by Sam Collins 08/25/08
Last week ended with a flourish as buyers reacted to the possible takeover of Lehman Bros. (LEH) and lower crude oil prices. Comments by Federal Reserve Chairman Ben Bernanke helped, too.
The chairman acknowledged that European economies are slowing and that inflation was more of a problem there than in the United States. Some interpreted that to mean that the Fed has taken an increase of interest rates off of the table, but a close reading of his address doesn't mention that possibility and no real change in Fed policy was announced.
Crude oil prices did drop 5.4% on Friday, the biggest one-day decline since early in 1991, and the S&P's oil sector fell 2.1%. The decline in oil was directly related to the Russian pullout from Georgia, however analysts are expecting oil prices to remain high through the remainder of the year.
Friday's session was another light-volume day, as many traders and floor brokers take the last two weeks of August as vacation.
But there was some action in individual stocks: Boeing (BA) rose 3% after the Wall Street Journal reported that the aerospace and defense company may withdraw its bid for a tanker contract, and Verizon (VZ) rose 2% following a story that it will choose Google (GOOG) as its search provider for mobile phones.
At the close on Friday, the Dow Jones Industrial Average (DJI) was up 198 points to 11,628. The S&P 500 (SPX) gained 14 points to 1,292 and the Nasdaq (NASD) advanced by 34 points to 2,415.
Just 888 million shares traded on the Big Board and 550 million on Nasdaq, but despite the low volume advancers outnumbered decliners by 3-to-1 on both exchanges.
For the week, the Dow was off 0.3%, the S&P 500 was down 0.5% and the Nasdaq fell 1.5%.
Crude oil for October delivery lost $6.59, closing at $114.59 a barrel, and the Amex Energy SPDR (XLE) fell $1.49 to $74.62.
The December gold contract closed at $833.50, off $5.50 on "profit-taking," and the PHLX Gold/Silver Index (XAU) fell $4.96 to $148.92.
What the Markets Are Saying
Despite the low volume and big rally on Friday, the major indices still closed lower for the week. The low-volume rally could continue this week with many traders on vacation, so its influence on overall trends will be minimal.
Early this week, however, there are some economic reports that could impact trading, including the Existing Home Sales figures today, followed by Consumer Confidence, New Home Sales and the minutes of the last Federal Open Market Committee (FOMC) meeting on Tuesday.
With such low-volume numbers, volatility could pick up dramatically, so be prepared to offload some losers if Friday's rally continues.
The overall trend of the general market is still down, despite the dramatic reversal up on July 15 at S&P 500 (SPX) 1,200.
The first rally ended at 1,291, fell below the 20-day moving average and rallied, but failed again. I redrew the support line of the up channel that began at the July low and it looks like it has held -- but it is a close call and it still looks like the next major move of the market will be a test of the July lows.
Today's Trading Landscape
Earnings to be reported include: A-Power Energy Generation Systems Ltd (APWR), CPI Corp (CPY) and Yanzhou Coal Mining Co Ltd (YZC).
The following economic reports are due today: July Existing Home Sales and the Dallas Fed Manufacturing Production Index for August.
After the close on Friday, the FDIC said that it had seized the assets of Columbian Bank and Trust of Topeka, Kansas -- the ninth bank to fail this year. The SEC's enforcement division reached an agreement with Merrill Lynch (MER) in which the firm would buy back up to $7 billion of auction-rate securities that it had sold to customers.
This morning, the South Korean "Financial Services Commission" said it is "aware" that its state-run Korea Development Bank is considering the possibility of purchasing "a global investment bank" -- observers assume that bank to be Lehman Bros. (LEH).
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FAST is now consolidating and recently flashed a buy signal from our internal indicator.
Options Expiration Adds Volatility
The opening looks to be higher but today is options expiration day, and anything could happen.
Chances are high stocks will sell off further, but be alert for a dead-cat bounce after such a dramatic breakdown.
Traders and longer-term investors should sell any new positions at the first opportunity and short ETFs on a temporary recovery in the market.
CAT, the blue-chip of its industry, is the first to attract attention when it's time to dress up a portfolio.
