If there was a text book written about what we are watching, then I would say that today and the last several days went according to the text book. We dropped hard from the resistance at the top of our range, which is also around the major indexes 50 day moving average, and precisely at that point our momentum indicators hit their refueling point and headed down. Our fast momentum indicator dove first and now is the first to turn back up as the the indexes have bounced off the bottom of the range.
I am reasonably confident (note, you can never be more than reasonably confident when judging the markets), that we are not headed back to the top of the range and to see if we can punch through. If we reach that point with our slow momentum beginning its turn up, then my confidence will go up a tick. So long as the slow momentum remains in the neutral range, we are just re-charging. With the resurgence of Tech stocks in the last couple of days, it gives me even more comfort that the Bulls are about to become range busters. The Bull is not free off the range yet, so don't get overly aggressive.
For some trading ideas, check out our TradeWinds Top 25 lists and the update on our TradeWind Black Box.
Wednesday, March 5, 2008
Tuesday, March 4, 2008
TradeWinds for Wednesday March 5th
The Range War continue. At one point today, it looked like the Bears had taken control, but just like that the Bulls once again mounted a late day surge to keep everything in flux.
Techs were particularly strong late in the day, so don't believe the headlines that the late day move was due to a bail out plan for Ambac or some such thing. Tech stocks could care less about that. I personally feel that there is a floor or bottom being build from which to launch the next assault on the market's 50 day moving averages. Our key long term or slow momentum indicator is still solidly in the neutral range and our fast momentum indicator looks like it is bottoming and getting getting to take a move to the long side. Volume was again tepid until the last hour or so when the Techs caught fire, thats another good sign.
How long will Miss Market keep us in suspense? Will tomorrow be the day we say good-bye to the Range? Listen closely and she will tell us.
Techs were particularly strong late in the day, so don't believe the headlines that the late day move was due to a bail out plan for Ambac or some such thing. Tech stocks could care less about that. I personally feel that there is a floor or bottom being build from which to launch the next assault on the market's 50 day moving averages. Our key long term or slow momentum indicator is still solidly in the neutral range and our fast momentum indicator looks like it is bottoming and getting getting to take a move to the long side. Volume was again tepid until the last hour or so when the Techs caught fire, thats another good sign.
How long will Miss Market keep us in suspense? Will tomorrow be the day we say good-bye to the Range? Listen closely and she will tell us.
Answering Ben's Call - A solution for the Mortgage Crisis
Ben Bernanke said today that we need new and creative thinking to fix the mortgage crisis. Well, I am a trader and investor and I am tired of this whole sub-prime fiasco messing up the rest of the market, so here is my outline for fixing this mess, using Mr. Bernanke's suggestions as a guideline. We need to have an adjustable principal mortage, similar to the adjustable rate mortgage. Here is how it would work.
1. The home owner would have an option to get a one time principal adjustment to their mortage. This would be available to anyone, but obviously only those that have seen a signficant decrease in market value would opt for this. There can be rules controlling what the minimum and maximum adjustment can be. The principal of the mortgage would be reset by basically deducting the difference between the original sale price of the house and the current appraised value from the current principal balance. The loan payment would then be reset based upon the new value, years remaining in the loan and whatever the interest of the loan is.
2. The principal would be adjusted a second time when the house is either sold or the mortgage is paid off. This second adjustment of principal could not be lower than the first, nor higher than the original principal of the loan. This prevents the home owner from profiting from the one time drop in the principal of the loan.
As an example, say you bought a house for $300,000 and financed the whole price. The market value is now $200,000. You opted for the one time principal reduction and your loan is reset to $200,000 and your mortgage payment drops accordingly. Five years from now, you sell the house for $225,000. Your mortgage pay off to the bank would be adjust to being $225,000 less the principal that you had paid down. If you sell the house for $325,000, your mortgage pay off is $300,000 less any paid down principal.
Lets say you do the one time reduction to $200,000 and then pay off that loan. At that time an appraisal would be done and you would either have to pay or execute a new loan for the difference. Lets say the market value is now $250,000, then you would have to have another loan for $50,000 and keeping on paying.
I don't know what all the tax ramifications are, nor how to actually execute this for existing loans given how they are packaged and sold. But it seems to me to be a better solution for banks than just letting people walk away from their house or be foreclosed on, and then write off the loss. There are losses to be taken still, but at least you still have the property occupied and people paying the loan and the potential of recouping the principal that you wrote off.
1. The home owner would have an option to get a one time principal adjustment to their mortage. This would be available to anyone, but obviously only those that have seen a signficant decrease in market value would opt for this. There can be rules controlling what the minimum and maximum adjustment can be. The principal of the mortgage would be reset by basically deducting the difference between the original sale price of the house and the current appraised value from the current principal balance. The loan payment would then be reset based upon the new value, years remaining in the loan and whatever the interest of the loan is.
2. The principal would be adjusted a second time when the house is either sold or the mortgage is paid off. This second adjustment of principal could not be lower than the first, nor higher than the original principal of the loan. This prevents the home owner from profiting from the one time drop in the principal of the loan.
As an example, say you bought a house for $300,000 and financed the whole price. The market value is now $200,000. You opted for the one time principal reduction and your loan is reset to $200,000 and your mortgage payment drops accordingly. Five years from now, you sell the house for $225,000. Your mortgage pay off to the bank would be adjust to being $225,000 less the principal that you had paid down. If you sell the house for $325,000, your mortgage pay off is $300,000 less any paid down principal.
Lets say you do the one time reduction to $200,000 and then pay off that loan. At that time an appraisal would be done and you would either have to pay or execute a new loan for the difference. Lets say the market value is now $250,000, then you would have to have another loan for $50,000 and keeping on paying.
I don't know what all the tax ramifications are, nor how to actually execute this for existing loans given how they are packaged and sold. But it seems to me to be a better solution for banks than just letting people walk away from their house or be foreclosed on, and then write off the loss. There are losses to be taken still, but at least you still have the property occupied and people paying the loan and the potential of recouping the principal that you wrote off.
Monday, March 3, 2008
Tradewinds for Tuesday March 4th
Home, home on the range ..... range bound that is. Last Thursday and Friday we saw the indexes get hurtled back from the current range resistance which was around their 50 day moving averages. They were body slammed down to their support levels in the range, from which they bounced nicely at the end of the day. While we are always fascinated by what the market does, we are particularly interested to see how it behaves in these ranges. Will the market continue on its way up to the resistance levels, or was today the dead cat bounce from which it rolls over and gives up the support?
Every market day brings another question. Nevertheless we were encouraged to see the end of day bounce. Our momentum indicators continued their downward direction, but our all important slow momentum indicator remained in the neutral range. Fast momentum has zoomed downward and we expect to see a turn on that indicator soon which should give fuel to the slow and moderate indicators.
It was also encouraging to see that there was no panic after the big down day on Friday. Volume was below what it has been lately, so I don't see any big move for the exits. Right now I am still reading this to be a correction to the run up to the 50 day moving averages and we are reloading for another run. Tomorrow may change that story, so we will be listening to Miss Market.
Don't forget to check out our Top 25 lists and updates to our TradeWinds Black Box.
Every market day brings another question. Nevertheless we were encouraged to see the end of day bounce. Our momentum indicators continued their downward direction, but our all important slow momentum indicator remained in the neutral range. Fast momentum has zoomed downward and we expect to see a turn on that indicator soon which should give fuel to the slow and moderate indicators.
It was also encouraging to see that there was no panic after the big down day on Friday. Volume was below what it has been lately, so I don't see any big move for the exits. Right now I am still reading this to be a correction to the run up to the 50 day moving averages and we are reloading for another run. Tomorrow may change that story, so we will be listening to Miss Market.
Don't forget to check out our Top 25 lists and updates to our TradeWinds Black Box.
Saturday, March 1, 2008
Tradewinds for Monday March 3rd
I go away for one day and all heck breaks lose on the market. We said earlier this week when our long side momentum got firmly established that we expected to see some correction. This was a bit more than I would like to see, but then when there is a lot of volatility in the market this is what you get. Lets see how much damage was done to our long side momentum trend.
In looking at our momentum charts we see that our slow or long term momentum continued upwards after Thursday market and then took a turn down. The good thing is that it is still solidly in the neutral range, and near the positive momentum mark of +5. Moderate momentum also continued up on Thursday before taking its down turn. It had reached a fairly high water mark or oversold area on Thursday, so again, Friday was not abnormal for that reading. Our fast momentum actually started to roll over early in the week signaling the coming correction. It has plunged two days, telling us it is quickly reloading for another move to the long side. The fast momentum needs to reload quickly from here to prevent the slow and moderate momentum to pick up an downside mo.
In summary here are the good things to take away after Friday. Of the 85 equities we track, 44 have positive momentum, 18 are neutral and 23 have downside momentum. Our long term momentum is still in the neutral range. I didn't see any serious volume numbers to raise concerns.
Its not a good idea to get aggressive either short or long after a day like Friday. We need to see what Miss Market is going to tell us about where she wants to go next. I am sure there will be some talk whether this is the Friday that sets up the catastrophic Monday - maybe, but I don't think so. At this point its best to sit back and watch for a couple of days. I am of two minds right now. I am going to protect my open positions, but I am going to watch for a market snap back. If that doesn't happen in the next few days, I will pull out my short pants.
Don't forget to check out our Top 25 ETF and Stock Recommendations and an update on our TradeWinds Black Box.
In looking at our momentum charts we see that our slow or long term momentum continued upwards after Thursday market and then took a turn down. The good thing is that it is still solidly in the neutral range, and near the positive momentum mark of +5. Moderate momentum also continued up on Thursday before taking its down turn. It had reached a fairly high water mark or oversold area on Thursday, so again, Friday was not abnormal for that reading. Our fast momentum actually started to roll over early in the week signaling the coming correction. It has plunged two days, telling us it is quickly reloading for another move to the long side. The fast momentum needs to reload quickly from here to prevent the slow and moderate momentum to pick up an downside mo.
In summary here are the good things to take away after Friday. Of the 85 equities we track, 44 have positive momentum, 18 are neutral and 23 have downside momentum. Our long term momentum is still in the neutral range. I didn't see any serious volume numbers to raise concerns.
Its not a good idea to get aggressive either short or long after a day like Friday. We need to see what Miss Market is going to tell us about where she wants to go next. I am sure there will be some talk whether this is the Friday that sets up the catastrophic Monday - maybe, but I don't think so. At this point its best to sit back and watch for a couple of days. I am of two minds right now. I am going to protect my open positions, but I am going to watch for a market snap back. If that doesn't happen in the next few days, I will pull out my short pants.
Don't forget to check out our Top 25 ETF and Stock Recommendations and an update on our TradeWinds Black Box.
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