DJIM #33 2008

A flat week on the indexes' , yet many volatile periods in equities throughout last week, ranging from a battering of Financials lead by analyst downgrades,  a commodity one day head-fake before the resumption of it's beating as the inflation trade ends.   All this underscores the sensitivity of the markets to all the issues on it's back..the weak housing, slowing growth in Eurozone and Emerging markets, a weakening oil,  a strengthening dollar,  weak housing,  tightness in credit availabiltiy.  Despite all these conflicts the market is facing, the volatility led to nothing more than a flat week , a par week as the indexes' show by it's meager gains/ losses.  The NASD advanced 1.6%,  SPX 0.01%, while the DJIA lost 0.6%.  As some indexes' peaked July highs,  we noted early last week the best thing the market may do is consolidate.   Maybe this is just what we got before a push higher after looking back over last weeks action.   Just in case, this isn't consolidation the best strategy in our view is to continue to play one or two stocks at a time,  primarily the earnings winners we've been highlighting.    If playing one stock at a time it is not worthwhile accumulating slowly as the play will only last a few days before profit taking takes over.  Breakouts from any base, set up have a tendency to fail now because all traders want to pocket whatever they can,  including us.    It is almost a 'go big or go home' trade, meaning to make a nice profit you have to go in with size from the beginning.    If you take this route,  you have to be very disciplined and cut losses, if the trade goes against you after you enter.  The positive is you are concentrating on selective play(s) where all your attention is on a particular stock and you should see and feel it's trading pattern,  therefore cutting losses shouldn't be a problem.

At this point,  any expectations we may have from a stock and /or group making upside is easily broken as reality sets in. The reality is from any of the conflicts above the market comes up against on a daily basis, sometimes hourly.  The uncertainty, the confusion brings the volatility we are witnessing over and over again.   The risk/ reward trade is not favorable now, we can only hope the market finds it's footing as desks start filling end of summer.   Be careful and patient, a leader stock/ group today is not necessarily tomorrow.