Wednesday, September 23, 2009

End of Rally or Start of Something Even Better?

Stocks took a 180 degree turn after the highly-anticipated announcement by the FOMC of the Federal Reserve, first blasting higher (the Dow pushing beyond 9900), but just as suddenly reversing course, heading straight down into the close to finish with the largest losses in nearly a month.

Alarmists will say that this is the beginning of a correction, which they said in May, June and July and again at the end of August, but they will still be wrong. The reasons are simple. First, the Fed announcement was probably their rosiest and most bullish since the financial crisis of a year ago. Second, they - the Fed - hasn't stopped pumping money into markets and reiterated that they would continue that posture. Third, the Fed kept interest rates essentially at zero, right where it's been for a year, and they're surely not backing off from that. Fourth, the timing of the sell-out (as opposed to a sell-off, I'll explain below) was extremely suspect and more than likely engineered by some very large players. Those would be the usual suspects from the failed banks and brokerages at Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America.

This kind of unexpected turn has gotten to be expected by market pros, and they're not going to be swayed into selling, though those who bought in anticipation of the market going higher on the Fed announcement (which it did, initially), may have a while before they get back to even. This was mostly planned, well-organized selling, something like the reverse of a short squeeze, with the big money taking theirs off the top. The rally, which is now more than six months old, remains intact and stocks will recover, probably in a very short time. There simply isn't any better place to put money to work. There's also plenty of support in the Dow 9400-9600 range. This was simply profit-taking and nothing more than that since the fundamentals of the market did not change.

Dow 9,748.55, -81.32 (0.83%)
NASDAQ 2,131.42, -14.88 (0.69%)
S&P 500 1,060.87, -10.79 (1.01%)
NYSE Composite 6,964.69, -82.44 (1.17%)

Declining issues beat advancers, 4080-2388, but evidence of the rally remained in the new highs vs. new lows metric. There were 507 new highs on top of 68 new lows, a very wide margin in a trend that continues to suggest higher stock prices. Volume was solid, though much of that volume had to do with the upside achieved earlier in the day. All told, the sell-out was not impressive and unlikely to encourage those of a bearish inclination very much.

NYSE Volume 6,319,143,500
NASDAQ Volume 2,699,233,750

What may have been more significant was action in commodities and in the dollar index. Right after the Fed announcement, the dollar fell abruptly, but soon after reversed course and finished higher, just the opposite of what stocks did.

Oil was absolutely shattered on the day, finishing down $2.79, to $68.97. The metals did not align, though they were lower. Gold sold off by only $1.10, finishing at $1,014.40. Silver fell 21 cents, to $16.91.

What happens next depends completely upon market sentiment, which has been somewhat positive and isn't likely to change soon, unless Thursday's unemployment claims data - both initial and continuing - come in below expectations. The time has come for employment, even though it is a lagging indicator, to start doing something other than tread water. Ditto the real estate market. Existing home sales data is on tap for Thursday at 10:00 am.

If these numbers are poor or show only incremental improvement, stocks could take an even worse beating, though judging by the exquisite timing by the big money players, there's probably going to be a return to the rally in short order. Obviously, one day does not make a trend, and as unexpected and swift was this decline, coming out of nowhere and running a full 150+ points on the Dow in the final 90 minutes of trading, qualifies as a one off event, completely orchestrated by the crooks and swindlers who brought you 9/11, the financial collapse, the TARP and every other suspect financial event of the past 20 years.

Don't be swayed. Their own greed tells us that stocks will have to go much higher short term.

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