“Citigroup (C) posts a profit for the first two months of 2009.” “Barney Frank says that the SEC will reinstate the uptick rule as early as next month.” “Investors hope that mark-to-market rules will be temporarily relaxed.”
These statements led many to believe that life is good again, and the markets rallied for the best day in months.
But later the mark-to-market rules question was dodged by Senator Richard Shelby (R-Ala.) who reportedly said that it’s the job of the Securities and Exchange Commission (SEC) to change the rule. And when queried, the SEC responded that it will not seek to suspend the rule.
Despite the confusion with the SEC, the financial sector had a banner day, up 15.6%. And the run-up in financials triggered short-covering in the broader market resulting in a gain for 97% of the stocks in the S&P 500 (SPX).
The surge in the financials was largely due to optimistic comments about the sector on Tuesday by Warren Buffett, followed by a supporting statement of agreement by Fed Chairman Ben Bernanke as he spoke to the Council on Foreign Relations.
Citigroup (C), up 34%, and Bank of America (BAC), up 25%, led the Dow (DJI). General Electric (GE), another Dow stock, had a big day, up 18%, as investors bought into the conglomerate that has more than 80% of its base in the subsidiary GE Capital.
On the economic front, there was little to cheer about. U.S. wholesalers cut inventories in January by 0.7%, but economists had expected a cut of 1%. However, in the rush to buy, or cover, few were paying attention.
At the close, the Dow Jones Industrial Average (DJI) surged 379 points to 6,926. The S&P 500 (SPX) rose 43 points, closing at 720, and the Nasdaq (NASD) gained 90 points to 1,358.
Gainers on the New York Stock Exchange outstripped losers by 13-to-1, with 2.2 billion shares traded. On the Nasdaq, gainers were ahead by over 5-to-1 with volume of 909 million shares.
Crude oil for April delivery fell $1.36 to $45.71 a barrel, impacted by the U.S. government’s lower forecasts for oil prices due to falling demand. The Amex Energy SPDR (XLE) gained $1.97 with a close at $40.83.
The April gold contract dropped $22.10 to $895.90 an ounce, and the PHLX Gold/Silver Index (XAU) lost $5.53, closing at $109.97.
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What the Markets Are Saying
Today, I want to examine what others are thinking about this market.
I read Peter Brimelow’s refreshing column, and on Monday he summarized the prognostications of some of the popular letter writers:
“Astrology oriented Crawford Perspectives … up 50.75% last year, said, ‘There are evidences that our whole system is melting down, and that could certainly disturb the normal cyclic flow. We believe that will NOT happen All At Once or Right Now! Even a drowning man gets a last breath or two before going down for the count.’ ”
But Brimelow notes that Crawford’s “dabbling on the long side, after being triumphantly short through 2008, hasn’t worked out particularly well.” Crawford’s most recent prediction was for “another shocking capitulation phase” starting on March 10. Oops; that was yesterday — so much for planetary power.
Permanent bear Harry Schultz accurately predicted the crash of 2008 but Hulbert Financial Digest said that he didn’t make any money on it (hmm).
Harry’s latest service “repeats his 20-year V-formation forecast, with ‘decline of buying power’ until 2018 (‘Lifestyle will be that of the ’40s and ’50s. One TV, one used car, no eating out, pinch pennies, etc.’).”
Aden Forecast said, “The bear market has clearly been reconfirmed, which means that stocks are going lower. The market, however, is also extremely oversold and it’s well overdue for at least a rebound rise. Keep the stocks you have for the time-being and do not sell at these bombed-out levels. On the upside, if the Dow Industrials were to close above 7,600, it would be a good first sign.”
Earlier last week Brimelow summarized Robert Prechter’s current forecast based on Elliot Wave Theory this way: “On Feb. 23, Prechter recommended covering the shorts. Not all his reasons were comforting (‘this is an environment of escalating financial chaos. Currently, banks and brokers can still pay us. We need to be smart bears, not pigs.’). But one reason was the possibility of a ‘short and scary’ bear market rally.”
Congratulations, Mr. Prechter — that rally may have started yesterday. And it could end just as quickly as it started.
And here is my definitive view of where the market is going, if my target bottom of S&P 500 (SPX) 665 to 667 (see yesterday’s Daily Market Outlook for more) fails to hold.
Let’s go back to the big breakdown in October from S&P 1,200. It failed to find a bottom for almost three weeks, finally settling in at 820 for a loss of more than 30%. What if the current stagnation requires a similar sell-off?
A break from the 800 line of 30% would net out at 560, and that’s a number that many other analysts have been looking at as the final bear-market target. And so there it is: either 665-667 or 560. It may not be in the stars but under the present circumstance it’s probably just as good a guess as anyone else’s.
Today’s Trading Landscape
Earnings of note to be reported include: AFC Enterprises, American Eagle Outfitters, Aurizon Mines Ltd, Brigham Exploration Co, Bronco Drilling Co, Clarient, CVR Energy, D&E Communications and Danaos Corp.
Elbit Systems, Exlservice Holdings, General Communication, Hi-Tech Pharmacal, Hot Topic, ICF Int’l, Innodata Isogen, Inter Parfums, International Power plc, Jo-Ann Stores, Kodiak Oil & Gas Corp, Korn Ferry Int’l, LDK Solar Co Ltd, LMI Aerospace and Lumber Liquidators.
Main Street Capital Corp, Men’s Wearhouse, Middlesex Water, Miller Industries, Mobile Telesystems, National Semiconductor, Navistar Int’l, Neenah Paper, OncoGenex Technologies, Optimer Pharmaceuticals, Pall Corp, Park-Ohio Holdings Corp, PDI, Pennichuck and Pinnacle Data Systems.
Quiksilver, Saga Communications, Scolr Pharma, Speedway Motorsports, Standard Parking, Staples, The Buckle, The Descartes Systems Group, Ultrapar Participacoes S/A, Uranerz Energy Corp, Vail Resorts, WSP Holdings Ltd, and Xerium Technologies.
The following economic reports are due today: Mortgage Applications Refinance Index for March 6, U.S. Energy Dept. Oil Inventories for March 6, and February Federal Budget Balance (the consensus expects a $200 billion deficit).
Late news this morning: German manufacturing orders “crashed” in January and for the fifth-straight month they were less than expected.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
