Consolidation At 8,000

Monday, April 06, 2009

Fundamental Take:
The market fell 41 points as Wall Street professionals stirred things up. Mike Mayo, analyst with Caylon Securities created early selling interest pre-market assigning sell ratings to most banking stocks, excluding Goldman Sachs and Morgan Stanley. Mayo, a former Deutsche Bank analyst, believes banks will continue to struggle with the continuing effects of the credit crunch. Morgan Stanley joined the negative sentiment claiming that the current rally is just a countertrend rally and the U.S. stock market remains squarely in a bear market. These pessimistic outlooks brought sellers to the market early and through midday. But, an interview with Meredity Whitney late in the day brought some buyers back. Whitney, a former Oppenheimer analyst, grabbed investors' attention in October 2007 by forecasting Citigroup's need to cut its dividend. She then maintained her bearish stance on the financial sector throughout all of 2008. Her accurate analysis and ensuing noteriety helped her found Meredith Whitney LLC and won her CNBC's 2008 "Power Player of the Year". So, when Whitney stated in a CNBC interview this afternoon that she recommends covering most short positions on banking stocks prior to earnings releases investors got excited. Major financial names found a nice boost on her comments.

Technical Take:
Today was the first red day in 5 sessions but the potency was mild only pulling in 41 points after last week's gains. Stocks gapped lower unable to hold the close over 8,000 and then traded lower until finding a bid midday and making a push back to the day's highs. The back-and-forth action is quite typical of consolidation and is healthy and needed for a market at a heavy resistance level. The market continues to struggle at the 8,000 level but has yet to come off significantly. The VIX closed at 40.93 signaling that a decisive break of the 40 level has yet to occur. The markets are in a wait-and-see mode after a fast, strong rally off lows of over 20%. The bid remains strong but 8,000 is posing difficulties.


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