Stocks Rally Into 8,000 Resistance

Thursday, April 02, 2009

Fundamental Take:
The market rallied 216 points as leaders met in London and the Financial Accounting Standards Board eased mark-to-market accounting rules. FASB voted 3-2 to adopt new rule changes in response to the massive writedowns banks faced in the midst of a worldwide credit crunch. FASB stated that firms must mark assets to fair value when that value is the result of an orderly transaction between market participants, not when it is the result of a distressed sale in an inactive market. Companies have now been granted a much greater degree of judgment when markets become inactive. As the trading between mortgage-backed security desks froze last year banks were forced to writedown their MBS assets to firesale prices in a market where trading had virtually ceased in comparison to the oustanding levels of MBS holdings on banking balance sheets. The FASB fair value rule has been blamed for exacerbating the financial crisis and the change is welcome news for many financial firms as the sector gained 2.8% today.

World leaders met in London looking to enact greater regulation of global financial markets hoping to avoid the mortgage-backed security crisis that roiled financial markets around the world this past year. Leaders also looked to end the economic downturn by promising $1 trillion in new aid and bolstering the resources of the International Monetary Fund.

Technical Take:

The Dow closed at 7,978 as the 8,000 level proves to be continued resistance for stocks. The index pushed through the level to 8,075 midday but major selling interest came into stocks pulling stocks off. Buyers held the bid making a late-day push to highs again but stocks failed to break out and stocks came off highs into the close. Stocks have yet to have a pull-in throughout this nearly 25% rally over the last few weeks. A consolidation base below the 8,000 level is probably needed before buyers can push stocks through this level of heavy selling. Tomorrow's monthly jobs report may cause some selling depending on the reading.


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