Market Wrap for September 25th, Repeat After Me: “Capital Preservation”

September 26, 2008

By Thursday’s closing bell, the S&P 500, DJIA and NYSE all finished at least 1.7% or higher on heavier volume than the previous session, which technically means we had ourselves a follow-through day. The Nasdaq lagged, however, as did the Nasdaq 100; as for the Russell 2000 and S&P 600 –well, both got just a fleeting glimpse of their 200 day moving averages before being turned back. And not only did the IBD 100 and 85-85 indexes underperform, volume actually came in lighter than the day before. The fact that institutional investors weren’t even remotely interested in snatching up shares of leading stocks does not exactly inspire confidence in this fledgling rally. “But, wait,” as they say, “there’s more….”

Spoiling the FTD party was the wave of selling that hit the market during the last two hours of trading, dragging the indexes well off the highs of the day. During the session, the NYSE had been up as high as 2.7%; the S&P 500, 2.9%; the Dow, 2.8%; and the Nasdaq, 2.6%. Also, the volume of every index, while higher than the previous day’s volume, was still below its average. Another red flag: there were just 13 stocks making new annual highs compared to 191 stocks making new lows. And the top five industry groups on this follow-through day: Media-Periodicals, Leisure-Photo Equip/Rel, Leisure Movies & Related, Oil & Gas-Intl Integrated and Banks-Foreign. Only one of those groups is ranked in the top half of IBD’s 197 Industry Groups and it is ranked 97^th. “But, wait, there’s more….”

Durable goods dropped more than twice the initial estimates back in August, and new home sales fell far more than expected, hitting a 17 year low. The annual rate of new home sales plummeted 11.5% to 460,000, the lowest reading since January 1991. Bad, huh? “Well, wait, there’s more….”

As of this writing, futures are pointing to a rough start to the trading on Friday morning. It seems the talks concerning Treasury’s $700 billion bailout has hit a snag and are in danger of collapsing. Henry Paulson is said to have gotten down on one knee, begging Democrats who left to caucus not to “blow up” the legislation. Truly a surreal image. To make matters worse, RIMM missed earnings and the after-hours traders mercilessly pummeled the stock about the head and shoulders. This will surely add insult to injury to what is shaping up to be another volatile session. Never a dull moment, folks.

While there seems to be nothing but bad news and negativity, remember to keep emotions in check. Don’t get caught up in the hysterics of our beloved media; while exasperating, it serves a purpose. Now more than ever let the charts be your guide. It may very well get a lot worse, my friends, I’m not going to lie to you, but this I can guarantee: eventually the charts will come back. The whole world will be worn out and flabbergasted. The last thing they will want to think about is stocks. The charts, however, will tell a different story. They will reward those who waited on them. Just make sure you have the capital to take advantage of what you hear.

Repeat after me: “Capital Protection.”

A special Market Wrap brought to you by Author_Ego.

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