The Day that Was - July 31st 2007

Before I get started with tonight's market summary I want to once again thank all the people who have been sending me emails and complimenting my charts and analysis. As I have said some days ago, if I can help prevent someone from losing money in the markets then I had a good day, if I help someone make some money then I had an even better day! Again, thank you for the many emails and the kind words. While I may not always get time to respond to all your emails right away please note that I do read them and they are greatly appreciated. I will try to respond to each of you personally.

In the pre market we had some relatively good economic news. Nothing to write home about but it was more of a 'relief type of news' in that there was no bad news and that gave a boost to the futures in the pre market. Then General Motors (GM) beat the street and that gave a substantial boost to the market on the open. Very early in the trading day the markets reached up and tickled the resistance line. The resistance line did not say "uncle" , the resistance held and the markets gave up and started falling back down. Then there was some news that a tropical storm had formed in the Atlantic. While it does not appear to be of any threat to the US Gulf coast (where the oil rigs are) it was a reminder that we are in hurricane season and perhaps we are now seeing the hurricanes begin to get active. That added to the anxiety over the oil inventory data to be released tomorrow added new things for the market to worry about today.

Then American Home Mortgage (AHM) walked onto Wall Street and yelled 'fire'. American Home Mortgage released a statement that they could not make the payments for their loan obligations, and they were looking into ways to save the company. It could come down to liquidating assets. In other words AHM is on the brink of bankruptcy. Everyone knew that at some point someone was going to go bankrupt from the sub prime / prime lending disaster. But the news of it actually happening now sent the bulls running for the doors faster than you can say "bankruptcy".

Ok.. So guess what. Tonight we get news from the Wall Street Journal that Bear Stearns has another hedge fund in serious trouble. The fund which has $900 million in mortgage investments is in big 'doo doo' trouble. It is reported tonight that one investor in the fund had requested a redemption (withdraw from his account) and the request was postponed. Apparently because it has lost so much value Bear Stearns was hoping it would rebound and then they would have enough money to make payments. Well it looks like this is going to be a big issue for Bear Stearns. What is more important here is that Bear Stearns is not honoring redemption requests. Instead they said the following: ...

"we believe by suspending redemptions, we can ensure the best long term results
for our investors. We don't believe it's prudent or in the interest of our
investors to sell assets in this current market environment."

If I were a client of Bear Stearns and they refused to return my money that would be a big problem. And that is what they are doing. In after hours Bear Stearns was trading down even more.

I provided some charts of stocks that were good swing trade ideas. Intel (INTC) and Varian Semiconductor (VSEA). Both did exactly as I thought they would. They rallied and then the big market sell off hit and they pulled back. Before the bad news of the day hit I entered a 1/2 swing trade position on Intel (INTC). With the market being is turmoil I was only going to test the water with limited funds and would not establish a full swing trade unless it reached the next point (confirmation stage). My entry into Intel was a hedge that if resistance was broken and the market was able to rally through it then I would have established a good entry point right off of the trend line. Even though the market could not make it above resistance (and subsequently fell hard later) Intel stayed above the trend line so it is still healthy.

Now for tonight's charts: (click on the chart to see a larger image)

The DOW

The S&P 500

The Nasdaq

Crude Oil

Housing Index

Intel (INTC)

See you in the morning Rebels.. Tomorrow may be a bumpy ride.

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.

Always keep an eye on my charts..

Keep an eye on the charts in my public charts list on stockcharts.com. One of the charts I identified as a potential move was VSEA.

See what happened when VSEA broke through the trend line resistance.