Free Newsletter: Stalking Stocks with the Shark - Pressures Mount Once Again - 07-14-08

Free Newsletter: Stalking Stocks with the Shark - Pressures Mount Once Again - 07-14-08

Greetings Shark Investors:

It was another wild day for the market on Friday as continuing concerns about the viability of both Fannie Mae and Freddie Mac weighed on an already fragile market. Indications were for a gap lower at the open early in the morning following reports that the government could nationalize FNM and FRE should their capitalization problems deteriorate further. Also dampening sentiment was yet another spike in crude which sent that commodity right back to recent highs. Meanwhile, GE reported earnings ahead of the bell, and unlike last quarter when they triggered a broad-based sell-off after missing estimates by a wide margin, their results were in-line with estimates.

As such, the major indices opened the day well into negative territory, and even though the market was able to recover some ground in the early going, the pressure mounted once again after Treasury Secretary Paulson stated that there were no current plans to bailout out either of the GSEs. After falling back to the early lows in a matter of minutes, the averages spent the rest of the morning and the New York lunch hour steadily inching lower. Although we were able to make a little progress off what turned out to be the lows of the session as the afternoon got underway, stocks suddenly shot higher across the board after word broke that Fed Chairman Bernanke had told the head of FRE that both GSEs would be eligible to use the Fed’s discount window.

While that move took each of the indices straight back to the flat line, it was over just as soon as it began, as a fresh wave of selling kicked in once the news regarding the Fed and FRE could not be confirmed. By the end of the day, the indices lost, on average, 1.02% on breadth that was about 3:2 to the negative. While that’s not nearly as bad as it could have been, yet more technical damage on increasing volume certainly is not the way the bulls wanted to finished out the week – especially as earnings season gets under way in earnest. Given how sharply and quickly stocks have fallen recently, it might not take much to trigger some fast pops. The recent volatility and vigor of intraday reversals only supports the idea that this market can easily get pushed around right now.

That said, while the current conditions might favor shorter-term investors who have the ability to reposition rapidly, timing such moves is tricky to say the least. Oversold market conditions are by no means a guarantee of action in the opposite direction, and even should a relief rally occur, there’s no telling how long it will last. Specifically, the inability of this market to hold on to even the slightest of gains recently makes it exceedingly important for investors to book any gains and cut any losses quickly.

That said, longer-term investors still need to simply wait and bide their time while this market searches for a bottom. We have a long way to go before it will be time to even start thinking about building positions.