The Day that Was - August 10th 2007

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

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

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

Check in Sunday night for the weekly Newsletter.

Good night Rebels...

The Day that Was - August 2nd 2007

Good Evening Rebels...

Before I get started I have breaking news that just came over the wire. American Home Mortgage (AHM) has announced that effective tomorrow, Friday August 3rd 2007, they will lay off most of their employees. They are reducing their workforce from 7,000 down to 750! The CEO says they are doing this to preserve the value of what assets they have left. They also announced that they are no longer taking any mortgage applications. It is not looking good for American Home Mortgage, and I feel this is just the beginning of the financial sector problems. In his statement the CEO said the following:

"the market conditions in both the secondary mortgage market as well as the
national real estate market have deteriorated to the point that we have no
realistic alternative"

The market made some advances today but the technical indications are still signalling that another shoe may drop. The advance on the S&P 500 today was on slightly lower volume. On any advance you must have increasing volume in order for it to be registered as strong. With volume being higher on the down days than the up days is showing continued weakness. We may still see another large drop in the indices to levels that may be lower than the drop we had last week.

The wild price swings in the S&P over the past two days is signalling increasing confusion in the market. There is no clear direction and this becomes a dangerous condition to be in. The market can be easily spooked here and if a skeleton pops out of the closet and it is scary enough then we drop hard.

Another sign that there is no confidence in the market is how many advances in individual stocks keep getting sold off. No body is comfortable leaving money in the market yet.

The news tonight about American Home Mortgage will probably be felt in the financial sector tomorrow. And the chart for the XLF (Financials SPDR) is showing a continued weak sector. I project that the XLF will eventually drop to the 200 period moving average.

I received an email from one of my subscribers asking why I am not swing trading more during this period where everything looks to be "cheap". The answer comes down to one word "RISK". It is all about risk management and protecting ones capital. Trying to trade inside of the volatile swings can take your money away very quickly. We are in a state here where the market has no direction. Within a day we go from negative to positive, and back and forth over and over. You watch a stock start to go up and by the end of the day is has lost all of its gains and then some. Don't try to trade in this volatility. If you want to keep your money then you have to exercise restraint and wait out the storm. Trying to swing trade in this current environment is like driving a car on ice, down hill, with bald tires, and no breaks! Leave the keys on the kitchen table and when the storms clear and we can see clearly then we can establish our trades in the direction the market is taking.

The new RebelTrader watch list and commentary printouts will be completed this weekend. I know you will like it. You will be able to print out the watch list and keep it with you. You will know what I am looking for on each trade to become valid and you will know when you should get out if the market turns sour. There will be some other things in there too that I will let you see when I release the first issue this weekend. I strive to make you all great traders!

Tomorrow we have unemployment data and that will be very closely watched. If there is a negative tilt to the data then we will have a sell off tomorrow. Tomorrow also being Friday will add to the anxiety of the market. Whenever the market volatility is high like we have now there is more likely to be a "take some money home for the weekend".

S&P 500

DOW

XLF (Financial SPDR)

The Day that Was - August 1st 2007

Before I get started I want to ask everyone to keep in your thoughts the people involved in the terrible disaster in Minneapolis. And I know for my firefighter Brothers in that area there are some many long days and nights ahead of terrible and heart wrenching work to do. My heart and thoughts are with all involved.

Today was looking like we were going to end with another down day. Towards the end of the day the market sold off all the way until the S&P hit the support point. And as if it was right out of a text book the market bounced right at the support. What has taken place today is that once the S&P hit the support level some buyers stepped in as that is the most likely point where there would be the bounce. Once enough buying started those that were short in the market started covering at the same time. Those holding shorts also know that the support line would be the likely bounce point. So they watched for a few minutes when the buyers started coming in. When the buying was looking strong off of the bounce the shorts started covering in greater numbers. And the two together created the big run up at the end of the day.

So the end of the day rally was two things. The first was bargain buyers taking advantage of a likely bounce point, and the second is shorts covering. In extreme market volatility like we have been experiencing there are vast amounts of stocks being sold, shorted, covered, bought, shorted again, and so on.. that adds to the wild swings we see.

At the end of the day the S&P managed to just squeeze above resistance and close above the line, albeit just barely. So does this end of day rally provide some confidence to bring other buyers to the markets? Right now the market is being moved by the pros. The retail money (you and me) is not enough to have a significant affect on the broad markets during this volatile stage. What we are witnessing mostly here over the past few days is large amounts of money being moved into and out of various stocks and sectors by hedge funds and institutional money.

When the market is in this type of extreme volatility with big ups and downs the markets will be "tested" at each resistance and support levels. It is the reaction of what happens when these key levels are approached that determines if we move up or down. It is like what happens when you put your hand under the water to see if it is too hot or too cold before you get in the shower. If the market gets near a resistance point and it is too hot it pulls back. So now we have another level of resistance above to overcome. Remember my analogy the other night when I described support and resistance is like the floor and ceiling of a building. And that the market fell from the 4th floor down to the 1st floor. Today we climbed back up to the 2nd floor. Still have a ways to go.

The financial sector is still an anchor on the markets holding it down. Housing is just as bad and there is no bottom in sight yet.

Before I post some of the charts tonight I was to say that the new watch list that I am working on and which you will be able to download I am looking forward to everyone seeing. I feel everyone will like it when I make the first issue available for download. It will be a PDF file that you will be able to download and print. In it will be charts, buy points, a description of what it is that I like about the setup, the sector the stock is in, the short interest, and the next earnings release date. There will also be a weekly wrap up that can be printed and a full Microsoft Excel spreadsheet of all my trades showing date, price paid, price sold, gains, loss, etc. I hope all will like it!

Now some charts from today..

The S&P

The Nasdaq

The DOW

The Day that Was - July 30th 2007

Good evening Rebels..

There was nothing surprising about the up day in the markets today. I mentioned in my market analysis from Friday that so many indices were sitting at support that is was expected there would be some kind of bounce. The issue that still remains is how will this and any more advances hold up.

The DOW ended the day up 92. That gain was really from only four companies. Of the 30 companies that make up the DOW index Boeing, Alcoa, American Express, and General Motors made up most of the gains on the DOW today. The remaining 26 companies were flat, down, or only up slightly. The advance today was weak and the reason I say that is because I am looking at the ADX indicator. Notice on the chart shown here the +DI (buying pressure) was only flat at best today. A healthy upward advance will be reflected by good buying pressure and today the buying pressure was almost non existent. The saving grace today was that the selling pressure (DI-) tapered off somewhat. Kind of makes me think the big sellers are sitting in the bushes waiting to strike again.

Ok.. now that we had an advance on the DOW where is our overhead resistance? Using the trusted Fibonacci numbers we will encounter resistance at 13560. We also have some minor resistance at a slightly lower level at 13480. Also note that we are still under the 50 day moving average and once under that important moving average that then becomes resistance as well.

The S&P 500 did a little better today but major resistance is still overhead.

Another chart to show is a sector analysis of the precious metals. See the chart here. Notice that it closed very close to the 50 day moving average (moving averages provide support during pullbacks). This sector needs to now advance from here otherwise it will drop down to the 200 day average. A drop in this sector will have a negative impact on the S&P.

So now where are we here in all this. We had a bounce today and it was no surprise. Actually if there was no bounce today that would have been a surprise (and scary). As with all bounces following a huge sell off the next few days and weeks will determine where the markets are going. There are still swing trades out there to be had but the risk is high because the market can drop again and take our swing trades along with it. Recall the trade idea I provided on Friday morning, Abb Ltd (ABB) today did exactly what I predicted it would do. It was a perfect bounce from strong support and in a company that has little exposure to the US economic problems. Today ABB gained 6% in one day. A good swing trade that worked as expected but one sneeze in the broader markets and this could fall back down. So while there are some good trades out there we have to trade them with even more caution. Protection of your capital is the most important part of trading in the markets, making money comes next.

A couple of stocks I like here:

Varian Semiconductor Equipment Associates (VSEA)

Intel (INTC)

Please remember my fellow Rebels... all swing trades while the market is in this very volatile condition are risky. Added risk can create added gains if the market goes up but think of it this way. Swing trading while the market is volatile is like trying to ride a roller coaster without a seat belt. It is tough to stay in the seat and if the car goes around the loop you could fall out and come crashing down. Hold on tight if you take a swing trade. As I said this morning I would not be taking any trades today. I need more signs of where this is going. will I make any trades tomorrow? I'll know after I see the earnings reports that are released pre market and the economic data tomorrow (lots of economic date to be released tomorrow - personal income & spending, Core PCE and the PMI).

Never be too anxious to make a trade. There are good times to trade and bad times to trade. Right now is not the best of times.

Mid day update

The big winner so far today in the rebeltrader portfolio is ONT. It is up over 10% today so far. A good bounce play this has become. That was why I changed the setup conditions for ONT from the original game plan. When I identified the pullback to a key level the play changed to a buy on signs of a bounce (remember, we don't buy on the way down, we buy after it hit then catch it as it comes back up).

The metals sector is good today and AKS is slowly making upward movement. Oil Services GRP also doing nicely again today, BIG is another big winner today as the retail sector is hot today.

The only bad play in the book right now is JSDA. Has not been able to keep itself above water as the word of the CEO's conversation on CNBC has made the rounds and has let the shorts take over control for now. Too bad, without the CEO this could have been a good trend reversal play. It still might but I won't leave my money in there and risk it. Took my 1/2 position off the table when it hit the stop at $16.90.

The sectors that are doing bad today are biotech & restaurants.

Now, the biggest news of all is that the DJIA has broken out of the trading range (see the DJIA chart on my public chart list: Public charts.) Right now at this time we are above the top of the trading range. If we close above that trading range then we are one step away from returning to a bull mode.

A Tripple Top ?

As I said in my earlier post the market was nervous today as it was once again approached the top of the trading range that we have been in since early June. Will we hit the top of the range again and bust through or will we have a tripple top and fall back yet again?

The MACD is showing a slight divergence during this month long sideways trading. See the MACD on the chart shown here. Notice how there is a slight upward trend that is visible when drawn with a trend line. Is this a signal that were building up pressure? Yes it is. But is it enough yet remains to be seen. Also the CMF is working it's way up as well, albeit still weak.

Also notice how today the +DI reached the trend line and stopped right at the line. Would like to see the +DI break above the recent down trend.

The day that was - June 28th

All morning the markets were quiet. Everybody was just standing around waiting for the FOMC statement. It was expected that they were going to leave the rates unchanged so there was really no anticipation over that matter. What everyone was waiting for was how they were going to word the statement.

It's interesting, the FOMC statement is gone over with a fine tooth comb looking for clues like it was something from Miami CSI! The analysts tear apart every word in order to determine what the FOMC members are really thinking. They are trying to read into the future. It is not good enough to simply take what the FOMC statement says on the surface, it has to be analyzed, x-ray'd, dissected, and scrutinized in every which way. In the end the general consensus is that the FOMC members feel the economy will continue to grow at a moderate pace over the next few quarters. And that inflation was generally in check but they did add this statement: "sustained moderation in inflation pressures has yet to be convincingly demonstrated". That gives them wiggle room for the future and that kept the market from turning completely bullish. The overall mood of the statement was good whereas the markets are concerned, but it was not a strong call to arm for the bulls.

The FOMC statement can be read here.

The reaction after the statement was as expected, about 15 minutes of whirlwind gale force winds as everybody scrambled as the analysts started dissecting the statement. In the end the market still finished "OK".. no bull rally, but no bear stampede either.

Tomorrow will be a real test as the statement will have set in overnight in all the market players and they will have been working on their playbooks for tomorrow. We will have to see what plays they have planned before we really know who wins this game.

But for us we will carry on as usual and let the market tell us what side to be on. Remember, in the markets we really don't care who we root for.. we just root for who ever will make us money! If it is a bull market then wave the bull flags... a bear market then we wave the bear flags.. pretty simple. Right now it is a tie ball game.





The DOW chart shown here from today shows we ended the day in a 'doji' (means indecision). We also hit a minor resistance level today. I anticipate another pullback in the broad markets coming up. Will it retest support and bounce like it did yesterday? Or will it fall through? My felling is that we will go back up.

Our current open position (BIG) is doing well and almost hit the second buy point today. Original buy price yesterday was $29.20. It closed today at $30.41. Stop loss for this trade is $28.20.



I will have some new chart setups and watch lists soon. Note that on the right side of the web site I have added a section where current open positions will be listed as well as watch list items when they are added in the future.





Fp80

DOW Double Top ?

In technical analysis a double top pattern is a warning sign of a possible trend reversal. Two things have to happen for a double pattern to "confirm"

1. A double top price action has to occur. And that has happened.
2. The price must fall to a point below the recent trading range. That is what we have to watch for. If that does happen then it is considered a "confirmed" double top pattern and subsequent trend reversal is in process.

We need to watch the DOW carefully for 13275 to hold. See chart.

I'm not convinced yet...

I'm not convinced that we are out of the woods. Looking over the DOW chart pay particular attention to my notes on the DI indicator at the bottom of the chart.

In early May we were getting the warning signs that the bull rally was getting tired. The DI+ topped and started rolling over. Need to see that get above the trend line (tan line) to restore confidence that the bears have left the building.