Financials Snap Back, Dow Gains 1.6%

Tuesday, April 21, 2009

Fundamental Take:
The gained 127 points after Treasury Secretary, Timothy Geithner, excited investors with his comments on the bank stress tests. Geithner said "the vast majority of banks have more capital than they need to be considered well capitalized by their regulators” calming investor fears after yesterday's Bank of America release showing increased credit losses. The financial sector motored ahead leading the market with its 7.4% gain. Earnings season is in full swing and today's action was affected by several major Dow components. Coca-Cola met earnings expectations but missed on revenues and sees 3-4% growth this year; shares saw a 2.4% decline. Catepillar reversed early pressure after reporting its first loss in 16 years managing to run positive and post a 3% gain on the day. CAT's CEO managed to buoy investor's emotions on the conference call stating CAT's quick response to the economic downturn has outpaced reaction times in previous recessions. United Technologies handily beat expectations and jumped 4.8% on the day. International Business Machines reversed a gap lower gaining 1.9% after beating expectations last night and issuing higher-than-expected full year guidance. Merck was the culprit of the health care sector's major lagging performance today. Merck dropped 6.7% after missing on the top and bottom lines dragging the health care group into the red as the only sector showing losses on the day.

Technical Take:

Yesterday's 289-point loss led to weakness on the open with a 50-point gap down. The open was the low of the day and stocks began trekking higher immediately. A retest of the lows at 10:30 confirmed the low was in and the market trended steadily higher throughout the day. The weakness in the financial sector yesterday led many to believe that a pull-in had begun. Yet, investors saw the weakness as a great buying opportunity snatching up shares. While the market recouped less than half of yesterday's losses, it is worthy to note the action. This is not a run-for-the-hills, panic-style sell-off. Yesterday was a slow, organized trend day of selling leading into today's gap down. The first real bout of selling was met with a nice gain the very next day! This looks to be the opportunity real money has been looking for to get involved in the market. A pull-in to 7,500 would be constructive and give institutional money a chance to buy up stocks.


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