July 15th

American markets ended the day Tuesday with mixed results. The closed under 11,000 for the first time since July of 2006, it lost 92 points on the day, closing at 10,963. Meanwhile the S&P500 lost 13.39 points, closing at 1214.91 (a two year low), while the NASDAQ managed to close slightly higher, gaining 2.84 points, closing at 2215.71. Oil had a wild day, at one point futures were down nearly $10 per barrel, however lower oil prices could not ease the markets fears of a worsen situation in the financial markets as US banks start to close. Both exchanges saw a sharp increase in volume. Oil saw its largest decline in over 17 years.
A number of things are worth looking at right now. Chairman Cox of the SEC has announced that regulators plan to make it harder to short troubled financial's such as Fannie Mae, Freddie Mac, Lehman Brothers and Wachovia Bank. Mr. Cox told legislators that the SEC would issue an emergency order to stop “naked shorting” in important financial entities. It will be very interesting to see how the markets take this news. It could easily cause a sharp rebound in these names as shorts scramble to cover positions, yet at the same time it could also offer a shorting opportunity if this does not occur. A good rule to follow is this “That which should go up, had better”, because if it doe not its pretty surely going to go down. With this new rule coming into effect the most logical thing would be for the effected stocks to rally. If they do not then the SEC may learn the lesson the British learned trying to hold up the Pound over a decade ago against George Soro's and other Global Macro funds, the lesson being that the market is going to do what its going to do, regardless of what officials would like.
With the failure of Indy Mac bank many people are worried about their own banks and what the future may hold for accounts they hold. Many are worried they will lose accounts, and in some cases this fear is made worse by a poor understanding of the FDIC rules. First of all, if you have less than $100,000 in an FDIC insured bank you have nothing to worry about. Even if you have more, in some situations you still have nothing to worry about. For example a married couple can have $200,000 in a joint account and that will be insured for the entire amount. Each person can further more have a $100,000 account, bringing the total insured amount per bank up to $400,000 per married couple if the accounts are structured correctly. For any amount of money over $100,000 (or $200,000 for a joint account, $400,000 for joint and two single accounts) you will get back fifty cents on the dollar above the amount. As an example, if you have an individual account of $150,000 at IndyMac you should expect to get $125,000 back, the first $100k being fully insured, the $50,000 being covered at fifty percent. I hope this helps out as a few people have had questions about this.
Next, the dear old Fed is wanting to put “new” rules on the books that would actually require a lender to be sure a debtor has the ability to pay back the loan. It's an amazingly complex principle, I'm shocked that the government has figured it out this quickly! The only problem is that for the most part these rules are already in place, and the fact of the matter is that if anything the Fed needs to be making it easier to get loans right now rather than harder. We are in the middle of the worst real estate bust in history and most people are finding it impossible to get loans unless they have nearly perfect credit. It gets even worse if you want a jumbo, which nearly everyone living in coastal areas or a large metro area such as Boston, New York, San Fransisco, LA etc will have to get in order to buy a suitable home. Just another example of the brainiacs in DC making things so much better for the average American.
As I've been saying for some time the sharp decline in the market presents great opportunities for the astute. Leading stocks will hold up, showing better relative strength than peers during periods of market weakness. This gives us the best opportunity to isolate them from the dismal crowd. Right now there are a few stocks with superior fundamental and technicals showing up on my radar. Names include AFAM, CELG, AMED, MMSI, TRLG, PMFG, FCN, CIR and FORR. You must keep in mind that we are in the midst of earnings season, this can make risk higher. Also, keep in mind that stocks such as MMSI, for example, are well into breakout mode. In a stock like this tomorrow is not likely to be the time to buy, however as you see the stock rest by trading sideways or down slightly, then upticks from there are generally excellent entry points for traders. I'll put some charts up with details of the trade on a few of these later.
Brandon