TODAY'S BREAKOUTS & BREAKDOWNS

WHAT A DISASTER! The Dow dropped 777.68 points or 6.98%, the Nasdaq dropped 199.61 points or 9.14%, and the S&P 500 dropped 106.59 points or 8.79%. Today was the Dow’s largest one-day drop, EVER. Oil dropped $10.52 or 10.1% to $96.36, but not before hitting $95.04 intra-day. Wachovia’s (WB) banking operations get bought out by Citigroup (C) and the stock lost about $19 billion in market cap in a single day. We continue to make financial history and every day is comparable to the most recent thriller/suspense movie you’ve seen.

What amazed me the most? It was the media coming out on Sunday night peddling this fluff that they called a “the deal that had been reached”. What I don’t understand is if a deal had been reached, why did it completely breakdown? If you were watching the House vote and watched the market intraday alongside, you could see how each update on the vote count actually moved the market considerably. There was a sight delay in my opinion and I was able to short when there were only about 50 or so votes left and the “nays” were well in the lead. At that point, whatever confidence I had in the financial media completely disappeared. The House is expected to present a new proposal on Thursday at the earliest, at least that’s what the media is saying…

On September 5, I wrote an article titled “The Rally is Over”. Several people made some stupid comments. Look at this comment:

“It's amazing that by just looking at charts one can predict the future and make bold statements such as "This Rally Is Over".

I wonder if there are other forces in life which could affect iron clad chart trends, and perhaps make "This Rally Is Over" sound a bit more uncertain. Nah. Wishful thinking on my end.”

Haha, whatever, I don’t have to prove anything. Never underestimate the power of technical analysis. The breakouts and breakdowns I profile daily are the biggest harbingers of a chart. They will give you clues as to where the stock will go.

Anyway, I searched for my usual breakouts and breakdowns and I found 5 breakouts, one of which was the VIX, which doesn’t really count. I was shocked with the breakouts, which I’ll talk about later in the article.

Thornburg Mortgage (TMA) gapped up 310.71% today, the largest gainer by far. However, look how the volume didn’t support price action. I can pretty much say for a fact that TMA will drop tomorrow. The board announced a one-for-ten reverse split, which is intended to boost the stock’s value above $1. TMA is also currently in negotiations with repurchase counterparties (who helped avoid TMA’s bankruptcy) and extended its tender offer for preferred stock. It’s still a $1 stock, and I would avoid it at any cost.

Delia*s (DLIA) agreed to sell its CCS brand for $102 million to Foot Locker (FL) and as a result, the stock jumped 17.2%. Not bad considering that everything else went down the toilet. How bad was it today? Out of all the industries, Alternative Fuels as a whole was the best performing sector with a 0% gain!

VeraSun Energy Corp. (VSE) spiked 81.8% today. There was no news out, at least to the public. VSE has started to fill its gap; however, I would the hell out of VSE if there is any size gap down at the open. Be warned: VSE may fill the gap intraday. Shorting spikers on no news is a great way to go.

Another stock that spiked on no apparent news is Raser Technologies (RZ). Looks like a major short squeeze to me. 24% of the float is short (or was). Any gap down warrants a short at the open.

The VIX is the last “breakout” to profile. In my weekly technical commentary that is distributed early Monday, I wrote that the VIX was forming a high-and-tight flag and that a breakout was imminent. I had no idea it would be today. At this level, the VIX will hit the 50 level. I would also like to point out that a flag or any type of consolidation pattern was never formed on the VIX for at least the last 3 years, so I knew it was something special. People are scared, and the bull camp is getting smaller and smaller each day. Expect these fear levels to remain elevated for a while.

As for the breakdowns, I found over 300 of them. If I tried to profile all of them here, the article would be almost 700 pages long. That’s how bad of a day it was.

Here are some of the biggest losers. I declined to draw trend lines because I thought they were obvious and pointless. Many of these no longer have any support levels remaining. I warn you NOT to go long in any of the following:

Once again, NO long positions, please! I don’t care if you think that the stocks are “cheap”. Trust me, they’ll get even cheaper (you might even get a 50% discount tomorrow!). If you don’t know how to short, just stay in cash. Standing aside is also considered a position.

On the top 100 largest declines for both the NYSE and the Nasdaq, all 200 of them declined by 17% or more. I highly recommend that no long positions be entered in any of them.

Today, there were 1,142 new lows hit and only 23 new highs made. The market cannot rally with these kinds of numbers being hit.

The rally has been over, and I can confirm that we officially began the third primary leg of this bear market. Don’t ignore chart patterns; they’re trying to tell you something!

Fair warning to longs: we have a lot more new lows to hit.

TODAY'S BREAKOUTS & BREAKDOWNS

There’s only one stock that met my breakout criteria for today, and that’s Eddie Bauer Holdings (EBHI). This is a nice rounded consolidation play that gradually broke out on higher volume on the preceding days. The continuation gap in the beginning of August lived up to its name and EBHI made a new 9-month high. The next level of resistance is at the $9.40 area back in Aug-Oct 2007. It looks like EHBI will make higher highs from this point on.

Washington Mutual (WM) hit a 17-year low! Goodness, and it looks like its going lower. Shares are down 29.7% today on 213.8 million shares, nearly 3x the average daily volume. If big house Lehman (LEH) is having major trouble finding capital, then Washington Mutual will have a field day trying to find it. It now costs $4.3 million + $500K per annum to insure $10 million in WM debt for five-years, up from $3.2 yesterday. That translates into a possible 85% chance that WM will default within five-years, according to investors. Don’t expect any type of quick bounce on WM as the selling momentum is clearly increasing from the past 2 days. Long positions should be entirely avoided, and I don’t have to remind you how quickly fear precedes panic.

Raser Technologies (RZ) dropped 13.5% today, mostly likely contributed by forced liquidation/margin calls from institutions. Management did reaffirm their outlook, but the stock has broken may support at $7. Once a break like this occurs, it is very difficult for a stock to climb back out.

Las Vegas Sands (LVS) dropped along with Wynn Resorts (WYNN) and other casinos on a report issued by the Nevada Gaming Control Board stating that casinos earned (or won) a 13% decrease in revenue vs. a year ago. The results were even worse for Strip casinos, down 14.7% to $519.2 million. Don’t people gamble more, not less, during recessionary times? LVS formed a descending triangle and broke support at $40. The next major level is at its July lows at $30.

I’m not sure what happened to Griffon (GFF) today, but traders eagerly dumped the stock (down 8.3%). After forming a breakaway gap from consolidation, GFF was unable to find support at the 50-day MA and continued downward to break the 200-day MA. I’m not sure who’s still holding, but they might want to think about it. The next area of support is at $8.50-$8.75, and it’s a strong one. Selling momentum should subside and consolidate in the $8.75-$9.50 area; otherwise, GFF has no chance.

GFI Group (GFIG), an investment broker (no surprise), dropped 24.4% today on news that the company was unable to reach a deal with Tullett Predon (TLPR: UK), a broker in London. Tullet’s stock isn’t doing too well either. They’re down about 25% from their high in February to 382.75. Although the entire space within a gap is considered support, if there’s a major violation within that empty space on huge selling volume, then that’s a clear warning sign. Today just happened to continue what wasn’t finished. Expect a bounce from the $7 level in the near-term.

Photon Dynamics (PHTN) is awaiting closing clearance from the Committee on foreign Investment. This follows the announced acquisition by Orbotech for $290 million. Today’s action seems unusual to me. The announcement wasn’t announced until after 2:30PM, but the stock broke down starting at 11:45PM. Either way, PHTN did hit a low of $10.74 but was able to sharply regain some lost ground. The gap from the Orbotech is entirely filled.

Goldman Sachs downgraded Calamos Asset Management (CLMS) to “Sell” from “Neutral” and adding the firm to Goldman’s Americas conviction sell list. Shares dropped nearly 12% and looks like it formed a breakaway gap, cutting through both the 200-day and 50-day MA’s. Expect continued downside for CLMS.

Melco (MPEL) was a stock I shorted a while ago back in June, but I never expected it to hit $5. MPEL is down 11.3% today due to a likely drop in revenue from A-Max’s VIP level (A-Max is a partner with Melco). The money that high rollers are betting dropped 18% to $33 billion in August from $40 billion in July. Analysts aren’t worried about the drop, but investors are. Who should you trust? Well, Jefferies & Co. reiterated their “Buy” rating and price target to $18 and JPMorgan reiterated their “Overweight” rating. MPEL looks like it’s going down even further.

Cavium Networks (CAVM) took a 10% hit today on something that didn’t come from any news. It appears to be the systematic sell-off continuation since 3 days ago. CAVM dropped below their Feb-March levels and have hit a brand new low since its IPO in March 2007. There are no more support levels remaining at this point.