Monday, July 30, 2007

Just a Few Thoughts

As the market opened on Monday morning, there was a little skepticism among the players. The news prior to the open was that American Home Mortgage was going to have to put up more cash at the request, or maybe demand, of creditor banks. AHM traded down about 40% before the opening bell and then was not able to actually open for normal trading hours. The mortgage market seems to be popping up with bad news even now—no surprise to us.

In other news, probably also related to the mortgage market, a hedge fund announced that it was closing down and would be distributing what was left of its assets to investors. The firm of Sowood Capital Management announced that it had suffered losses over 50% THIS Month. Apparently, the firm had started the month with about $3 billion and is ending it with only $1.5 billion, ouch. That’s a bad month for anyone.

We are posting this evening due to the trading during the rest of the day on Monday with the Dow up about 90 points on the day. The bounce was a relief to many and gives more hope to the bulls. The market has dropped over 500 points in the two trading days prior to Monday and 90 points feels like a bounce. We will know soon enough whether the first leg of the decline is over and we are getting our corrective bounce. The bounce could be a strong one that will give even more hope to the bulls but we do Not believe it will carry to a new high in the Dow. There will be warning signs of that as any rally plays out.

The market is very oversold and will need a small rest before resuming its down hard path. The end of the month is upon us, a normally strong period of time. We have the jobs’ report coming out on Friday morning which would be a good point for any rally to aim for, meaning a rally could take place that would move the averages up into Friday morning. Our position remains that rallies should be sold.

There is one thing we have missed telling you about last Thursday's trading day. First of all, it was a large volume day and there was another "glitch" in the tape. If you didn't hear, there was an eleven or twelve minute period of time when the price reporting on the Dow was suspended. The obvious thought is that there was too much trading volume to report prices accurately. This is something that could be a bigger problem if the bear gets a hold of one of these trading days and trades are going too fast to keep track of them. Something to consider since this type of thing happened during the February downdraft in the market. That was the day that the Dow mysteriously dropped 200 points in about ten seconds.

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