Market Bounces After Testing November Lows

The market is getting a small bounce in early trading, after a handful of better than expected earnings reports. Yesterday, the market declined significantly, testing the November 2008 lows. As I mentioned yesterday, whether this "retest" will be successful can only be known in hindsight. But for now, I would not be surprised to see a bounce into month-end.

Chairman Bernanke is giving his semiannual monetary policy report to the Senate Banking Committee today. I can't remember the last time the market rallied when one of these hearings was being televised, but maybe today will buck the trend.

In corporate news, there were several better than expected earnings reports, including Home Depot (HD), Heinz (HNZ), Macy's (M), and Nordstrom (JWN). Target (TGT) missed expectations, and its stock is slightly lower.

Also, JPMorgan (JPM) slashed its dividend from $0.38 to $0.05 to help protect the company's balance sheet. The company also said it expects to be profitable in 2009. The bank stocks are trading higher this morning as a group.

In economic news, the CaseShiller Home Price Index fell again in December, with the 20-City Composite showing a -18.6% decline. Stability in the housing market remains elusive. This is a key ingredient to stabilizing the markets, so new initiatives to help homeowners is key.

Also, I am hearing there might be an announcement on "mark-to-market" rules, which would be HUGE for banks. Let's keep our fingers crossed.

Asian markets were lower overnight; the dollar is mixed this morning; oil is slightly lower near $38, while gold is down for the 2nd day after touching $1000; the 10-year yield is lower to 2.74%; and the VIX is -5% lower, breaking just below the 50 level (a good sign).

Trading comment: Yesterday I took profits on our Nasdaq hedge (QID) as well as our emerging market etf hedge (EEV). So far, those look like good moves. I have not added any additional long exposure, but may look to do so if today's early strength can hold.

The market is now deeply oversold, and I expect a bounce into month-end at least, if not a bit more. I am also looking to reestablish my short bond position (TBT) now that bond yields have drifted lower again.

still long a little EEV