TARPed out...

It seems whenever we are close to breaking out of recent range, there's always "something" that comes out and puts a lid onto the rally.   Although it wasn't a secret over the the past few days,  it became very evident with today's action that the larger than anticipated Citi issuance to be priced within 24-36hrs is acting as an overhang on the market, as is expectation of more supply coming onto the market.   Yes, we are talking about the heavy pressure exerted on the financial companies.  The majority of the weakest stocks on the SP are financials/banks.


We all know that whenever you lend someone money, you're expected to get paid back in time.   If the lender, in this case, is the Govt. of USA, you better hope that you return the money you borrow in a timely manner.    Well,  it had to happen sometime and we have to say it’s probably a pretty good time to do it, as far as the Govt. is concerned.    For the market participants, however, it can be a little annoying at this time of the year.    Just think about it,  we've been congesting for over 4 weeks and recent batch of Economic data has all been above the expectation.    If it wasn't for this "timely" announcement of TARP repayment,  we are sure we'd be way above the recent range already.    Hate it or not, the financial sector is a big role in the overall advancement of our market.    With all these billions that the banks trying to raise via. secondary offering, many institutions simply have to choice to participate.   As a result, managers are selling other financial stocks to raise cash to be part of the offering.    Why do the institutions have to buy those shares, you ask?   Isn't it true that those bank shares are fully priced already and don't have much of a growth quality in them?    Well, they are the banks and they are some of the most influential companies in the Economy and country.    More importantly, those banks have quite a saying among the investment world.    You help me, and we'll help you out, down the road.   If you refuse to participate, the investment bankers and underwriters may remember you for not being a team player down the road.      Again, all this is weighing down on the equity market.

On the other hand,  we are glad that this TARP headwind will be soon over with.   We should be fortunate to know that the banks now can get rid of the "burden" and start fresh on their books.    They are taking advantage of a friendly market and we know there's plenty of appetite out there for equity.   That's very smart of them.    Hopefully, when this is behind us, we can finally get a lift from the market and get us higher.    As far as the rest of market is concerned, small caps, the ones on our list especially, are still exhibiting some very healthy action today, particularly this morning until the last hour when most stocks succumbed to the persistent weakness in financials.  Yes, many of those plays did not make new highs today, but they are all within a very healthy range and there's definitely strength behind alot of them.  In conclusion, today is all about TARP and this will pass and be a positive down the road for the market.

Tomorrow we have the all important FOMC decision and we don't expect much surprise from the Fed.   We also don't expect much reaction from the market either.    This is still a relatively light week before we get to the holiday.    Come Friday, we also have the annual S&P rebalance which we'll see some heavy artificial volume from the market.   For now, be patient and use the low volume spike down to add to any favourite plays that get collateral weakness.