Top Line: The stock market has succeeded in convincing most that the worst has been seen. A massive rally over the period of less then two days can do that. The most likely resolution is that the market will need to go down.
For the time being, many are relieved that the market has been saved by the government...we are reminded of the saying, "We're from the government and we're here to help." Thanks but no thanks. These overt steps by the US government will only end up being inadequate. The point is that they think they have to "do something", anything.
In this case they are fixing a problem with big money, taxpayer money. They are telling us that they think there is this big problem but the GDP has not gone down and the Dow is near 11K. Apparently, the news of this big problem hasn't reached the stock market.
The US futures are not happy this evening and indicate a bit of a down opening on Monday. There could be a little more buying that comes in after this but the highs of Friday morning should hold. Even if they don't, the market has exhausted a lot of energy on this two day move and will have difficulty moving much further.
The SEC has decided to halt shorting on several (799) financial stocks for a ten day period with more coming on the heels of that if necessary. The shorts provide a lot of liquidity in the market and not having them in place will create some issues for the market over the next few trading days.
In case we haven't been specific enough, the powers that be know that there were a lot of short positions last week. What was needed last week was for buyers to come into the market to hold it up or more to the point Push it up. Where do you find buyers when no one is buying? That would be in the huge pool of shorts. What are they going to do for an encore? Good question.
We would like to comment on the government plan to save the world but we saw a NY Times article by Gretchen Morgenson has captured the essence of our thoughts and we thought you could read her article.
FSI: 75.21 (part two of the Big Bounce)
VXO: 33.55 (Thursday's high of 45.81, getting close to 50 or higher)
SDS: 67.03 -5.47 (Friday's ouch)
QID: 48.68 -1.92
Dow Industrials: 11,388.44 +368.78