The bearish investor sentiment continues to be across the board, with increased selling in blue-chip and large-cap stocks, along with technology. Both Monday and Tuesday saw some technically oversold buying in stocks following the recent slide in stock prices.
The blue-chip DOW has been sliding after breaking below 12,000 and appears to be approaching 11,000, down close to 15% this year. The broadly based S&P 500 has declined below 1,300 and traded at a two-year low of 1,260.68, down over 13% in 2008 so far. In the technology and growth sectors, the NASDAQ has also been struggling — down about 13% this year. The strongest performer has been the small-cap Russell 2000, down about nine percent. The overall investor sentiment remains bearish at this time, as investors search for reasons to buy stocks.
Oil remains a major factor that could impact economic growth and onsumer spending going forward. The trend is bullish, as is the near-term technical picture. Oil recently traded at another record high of over $143.00 a barrel on the New York Mercantile Exchange, which was driven by supply issues.
As we end the second quarter, all eyes will be on the upcoming second-quarter earnings season in a few weeks. We are expecting the worst, as profits could be squeezed by rising energy costs and reduced spending by consumers who are dealing with higher gasoline prices as the summer driving season begins. There is also concern about the rising cost of food, which in turn will drive up inflation numbers and could force the Federal Reserve to increase interest rates at the upcoming FOMC meetings.
My assessment is to hold tight at this point and watch how stocks trade in the near term before jumping in. The key is to not take major gambles on the stock markets. Staying prudent is the correct strategy in this type of nervous and bearish market.