Stocks Close At Bear Market Lows

Monday, February 23, 2009

Fundamental Take:
Stocks fell 251 points today in a broad-based sell-off on Wall Street. Last night, Citigroup announced talks with the government about the possibility of the US government increasing its stake in the troubled lender. The plans involves converting the already held preferred position into common shares to shore up tangible common equity. This conversion could result in the government holding up to a 40% stake in the company. The market gapped higher 75 points on this news in hopes that nationalization of the banks may be avoided. Yet, sellers came back with avengence. Stocks found relentless selling all through the day as the market trended lower sliding 325 points from the open.

An afternoon attempt to stabalize the market was easily torn apart by a bout of negative and uncertain headlines.
CNBC's Charlie Gasparino reported that the deal with Citigroup may come as early as tomorrow, yet, White House Press Sectretary, Robert Gibbs, refused to comment on the Citigroup plan. CNBC's Faber reported that AIG will report a $60 billion loss next Monday and needs more government funding as counterparties demand greater collateral. Also of note was Steve Leisman's, a CNBC reporter, story that the government plans to begin its "stress tests" of the banks February 25th. These tests will attempt to guage individual bank's strength in the face of a deeper recession, continued housing price declines and greater delinquencies. Banks that fail this test may be nationalized.

Technical Take:
If there is anything the market hates, it's uncertainty, and we have plenty of it. The government's lack of clear direction for the banking sector is causing erratic, headline-driven action. The S&P 500 hit 742 today, a single point off the bear market low of 741. The market continues to show nothing but weakness. We now have a potential double bottom in the market. But, this pattern will only qualify if significant buying interest steps into stocks tomorrow. Tomorrow or Wednesday's action is crucial. The market needs a high volume day to the upside to bait money back into stocks. A continued low volume trickle this week will be very disappointing to technicians who are expecting a higher volume move to either hold this range or break to a lower range. The Dow could break 7,000 tomorrow and incite major fear and panic, possibly a capitulation-like move. I will be looking to be actively long tomorrow for an extended short-covering move to the upside if the market can mount a high volume, 100+ point move higher at any point.


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