Concern should drive us into action and not into a depression
--Pythagoras
After unprecedented action by the Fed to boost liquidity and cut interest rates, the indices continue to hold up, but are showing some signs of strain and look like we may see some further consolidation. The prospect of further upside is still present, but we have some issues that are causing headwinds.
I believe the biggest problem for the market is the barrage of declarations that the worst is over. I've seen these comments in both the popular press and the business media, and it troubles me greatly when folks so blithely conclude that the Fed has done its job and now everything ok. The old adage about not fighting the Fed can be quite dangerous, especially when we are dealing with a situation that still contains as many unknowns and uncertainties as we presently face.
Another issue to keep an eye on is the sharp rebound in oil and commodities that we saw Wednesday. The market benefited from the perception that pullbacks in commodities might be easing some of the inflationary pressures. If oil and gold come roaring back, that is certainly going to cause a reevaluation of that idea.
Most importantly, the first quarter of 2008 is coming to an end, and we are entering earnings season. We have yet to see much in the way of warnings, and earnings estimates have not been cut much recently. I see a few cuts today in the banking group and Google
(GOOG)
, but the prospects for lowered guidance as reports roll out seems likely to be quite high.
However, the key to earnings is not the numbers themselves, but expectations and the overall market mood. The market can be quite forgiving if expectations are low, but I'm concerned that may not be the case.
Overall, the market is still technically set up for some further upside, but the key levels are at the 50-day simple moving average which is 2310 for the Nasdaq and 1341 for the S&P 500. We are flittering with those levels now, and if we can't hold them, the selling is likely to pick up.
I've been very ill with the flu, as are my three small children so I'll be posting on a limited basis.
Good luck and go get 'em.
James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.
