Solid Gain As Financials Rebound

Tuesday, February 24, 2009

Fundamental Take:
The Dow gained 236 points today as investors scooped up beaten down shares of financial companies propelling the sector to a 12% gain for the day. Federal Reserve Chairman Ben Bernanke's testimony before Congress created some optimism in the market. Bernanke stated that the government does not need to take majority ownership of banking companies to influence them to lend. Bernanke said the Fed's goal is just to restore health to the banks, not own them. He believes a government takeover would have negative implications to the franchise values of the brands of individual banks. Senator Dodd, recently criticized for inciting fear last week by publicly stating that nationalization of the banks "could happen", admitted that he regrets his comments.

Technical Take:
The S&P 500 successfully held the bear market lows at 741 for now. An opening gap up was quickly faded but buyers defended the level continuing to buy throughout the entirety of the day. Yesterday's 250-point fall was met by a 236-point gain today. This is often called a "king of queens" pattern typically indicating a reversal of trend. In this case, the reversal pattern is even more compelling as it comes at a very significant technical support level. I believe longs initiated today offer excellent risk-to-reward with stops at the low of the year. I expect more upside over the next couple days with 800 in the S&P likely to be a significant resistance level.


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