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)