Free Newsletter: Stalking Stocks with the Shark - Alphabet Soup Thickens - 9/18/08

Free Newsletter: Stalking Stocks with the Shark - Alphabet Soup Thickens - 9/18/08

Greetings Shark Investors:

Although the major indices were able to recoup almost all of the previous day’s losses on Thursday, the action between the bells produced some of the fastest and largest swings we’ve seen all year. Early morning indications were for a higher start to the day, but despite the media’s best efforts to attribute an upbeat mood to efforts by central banks around the world to pump liquidity into the financial system, reports that MS was in merger talks with WB, and that WM was actively trying to find a suitor, the simple fact is that the massive losses over the past few days had created conditions ripe for some reflexive action to the upside.

As such, the market opened the day by posting solid gains, but conditions deteriorated rapidly as the morning got under way. Financials once again took center stage as sellers hit several asset management firms hard and concerns mounted over the heath of money market funds. Specifically, the Putnam Money Market Fund was forced to close following large redemption requests, a move which comes just days after The Reserve Primary Fund “broke the buck”.

Thus, the major indices, which had started the day sporting solid gains of around 2%, steadily lost ground throughout the morning and into the New York lunch hour, reaching what would turn out to be the worst levels of the day at more than 1% below the flat-line just as we entered the afternoon. However, the market was able to make a concerted surge back towards the unchanged mark shortly thereafter following news that the United Kingdom’s Financial Services Authority had temporarily banned short sales of financial stocks.

After that spike, the market was able to hover in positive territory with modest gains for about an hour, but reports from various news outlets that the government might be contemplating a Resolution Trust Corporation-type solution to the current mortgage-related debt crisis triggered a massive wave of buying (and likely short-covering) that sent just about the entire market rocketing higher.

By the end of the day, the major indices were able to close with average gains of 4.23% on tremendous volume and breadth that was just shy of 3:1 to the positive.

Without a doubt, the action on Thursday was remarkable volatile, and those who tried to navigate their way through the wild swings likely suffered a severe case of whiplash. There’s no question that the hopes for a once-and-for-all solution to the issue of all the bad debt that financial institutions continue to hold will get the serial bottom-callers in a tizzy as they tell individual investors that the coast is clear. However, whether or not today’s events have marked some sort of bottom, trying to get some sort of edge in a market that is so news-dependent and emotion-driven is all but impossible.

The bottom line is that those who have been able to remain defensive throughout this whole mess will be in terrific shape to profit once conditions improve. If we can get some follow-through to the upside, then that should translate into better chart set-ups. Today was a step in the right direction, but no matter how hard we may try, there’s just no way we’re going to be able to speed any kind of recovery along.