Tuesday, April 01, 2008

Midday Check: More Signs of a Bottom?

The markets are really off to the races here. The Dow is up more than +300 points as I write (I hope I didn't just jinx it), and the financials are surging higher.

First, one of the most surprisingly different set of events today was the fact that there was more negative financial headlines, but the stocks shrugged it off and rallied.

UBS announced another $19 billion in writedowns, bringing its total to $33 billion. Deutsche Bank (DB) announced a $3.9 billion writedown, and both of those stocks are much higher! Also, Lehman (LEH) is raising $4 billion in a preferred stock offering that was "significantly oversubscribed". And LEH is up +13.5% today.

This is a big change of character for the financials. Normally, these news items would have the shorts pressing their bets on these stocks, and all financials would be lower. But today these groups are leading the market, with the broker index +6.0%. Nice.

Also, commodities are mostly lower today, led by gold. Gold is down -$35, breaking below the $900 level. This is occurring in tandem with a firming dollar, which is up against both the Yen and the Euro. The Yen ETF (FXY) is down -2.4% today. I would like to see this trend continue and for the Yen to keep falling.

The volatility index (VIX) is dropping -10.5% right now, and testing support at its 200-day average. A break below this level would be another bullish development.

Asian markets were mostly higher overnight; bond yields are higher, with the 10-year yield up to 3.53%; and the ISEE index is very low today, expressing skepticism of this rally.

It is rare to see so many indicators lining up to support a higher market. We have seen things reverse quickly in recent months, but if this continues, it would bode very well for the market in the near-term.


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