Top Line: The market direction is still up, in spite of a lot of efforts to hold it back.
The stock market continues to defy its critics. Every day the sellers come in and, it seems, that everyday the buyers come in behind them. Tonight's crisis du jour is the government proclaiming that there is at least one bank out there that "failed" the stress test. This news has brought some selling into the overnight markets. Is this really shocking news?
After last Friday's rally, the technicians are trying to figure out what happened. You see the market wasn't supposed to break above the highs of the week but it did. Hmm, what to do oh what to do?
As the market was getting ready to close on Friday, according to Fleck, the SP announced that there would about 14% in corporate defaults by 2010. That caused a very quick sell off in the final few moments of trading and now there is follow through on that "news". We put the "news" in quotes because this is the same organization that said that CDO's and CMO's of all kinds were rated AAA, including some subprime mortgage backed securities. So now, all of a sudden, they are certain that we will have huge default rates. It could happen but the market really doesn't care right now. It wants to go up.
You see, the market doesn't really think about today's news all that much. It is more concerned about the state of the world in six months or so. Yes, the market will "react" to news of the day but that is because there are those out there who really think that this stuff is not already known by the market. They read the headlines and think they are the only ones who know this information. Since the media is now reporting the news it must just be happening now so you can still make money off that news. It really can't be that easy and it isn't.
We'll see what happens this week. The quarterly earnings reports are still coming in and the Fed has a two day meeting this week. What do you suppose the Fed will say on Wednesday? The economy is slowing its descent and still needs monetary stimulus but soon it will be doing ok and we will need to pull some liquidity out of the market place to keep inflation at bay...is not a bad guess. They certainly won't be raising rates.
One item of interest from Friday's trading that we thought to be noteworthy was the trading in the TLT, an ETF that tracks the long end of the Treasury bond market. TLT made a new low for 2009; this, after the Fed is buying bonds like crazy. A bad breakdown of the TLT which would mean that the bonds themselves were breaking down would mean that there may be more money coming out of bonds and into the stock market. Just a thought. What do you think?