June 4, 2008

The summer time can bring some of the most unpredictable and abnormal trading behaviors of the year, and today was no different. This week has been driven by rumors in the financial sector that are by and large unsubstantiated. To say the least, investors are nervous about getting long in this current market environment. This really stinks for the bulls, because the action in oil couldn’t be more conducive to the long side, as the commodity has seen nothing but pure selling the whole week. What we are setting ourselves up for next week is a double whammy of oil regaining its buying interest which is inevitably bound to happen, and then the financials take a back seat as the market finds further reason to sell. The positive in all of this, is that money seems to be flowing into the tech stocks, which is really not typical for the summer time.

Also worth mentioning are the psychological underpinnings of this market in which the bears are dominating the prevailing mood of Wall Street. Not that we are turning instantly bearish on the market but we are watching for the ‘writing on the wall’. In a bear market all the good news is ignored and the slightest negative news piece sees large amounts of selling and the exact opposite happens in bullish markets. While we didn’t get a lot of selling today, there were a number of positive news pieces that was reported on, and though there was an initial positive reaction to them, namely because of the drop in the price of oil, but ultimately the enthusiasm waned and the bears managed to put the market in the red. We want to watch for this pattern to continue to reoccur over time, before drawing any conclusions, but it is definitely worth keeping an eye on.

Here’s the NASDAQ and S&P Charts…