Stalking Stocks with the Shark - Intraday Recovery Caps Off A Good Week - 5/18/08

Stalking Stocks with the Shark - Intraday Recovery Caps Off A Good Week - 5/18/08

Greetings Shark Investors:

While the casual market observer might look at the essentially flat finishes for the averages on Friday and assume that it was a rather boring trading session, it was actually quite a productive day for the bulls. Over the past several weeks, the market has become increasingly focused on skyrocketing energy costs, and on an almost daily basis, vacillations in crude prices has sent investors scurrying from one sector to another. As such, even though early indications were for a somewhat higher start to the day, yet another new high for oil caused stocks in the materials and energy sectors to gap higher at the open while financials, consumer discretionary and technology stocks fall sharply.

From the start, the averages moved steadily lower until just before the New York lunch hour when the buyers decided to show up for work. Although there wasn’t any obvious catalyst, selling in the worst performing sector – financials – abated while tech and consumer discretionary began to turn higher. Add to that continued strength in those stocks that benefit from higher oil prices, and the net result was a market that began to inch its way higher as we worked our way through the afternoon. By the close, each average had recovered from losses of around 1% to finish flat on the day.

Whatever the reason for the turn-around, the fact is that once the buying began, so too did the performance anxiety. Despite the numerous reasons for the market to pull back, buyers keep stepping up to the plate, and that in turn is ratcheting up one of the most powerful forces in the market: the fear of being left behind. Technical resistance looms large, we’re entering a seasonally slow period, and there’s just no way that gas prices which are approaching $4 per gallon won’t have an affect on consumer spending. Still, keen insight and compelling arguments matter not when prices keep moving higher and investors are positioned defensively. What matters is making sure that you have long-side exposure.

With the Nasdaq above its 200 day moving average and the Dow and S&P 500 not far behind, its going to be interesting to see if this market will be able to continue to repair the massive technical damage it took between October and March. Even if it does, however, that doesn’t mean that prudent entry points in individual stocks are going to be easy to find. Many stocks on the best performing groups have become quite extended, and it’s going to be a challenge finding new opportunities without some sort of consolidation