We did not have any follow through on last week’s hammer candlestick on the DJIA and SP 500. It could be a good time to take that summer vacation. Looks like the financial markets are headed for a trading range for a while, which is actually an improvement from the bearish tone we have displayed this year. We are no longer oversold and I do not see anything that is going to push the market up very far. Even if oil continues its recent down trend in price, there is still too much other bad news on the economy to give this market much of a lift.

One way to play a trading range market is with an Iron Condor on the DJX. Since we have support at 110 and resistance at 118, you could structure this trade by selling the DJX Aug 110 put and the DJX Aug 118 call, while purchasing the DJX Aug 108 put and the DJX Aug 120 call to protect your sold options. If the DJX is still within this trading range by the August expiration, you would get to keep the credit you receive when placing this trade.

JD

OK, so we had a better follow through on Thursday than I expected, but Friday’s big fall in Technology stocks was probably enough to put an end to a two day short covering rally. While daily stock charts are starting to show signs of a turn around, we still have a long way to go on a weekly basis. We will soon see if the S&P 500 and the DJIA can build on the past week’s lows and establish support at 1200 and 11,000 respectively or if this was just a breather in the current bear market.

JD

It was a big day for the stock market with gains of more than 2% for the DJIA, SP 500, Nasdaq, and any other index they can come up with. OK, there was some good news, like a good oil inventory report that led to a $4.00 fall in the price of a barrel of oil, but what about the fact that consumer prices increased at the fastest pace since the early 80’s? That was back in the days when you could get a mortgage at 16 1/2 % and be happy you got it. (Yes, you read that correctly 16 1/2 % was what I was paying on my first mortgage). Like Uncle Ben and the FED boys said recently, maybe its time they started worrying about inflation a little.

Yes, that was a Bullish Engulfing candlestick pattern on the DJIA and the SP 500, in a down trend, near support, but there was one big problem - a lack of volume. Now I will not deny that it could be the start of a nice bounce, but it looked a lot more like short covering to me. Since the market is extremely oversold, even the staunchest bears were probably taking some profits. What makes this advance even more suspect is the fact that futures traders took the SP500 down further in the 15 minutes of after market trading, than they pushed it up in the last 15 minutes that the stock market was open.

Certainly does not make me optimistic that this market has turned around. Let’s see if we get any follow through.

JD

Which shell is the ball under? We all remember the shell game where the only goal is to deceive the bettor and take his money. That is what is going on in the financial sector today. What is the exact purpose of off-balance sheet entities other than to deceive? I have an idea. Lets give every bank 90 days to bring the off-balance sheet stuff on to the balance sheet.

Also, any CEO who states that their bank is well capitalized and goes belly-up within 90 days, should go directly to jail. Get ready for some overcrowding boys! Who should be in the hokey right now? Lets start with the tanned Countrywide guy and his spawned step son who ran Indymac. Who is on the short list for the ball and chain now? Vikram Pandit at C and whoever runs WM and BBX. C has a cool 1.1 trillion in off balance sheet issues. That’s trillion folks! WM and BXX are on the wires after hours saying they are well capitalized. If your stock is below 5 bucks, there is a problem somewhere that’s for sure! Or how about are friends at FRE and FNM? If you throw the off balance sheet stuff on FRE, they are only leveraged 68-1! This situation took years to build up to this and it will take years to unwind.

BA

We can only hope that someone turned the clock back to 2006 as the S&P 500 touched its 2006 lows on Friday. If the second half of this year turns out half as good as that one, there will probably be a lot of relieved investors, since that should just about break us even for the year.

Unfortunately, there are several reasons to think the stock market has NOT finished its fall. On top of that list is the fact that the DJIA still has 250 points to go to reach its 2006 low. While Friday’s 11,000 low has provided some support in the past, the fact that the market did not bounce strongly off these levels would lead one to believe that its only taking a breather. No time to try to catch the falling knife, even if it looks like its losing momentum. It can keep doing this for a while.

JD

What makes the world go around? The answer: Credit. Any business that relies on credit is getting destroyed. FNM and FRE are down big this morning(again). LEH rumors are flying again with PIMCO having to publicly state that they are still doing business with them. Maybe we all need another stimulus check so that we can go to WMT and by products made in China? For investors, 3 words of advice: defense, defense, defense. For traders, there should be a trade-able bounce in here somewhere but the trend is certainly lower.

BA

Apparently everyone took my advice and took the week off from trading as the stock market drifted slightly lower as traders were anxiously awaiting a long 4th of July weekend.  The DJIA and S&P 500 last 1.5% while the market leading (less lagging) Nasdaq doubled them up with a 3% loss. It looks like we may be in for a little consolidation phase for the financial markets as they try to digest recent losses. This will give traders some time to sit back a watch for some sign of a market recovery. We might as well do that too.

JD