Late Selling Puts Indexes In The Red

Wednesday, February 25, 2009

Fundamental Take:
The Dow lost 80 points in a seesaw trading day. President Obama laid out an ambitious agenda for his presidency before Congress last night. Obama talked of plans to stabalize the banking system, revive the housing market, improve the education system, reduce reliance on foreign oil and end the war in Iraq all the while promising to cut to the budget deficit in half by the end of his first term in office. This inspired, high-reaching speech was met with ambivalance from the market that seems to believe they have heard it all before. Bernanke continued his 2-day House testimony stating that banks failing to meet the stress test will have six months to raise private capital to shore up their balance sheet. The Treasury released further details of the stress testing and capital assistance plans but also informed investors that results of the tests will not be made public.

Technical Take:
After gapping down the market traded down nearly 200 points into the morning. An afternoon bid to stocks rallied the market 250 points putting us into positive territory. The momentum was very short-lived however and a brutal 130-point slide from highs in the last 30 minutes closed the market down 80 points trapping many momentum players. Today's bid off the lows was constructive but the move was difficult for short-term momentum players. It seems that long-term bottoms may be successfully constructed in this manner involving continuous backfilling of every move higher and multiple retests of every support level. While this slow, orderly process may make for trickier trading it likely provides the long-term support needed to induce greater numbers of buyers. The market still remains perilously close to the bear market lows so while I am cautiously bullish at these levels, I am waiting for a high volume move to the upside. I still think longs should be profitable over the next couple days.


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