The Bulls Are Back In Town

Monday, March 23, 2009

Fundamental Take:
Stocks exploded higher today adding 497 points after Treasury Secretary, Timothy Geithner, announced a Public-Private Investment Program to clean up bank balance sheets. The plan uses $75 to $100 billion of the remaining $700 billion in TARP money to fund private investment in toxic assets. The government is offering up to 6-to-1 leverage with financing through the Federal Reserve and debt guarantees from the FDIC. The plan will start with $500 billion in purchases and may grow to $1 trillion. The success of this program is highly dependent on private sector involvement, therefore, investors were greatly encouraged by Pimpco's Bill Gross who committed to participation in the plan. The financial sector surged 16.4% as
Bank of America, Citigroup and JP Morgan all racked up huge gains of 26.0%, 19.5% and 24.7% respectively. The government will match private investment dollar-for-dollar hoping market mechanisms will "use government resources efficiently, protect taxpayers from risk and allow the market to set the price".

Technical Take:

The bulls are back in town as optimism reigns again. The 497-point gain brings the Dow up to 7,775 nearing the 8,000 resistance level. This move has challenged all market participants as shorts have been immediately squeezed on every attempt to enter positions while longs have never seen a pullback to enter positions. The market is now 21% off the lows in 11 trading sessions. The largest pull-in in this entire rally was a mere 4.4% from high to low over the last two days of last week hardly offering time for longs to build substantial positions. It appears that Geithner has regained some credibility with investors as stocks rally on the bank plan announcement. Geithner's previous plan announcement was met with heavy selling as the plan contained a concerning lack of detail. While stocks have ripped higher on very positive fundamental news, it seems foolish to be a buyer at these levels. Yet, it appears that so many traders have expected a move back to retest the lows that shorts keep getting squeezed propelling stocks higher.


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