Stocks Hold On For 1% Gain

Tuesday, March 31, 2009

Fundamental Take:
The Dow gained 86 points enduring a late-day sell-off on the last day of the first quarter. Banking stocks bounced back from yesterday's losses after Geithner said over the weekend that some banks may need "large amounts of assistance" perhaps foreshadowing results of the bank stress tests scheduled for completion next month. Morning optimism started stocks higher but discouraging news out of General Motors late in the day worried investors about the health of the US economy. An insider to the General Motors bondholder committee reported that a debt-for-equity swap is unlikely to occur prior to the government-imposed 60-day deadline on June 1st. GM hopes to exchange $27.5 billion in bonds for equity stakes in the company but a deal is unlikely to be agreed upon with such little time. Reworking the $20.4 billion in union healthcare cost obligations is also necessary for survival but the company
has yet to reach an agreement with the UAW. GM reported that it is preparing for a possible bankruptcy filing in June falling 28% to $1.94 per share on the day.

Technical Take:

The major indexes opened higher and pushed through yesterday's high into Monday morning's large gap down territory. After trending up throughout the day stocks topped out just under Friday's closing prices. The Dow and S&P nearly filled their gaps putting the down up 203 points before the late-day slide into the close. Bulls and bears alike lack conviction as the action becomes a bit choppier and less predictable.

"History shows that the vast majority of the time, the stock market does next to nothing. Then, when no one expects it, the market delivers a giant gain or loss -- and promptly lapses back into its usual stupor" (Jason Zweig, WSJ). The market turned on a dime this month mounting a 20% run in a mere 13 trading sessions. This steep, highly directional move came out of nowhere catching many market participants by surprise. Now, the market has fallen back into "its usual stupor" as investors debate whether the bottom is in or the market is headed back for a retest of lows.


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