7/31T2:11 Market Comments

Equity markets are off in front of tomorrow's "key" jobs report. Whether it truely is "key" or just a reason for volitility is anyones guess, but we must be prepared.

As I stated in yesterday's blog, I feel we have seen the top in the equity markets for this counter trend rally. So I will be leaning towards building up the short side of the portfolio. However, calling the top has made fools of everyone and I am under no illusions. In light of this admission I will be hedging the portfolio from time to time until it is clear that the down trend has resumed in ernest. As oil sells off today over 2.5% and the markets get ready for the numbers tomorrow I believe it is wise to hedge 1/2 of my short exposure with the use of QQQQ, SPY, DIA.

The object will be to avoid any real damage in the morning with the hedge. However, if the numbers are such that the markets sell off or remain even then the hedge needs to be removed. Remember, this is just a hedge and once it is determined that the hedge is no longer needed than it needs to be immediately reversed.

7/31T8:40 Co. in the News

ABX Barrick Gold sells non-core royalties to Royal Gold-Achieves lower royalties on Cortez-Crossroads (42.41 )
Co announces that it has entered into a definitive agreement to sell certain non-core royalties to Royal Gold (RGLD) in exchange for $150 mln in cash and a significant reduction of royalties otherwise payable to Royal Gold on Barrick's 100%-owned Cortez property. This transaction rationalizes Barrick's non-core royalty portfolio and improves the economics of the permitted Crossroads deposit at one of the company's core operations. The majority of these royalties held by Royal Gold cover claims contiguous to the existing operations at Cortez, including the Crossroads deposit. The lower royalties will remove a major obstacle to mining the deposit.


EOG EOG Resources upgraded to Outperform at Howard Weil (103.00 -2.15) -Update-
Howard Weil upgrades EOG to Outperform from Mkt Perform, following last night's Q2 results, saying the results for the qtr were a good beat despite lower NGL volumes from infrastructure constraints in the Barnett. Firm says that there was little hype in the call today. A targeted net debt/cap of 8% by YE08 illustrates the strength of EOG's balance sheet, they say. Reigning in the fundamentals, EOG mentioned ROCE and debt-adjusted production growth more than once. With the Company's Barnett volumes peaking at the end of '09 and with the well-known Bakken outperformance, they believe the Company's 13-15% '09 production growth forecast may be conservative

Notes from the Edge:

The raters are finally understanding the ominous impact that negative equity has across all loan types and borrower grades. Negative equity knows no bounds. While factoring in the unprecedented home price deprecation seen in the past 12-months and projecting that out, they are discovering that those who purchased a home as early as 2004 are now under water and at an exponentially greater risk of default. Even many who purchased much earlier and put a second mortgage on the property are in a negative equity position. This is making their modeling systems ‘TILT’. Due to this I believe we will see some serious ratings actions over the next 90-days stretching deep into the heart of the ‘Prime’ loan sector

Global Scoreboard -- percentage gained or lost so far this year --INDEXS&P 500 -13.97%Frankfurt DAX -20.68%London FTSE 100 -17.62%Hong Kong Hang Seng -19.97%Paris CAC-40 -23.04%Tokyo Nikkei 225 -14.03%ASIASeoul Composite -17.39%Singapore Straits Times -16.71%Sydney All Ordinaries -23.33%Taipei Taipex -17.54%Shanghai Shanghai B -41.60%

July 30 (Bloomberg) -- Merrill Lynch & Co. gave up any potential gains on $30.6 billion of securities it sold this week while remaining ``on the hook' for losses, Bank of America Corp. analysts said, revising their earlier positive view of the sale.
Merrill agreed to sell collateralized debt obligations to private-equity firm Lone Star Funds for about 22 cents on the dollar and to lend about 75 percent of the purchase price. Bank of America analysts, who said yesterday the sale ``suggests the endgame' for banks' CDO risk, today wrote they had overstated the ``positive implications' of the transaction.
A drop in the value of the CDOs by about a further 5 cents would wipe out the equity from Lone Star and ``leave Merrill back on the hook for the exposure,' said the analysts, led by Jeffrey Rosenberg in New York. Lone Star bought ``the upside of the underlying subprime assets in the CDO pools' while Merrill retained ``most of the downside,' they wrote.
Merrill, the third-biggest U.S. securities firm, has written down or lost almost $52 billion mainly on mortgage-backed CDOs since the third quarter of last year. Financial firms worldwide have marked down or lost $474 billion since the start of the credit crunch.
Merrill yesterday raised $8.55 billion by selling new shares to cushion the loss on the asset disposal. The bank will have recourse only to the CDOs it sold should Lone Star fail to repay the loan, it said July 28.5-Cent Call OptionLone Star effectively ``purchased a call option on the value of the subprime assets backing the CDO' for the $1.68 billion it paid from its own funds, or about 5 cents on the dollar, the Bank of America analysts wrote today. That is about the level indicated by the lowest-rated portions of the benchmark Markit ABX.HE BBB- indexes of mortgage-backed securities.
An option gives the holder the right and not the obligation to buy or sell a security at a stated price. A call option, which gives the right to buy, is a bet the price of a security will rise.
The Bank of America analysts wrote yesterday that the sale ``creates initial losses but relieves future uncertainty,' before issuing its report today, titled ``On Second Thought?'…

7/30T1:35 Martket comments

Today the U.S gov't signed into law the rescue package for FMN & FRE. With the Bush signature I believe the counter trend rally we have had to endure has peaked. Financial stocks hit highs this morning on the announcement of the signature accompanied by a Bush speech. As of this writing the stocks are reversing and trading at the lows of today.

It was my belief a week and a half ago that this rally would last until the bill was passed. Now, if we believe that the gov't manipulates the markets and can cause rallies when necessary to further the agenda, I submit to you the reader that the manipulation is now over for the time being. The rally in the equity markets and the sell off in oil has allowed for Paulson to get a blank check from congress and it has bought some breathing room for Bernanke. The absolutely ridiculous notion that the Fed would raise rates is now off the table because oil has declined.

I find it not surprising in the least that oil is trading up 3% at this moment. The inventory numbers this morning were mixed but we see a surge off the lows for oil, why? Simple, the need to suppress oil has been replaced with the need for oil to recover. Oil was suppressed right in front of the Aug. 6th Fed meeting on rates, but now the Bush administration wants to push the offshore drilling bill down the throats of congress and can't do that if oil continues to fall.

Of course, Gold and Silver are in the same boat as Oil and that means that we saw the bottom in both commodities this morning. In fact, silver has already reversed and gold is in the process.

The time has come to act in the portfolio.:

We need to begin to rebuild the short positions in the Financial space. I want to have a third of our total short position on today in the Financial ETFs RKH, IAI and IYG and the idea will be to add to these positions on any rallies in the mornings.

We need to reestablish our GLD and SLV positions and perhaps add a little to CEF and RGLD.

We may also add some individual short ideas where we see fit.

BIDU: I want to build this position over time. Even if the markets sell off I want to add to BIDU as it comes back down to its 50 Day ma. Put simply, there is no better chart pattern in the whole universe of stocks. This is a perfect cup/handle on a weekly scale. The companies EPS continue to outperform with 4 quarters of 80%+ growth with the most recent Q the biggest in the last 4 with 118%. If we can't make money in this idea over the last 5 month of the year than there is no reason to trade any other growth stocks from the long side. This trade will be my "cannery in the coal mine." I will stop the position out if the price closes below the 200 day ma.

7/24T9:00 News & Notes

Gold: Another date to consider is August 5th, about a week later, when the Fed next meets,.. My guess is that they’ll be keen to keep the dollar well bid leading up to this meeting, before showing to the world that they have little intention of raising rates,.. This may keep Gold and other commodities pinned back for a further week before the ‘fireworks begin’,..
Kind regards,..

Keep in mind the trader's adage - "He who plays and runs away, lives to play another day". You can always get back in! Don’t try to be a hero unless you have the deepest of pockets and can sustain large drawdowns in your account without worrying about it. Most cannot and as another saying goes – “Sell down to a sleeping level”.
There is no shame in having a bad trade as long as you can quickly admit it and get out. The shame is allowing a small, manageable loss become a career ending trade. Do not make that mistake! There is nothing wrong with sitting on the sidelines while you take stock of what is going on and have some time to think through a good trading strategy away from the heat of the battle when your mind is calm and your emotions are less involved. It takes a clear head to be successful when you are dealing with large sums of money. Do not make trading decisions when you are under extreme mental or emotional

7/23T2:38 Day trade...

Oil down over 2% into the close of trading 2:30. This has always led to big rally in equity markets by the close. I'm putting on QLD, SSO, DDM trades and now will hold until close or negative 15 min signal. Only react by the close of the bar.

Beige book is the catalyst to kill oil. The economic numbers were worse than expected.

7/23T9:54 Notes From the Edge

The markets are trying to go higher into their overhead. The key to the last sentence is that they are going into their overhead! This is not a rally to buy. Do not lose patience just cause the month is coming to a close and I want to try and make the numbers look better. Remember its my money and if it were just my money I would not be buying this rally. The market will at the very least need to retest the lows set 2 weeks ago before setting up a real base. If we can just get that trade right over the next 6 to 8 weeks we will be looking good.

Lot's of good news spin from all corners has set this short covering rally in motion. When the EPS season comes to a close and the news spin dies down the markets will revert back to trend. This is not a comment of hope from me. This is a reality check. Just look at the major averages, still in major down trends. Even with the rally of the last week the markets are not even close to challenging the down trends. Also of note is the lack of participation from the IBD 100 index in this rally. The leaders are not participating in this rally, only the laggards are running off their lows. That is the definition of a Bear market rally!

This market continues to be an oil driven market. If oil is down the markets rally and vis verse. Oil has not broken its long term uptrend. This is a much needed sell off from overbought levels. The real game will start when oil finds support. Oil prices are selling off into the inventory numbers. Very often the the opposite direction to the close will occur before the numbers.

7/22T1:24 Update R.ot R

Rules of the Road:

Day Trading...
1) Determine the direction we want to trade based on the daily charts. If the daily chart is positive than we only try day trades in the buy direction and vice verse.
2) Use the 60 min. chart to initiate the position. We must have all three indicators going in the same direction and at the beginning of the move in that direction.
3) Use the 15 min. chart to book gains. As soon as the 15 min. gives a signal contrary to the 60 min. then get out of the position.
4) When using 60 min. or 15 min. charts we must only make decisions at the end of the bar. We DO NOT react to the possibility of where we think the bar will end up. Only react to reality at the end of the bar.

All trading:

1)If the portfolio is up 2.5% in the 1st 2 hours cut every trading position in half and look to reposition on the inevitable reversals during the day. The 2.5% number is based on total dollars at risk in the portfolio. Example: $4mil long $4mil short = $8mil risk assets; 2.5% = $200K

2)If the markets turn against our positions and we decide to reduce exposure to better weather the storm we must reduce all positions by the same amount. DO NOT under any circumstances pick and choose which positions to liquidate and which to hold. I guarantee that if you pick and chose you will always pick the wrong names. A portfolio decision to reduce exposure should be made across the board not here or there. Note: This rule does not preclude us from liquidating a position that is giving a negative signal.

3) Position size:
Full position if the price is with in 5% of the ideal price
1/2 position IF the price is between 6%-10% away from the ideal price
NO POSITION IF the price is more than 10% from the ideal price

4) Oil & the equity markets: When oil runs up 2.5% or more quickly in the morning there is no reason to remain long equities. Book the gains you may have and look to reestablish later in the day after the inevitable sell off. Conversely, if oil sells off 2.5% or more in the 1st hour of trading holding shorts is pointless. The market will rally during the day and give us another chance to put the shorts on.

7/22T11:40 FNM FRE

The companies have also been unwilling to accept the pain of market prices in acknowledging delinquent loans. When borrowers fail to keep up payments on mortgages in the pool that supports asset-backed loans, Fannie and Freddie must buy back the loan. But that requires an immediate write-off at a time when the market prices of asset-backed loans are depressed. Instead, the twins sometimes pay the interest into the pool to keep the loans afloat. In Mr Rosner’s view, this merely pushes the losses into the future

In addition, Fannie and Freddie have bought insurance against borrower defaults when the homebuyer lacks a 20% deposit. But the finances of the mortgage insurers do not look that healthy, which may mean the risk ends up back with the siblings. Just as the rescuers need rescuing, so the insurers may need insuring

Indeed, their capital-adequacy requirement was reduced earlier this year so that they could make more of an effort to bolster the housing market

The authorities are keen to avoid nationalisation, which would bring the whole of Fannie’s and Freddie’s debt onto the federal government’s balance sheet. In terms of book-keeping this would almost double the public debt, but that is rather misleading. It would hardly be like issuing $5.2 trillion of new Treasury bonds, because Fannie’s and Freddie’s debt is backed by real assets. Nevertheless, the fear that the taxpayer may have to absorb the GSEs’ debt pushed Treasury bond yields higher. That suggests yet another irony; the debt of the GSEs has been trading as if it were guaranteed by the American government, but the debt of the government was not trading as if Uncle Sam had guaranteed that of the GSEs

The GSEs are not the only liability for the government. IndyMac’s recent collapse is the latest call on the Federal Deposit Insurance Corporation (FDIC). The FDIC has some $53 billion of assets, so it is better funded than most deposit-insurance schemes. But if enough banks got into trouble, the government would be on the hook for any shortfall. The same is true of the Pension Benefit Guaranty Corporation, which insures private sector benefits, but is already $14 billion in deficit.

In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt

7/22T10:18 Market Comments

Terrible EPS from many quarters, Semis & Banks etc., has led to a hard sell off at the open. However, as I stated yesterday, the market needs to rally for a couple of days at least before heading a lot lower. This theory is being helped by the continued precipitous decline in Oil, down another $4 as I write this.

I have been so right on the names I was short but so wrong on the execution it has become comical. The volatility is whipping me around like a dog with a rag. I need to stay with my positions through thick and thin as long as they remain in the down trend and do not violate resistance. We must find a way to ignore the noise all around us and just focus on the technical facts. One possible way to deal with the swings is to react quickly in the morning to negative forces to our positions and look to reestablish later in the day.

The beauty of the market is that is will give you a chance to get it right over and over again. Remain vigilant and continue to move and check in the corners, we will eventually get free.

Rules of the Road: Oil & the equity markets

When oil runs up 2.5% or more quickly in the morning there is no reason to remain long equities. Book the gains you may have and look to reestablish later in the day after the inevitable sell off.

Conversely, if oil sell off 2.5% or more in the 1st hour of trading holding shorts is pointless. The market will rally during the day and give us another chance to put the shorts on.

7/21T3:13 Notes from the Edge...

- While the emotion is there to be adding to shorts, I believe it is too early to do so. Last week was a shock and it should take at least a few trading days and probably weeks to set up another real shorting opportunity. I have been here in the past and I always add to shorts too soon. There is a serious need to be patient in the midst of all this volatility.

- Look to cover the shorts I have remaining in the financial space over the next 2 days. They should sell off a little but then find support on the 9 and 20 day MAs and look to make another short term high before giving another short opportunity.

- Tuesdays were counter trend days over the last few weeks. What ever happened in the morning on Tuesdays never was the result by the close of the week. If Shorts are up tomorrow morning look to cover.

7/21T12:55 Privateer

One of the first things that the SEC did when it was brought into being by the Roosevelt Administration in the 1930s was to put a curb on short selling. At that time, the rule introduced was that a stock could not be shorted unless its last price movement had been upward. This became known as the “uptick rule” and was only rescinded last year. The first result of this new “regulation” was the market smash up of 1937 which was much more abrupt than its precursor in 1928-32. In any market, a short interest cushions abrupt falls because shorts are “captive buyers” - they must buy to take their profits. Remove them and their potential buying is no longer there. As a result, market declines become steeper and bottoms lower.

7/18T3:22 Rules of the Road

Rules of the Road:
Day Trading...
1) Determine the direction we want to trade based on the daily charts. If the daily chart is positive than we only try day trades in the buy direction and vice verse.
2) Use the 60 min. chart to initiate the position. We must have all three indicators going in the same direction and at the beginning of the move in that direction.
3) Use the 15 min. chart to book gains. As soon as the 15 min. gives a signal contrary to the 60 min. then get out of the position.
4) When using 60 min. or 15 min. charts we must only make decisions at the end of the bar. We DO NOT react to the possibility of where we think the bar will end up. Only react to reality at the end of the bar.

All trading:

1)If the portfolio is up 2.5% in the 1st 2 hours cut every trading position in half and look to reposition on the inevitable reversals during the day. The 2.5% number is based on total dollars at risk in the portfolio. Example: $4mil long $4mil short = $8mil risk assets; 2.5% = $200K

New Rule:

If the markets turn against our positions and we decide to reduce exposure to better weather the storm we must reduce all positions by the same amount. DO NOT under any circumstances pick and choose which positions to liquidate and which to hold. I guarantee that if you pick and chose you will always pick the wrong names. A portfolio decision to reduce exposure should be made across the board not here or there.

Note: This rule does not preclude us from liquidating a position that is giving a negative signal.

7/17T10:09 Strategy

I was long the indices for the 1st half hour today and booked a gain. Now all the indices are trading down at their lows. Gut feel: This is a two or three day short covering rally. Look for stocks and the indices to hit resistance and falter.

Financial stocks: WFC and JPM have now set the bar for other financials. Both had better than expected numbers. So just like we should have been prepared for good events because the markets were so oversold, now we can anticipate negative news out of some bank or broker that should squash the rally. I feel we need to stick to our guns and look to add to shorts when the 60 min. charts set up. Nothing has changed fundamentally, business is awful, JPM stated that now the prime mortgage business is in serious trouble.

Gold & Silver: I sold off the excess positions yesterday to avoid a follow through sell off today. None has occurred. If we get another 60 min. buy signal during the day I want to reposition GLD and SLV.

Bottom line: The primary trends are all still intact. There has been short covering and a need to relieve the severe oversold readings. Watch the 60 min. charts for signs that the bear market rally is coming to an end and look to rebuild short position.

7/17T9:10 Stocks in the News

WFC Wells Fargo: Concerned that the co added leverage to its balance sheet and raised its dividend 10% in an environment where the more prudent step would be to conserve capital - FBR (27.23 ) -Update-
Friedman Billings notes WFC reported better-than-expected 2Q08, but their outlook for the co is not materially changed, as they expect continued elevated credit costs and a smaller contribution from mortgage and trading activities in future periods. WFC is highly profitable and has strong capital ratios, but firm is concerned that the co added leverage to its balance sheet and raised its dividend 10% in an environment where the more prudent step would be to conserve capital. Capital levels remain healthy, but firm would be more comfortable without growth in leverage or dividends. Firm reiterates their FY08 operating EPS est of $1.90 and adjust their 2009 est to $2.15 (from $2.20). Firm cuts tgt to $20 from $23.

WFC Wells Fargo: Downgrade details (27.23 ) -Update-
As mentioned at 6:23 UBS downgraded WFC to Neutral from Buy after 30% rally post 2Q results. The firm says fundamentals have clearly held up better than at most banks during this downturn, but the stock has now outperformed the group by more than 2500bps ytd. The firm thinks there may be more upside from here in WFC if they have seen the bottom in bank stocks, but macro uncertainties remain very high—and even if they get a faster than expected recovery, WFC may lag some of the weaker banks trading at lower valuations.

7/16T11:26 Market Observations...

Counter-trend rally in effect:

Equity markets up, Gold down, Oil down, US$ up; we are in the midst of another counter-trend day.

Question: Is this the beginning of a new trend or just noise in the current trend?

Answer: The jury is still out but here is what we know:

There is no buy signal on any of the three major averages yet. Even the 60 min. is not giving a buy signal as the indices are all simply trading at the top of the extremly short term downtrend.

Oil is on the long term up trend line and has not broken down yet, but the battle is raging at this important support line. Inventories were up accross the board in a big way, but this should have been predictable. Last weeks number was effected in the opposite direction due to piplines that were off line. Those lines were restored last week so the oil was flowing back to normal. Also don't forget the idea from GMT that inventory builds can also mean that energy companies are willing to hold oil because they feel the price is going higher.

Gold and Silver are not even close to giving a sell signal on the 60 min. and are trading at the 60 min. exp. MA support line.

The 60 min. charts of the financial shorts seem to be working off oversold conditions. None are giving clear buy signals but all are instead trading up into their respective areas of overhead.

So, the action we need to take is to relax and wait for a clear sign. If we begin to get alligator buy signals then we will need to cover and go long, but if not then this counter trend rally will set up another great chance to add to shorts.

7/15T11:36 Non-sequitors

Thoughts during a volatile day:

Oil drops 6+% in 10 min.? Market not responding in a meaningful way. Tried to rally to break even but now down 1% again.

Fed speech much more negative on economy and scared of inflation. Is the markets muted response to the sell off in oil due to the dawning realization that the economy is headed into a recession of some magnitude?

Is oil down because of the changing perception that the economies around the world will slow down in the 2nd half so demand will be effected?

The US$ is not rallying. A $ rally has been the cause of oil sell offs in the past.

I want to use the weak rally off of the 2% decline in the first hour to build some short positions in the small regional banks. SBIB, PRSP, WABC. I also want a 1/2 position short of ING. The stock is already down a lot but their fundamental focus on high yielding money markets should come home to roost in this market. Also, shorting beat up stocks has worked, e.g. LEH, BSC...

GLD, SLV: If we get a 60 min. sell signal on these ideas we need to book our nice gains. The idea was always to use GLD and SLV as short term trading tools to augment CEF.

Steel stocks: Today's paper highlights the belief in the market place that steel stocks are no longer cyclical. Since the dawn of time steel has been effected by the economy and recessions, but now the paper suggests that there is no long a cyclical nature to the business. Doesn't this article have to mark the top in the space? Didn't we read those type of stories on the home building sector right at the top? THIS TIME IS DIFFERENT! Those statements tend to set up great trading opportunities.

7/14T8:32 Stocks in the News

Pressed to act, SEC to probe false rumors about market - WSJ
The Wall Street Journal reports the SEC says it is cracking down on firms or individuals that illegally spread false rumors. The announcement was timed to be released hours before the trading week began in Asia, in hopes it would serve as a warning shot to traders, a senior official said. Meanwhile, executives at Lehman Brothers (LEH) were working on a plan to put the firm on more solid footing and stop the free-fall in the co's stock. Lehman is examining a handful of options, including a strategic alliance with a partner that it hopes will help restore investor confidence, an asset sale or possibly some sort of stock buyback, according to people familiar with the matter. Nothing final has been decided, but Lehman executives have long pushed for SEC action to stop the rumor mongering around their stock. Sunday, people close to the firm said Lehman hopes the SEC move will stop the fall of its stock until it has time to put together a plan. The SEC said it would join with other Wall Street regulators, the Financial Industry Regulatory Authority and New York Stock Exchange Regulation to immediately begin examining the supervision and compliance programs at brokerage firms and hedge funds to ensure training and other oversight programs concerning the sharing of information are up to par. The joint examinations will begin in earnest this week. Also over the weekend, senior members of the Federal Reserve, the SEC, and executives from Lehman participated in conference calls on the difficult situation facing the firm, according to people familiar with the matter. SEC staff members were expected to be dispatched to Lehman's midtown Manhattan office building Monday, a person familiar with the matter said.

Paulson seeks authority to shore up Fannie, Freddie - Bloomberg.com
Bloomberg.com reports Treasury Secretary Henry Paulson put the weight of the federal government behind Fannie Mae (FNM) and Freddie Mac (FRE). Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank. The announcements followed weekend talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown. Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. Freddie Mac is scheduled to sell $3 bln in short-term notes this morning, and Paulson's comments indicate a concern about a collapse in private investors' willingness to fund the firms.

Treasury Secretary Paulson announces GSE initiatives for FNM and FRE - U.S. Dept. of Treasury
Treasury Secretary Henry M. Paulson, Jr. issues the following statement via the U.S. Dept. of Treasury website: "Fannie Mae (FNM) and Freddie Mac (FRE) play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction. GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately. First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn. Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed. Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer. Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator's process for setting capital requirements and other prudential standards. I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package."

ATW Atwood Oceanics announces one-well commitment for ATWOOD FALCON (54.67 +1.32)
Co announces that the ATWOOD FALCON has received a one-well commitment from an operator in Southeast Asia for the drilling of a well in the South China Sea. The drilling of this one well will commence in mid July 2008 at a dayrate of $425k, with an approximate duration of 40 days; after which the rig will return to its current contracted dayrate of $160k. The rig is currently under contract with Sarawak Shell Berhad/Sabah Shell Petroleum in the South China Sea.

7/10T10:23 1st test...

!st test of the new R.o.t.R:

The portfolio opened up over 2.5% so the rule to cut positions in half is in effect in the 1st two hours. I need to refine how this is done over the 1st 2 hours. I have covered a little @ 10:00 and I'm now thinking of covering a little more between 10:30 & 11:00 and the rest at 11:30. Once this is done the idea is to reposition on the subsequent rally. "Subsequent rally" is a vague term and needs to be fleshed out...

7/10T8:25 Rules of the Road

New Rule: If the portfolio is up 2.5% in the 1st 2 hours cut every trading position in half and look to reposition on the inevitable reversals during the day. The 2.5% number is based on total dollars at risk in the portfolio. Example: $4mil long $4mil short = $8mil risk assets; 2.5% = $200K

7/10T8:20 Co in the News

WYNN Wynn Resorts: Color on Q2 preannouncement (77.56 ) -Update-
Jefferies notes yesterday WYNN preannounced 2Q08 earnings. Firm says the preliminary results make them even more confident about WYNN going forward than ever. EBITDA in Las Vegas was in line despite bad luck and EBITDA in Macau surpassed firm's expectations by a large margin. Wynn has proven its fundamentals are strong and has continued to exceed expectations. Firm's main thesis on the stock continues to be the development pipeline. THey see Wynn with strong future growth both in Las Vegas and Macau. Firm also sees strong potential for WYNN to win a casino license in Japan if/when the country goes in that direction... Keybanc notes WYNN released preliminary property detail for both Las Vegas and Macau after the close yesterday. This is not usual for the Company, but welcomed after the disappointing Nevada gaming numbers for May and likely to provide a short-term bounce in the shares. EBITDAs from both properties were better than firm expected and given the weakness at Wynn Las Vegas' casino floor, this is impressive. Firm is still trying to understand the disconnect between much lower than forecast Las Vegas casino activity, yet better than expected EBITDA. Although firm's $0.68 EPS est feels low right now, they will not be changing their EPS estimate. Tgt cut to $63 from $70.

FNM and FRE plunge in pre-market trading, oil sets new high, equity futures sink
FNM (-27%) and FRE (-32%) are plunging in pre-mkt trading, leading to weakness in equity futures (Dow futures -97 pts, SPX futures -14). There are reports out this morning suggesting the govt is considering a plan to have the govt take over one or both of Fannie Mae (FNM) and Freddie Mac (FRE) and place them in a conservatorship if their problems worsen. Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee would be paid by taxpayers... Oil also hit a new all time high of 145.98 this morning, which isn't helping equity futures either... This negative news is taking center stage despite a positive earnings report out of GE.

END NOTES

I covered 1/2 of the ICE short. Need to cover the other half on weakness in the morning. I am only holding 1/2 in case the stock gets creamed tomorrow morning.

Strong close eventhough oil rose $5+ in the last hour

No 60 min. buy signal yet on the market

GE EPS due out tomorrow

7/9T3:40 ICE

I have a gain of 30% on the ICE short.
The stock has sold off 10% on big volume today.
This is the day before the two day congressional hearing that the company is going before.
This feels like a short term bottom day.
All the bad news surrounding the hearing erupted today.
Each time the stock has sold off on this type of volume over the last year it has led to a short term bottom.
The stock is also trading back at its original support of the break out from 2006 and it is at the bottom of this years down trend channel.
Time to book a gain and not be greedy.

7/9T12:27 Be aware

Market Comments: Be aware...

The markets are very oversold
Sentiment very bearish, in fact at extreme levels
Congressional hearings stirring up the fear
BSCesc stories coming out on LEH i. e. Pimco reducing their trading activity with LEH

These factors are the non tangibles that can eventually pile up and lead to a rally. We need to stay on our toes and consider covering shorts and/or going long the indices at the end of each day to avoid gap ups killing us.

7/9T9:13 Game Plan

Game Plan: Keeping our eye on the ball as the bear market unfolds. There will be rallies and I want to keep scouring the investing landscape to build a list of ideas to buy when the time is right:

BIDU - This stock is tracing out a perfect cup/handle base on the weekly level. The volume has clearly declined in the most recent pullback as the market has collapsed. The MACD histogram is perfect on the daily chart showing an uptrend and the weekly has begun to turn positive.

BBH, XBI - The Biotech ETFs are showing tremendous strength vs the market. It would appear that a real rotation into this group is unfolding. the relative strength of this group has advanced markedly as the overall market has hit new lows.

7/9T8:26 Co. in the News

Fannie, Freddie 'insolvent' after losses, Poole says - Bloomberg.com
Bloomberg.com reports borrowing at Fannie Mae (FNM) has never been so expensive and it may not get better any time soon. Fannie Mae paid a record yield relative to Treasuries on the sale of $3 bln in two-year notes yesterday amid concern the biggest provider of financing for U.S. home loans won't have enough capital to weather the worst housing slump since the Great Depression. The co's credit-default swaps show traders are treating the AAA rated debt as if it were five steps lower. Fannie Mae shares tumbled 13% yesterday in New York to the lowest level in almost 14 years. Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac (FRE), former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 bln more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae's assets fell 66% to $12.2 bln, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

Stanford initiates Priceline.com (PCLN 109.13) with a Buy and sets a $140 tgt, as they believe the co stands positioned to sustain powerful growth because consumers are shifting to the Internet and its bargain prices to make travel plans while international diversification should insulate Priceline from the moderating economy with its European operations driving industry-leading booking growth...


JWN Nordstrom reports Jun same store sale; sees Q2 EPS at low end or slightly below previous guidance (31.24 )
Co reports Jun same store sales -18.6% vs -19.0% Briefing.com consensus. Co sees Q2 EPS at the low end or slightly below previous guidance of $0.65-0.70 vs $0.67 consensus, due to lower gross profit margins. Co's June sales results were negatively impacted by the shift of the Half-Yearly Sale for Women and Kids into May.


ICE IntercontinentalExchange plunges 13% this morning; co will testify before U.S. House of Representatives Agriculture and Appropriations Committees today and tomorrow (83.30 -12.09)
ICE is showing notable weakness this morning, trading -11% while the other exchanges are only slightly lower (CME -0.2%, NYX +0.3%, NDAQ -2.7%). This weakness comes ahead of the co's testimony before U.S. House of Representatives Agriculture and Appropriations Committees. The co issued summary statements this morning regarding its testimony, saying "ICE's OTC markets have no bearing on the price of crude oil and do not set the price for major benchmark products. Trading volumes in ICE's OTC markets is almost solely related to contracts for natural gas and power. ICE's OTC market has a 0% market share of trading in U.S. crude oil, heating oil, jet fuel and gasoline contracts... The 2008 Farm Bill -- passed by Congress with bipartisan support and signed into law -- unequivocally closes the "Enron Loophole" by extending CFTC regulation to all energy contracts deemed to be a price-discovery contract, rather than just traditional energy futures contracts... ICE Futures Europe is fully regulated by the UK Financial Services Authority and since 2006 the exchange has been providing information regarding trading in its WTI futures contract to the U.S. Commodity Futures Trading Commission to provide additional transparency into the WTI market. Trading in ICE's WTI futures contract comprises only 15% of the open positions in the global WTI market compared to 85% on the New York Mercantile Exchange (NMX)... Pursuant to amended CFTC and FSA agreements in May and June of 2008, the ICE WTI contract is subject to the same U.S. regulatory provisions as the NYMEX WTI contract, including position reporting and position accountability and limits. The expanded agreement between these regulatory agencies provides for futures-style regulation of U.S.-based futures contracts... In June, the Director of Enforcement of the CFTC publicly stated that the Division of Enforcement has seen no evidence of manipulative activity in ICE's markets. Finally, margin requirements at ICE Futures Europe today are three times the level of margin requirements in May 2007"... We'd note that CME's CEO Donohue discussed the credit derivatives markets and central-party clearing solutions with with U.S. Senators yesterday.

LEH Lehman Brothers spokesman declined to comment, citing policy against commenting on rumors and speculation - Reuters

LEH Lehman Brothers credit -default swaps rises 36 basis points to 320 bps- Bloomberg

END NOTES

End Notes

-Market sold off hard into the close
-Financials led the way and never truly participated in the weak rally of the last 2 days. They are now at new lows
-Major systematic issues with FRE and FNM see previous blog
-Steel stocks closed on their lows and stopped going up right at the areas I anticipated. Continue to add to shorts on rallies to these levels.
-Investor sentiment at extreme bearish levels with bullish numbers near all time lows. This could be considered bullish.
-Watch for the plunge lower at the open and cover shorts as soon as the 15 and 60 min. gives the signal

7/8T3:55 Stocks in the News

FNM Fannie Mae pays record spreads on two-year note sale - Bloomberg.com (15.25 -2.32) -Update-
A Bloomberg.com story out earlier today discusses this morning's 2-year note pricing. Bloomberg.com reports that FNM paid a record yield over benchmark rates on $3 bln of two-year notes amid concern that the U.S. mortgage-finance co doesn't have enough capital to weather the biggest housing slump since the Great Depression. The 3.25% benchmark notes priced to yield 3.27%, or 74 basis points more than comparable U.S. Treasuries, the Washington-based company said today in an e-mailed statement. That's the biggest spread since Fannie Mae first sold two-year benchmark notes in 2000 and triple what it paid in June 2006. Investors and traders are overlooking the government's implied guarantee of Fannie Mae and Freddie Mac (FRE) debt as credit losses grow. The companies have raised more than $20 bln since December as their combined losses grew to more than $11 billion. Credit-default swaps tied to their $1.45 trillion of AAA rated debt are trading at levels that imply the bonds should be rated A2 by Moody's Investors Service, according to data compiled by the firm's credit strategy group.

FRE Freddie Mac subordinated debt risk climbs to 3-month high - Bloomberg (10.36 -3.07) -Update-

7/8T11:54

Market Comments: No follow through...

There was no follow through on the rally yesterday. The weak 60 min. buy signal with no alligator has led to a sideways market at best. I don't want to be long the indices for now. We must wait for an alligator buy signal to try the long position again.

7/8T8:41

Market Comments: 2nd day of accumulation

Getting a buy signal on the averages. the signal is weak. Not in unison on all indicators and no alligator. However, due to our short positions it is prudent to go long the indices to protect the portfolio over the short term.

Steel Stocks:

We are short the steel stocks that have put in tremendous inside out reversal weeks last week. The stocks received an upgrade this morning and are looking strong at the open. Since we are short only 1/2 of the position we want to be patient here and add to the short as the stocks move into their overhead.

Rules of the Road: Long different than Short

Add to long positions when the 60 min. signals warrant. Add to shorts on rallies into overhead. Waiting for sell signals on shorts usually gets you in too late and opens you up to snap back rallies.

7/7T8:33 News and Notes

ECONX Excerpts from Ben Bernanke's speech at the Federal Deposit Insurance Corporation's Forum on Mortgage Lending for Low and Moderate Income Households
Unfortunately, in the past few years, many mortgage loans were extended that were poorly underwritten or whose terms were inadequately disclosed, particularly in the subprime market. As you know, those poor lending practices have contributed to a sharp increase in mortgage delinquencies and foreclosures. The resulting costs have been felt not only by borrowers but also by entire communities, as foreclosure clusters have caused neighborhoods to deteriorate and reduced municipal tax bases. The decline in the national housing market, which has been a major cause of the broader slowdown in economic activity, was in turn greatly exacerbated by the collapse of subprime lending. And financial institutions have suffered large losses, with implications for the cost and availability of new credit... I welcome recent efforts to improve the regulatory oversight of the government-sponsored enterprises, Fannie Mae and Freddie Mac. If these firms are strong, well-regulated, well-capitalized, and focused on their mission, they will be better able to serve their function of increasing access to mortgage credit, without posing undue risks to the financial system or the taxpayer... The PDCF and the TSLF were created under the Federal Reserve's emergency lending powers, with the term of the PDCF set for a period of at least six months, through mid-September. The Federal Reserve is strongly committed to supporting the stability and improved functioning of the financial system. We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets. At the same time, we are taking measures that will serve over time to strengthen the primary dealers, other financial institutions, and the overall financial system. As I will discuss, these measures include working with the SEC and the primary dealers to increase the firms' capital and liquidity buffers and cooperating with other regulators and the private sector to help make the financial infrastructure more resilient.

FNM Fannie Mae & Freddie Mac: Color on potential FASB 140/FIN 46 accounting changes (15.74 )
Friedman Billings notes that proposed changes to FIN 46(R) and FASB 140, particularly with regard to changes in off-balance-sheet accounting, will decrease the leverage ability of many regulated institutions in the future, but is less likely to cause any dramatic immediate change to the state of the financial markets. While the comment period does not expire until August 11, 2008, they believe there will be an orderly implementation of the new policies that will eventually eliminate many current off-balance-sheet vehicles. Initially, legacy assets will not have to be consolidated until the first quarter of 2010, thus allowing many short-duration assets to pay down before consolidation would be required. Contrary to market perception, the firm does not believe that FNM and FRE will be materially affected by the change. While FNM and FRE would certainly be the most affected institutions should they be forced to consolidate all assets, they believe OFHEO, or any other future regulator, will change its capital requirements in order not to force a tremendous strain on the mortgage and housing markets in the U.S. The firm believes that FNM and FRE would not be able to raise enough capital needed if they were forced to implement this statement, which would likely cause a nationalization of the companies... In a note out yesterday afternoon, Keefe Bruyette noted that FNM and FRE have both suffered significant share price declines based on possible FASB interpretations for off-balance-sheet treatment of securitizations. The firm believes this sell-off is unwarranted on this issue as the GSE regulations already have capital requirements for off-balance-sheet exposures of the two companies... Piper Jaffray says that with regard to the credit card assets and the GSEs, it sounds to them like they are not the target of the accounting changes. Firm says In addition to the GSEs, companies under their coverage that could be affected by the regulations include AXP, COF, WM, ADS and ACF.

7/3T10:31 ECB report

US$ up Gold down...

Dollar strengthens against the Euro as Trichet comments suggest a more balanced view
Trichet cites uncertainty surrounding the economy going forward, saying downside risks remain. Notes money growth data confirms inflation risk (M3 growth is over 10%)... underlying rate of money and credit growth remains strong... sees a pronounced decline of M1 growth; says higher interest rates has cooled household borrowing... Says Monetary Policy today will contribute to price stability; says starting today they have no bias and no commitment; says will do whatever they need to keep price stability and anchoring inflation expectations; message for second round effects remains the same. (Dollar is currently at $1.576/Euro)

So, Trichet is trickey and raises rates but throws the US$ a bone by softening his rhetoric. I do not deem this at all dangerous to the current trends in place; lower US$ higher gold price. This statement is however enough for the market to be manipulated on a half day going into a three day weekend.

7/2T4:03

M.M.W MYGN:

I sold the stock for a 3.1% gain due to the collapse in the equity markets. Transports are down over 8% in two days! NASD dropped 2.3% today. While I like the idea of MYGN I just could not stay long in the midst of this carnage. Lets watch and buy back if we get a drop in the stock and the markets recover.

As for the markets, tomorrow will be a very important day. It's only a half day but a lot of catalysts:

- Tricky Treche, the head of the ECB, should be raising rates tonight in Europe. This will continue to put pressure on the US$. However, he is tricky... If he doesn't raise rates watch the US$ fly as shorts cover. This action will hurt gold and boost the equity markets if the trends continue.

- US gov't payroll data is announced tomorrow. If it is in line with today's ADP report look for a continuation of the sell off into the three day weekend, that could spell real trouble. However, I believe it is more likely that the numbers won't be as bad. In the past when the ADP numbers are worse than expected the Gov't numbers are better and vice verse. If you are a conspiracy theorist, than you should also look for a better number that will allow the Plunge Protection team to rescue the market before the long weekend.

Action: If the number is better and or the ECB doesn't raise rates than we need to be buying the alligator buy signals on the market that will no doubt materialize. We may also want to cover shorts for the time being because another strong day on volume will be another accumulation day and a follow through of sorts.

7/2T11:02 Market Comment

Market Comment: 1st Accumulation day...

Beware! The markets are still in a down trend but yesterday was a major volume reversal day that resulted in the 1st accumulation day since this sell off started in the middle of May. I'm not calling the for the bottom, but I will say that in order for a bottom to develop accumulation days need to appear and this is day 1. I still expect lower prices but will watch closely to see if they come with lower momentum as well or does a positive divergence begin to develop.

The reasons don't really matter to a technician, but the market reversed yesterday on the back of two dubious stories. One, the ISM number was stronger than expected and we don't believe any of these gov't numbers. And two, GM stated that their losses were a little better than the street expected. these are the type of stories that can get shorts to cover but they are really nothing new that would change the picture.

7/2T9:02 M.M.W on MYGN

Mark My Words: MYGN buy signal

Major buy signal on MYGN. The company announced on 6/30 that the Florizan drug failed in its phase 3 trial. The stock sold off on the news for one day. Yesterday the stock exploded up 12%. There was a upgrade by a major firm, but the real reason for the big move is two fold. One, the fundamentals of the business just got really good. The drag on cash from the development of Florizan is gone and the true EPS power of the diagnostic business will now come to light. And two, there is a huge short position, 15 days, 12 million shares, 30% of the float. They will all need to cover now because the bad news is out, but unlike most biotechs this company has a real business behind its drug development. The shorts are now caught in a stock that is actually better off without the drag of drug development.

Technically the stock gave a massive buy signal yesterday. The stock was up on huge volume and was strong all day regardless of the overall market action. This was a clear reversal day and a follow through is almost a certainty. The 60 min. and daily are signalling an alligator buy together. The MACD histogram is giving a good positive divergence, and S/D is 88 (good for a biotech).