The Stock Index Report by Carley Garner
Stock Index Report
by Carley Garner
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2008-08-22
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August 22nd, 2008
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Lower oil and end of week short covering sparked equity rally.
The stock buying began with hopes that Lehman Brothers Holdings Inc. would attract a major investor. The optimistic sentiment regarding the fourth-largest U.S. investment bank, bled into the financial sector and the rest of the market.
Lehman shares spiked 10% after the Korea Development Bank suggested that Lehman may be a target of acquisition. "The fact that someone is willing to take a big stake in Lehman, the market is interpreting that as things aren't as bad as they may be. There must be value there for the stock," commented Giri Cherukuri, head trader at Oak Brook Investments LLC. It was also added that, "tomorrow, it could be another story."
We have all grown accustomed to quickly changing sentiment and it is important to remain unbiased during times such as this. For example, I have a long-term bias to the upside but if an opportunity presents itself to play the other side of the market it is fair game. One of the biggest mistakes that can be made is being overly bullish or bearish and "marrying" your opinion.
Adding fuel to the fire, crude oil experienced a sharp drop in price. Shares of airlines and consumer oriented firms seemed to benefit from the move. Furthermore, Warren Buffett's comments regarding the fact that he has "no bets against the dollar" and that he sees stocks as more attractive than they were a year ago, gave long term investors a reason to believe in equities once again.
Bernanke spoke early in the day but didn't offer any information that wasn't already known. However, he stated that he was encouraged by the stabilization of the U.S. dollar and the decline in commodity prices.
I have been pointing toward 1275 as the magic number in the S&P and today was the day that the market proved itself. Today's close above 1275 points toward resistance near 1309. I am patiently waiting for an extreme price move in either direction to begin positioning with options. I see the downside support near 1252.
Likewise, the Dow's range is between 11,802 and 11,236 and I would like to see a move to one end of the envelope or the other before recommending a position. Light volume and light news has created a market in which the direction from day to day seems to be as predictable as a coin toss.
Please note: A mini
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Carley Garner
Senior Analyst and Broker; Stocks and Commodities Magazine columnist; Author of “Commodity Options” to be published in early-2009 by FT Press a division of Prentice Hall.
Stock Index Report has contributed 149 issues.
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