Wednesday, April 23, 2008

State of the Market - 4/23/08

A good start to the day this morning on Wall Street as some quick little selling was bought up around 10:00 and stocks rose sharply higher on the back of earnings news and lower oil prices. Some selling came in around 11:00 as the indexes probed the top levels of resistance on the Nasdaq and S&P 500 and backed off. They continued lower through the lunch hour, losing virtually all of the earlier gains. At this point, I expected more problems, but intraday support held and stocks managed to rise back into the close. A late pullback prevented the indices from closing back near their highs, and the market closed with marginal gains. The Nasdaq outperformed the Dow and S&P today with a gain of 1%. Volume appeared higher on the Nasdaq and lower on the S&P.

I was kind of confused as to why stocks were up so much in the morning because my quote screen was almost totally red. Tech was strong today but most of these stocks (AAPL, MSFT) are lagging stocks. I still didn’t see many new stocks putting in nice gains. On the other hand, the commodity stocks got hit today, but that’s not a total surprise. The damage wasn’t quite as bad as I thought it may be when these stocks pulled back(with the exception of LNN), because in many cases the selling volume was not that high today. A few had damage, but many held short-term support with their 9 day moving average. I did not take any of the trades I posted last night as possibilities because I forgot about the oil inventories being released today, but I will still be looking at them. I was hoping for a quiet rest for these stocks, but with all of the hot money now in these stocks, that probably was a pipe dream. Solar stocks also got hit today a bit although it was on lower volume. Perhaps a stock like CSIQ can form a handle here on lower volume, setting it up for a possible breakout down the road.

I was hoping for a quiet pullback in the overall market this week as well, but so far the last two days were anything but quiet. I think it is very important to remain cautious here – not many longs were working before this week, and now with the overall market looking weaker, it is best to just stay out of the way for the time being. We’ll see what my scans bring tonight, but the overall quality of my charts continue to deteriorate. Don’t go long and don’t go short is my best advice right now. Just not many great opportunities on either side of the market right now. Why not short? Well, there is still a lot of negative sentiment out there and a ton of people shorting this whole rally. Because of that, I don’t expect the market to crash here or anything. All of those shorts will likely keep somewhat of a floor on the downside. Sitting on your hands is hard to do and quite boring, but it is often the best play in the stock market. I still have only 1 position (WSCI) and don’t expect to be adding many more unless nice charts stop popping up again.

A little light reading to wrap things up for today. I found this article about the options the Fed has available to it as its next meeting quickly approaches. Will they finally put up a real fight against inflation? For some reason, I highly doubt it. What I don’t understand is that everyone is complaining about how bad the economy is, and one of the main problems affecting everyone is the rising cost of gas and food. I am not an economist, but don’t you think people would feel just a bit better about things if they didn’t have to drop $3.50 for a gallon of gas or a gallon of milk? Don’t you think they would take some of the money they are spending on these necessities now due to rising prices and put it back into the economy by spending it on more “luxuries” like eating out and buying electronics? From where I sit, the inflation is what is really hurting this economy and the average American right now, not lower home prices or credit problems by big banks. If the Fed would do its job and fight these rising prices, I think we could work our way out of this whole thing a whole lot quicker. If the Fed does raise rates or even just holds them steady at their next meeting, I will have a bit more faith in this government. If they lower rates once again, my faith in this government, virtually non-existent as it is, will evaporate completely. Will that happen? Unlikely in my opinion, but what do you think? Share your opinions in the comments section.

Also wanted to mention a website I saw today - It is an online petition protesting any form of government bailout for all of the homeowners and lenders that caused so much of the economic mess we are in. Not that an online protest is going to do anything - I realzie that - but if you are like me and live within your economic means, forcing you to buy and live in a house you can actually afford, you can sign your name as a sign of protest. In my opinion, it is absolutely ridiculous to have taxpayers' money given to people who bought homes that in so many cases they knew they could not afford. This will do nothing but reward the stupidity and greed that got us in this situation, but then again, that's what our government does best.

If I find any nice charts pop up in my scans, I will post them later tonight. Good luck until then.


bmbull said...

I'm hearing talk that the Fed may not lower rates at next week's meeting. I'm with you - I think that's baloney. Inflation or not, I think they would be worried about the stock market pitching a fit if they don't lower rates. And if you think they don't care about the stock market, their previous actions pretty much speak for themselves.

People are wondering "how low will they go?" I'm guessing that, if the economy continues to weaken and the stock market breaks those Jan/March lows, the Fed will go lower much lower than those people thought they would - unless a continued firm stance by other central banks, e.g., the European CB or Australian CB, forces them to keep rates up to prevent a dollar collapse.

Just my two cents - worth only one cent now because of inflation.

Mac said...

They will earn some respect back from me if they hold rates but all evidence up to this point points to more cuts. It is pretty obvious they could care less about the dollar so I don't even know if other central banks can stop them.

On the bright side, they only have a little more than 2 points that they can lower rates before they're zero. I am pretty sure the Fed would have to stop at that point. I know I am grasping at straws here but what else is there?

bmbull said...

Maybe they'd stop at zero. Maybe.

And then we could be stuck there for a number of years, a la Japan.

Anonymous said...

I am with you all the way. It angers me so much to see tax payer money being doled out to all these rich folks and poor folks like you and me have to work so hard for our living and then see that food prices, gas prices, taxes all go up and just earning enough to pay our bills. I am strongly against the dollar being reduced like this. Dollar should be the pride of our country and should be treated as such. My gosh what have we done to the dollar? Stop these cheap imports

Mike said...

First time visitor--Nice column. I agree with your thoughts except for the housing "bailout." I too am one of those responsible types who pay my credit cards each month and put twenty percent down on an affordable house. And I'm getting reamed. The mistake is thinking that the "irresponsible" ones are somehow separate and don't affect the rest of the country. That's wrong.

Because of all the foreclosures and all the inventory, my home has dropped nearly twenty percent in value over five years! I have to sell for job reasons (meaning to have one since the area has lost 50K positions) but I am forced into a short sale or worse because I have to compete with the bank-owned properties. (And I cannot deduct the loss from my taxes either.) No help for others means even MORE foreclosures, even MORE inventory on the market and even MORE falling prices, meaning EVERYONE loses.
(Yes, it's a buyer's market, but most people have to SELL their house first to buy another.)

There are plenty who were genuinely taken advantage of by predatory lenders (we live in a country where basic finance literacy isn't even required in school!), in addition to those who were stupid or greedy. You really can't separate them.

Bottom line, it may hurt to "bail out" the bad guys" but isnt't that better than having the entire country continue to suffer? Because of self-righteousness? As the saying goes, the needs of the many far outweigh the needs of the few. We're a nation that sticks together, remember? And ALL Americans need to have their largest investment stop sinking like a stone.

It's about what's best for the nation, and we are all CONNECTED in this global economy, like it or not.

(Rather than wishing for your neighbor and fellow American to become homeless, you can take comfort in karma or your faith that we will ultimately be rewarded for our responsible behavior. But staying angry and bitter will only make you sick.)

Thanks for your time and I wish you continued success with your blog.

Mac said...

Thanks for your comments. They are very well-written and I understand where you are coming from. It is a difficult situation overall and there isn't an easy or right answer. I guess for me, it is just a matter of my personal opinion on government and its role in our lives. I tend to think any time the government gets involved, things just get worse. These bailouts will just give them more power, while the "moral hazard" aspect of the bailout present the possibility of more bad behavior in the future. I disagree with the bailout of BSC also. I just think our society in general is going in the direction of wanting all things but not wanting to take the consequences of wanting all those things. I don't know how we solve this problem. If a bailout does happen, I have to wonder if people will learn their lesson or just continue living they way they do now, knowing that the government will be there if they get themselves in trouble again. I do feel for you in your situation and wish you the best with your house.

Mike said...

Cogently put, Mac. There are two sides to every story, and often neither is completely "right." We can only hope for the best for everyone in the long run.

Thanks again.