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Testing New Trade Box

Testing Trade Box Post

Sitting here doing my chart work for tomorrow and I am noticing an awful lot of similar charts.  Of course these charts all had the big up day yesterday and not a lot of follow through today – just like the market.

What is interesting is the down trend lines.  In this bear market I have called a lot of short term trades by simply drawing the down trend lines on hundreds of charts and looking for an upside break out of them.  When this happens the shorts run to cover, new longs come in and the stock makes a nice quick pop – and I like to be there to collect those points.  The longer the down trend line has been in effect the faster and better the pop.  Needless to say, over the past few months I have caught a bunch of these pops as the down trend was months long.  And it makes sense that technicals are working very well these days – in times of great uncertainty players go back to technicals and I have seen this happen before.  The more that use technicals the more they work.  Self-reinforcing.

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A news headline out of Capitol Hill yesterday makes the Electric Utilities a Screaming Buy. Senator Kent Conrad (D), the Senate Budget Committee Chairman said yesterday that Obama’s  budget does not have the votes to pass through the Senate in its present form.

Of particular concern for many of the Senators is the carbon cap-and-trade provisions that will place very costly legislation onto the production of electricity generation and hit the utilities very hard.  Chart work shows a rapid sell-off in most all the utilities experienced when the budget was introduced.  Just a brief review of the charts of the largest utilities in the country (NYSE: SO, FPL, ED, D, DUK, ETR, EXC, FE, AEE, AEP, AYE, PEG, PPL and PGN) showed dramatic declines in these stocks over the past 3 weeks.

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Currently, there are approximately 45.4 million mortgages on houses, condos and co-ops in the United States.  Of this number 11.18% or about 5 million of these mortgages are either in foreclosure or delinquent (at least 1 month behind) on their payments.

The homes in foreclosure are 3.3% or about 1.5 million mortgages.  Using these numbers and considering that collateralized mortgage obligations (CMO’s) comprise the bulk of the now infamous ‘toxic’ loans that are cramming up the banks loan portfolios and balance sheets these days, you might think that these bonds should now be valued at between 96.7 cents (3.3% foreclosure) and 88.8 cents (11.18% delinquent) on the dollar.  The reality of where these mortgages are being ‘valued’ at is far different.  Some portfolios of these mortgages have been sold at as little as 20 cents on the dollar in distress sales by banks desperate for funds with the only buyers around being bottom feeders.  No one knows how bad the problem was or would get, so all the regular buyers evaporated as nobody wants to be the last guy holding these things when any further problems are discovered.

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A friend of mine sent me this as an attachment via email today.  In the email he told me that a friend of his had sent this to him.  As a Professional Day Trader I was a small business owner for 7 years – my pay was my profit and the losses went straight to my personal bottom line.  I woke every day before 6, took the subway to work, traded all day and did research for hours every night.  For the first year I lost money and barely survived while learning the craft and I had to move out of the luxury apartment I could afford as an employee into a tiny bedroom in Sunset Park, Brooklyn – which was, and still is not a very nice neighborhood.  Many nights my dinner consisted of a sleeve of saltines and a 40 oz. of Budweiser – dinner for $3.50.  The crackers put something in my stomach and the beer put me to sleep.  We had free bagels and coffee at work for breakfast and I was always very hungry in the morning.

Now I am a small business owner and have sunk a lot of my own money into my business and I think about ways to improve my business all day every day.  I employ programmers as contract workers and pay a hosting company for my website.  I pay to have my product manufactured – printers, DVD replicators, designers and I generate revenue to mail my product.  I support and create jobs.  Small businesses like mine have created more jobs in the past twenty years than all the corporations in the S&P 500.  In the last year we have also fired a lot of employees.

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Yamana Gold (NYSE: AUY) released earnings after the close today and blew the EPS number away.  Yamana posted $0.25 per share of clean earnings which was over 6x what the analysts expected at $0.04.  In addition to a very good earnings report, news out yesterday that Yamana had discovered 1.5 million more ounces of proven reserves of gold than they mined in 2008 only increases the outlook for the company’s future.

As copper is very commonly found in the same geological formations as gold and also realizing that Yamana has a few solid copper mines, the revenues the company generates selling copper is a significant part of their top and bottom lines.  In 2008 copper got hammered from around $4 a pound down to $1.50 a pound and as Yamana had the foresight to hedge their forward copper production for 2008 their  earnings, not surprisingly, held up very well.  The silver lining to the drop in copper prices down to $1.50 during a contracting worldwide GDP period indicates copper does not have much farther to fall.  In fact, today the copper ETF – JJC – broke out of its bottom consolidation channel and closed for a second day above its 50 day exponential moving average.  This seems to be good news for copper prices going forward and of course also for copper producers such as Yamana.

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After looking at a few hundred charts there is only one thing to say – it is very ugly out there.  Tuesday turned out to be the fifth down day in a row on the Dow including a brutal drop on Monday.  Looking at the Dow Jones Industrial 30 chart I see 12 down days out of the last 15 trading days that started the day after Obama’s Stimulus Bill was passed by the Senate.

It seems the market has a problem with this bill’s final form as everyone was looking for more actual stimulus and jobs and less transfer payments, and the market has been selling off pretty hard ever since.  This is not to say the weakness in the market is a result of any one thing as there are many grim numbers and news events as of late.  Here are a few things I saw in the charts…

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Following up Warren Buffett’s funny quips this weekend with a few jokes to have some fun and keep the average investor from jumping out the window;

Things are so bad that…

- ARod was recently seen in the New York City free needle clinic.

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