Friday, February 6, 2009

Bear Market Rally Like Crack Cocaine

2:35 pm : The stock market sports strong gains near session highs. Beaten down industry groups top the leader board -- homebuilding (+16%), diversified financial services (+14%), regional banks (+14%), diversified banks (+12%), auto parts and equipment makers (+12%).

The above quote is from, noted as the markets approached the highs of the day on Friday. As I noted earlier today, the market has absolutely rejected the obvious, continuing stream of bad news, including January's horrific jobs numbers (-598,000), released prior to the market's opening bell by the Bureau of Labor Statistics (BLS).

So, is this "irrational exuberance?" A little of that. The mainstream-obviated financial press is attributing the rise in equities to anticipation of congress passing a stimulus bill, presumably by tonight. There's probably a little of that, too, but the truth probably lies somewhere between the PPT and the fact that Bank of America stock had fallen below $5.00 per share on Wednesday, and our great and glorious financial leaders could not stomach the thought that investment and pension funds would not - by charter - be able to throw more cash down that rat hole of a "bad bank." Throw in a teaspoon of short-covering and viola! Bear market rally.

Rallies like this, in the midst of a serious recession, are like crack cocaine: a great rush, but it doesn't last and the crash is difficult. We've all seen them before and, judging by past experience, this one is just a lot of noise, indicative of nothing in particular except for the assertion that investors can be herded more readily than cats.

Bank of America was the among the biggest winners of the day, gaining 31% at one point of the activities. The stock finished the session with a nifty 1.29 point gain, closing at 6.13, up 26.65%.

But take a gander at those industry groups leading the rally. Banks? Homebuilders? Auto Parts? Aren't these the same companies needing bailouts and TARPs? This was another in a series of well-orchestrated pumping by the "invisible hand" of government and financial firms afraid of losing their grip on the American psyche. Naturally, jacking the stock markets is only a temporary solution.

Another irony of our day is the news that many of the banks and institutions receiving TARP funds - now that severe restrictions have been placed upon them, like limits on executive compensation - banks are turning away from government largess and Bank of America's CEO, Ken Lewis (left), says his firm won't need any more.

Is Lewis to be believed? Probably not. Bank of America is technically insolvent. Besides, his bank has already received $45 billion in direct funding, plus another $118 billion in government loan guarantees. Let's hope BofA doesn't need any more money.

Here's some more proof of the extent of insider meddling in today's (and every day's) trading. Look at how closely the indices tracked by percentage gain. Absolute lock-step. Unusually aligned.

Dow 8,280.59, +217.52 (2.70%)
NASDAQ 1,591.71, +45.47 (2.94%)
S&P 500 868.60, +22.75 (2.69%)
NYSE Composite 5,475.28, +149.27 (2.80%)

To say that today's gains are illusory or fantastical might be putting too fine a point on it, so I'll patiently wait until stocks on the Dow (of which every single one was higher today) revert to the norm at 8149, pulled down by the absolute weight and unshakable might of pure market dynamics. The Dow can only go so far for so long before retesting the lows set last November. How far and how long you ask? A few hundred points (maybe a top at 8600, though that's doubtful) and about another month at the outside. Sooner or later reality rears it's pretty head and investors head elsewhere, profits in hand.

On the day, advancing issues hammered decliners, by a heavy margin, 5137-1446. New lows remained atop new highs, 144-22. Volume, as it was yesterday, was strong, not surprising, considering how much money went into bidding up stocks that should have been going down.

NYSE Volume 1,611,600,000
NASDAQ Volume 2,429,589,000

Commodities continued under some pressure, which is normal. Oil futures finished a volatile session down $1.00, at $40.17. Gold barely budged, picking up 10 cents to $914.30. Silver's advance was the sharpest of all, up 41 cents, to a multi-month high of $13.16.

The stock indices all registered gains for the week, snapping four-week losing streaks and posting the first weekly gain of 2009. Direction is still down, though point-and-figure chartists will note a reversal here. Considering the depth of economic despair the country and globe is encountering, this doesn't seem to be much of a sustainable trend.

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