Market Mounts Cautious Bounce

Sunday, February 22, 2009

Fundamental Take:
Friday, the market lost 100 points in another headline-driven day ending the shortened trading week down 484 points, a 6.17% decline. The market trended lower as the financial sector continued to see selling, selling and more selling. But, a headline out of the Obama admistration around one o'clock stating that the White House strongly favors a private banking system quelled some nationalization fears. The market turned on a dime and began trekking higher. Then, CNBC fueled more buying, citing an unnamed source at the Treasury, stating the the admistration plans to unveil its bank plan next week. The market rallied from down 217 points at its worst to up 4 points on the back of these two news stories. Alas, the rally was too good to be true, and upon hearing that a Treasury spokesperson had declined to comment on the CNBC story sellers came back causing a 100-point slide from highs into the close. Timothy Geithner appears to be in hiding as the market frets over the government's plans for the banks. Without an ounce of clarity coming out of the Treasury, banking shares will continue to see selling as investors are entirely unwilling to place bets in the face of such uncertainty. Where are you, Geithner?

Technical Take:
Technicals can be difficult to interpret in an envirnoment such as this because headlines are the driving factor behind so many of the market's moves. But, we can still glean useful information out the technical landscape. The 220-point rally off lows on Friday was encouraging for the bulls. The market found buyers at a key level in the S&P 500. While the Dow has given up hope, breaking the bear market lows and continuing to slide, the S&P has held up. The Dow is worth watching because it drives headlines but the S&P is clearly a much better gauge of the true stock market. The bear market low on the S&P is 741 and the market came within 15 points of that low before turning and rallying with the headlines. Cautiously, we could claim this is a double bottom in the index. Yet, the 100-point slide into the close should cause concern. This is a great area for a risk-to-reward long against lows especially if the government provides any clarity on its bank plans this week.


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