Free Newsletter: Stalking Stocks with the Shark - Mixed Finish Belies Whippy Underlying Action - 9/3/08

Free Newsletter: Stalking Stocks with the Shark - Mixed Finish Belies Whippy Underlying Action - 9/3/08

Greetings Shark Investors:

The major indices finished out Wednesday’s trading session in mixed territory, but even though they spent the day in a relatively tight trading range, the action under the surface was quite choppy. Following the previous day’s nasty intraday reversal and subsequent poor action in overseas markets, indications were for more of the same as we headed towards the opening bell. As we discussed yesterday, the precipitous drop in commodity prices are obviously catching market players by surprise and are starting to make plenty of folks think that the global economic slowdown that is unfolding may be more severe than had been anticipated.

As such, the market opened the day to the downside, and the action as the day got under way was irregular to say the least. Despite the fact that oil was down almost 2% early on, investors were either doing some heavy short covering and/or looking for some sort of oversold bounce in energy and materials stocks as those were the only two sectors to show gains as early on. However, that initial pop to the upside was to be short lived, but while those two areas began to move sharply lower, financials and consumer discretionary began to move quickly off of their initial lows.

Certainly, the action on the surface did not come close to reflecting the wild swings that were going on in the first 90 minutes of the day, but as we headed towards the New York lunch hour, whatever areas of the market weren’t already heading south began to pullback in unison on no apparent catalyst at all. That drop took the averages to what would turn out to be the lows of the day as the morning came to an end.

For most of the rest of the day, the action calmed down considerably as the leader/laggard relationships that would persist into the close began to unfold. Retailers, banks and homebuilders showed particular strength, which likely had a lot to do with lower crude, but tech and industrials lagged – and that also likely had a lot to do with lower crude.

However, probably the most interesting aspect to the action so far this week is the absolute drubbing in the utilities. We also mentioned yesterday that the concerns over a global slowdown are being manifested in a stronger greenback and higher treasury prices as a flight to safety takes shape. When that happens, investors will typically seek out utility stocks for their dividend yield, but over the past two days, the XLU is once again back near the lows it saw back in January, March, and late July.

Without a doubt, this was one of the harder days to get our heads around in quite a while, but at the same time, we didn’t really get any new information from the day’s action. The takeaway from what was a confusing day is that this market is clearly lacking any real leadership, and that’s what we need to be looking for. At some point, a group of stocks is going to poke its head above the fray and attract sustained buying interest. The one thing we do know is that it likely won’t be the groups that led us into this mess in the first place – despite the insistence from many that the new bull will have arrived once banks and homebuilders put in a real bottom.

The bottom line is that the market has yet to show any indication that we need to embrace the bullish arguments. We’d love to be running and gunning, but the hope that we are close to an end for this bear market is no reason to be putting our cash to work.