Mortgage Insurer Blood Is Running In The Streets

The last time I saw stocks trade like this. It was during the late summer stock market plunge, and it was lenders who eventually went out of business.

Here is a chart of NEW (Formerly New Century Financial) before it went bankrupt.



The similarities between the charts of NEW, MTG -2.13 (-10.23%), and PMI -1.84 (-9.07%) are uncanny. The question that many have is: Why are these companies suffering so much today?

MTG released earnings 5 days ago, and the stock can not seem to gain any ground.The pain in these lenders over the last few days is likely coming from the fact that all of the brokerages could not exit their positions at the same time. So they have been forced to bleed these stocks down. Also, the pain in recent days is likely coming from devaluation of the company bonds (speculation, but more than likely considering the recent deterioration of subprime bonds)

PMI has upcoming earnings on October 30th before the market open. Will the stock have plummeted enough by then to stave off anymore pain? That is anyones guess, but I wouldn't bet on it.

These charts are scary to say the least, but short squeezes are more likely than not at this point. Here is a recent example of one:

(Don't get caught off guard if the insurers squeeze like this)

I am not a "perma bear" on the market. I do think that China is on its way to taking America's lunch. I just do not see any point in trying to catch falling knives. Why would you when you could own solid companies like AAPL +11.12 (6.38%), GOOG +13.95 (2.14%), ISRG +12.94 (4.53%), BIDU +19.93 (6.30%), or AMZN +5.79 (6.34%)?