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RE: [RT] Trading Diary: False Breaks Warn Of A Market Top



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The problem is not a few sub-prime borrowers being unable to refi homes which they should not have purchased, the problem is that the credit markets are dysfunctional. I watch a lot of charts on a weekly basis but the attached two charts have been at the top of my list for several months now. The Libor-TBill Spread lies at the heart of the global credit system and the first chart shows that the credit system is broken. The more commonly watched corporate and high yield spreads are also extremely steep. These charts do not a healthy financial system make. To see the equity market soaring in the face of a dysfunctional global credit system is a bad joke.
 
Earl


From: realtraders@xxxxxxxxxxxxxxx [mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of BobsKC
Sent: Saturday, December 08, 2007 7:32 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Trading Diary: False Breaks Warn Of A Market Top

I don't believe it.  Fundamentals caused the 10% drop and fundamentals will hold it up.  Christmas spending will, (in my opinion), be much stronger than the outlook and the over-all economy is good, if not "strong".  Sentiment is poor due to gasoline prices and housing drops which depleted "piggy bank home equity" but mostly because of the press saying things are bad.  We are at virtually full employment and the economy is just fine.  Sub-prime is a mess created by the banks and they got themselves into the mess because of greed.  There is no problem getting a prime mortgage and there shouldn't even be sub-prime mortgages unless the lenders want to put up their own money and not their depositor's money for worthless paper.  So, all credit worthy customers will not have a problem with tight money, the economy is good, we have full employment, low interest rates which are about to get lower and low tax rates which will stay low for another year.  I fail to see a problem.  Still, as a contrarian, I welcome "foot holds" in the wall of worry for the indices to climb. 

Bob

At 08:20 PM 12/8/2007, you wrote:


Sent: Saturday, December 08, 2007 3:39 AM
Subject: False Breaks Warn Of A Market Top


False Breaks Warn Of A Market Top



By Colin Twiggs
December 8, 2:00 a.m. ET (6:00 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment advice. Full terms and conditions can be found at Terms of Use.

USA




Dow Jones Industrial Average



The Dow Jones Industrial Average is rallying in anticipation of a rate cut at next weeks FOMC meeting. It is doubtful whether providing banks with cheap money will encourage them to resume lending in a market with falling asset prices, but it may improve their ability to carry non-performing assets rather than being forced to sell at fire-sale prices.

Probability of a bear market remains high: at least 2 to 1. Current activity resembles a market top, with failed upward/downward breakouts accompanied by heavy volume. Twiggs Money Flow continues to display a large bearish divergence, signaling long-term distribution.
dow jones industrial average medium-term chart  

Short Term: Declining volume and a doji star candlestick pattern indicate that the rally is losing momentum. Reversal below 13500 would warn of another test of primary support at 12800, while respect of 12800 would signal a test of resistance at 14200.
dow jones industrial average short term chart  


I knew what to do..... Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to anticipate probabilities.

~ Jesse Livermore in Edwin Lefevre's Reminiscences of a Stock Operator (1923).

To understand my approach, please read Technical Analysis & Predictions in About The Trading Diary.


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Attachment: RT-CreditMarket.pdf
Description: Adobe PDF document