Desperately Seeking A Stock Market Bottom

While the economic forecast is bleak and corporate earnings are being revised downward, making the very strong case for a bear market, it’s not too unreasonable an assumption, to start looking for some sort of a bounce, being that the stock market as represented by the Dow (^DJI) is now down 886.08 points in February. To put it more clearly, that is an 11.07% decline in just 23 days.

We have been looking for a bear market rally for almost two weeks now, to no avail. However, with yesterday’s (02/23/09) action, we are hopeful and we are not just looking for an up move soon, we are looking for it TODAY (Tuesday)!

Why? Well financials, which have been leading the markets lower, were strong performers on Monday. There are those that posit the idea that the stock market cannot rally if financials are not moving to the upside. Well they may have found a near-term bottom yesterday.

Also, stock market futures are up in pre-market trading, indicating that we will open higher. Considering what happened yesterday, obviously, this is not something we can bet the farm on, but we are hopeful.

There are some potential negatives. The government is offering a whopping $94 billion in debt this week for auction, starting with a $40 billion two-year notes offering today. This is causing treasuries to fall, which is raising the yields. With investors being spooked out of equities, higher yields on safer government bonds could attract investors looking for safety, sapping equity inflows.

We also get the S&P/CaseShiller Home Price Index for December, as well as Consumer Confidence report for February today. Needless to say, it would be too much to expect those numbers to portend good things for the economy. On the other hand, some of the best days we’ve had in the stock market in the past three months have come after the release of disappointing economic news. So maybe we will get an extension of that today.

Last but not least, the Dow closed at 7114.78 yesterday. We thought 7,500 would provide key support, but the index blew past that to the downside like it was not there. The question now is will 7,000 hold?

From a technical analysis standpoint, the charts are ugly. But mathematically speaking, we can’t keep shedding 500 plus points every two weeks. It is not possible. So we are confident we will get our bounce today if financials can extend yesterday’s gains in a meaningful today.

We are jaded now. We are expecting a huge rally some time soon, but are not betting on that for today. We are just looking for a positive close and maybe a gain of 75-100 points on the Dow. Now if as the trading day progresses, we maintain a bullish stance, then traders thinking we’ve found a bottom might start entering and possible effect a short covering rally.

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