The credit market has been trying to pull the stock market down over the past year and has failed to do so partly because the Fed has done all it can to prop up the liquidity in the system. Our position continues to be the fundamental weakness in housing will pull the economy and the stock market down. The question is and has been when.
Well, the look of the current market situation seems to be a build for a rally, possibly the Last big move to end the run we've seen for the last year or more. There is a large amount of bullishness in the market place with people believing that a down move is merely a reason to buy. As the credit markets start to pull in the liquidity available to it, the stock market will have trouble finding air.
With the Bank of America earnings out on Thursday morning, there was a negative feel to the trading but the sellers couldn't take the market down. After the close, GOOG announced what looked like positive results and the stock rallied. We seem to think that the likes of GOOG and the other four horsemen are about to find sellers rather than more buyers.
The market could spike to a high any time here and put in the finishing touches on this bull run. When we see this move, we expect it to take place during morning trading. There are some opportunities for up moves over the next few weeks, like the Fed meeting on Halloween and tonight's earnings news from GOOG. At some point we will see exhaustion. When that Finally happens, liquidity will dry up and bulls will turn into bears.
For now we wait...some more. Next week we'll try to analyze the Fed's next move along with any important market action. Erick mentioned the SIVs in his comment and we have tried to mention them here but they are complicated under the covers type of vehicles. Maybe the public will know more about them over the next few months, not that they wanted to.
Citi says they have lined up some short term financing for their SIVs so they are breathing a bit of a sign of relief. They are saying the credit markets are loosening up just a little. You would say that if you could float some commercial paper in this market as Citi did. Some others in the world have not been so lucky.
The WSJ has had a significant, front page article on the mortgage situation every day for about two weeks. We have enjoyed them and hope you have had a chance to read them, too. The Journal has provided us with some very good reading in the subject area. We suggest taking a look at the papers that may be floating by your desk.