Stocks Get A Big Save From Obama Administration

Wow, what a turnaround. It seems the biggest turnarounds always come when things look the worst. I have been writing about how I was watching the SPX 815-820 level to hold, and that if it didn't we could be looking at a retest of the November lows.

So as the market broke below 820 and proceeded toward the SPX 800 level, I began to think about getting more defensive. But lo and behold, an announcement from the Obama Administration about stemming foreclosures sparked a huge short-covering rally.

If you look at the chart above, you can see how the SPX came down and tested the 808 level before rallying a full 3.3% in the last hour to close at its highs. With the market oversold, I suspect that this could lead to a bit more of a bounce. But unless we see real conviction on the part of buyers, I still think a retest of the lows could be in the cards for March. But one step at a time.

Here is the jist of the announcement that came in the last hour of trading and sparked the rally:

• The market has staged an impressive afternoon rally, with the Dow surging more than 200 points off the afternoon lows, erasing most of the day's earlier losses. The rally was triggered by a Reuters report that the Obama administration is working on a program to subsidize mortgage payments for troubled homeowners who have gone through a standardized re-appraisal and affordability test.
• Under the plan being contemplated, mortgage companies would use a uniform eligibility test even before a borrower becomes delinquent, sources said. This would set up a standardized mortgage modification process.
• The financials, which were one of the weakest groups in the market, have seen the biggest lift on the news, likely fueled by short-covering. Banks with mortgage exposure (WFC, JPM, BAC, PNC, STI, BBT, FITB, KEY) saw a notable lift, as they will likely be the most heavily impacted by the plan.
  

long SSO