Stock Market Analysis 6/8/08

It was a rough week for the market. It had its share of contributing factors to help it along. We saw a big mess at Lehman Bros, yet another major financial institution at risk of crumbling under the mortgage and credit crisis. Friday, we saw news of Israel calling an attack on Iran “unavoidable” that sent oil prices skyrocketing, as well as a higher than expected unemployment report.



However, this market has been technical broken for some time now. The top of the bounce was identified two weeks ago, and those highs have yet to be broken by any of the indexes except the Russell, which made a brief trip above the May highs on Thursday, but quickly retreated.

Has the market finally taken all the bad news that it can handle? Was Friday capitulation – a giving up of the bulls and just throwing in the towel? While anything is possible the answer is probably not. As we have mentioned in a number of prior writings, the resilience of this market, and its ability to take a licking and keep on ticking so to speak, has to be respected. We have to give it a punchers chance, no matter how weak it may seem.

So that said we have seen nothing in the recent market action to change our overall view of the market direction – we should see a volatile market with frequent and large swings in direction, ultimately with a bearish bias that should eventually challenge the 2008 lows. I have heard some chatter about Monday being another “Black Monday” – or a repeat of the 1987 market cash where the Dow Jones Average lost over 22% in a day.
While that would probably be the best thing for this market, a few days of capitulation selling so that we could finally identify a market bottom and get a good bull run, given the recent market activity and the level of the vix, it seems unlikely.


We also saw the massive resumption of the uptrend in precious metals and of course, oil. We are expecting rise this to continue, at least in the short term. The US dollar is also looking like a retest of recent lows is all but inevitable.






Our end of day portfolios on the other hand, had a great week. We are playing the commodities run to the long side, and cashed out of a number of profitable long and short positions last week. We also have adjusted stops and covers, and have locked in gains and/or eliminated risk on a number of our still open trades.



With a slightly short heavy end of day portfolio, we are keeping an even number of stocks to trigger long and short to combat what we think could be a very choppy day on Monday, and will probably look to re-establish a bit more of a short presence during the week, depending on how things shake out.




Have a great weekend!
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