Turnaround Tuesday

by Larry Levin


With today's impressive rally we hear the same question: have the financials bottomed? This must be the tenth bottom by now, right? I don't know if it is and I don't really care, I'll follow the trend when it changes - for real. Whatever the reason for today's rally, it was impressive indeed with the Dow closing up 266-points and the S&P500 up 28.83-points.

This morning's early report was not good. The Standard & Poor's/Case-Shiller 20-city index dropped by 15.8% in May, setting a new record. The 10-city index plunged 16.9%, its biggest decline in its 21-year history. Not a single city in the index saw price gains for the second consecutive month. This isn't being viewed as getting worse.

The next report released this morning was the consumer confidence data. The Conference Board's consumer confidence index climbed to 51.9 in July from 51 in June, which was better than expected. With gasoline prices finally falling (a little), consumers are a little more confident. This better than expected news helped traders ignore the worse news in the housing sector which ignited today's rally.

When the consumer confidence data was released, oil had started to fall. It was up early in the day but wound up on its back again, dropping nearly $4.00-barrel. Of course, this helped the rally quite a bit.

Merrill Lynch had late breaking news yesterday, and did it again today. Merrill said late today it was selling repackaged mortgage-backed securities for $7 billion, just weeks after they had been worth $31 billion, giving them a current value of about 22-cents on the dollar. Isn't this going to set a new and very low benchmark that other Wall Street banks like Citigroup, Lehman Brothers, and Morgan Stanley will to meet when valuing their own investments? It's kind of like a house foreclosure on your block: it lowers the value of all the similar homes nearby.

In other news, all of the corporate owned Bennigan's and Steak & Ale restaurants closed today, filing for bankruptcy. This action will close 300 restaurants and eliminate thousands of jobs overnight. Employees of these two restaurant chains may not even receive their last paycheck. I wonder how that consumer confidence data would look if we asked a few of these surprised employees? I'm guessing we'd have a different number.

These chains closed due to several factors; the economy, overwhelming debt, and the inability to raise prices. They couldn't raise prices because the economy is already keeping too many folks at home. And they couldn't lower prices to attract customers because their crushing debt couldn't be serviced with less cash flow. Like the banks, these restaurants were overleveraged.

Finally, from the file - I'M AN IDIOT - we read of severe financial mismanagement of the worst kind has put another home in foreclosure. But it's not just any home. This home was FREE and yet, it is in foreclosure!

The Harper family lotto had come in; it was getting a donated home plus freebies from "Extreme Makeover" and hundreds of volunteers. The AP reports that - the house was built in January 2005, after Atlanta-based Beazer Homes USA and ABC's "Extreme Makeover" demolished their old home and its faulty septic system. Within six days, construction crews and hoards of volunteers had completed work on the largest home that the television program had yet built.

The finished product was a four-bedroom house with decorative rock walls and a three-car garage that towered over ranch and split-level homes in their Clayton County neighborhood. The home's door opened into a lobby that featured four fireplaces, a solarium, a music room and a plush new office.

Materials and labor were donated for the home, which would have cost about $450,000 to build. Beazer Homes' employees and company partners also raised $250,000 in contributions for the family, including scholarships for the couple's three children and a home maintenance fund.

But this wasn't enough. Caught up in the ridiculous idea that one's home is an ATM, the family took out a $450,000 loan that can't be repaid. Let's add it up, shall we? The house was paid for at $450,000 + $250,000 (cash) + scholarship funds, which comes to approximately $850,000 in donations --- DOWN THE DRAIN!

As you can tell this story has ticked me off. And the reason why is because it is irresponsible morons like this, across the whole *%$#! Nation, that are being bailed out with our tax dollars. But they'll get their bailouts no matter how angry you or I get because these people, no matter how financially & morally-challenged they may be, are after all - VOTERS.

As you can imagine many of the volunteers of the Harper family's "home makeover" aren't very happy. Lake City Mayor Willie Oswalt, who helped vault a massive beam into place in the Harper's living room said, It's aggravating. It just makes you mad. You do that much work, and they just squander it.

Real Time Trading Signals*for

Trade Date: 7/29/08

E-Mini S&P Trades*
(before fees and commissions):


1) OTF buy @ 10:05am at 1246.75 = +2.00 & +3.00

2) TP buy @ 11:45am at 1251.25 = +1.00 & +3.25

3) FT buy @ 1:05pm at 1253.50 = b/e (1 lot)

4) Engf sell @ 2:10pm at 1253.50 = -1.50 (1 lot)

5) Algorithm trades (3)...combined total...+2.25


E-Mini Russell Trades*
(before fees and commissions):

1) No ER trades filled today.


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!