A Time For Caution In The Market

Dear Toolbox Readers,

I ran a scan today (in the desktop toolbox) looking for new 52 week lows and I got a very interesting result. “no stocks matched this category”

WOW… Does that mean that not a single stock hit a new 52 week low today… something is not right. Alas.. Its true!

But I have to ask myself… how can this be?

Now I am convinced that we are as overbought as it gets. Be sure to come to the show Sunday Night and we’ll look into it in-depth.

Have you ever noticed… that every Friday night, at about 6:30 eastern time the FDIC announces another round of bank failures.

Funny how that happens just after everyone goes home for the weekend and stops really paying attention.

Why just an hour ago they announced another HUGE bank failure. The 74th bank failure this year.

Colonial Bank is the last of what they call “warehouse banks”. Warehouse banks are the banks that make loans available to mortgage brokers and then sell the loans on the open market.

Now there are none. I am not really sure what that means for the mortgage business… but I don’t think it will be good.

As an aside… I saw a report recently that 25% of mortgage holders are underwater and by the first quarter of 2011 it will be 48%. WOW… 48% of mortgage holders underwater and a whole new wave of foreclosures coming for sure.

There are a few more good reasons to suspect that the market might be prepared to roll over both technical and fundamental.

1) Earnings Season is over and we will need some new kind of catalyst to move higher from here.

2) Consumers are still holding back and saving money because they fear things are getting worse.

3) Jobs are still being lost and mortgage rates are on the rise as the Fed continues to monetize our own debt.

As I think about it I am reminded that stocks usually fall in price faster than they rise so be on the lookout for a pullback and possibly a complete meltdown.

If you are a student of history you know that after the crash of ’29 there was a rally just about this big before things went even lower… much lower.

The Dow rallied from 198 all the way up to 294, but then went lower until it finally bottomed at 41… I am just sayin’.

I think that the media is doing everything they can to make people think that things are getting better… but I don’t think things are getting better.

I see a real disconnect between Wall Street & Washington and the rest of the country.

Washington bailed out the big banks and may have indeed averted a much bigger crisis but now that Wall Street is raking in the billions again does not mean that all is well.

I am starting to see news stories about people who are doing what is called “strategic default” on their home loans. This I fear could become a HUGE problem that will only compound the existing housing crisis.

As more and more people discover that it might be to their advantage in a BIG way to walk away from hopeless home loans, the banks may be in for a big shock that nobody speaks about.

We short over valued stocks. We give you a 14 day trial… no credit card required… and we let our TRACK RECORD speak for itself.

Think about it for a minute… how many more payments would you make on a home that is worth half of what you owe on it?

I have heard several people on TV say that people should not walk away even though it would be in their financial best interest to do so.

This is an interesting problem.

I’ll leave it to you to think about that one.

We might discuss this issue on the show Sunday Night… To walk away, or not to walk away. That is the question.

Finally, I wanted to let you know that when we did the show last week we talked about, and showed you, the Pivot High Calculator from the Swing Trading Club.

Here is a link to the show so you can see what it is all about, and here is a link to download one and check it out.

There will be enormous opportunities as the markets continue to go forward, but this market is as loaded with risk as I have ever seen it.

Be careful out there.

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Until Next Time…