Although the averages were starting to struggle by late afternoon, a surge of buying that began a little less than an hour before the close lasted right into the close on no apparent catalyst other than a desire on the part of market players to be in a position to be in front of a rally Monday morning should the bailout bill be passed. Still, despite the gains in the Dow, big-cap tech suffered all day long, energy and materials lagged, and only financials and consumer discretionary ended solidly in the green.
Like we said yesterday, the big question is, given the buying ahead of the news, if it happens: how much of the potential move has already been priced in? This is a classic sell-the-news set-up, so it’s a matter of whether or not we see some upside relief before it kicks in. Never mind the fact that there is still plenty of uncertainly about how much good any legislative action will do.
The other thing to consider is that all the folks who were short the financials aren’t going to be around to get squeezed, so it will be interesting to see if any move to the upside might be lacking vigor. On the other hand, the mood has become so gloomy that a relief rally might suck in some underinvested longs, but at the same time, there’s plenty of overhead resistance for the indices looming above, and that will be a major hurdle.
Like we’ve been saying, at the very least, we will hopefully be able to put all the government’s wrangling behind us sooner rather than later and get to a more tradable environment, regardless of the direction.