Stocks have biggest gain in 6 years

Plans for the US gov to shore up financial markets plus UK officials changed rules barring short-selling on financials brought back buyers in droves to markets in NY. Stocks rose sharply in the last hour. Dow was up 410, advancers over decliners better than 2-1 while NAZ popped 100. Financials in NY liked that news, the S&P 500 FINANCIALS INDEX had a 28 point gain to 273 ending its short term bear market. Oversold markets have a way of spinning on a dime when its time to rebound. The marginal banks benefited the most as Wachovia (WB) rebounded 5½ to 14½.

•U.S. Stocks Soar Most in Six Years on Government Plan to Shore Up Markets

UK Regulator Bars Short-selling on Financials- AP


Volatility has exploded in securities markets. Today it reached 42 before settling back, down 2½ to "only" 33. Above 20 is considered very high, 30 is much higher & 40 is astronomical. The last time it reached the 40s was 6 years ago.


Gold has had a wild couple of days as many went overboard searching for safety. Stocks were sold to buy commodities, especially gold (note the price collapse in the PM when stock markets took off). That market should quiet down but there are still gold bulls who see much higher prices in this new financial world we're entering:

Gold





General Electric, a Dow stock, AAA rated debt, a S&P 500 Dividend Aristocrat, has had a rough time, especially in the last year as shown on its graph (today GE popped 1.85, contributing to the Dow rally):

General Electric (GE)





Recently it was the biggest company in the world in terms of market value but has dropped out of investor favor, down 50% from its high last year. Worries about its health, particularly its large financial businesses, cost it many old friends. Some are even questioning its AAA credit rating, only about a dozen companies remain with this elite credit status. GE is a crude proxy for the market, when it ails markets are hurting.

Back to economic news, oil ended essentially flat in the 97s after reaching 100 earlier in the day. The Alerian MLP index calmed down, recovering from a 10 point loss to end at break even (in 3 year low territory).

Despite the good news lifting markets in the PM, fundamentals remain entrenched. Financials still have whopper size problems. Late news is that Morgan Stanley is taking a hard look at Wachovia. Even if they merge, plenty of financial problems remain. In addition the economy is limping along with high unemployment & inflation problems. I just got a couple of extra bottles of Diet Coke & Sprite Zero to help get me through this period.

• Morgan Stanley seeks deal with Wachovia- AP

Markets up on favorable reports

Dow is up 96, advancers ahead of decliners better than 2-1 & NAZ is up 9. Markets were encouraged by a favorable a private report showing the economy gained 9K jobs in June vs estimates of a 60K loss. As reported last night,the SEC is extending the new rules on short-selling. Pres Bush signed the housing bill helping 400K homeowners & Fannie Mae (FNM)/Freddie Mac (FRE). Oil continues to pull back, now it's below 122. Collectively these were taken as good signs for stock buyers.

S&P 500 FINANCIALS INDEX

Value 290.30

Change up 2.93

% Change up 1.02%

Financials are cooling down, but are still having a nice day. In 1+ days, they're up 24. A leader, Bank of America (BAC), is up more than 1, even topped 34 on today's opening as shown in the 10 day chart:





While financials are doing well, REITs pulled back after yesterday's strong gains. The Alerian MLP index inched up to 266, remaining close to 262 support level. MLPs while not directly related to oil, they only move oil & gas around, seem to follow its lead. Most will be going ex-distribution (typically representing 2+% of the stock's price) in the next few days distorting raw numbers. Sadly junk bond funds still can't get no respect with their 12% yields.

More macro economic numbers are coming later this week. I think they will be giving gloomy signals. Oils will be reporting earnings in the next couple of days which should be record numbers. Bloomberg TV reported that hedge fund managers had a brutal (one of the worst ever) month after wrong bets. If true, prepare for big stock price swings when they try to even out positions.