Tuesday's session started out with a bit of a down move. There seemed to be some speculation that the MLE SIV we mentioned in our last post was not going to be able to come to fruition. The banks involved expressed some doubt as to whether enough entities would come together to make it work. The uncertainty led to selling early and the financial sector felt it.
The fact of the matter is that this new entity was not going to be buying distressed debt anyway. Examine the situation as if it was you. You have some cash to invest and what do you want to do? Do you want to buy something that is worth 25 cents and pay a dollar for it? Of course not!!! You want to buy something that is going to make you some money.
But, as the day couldn't be disturbed totally by such negative attitudes in finance, something else had to emerge and that was tech. Several major tech firms are announcing earnings over the next few days, with IBM and INTC right after the close on Tuesday. During the day, several tech names saw some buying.
Then, right after the close most of these firms did show better than expected results and managed to persuade buyers to push up the price of their stocks. The exception is IBM which had a decrease in price. In any event, that pushed up the futures and would seem to indicate an up morning on Wednesday.
That brings us to the technical part of the show. Cue the music... Well, the next move here is significant. Looking back to last Thursday, you can see that the market had a key reversal with the up morning turning down and selling hard into the close. Since then we have had sideways action until this evening.
With the tech earnings news, there seems to be a rally at the start of trading. What we think will be critical is the size of the move. With a move that fails to get back to Thursday's highs, the market should be ready for a sizeable decline. If it does get to Thursday's highs, it could mean essentially the same thing due to the pattern in place right now. One thing we notice is the oil price moving higher and we immediately think the stock market should be doing the same along with it. Is something different?
Wednesday should be important to the near term trading so we will be back tomorrow to discuss it here. For right now, we wanted to provide a link to a great article describing how structured mortgages are set up. It's a little long but it does a pretty good job. The comment section would be a good place to discuss how this works. Make any comments or ask any questions you want there.
The 20th anniversary of the 1987 crash does not mean much so we only mention it as a historical date to remember. It's more important to watch what the market is doing now.