Despite the winds and heavy rains brought to us by Tropical Storm Fay (over 17” worth in 36 hours) we, nonetheless, press on to provide you with the daily market analysis.

So today’s market action was predominantly driven by some short covering late in the day mostly in the financials, which isn’t that surprising, considering how much they have been driven down in recent days. Think for a second all of the negative news that has come out in recently concerning this all important sector; we’ve had a rumors of another major bank meltdown, a huge sell off in Lehman Brothers, and jitters surrounding a government bailout of Fannie and Freddie. With that said, how much more bad news could come to light (assuming that none of the rumors do come true in the near term), and having a few days to play out all of this bad news, one would reckon that the bad news is now priced into stocks, including renewed concerned about inflation.

We are not saying that the markets cannot go lower due to the above mentioned factors, but on a very short term basis, it would make sense that the market attempts to see a rally of sorts after all the heavy selling that we have seen in the past couple of days. No better time to find out then when the opening bell rings.  

We have been exercising caution in recent days due to the unpredictable nature of the market over the past week. We would like to see the market regain its footing before committing any more capital.

Now to the NASDAQ and S&P charts…

August 19, 2008

Yesterday it was asked exactly where was the volume to support the market’s recent selling. Today, the bears responded with a descent amount of volume as the broader markets sold off to the tune of about 1% on the day.

You have a moron journalist at the Times acting as if they are shedding light on something new by claiming there to be another major bank to go under in the near future. This guy clearly is out of touch with reality, if he thinks that the possibility of such is news to the public. It’s not, but nonetheless, it did its damage and caused quite the stir on Wall Street as did the PPI report showing inflation increasing somewhat more than expected.

We did have a solid earnings report out of Hewlett Packard after the bell which beat expectations and provided a solid forecast going forward. This should provide some strength to the markets heading into tomorrow’s open, especially for the Nasdaq.

The S&P and the Nasdaq is starting to show some weakening in their chart patterns, and a trend line that looks to be flattening. Even so, the charts have given us no reason to bail on this rally that has been in place since July. A pullback of sorts was due for a couple of weeks now, however, at some point, each of the indices are going to finds some solid ground in the very near future in order to prevent the market from breaking down once again.

Here’s the Nasdaq and S&P Charts…

August 18, 2008

We're not trying to make light of the sell-off that we saw across the entire market today, however, at this point, can we look at this sell off as anything other than a light volume pullback? I don't think you can. Each sell off, no matter how extreme it is, continues to drop off in volume. If there was any conviction to this sell-off, it would have to be done on heavier volume then what we are seeing. The bears are really nonexistant. It is not so much that they are shorting this market to oblivion, rather it is more so just a shere lack of buyers. Which in reality is not all that surprising when considering the run that it has made over the past month. At this point we have not seen any type of technical damage done to the rally the market currently finds itself in.

Also, much of the financial sector saw heavy selling pressures due mainly to Freddie Mac (FRE), Fannie Mae (FNM), and Lehman Brothers (LEH). But seriously, these guys have been in the news for quite sometime now, and anything that comes out of any of those three companies should not be all that surprising. Government bailout has been a strong possiblility for quite sometime now in regards to Fannie and Freddie. Our best educated guess is that the markets used the news that we saw out of financials today as a reason to take a breather and give back a little.

Here's the NASDAQ and S&P charts... 

This is one of the most important elements of trading if not the most important. However, this is the most often overlooked aspect of trading and investing. Egos and pride often are at the root of this problem and the consequences are the annihilation of the individual’s portfolio.

Every trade that is entered into, must have a stop-loss attached to it. It is simply asinine to not do so, especially if you are a retail trader that only reviews their positions periodically. Even the best of positions can go from being the market’s darling to being cut in half or worse within days. No one is immune to substantial losses in a portfolio and we are no better. In fact, we pay much more attention to this aspect of our trading then any other. Controlling losses will keep you from portfolio ruin.

A mild day to close a rather volatile week. We added more to our long positions and created a new position, that is similar to the setup that we saw in Amazon (AMZN) from earlier this week (a nice 10% gain for us in just a couple of days). Overall, the action during the middle of the week was a nice mild pullback that helped the indices pull off of their overbought conditions without causing any major technical damage along the way. If anything the chart patterns of the past few days has provided us with a nice consolidation patter heading into the week ahead.

If you’re a subscriber, be sure to read our weekly summary to be posted later this weekend, providing you with a chart analysis on each of our holdings.