Free Newsletter: Stalking Stocks with the Shark - Market Makes Further Progress - 7/23/08

Free Newsletter: Stalking Stocks with the Shark - Market Makes Further Progress - 7/23/08

Greetings Shark Investors:

Although the trading to start the day was very choppy, the action settled down in the afternoon as the market drifted into Wednesday’s close with modest gains. The early morning was once again chock-full of earnings news for investors to digest, and as has been the case over the past few weeks, the results were mixed. BA missed both top- and bottom-line estimates, PFE beat by a penny, T met earnings expectations but fell short on the revenue side, and MCD blew their numbers out of the water. However, the biggest factor affecting early sentiment was another sharp drop-off in crude and continuing strength in the greenback following comments from Treasury Secretary Paulson and Philadelphia Fed President Plosser that were supportive of a stronger dollar.

As such, the market opened the day in positive territory with consumer discretionary, financials, tech and industrials continuing their strong afternoon rally from the previous day while energy and materials dropped sharply. However, the strong action to start the day wasn’t to last because about an hour after the open, just about the entire market reversed following the weekly oil inventory report which showed a much larger than expected decline in inventories. Still, even though that news triggered a quick pop in energy and materials, and a drop in tech, financials and consumer discretionary, the averages found support right around the unchanged mark as we headed into the New York lunch hour.

Although the trading had been wild up to that point, the action calmed down considerably for the remainder of the day. Although financials finished the day lower, a 0.4% loss after a remarkable 31% rally is certainly within reason. Meanwhile, industrials, consumer discretionary and tech drifted higher for the rest of the day while energy and materials kept falling straight into the close. The net result was average gains of 0.54% for the indices on heavy volume and breadth that was right at 3:2 to the positive. So, while the action was not nearly as bullish as it was on Tuesday, the market was able to make further progress repair more of the severe technical damage from the past few weeks.

The big question, of course, is: can this continue? With the major indices bumping up against overhead resistance, the thing this market really needs is some healthy backing and filling that would allow shorter-term holders who have ridden this bounce to be replaced by stronger hands. Another major element that has yet to emerge is strong leadership. If this move turns out to be sustainable and the pullback in commodities is for real, then that means those groups which led for much of this year so far will take a back seat. However, it is still unclear which groups will take on that role.

The bottom line is that conditions are in place for the bulls to turn the tide, but it’s not going to be an easy job by any means. We’ve had a start, but it is still too early to be celebrating the end of this bear market and jumping in with both feet.