主题：02/27/2009 Market View -- 宁子

SUMMARY:

- Some economic data breaks the string of worsening results, but market does not.

- Q4 GDP revision tanks further, Q1 to be worse.

- Chicago PMI, Michigan sentiment post modest improvement after, starting the watch for others to show the same.

- Credit markets, having thawed post TALF, freeze once more on fiscal initiatives.

- Market on the ropes looks to NASDAQ to save it but it will take more time with this break of support.

Tuesday rally attempt fails on Friday.

Friday was the first day the Tuesday rally attempt could look for a follow through session, i.e. another strong upside session to show buyers were still interested.

It had its work cut out. GDP was nothing short of hideous. Michigan sentiment and Chicago PMI bettered expectations by a tad, stemming the negative tide of the past few weeks, but just a bit. The economic data is bad, but that is not the real issue. That the data is bad is no surprise. The market is not tanking when it hears bad economic news. It has not tanked all during the consolidation on really bad economic data. As the indices came off the November low that was the strength: taking all the bad economic news thrown at them and still moving higher.

The problem now is the next set of events supposed to help cure the prior problems. The stimulus package, the bank plan (or the lack thereof), higher taxes proposed as of October 2009, and a budget and policies (e.g. nationalized healthcare, trade restrictions, cap and trade, carbon limits) hostile to those that make the jobs and pay the majority of the taxes even before the hikes to come. Who knew that $40M to remodel the Agriculture Department headquarters, Depression-era trade policies, nationalized healthcare, and thousands of pet projects are the cure to the frozen credit markets? Dick Morris calls it a war on prosperity. No, it is a war on our Constitution and our progeny.

THAT is what is now weighing on the market. The credit markets froze again in response. Friday on the heels of the budget release the market opened sharply lower, tried to rally, but we didn't think it would hold and it did not. Friday was a microcosm of the entire week: a weaker open Monday, a bounce attempt, then failure and new lows. We used Friday to buy some downside positions in anticipation of some more weakness to start next week.

TECHNICAL. Intraday it looked as if something could be brewing. A lower start then a move from negative to positive, but it could not hold. The indices closed not at session lows but given they started below key support levels, the late fade put them back below support at the close. New bear market lows for SP500 and DJ30. A new closing low for SP600. NASDAQ fell below its December lows.

INTERNALS. Breadth was nothing, at least compared to what it has shown on the wilder sessions of the week. Volume surged on NYSE as Citi traded 1.8B shares, over 7 times its average trade that has, of course, been on the rise since late November as it has been effectively liquidated since. NASDAQ volume was not up as much, but it was no slouch, posting the strongest advance of the week as NASDAQ gapped to a new post-November low then failed an attempt to recover. New lows were on the rise, but as with Monday the numbers were quite mild, coming in at the 300 range. That is impressive and a positive as new lows are a measure of the strength of selling. If most stocks refuse to hit new lows as the market revisits prior lows that indicates fewer stocks participating in the downside (meaning they are building bases), and thus the downside chokes itself off from lack of fuel.

CHARTS. New bear market lows on SP500 and DJ30, and they did it on some volume as the financials suffered piling on. That indicates more dumping of shares and dumping often begets more dumping. Still looking at those new lows, however. Don't want to forget that as the markets struggle into next week. SP500 hit a new bear market low after almost 5 months of consolidating. A break of a prior low often leads to a fairly quick drop after the breach and then a pretty quick test as well. NASDAQ broke its December low for the second time on the week. This action by both breaks the rally attempt on Tuesday. The downside door is open for techs, and with SP500 falling below its November low NASDAQ, with its umbrella-like pattern is very much in position to make the November low test itself. That will be the real test for the market and this 5 month consolidation attempt the formed following the LEH failure. We need to keep in mind that support levels are spongy and that the breaks by SP500 and NASDAQ are not massive. Thus even SP500 is not irreparably harmed by a modest new bear market low. It is not basking in the warm sun, but it is not a total collapse at all.

LEADERSHIP. This is just what the market needs to find. The problem with leadership is that it depends upon an assessment of the economic future. Over the past three weeks leadership by techs, chips, metals, energy and other sectors that could be touched by the at the time potential stimulus to come and an effective bank bailout has been splintered. The selling broke down many groups and the modest bounce Tuesday and the inability to drive higher after that set up some more downside. Some chips remain in good shape (MRVL, XLNX) and some consumer retail surprisingly remains solid (AMZN, TJX). On the other hand metals are down, most energy, and lots of tech have broken down. As NASDAQ tests its lows these groups or new groups need to hold and base out. Again the modest rise in new lows on this test needs to be kept in mind.