A financial blog on investing in stocks, commodities and the gold bull market.
Wednesday, August 8, 2007
Housing and Financials
Anybody will tell you that you've got to sell housing and financials nowadays. It's common knowledge right. I mean it only makes sense real estate is done and the financials are going to collapse because of subprime and Alt-A loans. Even Cramer can tell you that you've got to get rid of anything in this sector. Well let's take a look at the charts. The S&P is up 4.50% in the last 3 days. Pretty sweet. But wait a minute housing is up over 8%, FNM is up over 17%, the banks and broker dealers are both up over 8%. What the hell is going on? I thought these two sectors were toast. This very well could just be an oversold bounce heaven knows they've both been punished recently. However let me lay out another possibility. The panic selling the last couple of weeks may just have put some very good companies on sale for half price. Sure subprime is a problem but it won't last forever. I dare say most if not all the large banks are going to take some heat but I doubt that any of them have sustained irreparable damage. Perhaps people that don't necessarily follow the herd realized the other day that Mr. Market just threw them a slow ball right over the plate and all they had to do is swing. Maybe those same people also noticed the 10 year yield was back down around 4.75 which is good for the housing sector. Maybe those people also think that even though the housing sector is in trouble I doubt it is finished as an industry. You might also notice that the housing sector has been in decline for 2 years now. Remember how I noted that initial legs down in bear markets usually last about 2- 2 1/2 years. With all the rotten news in the real estate and financial markets these two sectors are moving up strong not sinking. This is how major bottoms are put in when the market can't go down anymore even on bad news. I think these two sectors bear close watching in the coming weeks.
BTW if you had been brave enough to take GS the other day when I pointed it out you would now be up over 7% in three days. 2% better than you could do in treasuries all year.
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T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
General Trading rules
G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules. G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal. G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100% G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.