The REAL Credit Crunch Begins....

FUNDAMENTAL ANALYSIS
If you think the credit crunch is bad enough and that the worst is over... think again.

These bad mortgages has been creatively packaged into bits and pieces by the banks and sold it to third parties who do not have any idea what these papers are worth, just that these papers generate a consistent interest and that they are guaranteed by insurance companies that are supposedly "AAA". Now, many of those "AAA" guaranteed papers are still floating around thinking that they are still safe and so, not written off at all. BUT, what if the insurance companies guaranteeing these papers are going to DROP THEIR AAA RATING altogether??? That will REALLY make those papers worthless and result in precipitious write downs across the economy! More banks are going to be hit, more insurance companies are going to be hit, more more more! That's RIGHT! AMBAC and MBIA, which are the 2 major insurance companies guaranteeing these papers are considering to drop their AAA rating! This financial system is going to go DOWN! Even worse, there are now signs that the consumers who used credit cards to finance these obligations are beginning to default on their car loans and credit cards as well! This is going to be the perfect storm brewing and the bottom may still be a mile below.

TECHNICAL ANALYSIS
With the break below the neckline of the head and shoulder formation, the Dow faithfully moved lower today. In fact, it does look like the next support level is all the way down to the 2007 lows at about 11900, which is a fairly weak support level, failing which, a test of the 200WMA at about 11400 might be in order. Anyone who bought put options on the DIA would have made good money by now. Yes, stock options traders would be able to nimbly take advantage of this meltdown quickly. Over the next few trading days, it will not be a surprise to see a little pullup just because the market has dropped so quickly but I would rather prefer to ignore such a pullup nor to try to take advantage of one. This is a bear trend no doubt and it may get as ugly as any of the market slumps we have witnessed in the past... or worse...


Dow Technical Chart By Best Charting Software TC2007!