"Stress test' this seems to be the signal Washington, the world has tossed at the market recently. An uneasy trader, investor is evident throughout the market. Where to start?.
1. On the heels of a terrible January Empire number, we had confirmation today eco data is worsening and last months PMI’s # and BDI were just a mirage. The Philly Fed number was atrocious for February.
2. GE trading below $10, BAC in the $3’s and C in the $2’s spooking investors as these prices only a few months ago seemed impossible to reach. It is pretty clear BAC is going the way of FRE/FNM type of nationalization as the preferred shares are seeing action today trading at a steep discount to their $25 par values.
3. HPQ’s results are a wake up call to the only recent bright spot on the market as it pulls down and weighs down the space . The slide of business from BRIC countries noted yesterday signal a rebound in 2H 09 won’t be as expected in scope. In the Machinery sector, CAT recent retail sales are blah!
4. “Stress test" for the financials is underway and with few details of the specifics, the market is worried about who will not meet and beat the test and if one fails what will happen to the bank that does?…Again, a problem with few details to anything D.C is doing keeps buyers away from bank side.
5. Eastern & Western European bank fears remain high.
The beginning of the week, we said 800 is the new 850 and this is proving correct as far as resistance is concerned. After a early positive bias, 797 was the high as Commodity sectors buoyed the market and after the close we are zoomed in on the 752 November lows (close) support level.
If 752 area gets tested quickly, it may prove the short lived time between 750-800 proves to be a buying zone for a rally in some duration. The reason is there is a big divergences in the market. The equity market is NOT following the credit markets!. This is the fundamental course to follow and the market may just be saying lets test 750 area before taking the natural course of things in a market. Fixed Income deals are being eaten up and there has been no reaction yet to TARP2 while credit markets continue to improve from it. The TALF launch is any minute and this will in no doubt help the credit markets and equities should finally begin to follow as it restores consumer asset backed credit, lending to students, small biz etc. Also, stimulus’ may not be perfect, but its impact will stir things up in the coming months. Simply, this zone 750-800 could end up being the 'big buying zone' looking back at things a few weeks, months(s) down the road. The equity market can wake up quick and follow. A TALF launch most likely will cause an immediate positive reaction for a trade, so watch headlines emerging to get a step up.
Right now, there is no place to hide it seems, today even the educational services stocks took a beating as focus turned some ratio of defaults. Hang in there as the possibility remains this turns very soon, otherwise 650-700 comes before it's time.