Free Newsletter: Stalking Stocks with the Shark - Market Sees Decent Gains On Very Light Volume - 8/24/08

Free Newsletter: Stalking Stocks with the Shark - Market Sees Decent Gains On Very Light Volume - 8/24/08

Greetings Shark Investors:

The market was able to close out the week on a high note as buyout speculation in the financial sector and a reversal in oil fueled a broad-based, but low volume, rally. Although the news wires were especially quiet early in the morning and indications were for a flat start to the day, index futures suddenly shot higher on reports that Korea Development Bank had expressed an interest in acquiring LEH. Meanwhile, sentiment got a further boost as oil pared some its recent gains and the dollar strengthened against other currencies.

As such, the major indices gapped higher at the open, climbing higher for the first hour or so to what would turn out to be the best levels of the morning. As could have been expected, energy and materials were the main laggards, showing losses as the day got under way, while each of the other major S&P sectors in positive territory, with financials in the lead. Consumer discretionary also started by posting solid gains on lower oil and decent earnings results from GPS and ANN, but the other sectors weren’t far behind, with industrials, tech, healthcare and staples each well into the green.

After the early ascent, the market began to loose a bit of steam as we headed towards the New York lunch hour, but the momentum picked up once again as the afternoon got under way. The averages were able to work their way back towards the best levels of the day in short order, holding on to their gains and spending the rest of the trading session hovering near highs in a relatively narrow range. By the end of the day, each of the indices posted average gains of 1.43% on breadth that ended up at better than 2:1 to the positive.

Certainly, it was a good day for the bulls. The buying was broad-based and the advance was solid. Of course, we’ll be hearing from pundits and so-called experts about how stocks are terrific values at these levels and how, if such a successful investor as Warren Buffet is starting to buy select banks and is starting to “read more 10-K’s”, we should be buying too.

Without a doubt, there are going to be terrific bargains in this market once all of this turmoil plays out, but with volume being so light – Friday’s session was the lightest of year – it is really difficult to really place much trust in the action. Moreover, even though both the Dow and the S&P 500 were able to reclaim their respective 50 day moving averages, they weren’t able to make progress past what look to be developing descending resistance trendlines.

The biggest takeaway from the day is that we still can’t trust areas that are strong one day to be strong the next. The thing this market continues to lack is solid leadership, but of course, a lack of any clear leaders is the hallmark of a bear market. A strong market will be defined by a handful of areas that are clearly pushing us higher. That certainly isn’t the case right now, and we shouldn’t expect it to be.

We’ll see how things develop from here, but the technical damage we took early this week remains in place. At some point, conditions will improve, but until there’s solid evidence that the trend has changed, individual investors will be best served by sticking to short time-frames and keeping their focus squarely on capital protection.