GE Drives Market Down, Then Up

Wednesday, March 04, 2009

Fundamental Take:
The market gained 149 points following five days of losses. General Electric was an early drag on the Dow Jones falling below $6 in the early morning before capitulating. Speculation that GE will soon be downgraded and then be required to raise $8 billion in capital has worried investors. Bill Gross, co-founder of PIMCO, appeared on CNBC stating that the dramatic selling pressure in GE shares was likely a result of forced selling from sovereign wealth funds and other institutions that will be forced to limit their exposure to GE in the case that GE receives a downgrade from its AAA rating status. Gross firmly stated that GE is no AIG. GE released a statement mid-morning calling rumors of a near term capital raise "pure speculation" and the stock immediately turned. Shares still closed down 6% on the day but a far cry from the 18% loss earlier in the day. GE also impacted shares of JP Morgan as investors fretted over the possibility of a ratings downgrade at GE affecting JPM earnings, although a JPM spokesperson denied there is any connection later in the day. News hit the tape in the afternoon that Congress will hold hearings on mark-to-market accounting fueling more buying interest. Possible revisions to the FASB mark-to-market rules could help banks protect against downgrades and the need for capital raises.

Technical Take:

A small bounce in the markets is always nice to see but major selling hit the markets late in the day as the Dow approached the 7,000 level. From GE's bottom at 10:30, the market steadily climbed throughout the day until running into resistance at 3:30. After hitting a high of 6,979 the market fell over 100 points into the close. I expect more upside through the end of the week and it appears we continue to work on a bottom in the market. The short side is not getting paid which is the first step to a bottom. While the markets have slowly dribbled lower over the past couple weeks, there has not been panic and momentum. Trading remains difficult but volatility runs high.


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