Tuesday, October 14, 2008

Monster rally fizzles

After the mother of all rallies, reality is returning to the markets. The bank rescue plan sounds good, but keep in mind the regulators are making up the rules as they go along. And we're going into earnings season which promises to be not very pretty. Macy's (M), one of the largest retailers, already is painting a gloomy picture, other retailers will follow with similar stories:

Macy's Needs A Miracle

Dow is down 75 (down 400 from today's early morning highs), advancers ahead of decliners 2-1 while NAZ is down 52 on worries about a weak economy hurting stocks. S&P 500 FINANCIALS INDEX after the 33 point monster rally yesterday is up another 8 on the bank plan. The Alerian MLP index rose 8 bringing the gain to 40 off super lows. About every security participated in the monster rally. Even junk bond funds found buyers yesterday bringing their yields to under 20%, but today, as with other securities, enthusiasm is waning.


Oil is having another good day. Confidence of buyers is a good sign but implications of higher oil prices is not helpful. Gold is down 5 to 833 today.

CLX08.NYM Crude Oil Nov 08....82.62.... Up 1.43 (1.8%)


The chart for the Dow shows the dramatic & unprecedented decline over the last couple weeks with a violent rebound yesterday (as predicted here). After such a dramatic decline, history tells us that base building is needed. Base building after this record amount of damage could take months not just a weekend.


Dow Jones Industrials -- 1 month





Among other problems are hedge funds & their influence. They have had a terrible time in the market sell-off & must have contributed with heavy selling to meet their redemptions. Even with new rules for banks, they remain an important wild card moving markets in a big way.

Hedge Funds Concede Errors, Profess Optimism After Worst Month in 10 Years


This is the time to try to keep cool heads & digest all that has happened especially in recent days & weeks. Earnings releases may not completely dominate the news in the next few weeks, but they will be key in explaining the health of the economy.

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