Stocks Post Minor Losses

Monday, April 13, 2009

Fundamental Take:
The Dow lost a minor 25 points rebounding from larger losses earlier in the day. Financials led the market gaining 4.2% with Citigroup and Bank of America adding 25% and 15.4%, respectively. Keefe Bruyette dampened sentiment pre-market cutting Wells Fargo to underperform from market perform believing WFC needs to increase its common equity base.
Yet, later in the day Rochdale countered initiating coverage of WFC with a buy rating and Credit Suisse followed suit initiating coverage with a neutral rating assigning a $35 price target. Wells Fargo closed flat for the day reversing off lows of down over 4%. Wells Fargo stoked the market's fire last Thursday issuing 1st quarter 2009 EPS guidance of 55 cents/share v. 25 cents expected.

The New York Times reported Sunday that the government told General Motors to prepare for a "surgical bankruptcy" by June 1st assuming debtholders and the UAW do not come to agreements in time. The government's bankruptcy plan is said to include a dividing up of assets similar to the previously proposed good bank/bad bank plans. "Good" assets would be bought by a newly created company while "bad" assets would remain at GM undergoing liquidiation over time. GM lost 16.2% closing back below $2.00 as bankruptcy looks more and more like an inevitability.

Goldman Sachs surprised the Street releasing its earnings report after the close, not tomorrow as was expected. GS more-than-doubled expectations reporting EPS of $3.39 v. $1.64 expected. Also as anticipated, GS announced a $5 billion secondary offering to repay TARP funds. GS executives are taking advantage of recent strength in equity shares as the stock has rallied 175% in just the last five months. The initial response to earnings was muted with shares off a mere 1.5% from the close. Citigroup, JP Morgan and General Electric are all scheduled to report earnings this week.

Technical Take:

Stocks traded lower after gapping down on the open but reversed course midday paring over 100 points in losses to close down just 25 points. The bid to this market remains incredibly strong as investors continue to snatch up shares of beaten down financial companies. GS even after being up 31.7% in the last month still managed to rally another 4.7% into the expected earnings announcement. The Dow continues to oscillate around the 8,000 resistance level with volume tapering off a bit recently. All eyes are on earnings reports as earnings season began last week and this week holds some major market movers, most notably GE for its indication of economic recovery. Earnings will determine whether volume will step in again on the buy side to propel the market through 8,000 or whether more time is needed. The VIX has slipped below the 40 level closing at 37.81 signaling a reduction in uncertainty. The Dow is 24.5% off the March lows and could reasonably see some sideways consolidation action before continuing higher. Earnings are the key for the next couple weeks.


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