While Obama received lots of applause last night as congressional leaders rose to their feet over and over again, the stock market once again expressed disappointment by falling out of the gate rather than rising, despite a relatively upbeat day for the financial sector.
Yesterday the market rallied strongly after Bernanke did his best to assure congressional leaders and the public that bank nationalization is not a preferred tool to help restore health to the banking system and even if done would not take the form that would wipe out shareholders.
Even Geithner rebuked the idea of bank nationalization when he said, "I think that's the wrong strategy for the country and I don't think it's the necessary strategy. What we need to do is to make sure that these institutions have the resources necessary to perform their critical function on an ongoing basis in our economy as a whole."
But there is this “stress test” that Geithner has prepared that began today. What a poor choice of words for what is really nothing more than a specialized audit of several of the largest banks with a little computer simulation of “what if” scenarios.
You see, the banks which likely receive the most government assistance are those which fail the “stress test” the most. Is it any wonder that the bank stocks have been hammered? Even a shareholder would probably welcome the stock prices to dive given this kind of analysis and testing.
Why the public is in on this stress test analysis is beyond me. There are many areas where more transparency in government is needed but this may not be one of them. This squishy kind of analysis is leaving many investors squeamish.
The uncertainty that comes with a formally announced “stress test” that will extend into April sometime leaves many investors unsure of what happens next and/or when “next” is going to be.
Despite the on-going nature of the “stress test” now being conducted, Geithner did his best to assure the public that the Treasury stands ready to support banks that would need more capital to withstand a worse-than-expected recession.
But waiting until April before we know the full approach from the Obama administration regarding their plans for handling the current bank credit/capitalization crisis is stressing the stock market as well.
Despite today’s selling, from a technical perspective the lows reached yesterday were not breached today and the market closed well above the lows of either day, suggesting a short-term bottoming pattern is developing.
Like I said yesterday, Obama was given a nearly perfect opportunity from a technical perspective to have the markets rally on his remarks. But alas, we must wait for another time. I wish him luck on the next go around.
I remind you that we are now in the month-end window dressing period. So any of you with thoughts of shorting the market please be forewarned. Shorting the market in any way or fashion during the last week of the month into the first week of the new month has proven to be a hazardous strategy.
Does this mean that we are assured of a rally over the next two weeks?
Perhaps, it is certainly overdue and the market remains strongly oversold. On the other hand, all it really might mean is that that the odds are against betting on the short side during this period. If the market is true to form, we could just as easily see a lot of sideways trading emerge once again.
One positive that still holds true is that in the broader market picture the November lows are holding and a potential double bottom appears to be playing out. Double bottom patterns are often precursors to an intermediate advance.
If we could just get some concrete details in the numerous plans that are being considered for jump starting the economy, then perhaps the market will gain some footing here as investor confidence begins to increase.
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