We had an extended massive rally again, which seemed to follow around the world after China released its economic data that reflected a quicker recovery than expected, that helped lift Asian markets, then Europe markets, and trickled into the U.S. The Chinese news was good on many fronts, including exports (which was better than expected – reflecting that products are starting to move). China’s biggest story was on its domestic front – from infrastructure to consumer spending. They are certainly seeing a slow down, but their slow down is the equivalent of a booming year in the States. China wants to play a bigger role in the world economic forum, as they have been taking a back seat and treated as a 3rd world manufacturing nation of cheap goods. But the rise of China is becoming apparent to all.
Obama when he was campaigning had made harsh remarks about China – including that they manipulated their currency. However, his tune has radically changed and the Treasury Sect. Geithner paid a visit to calm the storm (a 3 prong sales pitch that included: U.S. dollars and bonds are safe and not losing their credit rating, the Fed. and Treasury have a “Strong dollar” policy, and the U.S. will focus on reducing their deficit.) – They question now is did China buy the sales pitch. To fly the Treasury Sec. to China for a road show – reflects the important of having China on board to continue to buy our debt, which they have reflected huge concerns. China listened, but they don’t want just talk – they want to SEE those results. Unfortunately everything that Geithner preached, has yet to unfold, the dollar is weaker (not “strong”), the U.S. credit rating is questionable and one foreign rating agency has announced they will be downgrading it, and the U.S. national deficit is at all time highs by at least 3x as much.
I think China will give us time to “prove” ourselves – but they can ONLY wait so long.
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GM filed bankruptcy….
This morning there is news about a possible sale of Hummer, but the bigger questions are how long with the bankruptcy take, what kind of GM will emerge, can they be profitable, and what role if any will the government take.
There is still way to much uncertainty at this point.
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Banks sells shares to raise money…
The banks are not out of the woods yet and JP Morgan, American Express and others are selling shares to raise billions more money. Geithner was asked this morning about banks being able to repay the TARP – his answer is not clear – If they meet the burden. It wasn’t yes or no. So far they have NOT been allowed too.
Yesterday’s rally was driven by every sector but the banks which seem to have lost steam.
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Futures Pre-market
The futures are giving up a little after the big run yesterday . Expect a lower opening.
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Support / Resistance
If there is any proof of the massive rally, I would say that it was the S&P hitting that 200 day moving average. Not that I am a technical guy, but for a rebound this quick after a yearlong fall to hit a 200 day moving average is a good measure of how fast and how far we have return. The question on everyone’s lips has it been too much too fast?
INDU 8500 / 8750 (A breakout over 8500 rocketed it to 8750 – we seem to see a little pull back, but is it another “buy the dip” and a road to 9000? Note that GM and Citi were removed. The INDU unlike any other index can always go higher because of the human intervention to replace “better” stocks. While other indices are based on capital or other math formulas.)
NDX 1475? (There was a snap down back in October from 1475 – the market has rallied hard and we a just closed that gap. Is 1500 in the cards?)
SPX 950! (We hit that Jan peak yesterday at touched the 200 day moving average. A sign to buy or sell – the talk is mixed on the street.)
RUT 520! (Just like the SPX the RUT hit that Jan peak.)
This has been a big rally and certainly in the face of economic instability. The economy has a long road to play catch up. The question asked on CNBC this morning – is this a Sugar Rally? Some traders seem to think so.
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Conclusion
The rally has been great for the moral of this nation and bringing back investor and consumer confidence. The question remains has it been too fast and too much. Economically speaking it certainly has been, as one would argue that we also oversold. The market moves on perception and does over react (to the upside and downside). The problem is that the Bulls have no fundamentals to hang their hat on – they can’t really point to anything that reflects economic recovery or that we are even at a bottom yet. Sure there are some “perceived” green shoots – but those are questionable at best. The data reflects a different story – jobless rates continue to rise, banks continue to need money, inflation concerns are driving gold, silver, oil, and other commodities higher, the long-end of the yield curve is ramping, and the consumer (while confident) doesn’t have jobs, credit, or money to spend as contraction continues.
So will the economy find a bottom and recover quick enough to meet market expectations, or does the market come off to meet economic reality. The professional traders I have talked to are getting loft concerns, even my very bullish friend who correctly called the bottom. He too is now saying it’s time to take a little off the table, because the economy is not making the kind of turn around that the market seems to anticipate. Sounds like there is a little sugar in this rally.
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