Top Line: The stock market has every reason to go down but the fantasy of a rally is alive in the hearts and minds of the bulls. Today's two reasons to keep the fantasy going are related to the Fed and Lehman. Any near term rally should not have much staying power and again, it will be completely reversed.
The stock market opened on its lows of the day and pretty much ran up the rest of the day. With about a half hour to go a news item, or should we say a rumor, hit the Street that suggested that Bank of America was going to buy out the troubled Lehman Brothers. When that story broke the Dow was slightly down on the day but that quickly changed as the buyers bid stocks up in the final half hour of trading. It was a stunning rally that added nearly 200 points.
This past week, enough bad economic news to indicate that inflation may be somewhat less of a problem than was thought just last month. By now you already know what the combination of these two things means, the market expects a Rate Cut...Now. Well, next week the Fed will meet and decide what to do with rates. Just for the record, we don't think that the Fed will lower rates next week. We do think and have thought for a while that the next rate move would be down so it's nice that the world has once again come over to the Update's way of thinking.
In spite of the "bid" for Lehman, it did not respond in the late day rally. Lehman and Merrill Lynch were punched for harsh losses on the day and were in the top five volume leaders. Lehman was down another 40% on the day while MER was only down about 15%. Another stock in the top five was AIG which opened down in the morning and traded under 14, unbelievable.
We apologize for another post without answering the important questions we have been asked over the past week. The important thing is that the answers to those questions are still going to be relevant next week.
We've started to keep data on way too many items but we think they represent the most important of what we are tracking right now so we'll stay with them. Have a good weekend.
HUI: 262.97 -5.76
FSI: 75.28 (relief rally)
VXO: 27.11 -0.28 (heading up to 50)
SDS: 68.03 -2.01
QID: 46.92 -2.14
Dow Industrials: 11,433.71 +164.79