The Blogger web host was good for us to use to get started but we have already outgrown this software platform and we need to move to our own servers to keep up with the growing readership.

The Day that Was - September 12th 2007

The first hour of trading this morning brought some buyers who were trying to move the market but after 10:30 the volume just vanished. And by the end of the day sellers took it back down. A text book case of 'no conviction' to step up to the plate and take a swing. In many aspects today had the appearance of people just wanting to go home so they went down on the field and just collected whatever loose change they could find and took it home.

The fact that oil hit $80 today made the energy sector light up a bit but otherwise the effect of the rising oil price seemed to end there. It does not appear that the oil price held the markets back today, the markets were held back today because no one was playing. After the large run up yesterday on low volume it was a signal that there would not be much enthusiasm for a follow through. Remember that volume is ALWAYS a key to understanding the markets behavior. Price movements may look great by themselves, but always compare it to the volume to understand the "intensity" of any movement.

The markets are becoming increasingly 'worried' about what the FOMC will do next Tuesday. Speculation is running wild, everything from 25 basis points all the way to a full 1%. One analyst today claimed that the damage to the economy is so severe that it would take a full percent cut in order to return liquidity and stabilize the economy. Only problem with that is a cut that severe will panic the markets because it would be a sign that the economy was "real bad". In which case there is nothing to support the markets to keep running higher. Keep in mind that the prices people are willing to pay for a stock are tied to the economy. If the economy is weak, then companies are earning less, so the stock in that company has less value. A thriving economy creates growth in all aspects of business, more money invested by the companies, more sales, more products, etc. This drives the earnings up of the companies and in turn the perceived value of the stock and hence people willing to pay up for it.

When the economy softens and/or weakens it is not just the average person who feels the economy weaken, it is every company. A company is only good if people are willing to spend money, buy the products, sign contracts for new work, and so on. The economy is a large spider web, a disturbance in one part of the web shakes the entire web. In our case right now the web has holes in it from a bad storm and the FOMC is in charge of trying to repair the holes before the web completely breaks apart. But are they too late? There is a chance that another storm could hit before the current repairs are completed.

The lack of volume is saying that people are staying in their homes for fear of getting caught in another storm. And in some cases people have good radar systems and they can see the dark clouds looming in the distance. So they are collecting their bottles of water and other rations for a long stormy recession. The FOMC is caught in the classic "rock and a hard place". Because they have been sounding the "all is well" tune so long they have let the damage get too severe. Now they will have an even harder time trying to correct the situation. A drop in rates will lead to an even weaker dollar (which is already in the basement) and that will soften the economic picture even more. If they don't cut rates then they will fail to add the liquidity that the market is not hurting for. In either case the chance for a recession is likely and the long term picture for our markets is down.

On the day the FOMC makes their decision if they announce a rate cut I will expect to see the markets rally on the news. But I also expect it will exhaust itself out rather quickly and sell off. Could be hours, days, or a few weeks later but it will fall. If they don't cut the rate then I would expect to see an immediate sell off. Whatever they decide the chances for a recession remain the same in the near future.

The rising oil prices will further erode the Dow Jones Transportation index. This index is necessary for a healthy market as it needs to follow in step with the other markets. I have included a chart tonight of the DJ Transportation index vs the S&P 500. Notice how they are continuing to go in opposite directions from each other. The declining transportation index is acting as one more anchor on the broader markets and will likely help to pull the markets down.

Market Update

Very uneventful day. The volume is very weak and basically the broad markets are just 'floating'. No significant movement in either direction. There was some early moves in some stocks but as the day has progressed the volume dried up and there has been no pressure to keep those gains in force.

A new tropical storm has formed in the US Gulf of Mexico and that is helping to drive oil up today. And also note that the US Dollar continues to be weak.

A very uneventful day. Almost a 'quiet before the storm' type of quiet..

Pre Market - September 12th 2007

There was a surprise overnight in Japan with the sudden resignation of the Prime Minister. The Asian markets did not react violently however it did send the Yen down. And at the same time the US greenback has also dropped even lower.

Current US Futures are pointing towards a lower open. We remain on target with our projections and our stock picks we gave you on Sunday.

The Day that Was - September 11th 2007

Hope is in the Price

Hope, that is what continues to move the market. Not fact. Today the markets made substantial gains and yet again it did it on low volume. The days that the markets go down the volume intensity is higher than on the days that the markets go up. This is backwards from what a healthy market will do.

The markets are moving on the hope that the FOMC will cut the Fed Funds rate and that will solve all the woes. And because of this hope the risk takers are buying up the market in the hope that the Feds will cut the rate and the markets will propel upwards. And all the time that the market is advancing on this weak volume the 'smart money' is cashing out, taking advantage of the hope of others. When you watch a stock and you see it advance on small trades and then a large share transaction goes through on a down tick and this is repeated over and over you see clearly what is happening. Those who are moving the largest amounts of money are for the most part dumping larger amounts of shares on the weaker advances. They are doing what all smart traders do, they sell into the strength (and hope) of others. So while others buy up the stock on smaller share increments they jump in with larger share sizes and sell down. These are key technical indications of the markets movements and why we still remain firm at this point that the market is setting up for a hard fall.

A successful technical analysis of a market is much more than just looking at one chart or one parameter and saying to yourself "we have returned to a bull market". That is nonsense and will lead a trader to disaster. The smart technical analysts and traders look at many things. You can not isolate yourself to just one or two parameters of a stock chart and think everything is OK. One must ALWAYS take into account as many technical indications of the chart movements, the volume, the buying vs selling, the sector charts, the foreign markets behavior, the movements of the dollar, and on and on. So today the market had the appearance of a strong bull rally, to the novice this is true. To the experienced and savvy trader who is keen to other indicators this was not a bull rally. It was a movement on hope without substance.

A good Doctor will evaluate a patient by thoroughly examining their patient before arriving at a diagnosis. A Doctor who makes a diagnosis without understanding everything will more times be wrong then he is right. Same with technical analysis, if you don't examine the market thoroughly then you will likely be trading in the wrong direction and set yourself up for a loss.

Today there was no significant news or financial events to offer the markets any substance. On the contrary the lack of any news today made the 'hope' factor go up. It was the lack of news which fueled those who are hoping on a rate cut to further think it is a "sure thing" and they continued to buy up the market. They are pricing into the markets that a rate cut is a done deal now.

But do we really know that a rate cut is a sure thing? Do we really know that the lack of news today meant the worst is over? Do we really think that the markets are all better now and it is time to go long? Hell no! If you can answer any of the above questions with a 'yes' and is based on factual proof then we are wrong. But there is no factual proof that a rate cut is "in the bag", there is no factual proof that no news today meant everything is behind us, there is no factual proof that everything is better and it is time to go long. There is more proof to say the opposite of all of those questions. And that is in the charts, it is in the economic indicators, it is in the credit spreads, it is in the down trend of discretionary spending, and on and on.

Today the broad markets tried to break above some key resistance levels but it failed. will it try again tomorrow? Can't say because we don't know if some news in the morning will dash the 'hopes' of those who have been moving the market. But from a technical analysis stand point there is not much room over head to move up without the markets hitting a wall. And as has been the case during this market situation every wall has been met with strong selling from those taking advantage of the weak buyers and selling them off. This is why we are not initiating long side swing trades. It is pointless to do so with so much overhead resistance and other indications that the advances have been weak and are prone to another sell off.

On the economic analysis side of things there are those who view that even with a rate cut from the Feds it will not provide the necessary 'fix' that is required to solve what is broken. And we have to agree with that. How we see the economic conditions, as they exist currently, a rate cut may only make the problems worse in the long term and our equity markets are going to suffer even greater losses. It has almost reached a point that the markets are dammed if they do and dammed if they don't cut rates. You need to realize that the markets are balancing on a tight rope, the slightest event will tip the market off the rope and send it falling. The market has a long way to go before we can safely say that it is off the rope and the risks off a large decline are minimized.

RebelTraders don't trade on hope for that would only be as good as placing a quarter in a slot machine. Smart traders don't gamble, they play when the odds are in their favor.

Market Update

Ben Bernanke essentially had nothing to say over in Germany this morning that had any impact on the market. It is still a guessing game going on as to will they cut, and how much will they cut.

The market is currently bi-polar. It has no logic, only emotion is moving the market currently. So far today the indices have been stopped by resistance levels and keeps pulling back from those levels. Don't let the green on your screen fool you into thinking that all has returned to normal. These kinds of moves are commonly referred to by the pros as "a bull trap". The moves lure people back into the market on the long side and then it sells off again leaving the amateurs out to dry with a loss.

Stick with the positions we provided you on Sunday night. Currently two of them are 'in play' (reached entry point). The remainder of the stocks remain on the watch list for their respective entry points to be reached.

The movement in the market thus far today does signal the potential of an afternoon decline so be careful.

Pre Market - September 11th 2007

We are waiting for Ben Bernanke to speak in Germany. This will take place at 11 am (eastern time). And as usual all ears will be listening to what he has to say.

Also today OPEC is meeting to discuss if changes are necessary in crude production levels. We should expect some volatility today in the energy sectors.

A thought on what happens on September 18 with the FOMC announcement. Lisa and I share the view that in light of the recent economic indicators that when (and if) the FOMC issues a cut to the Fed Funds rate we will see a spike in the broad markets. However, we feel it is likely that the spike will be an opportunity for those who are looking much further down the road an opportunity to sell out. They will take advantage of the spike to sell into the strength. It may last a day, a couple weeks, we just don't know. But we do see a rate cut as providing only a temporary boost to the market and then we will sell off again and begin our bear market. We believe the economic damage is just beginning to be known and the rate cut will only be another shot with the paddles but the end result will be "a code" (first responder talk for a death). Keep in mind that a rate cut will further weaken the US dollar which is already near historic lows now.

A Moment of Pause

On this day we need to set aside a moment in our thoughts to remember all of those on this day who gave so much...

The Day that Was - September 10th 2007

Lisa did a wonderful job describing the market action today. All I can add tonight is a chart of the S&P 500. This is a weekly chart and I wanted to highlight the building formation of a bear flag.

Also note that today two of our picks we presented yesterday became "in play" today. CLWR made very good gains today on the gap down this morning. I will expect to see some bounce but it is expected to continue working downwards so this remains a good swing short.

Also today AZO hit the confirmation point and became a swing trade also. Keep watching the remaining charts for the entry points for these short plays.

See you in the morning Rebels..

Market Update

So far here at mid day the market is very quiet and that is reflected in the trading volume which is very low. The market continues to weaken and that is reflected by the lack of volume doing any buying here.

With regard to the plays we provided you last night already one of them has confirmed and has become a short entry. CLWR has fallen 12.5% just this morning so far. Keep an eye on the remainder of the short trades we provided you and look for an entry on those when the conditions highlighted on each of the charts becomes a confirmation.

We are seeing a continuation of what has been happening for quite some time now. Advances in the market are being sold off. The tape says people are selling into strength. We don't argue with the tape.

Pre Market - September 10th 2007

There is no significant news this morning. The futures have been drifting around. We are standing firm with our market assessment that selling on strength is taking place and will continue to do so.

Economic Data-

Monday, September 10th- 3pm: Consumer Credit...

Tuesday, September 11th- 8:30am: Trade Balance...

Wednesday, September 12th: Bank Reserve Settlement; 7am: MBA Mortgage Applications; 10:30am: EIA Petroleum Stats...

Thursday, September 13th- 8:30am: Initial Claims; 2pm: Treasury Budget...

Friday, September 14th: 8:30am: Current Account, Export Prices ex-ag, Import Prices ex-oil, Retail Sales; 9:15am: Industrial Production, Capacity Utilization; 10am: Business Inventories, Michigan Sentiment-prel...

Speakers- Monday- 7:30am: Atlanta Fed President Dennis Lockhart will be speaking in Atlanta; 11am: San Francisco Fed President Janet Yellin will be speaking in San Francisco; 2pm: Dallas Fed President Richard Fisher will be speaking in San Antonio; 7:30pm: Federal Reserve Governor Frederic Mishkin will be speaking in New York... Tuesday: 11am: Federal Reserve Chairman Ben Bernanke will be speaking in Germany

The RebelTrader Play Book for the coming weeks...

The mood of the market has shifted

The employment data released on Friday has shifted the mood of the markets. For some time the charts have been indicating a weak market but until Friday had been trading on the hopes a Fed funds rate cut was going to rescue the markets.

What happened is that the charts were saying a decline was likely has moved from a technical indication into now being an emotional indication. Now, all of you know that Lisa and I apply technical analysis to our trades and to many of the broader markets to gain a perspective of which direction the markets are going. But what is a chart? It is the reflection of the emotions (fear and greed) of those moving money into and out of the markets. To those that have been with us for a while know I have said this before but for the many new people who have been reading our commentaries the study of technical analysis is essentially the study of human psychology. It is through the understanding of fear and greed where we profit. We make money by being on the side of the market direction, not by fighting it.

The reason RebelTraders has been advising to remain on the sidelines since this turmoil began was because the emotions (as reflected on the charts) has been all over the map. There has been no clear direction in which to make a profit with a sensible risk/reward ratio. Rebeltraders is committed to being much more than "just another stock picking service". We are different (hence the name RebelTraders..free flow of ideas that are objective and unbiased). We strive to educate our readers, provide objective views, and to help you learn to be a smart and intelligent trader and investor.

Now, back to what happened on Friday. As you recall on Friday night I posted the chart for the 10 year T-Note Yield. The purpose of my wanting to show you that was the emphasis placed on the strength of the movement of money making the 'flight to safety'. In no time during the market turmoil that started in mid July was the 'flight to safety' stronger than it was on Friday. This is one form of technical analysis, to study where money is going. And that chart showed that it was not moving into stocks. Ever since August 16th when the market started to try and make some moves upwards the volume has been weak. This has been a sign of low confidence and signalling a lack in confidence in the markets. The volume is always important in understanding any market move, be it a stock or a broad market index, volume must always be evaluated along with price movements.

Since August 16th the markets were advancing on weak volume as it was "pricing in" a possible Fed Funds rate cut. Remember that "pricing in" means that the market is trading as if something that has not happened 'will' happen. When you hear the expression "sell the news" it means that some event which is expected finally arrives and because the price was running up before the event occurred and when it does then it sells off as it had reached a climax. With the markets advancing recently on the weak volume it has been doing so on the anticipation that the Fed Funds rate cut would 'rescue' the market. Then on Friday morning the employment data showed that the economy is potentially much worse and now a Fed Funds rate cut will not be the anticipated 'cure all'. Lisa and I see the markets as going through a long term decline that will experience some short term rallies but the end result will remain the same. And that is a market decline and eventual bear market.

So what do we do? First we identify some stocks that, upon confirmation (see the respective charts for details) we enter short positions on. Again, each position is a swing trade meaning that you never place all of your capital into one trade. You divide your trading capital into segments of 10% each. And you place no more than 10% of your trading capital on any one swing trade. This is how you limit the risk to your overall capital. Now, using the charts provided here watch for the conditions identified to take place, and when they confirm then you enter a swing trade (short) on that stock. These short plays could be short term of a few days in duration if some significant market event propels the markets significantly in the other direction in which case we will close them or they could be longer term trades lasting for weeks or even months as the markets continue to decline.

Now what do you do if you are trading in an account where you can't short a stock, or if you want to hedge your longer term portfolio (401k for example) with some plays that will help you in a declining market. Then Lisa and I have the following suggestions.

First you want to add some Gold (hedge for the falling dollar) to your longer term portfolio. We suggest symbol 'GLD' which tracks the price of Gold. This will be a longer term hold during a declining market.

Next, in order to profit on a declining market we would buy 'SDS' (an inverse ETF on the S&P 500, actually pays you as the market declines), and 'DXD' (inverse ETF for the DOW). We were also discussing the Russell2000 ETF short and we are considering that as well and that one is more volatile so we are going to wait just a bit longer before we tell you to consider that one. These ETF's are provided by "ProShares" and you can learn more about them by visiting their corporate web site at http://www.proshares.com/ .

The stocks that we have picked as possible short trades are:

CLWR

AZO

FFIV

GLBL

FWLT

At the end of this commentary I will provide the charts for each.

A few final thoughts for tonight. Late on Friday CountryWide Financial (CFC) announced that they were forced to lay off 20% of their workforce. This is the nations leading mortgage lender and their financial troubles continue to mount. The housing sector and the credit crisis is propagating into Main Street businesses and the ramifications are likely to mount. Our economy is more intertwined with the global economy than at any time in history. Some would say that a 'global' economy will provide a cushion and will help absorb disruptions in our economy. But our view is somewhat different, when one economy (US economy for example) begins to suffer then other countries that have a financial interest in ours will pull their funds out just like any smart investor who closes out an investment that is "turning sour".

The news last Thursday of China pulling money out of the US Treasuries may very well be the beginning of many more such 'withdraws' from our economy, and it has been because of the global movement of money that our markets have done so well in recent years. Without that global source of money flowing into our markets then we stand the chance of an even larger bear market/recession.

And one last thing before I post the charts. The following list is something that everyone has probably heard at one time or another and we find it to be rather funny. It is essentially the top excuses that stock picking gurus will use to justify why something happened that went against their prediction. Some of these are too funny to not provide you on this Sunday night before you go to bed.

10. You took my statement out of context, leaving out all the
obfuscatory elaboration, conditional clauses, counterpoints and equivocations.
Your judgment is unfair.

9. I was close enough. You should give me credit.

8. I will be right eventually; I just don't know when. (Or
sometime later: I was right, but my timing was off.)

7. I may be wrong on some little things, but I'm dead right
on all the big ones. You shouldn't count the little ones.

6. I provide risk assessments based on historical
tendencies, not forecasts. You should not call it wrong. The low probability
scenario happened, so it was just bad luck.

5. My public statements may be sometimes wrong, but I am
100% right in my private newsletter. You have to pay for the good stuff.

4. Since I am rich and famous, I must be smart. Since I am
smart, I must be right. Quid est demonstrandum. No need to check up on me any
more.

3. If brokers weren't so manipulative and investors so
gullible, what I said would happen would have happened. You should give me
credit for my compelling argument.

2. The Plunge Protection Team (or the President, or the Vice
President and his cabal, or the Treasury Secretary, or the Federal Reserve, or
the Japanese, or the Chinese) intervened to prop up the market. You shouldn't
count that against me.

1. What forecast? Let me tell you about a great new
investment opportunity!

Reprinted with permission of the CXO Advisory
Group LLC and is copyrighted.

And we would like to add one of our own:

11. The market makers are crooked and intentionally made the stock go down and stole my shares!

Now the charts...

Charts

The charts for the commentary above..