Sep 22, 2008 - Issue #129

Financial Meltdown

Financial Meltdown. Everything's been thrown upside down. Charts reflect chaos. How did we get here?

CNBC, Fox news, and Kudlow & Company tell us that, in order to stimulate new home construction, banks and mortage companies were encouraged to lower lending standards thus creating 'subprime'.

Banks and mortgage companies, in turn, sold the mortgages to Wall Street investment bankers who, in turn, packaged them for sale on the stock market.

Then, predictably, when the mortgage borrowers couldn't pay, all hell broke loose.

The stock market fell, investment banks collapsed, and the federal government, using taxpayer money, is attempting the largest economic rescue in history while the people who are responsible for this mess get away with the millions they made. Is that about it?

And, oh yeah, someone wants to pin the blame on short sellers. Right!

No better proof exists of the value of using a long Put option to protect a long stock position or a long Call option to protect a short stock position than the charts this week. Anyone using stop orders were probably gunned out of their socks. How many stops were filled far away from where they were entered?

Heads Up:

During the next two weeks, the following Dow components will report earnings. Keep a sharp eye for 'surprises'. You might be able to catch a nice swing in the week or two leading up to 'Earnings Day':


Dow score card for the week ending 9/19/08.

DJ-30: 11388.44 -33.55 -0.29%. The Real World (arithmetical) DJ-30: 46.62 -0.14 -0.29%.

UP: 12, Down: 18.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 8 (+1) 27%:

BAC, +*C, +*DD, +*DIS, +*HPQ, JPM, +*MMM, +*XOM.

Consolidating (Generally Lower Highs/Higher Lows) 6 (-12) 53%:

AXP, CAT, CVX, -*GM, -*MCD, -*WMT.

Declining (Generally Lower Highs/Lower Lows) 16 (+11) 53%:

-*AA, AIG, -*BA, GE, -*HD, -*IBM, INTC, -*JNJ, -*KO, MRK, -*MSFT, PFE, -*PG, -*T, -*UTX, -*VZ.

+/- denotes change of direction.

* denotes change of category.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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