Stock Market Commentary and Investment Analysis 8/22/08

Before we get into the stock market commentary for the week, I'd like to share an absolutely hilarious stock market cartoon, with Beatles lyrics rewritten to capture the frustrations of many stock traders and investors in this tough market. Stop by our website, GreenRoomStocks.com, and let's all help each other's account from weeping gently.. enjoy! :)






Stock Market Commentary and Investment Analysis
Wall Street capped a volatile week with sharp gains Friday as oil prices tumbled and after Federal Reserve Chairman Ben Bernanke said inflation pressures are likely to moderate, and more rumors of Lehman Bros, this time that the company may be sold, and that seemed to resonate well with traders. The Dow rose 197.85, or 1.73 percent, to 11,628.06, near its highs of the session.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 14.48, or 1.13 percent, to 1,292.20, and the Nasdaq composite index rose 34.33, or 1.44 percent, to 2,414.71. However volume was frighteningly low across the board, part of which definitely has to be attributed to it being the last couple of weeks of summer, but still the anorexic volume of Fridays big move makes it pretty hard to buy into at this point, and with next week being the last week before Labor Day, it could get more volatile and potentially on even less volume.


The run-up Friday left stocks with mostly modest losses for the week that again saw a series of triple-digit moves in the Dow. The Dow is down 0.27 percent, the S&P 500 is off 0.46 percent and the technology-heavy Nasdaq is down 1.54 percent. The Russell 2000 index of smaller companies rose 12.35, or 1.70 percent, to 737.60. The Standard & Poor's 500 index finished down 6.00, or 0.46 percent, at 1,292.20. The Nasdaq composite index ended the week down 37.81, or 1.54 percent, at 2,414.71. The Russell 2000 index finished the week down 15.77, or 2.09 percent, at 737.60. Let’s take a look at a few charts:

As mentioned, the Dow made a 200 point move to the upside on Friday, bringing us right back to that all important line in the sand of the January lows and July double top. With volume as light as it has been, it is hard to imagine things going much further from here, and as we’ve seen time and time again anything is possible, so we are going to add one more long trade to the mix just in case. A weekly chart of the Dow is also attached, it gives a good gauge of the declining volume that has befallen the market here. Hopefully after labor day we see an end to this trend.

The Nasdaq gapped up Friday, and also put up a strong showing, gaining almost 1.5% on the day. However it was one of the lowest volume days of the year, and we have a convergence of the 10 and 200 day moving averages just above that have proven support and resistance points in the past, and again with volume as low as it’s been, it is hard to imagine pushing through without some more volume pouring in.

The S & P is above its January highs, but has a trendline that was defining the short term uptrend now laying just above. Also, you guessed it, volume was pathetically light on Friday.

Oil took another beating on Friday. Honestly, we thought we could see a slight pullback/consolidation on Friday, but the size of the drop was a bit surprising from where we were sitting. From the looks of things we could very well see a retest of last weeks lows, around $112 a barrel, but it is hard to imagine it going much lower here.

Gold also pulled back a little, but not nearly in the scope of oil. We also have some solid support coming in around $805, so look for a potential bounce in that area.

Financials rallied again, mostly behind the Lehman news, and some relatively favorable comments on Fannie and Freddie by Warren Buffet on Friday. However none of them held the days highs, and we are still not convinced that this bounce has much left to it. A heavy volume up day on Monday would change that thinking, but that is where we see it as of now.

In terms of our portfolio stocks Friday was mixed, as we have been playing pretty hedged, our longs did pretty well, and our shorts didn’t. However the shorts mostly underperformed the market, and still look pretty bearish on the daily and longer term timeframes. There are also a number of nice looking setups both long and short provided by the weeks volatility, and we have some pretty long watch lists, especially to the long side, for Monday. We are going to respect the bounce a little and add one new long play to the TBT list just in case it does have some momentum behind it, and will be in chat for the opening bell on Monday for the play by play. Happy trading!