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More On Mortgage, Dow Jones a Done Deal, Commodity Soup...

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Yesterday's action with the "pop and drop" was quite negative action although these are great times for the day traders.

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We come in today with the Yen rallying and all of the commodity currencies under pressure. The voracious risk appetite we saw for months and months is slowly fading as contagion is spreading. It was reported yesterday that "another one bit the dust" as American Home Mortgage (AHM) fell victim to the housing market's demise. Two years ago it was trading $40 and yesterday trading was halted at the NYSE as the stock fell from $10 to $1.


More on Mortgage

Mortgage Guaranty Investment Corp
(MTG) and Radian Group (RDN) also broke after they said their investment of over $1 bln. into a mortgage company called C-Bass may be worthless. I am afraid to say there will be more stories like this before it is all over and rumors are already buzzing about this morning. Stocks sold off in Europe and we are coming in weaker this morning.

Yesterday's action with the "pop and drop" was quite negative action although these are great times for the day traders. An abundance of intraday volatility and big ranges is setting up good trading opportunities. In the big picture the Dow and NYSE both traced out monthly reversals to the downside and this looks ominous.

News that Bear Stearns (BSC) has more losses in a third fund and Macguire Bank stating that investors may lose as much as 25% of their investments has the markets nervous again. The risk of owning corporate bonds is spreading and this will undermine stocks until the fear, or the perception of risk is mitigated.

One winner in all of this is Deustche Bank (DB) which profited from speculating that the US subprime mortgage lending would weaken. FT reports its sales and trading division rose 34%.


Done Deal

In other news, Dow Jones (DJ) and News Corporation (NWS) have entered into a definitive merger.


Prognosis: Negative?

Technically the Market Profile charts continue to reject even the low value areas of each preceding day and that has been a good tip off as to selling. Volume too is increasing on the downside and decent support now comes in at the 1436.75 level on the mini S&P (ES).


Commodity Soup

Commodities are coming in mixed this morning, but should the market take a nosedive the commodity markets could sell off as firms and individuals liquidate in order to raise cash. These are the times the smart money sits back and waits to add to sectors that look attractive.

I have a large shopping list of natural resource stocks and futures positions that I am watching and will be patient to see how this unfolds.

Energy prices are mixed with crude oil down 0.50% while natural gas is up 1.36%. Natural-gas sold off yesterday on less supportive weather and with a bearish supply situation. A change in the weather with less heat expected in the Northeast is lowering perceptions of demand. We have weekly inventories coming out today with expectations of crude inventories falling a bit and gasoline and distillate inventories rising. I still like the play in the Canadian Athabasca Tar Sands region and have a number of stocks to get long or add to positions.
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No position in stocks mentioned.

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