Goldman Sachs

I wanted to show you the GS chart. Just wanted to bring up that the GS (and the financial sector) is at risk of a hard pullback. If the financials fall again then the markets will follow.

FOMC Rate Cuts - Always means a bull market, NOT

It seems to be a widely held belief that whenever the Federal Reserve cuts the Fed Funds rate it means the markets are going to take off and make a huge bull run. I want to dispel this belief by showing you a graph of the S & P 500 of the past 10 years. I have gone back and highlighted every rate increase and decrease over that time. One look at the chart will show you that more times than not the opposite condition is true. Rate cuts do not automatically mean that a bull market will follow. If that were the case than the multiple rate cuts in 2001 should have sent the markets skyward, but it did not.

And notice how, during a good economy, the rate increases throughout 2005 continued to fuel the market. So the notion that a rate cut means the markets will make a huge bull rally is nonsense. I bring this chart up for some good reasons, first I want to put to bed the idea that a rate cut always means the markets are going to go to ‘blue sky’. It seems that so many of the stock market trading boards are tooting the rate cut horn and are pumping the markets for everyone to jump in. To us this is like leading people to the edge of a cliff by telling them that a pot of gold awaits them. The second reason I wanted to present this chart is to show why we have been cautious in this market over the past few weeks even though so many are saying we ‘need’ to be in there buying stocks left and right. If we were emotional folks than we would likely be getting ourselves caught up in the market movements and getting in there. But we are using technical indications to guide us, not emotions. What we have been watching, and continue to watch, is the volume levels on the moves upward, the time & sales tape (seeing lots of selling into the weak strength), and the financials , which regardless of what some say is absolutely necessary for a bull market to sustain itself. So we are indeed watching the technicals. But we are looking past just support and resistance levels, we are taking into account what is happening in the financial sectors, the housing charts, the value of the US dollar, and so on. Also, notice that on the chart the US dollar has never recovered from the last bear market and this brings into question: just how strong is our market currently? As the dollar gets weaker so does the US economy as a whole. While there are some micro economic situations where a weak dollar is actually good, in the end a weak dollar is not good for the US economy.  

So where are we going? Why are we waiting for more proof before going into long trades? A question many of you ask. We hope this chart will help explain a little better why we are being cautious and why we don’t like the action currently taking place in the markets. There are many, many charts which all have been advancing on weaker than normal volume, and more importantly, are experiencing heavy selling into that volume. There are people out there who are still quietly exiting this market. Support and resistance levels, moving averages, and the other popular technical indicators are all good and very useful. But, you also have to look beyond those indications and look at the pattern in which the prices are moving and how they behave. Those same charts that I said have been advancing are approaching a critical decision point here. We are soon going to know if we will have enough to break upwards or if we will be falling back down. Currently it still appears to us that a fall is coming. If that happens it will be the intensity of that fall which will guide us to know if we are going through a correction or as Leo DiCaprio said in the Titanic movie “This is it” just before the ship sank.

New and Improved !

Welcome to the completely redone web site for our readers and subscribers. This all new blog site is running Wordpress software on our own servers now. We are no longer on the Google site.

Many of you should see a nice improvement in how the site loads and displays for you. This has been a lot of work and we are proud to have now moved to our own servers. This is one more step in the growth of RebelTraders !

The next phase of our growth will be the addition of the “members only” site. That will be coming later. And when it becomes active you will be able to log into the site from right here!

We hope you like the new changes we are making and believe me, it is a LOT of work.. Hope you like it. Feel free to leave any comments on how you like or don’t like the new site.

We still have the wrap up to write and that will be posted tonight.

Thank you for your cooperation as we continue to outgrow our clothes and need to keep upgrading.

The Day that Was - September 28th 2007

Is being written now.. Look for an expanded writeup when completed..

In the mean time take a look at something that caught our attention after the market closed:

From the Associated Press:

WASHINGTON (AP) — NetBank Inc., an online bank with $2.5 billion in
assets, was shut down by the government on Friday because of an excessive level
of mortgage defaults.
It was the largest savings and loan failure since the
tail end of the industry’s crisis more than 14 years ago. Federal regulators
appointed the Federal Deposit Insurance Corp. as a receiver for Alpharetta,
Ga.-based NetBank.
Customers with less than $100,000 deposited with NetBank
will be protected by FDIC insurance.
While dozens of mortgage companies have
closed due to soaring defaults of home loans made to borrowers with weak, or
subprime, credit, those problems previously had occurred among non-bank lenders
such as New Century Financial Corp. NetBank, in contrast, is federally
regulated.
Loose mortgage standards in recent years — especially among
lenders catering to subprime borrowers — have resulted in a spike in home loan
defaults.
Bert Ely, a banking consultant based in Alexandria, Va., said
NetBank was in “deep trouble” before the subprime mortgage market’s woes
accelerated this year. Regulators, he said, “should have closed it a long time
ago.”
While some Internet-only banks are successful, he said, operating one
without retail branches can be a difficult strategy to maintain.
The FDIC
said Friday that $1.5 billion of NetBank’s insured deposits will be assumed by
ING Bank, also a major online bank that is part of Dutch financial giant ING
Groep NV. ING will pay $14 million for the deposits and receive 104,000 new
customers.
NetBank, which had no physical branches, sustained significant
losses last year “primarily due to early payment defaults on loans sold, weak
underwriting, poor documentation, a lack of proper controls, and failed business
strategies,” the Office of Thrift Supervision said in a statement.
The FDIC
said NetBank had $2.5 billion in total assets and $2.3 billion in deposits as of
June 30.
The OTS oversees about 830 savings and loan institutions, or
thrifts, ranging in size from giants like Seattle-based Washington Mutual Inc.
to small community banks. By law, thrifts must have at least 65 percent of their
lending in mortgages and other consumer loans.
The last major thrift to be
closed by regulators was Superior Bank of Hinsdale, Ill. It had total assets of
$1.9 billion and was shut down in July 2001. Its failure has so far cost the
FDIC’s insurance fund an estimated $273 million.
In June 1993, regulators
shut down Western Federal Savings and Loan Association, which had total assets
of $3.8 billion. That thrift’s owners included former Treasury Secretary William
Simon and former Federal Reserve Board Vice Chairman Preston Martin.
NetBank
had reached a deal to sell its deposit accounts and other assets to privately
held EverBank of Jacksonville, Fla., but EverBank announced this month that the
deal fell through.
EverBank in July completed its acquisition of NetBank’s
mortgage servicing business, and the FDIC said Friday that EverBank will
purchase about $700 million in mortgage loans.
“Customers of NetBank should
have confidence and security knowing that they will have access to their insured
funds in a timely and orderly manner,” FDIC Chairman Sheila Bair said in a
prepared statement.
The FDIC insures bank deposits of up to $100,000.
NetBank had $109 million in deposit accounts that exceeded the FDIC limit.
Those customers will become creditors in NetBank’s receivership, the FDIC said.
The FDIC has a toll-free number for customers affected by the
failure:1-888-256-6932.
AP Business Writer Marcy Gordon contributed to this
report.

Market Update

All of the major indices closed in the red, albeit slightly. The market traded all day essentially on a flat line. As the market approaches resistance levels the intensity of the move is wearing thin.

Gold is still the investment of choice for many and continues to make excellent gains. Recall our post from August 17th ( http://www.rebeltraders.net/2007/08/update_7679.html )
where we went long on GLD for the falling dollar that we saw coming. That trade remains active and we will advise when we close it. But for now we do not see any changes in the declining economic conditions so Gold continues to be bought up as it is becoming the preferred “lock box” for safe keeping ones money in a declining economy.

Update

US Dollar

Sinks to another low against the Euro. Since the FOMC rate cut was announced the US dollar has continued to weaken against most the world currencies.

A note on the dollar. After the feds cut the rates I watched the Jim Cramer show to see what his antics would be now that the FOMC acted. Mr. Cramer was very emphatic in saying to the camera that all of his viewers should ignore people who say the dollar and the economy will weaken. He said the US dollar will not weaken and that he wanted his viewers to shut their ears and eyes to that kind of talk. Well guess what, the dollar DID tank and continues to do so. Mr. Cramer you are overdue to issue a retraction on your prediction.

Recession?

The fears of a recession is what is making the markets trade so strangely. A news tidbit this morning..

Freddie Mac (FRE) chief warns of recession: The Financial Times reports the chief executive of Freddie Mac (FRE) warned on Thursday the U.S. economy faces a 40 to 45% risk of recession induced by the housing market downturn.

It is this kind of news that keeps hitting the markets which keeps the broader markets from moving with conviction instead of anxiety.

Pre Market - September 28th 2007

Today’s Wrap Up

The market opened higher with Sallie Mae renegotiating a merger with J.C. Flowers and Microsoft (MSFT) reporting $170 mln in sales of “Halo 3″ in the first 24 hours, and last nights good earnings in Bed, Bath and Beyond (BBBY). But, after the New Homes Sales numbers came in even lower than consensus and average home prices fell 7%, the market just stalled.
The RTH (Retail Holdings) closed down a bit, but strangely the XLB (Homebuilders) was up slightly for the day. The XLF was up at the end of the day, as well. The Nasdaq and Dow closed on the up side, but stayed in a tight range all day. Those Q’s never rolled over, but they didn’t go up, either. Odd. Overall, volume was nothing to write home about (below average). Many charts are right at resistance, so going forward we are waiting for confirmation of movement. I have to say that this market action since August (well, really since March) has been absolutely “Twilight Zone”-ish. In other words, it is all over the place, panicky, nervous. This is not normal, if the market can ever be called normal, and I can’t pretend that it is. I hear that tech is supposed to be the new leader to take our markets ever higher. But, all I’m seeing are the popular names running up as they are being pumped almost every day. The $SOX and SMH (Semiconductor indices) are not showing upward moves, so I’m not seeing the leadership there.

Towards the close it was reported that Bear Stearns (BSC) wasn’t in talks with anyone regarding buying a stake in the company. BSC promptly dropped a few points. If you are going to trade on rumors, take your profits quickly.

A note on Texas Industries (TXI) They reported non-residential construction was starting to weaken. Residential is weak, we know, but non-res (business) is concerning. Most of their business is in Texas, but we should be keeping an eye on non-res construction anyway.

A word about “window dressing”: (definition from investopedia) A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings. Window dressing may make a fund appear more attractive, but you can’t hide poor performance for long.
Whether it’s myth or not, many people bank on the popular stocks going up at the end of the quarter. History says that the likelihood of this happening is statistically insignificant. However, it can make for some interesting daytrades. I bring this up, because there is talk that this is the reason price action has been rising or holding steady the last couple of days. Could be. I know the popular stocks such as AAPL, RIMM, GRMN, AMZN, etc., have seen great gains on barely average volume (with a lot of volatility), so if you have these names, be careful because nothing goes straight up forever.

This weekend I’ll post a bit on my recent trip to New York ( I drive!). I’ve been traveling back and forth from Texas all summer, and it’s been very interesting, from a market and economic perspective.

See ya all tomorrow!

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