Amazing Losses in Freddie Mac

Nov 20, 2007: 11:20 AM CST

We know that the housing market is under duress and has been for some time, Freddie Mac (government assisted mortgage lender) [FRE] has suffered significant stock price losses over the last few weeks that has wrecked absolute damage on the price charts.

I have chosen to display a weekly chart in arithmetic format just to highlight how awful the decline was over the last two months:

We saw distribution occurring around July, August, and September where the weekly volume was much higher on the sell weeks than the up (buy) weeks. This was an early warning sign, but technical analysis alone could have never forecast the eventual move down – this is a case where the technicals hinted that ‘something was amiss’ but the overall fundamentals and news (the housing market and credit crisis) played in and ultimately conquered the technicals by a major sell swing.

The moving averages (orientation) has taken the most bearish formation possible (20 period under the 50 period and both are under the 200 period).

Price made a (not surprising) new momentum low.

As a bonus, here is the daily chart on a logarithmic scale:

We do see a current “gap fade” taking place, indicating that the price may have overshot itself to the downside this morning.

Either way, it’s probably not safe to try to catch the bottom with the housing market or in this stock in particular. It’s best not to trade against trends.

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