Free Newsletter: Stalking Stocks with the Shark - Market Hits Resistance... Again - 8/7/08

Free Newsletter: Stalking Stocks with the Shark - Market Hits Resistance... Again - 8/7/08

Greetings Shark Investors:

Disappointing earnings and economic data, two strong days of gains, a rebound in oil and some good old-fashioned overhead resistance created ideal conditions for a pullback during Thursday’s trading session, and that’s exactly what we got. Early morning indications were for a sharply lower start to the day following news the previous evening that AIG had posted much worse than expected earnings for the second quarter. Although it was unclear whether or not the adjusted numbers they reported were comparable to Wall Street estimates, the market reacted negatively to the news, sending shares lower by as much as 11% in pre-market trading.

Meanwhile June chain-store sales rolled in throughout the morning, which, on the whole, left plenty to be desired. Also weighing on sentiment early on was news that the weekly jobless claims number jumped at a higher than anticipated rate to 455,000, suggesting that the deterioration in the labor market many not only be continuing, but accelerating as well. The one bright spot, if you can call it that, came after the ECB announced that it had held interest rates steady when Jean Claude Tricet, the European Central Bank president, who said that the Euro-zone’s GDP growth in the coming quarters would likely not meet forecasts. Those remarks helped move the greenback off its early lows.

Without a doubt, it was a morning full of dour news, but even though the market gapped lower at the open, there was some immediate dip buying interest throughout the market. Sentiment improved further about 30 minutes after the bell when the Pending Home Sales report showed an increase of 5.3%, well ahead of the 1.0% decline economists had expected. The updraft following that news helped the averages move further off the lows of the session, but the after-glow from that report didn’t last for long. About 90 minutes into the session, news broke that C had reached an agreement with the NY Attorney General over accusations that the bank had misled investors in regards to the sale of auction rate securities, which in turn, reversed whatever early dip buying interest there may have bee.

Although both the Dow and the S&P 500 drifted lower for a little over an hour afterwards, the Nasdaq continued to work its way higher on strong action in several “old-school” tech names such as INTC, MSFT and HPQ. However, buyers once again got on their horse as oil fell sharply off its morning highs and back into negative territory. That move allowed the Nasdaq to finally make its way into the green and took both the Dow and the S&P 500 to what would turn out to be highs of the session.

Unfortunately for the bulls, oil didn’t stay in the red for long. About two hours before the close, the commodity bounced off its intraday lows and back to the levels it was at towards the end of the morning. The response in the broader market was swift and severe as the market began to sell off across the board. As we headed towards the close the downward pressure mounted, turning was had been looking like a mixed finish to the day into an absolute drubbing.

Although the point losses in the averages were notable, probably the most notable aspect to the late action was the brutal reversal in biotech stocks – which up to the point had been just about the only bright spot in a market devoid of any leadership. Meanwhile, there were several small-cap stocks that went into an absolute free-fall as bids completely disappeared. That’s always a tell when it comes to trying to gauge what kind of underlying support there may be as the market moves lower.

The good news is that volume wasn’t all that heavy and the Dow and the S&P 500 were able to hold short-term support in promising looking ascending triangle patterns that have been forming over the past few weeks. However, while the Nasdaq was able to hold above 2350, which had served as short-term lateral resistance recently, that index looks to be consolidating in an ascending wedge pattern, which is typically bearish. We’ll see how things play out as we move forward, but it will be interesting to see what kind of dip buying interest there is tomorrow as market players head into an August weekend as well as how the technical patterns develop as inflection points begin to approach.