Double Bottom Taking Shape?

Leavitt Brothers' View on Liquidity and Today's Market.

What is liquidity?
It relates to the ease and speed required to turn an asset into cash. Most stocks are highly liquid – with a quick call to your broker or the click of a mouse, you can convert a stock into cash. A car is less liquid. It may take a few weeks or longer to convert to cash. A house – for the most part – is even less liquid. Under normal market conditions, it could take a couple months to convert a house to cash. In today’s very illiquid housing market, it’s taking many months and often longer than a year.

How does liquidity work?
Here’s an example. Let’s say a bank has $1 million. It divides the money by 4 and lends it to 4 home buyers. The bank then takes those 4 mortgages, bundles them together and sells them to convert them to cash. It then takes this new cash and repeats the process. The bank lends to individuals, small business, large business etc. The lending of money is the engine that drives the economy.

Here’s where things go bad. If those home owners default on their mortgage payments, the banks will have a problem selling the mortgages, and if they can’t convert the mortgages to cash, they'll have nothing to lend out. With no cash to lend out, the economy drastically slows down because everything is built on debt.

If people can’t borrow money to buy homes or aspiring entrepreneurs borrow money to start business or large businesses borrow money to fuel growth or hedge funds borrow money (margin) to invest, the entire economic system grinds to a halt.

What I’m saying is extreme. Money can always be borrowed…at a price. Interest rates are the “cost of borrowing,” and as the cost goes up, less borrowing takes place.

Why are these hedge funds going under or at least halting redemptions? Because they’re the ones that bought those bundles of mortgages from the banks. Those bundles are like junk bonds. The paying higher rates but the owner has to assume more risk. Those funds simply went too far. Instead of allocating a small percentage of their fund to risky subprime mortgages, they went overboard and took on too much exposure. Defaults mean they’re not being paid, and it’s not like they can turn around and sell them to another sucker.

Funds going under means nothing to me. It’s their own damn fault. But if banks can’t loan money or can only loan money at high rates (i.e. liquidity is drying up), our economic engine will drastically slow down, and its ripple effect will be felt everywhere.

That’s why the Fed needs to lower rates. That’s why Cramer went ballistic in the youtube video. The Fed needs to lower rates to grease the economic engine.

Analysis on NMX

Short setups

Beautiful Day for the Bears.

Ugly candles all over. You just gotta love the bearish action here. A solid trend day down and looks poised for an avalanche type decline from here. Market seems to be trying to price in a recession in the coming months.

Short Term View

Back Testing the Broken Support Lines

Don't Blink

Don't Blink, the market is up, and now it's down, up, down. This has been one of the fastest and most psychoatic markets i have seen in a very long time. The DOW can be literally up or down 100 pts in in a matter of seconds it seems. Very hard to trade with size in a mrkt like this. I think i need some therapy after today's wild ride.So going forward i am expecting more of the same, just a very sloppy move higher. I was hoping for a traditional rally up to relieve oversold levels. THis is a dangoerius mrkt and i do not recommend taking home stocks or trading with size. My goal for tmrw, is to keep it small and simple and loosen the stops until things chill out a bit. As of now, the current upmove we are seeing in stocks has all the makings of a corrective move and hence gives me no confidence at all that we are seeing real actual buying. I am starting to really feel like we are working out this oversold conditions but setting up for more downside. I am OK with that b/c i really enjoy shorting. There's some serious money to be made shorting and i am starting to get excited not for a rally but another bout of selling. I am also gonna avoid shorting into selloffs and avoid buying into rallies, odds are very high, that volatility will cause reversals on get you stopped out with losses. Short rallies and buy selling might be a smarter strategy.

Falling Wedge Breakout!

Long is where you wanna be now! I made good money shorting but now the tables are turning.

The Mother of ALL Rallies is Approaching

Those Severe positive Divergences are playing out like a charm. Watch Out Above!

Intra Day Short Setups

Zanger talks about Years Ending in '7'

Super trader Dan Zanger talks about years ending '7'.

One of the most impressive stock market cycles in 20th century is known as "Year 7 Pattern" which is that years ending in "7" have historically reached the top of a bull market and then quickly started selling off, which marked the beginning of deep correction or a bear cycle. Here are the historical stats.

1917 ==> -40.1%

1927 ==> -10.2%

1937 ==> -49.1%

1947 ==> -24.0%

1957 ==> -19.4%

1967 ==> -25.2%

1977 ==> -26.9%

1987 ==> -35.1%

1997 ==> -13.2%

The average of these sell offs is 27% and so far this market is down about 8%.

For those of you have never heard of Zanger. Check him out at chartpattern.com. He's one of the best traders around.

Market Analysis and Setups for the New Week

I am seeing some positive divergences taking shape on the 60 min charts. So that tells me that either downside will be very limited on Monday or we might open lower but close higher by the day's end. If we close poorly on monday then this mrkts isn't even responding to what has been extremely reliable indicators i have been using successfully for 4 years now. It will be a volatile session, there' no doubt about that right now.

Holy Grail.

I got questions all the time about the Holy Grail, invented by linda Raschke. The basic idea is that during strong trends, when price price pulls back to the 20 period Moving average, that is usually a very strong buying point and usually finds very eager buyers in uptrends and very strong sellers in downtrends.

Here's an attachment that explains in full detail.

http://www.lbrgroup.com/images///raschke_pt2_0304.pdf

This is by far one of the most consistent patterns i trade but it works best during strongly trending markets/stocks. Up or Down. Choppy and sideways mrkts/stocks will give many false signals.