Fear Dominates Market Action
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The market closed out the week in a disappointing manner as a massive wave of selling into the close negated some encouraging action in the afternoon, causing each of the major indices to close out the day at lows. Although many...
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The market closed out the week in a disappointing manner as a massive wave of selling into the close negated some encouraging action in the afternoon, causing each of the major indices to close out the day at lows. Although many were wondering if Thursday’s late-day recovery would lead to some more sustained buying during Friday’s trading session, the market got off to an ugly start following news that another major bank, Wachovia (WB), had announced additional asset write-offs. Just after the bell, breadth showed about seven declining stocks for every two that were in the green, with each of the major S&P sectors well into the red. Moreover, the selling in many of the recent high-flying momentum stocks that have done so well over the past couple of months, including AAPL, BIDU, GOOG and RIMM, continued. Although there are numerous factors behind the recent pressure in the technology sector, including the unwinding of the Yen carry trade as well as cautious comments regarding business spending on tech in the coming quarters, the fact remains that this group has outperformed recently and weak action in the broader market has provided investors with a good opportunity to lock in some profits. Meanwhile, the indices were able stabilize later in the morning and into the New York lunch hour, with the most notable aspect being some encouraging price action in the financials. Although the indices spent the early part of the day chopping around in a relatively tight trading range, the XLF spent the majority of the day trending higher. Even WB was able to work its way back into the green. Another encouraging sign came around 2pm EST when both BAC and JPM filed their 10-Q reports with the SEC. Both companies warned of further fall-out resulting from their exposure to sub-prime mortgages, but instead of trading lower, both stocks continued climb higher. We suspect that it is no coincidence that it was at the same time that the indices bounced off of intraday support and moved quickly to their best levels of the day. While no one doubts that there is still plenty of bad news out there regarding the debacle in the credit market, one thing that market players watch for when they are looking for a bottom is either neutral or positive reactions to further bad news. Certainly there are yet more shoes to drop for the financial sector, but the type of responses we saw Friday suggest that the market may have, to a certain extent, already priced in its expectations for more bad news. Be that as it may, the action turned decidedly negative in the final 30 minutes of the day. The outright plunge that closed out the trading session was most likely the result of market players reducing their long-side exposure ahead of the weekend. Whether the pressure was due to programmed trading or some other reason, the severity of the selling indicates that there was more going on beyond some run-of-the-mill asset reallocation. Regardless, the takeaway here is that, despite the positive action in the financials, market players remain nervous and are still very uncertain as to how things will play out. The good news, however, is that the sort of wash-out we’ve experienced over the past week or so is setting us up for a good run as we kick off what has historically been the strongest period for the market. At this point, the technical conditions in the averages as well as a great number of individual stocks still indicate that capital protection should be a top priority. But, there are a lot of opportunities developing in stocks that are getting pounded mercilessly along with the broader market. Speaking of emerging opportunities, we invite you to take advantage of our current offer for a two-week free-trial to sharkinvesting.com. Follow this link, and enter promo code: Trial1107. Isn’t it time you swam with the Shark? Let’s go to the charts. The Nasdaq finished Friday’s session lower on heavy volume. We saw a brutal open again, with massive selling pressure that followed. We attempted a bounce late in the day, but the action turned sour in the final minutes
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Regardless, the takeaway here is that, despite the positive action in the financials, market players remain nervous and are still very uncertain as to how things will play out. The good news, however, is that the sort of wash-out...
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