Investors Cheer Geithner, 6.8% Gain For Week

Sunday, March 29, 2009

Fundamental Take:
The Dow fell 148 points finishing a strong week with mild losses. The Dow gained 6.8% for the week as investors cheered Timothy Geithner's detailed bank rescue plan. Monday's announcement of the Public-Private Investment Plan spurred a 497-point move higher as investors believe the plan may have a substantial impact on the health of financial firms. The government's plan to provide leverage to private investors using $100 billion of the remaining TARP money was endorsed by some major market participants, notably Pimco's Bill Gross. The clearing of up to $1 trillion in troubled assets from banking balance sheets should restore some key capital ratios allowing banks to increase their lending.

Markets followed Monday's large gains adding again on Tuesday as Goldman Sachs stated that it may be able to pay back TARP funds within months. Investors fretted over government debt auctions on Wednesday as the United Kingdom's gilt auction failed to attract enough buyers and yields spiked in the US Treasury auction. Yet, Thursday's Treasury auction went well with the US government selling the entire issue at below consensus expectation yields. Friday saw some selling as commodities fell with a rising dollar and the energy sector gave back 3%.

Technical Take:
The market rallied nearly 500 points on Monday and then traded sideways the rest of the week closing at 7,776, a mere 1 point above Monday's closing value. The consolidation action Tuesday through Friday was expected, typical and healthy for a market that racked up a huge 1,300-point gain in the preceding couple weeks. The Dow is now 18.8% off the bear market lows. Debates raged all week whether this is a new uptrend or just a run-of-the-mill bear market rally. Bear markets rallies are typically defined as countertrend moves of 10-20%. Stocks hit 20% this week before giving back on Friday. A definitive move over 20% may force the hand of many bears and bulls alike exacerbating the move higher. Clearly, this question of new uptrend or not has yet to be answered but there seems to be a large number of CNBC guests stating their firm belief that this is a just a countertrend rally and we will go back to test the lows in contrast to previous rallies. The market never rewards the consensus view so this could be a contary indicator.

The action has presented us with every reason to be long in the short-term. Pull-ins have been extremely minor in terms of percentage as well as length of time. Upside reversals are becoming more common as buyers pick up shares on signs of weakness. Financials led this bounce gaining a whopping 50% in the first 7 days off the lows but broader participation will be needed to sustain the move higher. I continue to look for strength in technology and energy to add to this move. The Nasdaq closed in positive territory on Thursday as technology shows strength. If financials can base and energy and technology can break out of bases and begin uptrends, this market may offer a long-term move to the upside as stated in our Market Commentary.


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