Free Newsletter: Stalking Stocks with the Shark - Investors Jostle For Position - 9/25/08

Free Newsletter: Stalking Stocks with the Shark - Investors Jostle For Position - 9/25/08

Greetings Shark Investors:

The major indices were able to finish Thursday’s trading session with solid gains as investors looked past a slew of disappointing economic data and a troubling earnings warning and instead focused on positioning themselves for a possible rally should Congress pass the proposed bailout package. Indications were for a higher to the day, but despite the upbeat sentiment, the news in the morning was not at all encouraging. Still, despite news that GE had cut it third quarter and full-year guidance due to the turmoil in the financial services industry, that the weekly jobless claims number came in much higher than had been expected, and that the August durable goods orders report was well below estimates, that new information did little to derail the upbeat mood.

As such, the market opened the day well into positive territory, and for the first time this week, strength in the index futures was actually followed by more action to the upside after the open. Following a steep early ascent which lasted for almost an hour, the speed with which the market moved higher slowed, but prices continued to trend steadily higher for the rest of the morning and into the early afternoon.

The action got a little choppy as the day began to wind down, but even though the indices were unable to recover fully from a spurt of selling in the final hour, they did close with gains of 1.74%, on average, with each of the major S&P sectors well into positive territory, save materials, which once again showed relative weakness all day long. Certainly, it was a welcomed sight to see a little green on the screens after such a poor week of action, but there’s little doubt that investors were simply trying to jostle for exposure ahead of what many expect to be an imminent passage of legislation related to Treasury’s plan to buy distressed mortgage-back assets from financial institutions and auction the off at a later date.

However, as we’ve argued on several occasions, even if such action is necessary to avert a very ugly financial meltdown (and given the continuing tightness in the credit market, there’s plenty of doubt that the proposal will do much of anything to get banks to be more willing to lend to each other), there’s no reason to think that it will be the end to this bear market. In fact, the great likelihood is that once the bills passes, we will see a classic “sell-the-news” reaction. The question, of course, is if we’ve already seen all the action to the upside ahead of the news, or if we have some more room to move higher before the ensuing pullback. However, regardless of the short-term direction, which should yield some quick trading opportunities for the nimble of finger, but there’s little reason to believe that we are going to have clear skies from here on out.

The fact is that there are still some big issues the market has to deal with, and as Steve Liesman on CNBC pointed out ahead of the bell, you don’t have a credit event such as this one without some very real effects on the economy – a point that was backed up in a rather timely fashion by the data in the morning.

While individual investors with very short time-frames and plenty of dry powder may find some quick trades in the near-term, longer-term, by far, the number one goal right now should be capital preservation, and those that protect their hard earned money will be in a good position to profit once conditions finally improve.