Free Newsletter: Stalking Stocks with the Shark - LEH Rumors Spark Intraday Rally - 9/11/08

Free Newsletter: Stalking Stocks with the Shark - LEH Rumors Spark Intraday Rally - 9/11/08

Greetings Shark Investors:

The major indices underwent yet another strong intraday reversal, turning what was shaping up to be a panicked open into a mad dash to add exposure and cover shorts into the close. As we headed towards the open, index futures pointed to a much lower start to the day as concerns over the health of the financial sector continued to swirl, with shares of LEH, in particular, about 40% lower in pre-market trading. Unfortunately, sentiment soured further following the weekly jobless claims, which were worse than expected, coming in at 445K versus the anticipated reading of 440K.

However, even though the averages opened the day sharply lower on breadth that was approaching 10:1 to the negative and there seemed to be a general feeling of panic in the air, dip buyers stepped right up to the plate just a few minutes after the open, taking most of the major S&P sectors immediately off their initial lows. For the rest of the morning, the market was able to make steady progress to the upside, finally reaching barely into positive territory as we headed into the New York lunch hour.

While that brief foray into the green proved to be short-lived, as the averages began to lose steam for the next 90 minutes, buyers began to move aggressively once again as the afternoon got under way. Except for a small dip at the beginning of the final hour, the broader market spent the rest of the day moving sharply higher, with the indices finally finishing out the day at highs with gains of 1.37%, on average. Interestingly, however, despite those gains and the fact that each of nine economic sectors closed with solid gains, breadth was actually negative while volume, while heavier than what we had been seeing over the past several weeks, was the lightest of the week so far.

Certainly, the ability for this market to rally so sharply after such a panicky open is nothing to scoff at, but given the internals, it isn’t too much of a stretch to assume that what we saw into the end of the day as rumors about possible suitors for LEH began to swirl was driven by a good deal of short-covering. Be that as it may, the solid gains brought the serial bottom-callers out once again to proclaim how the worst is over and what a great bargain this market is right now.

At some point, they’ll be right, but the technical picture in the major indices remains quite troubling. Not only does there continue to be a complete lack of buyable charts, but the few decent technical set-ups out there are being completely ignored. Instead, most of the strength is has been in the worst looking charts, and that is exactly what we would expect of a bear market.

The bottom line is that, while these intraday reversals we’ve been seeing lately can make for some good day-trading for those who can get the timing just right, the bigger picture has not changed at all. Unfortunately, until the pricing action proves otherwise, individual investors will be best served by simply assuming that any action to the upside will be used by trapped longs to lighten their loads and for shorts to press once again.