Anticipating A Stock Market Rally Soon On Possible Change To Mark-To-Market Accounting Rules

US equity markets surged in the final 30 minutes of the Friday session as traders figured a possible “positive surprise” in news over the weekend might catch them short. The February US Jobs Report at 8:30am ET, which was horrible news but close to expectations, did not impact the market as prices opened higher and even rallied a bit to start the session.

From 9:45am through 3:30pm, traders hit the bids across the board. Even after the closing pop of about +175 DJIA points, the DJIA 30 index (^DJI) closed up just +32.5 +0.49% to 6626.94, down from the previous Friday’s close of 7062.93. The S&P 500 (^GSPC) added +0.83 +0.12% to close at 683.38, while the NASDAQ (^IXIC) dropped -5.74 -0.44% to close the week at 1293.5, down from the previous Friday’s close of 1377.84.

The Toronto Composite dropped -37.70 -0.49% to 7591.47, while the Venture Board was almost flat, lost just -0.57 -0.07% to close the week at 829.12.

Earlier in the day Friday, Asia-Pacific equity markets were weak except for India (+1.56% to 8325.8): Australia (-1.18% to 3111.7); Japan (-3.50% to 7173.1, which was extreme); Shanghai China (-1.26% to 2193.0); and Hong Kong (-2.37% to 11921.5).

At the close for the week, the French CAC (^FCHI) (-1.37% to 2534.5), the German DAX (^GDAXI) (-0.79% to 3666.4), and the UK FTSE 100 (^FTSE) (+0.02% to 3530.7) were soft going into the closing bell.

By the end of the Friday session in NY, the sector winners and losers were not changed much from Thursday. Healthcare (XLV +1.5%), Basic Materials (XLB +1.3%) and Energy (XLE +1.1%) were strongest, while Industrials (XLI -1.1%) and Financials (XLF -1.0%) were weakest.

Among industry groups, Big Oil ($XOI +1.8%) was strong, while Broker-Dealers ($XBD -2.8%) and Banks ($BKX -1.9%) were not.

Traders spent the day discussing news stories such as the Bernard Madoff case, which saw new motions filed by prosecutors that appear to be setting up a guilty plea next week. The general public is becoming increasingly restless that the well-connected all-time king of financial fraud may receive lenient treatment.

Also back in the news is the proposed trader tax, which traders believe has been initiated by Congressmen who have no clue as to how capital markets work, and would unwittingly kill the market.
http://www.securitytraders.org/Journal/sta-opposes-proposed-transaction-…

Whether or not the public like the concept of nationalizing the leading banks, it’s happening. The UK government may have struck a deal to take ownership of Lloyds Banking Group (LLOY.L) up to 77% and to 95% for Royal Bank of Scotland (RBS) in exchange for assuming almost all the forthcoming losses on assets that had the so-called insurance backing of some $30 trillion dollars of credit default swaps. Those CDS agreements are now clearly seen as a Ponzi scheme that was organized almost entirely by Bank of America (BAC), JP Morgan (JPM) and Citigroup (C).
http://www.cnbc.com/id/29565338

On the corporate front, both Dow Chemical (DOW) and Rohm & Haas (ROH) confirmed that mergers and acquisition discussions are underway. Dow gained +9.9% on +143% of average daily trade volume.

Roche increased their offer to buy the remaining shares they do not already own in Genentech (DNA) (DNA +11.3% to 90.86 on +589% average daily trade volume). The new bid is 93.

The US long bond ($USB +0.23% to 128.56) was strong and yields weakened, during the day long move to safe havens. Yields on the 30-, 10-, and 5-yeat Treasuries closed at 3.503, 2.828, and 1.839 percent, respectively. After the T-Bill yield cracked to 0.180 percent on Thursday, it remained in that zone on Friday, indicating no improvement in credit market issues.

Oil prices lifted +$1.91/bbl to 45.52, regaining Wednesday’s price, and holding the $45 level.

$GOLD futures (+$14.90/oz to 942.70) were bullish for a second day, although the goldminers were quiet. $GOLD contracts rallied hard (+$21.10/oz) on Thursday, so there was a lot of strength going into the weekend. The spot prices at the close for gold, palladium, platinum and silver were: 938.80; 203; 1065; and 13.34, off their highs for the day as the $USD strengthened into the close at 88.55 and the Euro weakening to 126.51

Crude Oil April futures closed at 45.52.

By the close, the DJIA and S&P 500 futures were at 6674 and 687.8 respectively, a bit higher than the cash market closes of 6626.94 and 683.38 respectively.

This report will be short and to the point. We encountered range bound activity all day, with highs made shortly after the opening, a decline to new bear market lows through mid-afternoon, and light short-covering driving the broad market to a marginal closing gain (SPX + 0.12%).

Technology was noticeably weak for the entire session (QQQQ -0.79%), with whispers of Cisco (CSCO) (CSCO - 2.41%) cutting back on orders, pushing semis lower (SMH - 1.17%) and a JP Morgan downgrade of Apple (AAPL) (AAPL -3.93%) sending aggressive traders to the sidelines. Even as S&Ps rallied, high-beta names like Apple, Research in Motion (RIMM) (RIMM - 4.11%), and Amazon (AMZN) (AMZN - 4.68%) were being distributed all day long. Markets that are ready to head higher are often led by these volatile issues as traders want lots of bang for their buck. Not a good sign in the very short term.

Neither is the fact banks and brokers were under pressure again, led lower by Goldman Sachs (GS) (GS - 7.48%). We mentioned yesterday to watch the 80 level on this stock as a tell for the market. Shortly after the opening, GS cracked this level, pulling down the S&Ps nearly -3% from morning highs. When the market is really ready to go up, some of these heavily-shorted, unloved stocks will easily double from bear market lows. Going forward, watch the usual suspects: Goldman, JP Morgan (JPM) (JPM - 4.04%), Wells Fargo (WFC) (WFC + 6.03%), and Morgan Stanley (MS) (MS - 4.45%).

Despite the Jobs Report, no significant information was revealed by the market today. We still are anticipating a large rally to begin shortly - perhaps tied in with the March 12 change to the mark-to-market accounting rules that might happen - and so we are ready to commit substantial funds to the market. We will spend much of the weekend narrowing our list down, identifying entry points, and establishing reasonable upside targets for each stock.

Several markets should by in sync; the US dollar should fall, crude oil and other commodities should move higher, and US bonds should decline meaning interest rates are rising. The confluence of these outcomes would signal equity markets are ready to drive higher.

Subscribe by RSS Subscribe by Email