Reversal Day

Last night we failed to mention the two stocks of interest, AIG and CSCO. AIG had great earnings and CSCO did too but CSCO said some down beat things about the future. So, CSCO went down after hours last night and AIG was up. This morning saw a big pop in the Dow to the tune of about 100 points an hour and a half into trading--stunning when you consider what else is going on at the moment. But, that's the kind of effect a stock like AIG can have on the market.

So much for our thought that last week's highs would hold, at least in the Dow. Meanwhile, some of the other indexes were not showing that kind of strength and were not really close to moving back to last week's highs. For example, the NASDAQ COMP traded at 2220 last week and today's high was around 2185 and the SOX traded at 486 last week but only at 476 at today's high while the SP500 traded within 3 points of last week's high. The only one we follow that dared move above last week's high was the Dow and only a little bit over last week at that, about 20 points. And, if you look at the highs the week before that, today's high in the Dow was only a couple of points higher than that. We mention this because we want to keep our eye on the market rather than whoever is on TV at the moment.

But anyway, from that high about an hour and half into the trading day, the market leaked until we went out on the lows of the day with the Dow off about 20 points and back into the 10,500's again. We think today's reversal was important as it happened right at the point the market should have resisted an up move and it did. Looking at the charts, if you remember what an outside down day is and its potential, you see that the NASDAQ COMP and 100 both had nice outside down reversal moves today. This is a bearish chart because it means that people were very aggressively buying in the morning only to get sold later in the day without other buying to help them out. This kind of thing can cause short term fear--we are still sitting on the position that last week's highs are to be respected. We are very short against those highs.

The precious metals sector seems to have indeed turned the corner over the last couple of trading days and has shown some strength. We were a little disappointed in the move that our little mutual fund, BGEIX, had compared to the HUI but we will take it for now. There is a possibility of a nice rally right here. We will enjoy it. We have been patiently waiting for over a month.

The rout in the REITs continues today with IMH cutting its dividend by 30% or so and getting sold to the tune of about 15%. This REIT still pays about 15% in dividends annually but if you are getting touched to the tune of 15% in one day, you may want to hold off for a second.

FNM (Fannie Mae) continues to have troubles figuring out how much to report for earnings so could you all wait till, say, the middle of next year. How's that for you? Well, over the course of the last year, the stock has dropped from a high of 77 to today's 52. Some bull market in housing when you have the king of the mortgage makers dropping by a third.

Sorry for the long post tonight but today was a very important day in the market. The volume on the NYSE was the highest its been since late June when we had a couple of triple digit down days in a row. High volume, key reversal (outside down day), real estate is turning over and oil pierced the $65 level and all of these contribute to a very bearish outlook.

Happy trading--what I mean is be careful.

Dow Industrials: 10,594.41 -21.26
BGEIX: 11.60

PS Erick, nice golf round. But, you didn't mention how your indicator was doing??? Surely it must be following the pattern of what we outlined in this post. Great to hear from you.