Market Bounces 9% For Week

Sunday, March 15, 2009

Fundamental Take:
The market gained 53 points Friday capping off the strongest week in months. The market jumped 597 points this week, or 9%. Much of this strength came out of the financial sector which gained 32% in five days. Stocks started on a weak note dropping 79 points after Warren Buffett said the economy had "fallen off a cliff". But, the market roared back on Tuesday gaining 379 points as Citigroup CEO wrote in an internal memo that the company was profitable for the first two months of the year. Stocks continued adding gains throughout the week ending in positive territory the following three days as JP Morgan and Bank of America confirmed profitability as well for 2009. Health care stocks added to positive sentiment gaining 8.4% on Thursday and Friday as merger and acquisition deals and rumors continue to circulate around the sector. General Electric bounced back 36% this week as it was hit with an S&P debt ratings downgrade to AA+ from its envious AAA-status. Berkshire Hathaway was also downgraded by Fitch from AAA but Buffett responded, "If Berkshire isn't triple A, I'm not sure which company would be." Chinese Premier Wen Jiabao expressed "worry" this week that his country's large Treasury debt holdings would be hurt by "reckless policies". China has been the key buyer for the US in its ability to raise debt for bank bailouts and stimulus packages. A change in Chinese policy could cause a dramatic rise in the cost of borrowing for the US government.

Technical Take:

The strong reversal rally this week is typical in bear markets as stocks snap back as shorts cover and weak buyers jump back into stocks long. The nearly 600 points in gains closed the market back over 7,000 with the week ending at 7,223. As financials led the market lower since the October 2007 peak, they led the market higher this week. Yet, even with the 32% gain this week the sector remains 34.6% lower year-to-date. A stabalization in the finacial sector could finally point to a bottom in the market. If financial stocks can hold their lows and begin forming bases the market has a chance for a sustainable move to the upside. It is worthy to note that the first bit of positive news out of the sector in months stoked such a large rally. This week's market rally is encouraging for the bulls but has yet to change the overall bearish picture. But, the action has changed in the short-term. Stocks held their gains from Tuesday's large rally and managed to add some small gains through the rest of the week. Technicians now look for stocks to consolidate at these higher levels to forecast a move higher over the next couple weeks.


Post a Comment