Thursday, September 18, 2008

Can The Early Bounce Stick?

The market is bouncing at the open, but these days its how the market closes that matters. Late day selloffs have been brutal. Yesterday, the market looked like it was coming back around midday, but by the close that rally was just a mirage.

The S&P 500 is +2.04% right now, after news that the Fed had indeed coordinated a global liquidity injection. The Fed, the ECB, Bank of England, Bank of Japan, and the Swiss Natl. Bank together injected $180 billion into money markets to keep fearful banks from hoarding cash.

If you don't think there was an all out "flight to safety" yesterday, look no further than the action in the US T-bills. The yield on the T-bill at one point went all the way to zero!! That means investors were pouring money into these safe securities and getting NO yield in return. At the point, the return of capital trumped any return on capital concerns.

As I have said before, actions like this more often come toward the latter stages of panic selling, as opposed to being events that mark the beginning of a crisis.

Dow Jones said that Kraft (KFT) will replace AIG in the DJIA. And Morgan Stanley (MS) is mulling a big investment from China's CITIC. Also, Wamu (WM) is considering putting itself up for sale (finally).

Asian markets were lower overnight, but Hong Kong reversed a -7% decline after the coordinated effort by central banks to boost liquidity.

Oil spiked near $100 this morning, which is helping the energy and materials sector. Despite the bounce, oil is nowhere near breaking its recent downtrend.

The SEC also announced further initiatives to help curb excessive short selling, which could cause some short-covering. But the shorts have made so much money recently, they likely don't feel much pressure right now.

Let's hope this small rally can build on itself into the close. Engine room, more steam!!


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