Stalking Stocks with the Shark - 04.29.08

Waiting For Ben - 04.29.08

Greetings Shark Investors:

Although the path they took between the bells was different, stocks ended another lackluster and low volume trading session in mixed territory on Tuesday as investors marked time ahead of tomorrow’s first look at first quarter GDP and FOMC interest rate decision. Outside of strong earnings reports from Master Card (MA) and US Steel (X), there was little by way of market moving news on the wires to greet investors this morning. Rather, a general uncertainty and lack of confidence as the Fed meeting got under way helped contribute to a slightly lower start to the day.

While we did see a brief flurry of buying in the more cyclical sectors immediately following the bell, sellers quickly stepped in to send the market lower through the morning, with most of the pressure being in the materials and energy sectors. However as we headed towards and into the New York lunch hour, those sectors were able to stabilize. Meanwhile, investors began to inch into financials, industrials and consumer discretionary, which in turn helped push the averages higher as the day wore on. However, after a spurt of buying just before the final hour sent the indices back near the highs of the session, the market rolled back over, ensuring another poor finish to the day.

Despite a pair of lackluster sessions to start the week, the rotational theme we’ve been talking about continued today, and that is likely the result of the anticipation that the Fed will be signaling an end to their rate cut campaign. As we said yesterday, much of the inflationary pressures we are facing are the direct result of the pressure a flood of cheap money has put on the US dollar. Thus, the weakness in those areas that benefited from a weak greenback have been pulling back, and investors have been building positions in names they think may inprove should the Fed adopt a more hawkish tone on Wednesday.

That said, such rotations are rarely so cut-and-dried. The major indices have been stagnating at resistance levels on very low volume, and when you combine that with an increasingly complacent market, you get conditions that warrant a high level of caution. As such, we feel that this market is ripe for a pullback, but the question is: If one does come, will it allow this market to see another higher low or will it turn into something more?

Without a doubt, this market has made some very good progress since putting in a double-bottom in March and we have seen a series of intermediate higher highs and lows. However, the fact remains that this market is still in a primary downtrend, and since the averages are getting a bit extended as they hover near recent highs, individual investors could do worse by raising caution levels.

The bottom line, then, is that it never hurts to take some profits in an uncertain environment and then reassess once a major market event has passed.

04/21/2008 - Market Review

Greetings Shark Investors:

Given last week’s big gains, no one was all that surprised to see a bit of profit-taking on Monday, but despite a bit of choppiness between the bells, stocks held on nicely to finish the day in mixed territory. Earnings were once again the focus as we headed towards the opening bell, but unlike last week’s reports which surprised to the upside, a couple of big misses by Bank of America (BAC) and National City (NCC) set a downbeat tone that lasted through the day.

As such, the averages opened the day in negative territory, but after falling to what would turn out to be session lows about an hour into trading, investors stepped and pushed the market higher as we worked our way into the New York lunch hour. And, while a fresh wave of selling hit as the afternoon got underway, buyers again provided some support, sending stocks higher and into a respectable, albeit mixed, finish to the day.

Meanwhile, a couple of recent themes reemerged as the new week got underway. First was the continued attention paid to a few select groups of stocks, including those in the oil, steel, coal, solar, mining and agricultural industries. To a certain extent, the relative outperformance in those areas is to be expected since they stand to benefit the most from the parabolic rise in commodity prices. Moreover, that’s where the action has been over the past few weeks, so given the lackluster action in the rest of the market, it makes sense that traders will stick with what has been working.

The other notable aspect was the complete lack of volume. We’ve been pointing out recently that volume has been at levels typically seen on holidays, and that suggests a level of uncertainty amongst market participants. Still, with the number of times promising bounces have failed into overhead resistance, it’s hard to begrudge any hesitation here.

The bottom line, however, is that these are the things that need to change if this month-long rally is going to continue. The areas of the market that have been attracting the hot money are starting to get really extended, and we need to see that attention turn to other groups once the profit-taking kicks in.

Regardless, the major indices continue to be in good shape from a technical perspective. The key will be to see if expectations for earnings remain low enough that investors will keep buying mediocre reports.

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