Stalking Stocks with the Shark - 5/11/08

Selling Pressures Remain - 5/11/08


Greetings Shark Investors:

Although the market finished out the Friday's trading session in the red on more bad news for the financial sector and another day of record high oil prices, the overall action was rather lackluster, but at the same time, there were some interesting pocket of activity. Index futures pointed towards a negative start to the day early in the morning as crude spiked to fresh highs and Dow-component AIG reported first quarter results that were much worse than anticipated. That said, we've been talking a lot recently about how this market has been due for a pullback, and at this point, it is highly unlikely that investors are all that surprised by some not-so-hot results from an insurance company and high energy prices. Rather, we suspect this market was simply ready to do a little selling.

As such, the major indices opened the day well into negative territory. Interestingly, however, even though the dollar was weaker once again, there was some heavy profit-taking initially in the typical "weak-dollar" plays, including gold, materials and energy. Also, even though they gapped lower at the open, investors busied themselves by purchasing financial stocks after several days of weakness in that group and in the face of persistent weakness in AIG and C. Meanwhile, there was some very good action to be found in energy stocks despite the early pressure in that area.

However, you'd never be able to tell from the major indices that there was so much going on in select areas. Volume was low, sentiment was tempered, and the action in the broader market was lackluster. Outside of a couple of attempted bounces, the averages spent the better part of the day hovering near lows, but even though this market started the day looking for an excuse to sell, the downward pressure never threatened to gain traction. From a strict support / resistance perspective, the averages are once again hovering near significant technical levels as this market tries to figure out where it wants to go.

On the one hand, there are plenty of investors who are desperate to believe that the worst really is over and that they need to put their money to work quickly lest they miss out on the next great bull market. On the other hand, however, we are entering a seasonally slow period and given the fact that we are running out of upside catalysts here, it is understandable why investors have lacked the confidence to push prices past meaningful resistance levels.

The bottom line is that even though we except to see more weakness in the near-term, individual investors would be best served, as always, by not being too anticipatory and waiting for definite signs of weakness before pressing any bets to the downside.