"It's Not Getting Any Smarter Out There"

I'm a huge Frank Zappa fan, and the title of this post is a direct quote from him. The reason for the quote is simple. Financials rose a little over 2% today.



The reason is "bottom fishing". I'm sure there are plenty of people out there who are thinking "I got a great bargain today."

Of course, there's a reason why financials are cheap right now. And it's not a good reason.

Today's Markets

The SPYs did OK today until right before the close. Then they broke through support on heavy volume. End of the day selling is an indication of trader's nervousness; they don't want to hold any positions overnight because they are concerned about the news that might come out between the market's close and the market's open. That also indicates they have a hair trigger; they are more prone to sell.



On the 5 day chart, note two things.

1.) We have had two days in a row with heavy, end-of-the-day selling.

2.) The market broke through the 145 level which was providing some short-term support.



The SPYs went further below the 200 day SMA level today -- never a good sign for the market.



The 5-day QQQQ chart shows a strong, three day downtrend in place. Also note we have had two days in a row with heavy, end-of-the-day selling.



The QQQQs are approaching the 200 day SMA, a key level of support.

Also note that previously mentioned high fliers also fell. Google, Apple, Research in Motion, Dry Ships, Intel were all down again today.

In other words, today furthered the damage done on Friday.

Like Lemmings Off a Cliff....

From Morningstar:

Embattled mortgage lender Countrywide Financial Corp. in a regulatory filing conceded that if its credit ratings fall below investment grade, its access to the public corporate-debt markets "could be severely limited."

Additionally, ratings agencies cutting its debt to junk status would lead to higher rates when the company renegotiates its financing arrangements beyond current maturity dates.

......

The three ratings agencies -- Moody's, Standard & Poor's and Fitch -- currently have investment-grade ratings on Countrywide, but they all have affixed the ratings with some form of negative outlook, Countrywide said. S&P and Fitch both rate Countrywide's long-term debt BBB+, while Moody's has a Baa3 rating. The cutoff for investment grade is considered a long-term rating of BBB- , or Baa3 from Moody's. Bonds rated below BBB- are considered junk.

As of Sept. 30, up to $5.5 billion of Countrywide's custodial deposit accounts on deposit with the bank could be affected if the credit rating fell into junk status, according to the filing.

When Countrywide made their latest earnings announcement, they said their problems for the quarter were the low point and the company would turn around. This despite the fact they announced 10,000+ in layoffs, a big increase in their loan loss reserves and a big writedown of their mortgage portfolio. The market cheered that announcement. The sheer gall it took for Countrywide to say their problems were the trough is simply amazing. What's more amazing is people bought it, especially in light of the current credit market environment.

Now we know the ratings agencies (whose own credibility is severely damaged right now) have Countrywide on negative credit watch. Raise your hand if you think Countrywide has seen the low point in their respective business cycle. For those of you who raised your hand, I've got some great investment opportunities in Florida real estate....

What Inflation?

From Morningstar:

Tyson Foods Inc. said Monday it swung to a fourth- quarter profit from a year ago, helped by cost cuts and operating profits in its chicken and beef businesses.

Still, Tyson shares slipped to a new 52-week low on a bleak forecast for fiscal 2008. The world's largest producer of chicken and beef warned it faces $300 million in increased grain costs for its chicken unit and "extremely difficult" conditions in its beef business.

Tyson should just suck it up. Their costs aren't core inflation measures so they don't count at all. What crybabies.

Week's Preview: Houston, We've Got a Problem

Going into this trading week I am deeply concerned about the markets. My posts from the weekend made the following points. To summarize:

1.) The long-term (5 year) trend is still intact for the SPY and QQQQs. However, the IWM's (Russell 2000) are in a technically precarious position. They are trading right at long-term (multi-year) year support. Assuming the Russell 2000 is a proxy for risk appetite this should cause concern because it indicates traders are moving away from riskier areas of the market. Also see this post regarding the Russell possibly breaking through support in a consolidation triangle.

2.) I've advanced the theory that the SPYs have printed a double top this year, with those double tops occurring at the same level as previous highs nine years ago. In addition, the SPYs are seriously beginning to look like they are in a bearish pattern of lower highs and lower lows. Considering the general economic backdrop of the US economy right now, further continuation of the lower high/lower low seem far more likely.

3.) Last week's 5-minute chart shows three consecutively bad days, with a high-volume sell-off at the end of trading on Friday.

4.) The transports have broken technical support.

Market breadth is negative across the board.

NYSE advance/decline



NYSE new highs/new lows



NASDAQ advance/decline



NASDAQ new highs/new lows



Now -- reference the NASDAQ advance/decline chart from above. A declining advance/decline line means fewer and fewer stocks are participating in the rally. Last week, we saw some of the market's high fliers break trend as well.

Google



Apple



Research In Motion



Intuitive Surgical



Bidu



Dry Ships



Amazon



Intel



New Oriental Education



In other words, the fewer and fewer stocks that were leading the markets higher took hits last week. Considering some traders probably have big profits in these stocks, they may want to book those profits in the face of market weakness.

The SPYs and QQQQs look terrible.



The SPYs are now below the 200 day simple moving average. Last week they sold-off on heavy volume.



The QQQQs - the market darlings for the last few months -- have broken their uptrend. They broke through three SMAs last week on heavy volume.

The bottom line is the technical picture is terrible at best.

1.) We had three days of negative trading ending in a high-volume sell-off,

2.) The SPYs are below their 200 day SMA,

3.) The QQQQs broke their uptrend,

4.) Breadth is negative across the board, and

5.) The market's fewer and fewer strong stocks all took hits last week that broke their uptrends.

6.) There is also the further complication of the CDO/mortgage issue. It's quite possible that before the week is over we'll see more write-down of mortgage portfolios.

On top of that, there is little technical reason for the markets to rally, except, "the markets have sold off so we should nibble at some shares," or in practical parlance, "the technical bounce".

This is not the week to go long on anything. In addition, I would not be surprised to see a further sell-off.

There are four saving graces this week.

1 and 2. PPI and CPI are released this week. I would expect the markets to rally on a good (low) number because that would indicate the Fed has room to lower rates. (Conversely, a spike in either of these numbers could lead to a sell-off because it would lower the possibility of a rate cut.)

3. On the good side (referencing the long-term charts), the SPYs could fall another approximately 5.5% and still maintain their long-term rally. With the QQQQs, that number is 5.6%. That margin gives traders a lot of leeway in making trading decisions.

4. The ever classic random event that no one can plan for.

Transports Break Support

For those who subscribe to Dow theory, this is a very bad sign for the market.

The "95% of all Forex traders fail" Lie!

I refer 95% lie to sentence: “95% of traders fail”. Although this are calculations made by brokers, based on their account history. I suppose those are accounts that were blown out by newbie traders.

Anyway I have to admit that it is true that 95% of account ends up empty within less then three months. But hose who were trading them … were they really traders? I think not, in my opinion they were gold diggers or just uninformed fools.

It happens often that after forex success story in newspaper or magazine, people without knowing anything about forex think: “Hey this is easy way to make money! If that guy in the newspaper made millions, I can make at least few thousands I am not stupid”. I don’t have to tell you how wrong this guy is. He takes loan, and starts trading, within 3 months he has got no money but a big loan to pay.

I believe this are the people who goes by 95% rule. But it doesn’t have to be that way. You can make money, but you have to understand it is not going to happen overnight. Probably not even within two years. But it is possible.

What it takes to become trader? In my opinion the only difference between successful and unsuccessful trader is … experience. All you need to do is trade and get some experience.

But there is something more important. As you may lack successes within this two years it is crucial to believe that you can really do it, that it is possible to achieve success. If you have problem with that then, do yourself a favor and buy Anthony Robbins “Awaken the giant within” great book on positive mindset.