The Day that Was - September 21st 2007

Good evening Rebels...

We were watching the markets today for signs of where the money was. Unfortunately it is still not moving into the financial sectors. We need the financials to show some solid strength in order for there to be a bull market. The run up in the indices today was mostly in energy, health care, and utilities. Common sectors for money to be moving into with a weak dollar and rising commodity prices (and fear of a recession).

The market is "floating" upwards. The required strength to sustain it is lacking still. Could we have put you into some swing trades? Sure, and we would perhaps made some nice returns in a few days. But without strength in the underlying fundamentals of this rally why would we put your money at risk by "taking a chance". You would not like us very much if we told you to "jump in" and then suddenly the drain was opened and the pool goes dry. There is nothing wrong with waiting for the right time to enter. It makes you smart! The others are taking chances and anyone that is loading up on long positions in the past few days may be in for a sobering surprise soon if the technicals prove to be correct and the market sells off again soon.

In any recovery from a market sell off like we have experienced over the past couple months there are always a sequence of events which take place as the market tries to reestablish itself. Each advancement will be followed by a reality check selling. And then another try at advancing again. What Lisa and I are watching is the levels of advance/decline ratios, volume, sector performance, commodities, and so on. While some people will just tell you "buy buy buy" just because they are hyped up following the FOMC rate cut is foolish. Those that have been around a while will sit back and watch the children frolic in the pool knowing all to well that they will be coming out of the pool disappointed because it got too cold. We will let the kids that their play time and when the time is right the pros will get in.

We are going to provide you with swing trade as soon as the market looks as if it can sustain itself. The market right now is being sustained on emotions, not fundamentals and technical indications. Don't be surprised if Lisa and I give you swing trades for going short! That's right, if we see signs the market is going to roll over hard we will be going short on the market. We will play which ever direction the market chooses to travel when it hits the gas...

More commentary to follow soon...

RebelTraders goes on the Air

RebelTraders takes to the airwaves

Rebeltraders was selected to be a guest for this weeks show on a new Stock Market talk show called "The Savvy Trader".

I was interviewed by the host for about 10 minutes and I will provide a link to the show when it airs.

Pre Market - September 21st 2007

Futures are currently pointing to the upside. Keep in mind that is options expiration day and there may be some added volatility towards the end of the day as people establish new or get out of positions before heading into the weekend.

One thing I am going to be watching closely today is how the financial and housing sectors perform. Will there be more profit taking?

Stocks that have a strong to China are approaching overbought and/or very extended. An example is BIDU. This stocks appears to be reaching a climax and a sell off in the near future would not be a surprise.

So far there have been no significant events in the pre market so we are going to see how this options expiration unfolds as the day goes on. Don't get fooled by early buying or run up in prices. On a Friday with options expiration there is a chance of high profit taking by the close. This is what we will be watching for today to see how confident people are in leaving money in the market over the weekend.

The Day that Was - September 20th 2007

The Debate Continues

Now that 2 days have passed, the debate about the decision by the FOMC to lower the Fed Funds rate and also lowering the rate at the discount window still rages on. Just as people still debate to this day if Alan Greenspan did the right thing when he dropped rates many times in previous years. The actions of Tuesday will likely be debated for just as many years in the future from now.



As Lisa said in her earlier post this debate is a kind of 'noise' which can over time just get under your skin and make you emotional. And emotional traders make bad trades. What is done is done and now we monitor the markets for its effect. For that is all we need to worry about, the effects. If a recession is going to come then we adjust to it, if inflation returns then we adjust to it, whatever the markets do we adjust to it. And the reason we have been keeping you in cash over the past many weeks is because the markets have not adjusted to the situations yet. The market itself is confused and lost and is trying to finds it's way. Technical indications of confusion and uncertainty have persisted and increases the risk of having trades go bad. The market is still in the 'round-a-bout' (our readers in the United Kingdom will understand that one).

An example of a technical indication of a market which is still unsure of itself is in the financials. With all of the hype being pushed at you by talking heads on TV and from some of the other financial sites telling you that everything is fine and now is the time to buy then why is it that people are still selling out of the financials? Rebeltraders is all about reducing risk and increasing chances of a profitable trade. Not betting on 'hope'. If the markets are going to get a footing and start it's way up the bull road then we will be in there when we see signs of this happening. For us when we see dumping of shares in the financials and the housing sectors, even after the rate cut then we are not seeing a confirmation of a bull market. We are seeing continued fear which could topple the market and bring it back down. This is what we mean when we talk about viewing the broad picture. To look at a stock chart and say "this looks good" and take a trade based on that chart alone is being potentially reckless unless you broaden your vision to see the whole picture. Would you want to get on a roller coast ride at an amusement park where the bolts that hold it together are popping out and breaking? Not me! That is why we walk around it to inspect it and kick the tires before we say "I'll buy it", or in this case get on for a ride.

When the FOMC cut the rates so many people have said this will fix everything. Well we are not seeing it yet. The declining financial and housing sectors to us are bolts popping on the roller coaster ride. We will stay off the ride until we see the signs that it is holding together and is not falling apart. Preservation of ones capital is job 1. You only win in the stock market (swing trading, day trading, or long term investing) when you learn to protect your capital and adhere to risk mitigation.

One of the bolts that popped out of the roller coaster ride today was what happened with Goldman Sachs (GS). This morning they reported earnings that were much better than what the analysts were expecting. Even though they suffered losses over the past few months they were able to (at least by what was said in their press release) stem their losses and they performed better than what the analysts were fearing. So if it was so good then why did the Goldman Sachs sell off today? It was the classic "sell the news". Recall a recent post I told you that the pros will always sell into strength. They take advantage of people buying the news to get out. When someone has substantial holdings of a stock and they want to get out they must have the trading volume in order to unload their shares. That is what happened today. With the news of a better than expected earnings report people were buying in on the idea that the stock would go skyward after that news. So people kept pouring money in while at the same time those holding large amounts of shares were dumping out. If the so called 'pros' or 'smartmoney' or whatever you want to call them are selling huge quantities of their shares at the expense of the momentum players and other buyers hoping on a huge gain then that says other people are seeing the bolts popping out of the roller coaster and they want out. We want to see the mechanics come and put the bolts back in before we get on!





Tonight I am showing the Goldman Sachs (GS) chart.

Sorry for the delay...

Had a meeting to attend this morning which ran much longer than I anticipated. Lisa will be posting some information on today's market soon.

Goldman Sachs beat their earnings by a significant margin. And Bear Stearns missed by a large margin. Currently market is trading down. There will be much more shortly.

One more important item...

Also of potentially market moving events tomorrow is Fed Chairman Ben Bernanke will be testifying before the House Financial Services Panel on the matters of the credit crisis. The market will be listening to his every word.

The Day that Was - September 19th 2007

The day started out rather well with the strongest volume being in the first few hours. Then by mid day the volume tapered down and the markets pulled back. The momentum was quickly wearing off as viewed on the chart patterns.

The news today out of Morgan Stanley (MS) was that they missed their earnings estimates and during the conference call that followed the share price continued to drop as they discussed their losses. This had an impact on the financial sector (XLF) but what strike me as even more important is that the trading volume on the XLF was almost 1/2 of what it was yesterday. If the rate cut is supposed to be so good for the financials, banks, brokers, and home builders then why would the XLF be showing weakness today. Could be the party from yesterday has ended and people are waking up from their hangovers and getting a clearer picture of what the rate cut may mean for the markets down the road? There was some real hesitation in these sectors today.

The home builders sector (XHB) was actually in the red today and the volume of selling today was higher than the buying volume yesterday. This is telling us that an uneasiness remains in the markets and the world is not so perfect after all today.

Tomorrow we have additional market moving events with Bear Stearns (BSC) and Goldman Sachs (GS) both reporting before the markets open.

The sectors which did the worst today were consumer discretionary,technology,banks,bio tech, retail, brokers, and the financials had trouble staying above water towards the end of the day.

Something else which caught my attention early in the day was the big drop in the advance/decline ratio. Yesterday it was mostly all up. Today that ration came back hard and the decline numbers started going back up again.

Tomorrow will be yet one more day in this crazy week of events. Stay tuned..

Market Update

Could it be that the euphoria in the market is quickly wearing thin? Price action is showing strength but some of the market internals are showing a drop in the intensity of buying (or short covering). At the moment it seems we have hit a ceiling. May only be temporary or maybe the hangover from yesterday is setting in and reality is taking over..

The Advance/decline ratio is showing signs of profit taking increasing. And the trading volume has been tapering off.

The Day that Was - September 18th 2007

As Jim Nabors used to say from the old TV show "Gomer Pyle, U.S.M.C" ...

Surprise, Surprise, Surprise..

Well Ben Bernanke did exactly that today. Everyone was caught by surprise by their actions and the statement that followed. Over the past 6 weeks we have heard from every FOMC member and non member talking about how the FOMC is not responsible for bailing out the markets. The repricing of risk in their view was just a way of saying "oh well... you placed a bet and lost, not our fault". And the economist's agreed, it is not the job of the Feds to bail out the hedge funds and brokerage houses for their deep reliance on assets that carried high risk. So as some hedge funds experienced large losses (and some folded up completely) and the brokerage houses talked gloom and doom the view of the FOMC has been "too bad". The various speeches over the past 6 weeks signalled that they would not bail out the markets and that bad investments would be just that. In their view the markets would have to re-price themselves and their job was to be responsible to controlling the broader economy and inflation/recession risks.

So after all the talk about how the market will have to fix itself and the FOMC would not be pressured into making decisions based on stock market action seemed to be completely tossed out the window today and the FOMC kneeled before the markets and did exactly what it wanted, even if it was irrational and potentially dangerous in the long run. Ben Bernanke today became the parent of a spoiled child. And the spoiled child is the stock market.

The announcement of a 50 basis point cut in the Fed Funds rate in addition to an additional 50 basis point cut in the discount window was the Gomer Pyle "Surprise". It went far beyond what most were expecting and far above what most everyone thought they would ever do based on their spoken views over the past 6 weeks. I'll play devil's advocate here for a moment. Does their action mean that they are seeing other data that foretells a much worse economy is in the offing and which required such an aggressive move? Was their action motivated by Government political figures who want to restore faith in the economy (even if it is for a short while)? Was their action motivated by events in the United Kingdom and NorthernRocks' 'run on the bank'? All good questions.

The FOMC statement all but wrote off inflation and was centered on growth. They essentially have decided by their actions that the value of the US dollar means nothing to them now. In our view that is reckless. A decline in the US dollar is going to come back and bite us in the behind down the road. And it will not be pretty. Bernanke recently stated that they were in touch with the brokerages and financial institutions. Was Ben giving into the markets or was it that these CEO's and Bernanke discussed some real evidence of a hard recession coming?

There have been some well respected economists who stated that a 50 basis point cut could be interpreted as a panic by the FOMC that things had gotten out of control and the economy is in worse shape then we realize. We can't say because we don't know what has taken place behind closed doors with the CEO's and the Feds. But if the 50/50 cut is not a panic move then it is at a minimum a move out of desperation to make a screaming child shut up for the short term. You know what happens when you give too much to a child, they only want more later and become even more demanding.

Our job at Rebeltraders is to help you understand the markets, learn about how they work, and how to make money in the stock markets over the life of your trading endeavors. Over the past two months we have been witness to a plethora of news events, employment data, mortgage meltdown, earnings reports, credit crisis, falling dollar, and Fed comments. All of which combined removed confidence from our markets. And is why we have been keeping you out of harms way while this fierce battle has been raging. The past two months have been a war.

During my years of working in the Aerospace industry I became familiar with a term which the military uses in various types of equipment. That term is called "Battle Short". A battle short is essentially a switch (or a series of manual processes) that disables all safeguards in a piece of equipment and forces it to keep operating even if it is broken. All electronic equipment has various protection systems in it. When something goes out of whack the equipment will flash a light (like a light on your dash board in a car) saying something is wrong. In normal situations the equipment would be shut down and sent to the shop for repair. But in times of battle you can't shut the equipment down, you have to keep it going at all costs. Even if it means the equipment will burn up eventually. This is what a battle short switch does. It disables all protection/safe guards and allows the equipment to keep running even though it may be burning up inside. In a time of war the equipment is secondary to everything else so anything to keep it going, even for a short time longer, will be done. Think of it as you driving a car even though your oil pressure gauge says you have no oil. Normally you would stop and have it fixed. But in a war you keep pushing the gas and get every last mile out of it knowing that eventually the engine will seize up.

Today Ben Bernanke pushed the "battle short" button.

So where do we go from here? It all depends on how many miles the market can go before it seizes up. But in the mean time we put together a play list for you to work with. We are going to watch the markets very carefully (as we always do) this week as we still have more market moving events coming. And let us not forget that this Friday is 'Tripple Witching" day with options expiration.

As Lisa stated earlier if we were already setup for day trades we would have taken you in and out of some good trades already. And that will be coming soon. Lisa is a very good trader and you will learn much from her as we progress to the fully operating web site. We are working on the server, software, web site programming, and a whole host of other things necessary in order to be fully operational for our subscribers. The swing trades of course will be there as well and will always be there. The day trading aspect of our service is just one way to make money when the longer time frame is not 'swing trade friendly' which has been the case over the past two months. .

Lisa and I will be discussing again in great detail what the plan going forward will be based on how the markets absorb today's action. Today was a party, we have watch now for sings of a hangover.

I would like you to take a read of a commentary from someone I respect in the financial community. Please read Frank Barbera's commentary tonight at "Financial Sense". You can read his write up here: http://financialsense.com/Market/daily/tuesday.htm. Frank goes into more detail on some of the ramifications that today's FOMC move may have in store for us.

Pre Market - September 18th 2007

Lehman (LEH) came out and beat their estimates for the quarter. The estimates were already lowered substantially so perhaps the estimates were too easy to beat. But that is a subject for another day. The statement released by LEH painted a picture and they could have given it the title of "not so bad". So how will this play into the FOMC decision?

Best Buy (BBY) issued a surprise and issued an upside to their sales and quarterly results. This is considered a surprise as it was expected the market would see some additional evidence of a weakening consumer spending. It is of course only one company but could the Fed look at that too?

PPI came in and it was supportive of a rate cut.

So where are we? Right where we started. Confusion to the max. 2:15 pm today. Will be a crazy day!

The Day that Was - September 17th 2007

First lets start with happened at the end of the day. Bank of America (BAC) has come out and stated that the credit situation will have a "meaningful impact" on earnings for the quarter. Then E-Trade (ETFC) released a statement that they are guiding much lower for the year and have developed a plan to streamline business operations. They will exit the wholesale mortgage business as part of that business restructuring.

So at the end of the day we got more bad news on how the credit situation is impacting companies. Tomorrow morning we learn what Lehman (LEH) will say. It will be important for Lehman, as well as all of the other banks and financial institutions to report as honestly and accurately as possible. If they can't value certain assets then they need to get it out in the open. The markets are smart, they don't want hidden numbers or obscure statements. Let's get it out in the open, it will help to heal the markets faster if they do that. Ok, off my soap box.

The market traded today in a completely 'confused' state. No conviction for anything. It has been said by many, including us that tomorrow is indeed one of the most important FOMC statements in many years. Please see the post from last night for our analysis of the situation.

Tomorrow we are going to be closely watching the action. But unless your a daytrader (and experienced at that) then there is no reason to be trying to trade the aftermath, it could very well be short lived and you will be on the losing side. again, please re read last nights statement for the reasons why we are going to remain in cash until further notice.

Rest well.. tomorrow will be a wild day.

Pre Market - September 17th 2007

The situation in the United Kingdom continues to get worse. Long lines of customers are waiting to withdraw their money from NorthernRock. The UK market is down and this action is weighing on our futures so far this morning.

We see the situation in the UK as having the potential to spread and we must watch the outflow from NorthernRock.

There is no significant events in our markets at this time. Futures responding in the most part to the action overseas. We are remaining in cash for now.

It All Comes Down To One Moment In Time...

Tuesday at 2:15pm is that one moment. Fortunes will be made and fortunes will be lost on that very moment.

Over the past two months we have witnessed some of the most intense market speculation in a very long time. Speculation over the economy, global growth, employment, credit crisis, retail spending, commercial paper, oil, gold, the value of the dollar, and so on. The speculation has created heated debates of the like not seen in recent years. For every point made, there is a counter point which has merit. The debate continues, but the future remains an unknown.

While the general consensus on the street is that the FOMC is going to issue a 25 basis point rate cut, we remind you that it is only a consensus, not a fact. More importantly, has the market already priced in a 25 bp cut? Or, has it priced in an even stronger cut? There are valid arguments to be made in saying that if the market gets a 25 basis point cut it may rally for a short time and then sell off. And, if the market has been pricing in an even stronger cut and does not get it, then the markets will sell off even faster. One more argument out there is that the economy is the driving force of whether money moves into or out of the market, and with signs of economic weakness, neither a 25 or a 50 basis point cut will keep the market from selling. In some ways a rate cut may do more harm than good if the dollar weakens any further. Now what happens if the FOMC does not cut rates at all? All very interesting points to ponder. And why Lisa and I have arrived at the following recommendations.

We want any of our readers who took the short trade on ClearWire (CLWR) to close out that trade tomorrow. It is a good gain and we want to close it and lock in profits. We are recommending that NO new trades be taken going into the FOMC announcement. This will be placing a bet and RebelTraders do not place bets. That is for Vegas, so leave it in Vegas. Now, after the FOMC announcement, lies a very difficult call. Lisa and I have discussed this and we have arrived at the decision that we do not recommend buying or shorting any swing trades immediately after the announcement. The reason for this departure from my recommendation weeks ago is due to the movement of the markets and other developments which have occurred over the past couple of weeks . What we see happening after the FOMC announcement is a surge of emotions which will be followed by more rational movements of money. So to say that a rally that begins right at 2:16pm will last is not fair to say. For that rally will (if there is one) perhaps only last a short while as sellers are cashing out on the strength. (Important trading lesson here: The smart money movers and traders will sell on strength. It is strength that allows them to move large amounts of shares out on high buying volume. Otherwise they have trouble unloading the large amounts of shares). So if there is a rally it could be short lived. It may be a few hours or a few days.

Another reason we are not recommending 'jumping in' after the FOMC announcement is the other events which will take place this week that will be market moving events in their own right. On Tuesday, Lehman Brothers (LEH) reports earnings before market. On Wednesday, Morgan Stanley (MS) reports earnings before the market opens. And on Thursday, Goldman Sachs (GS) and Bear Stearns (BSC) report their earnings, again, before the market opens. With the substantial speculation over the impact of the credit situation, the mortgage market meltdown, the commercial paper (which for the most part still can't find substantial buyers), all eyes will be fixed the largest financial firms in the country, to gauge the impact to their bottom line. What they say could change the direction of the markets very quickly.

Now, if that was not enough, Fed Chairman Ben Bernanke is scheduled to testify before the House Financial Services Panel on Thursday, regarding the nations financial mess. So this is a week of LARGE market moving events. Taking on a swing trade at 2:16pm on Tuesday is no longer prudent. In one swift moment any trades (long or short) could gap in the other direction and create a substantial loss. So for these reasons we are going to sit on our cash and let the bulls and bears go at each others throats. It will be a wild week and one that will be for the history books I see.

If we were currently setup for our daytrading and live market member access service we would perhaps take a day trade on certain events, but as that is still being written in software for the RebelTrader member site, we have to stick with our swing trade recommendations.Let's stay out of the mess until this subsides. I would much rather sit on my cash instead of trying to guess which way the market is going to go each day this week with so many substantial events happening each day.

Don't feel like you may miss out on "the big one" or that you 'need' to be in there this week. We can assure you that there is much money (and safer risk) to be made even after the volatility this coming week subsides and we can grasp with more clarity what direction the market is going to go. We are at a crossroad here and the traffic light is burned out. We can't try to cross the street until the light is fixed.

Oh, and one other thing. the BBC has reported that the situation in the United Kingdom last Friday concerning the bank and mortgage company NorthernRock resulted in patrons of that bank to withdraw in one day 2 Billion Pounds (that's 4.011 Billion US dollars to you an me) in a run on the bank due to their announced financial crisis. Oh... remember American Home Mortgage? They were one of the first casualties of our mortgage disaster. Well it was reported today that some of their checks are bouncing. Yep, payments by American Home Mortgage to pay property tax bills are bouncing. This is not good...

See you in the morning Rebels..