Thursday’s market was a rollercoaster ride for stocks with a down opening that led to a big rally right from the bell. The Dow opened about 100 points lower but we all seem to know what that means for stocks, let’s buy ‘em. The Dow ran up for a couple of hours and got into positive territory by around 25 points. The rest of the market was about the same with underlying weakness in the early part of the day giving way to a pretty good sized rally for most of the morning. From there we saw basically a see-saw action with the Dow trading in a 100 point range.
By the end of the day the Dow couldn’t hold onto gains but the NASDAQ did squeak out a small gain. The NASDAQ 100 (NDX) had a much better go of it in the first two hours as it rallied from an early 12 point loss to a gain of nearly 30 points two hours into the day. That rally faded and the NDX dropped into negative territory with about an hour to go. From that low of down about 2 points, the NDX rallied into the close and managed a 9 point advance for the day.
The underlying technical situation for the market was weak. The volume was low with downside volume higher than upside and breadth was negative, meaning there were more declining stocks than advancing. Along with that our momentum indicator is now in overbought territory. Not that these things mean too much by themselves. We just think that when we see the technicals the way they are, caution is warranted.
After hours, DELL announced their earnings which seemed to beat the estimates but we don’t feel confident in these numbers, since DELL doesn’t seem confident either. They reported the figures are preliminary due to the recent restating of some prior earnings periods that just were cleaned up this past month. The company has laid off many workers and cut costs in order to increase profits and for this quarter at least it seems to have paid off, if the afterhours market is any indication (yes, up)…
For some reason, as we are writing this, the overnight futures have exploded to the upside. We’re not exactly sure what has caused this but the SP500 and NDX futures are showing a gain of 1% after jumping in the last ten minutes or so. The news of the trading day was that the market was treading water waiting for Bernanke’s speak on Friday so maybe the text has been released and the Fed will be doing cartwheels for the market in the coming days.
Some comments: The way the market has traded the last couple of days, and maybe tomorrow based on the futures noted in the prior paragraph, corresponds well with our general thought that the market would rally this week. We generally think the long holiday weekends and the end of the month bring out fewer sellers so the buyers tend to have their way. This week is especially noted for this type of action because it’s the last week of summer and the “big boys” are vacationing in the Hamptons. This partially accounts for the lighter volume we have seen the last few days. We think it prudent to get prepared for the events that may occur next week after the Labor Day weekend.
Erick left us a comment that we thought we should note here. He mentioned two articles that may be of interest to all and we include links to them here:
Panic on Wall Street: A brief history of fear
Fed may not rush to the rescue
[Editor's note (Friday morning): Apparently the big push on the futures last night was inspired by Bush talk about "saving" the poor homeowners who might lose their houses. Frankly, this dismays us because now we have governmentalized, if that's a word, the subprime mess. This is probably what needed to happen but we were hopeful it wouldn't. These steps to circumvent the housing calamity we're now finding ourselves in will ultimately fail. In fact for those who have either already lost their homes or have been prudent, this "bailout" is not the right thing, we better stop this talk right here. Anyway, one other article of interest is from Elliott Wave International that you can read part of for free. The rest of it will cost you a few dollars but this is a great article (we are subscribers so we have read the full text):
Elliott Wave International's Robert Prechter's Elliott Wave Theorist from August 26th. It was titled Fasten Your Seat Belt. Enjoy.]
With the holiday weekend ahead of us, we wish you a very Happy New Year, as we always do over Labor Day weekend and we will see you on the flip side. Next week should prove most interesting.