[Editor's Note: On Wednesday evening we experienced a hardware/internet problem and were not able to post anything. We apologize for not having an Update yesterday. Thanks for coming back to check.]
Top Line: Wednesday did give the bearish position a bit of a boost and we do think the best of the rally is behind us. In fact, we think the market will stay below the highs generated this past week in all the major indexes. Thursday's action was mostly an attempt to rally them, an attempt that failed.
As the market closed, a familiar company announced earnings that were a bit of a disappointment. You guessed it, AIG disappointed with a $7.8 billion loss. AIG has been a stock that has led the market down in the past and it could easily be the leader to the downside now. Today's (Thursday's) trading was not kind to the company although it did recover a little by the end of after hours trading. AIG was down in the market's "corrective rally" day and then down more in after hours, about 10% in total.
AIG tried to smooth things over with investors by raising their dividend 10% which seems a little, for lack of a better word, questionable. Here the company is going to have to raise capital somehow and meanwhile they are raising the dividend to current shareholders. Questionable...
The other news of the day was from the US Treasury market which took its lead from the oil patch with both going up on the day. There's a strange pair of events. The article says that the US Treasury bonds rallied because of the increase in the price of oil??? The twisted logic (TTL) this evening is the higher oil prices brought up the threat of inflation and stock investors don't like inflation so instead of buying stocks (which were up, too, by the way) they bought US Treasury bonds in a flight to safety. Who can write this stuff?!? Whoever did forgot to put their name on the article--no kidding.
The most probable conclusion here is that Oil should not be going up. The dollar is rising, the bonds are rising and the stock market is about to fall again. The missing picture is that oil should be going down. Stocks and oil have been riding together for a long time, five years, corresponding to the war effort.
Our thought for the day is that the market is going to be having more and more trouble holding up. AIG gave sufficient fodder for the market to chew on tonight. Still, the overnight futures didn't seem to drop too much but there is a definite undertow this evening. AIG is a Dow component and after dropping about 3 points this evening, that would start the Dow off the day with nearly a 30 point loss on Friday. Probably more to come...
FSI: 94.39 (after yesterday's 93.69--this indicator is flashing red in a big way)