Monday, August 06, 2007

The Bulls Are Back In Town

Finally a strong day in the market. The Dow had its biggest point gain (+286) since 2002, though we know its all about percentage moves, not points.

Nonetheless, the SPX led the way today, rising +2.4%. The Nasdaq gained +1.4%. But it was the financials that were really strong. The bank index vaulted +5.4%, followed by the brokers which rallied +3.8%.

Volume was very strong also. Some of this could have been short covering ahead of the FOMC meeting tomorrow. It's tough to gauge what the Fed could say in its statement, but if they make any dovish comments, it should help the market build on today's gains.

If I were Bernanke, I would lower the fed funds rate, but I have little confidence that Ben would do something that overtly market friendly.

The 10-day put/call ratio hit 1.31 today, only one point shy of its all-time record in March. We know how that correction played out. I am betting that the surge in bearish sentiment will have a similar effect on helping the markets bottom this time around as well.


At 4:40 PM, Blogger Suge Knight said...

I disagree, too many people are expecting the Fed to save the day tomorrow, that's also a contrarian indicator. Nothing changed from last Friday to today. I would watch your ass if I was you, the bears will stick it up your ass first chance they get kiddo.

At 4:52 PM, Blogger J. Kahn said...

First off, please stop using profanity on my site. Let' keep it clean.

Second, no one expects the Fed to save the day. The fed funds futures predict little chance of a cut, and the economists expect the rhetoric to remain steady.

What has changed from Friday is that the market got even more oversold. So we are due for a bounce.

At 4:55 PM, Blogger Suge Knight said...

I apologize J. No more profanity. You said we're due for a bounce, is this the bottom and will we retest the lows to confirm the bottom?

At 5:11 PM, Blogger J. Kahn said...

No worries, Sug. I know how you rappers get. I don't mind an F-bomb every now and again, but not in every sentence.

I don't try to predict exactly how it will play out, but basically I would say, yes. I think we will get a good bounce; then we will come back down, and maybe these lows will hold, maybe not. Time will tell.

But I am going to take it day-by-day and adjust my exposure to what I am seeing in the markets.

At 5:15 PM, Blogger Suge Knight said...

J, great sense of humor there! Well, I guess we'll find out tomorrow then. But the next issue is "what is next after the Fed meeting?" Besides, I have a feeling Countrywide is going to collapse as well.

At 6:56 AM, Blogger tommy said...

What reasons do you have for thinking that the Fed should cut? What downside do you see to the Fed cutting and losing all credibility in terms of their stated mandate (maximum employment w/price stability--no mention of stock market sell offs which still leave the broad markets up on the year)? If there's no real downside, then why not make rates 4%? Why not make them 0%? Why do you think the Fed should bail out an industry that practiced widespread fraud over the past few years which resulted in many people getting homes which couldn't be afforded? Should there be no downside to gambling (which is what most subprime buyers did over the past few years)? Should the Fed also stand outside of casinos and bail out the "poor people" who take their pay checks and piss it away at the slots?

At 8:37 AM, Blogger J. Kahn said...

I don't think the Fed should cut to "save" the markets, or the idiots that overextended themselves. I simply think they are being too restrictive here.

Look at the bond market, where every interest rate along the curve is below the fed funds rate. Do you think the Fed governors know more than the bond market as a whole?

I think the Fed should inject more liquidity into the system because the credit markets have seized up. That is not healthy. And if the Fed's mandate is full employment, then they should be concerned about big public companies going under.

But when has the Fed stuck to their "mandate"?

At 9:26 AM, Blogger tommy said...

Go ask your buddy Greenspan or Bernanke about the yield curve. According to them, "it's different this time." Depending on whom you ask, the long-end is either a conundrum or due to a savings-glut. The yield curve had been inverted for well over 1 year now yet you haven't called for them to cut rates. Why now? Credit markets have actually rallied a decent amount from the lows which were set last week. The market is far from seized up. It's shut off to some P/E buyers or to companies/people who shouldn't be getting loans. As for unemployment, we are about .1 or .2 off the lowest unemployment rate since 2000. Corporate defaults are at decade lows. I think we have some time before the Fed has to really worry about job losses. Long term bulls included should hope that the Fed takes this opportunity to restore some credibility and make people realize that leverage works both ways and there are risks to buying stocks/homes/other assets.


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