Investors Continue Snatching Up Financials

Thursday, March 12, 2009

Fundamental Take:
The market continued its recent rally gaining another 239 points today as the financial sector charged ahead another 10%. Standard and Poor's released its ratings downgrade for General Electric before the open fueling a spurt of buying in GE shares. GE gained 13% closing at $9.57 as S&P cut its credit rating to AA+, only one notch below its previous AAA rating and better than expectations. Recent liquidations from sovereign wealth funds and institutions have driven down shares as they are required to maintain reduced exposure to companies with lower ratings. With expecations of downgrades to AA- or A, investors jumped back into shares as S&P showed greater-than-expected confidence in the company. S&P believes the GE Capital division will not be accretive to earnings through 2010 but sees the industrial business as "fundamentally strong". Bank of America was the latest in the line of banks to claim profitability in the first two months of the year following similar announcements from Citigroup and JP Morgan. Kenneth Lewis, BAC CEO, believes US banks may be turning the corner.
Citigroup has now bounced back a whopping 59% in 3 days as investors snatch up shares believing government takeover fears may be overdone.

Technical Take:

Stocks opened near flat and trended higher throughout the day. The squeeze is on as the Dow has jumped 9.5% just this week closing back above the 7,000 level once again. Financial shares, having seen dramatic declines, are seeing a very encouraging bounce back with the sector gaining 30% in the last 3 days. Bottom fishers have opened their nets placing a strong bid into the market convinced the light now shines at the end of the tunnel. The market has gone a bit too far, too fast and likely sees a pull-back as weaker hands take some profits and others exit their losing positions seeing this snapback rally. Though, the action feels decidedly different than previous rallies with strong buying holding levels and pushing stocks higher and higher. Just as many traders could not believe stocks could fall so much, they now cannot believe stocks can rally so quickly. Consolidation of this move higher is likely tomorrow.


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