Tuesday, July 8, 2008

for yesterday and today

About Shark Watch

Monday, July 7 - 3:27 PM

Mid-Day Update

Although the market wasn’t really going much of anywhere, it was at least going nowhere in positive territory. However, news that both FNM and FRE might be required to raise an additional $75 billion in capital due to an accounting rule change sent those stocks, the financials, and the rest of the market lower. Of course, the fact that crude bounced off of its lows and the dollar fell after trading higher earlier in the day hasn’t helped much either.

The bad news is that this market isn’t even able to hold on to a modest bounce regardless of how oversold it is, but the good news is that this is just the sort of action that will finally discourage those who are holding desperately on to the hope that we’re going to bounce right back as soon a all those silly sellers realize that things really aren’t all that bad.

On our end, we’re simply sitting in cash and waiting for a chance to ride a bounce when it occurs. That said, as we’ve seen over the past several days, oversold conditions are no guarantee of a bounce, and trying to anticipate one – especially when so many are looking for it to happen – is dangerous.

About Shark Watch

Tuesday, July 8 - 4:38 PM

Afternoon Comments

Certainly, with oil pulling back, continued oversold conditions and a bit of a bounce in the financials, everything was in place for a rally. However, Mr. Market sure made things interesting today, because just when it was looking like investors’ hopes for an oversold bounce would have to be put on hold yet again, a sudden wave of buying about two hours before the close sent just about the entire market sharply higher into the close on good breadth and heavy volume.

Of course, the real test is if the buying we saw today can continue. Given how far and fast this market has fallen over the past several weeks, there is undoubtedly room to the upside. That said, this market is badly broken, and those who are sitting on big losses after buying the “worst is over” line during the March-May intermediate uptrend will be looking to recover some of their losses. That’s what makes overhead resistance such a powerful force in a downtrending market.

The bottom line is that, if we do see some follow-through, we need to make sure we adjust our stops and keep our time-frames short.

Have a great evening and we will see you tomorrow.

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