Top Line: Wednesday brought a little rally, one that we hoped would show up sometime soon. Now the Dow is above the point when we heard about the GE miss last Friday. Can it go higher? That's a very good question and we think the answer is "not much". The Dow should have difficulty with the 12,750 area which you might be able to consider is where we are tonight with the Dow trading as high as 12,625 today. What's a 125 points between friends?!?
Last night's news from INTC and US Bank helped ignite an intense fire in the overnight markets and then JP Morgan added more fuel to the fire. The increased CPI number didn't even get a passing glance in the stock market although the bond market did suffer an important loss on Wednesday. Then after the market closed it was IBM's turn as well as EBAY's and both were greeted favorably by the market. In Asian trading on Tuesday night (their Wednesday) there wasn't much enthusiasm for the INTC news but tonight's trading (their Thursday) is showing more buying as the Dow was up strongly.
Back to bonds: Treasury bonds broke through a trend channel on Wednesday, meaning it was going along nicely in an upward pattern with higher highs and higher lows but today it made a lower low. This could have a negative effect on the Treasury bond market if there is any followthrough. As we have mentioned here occasionally in the last couple of months, the Fed has desired this to happen but this break is not exactly what they had in mind.
This break in bonds was accompanied by the big stock rally which dragged money from the bond market to stocks. What the Fed wants is for credit to expand with the catalyst being lower corporate bond interest rates so companies will borrow money Or lower mortgage rates so people can get cheaper mortgages.
The problem with all of this thinking is that the bankers, or more appropriately the mortgage underwriters, have tightened up their standards for getting loans. Why not? There are so many foreclosures and defaults on mortgages that there are very few reasons to throw more cash at such investments. What's a Fed supposed to do?
So, here we are. The stock market has now made an effort to move higher, commodities are still screaming higher with oil at record highs, the Treasury bond market is lower. What do we do now? The stock market has some work to do on the upside if it really is going to convince anyone to get real bullish. The world has just seen a lot of bearishness and has recently was convinced the market was going to go down. Now, there is reasonable doubt in people's minds. Our opinion is the market wants to confuse as many participants as possible so it will go up some more.
And, so it goes, the market seemingly ignores the real economy as INTC and IBM have given the tech heads a reason to celebrate. Bad news? What bad news? The market action is trying to convince the world that the worst is over and the market is about to go to new highs. We think there will be worse news ahead but for now the market is happy to be in a river in Egypt--yes, denial, in case you were wondering.
FSI: 78.02 (not a very strong showing from the Horsemen)