Stocks sell off on Bear news, then find support and rebound

spy0317.pngThere was much news regarding the fire-sale of Bear Sterns that promised a very weak opening today. I won’t bother repeating the detail of the news as it has been reported in every media all day long. The more important aspect of the news to me is how the market interpreted the news. The stock indexes actually opened stronger than I thought they would, with the S&P opening right at the intra-day low from Jan 22nd. But instead of extending down, the market actually found some buying, or perhaps a lack of selling, and was able to mount a decent rally from the open. It did so in quite a choppy fashion, with the indexes turning positive, at least by the Dow, early in the session, only to retest the lows, and then rebound once again. The Dow closed positive, with the S&P slightly lower, and the Nasdaq losing a bit more. But it was still an impressive rebound ahead of the big Fed announcement on Tuesday. The trend is still firmly down with momentum threatening to turn back down, and has so in the shorter term line (white line). If this low, now tested twice, can hold, this market might finally stage a decent rally.
dollar0317.pngThe dollar was lower once again today, but like the stock indexes, it too stage an impressive recovery in the face of news that should have sent it sharply lower. You can see the long tail on the candle on the chart to the right. The little black candle on the very right is the price action in the next session after the day session closed. The candle from today (Monday) is the longer candle. You can see the close was a bit higher than the open, after a test of much lower levels shut off the selling. The trend is still firmly down with momentum turning flat in the middle of the range. It will be interesting to see how the dollar reacts to the rate cut tomorrow. If rates are cut and the dollar rallies, that would be a positive signal and could signal a long overdue change of trend in this very overcrowded, one sided trade.
The grains sold off sharply today, as did oil. Gold held onto gains, but is lower in the after-hours sessions. The Soybean chart has already retraced almost all of the last leg up. When still shows an uptrend, but was off 60 cents today.
I listened to Paulson this weekend discussing the dollar. I really get annoyed when he just keeps repeating the same mantra about how they believe in a strong dollar policy. The moderator even tried to pin him down to a further explanation, saying he’s heard that mantra over and over, but hasn’t seen any action. Paulson just keep repeating the same thing, kind of like asking a hari krishna a question and they just keep bouncing up and down, banging on their bells, and not answering. I don’t think he, or Bernanke, think of the longer term negative consequences of the falling dollar. They should. Money from high oil prices, largely caused by the falling dollar, is enabling Iran and Chavez. High grain prices, also largly caused by the falling dollar, are hurting many emerging economies. Foreigners have bought many of our bonds at lower and lower interest rates and then losing on the falling dollar. How much does the dollar have to fall before they either stop buying into a sinking asset or they just dump them. The integrity of a country’s currency is worth protecting. The government and Fed shouldn’t have a policy to destroy that credibility to bail out all those who partied too much during the real estate bubble.
baltic0317.pngI haven’t put up a chart of the Baltic Dry Index for some time, so here it is today. The price came back down to take out the red dot, which is a parabolic stop and reverse indicator. If looks like the index has had about a fifty per cent correction of the large down-leg.

Leave a Reply

Your email address will not be published. Required fields are marked *