The bond market's Enron

I'm not sure if you have read this yet, but it is simply amazing. According to Bloomberg, S&P and Moody's are refusing to downgrade any mortgage bonds even though defaults on the loans backing the bonds are growing. Why are they doing this? If certain bonds fall beneath a certain recommendation level, pension, endowment and mutual funds will be forced to sell them, causing the bottom to fall out of the bond market.

Isn't it better to just suck it up and deal it with now rather than sticking your head in the sand? Won't the problem just get worse and worse? Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. certainly thinks so. Go read the Bloomberg article.

If you don't understand how this impacts the broader market, go read an excerpt from "My life as a quant". It wasn't until I read this book that I finally appreciated the breadth and magnitude of the housing problem.

For more on the Enron comparison check out The Big Picture.

Anooraq Resources (ANO)

ANO has had a great run and it looks to me like it is ready to come back. I originally bought it at 1.28 and sold at 2.56.

Volume has dried up and it looks like a head-and-shoulders is developing. I also have a sell signal on my TD Combo based indicator. This will be an absolutely awesome buy if it gets back to the breakout day 4/4/07 on lighter volume. What is cool is that the TDST line at 1.57 lines up with the high volume breakout day.

Analyst kills my Diode (DIOD) trade

Diodes Inc. gapped up 5% on an analyst's upgrade. That clown waits one more day and I would have had myself a sweet trade. Oh well, should have bought it yesterday.

On the plus side, GM had a nice reversal today.

Quick Trades: Short setup for ATI and Long Diodes (DIOD)

My GM trade has gone against me pretty quickly. I'll wait for a pullback to exit.

For now, I'm watching ATI at its important level and plan on jumping into DIOD for a quick trade.

Interesting setup for Allegheny Technologies Inc. (ATI)

I made some money last summer after ATI climaxed in May 2006. Since that correction, ATI has made another huge leg up. Like Arcelor, Allegheny should see a big correction.

Arcelor Mittal (MT) breaks and Dover Corp. (DOV) retests the breakout

Yes, Apple had a little sell the news action today and I'm kicking myself for not writing about it earlier. I was expecting such a reaction and wonder if there will be any follow through. Apple's break today reminded me about some of the other market leaders that have stayed very strong through this volatile market action.

Steel, steel, and steel have led this market since the lows of this last summer. I have been anxiously waiting to see if they would ever come down. Today looks to be the day. Arcelor broke its uptrend line and is now headed for the $42 level. MT has been signaling a sell for months now but has refused to break. This will be a good short on any bounce up.


Dover Corp. has a great chart for a long entry. It broke out and is now testing the breakout point. This is a classic "resistance becomes support" chart. If the market wasn't getting so ugly I would be all over this.

General Motors (GM): Low-risk Short

I used GM as an example for presenting the TD Ratio indicator I constructed using the Blocks Player. What caught my eye was the recent trading range between 37 and 29. I then made a mental note to short GM if it got back to the 37 point and then gave a TD Ratio sell signal.

GM gapped up today after it was upgraded. It then gave up the price and ended only 0.81 cents higher. Looks like a lot of weak hands just entered GM at this swing high.

I plan on shorting GM tomorrow.

Agnico-Eagle Mines (AEM)

AEM is a stock that I've been watching for some time now. If it gets down to $32.30 I'm going to be all over it.

S&P 500 Weekly Update

Nothing much has changed since last week. The path of least resistance is down.

TD Range Expansion Index REI

In addition to the TD Ratio indicator, I have also incorporated the TD REI into the Blocks Player. To do this, you need to write a couple of your own Blocks.

First, create a "Bar to Line" block and insert this code. It is the numerator in the TD REI. I named it REI_Home in the block diagram.

Next, create another "Bar to Line" block and insert the following code. This is the denominator in the TD REI indicator, named REI_Home_Abs_Sum.

TD Pressure Ratio

I thought I posted this already but I guess not. As you can see, I've become interested in the Tom DeMark indicators. If you use the Blocks Player, you can create the TD Pressure Ratio by using the block diagram given above.

Here is the result using a 13 day period for GM. (click chart to enlarge)

Another Dow component short: American International Group (AIG)

Here is the weekly. I like how the TDST support levels on the weekly match those on the daily charts.

AllianceBernstein (AB): I wouldn't short this.

I have used Telechart 2007 and the Blocks Player for a few months now. As part of my membership I get a daily chart analysis of some random stock or index that one of the Worden brothers think is important. I usually don't pay attention because I have no interest in their technical analysis methods.

Yesterday, however, they presented the chart of AllianceBernstein (AB) and claimed that it was a short play. Sure, the current congress is looking to change the tax brackets of some companies, like AB, but this is not a sure thing. I thought that I would look at the chart again and see if shorting a company that pays over a 5% dividend would be a smart thing to do.

It looks like there has been some erratic trading lately, but nothing that raises any red flags. Just keep an eye on the price as it reaches the key support levels shown in the chart above. Can AB get back down to 78 to 80? Sure, but I expect the entire market to head down so shorting a company that pays over a 5% dividend doesn't seem too bright to me.

Throw a dart and pick another stock to short.

3M Company (MMM) and a Dow component short play

I was stopped out of my QID trade last week. I dipped into another short today, this time with 3M.

Looks like 3M is up against resistance. Interestingly, the previous times MMM has reached this point it has fallen hard, with each time going lower and lower. (Click on weekly chart). My initial target is $79.50.

NYSE Euronext, Inc. (NYX) Chart

I was asked by a friend to look at NYX. He said that some "technical analysis" guy on RealMoney.com was saying that NYX is ready to buy. I don't think so. It looks to me like NYX will experience continued weakness. I expect a short bounce, but then it is back down on its way to $72, at least.

Current Market Technicals

Nasdaq false 2002 bottom

Nasdaq 2007 Mini-crash

My Market Indicator

I have not been posting mainly because the market is boring for me right now. It is too extended to buy and too tricky to short. So in the meantime, I've been working on some new indicators that I've come across and making some pretty interesting discoveries.

I recently posted about how I reproduced the TD Ratio indicator invented by Tom DeMark. I did some visual backtesting and found a pretty good performance record. I was intrigued and went to the library to check out some of DeMark's books to learn more. I quickly became interested in his TDST lines and TD Sequential and TD Combo indicators.

The primary purpose of these tools is to identify periods of price exhaustion where the risk to long and short entries are minimized. I think I've made a nice improvement to the TD Combo countdown process and will give some examples of market tops and bottoms.

It should be no surprise that the market is signaling a top and should not be bought here.

I'm showing the lows of last summer and the buy signal generated by my indicator. I will present more tops and bottoms in the future.

My apologies

Sorry for the lack of post again. I've been working on the Blocks program and I've come up with some really cool indicators.

I'll write more about this soon.

I can't resist this Cramer bash

I have had a free Real Money subscription for the last few months through their college subscription promo. The site is almost completely worthless and I would never pay money out of my pocket to have access to it. I say almost because Rev Shark writes daily "pep talks" for the average trader and offers some great insights into how a trader should think. I can do without the rest of them.

On the surface, Real Money seems like a good idea for the average investor, but nothing could be further from the truth. One must trust his or her own judgements and cluttering one's mind with all of the ideas spewing out of the website can only serve to confuse and instill doubt. I would like to thank Rev Shark for his advice, but good ridance to RealMoney.com

As one might imagine, Jim Cramer is the absolute worst on site. He is so incredibly capricious that it might be worth the subscription price for the laughs alone. Check out what I saw today. He declared that the homebuilder sector was in a bear market. DUH!!!

Here is the chart of the homebuilders. Once again...DUH!!!

QQQQ Broadening Top

One of the reasons why I bought some of the QID on Friday is because of the broadening top formation that has formed. There is disagreement about the price projections of broadening tops, but most agree that it is a major top formation.

The chart pattern appears on both the weekly and daily charts.

TD Pressure Cumulative Index

I was reading the Tom DeMark interview in Active Trader magazine and decided to put together his accum/dist indicator using the Blocks Player.

DeMark calls it the TD Pressure Cumulative Index. Here is what the block diagram looks like.

Here is what it should look like.

Shorted the close on Friday

I didn't write anything over the weekend because my Internet was down at home. I just wanted to update my overall market strategy. I shorted the Nasdaq 100 near the close on Friday. It was a huge rally, but on very weak volume. I'm expected a deep correction and I planned on getting in on the first bounce.

I'll write about the technical pattern that has been formed on the QQQQ later tonight.

Market Gameplan

The downtrend looks like it has started. It is now time for a game plan.

If there one thing that I've learned it is the market never does the same thing twice, unless of course everyone has had enough time to forget about what has happened. During the last down spike, everyone was looking for a larger correction, just like what happened during the summer of 2006. Of course what ended up happening was that the market shot down, sucked in a bunch of shorts and then shot right back up. I would expect a lot of people are looking for the same type of reaction. The only problem is that there are already a ton of shorts.

So what is my plan? I expect everyone to jump back onto the long side too early. I'm going to short the first big up spike (around 200 Dow points) and then ride it down. I'm also going to start building my buy list and will get very aggressive if we get a solid follow through day.

On a final note, I find it funny that so many people are finally talking about interest rates. Anyone who has been listening to TFNN has been expecting this break in bonds for months. Inflation is going up. Rates are going up. It is simple. Tom O'Brien is expecting a bear market due to stagflation. Will he be right again?

The end is near...

It started with the Red Sox winning the World Series and now Bob Barker has taped his last "Price is Right" show.

How will we endure? I'm not sure we can.

Sold Mitcham Industries (MIND)

I sold 80% of my Mitcham Industries postition before earnings came tonight. I picked it up on the lower channel line for $14.30. I'm expecting a "sell the news" reaction post conference call. I'll look to pick up more shares when it is back down to the lower trend line.

I love trading MIND!