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September 20 Like the Sopranos, before the story is over your correspondent exits stage left (socially, stage right fiscally)

This is our last letter on the panic of '07.

Not because it's over, which it's probably not, but from here on we will address this and other issues in our regular weekly letter edwards-magee.com. Readers who have enjoyed (or profited from) these letters can join our email letter list EMAILLIST or one of our discussion groups in order to be informed in the future of events, letters, diatribes, hatchet jobs etc. We give away free stuff all the time because it's easy to give away your own intellectual property. And even easier if you got it all from John Magee in the first place. In fact we basically give away the letter in order to get people to read the book.

Discussion group: http://www.groups.google.com/group/edwards-magee

Readers of the regular letters (if they pay attention) should be long gold and silver and IEF and TLT, short the dollar as well as who knows what other of our observations have been followed. If the readers (some are we know) are in this portfolio they have profited handsomely while viewing all this panic nonsense as ants scurrying around while the elephants dance.

We don't particularly like today's action and we would expect a few days of the market's sorting out Fed action. But rest assured, the market will want more ... and more ... and more... (see Sep 18, Market Vampire).

The subprime epidemic is not resolved. However progress is being made in Iraq. The tooth fairy is on his way via Southwest and this is the best of all possible worlds. (Cue Candide music.)

September 19 2007 End of the beginning or beginning of the end? Or middle of the ...

Two strong breakouts -- out of the trading range and over the previous nearby high. One to go (just above 14000). Long is the way to bet. Light is the way. Expect more extreme behavior.

Do we think the problems are solved? Not by the hairs of your chinny-chin-chin.

September 18 the day the tooth fairy came to earth (Don't get over excited. The fun is not over yet.)

What meal will the insaitiable market vampire need next to whet its blood lust? And how long will this meal take to digest in the vampire's stomach?

And -- technically this looks like a buy signal. Wonder how many option sellers got their gonies cut off today.

Bungee markets will continue, with the momentum to the upside for the moment. Probably.

September 14 2007 Guaranteed continuing bungee markets

September 13 2007 So, what did we tell you?

The present trend will continue. (note that the trend is bungee markets)

Haven't had so much fun since Cal robbed Stanford on The Play.

September 11 2007 -- a day that will live in infamy

Looked at as one upwave (Wave Low to Wave High) and a not yet resolved downwave there is a symmetry to the formation. There is also a critical low to the downwave at this point. Both from the chart analysis and from the stop calculation (derived from the basing point -- see STAIRSTOPS). As we have remarked there has already been a Dow Theory Sell signal. We are watching with interest to see if the Basing Point Method proves an improvement to Dow Theory here.

Our method (such as it is) is functioning like a well oiled Swiss watch. (Method: saying that the present trend will continue.) Yesterday we said the bungee market would continue. 100% accurate. Yesterday down, today up.

Bored yet? Exhausted?

If you think this is exhausting just tune in to the Senate hearings on Iraq. After that this will seem like fun.

Fearless forecast: more bungee markets accompanied by bouncing cats.

As for Iraq this depressing quote from C.S. Wilson: "The safest road to hell is the gradual one, gently sloping, soft underfoot, without sudden turnings, without signposts, without milestones." (not exact, from memory)

September 10 2007 Stalling

Market marks time, waiting for news. Market addicted to news. No news today.

Expect more bungee markets punctuated by yo-yo markets.

September 7 2007 Whichever way the news blows

We remarked on the (perhaps doji) inside day yesterday that it might spawn a long day shortly. If you don't like our predictions wait a minute. Today, about 250 points of chicken little activity, sky falling, world ending etc etc. This market will go whichever way the news blows. And mostly the news is blowing south these days. There may be some breathing spaces and quiet moments until September 18 (Fed meeting) or until the Fed does something before the 18th. Overall though we expect continued turbulence and bungee markets until the mood of the news changes or until some government solution is presented for the subprime problem.

On the 30 minute chart the short term trend changed to down with the penetration of the previous low, and now the previous important low at 13040 (m/l), if taken out would confirm the short term downtrend. After that there is a long chasm down to the low below 125.60. In fact that low has not been tested yet and the present action may be intended as a test of that point.

September 6 2007 Triumph of analysis over irrationality (or maybe luck)

Yesterday we said the present trend (meaning bungee markets) would continue. Today we were vindicated. (You know of course that we are satirical analysts, or as some have said, standup analysts.) Well, if you can't take a joke the market will kick your teeth in. Your job (and ours) is to keep your teeth and your sense of humor intact. This is a little weird, this inside day, but we don't think it ends bungee markets. A day of such narrow range might begin (beget) a real long bungee soon.

On the 30 minute chart the upward trend is (like your teeth we hope) intact.

Expect more thrills and spills.

For comedy refer to Fred Thompson stealing the scene from the Republicats presidential debate.

For serious, really serious horse laughs (and comic surreality) refer to the daily statements on Iraq. One minute they say $10 B (illion) a month in Iraq, the next they say $12 B. We have said that as long as the budget deficit continues at present rates and Iraq continues at present rates the market will continue at present rates. We understand that Letterman and Leno intend to quote us tomorrow, when we will be announcing our candidacy for the presidency. We haven't decided yet whether it will be an Republicat or Democat candidacy. A plaque on both their houses (also their senates).

September 5 2007 Da-Dum, da-dum, da-dum (music from Jaws)

Just when you thought it was safe to go back in the market you got your leg bit off. At this point we assume that our investor readers are sitting calmly having a gin and tonic and waiting to see if the market will fall out of bed and take out the stop. Our trader readers are drinking heavily and experiencing the wisdom of J.M. Keynes who said something to the effect that the market could remain irrational until all your capital was gone. The 10 minute chart shows that the dye was cast in the first 10 minutes. If you're trading and not watching the real time charts the Keynes quote may come true for you. If you are watching them they are as clear as engraved invitations. Simple trendlines and wave analysis will make money for you. Everybody else ought to take the month off --hmm, maybe two months since October 19 comes next month. This is no time to play with the market for the general investor -- and not even for some "professional" traders.

Clearly normalcy has not returned -- and will not until either July's high or August's low is taken out. For months we have been urging our readers to find some nice shorts. We're still urging.

The present trend is likely to continue.

September 4 2007 ???Return to Normalcy? How boring.

The last two trading days have signaled the beginning of an uptrend. Is that definitive? Just as definitive as a mirage in the desert, but as Damon Runyan said, that's the way to bet.

Today especially, in addition to a strong day, showed a strong gap on a close to open basis. Long is still the way to be. We think none of the underlying problems have been solved, but whoever said you need a strong economy for a bull market?

The next installment of this daily letter will be published as needed according to daily conditions. We will soon publish a letter on the state of the markets. Readers who register at http://www.edwards-magee.com/email will be informed of next posting, otherwise readers will check back on squirrely market (squirrel markets) conditions.

August 31 2007 Up, down, up down.

Most of the time an analyst can nod wisely and say "the trend will continue." Yesterday that enabled us to perfectly predict what would happen today -- more bungee. Will there be more bungee Tuesday? The present trend is likely to continue. No daily basing point (see 9th Edition) has been established, so daily uncertainty.

Seriously, the present turmoil will continue. Bush implied that 80,000 of the 2.2 million mortgages in trouble would get some kind of government help. It reminds one of what (gasp) the Great Liberal Satan Ted Kennedy said of Republicans: "A moderate Republican is one who will throw you a 10 foot rope when you are drowning 12 feet from shore."

The prospect of some government relief along with oracle like vagueness from Ben Bernanke activated the bungee again. Of course if this government relief is like the Hurricane Katrina relief the market will wind up around 1000. That's 3 zeros, not four. It would take a perfect storm, but, hey, with a little help from an incompetent government, why not?

On the daily chart some bullishness with the penetration of the tight downtrend line. On the 30 minute chart an uptrend established with the penetration of the line.

Without significant government intervention this subprime problem is like a cancer in the colon of the economy. Solution: bankrupt the predatory lenders. Refinance the borrowers at affordable rates at the bankrupt asset value. Put the predatory lenders in jail.

August 30 2007 Hey! This is not funny anymore.

Unless you're giddy or hysterical from the bungee ride. Yesterday we said that the present trend will continue. Right, and wrong. Right, bungee market continued. Wrong, upward momentum.

Fearlessly predicting tomorrow we expect more of the same. The two time frames here are at variance. The daily shows a tight downtrend with at the moment uncertainty ruling. Neither a bull nor a bear basing point has been established yet.

The intraday 30 minute shows a bottom and a nascent uptrend, with congestion at the downtrend line. Amazing how simple ruler lines illuminate charts.

Well, it may not be funny, but it's certainly interesting.

August 29 2007 If it were up to us we'd be long -- or short -- or sideways

It doesn't matter which way you are if you know when to get out. Bungee markets. Day trader's delight. Maybe. Interestingly the market declined to take out the previous lows. And took a rocket up. There was of course a lunar eclipse, as well as a Senator flushed out of the closet (we will be avoiding airport rest rooms in the future), the president commemorated the 2nd anniversary of Katrina in New Orleans, and sentiment spread that the Fed had been misinterpreted in its latest oracle. Which of these caused today's action is anyone's guess.

If, as they say, the present trend tends to continue then bungee jumping will continue in style. If you were going to make a bet (and if you are you better be watching real time data) you would bet on more up tomorrow, or on more bungee.

At any rate we expect this turmoil to continue until the anniversary of 9/11. Meanwhile our regular readers are watching all this from empyrean heights with stops in, basically unconcerned with the mud wrestling going on. Although interested. This is the virtue of long term trend following.

As for short (really short) term trend following the 30 minute chart shows the reversal to a long trade. If it had been us we would have exited the trade on the close.

August 28 2007 Lots of news. All bad.

Today's action certainly ejects long traders and puts them short. Long term investors will not be affected until a close below 126.15, basis DIA.

Prices retreated at the July trendline and today is a short signal. (for traders) Another day or so of this and we will be stopped out of positions years in length.

The thirty minute chart shows the breaking of all the relevant trendlines -- interestingly now sitting at the previous panic low.

We are not sanguine about the market at this point, its being so sanguine. We believe that Fed and Federal action is necessary to put a tourniquet on the bleeding. We think two actions are necessary -- a cut in the Discount Rate and a moratorium on mortgage foreclosures. The lenders who practiced bait and switch and immoral lending should have the opportunity to suffer with their victims. We say this with our economist's hat on (a beanie with a propeller on top). If the government can bail out Chrysler and Long Term Capital (mis)Management it can step in and pull those flopping fish off the hook.

In helicopter Ben we trust.

August 27 2007 The news is no news. See tomorrow.

The fade on the close is not positive, but as seen by the 15 minute chart here it has not adversely affected the uptrend.

Market like cat on hot tin roof. Waiting for next boot to drop. Helicopter Ben is standing by (or hovering) waiting to drop cash out of helicopter if need arises. Don't worry. Be happy. See Aug 24.

The 15 minute chart shows the trend intact.

August 24 Betwixt Devil and Deep Blue Sea

August 22 2007 Mood improves, some bears get their hide torn off.

Low volume. Prices are floating up because sellers are spent for the moment. Price nose to nose with a thick zone of resistance. Market extremely needy of good news which it got today.

The bad news is long term. I.e., more subprime bad news coming over the long term. Investors who do not have their stops in now, and who are not balancing their portfolios with well chosen shorts may not live to regret it.

The situation remains extremely dicey and there is something of an uneasy feel to this upward float of prices. The daily pattern might be a flag, or a slope formation.

Contributing to better mood the Fed tossed a few billion out of the helicopter and major banks were waiting with money bags to catch it.

AND. Take a close look at CFC here. the next time you see it it will be 20% higher, as B of A took a major equity chunk of it after market hours and it jumped 20%. Last Thursday was the get out signal in CFC also (as well as the Dow) for shorts, and unskillful or unalert traders are now 20% poorer.

Need we say that treachery, entrapment, and sand bagging are the characteristics of these markets?

UNLESS THURSDAY PRESENTS UNUSUAL SITUATIONS THE NEXT LETTER HERE WILL BE FRIDAY. GOOD LUCK.

August 21 2007 Still resting. Inside day.

The daily chart below shows an inside day (a day whose range is wholly comprised within the high and low of the previous day). Yogi Berra famously commented on this phenomenon when he said high volatility begets low volatility and vice versa.

That is the excitement of the past few days left everybody looking at each other and saying what now?. (sic) Now is one thing, the future another. The subprime mess will not go away, which is why traders and investors should be acquiring shorts as quickly as possible.

But longs in the major indices have not yet been stopped out. If this sounds contradictory please see Natural Hedging in the 9th Edition.

The top chart is the 10 minute chart since the Thursday reversal. As can be seen no sell signal has occurred at this scale either. You might almost look at this formation as a flag.

We have during this entire run up constantly encouraged users to put on some shorts, but have stopped short of individual recommendations. For two reasons: We assume our readers are sufficiently sophisticated to handle it themselves and secondly, if not sufficiently sophisticated we don't want to be the one who leads them astray.

August 20 2007 Market doesn't react, it overreacts. Lemmings run off cliff.

Offering once again definitive proof that man is directly descended from lemmings the market after throwing a head fake (perhaps an Wyckoffian upthrust after distribution) took a 1500 point jaunt down to observe the latest exercise in human folly and greed -- i.e. the subprime lending scam. Thursday the 16th in conditions of full out panic the market reversed and finished marginally down after a 300 point excursion. This is a classic one day reversal pattern.

Candlestick makers call it a hammer. Friday is about as predictable as could be expected. An explosion up. The question comes today, on Monday. There are any number of ways to interpret Monday. It might be called a spinning top, or a broad doji, (deliberative patterns) which would be appropriate as it appears to us as postponing the question.

As is well known we are famous experts on candlesticks (NOT). Fortunately this analysis is not based on the candles, but more on the intraday pattern (not shown) in which the market looked for stops and bearish participation, didn't find it and recovered. More bullish than bearish on balance, and the question still hangs in the balance.

Market extremely vulnerable but with chance of recovery. It is nose to nose with considerable resistance. We expect to see another test downward. 60/40 the low will hold.

August 18 2007 Herd spooks and stampedes. Stop holds.

So far. Our stop of course, like Dow Theory stops is a close only stop. The first chart is a weekly chart of the DIA. Often it is valuable to gain perspective by standing above the daily fray (which often frays the nerves) and taking a zoom out view, as here. If we look at the weekly chart we see that there has been no real downwave since the March low. Except for this one. Make no mistake. This is a serious downwave and the panic it has inspired shows how jumpy the investment community is. This is exacerbated by the hedge funds. When we saw the number of hedge funds accumulate to 9,000+ we said that the hedge funds are (were) now the public. The simple fact is that there aren't 9,000 competent (much less excellent) fund managers. So that population will follow the bell shaped curve rule regarding competence. We are already seeing the left tail of that curve go bankrupt and insolvent.

The daily Dow chart here shows both the panic and the results of the Fed's lowering the discount rate. Thursday's price action is a picture perfect picture of a one day reversal. Note that this was the day before the Fed's announcement. Want to bet that the word was not out before the close? On days like this the trader closes his short position and reverses. The long tail down probed for stops and attempted to induce more panic, but the "smart money" saw it as an opportunity to snap up bargains -- and snooker some slow witted shorts. Which they did the next day, Friday.

In case you were wondering -- the new moon was prominent and there was a huge earthquake in Peru. Our judgement right now is that the low made here may well hold, but judgments are only good the day they are made. Tomorrow (Monday) may be a different story.

Here in the 3d chart again a weekly look at OIL, showing no significant downwave since May, except the present one. The Basing Point is marked in May. The stop would be 5 or 6% under that point.

   

SLV would be construed as downtrending. We would honor the stop based on the Basing Point at 117 (plus the 6% filter). Again a weekly chart. We are not abandoning our long term prognosis for silver. It like gold is undergoing a period of consolidation.

  

A weekly chart of the dollar is interesting. The long term downtrend is not broken, but if the dollar works in 7 week cycles it's time for a continuation of the two week trend begun in August. We wouldn't be buying any Euro or pound assets right now.