Free Newsletter: Stalking Stocks with the Shark - Mixed Day, But Market Holds - 7/20/08

Free Newsletter: Stalking Stocks with the Shark - Mixed Day, But Market Holds - 7/20/08

Greetings Shark Investors:

Although Friday’s trading session by no means provided the same sort of wildly bullish action that we saw mid-week, the market was able to hold on, for the most part, to the strong gains from the previous two days. As we mentioned in our last Stalking Stocks newsletter, disappointing earnings reports from GOOG, MSFT, ZION, MER and AMD threatened to put the bulls to the test as we headed towards the weekend. However, the Dow and S&P 500 index futures were able to come well off their early lows about 90 minutes before the opening bell after C reported earnings that were not nearly as bad as had been expected.

As such, the market opened in mixed territory, but as the day got under way, investors took the opportunity to take some quick profits in financials and consumer discretionary and bought energy stocks. However, even though it looked as if a reversal of the past few days’ action might be under way, oil began to work its way lower about 30 minutes after the opening bell. While the pullback wasn’t nearly as large as it had been the past two days, the implication was that investors weren’t going to be piling back into Texas Tea with nearly as much enthusiasm as had become the norm. The net result was quick recovery for financials and consumer discretionary which in turn too the broader market off its early lows.

The choppy action wasn’t over for the day, however, because a quick jump off the lows for oil sent the averages back into negative territory as we worked our way through the New York lunch hour. Finally, one last reversal in black gold allowed the broader market to change course once again and trend higher for the remainder of the session to finish the day in mixed territory.

Certainly, the performance in tech on Friday left a lot to be desired, and given that the sector accounts for the largest portion of the S&P 500, it’s little surprise that the market as a whole wasn’t able to generate much in the way of upside action. Moreover, given the choppy action and quick swings that occurred each time oil hiccupped, it’s obvious that there’s a high level of uncertainty when it comes to the near-term direction of crude. That said, the fact that investors weren’t more eager to lock in some recent gains ahead of the weekend is encouraging.

The thing that we really need to see at this point is for the market to digest what were some impressive gains on light volume and then following through to the upside. We’ve been pointing out that, given the oversold conditions, it probably wouldn’t take too much to let go of the proverbial rubber band. The key now, is for buyers to show up ready to act when we see the inevitable pullback and engineer a good follow-through day. At this point, much of the action to the upside this past week was found in stocks that have the worst looking charts, making it tough to take the leap of faith required to buy stocks that were aggressively hitting multi-year lows just days before. However, if we are at the cusp of a new counter-trend, then better set-ups will start to present themselves.