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.

Another "one of those days"

I was anticipating a pullback once we reached resistance levels which we hit this morning. But the sell off and the now lower close than last Friday confirms my fears that we are far from out of the woods. The fact that the S&P 500 closed lower than last weeks big decline is sending confirmation signals that the markets are still too weak to overcome the declines. And the declines may still have more to go.

And Apple today sold off rather substantially. And it closed below its 20 day moving average which is a bearish signal for the stock, at least for the short term. A couple weeks ago I was predicting that Apple was topping out at the $140 range. It did not happen overnight but now less than two weeks later that prediction from the charts became reality. The Apple run is over. One day Apple will resume an uptrend but the recent run has been exhausted. In hard market sell offs the ones to fall the hardest are the ones that are too over bought, which Apple was. One web site I saw kept saying it was healthy and was going to keep going up. Unfortunately that web site author was too caught up in the hype I suspect and missed the clues.

A full market analysis later tonight.

Have a good evening Rebels.. I will post the market charts tonight.

Roller Coaster

Just as I said in my market report last night trying to swing trade in these markets conditions will be like riding a roller coaster without wearing a seat belt. Imagine yourself sitting in a roller coaster and not having a safety harness to keep you in. That is why I am not being aggressive with swing trades. I only took one (1/2 position) earlier today to grab a good entry price on Intel (INTC). But you may have been watching your screens showing big gains this morning and wondering why I have not been getting in there and making trades. What you are seeing now is why.

From experience and from the charts this was bound to happen. We are not out of the woods and trading in this turbulence is very risky. Good trades will be coming. Once the market decides which way she is going.

Just hang on to your cash. No need to throw it into a blender which is all the markets are right now. Your money could end up getting shredded. Why am I not going aggressively on the short side of trades? Same reason as not being aggressive on the long side, big ups and big downs. This is just turmoil and difficult to swing trade from either side.

American Home Mortgage (AHM) - UPDATE

AHM resumes trading. Stock price is down 87%!

American Home Mortgage is the nations 10th largest retail mortgage lender according to the company statement. This was expected to happen to someone at some point. But just the news that one of these lenders may be on the verge of bankruptcy now has waken up the bears again.

American Home Mortgage (AHM)

The news from AHM moments ago is not sitting with the markets well. Substantial pullback in only a matter of minutes. The news that a mortgage company may not be able to meet their lending obligations and maybe having to liquidate their assets is reminding everyone again of what got this whole market correct started in the first place. Now they are nervous again. We’ll see if it is only a quick panic attack or worse.

Market hit the ceiling

The markets are running into resistance and each time pull back. Not enough strength yet to move any higher. This may be picked up by the bears as they catch the scent of a ’stalled’ rally and may come in at the end of the day and start taking more profits off the tables. There are some good gains in some stocks today but they can’t seem to go any further. Little bit at a time is better than nothing. Each day that we can close above the previous day is an upside closure. And a good technical indication. But we still have resistance overhead causing us troubles. We will pullback again, maybe not today but soon.

If this is only going to be a market pullback (and not a bear market) then there has to be some pullbacks in order to consolidate and then make another run at the door. What we watch for is the failure of a break through resistance and then pullbacks that are lower than the previous. That signals more than a market correction is at hand.

American Home Mortgage (AHM) just announced that they can not locate funds to support their lending obligations. Looks like AHM will be the first mortgage company to possibly go bankrupt over the sub prime debacle. This news may now weigh on the financials again this afternoon and bring them back in.

Bears getting hungry

The bears have come in and in a very short period of time have swept up most of the advances this morning. Will the bulls put up a fight and take them back or will the bulls lay down and get trampled?

This is exactly what I said will happen in this volatile market. There is no instant recovery. A recovery if it is going to happen will be a sequence of events. Right now the bulls tried to put up a fight and they lost this round. The bell will ring soon and we will start another round of boxing in the ring following the lunch hour.

Financials trying to move up

But they are quickly being cut at the knees everytime they advance. Still a lot of people want out of the financials.

Long Intel (INTC) at $24.10

I am entering only 1/2 of a normal swing trade here at this time to limit my risk. See my post from last night on the Intel setup.

Pre Market Update

Futures have pulled back a bit. This may be an early pop in the markets followed by a profit taking later. Have to see how this plays out.

Also, the long drawn out and often dramatic Dow Jones (DJ) buyout by Rupert Murdoch appears to now be “a done deal”. Finally, I was getting tired of the soap opera like events going on with the whole DJ buyout.

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