Market Just Keeps Going

Thursday, March 26, 2009

Fundamental Take:
The market continued its rally adding another 174 points today closing just under 8,000. Best Buy started the day on a positive note beating earnings expectations and raising guidance propelling shares to a 12.6% gain. Stocks struggled after yesterday's Treasury auction but fears abated today as bids came in strong purchasing $24 billion in 7-year notes for a 2.384% yield. Investors were encouraged that demand for US government debt persists and the cost of capital remains historically low. The dollar has been under pressure lately falling 3% since last Wednesday's Fed meeting. Low interest rates and the Fed's buying spree are reducing demand the US currency as concerns of inflation increase. Gold has diverged from the dollar as the previously correlated safe-haven play is diminishing and gold is becoming a store of value against the falling dollar. Oil has also seen buying interest rising to $54 today providing a substantial lift to the energy sector.

Technical Take:

The market is unstoppable with every short feeling the squeeze. Goldman Sachs continues to hold up the market with its 51.4% gain over the last 13 trading sessions. Until Goldman is cracked, this rally remains in tact. Financials were mildly out-of-play today gaining only 1% as the market added over 2%. Technology has taken lead of this market with the Nasdaq racking up a 3.8% gain today as it closed in positive territory for year-to-date performance. The Dow is still down 9.7% and the S&P sits with a 7.8% loss year-to-date. Oil is now 40% off the February lows with buyers snatching up the depressed contracts.

The market has now seen a 21% countertrend rally. Investors continue to argue whether a bottom is in or whether this is just a bear market rally. I believe the market has significantly changed. The action definitively favors the long side. A pull-in is certainly inevitable eventually but I would be surprised to see us trade back to lows. We have now reached the point where many economic data releases are beating expectations simply because expectations have been reduced to such low levels. It is difficult to be long at these levels though with the 8,000 area likely to be a strong resistance level.


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