Free Newsletter: Stalking Stocks with the Shark Market Stumbles Into the New Week - 7/7/08

Free Newsletter: Stalking Stocks with the Shark Market Stumbles Into the New Week - 7/7/08

Greetings Shark Investors:

Although the market kicked off the new week on a positive note, a handful of sudden, swift intraday swings once again prevented any sort of oversold bounce from taking shape. Given the poor action over the past several trading sessions as well as a continued improvement in the U.S. dollar and a pullback in crude prices, it wasn’t too surprising to see that indications were for a slightly higher open to the day.

Still, while the averages started the trading session in positive territory, the market wasn’t able to make much progress as the morning developed. Whatever buying interest that existed in the first few hours was concentrated in the sectors which had experienced the most pain recently – industrials, materials and technology – but financials lagged badly, and even though oil was down almost 4% at one point, energy was also notably lower.

Regardless, it was possible that if the market was able to hold on to its early gains, others might begin to put themselves in a better position to catch a more vigorous bounce if it happened to develop. Unfortunately for the bulls, however, they weren’t able to find that out, because as we worked our way through the New York lunch hour, news that FNM and FRE could be required to raise as much as $75 billion in new capital resulting from an accounting standards change triggered a wave of selling that sent those two stocks, the financials, and the averages well into negative territory.

While the action did stabilize shortly thereafter, the market spent the better part of the afternoon struggling near the lows of the session. However, stocks reversed course once again as we headed into the final hour, but just as it looked like the indices might be able to salvage an ugly afternoon and squeak through to the finish with slight gains, the selling pressures picked up yet again just before the closing bell. By the end of the day, the indices, on average, lost just under 0.5% on breadth that was right around 2:1 to the negative.

Granted, At the same time, however, this is the exact sort of action – an unrelenting and steady drip lower – that might begin to dampen the spirits of even the most ardent of market players who are holding desperately on to the hope that this downtrend will be over just as soon as sellers realize things really aren’t all that bad. Be that as it may, we often say that a true market bottom won’t come until there is no place for investors to hide their capital and no one wants anything at all to do with the stock market.

Judging from the recent action, it certainly looks as if more and more market participants are becoming discouraged, but that in and of itself is no guarantee that we are on the cusp of a fundamental change in this market’s character. Nor does it mean that investors should be starting to anticipate one either.

The bottom line is that this market is as tricky as ever to navigate, and the big question is how to deal with it. While current conditions suggest slightly different approaches depending on various time-frames and styles, the one thing that everyone needs to keep in mind is that this market is – and has been – in a primary downtrend, and that should be the guiding principle behind any decisions we make or actions we take.