Market Commentary:
The stock market finished mostly flat on Monday as we head into the week, full of earnings announcements and economic reports.
A few weeks ago, I fully expected this quarter’s earnings to be just as bad as the prior quarter and that may well be the case with most sectors outside of the banking sector.
However, now that the Fed has implemented the new accounting rules and banks no longer have to declare their bad debts, we can expect bank earnings to look better – as we saw from Wells Fargo last week. There are several banks reporting this week.
However, I want you to be aware of what has been happening to volume on this five week intermediate-term advance. Volume on the Wilshire 5000 has been dropping!
This is typical of bear market rallies where buying is mostly concentrated in short covering rallies and low volume intervention. Big long-term money is largely staying away.
I know none of us want to get caught in another sucker’s rally and this rally has been a powerful one.
You need to understand that you are competing with big investment firms and their programmed trading systems, which in a market like this is a big percentage of trading volume. It is this group that buys in the after hours. It is this group that hits the market with trading programs in the last minutes of trading and they have been very active the last few weeks, convincing people to buy. Check the following:
Theses charts from the NYSE shows that program trading represents 32.6% of all the volume on the NYSE. (http://www.nyse.com/pdfs/PT040909.pdf) And I would venture to say that much of it occurs after hours and in the last minutes of the trading day.
At the top of the list is Goldman Sachs who far outdistances any other investment brokers who trade for their own accounts. Goldman represents a huge portion of the trading volume.
The NYSE reported that Goldman Sachs traded 1,422.5 in million of shares, of which 1,152.7 million shares was for its principal account. Only 62.5 million shares are for their customers.
This is a very revealing chart because it shows us clearly who’s powering this market up. Goldman has a huge long position now and when they have the public buying again---watch out!
Do you think Goldman’s program traders will want to hold their positions going into May? These guys know these earnings are doctored up.
Last fall, Goldman received $10 billion in government funds as part of the Treasury Department's program aim for kick starting the credit markets. Goldman executives in recent weeks have said they would like to repay the government loan in the near future.
After the close today, Goldman Sachs (GS) reported it swung to a profit in the first-quarter compared to the prior period. Goldman Sachs said net earnings for the period ended in March were $1.8 billion, or $3.39 a share, compared to $1.5 billion, or $3.23 a share in the same period a year earlier.
They also announced a secondary share offering, the proceeds which are intended to be used to pay back the TARP money they borrowed. We’ll see how their shareholders like having their shares diluted. Is it any wonder to you why the market has been driven up so high the last four weeks?
From a technical perspective, the stock market is very stretched to the upside, with the weekly stochastics now over 90%. After April 15th, I would be very careful with long exposure if I were you.
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