Financials Lead Stocks During Choppy Intraday Action, Crude Breaks Support to help Boost Stocks

July 18, 2008

Stocks were on a wild ride during Thursday’s action. Stocks had a terrible time gaining traction throughout much of the day. It wasn’t until Crude Oil prices collapsed under its own weight, falling below a key support area of $130 a barrel. This helped stocks rocket to session highs as volumed surged with the move. Volume was tracking higher from the opening gate showing that the buying has been picking up. However, our beaten up Financials has led this move off the bottom, as I have mentioned in yesterday’s piece is not the group you want leading you out of a bottom.As I was told many times when I was a young lad: “its not the situation you are presented with in which you are judged its what you do with it that will be.” At the moment, with Financials leading this market is tough to get excited knowing when beaten up sectors lead the market it usually spells disaster for the rally attempt. Cash, by far continues to be king. Preservation of capital is an important, is the most important thing we must execute during bear markets. We need the ability to put cash to work in hot charts in a new bull market, without cash we will miss stocks that race 1000% or higher.

I am sure we’ll continue to see market pundits call the “bottom” here and let everyone know that it is “ok” to buy financials. We heard the same story back in March after the Bear Stearns debacle. How did that call back in March turn out? In fact, its no different this time than last. It will take some time, if not years to repair the damage the “unethical” lending/borrowing practices that were executed by brokers and individuals. Patience is the key in this type of a market and without it we’ll lose our precious capital.