W.B. Busin Broadcast - ALERT CHINA Tuesday, February 27, 2007

0845 ET

We will enter 100% short in the Swing positions for the NDX, SPX and Dow for today's opening.

The reason is explained below. This is a very high risk trade and we are looking at exiting at today's closing if any of the reversal scenarios or lateral tracks become the dominant movement today.

We will update throughout the day if we have any comments of worth.
With a large downward opening gap in the futures, considerable upward pressure will soon be needed to close the gap.

How and when the gap is closed is the question. Our models show an attempt in the afternoon session that fails. The Wednesday track offers even less chance to close the gap unless the late afternoon session low is reversed. We are prepared to enter a long Swing position tomorrow if scenarios begin to materialize.


We don't see a downward spiral/crash beginning here. Extended markets have days like this one, especially when there has been no significant correction for many months. If day trading the YM, we would sell every intraday rally attempt that momentum indicators do not confirm.
We saw this decline begin in the currencies. We were stopped out of a small long USD/JPY position. We looked at sterling/yen and aussie/yen and saw the yen demand flying! A big surprise to us! Was it another BOJ action? We looked for info on the newswires through Sydney then Tokyo and saw the lead comments about China's 'reforms'. We reversed to a short position by 0245 ET and captured over half of the nearly 200 pips in the downward move.
What is important here is the extent that this downward move affects the U.S. markets. Recent history, April 2006, implies that it may be the start of a more substantial correction.

Email is delivering slowly - we will post updates here and in email for today, 27 February 2007.

Previously this morning:

We will exit all long positions to 100% cash on the today's opening in the Swing and Core positions for the NDX, SPX and Dow.

China tightened bank reserves and implemented other trading restrictions that resulted in a 1-day 9% drop for the Shanghai Composite Index. Many stocks were closed at their 10% daily limit.

The Dow futures has been down over 100 points overnight; the S & P 500 futures off nearly 10 points and the NDX futures off by 17 points at its lows.

With the next time locus for all indexes on Wednesday, February 28th, we will remain in cash till then.

This external event is further reason to keep stops in place.


WBB



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