Stocks Gain For 4th Week

Sunday, April 05, 2009

Fundamental Take:
Stocks gained 39 points points Friday to cap off the fourth consecutive week of gains as the Dow added 3.1% for the week. The Labor Department reported Friday morning that the U.S. lost 663,000 jobs in March pushing the unemployment rate up to 8.5%. This report fell within expectations and puts total recessionary job losses at 5.1 million. Federal Reserve Chairman Ben Bernanke encouraged investors Friday stating his belief that the government's actions are working to unfreeze credit markets and stimulate growth.

Earlier in the week investors digested two major events, Obama's taking a tough stance towards GM and Chrysler and the Financial Accounting Standards Board changing of key accounting rules. The Obama administration ousted GM's CEO and gave them 60 days to formulate a viable turnaround strategy or face bankruptcy. Obama issued an ultimatum to Chrysler: merge with Fiat in 30 days or file bankruptcy. While Obama hopes to maintain a strong automotive sector in the U.S. he is unwilling to continue with cash injections without major concessions. FASB eased mark-to-market rules allowing banks to use considerable judgment in valuing the toxic assets that created holes in balance sheets and forced massive writedowns. Banks will now be able to use cash flow models rather than market prices in assets in inactive markets trading at distressed prices. Fair value accounting has been blamed for exacerbating the financial crisis.

Technical Take:

Markets continued their recent winnings adding for another week with the Nasdaq solidly entering positive territory for the year now up 2.8% YTD. Monday saw some selling interest hit the market just below the 8,000 level but stocks recovered gaining everyday for the rest of the week pushing through 8,000 on Friday's close. Stocks continue higher without any considerable pull-in as more and more investors are forced to chase stocks higher feeling like they are missing the move. The strong bid to stocks just does not fade as stocks refuse to fail. This week's breakout in the XLK signals new leadership from the technology sector. Financials are likely to fall out of play as they need to form long-term bases, even though the sector gained 6.0% for the week. But, the XLK has broken higher possibly beginning a new uptrend and providing alternative leadership to the market.

The VIX has been range-bound between roughly 55 and 40 for all of 2009 but Friday could signal a real change in market sentiment. The VIX closed below 40 for the first time in 3 months. Friday's close was 39.70 with 2009's lowest close at 38.56. A break of this level could point to a significant reduction in uncertainty pointing to higher market prices.


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