Stalking Stocks with the Shark - Late Day Reversal Rains On Bulls' Parade - 5/14/08

Stalking Stocks with the Shark - Late Day Reversal Rains On Bulls' Parade - 5/14/08


Greetings Shark Investors:

The major indices finished Wednesday’s trading session in the green, but a wave of late selling took the shine off of what was looking to be a day of strong gains. Although indications were for a flat open early in the morning, index futures got a big boost from a better than expected reading on the consumer prices index.

As such, investors piled into the market at the opening bell, and except for a bit of initial selling in energy due to the early strength in the dollar, each of the major S&P sectors saw some strong early buying. Many more active investors often have difficulty when the market shoots higher right out of the gate because it is tough to feel like you have the right amount of exposure and even tougher to chase stocks that have already made big moves.

Be that as it may, the market continued to climb relentlessly throughout the morning and into the early afternoon before stalling out a little over an hour before the close. Once the averages hit the intraday highs from last week, investors wasted no time selling down positions and/or putting on fresh short positions. It’s been really difficult for the bears to press since the whole BSC thing, and they finally may have taken the opportunity to do so into resistance as we headed towards the home stretch. Although there was no clear catalyst for the selling, investors began to dump positions without prejudice, and before long, we were back to opening levels.

We’ve been talking a lot lately about how this market is having a difficult time deciding which way it wants to go, and today’s action was a good illustration of the interplay of all of those recent factors. Although the CPI data may have been almost laughably low to anyone who has to eat or drive to work, the economic data continues to be better than what we will typically see in a recession. However, if folks were so convinced that the “worst” really is indeed over, then why are we having such a hard time moving past overhead resistance levels?

Over the past few days, we’ve been saying that, while we fully expect this market to have to endure another bout of nasty selling, we continues to hold on rather nicely, today’s action notwithstanding. However, we’ve also been saying that we’d been looking for cracks, and today’s late-day reversal certainly fits the bill. There’s no telling how long this market can go without breaking down, however, and as such, individual investors can continue to look for shorter-term opportunities while keeping one hand close to the eject button.