Stocks bounce on Obama hope

Stocks bounced sharply today on hope. Stocks seemed to rally near the end of the Bernanke comments to Congress. Here are a couple of remarks in the London Financial Times.

Stress tests of big US banks that start this week are unlikely to lead to any of them being seized by regulators and nationalised outright, Federal Reserve chairman Ben Bernanke told Congress on Tuesday. His comments provided the clearest signal yet that US authorities hope to support major banks as going concerns in the private markets, taking equity stakes as necessary to shore up their capital in what would amount to partial nationalizations. He made it clear that he does not believe that outright nationalization makes sense today.

There seems to be a bit of a discrepancy between the last two sentences, as the last sentence says no nationalization and the previous says partial. It seems as though as long as the nationalization is not outright and only partial it is OK. If a teenage school girl gets pregnant maybe it would make her feel better if she were only partially pregnant and not outright pregnant. I don’t believe in varying degress of socialism. One drop spoils the system in my opinion.

Also, in search for a reason for the rally today, is the address by Obama this evening. Maybe traders think there will be something said beyond the normal, getting old, campaign retoric, and whining about how he inherited this from eight years of failed policies. What most likely really caused this rally was an excuse to cover shorts in an extremely oversold market. Prices did stall out on that much advertised and watched support level (view S&P chart in previous post). Short covering spurts in steep downtrends can be fast, and come without warning. They are difficult to catch off the daily charts. One can try to catch the falling knife when sentiment starts getting very one sided, or try to catch the turn by watching intra-day charts. My trading plan calls for waiting for the trend to reverse, and they waiting for the pullbacks. For now I will assume that this rally will run out of steam if prices get up to the moving average lines. If there is some backing and filling with some positive advance/decline or momentum divergences, then I’d be more inclined to think a trend reversal was at hand. A one day pop after several down days isn’t enough to convince me that the market has rejected lower prices and is ready to move higher. It is always possible, but I think the support level that the market just bounced off was just too easy and convenient. The market just doesn’t advertise and comply so easily. We’ll see if there is follow-through shortly.

Here is a link to the March commentary by Bill Gross. His opinions are always interesting.

Someone sent me the above photo of Chucky “Cheese” Schumer. I thought it was funny.

2 thoughts on “Stocks bounce on Obama hope

  1. Bob, that’s a good point. It might. These relationships can easily get out of synch. When the 11/21 low in the S&P was made, it looked like a positive divergence was setting up with the higher low in the USDJPY. Then when the S&P went sideways the USDJPY went on to make new lows. Now the USDJPY is trending up nicely back into the area of the Nov S&P lows. So really don’t know what to make of it. I prefer to do analysis on each market by itself because I’ve been fooled one too many times by taking cues from one market and applying it to another. In the past the S&P USDJPY relationship has been meaningful, so it is probably one piece of the puzzle, but I would still put more weight on signal given by the S&P individually. Sorry I don’t have a better answer.

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