Free Newsletter: Stalking Stocks with the Shark - Market Finally Manages To Build On A Rally - 1/17/08

Free Newsletter: Stalking Stocks with the Shark - Market Finally Manages To Build On A Rally - 1/17/08

Greetings Shark Investors:

For the first time in over two months, the market was not only able to hold on to the gains which resulted from an oversold bounce, but it was also able to build on them. Although early morning indications were for a soft start as investors wondered if the previous day’s rally would simply turn out to be another opportunity for trapped longs to exit their bleeding positions and for shorts to press further to the downside, better than expected earnings results and economic data helped push index futures sharply higher. Specifically, JPM, UTX, KO, PNC and HOG all delivered earnings that handily beat estimates. We’ve been talking recently that, given how poorly that market has acted lately and how sour sentiment has become, earnings reports would certainly act as a catalyst to get things moving. With two of those companies being Dow components, one being a regional bank, one a major broker, and the last a consumer discretionary bellwether, it’s little surprise that the mood improved markedly following their numbers. Also goosing things early on was data that showed both housing starts and building permits beat consensus estimates, and althought the weekly jobless claims number was higher than last week, it was much lighter than had been anticipated.

As such the market opened the day well into the green, with each sector – save utilities and staples (which are both highly defensive areas) – either gapping sharply higher or climbing steadily after the open. Still given the propensity of this market to give up its gains rather quickly recently, the choppy action and general hesitation as the day got under way was understandable. However, even though the averages fell back to the flat-line after trending lower for the first 90 minutes, another unexpected drop in crude prices triggered a fresh wave of buying in equities,

A second push lower for Texas Tea in the middle of the New York lunch hour sent the market appreciably higher - straight to what would turn out to be the highs of the session by mid-afternoon. While the indices gave back a portion of that last spurt of buying, they were able to finish the day near highs with averages gains of 1.2% on increasing volume and breadth that was barely shy of 5:2 to the positive.

Certainly, another day of strong gains with financials and consumer discretionary leading while the weak-dollar plays which drove the March / May rally got hammered is a real change of pace over what we’ve seen recently. The big question, of course, is if this pullback in commodities and move into financials and other growth areas is indicative of a more sustainable sector rotation, or if the proverbial rubber band got stretched a bit too far. Without a doubt, a 19% two-day jump in the financials is a big move, and it’s hard to imagine we’ll see them keep going straight us as investors decide to book gains and quit while they’re ahead.

We’ll have to see how it goes, but given the reaction to poor earnings reports after the bell from MSFT, MER, ZION, COF and GOOG, it looks like the bulls are going to have their work cut out for them.

As a reminder, feel free to check out our new free intraday market commentary on our home page at www.sharkinvesting.com.