主题：04/20/2009 Market View -- 宁子

SUMMARY:

- Ever-changing bank regulation, renewed worries about world economies provide trigger for post-expiration decline.

- Feds preparing everyone for bank nationalization.

- Global reflation trade takes a hit as investors run to safety.

- After hours earnings try to rally the troops for Tuesday.

Rally was ready to test and it flunks the first section.

Friday after hours was cheered as six regional banks proffered their TARP funds and the government accepted them with no strings. That was a hopeful signal, but even with that we predicted right here that the federal government would likely not allow the larger financial institutions to do the same. It didn't take long to get an answer to those musings as the feds more than hinted that it would not accept return of funds from the larger banks but would require conversion of the preferred shares into common shares, giving the federal government the largest voting block of stock in many of these institutions. The chance of controlling private enterprise through the major banks as well as the revenue windfall presented is, as feared, simply too much for a government controlled by those wishing to expand federal powers so far past constitutional authority as to make the Constitution irrelevant.

That may sound alarmist but recall the soothing words from those in Washington when all of this was going down originally last fall: in times of crisis the federal government historically steps in to lend a hand, and when things are stabilized, it steps out. That was how this was sold to everyone, i.e. a temporary but necessary intervention to right the ship of capitalism and then a withdrawal to let capitalism go forth and prosper. This has been repeated frequently by the current Administration. If this was the case, why would this be brought up BEFORE the bank 'stress test' results are completed? It indicates that the decision is a forgone conclusion and that the results may be jiggered to favor takeover.

Before you think we are talking only of the current administration we state clearly that a lot of this intervention was dreamed up by the Bush administration though those that have sought federal control of private enterprise for years quickly jumped on board the wagon and indeed reworked it to make the plan even more onerous to the private sector, reserving these ownership rights in the name of 'making the taxpayer whole.' Moreover, many of the so-called conservative republicans have formally or informally issued a 'no position' position on the removal of private CEO's by the executive branch or the refusal to allow banks to extricate themselves from TARP. These conservatives are conspicuous by their silence and are thus giving the federal takeover a tacit and almost unanimous thumbs up.

That sobering attack on capitalism dampened the market before it had a chance to get into the starting blocks for the new week. Then on top of that there was the worry that crops up every three weeks that the world recovery attempt just ain't making it. Gold spiked (886.40, +18.50). Oil prices tumbled (45.69, -4.64). Treasury yields tanked (2.84% 10 year, down from 2.95% Friday). The dollar surged (1.2968 versus 1.3026 Friday). All of these moves were safety trades as the one-two punch of bank nationalization and global recovery worries (were these the RESULT of the potential US bank action?) teamed up to send a market ready to test after a move higher into expiration sharply lower.

Earnings from BAC that were quite solid, a merger between ORCL and JAVA (after IBM said the coffee was too costly and too stale), and some upgrades were nowhere near enough to blunt the negatives swamping the market. Indeed even with the good BAC earnings that stock was down 24%. Banks on average were down 15%. Financials took the news very badly and that cut the rest of the market off at the knees on Monday.

The move lower was not just a test that you would expect after a rise into expiration. A 3.3% to 5.7% drop on the indices is not the stuff tests are typically made of. Volume surged on NASDAQ well above any recent levels, making it look like sellers were taking it out on financials and the rally leaders, the techs. But there was a silver lining and some mitigation from the M&A deal as that trumped up the volume. They were hit hard but then again all sectors were taken lower.

TECHNICAL. Intraday action was as weak as you would expect. Well, not exactly. After the decline at the open stocks moved laterally for 4.5 to 5 hours before a last hour rebound attempt. That rebound lasted a half hour and then stocks were crammed back down on the close to session lows.

INTERNALS. As you would expect breadth was terrible (-7.2:1 NYSE, -5:1 NASDAQ). Then you look to a potential saving grace, the volume. On first blush it looked as if there is no solace there. NASDAQ trade exploded to 3.2B shares, the strongest volume in six months. But . . . JAVA, the takeover target of ORCL, traded 780M shares, or about 750M shares more than average. NYSE volume was rather bland in comparison, coming in just above average, higher than most of the sessions this month but less than Friday and three sessions out of the last seven. Thus while the leading index sold off on heavy volume, it was not really the kind of distribution that shows a lot of big money institutions dumping stocks.

CHARTS. As the indices and big stocks sold back gains to the tune of 3% to 5% you heard the usual asinine comments on the financial stations about how the indices have just run higher 20+% and were due for a pullback. No one denies that but 4%+ declines in a single session are taking back 20% of that 20% gain. That is not just a pullback and it is not something to dismiss as just a normal giveback. The key is whether the indices continue to sell off or start something of a lateral move to consolidate versus selling off and seriously damaging the patterns. The first indication is the move is a swan dive, but reactions to good or bad news (in this case the latter) are often exaggerated and thus we have to see how the move planes out and if the indices can hold key support levels.

LEADERSHIP. Leaders were down along with everything else and indeed many of the stocks that plowed the upside ground for the rest to follow were targets for the sellers. There were many breaks of the steep up trendlines formed off the March lows. That is not a certain recipe for the death of a move; a stock will often break that sharp, first trend higher and then consolidate, base out some more, or simply test other support and rally again. With short term positions such as options, however, we didn't want to take the chance of a further decline or a lateral languish that bleeds value. Many are still holding longer term support, at least longer term versus the March trendline, and if the selling dries up and turns more into a lateral to slightly lower consolidation in the indices there will be some good buys. With the violence of the overall market move lower on Monday, however, you want to see how things settle out before you jump quickly into tests of near support.