Top Line: Thursday has set the market back...again...giving late comers yet another opportunity to buy stocks cheap. We don't like this. We should have been selling into this morning's strength. Then we could think properly about this ugly day.
We are speaking of the late night fallout of the failed automaker bailout. Just before we started our post this evening, the Senate talks broke down and the market fell out of bed. The SP5oo futures dropped 30 points in about five minutes. So much for the idea that the market didn't want the government to bail out the automakers.
This news followed several other negative bombs during the day. The first one was the jobless claims were up and well over 500K. JP Morgan's CEO Jamie Dimon said that the integration of Bear Stearns had not gone too well because of the market turmoil in the past couple of months. He said a few other things that didn't please the market and then, after hours, Bank of America said it might lay off 35K employees. These items hit the market even before the Senate dropped the auto bailout. All of this has given the market a cold shiver that all the worries of the past couple of months may come back again.
Let's take a look at the volatility index and the Treasury bonds to see if something is amiss. First, the Treasury bonds didn't move up much even with the 200 point drop in the Dow. In fact, the TLT's have been sitting right around the world record price for about a week. As for the VXO (or the VIX), there was very little net change on the day. These two results do not support a drop in the stock market. With the selloff in stocks after hours, the Treasury bonds did jump to new highs so we'll have to see if these two indicators with confirm the down move or not.
As we go into Friday's trading, we are very disappointed in the way the market is trading. Yes, we know that the news is bad but we expect there is a rally in the making. If we have to go down and make new lows, so be it, but we really don't like that outcome. Putting in lows should have been done back in October and November. It felt like a rollover this morning so now the question is, "How far down do we go?" We'll see what happens Friday morning.