The Day that Was - August 14th 2007

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

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

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

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

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

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

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

Now for some charts:

The Day that Was - August 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 7th 2007

Hello my fellow Rebels!

A very quiet morning while everyone was waiting for Santa Clause (Ben Bernanke) to come and bring gifts to the markets. But instead of gifts he gave us a get well card instead. Tonight there are more opinions of what the FOMC statement will do for the markets than there are shares in a cheap pink sheet stock that has been diluted to death.. LOL

The initial reaction was a quick sell off on rather heavy volume. The major indices hit an intraday support level and then bounced. The bounce was shorts covering and some new money coming in. The new money I suspect is people hedging that we have now seen the bottom. Will they be right? Or will they be part of the sellers adding to more down volume if the markets digests the news for a while and decides they don't like it. Time is now a factor in where we are going. All over the world tonight hedge funds, institutional money, and other very large market movers are planning their plays. Will they pile on the shorts on advances or will they buy on dips? I wish I could tell you what they are going to do. What I can say is that it will likely be a battle for a while. Until the major indices can make a substantial move (with very heavy volume) above resistance levels then we still have a market that is unsure of itself.

One thing I observed today while watching the SPY (S&P 500 SPDR) was that the volume during the initial sell off was heavy, then the bounce was lower volume. and that volume got weaker up to the close. That showed a lack of conviction on the buyers to jump in. Will the buyers think about it overnight and jump in tomorrow or will they still sit and wait? Tune in tomorrow for the answer..

I view the FOMC statement as weak. While they did acknowledge there is a problem with the credit situation they did not provide an answer of what they would do to address it if it gets worse. I would like to have see more wording addressing a possible weak economy instead of still talking about inflation. I am still bearish on the financial sectors. After the FOMC statement was released I took a position in SKF (SKF is an ETF that is a 2x short of the DJ Financial Index). Did I do the right thing? I believe there is still more bad news coming in the financial circles and the financial sector has not seen bottom yet. If I am wrong then I will exit the trade and take my lumps. But just like any swing trade I will keep my loss to a minimum. My entry on this trade was not part of the RebelTrader tracked portfolio. I just wanted to pass along what I was doing in my other trading account. The position in SKF that I took is more of a hedge against a market change. If the market drops hard again then the SKF will pay very well. And this would soften losses from other trades that are on the long side of the markets.

It is my opinion that consumer spending will continue to weaken as the housing and credit crunch get worse. If people can't get credit, or they are paying higher and higher rates for their money, and they can't sell their homes because the value has dropped too much, and if new home buyers can't get credit to purchase a new home then this will a trickle down to the consumer spending. People will cut off spending on high ticket luxury items. No big TV's, no fancy iPhones, no shopping for clothes at the high end clothing shops. Trickle down economics is a real thing. It starts with the big stuff (housing) and is felt later in other sectors. When it comes to consumer spending we have already been seeing a downtrend of discretionary spending. and if the credit crisis gets worse then discretionary spending will also accelerate downwards. It becomes a situation that gets worse and worse until someone (FOMC) comes to the rescue to control the bleeding.

Keep in mind that politics also plays a part in what happens in the markets. The Republican party (Bush administration) would like to make everybody believe the economy is wonderful and doing great. Elections are coming down the road. The last thing they want to do now is acknowledge there are problems brewing in the economy. I strongly believe the Bush administration would like to just keep making everybody think that the economy is just peachy keen and will let the next administration deal with it. So it comes down to a race. Will the economy get worse before elections or will they have to acknowledge in stronger terms that people may be losing their homes and home builders can't sell new homes because buyers can't get low interest rate loans? It is a game of poker.. who will fold their cards first? Think about it.

Two of my watch list stocks hit their buy points today. See the two charts shown here. ENG and EXLS both became "in play" today. If you were watching it and took the recommended entry then that is fine. Your still safe because with every trade there is always an exit in clear view in case the market turns out the lights on the whole neighborhood. I myself did not enter these swing trades today because I was too concerned about what the FOMC reaction would do. But I will enter them tomorrow if they are still within the buy point. If they should continue running up I will not chase it. Instead I will maintain my observations on them for you but for me it will be a missed opportunity. Never "chase" a stock to get in. chasing a stock is like chasing a train going down the tracks because you just missed it. But you never know, as soon as you jump on the train may stop once your on it. For all of your trading throughout life, if a trade gets away from you don't worry about it, another train will come along later. If I get an entry on ENG and EXLS it may turn out that you got a better entry price than I will so your gains will be higher than mine. My swing trade portfolio performance will always be based on the price I get in at. So with these trades my gains will be less than yours if the market strength builds (or at least holds).

I have some market index and sector charts tonight. Take a look and see the notes I wrote on each. This will give you a feeling for what I'm looking at. After the market closed today there was news of another mortgage company going under. AEGIS Mortgage suspended its operations. Don't know how this will be perceived in the market tomorrow.

Cisco (CSCO) had super earnings after the close today and this will be a good psychological boost to the tech sector. If you see CSCO having trouble keeping the gains from their great quarter then view this as fear growing in the markets and people still wanting to get out.

Have a great 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.