主题：02/23/2009 Market View -- 宁子

SUMMARY:

- SP500 back to November lows as early bounce gets squashed.

- Lots of talk about the financial system, but again not much substance other than a huge federal takeover of Citi.

- LIBOR still a logjam. While Administration dithers on its plan, credit remains locked and thus there is no improvement.

- Retail investors apathetic, professionals exasperated at SP500 tests its bear low.

- After hours AIG says needs more federal money, JPM slashes dividend.

- Looks as if most have to make the test of the lows as in 2002.

Another Administration announcement of rather obvious goals fails to satisfy the market.

The Administration took the offensive Monday, coming out with some hard hitting plans for the financial systems. It announced the US stands behind the banking system and that the system will deliver the loans needed. It said the banks were more than capitalized enough, but it would make sure they had the capitalization and liquidity needed to operate. Moreover, it said the US stands behind the presumption that banks should remain private. Wow. The Administration supports 'the presumption' that banks owned by private individuals in a free enterprise system with a Constitution that at its essence is all about individual freedoms and privacy rights should be private. Now that is truly confidence building news. Instead of saying it is going to fix the problem and has the ability to do it, the Administration is so muddled in the public eye with respect to its policies and beliefs that it has to assure us it is not going to takeover the financial system. How comforting.

Now Treasury did say it was going to start the bank stress tests on Wednesday. Okay, finally a start. But at the same time it was rumored, and later in the day more or less confirmed (seems no one wants to make a stand about anything) that the government would up its ownership of Citigroup up to 40% through a conversion of preferred shares (gratis the TARP money) to common shares. Sources say it will at least be 40% and more like 50% or 60% ownership is what is likely. Add that to AIG and its 80% government ownership. Now that has really helped AIG a lot. After hours AIG said it needs more money or it goes bankrupt. Yes the feds ran to the rescue of AIG and drove it into the ground.

On top of that, after all of the arguments and public uproar about giving the automakers money (a.k.a. bridge loans) to avoid bankruptcy, the Obama administration Monday was talking about the likely need for the automakers to enter bankruptcy. Hold it. Didn't we all talk about this a month ago when this absurd bailout was put in place? Didn't most people with brains they were actually using say the automakers would just go into bankruptcy and take the $20B to $40B of taxpayer money given to them earlier with them into bankruptcy court (of course that money is already long burned)? Sure did.

Is there any wonder why all financial markets are in the toilet? The Administration may be competent. It may have a plan that will work. It is not, however, acting that way. It just had its second big release about its bank plan and the sum total of substantive data from both events combined was finally a specific date the bank 'stress tests' would start. It cannot control members of its own party making irresponsible comments about nationalization. It cannot control (at least we hope it was that way) its own party members from loading a stimulus bill with hundred of billions of dollars for social engineering that could not be accomplished in the light of day under normal times. We have a bad feeling this was all orchestrated as the Chief of Staff told his troops last year never to let a crisis go by to accomplish what you could not otherwise accomplish in regular session. That should make every US citizen ill. It talks of raising taxes at the height of an economic crisis (today Obama felt obligated to trot that out in a press conference). After the spending package that most Americans objected to was rammed down their wallets and purses (and as it turns out, retirement accounts), there is a high level of disappointment to disgust with how things are going. Yes, no wonder the financial markets are swirling in the toilet.

Stocks started modestly higher then immediately started to sell back. The selling hit the financials hard with the all fluff no substance announcements. Everything else, however, was dragged down as well as worries about the global economic future permeated the market given the apparent lack of any plans to solve the credit and banking crisis. That took down metals, materials, industrials, growth stocks - - pretty much every index fell 3.4% to 4.1%.

TECHNICAL. Started higher then immediately sold off all session with NASDAQ breaking the December lows and SP500 at the November lows. The small caps fell to the November closing lows.

INTERNALS. Volume contracted somewhat though it remained well above average on NYSE while just fractionally so on NASDAQ. Breadth was ugly at worse than -7:1 on NYSE and -3.6:1 on NASDAQ. The interesting feature was the 482 new lows on NYSE and 374 on NASDAQ. As SP500 tested the November lows and SP600 sold to its November closing low the new lows remain well, well below the 1000+ in November. That remains a technical positive for the market as stocks, while down the past tow weeks are mostly holding the consolidation range. That is key in the bigger consolidation picture.

CHARTS. Lots of gloom Monday as the Friday SP500 bounce fell apart. By the tone of the commentary on the financial stations as well as the gloom on the brokerage and trading desks you would assume that SP500 and SP600 smashed down through their November lows. But they didn't. Now they don't look very good and you would presume they are going to break those lows, but they are still in the consolidation that started in October. That ongoing consolidation is getting closer to the length of the 2002-2003 consolidation.

Now these facts do not mean that the market has hit terra firma and is ready to make the bottom here, but we cannot let the negative emotion and commentary blind us to the fact that SP500 has not broken the November low, particularly with the high negative sentiment. Now NASDAQ did breach its December low, however, and that opens the door for a test lower though it might just fill the late November gap higher off of that low (at 1384). More importantly, recall that in the 2000-2003 bear market DJ30, NASDAQ, SOX, and SP600 all undercut the prior low in October of 2002. Only SP500 did a reasonable job of putting in a double bottom with just a slight undercut when it bottomed. Obviously that means DJ30, SP500 and SP600 can undercut the lows, but if the holdout indices such as NASDAQ or NASDAQ 100 hold the level the bottom can be set when they test. The point: don't ignore the facts transpiring in the midst constant gloom. Support is somewhat elastic; as noted, SP500 broke its low briefly as well in 2002 and still was the index that held it together and rallied the troops from what turned out to be the bottom.

LEADERSHIP: There was not much to the upside Monday. Financials tried to lead out early but they were slaughtered. Chips gave it up. Metals as well. Some healthcare and gold stocks are holding, and while that may be something in this market, they are not making anyone any big moves. There were setups to move higher heading into the session with the pullback through Friday, but Monday wiped many of those off the playing field. Chinese stocks look to be one of the few areas in passable shape and could jump higher. As noted last weekend, the difference between stimulus that works versus that failing to work. Other leaders were scattered across many sectors, holding up well and trying to maintain their position to move higher, e.g. AMZN, BMC, PFWD. This selling as put a lot of stocks on the defensive.