Top Line: The stock market wasted no time on Tuesday morning jumping a couple of percent right at the opening bell. This makes two Tuesday's in a row when the Dow jumped over 400 points. We still do Not think the market has finished its downside business and will hold out for one more down move--this could be wrong but we think the two 400 point moves do not amount to much when taken over the last couple of months.
The news is just remarkable, the scene difficult to describe. In the past week, we have seen some of the most dramatic moves from the Fed that have ever been seen. We had a very major brokerage firm go under in about three minutes Sunday evening. The very script could not be more vivid in fiction. [Fleck said tonight that the idea that the market can celebrate on Tuesday after the Bear funeral on Sunday evening is disgusting. It's all too hard to believe. You will be able to talk about this moment in time for a long time--we're glad you're here to share it with us.]
What is the most difficult to believe is the way people think. Bear Stearns has basically been declared bankrupt without JP Morgan's (well, and the Fed's) interventions. Still, people are angry with the $2 price and think Bear is worth more than that. Traders had bid up the price of Bear to over $8 on Tuesday morning and still closed right around $6. The owners are sort of refusing to sell at $2. They want a piece of the "bailout" pie, too.
When considering this, and remembering some of our prior losses, we think they are cry babies. The market has given them a difficult week, to be sure, but these are the risks of stock ownership. Of course, their point is that the rest of the world benefited from the Fed's bailout program so why did they have to pay. They were sacrificed and they don't like it one bit.
This evening we want to spend a few minutes on the direction of the market. We just have a few comments. The Dow is the main index with strength the last two days. Monday, with JP Morgan going up 10%, the Dow was able to show a positive number when all other indexes were down on the day. Tuesday, we again see the Fed cutting rates by 75 bps and we remind you who this is for, The Banks, well the banks and the other NDFIs (Non-Deposit-taking Financial Institutions) that the Fed has taken under its large wing. [We apologize for using NDFI a few posts ago without saying what they are.]
With all of this movement, the Dow has benefited and has "Bear"ly broken above our March 12th Ceiling of 12,300. All of this effort is supposed to now take hold and the confidence should be back in the market. We don't think the work that the Fed has done will actually work in the long run. In the short run the market can think whatever it wants but if it doesn't go up Now, then the Fed's efforts will likely be forgotten or bad mouthed.
Our thought is that the Dow has traced out a corrective pattern that should lead to further selling, which after all is the main trend. This will not take too long for us to find out. The market can finish its up move here in the next day or two but it can't go too far. How far is Too Far?--well, there frankly isn't much room. It is options expiration week and we have had such volatile trading the last few weeks already. So, a little more volatility should be expected.
If the market does decide to go down now, in the next few days, the path down may be what we have been expecting. If selling occurs, we are not sure exactly what the "Whac-a-Mole" Fed will have to hit this time but it may try to do something again. We know the market is capable of making this Fed look pretty incompetent, if not downright impotent. They started their interest rate cuts when the Dow was near record territory and now we are down about two thousand points. They have spent a lot of their currency trying to hold up the banking system. Now we'll see if it was well spent. We think it wasn't. The Fed can not stop this, even though the market may believe for one day that they can. We'll see how long their $900 billion of assets lasts.
One last comment for tonight--Be careful, these are dangerous times.
FSI: 72.70 (the highest level in March)