Free Newsletter: Stalking Stocks with the SharkNot An Ounce Of Bounce - 6/29/08

Free Newsletter: Stalking Stocks with the SharkNot An Ounce Of Bounce - 6/29/08

Greetings Shark Investors:

Although the major indices entered Friday’s trading session with five trading sessions in which the market lost significant ground directly behind them, investors were unable and / or unwilling to engineer any sort of bounce as worries regarding the financials and record oil prices continued to weigh on the action. Following the previous day’s substantial losses, the newswires were quiet early in the morning, but news that MER might be facing additional $5.4 billion in write-downs in the second quarter due to the effects of the recent credit rating downgrades of the monocline insurers and oil that was trading well above $141 per barrel pressured sentiment. While the May personal income data came in ahead of estimates and PCE inflation readings were slightly better than anticipated, the slight improvement the index futures saw after that data was released was not enough to lead to a positive start to the day.

As such, the market opened in negative territory, but even though the averages were able to bounce towards the unchanged mark in the first 30 minutes, a fresh wave of selling hit shortly thereafter, sending us to what would turn out to be the lows of the morning. Although the indices stabilized and drifted a bit higher as we worked our way into the New York lunch hour, a sudden spike in oil to record intraday highs at $143 per barrel sent stocks tumbling again. Some quick profit-taking in the Texas Tea allowed the indices to come off their worst levels of the day – with the S&P 500 actually being able to work its way back to the unchanged mark – but that advance was meager at best. By the end of the day, each index lost, on average, 0.52% on breadth that was 3:2 to the negative. Finally, while volume was huge on the day, the spike in the number of shares that changed hands in the last few minutes of the session was due to the rebalancing of the Russell indices.

We spoke a bit in our previous Stalking Stocks newsletter about how, while Thursday’s losses were acute, at no point did the various measures of market activity indicate that the selling had become panicked. As such, even though the market was – and remains – extended to the downside, Friday’s action was a perfect example of how oversold conditions by no means guarantee a bounce. That said, the expectations of some sort of relief rally are growing, and it is very important for individual investors to be very clear about their strategy for dealing with one if and when it comes.

Certainly, there will be chances to play a bounce, but the worst thing investors can do is allow hope to guide their actions, especially when it seems like those who held fast during this recent turmoil are sitting pretty. We need to keep our emotions in check and focus on the simple fact that we are in a bear market. Action to the upside will likely be vigorous and can be played by those with appropriate time-frames, but it can’t be trusted to last until we get clear technical signs that conditions have improved.