Monday, February 2, 2009

Thoughts From The Morning That I Forgot, Until Now, To Post

Although the market had become extended to the upside on volume that certainly didn’t suggest any great effort on the part of the big money to start putting their captial to work (which in turn made the pullback that took shape towards the end of the week not at all surprising) the newsflow certainly didn’t do all that much to help. Once the details regarding the stimulus package became known and word got out that the bad bank plan had hit a snag, market players took that as their opportunity to head back into their bunkers.

Of course, the notion that we were going to get a neat and tidy solution to the monumental problems we are facing is absurd, but there’s been at least a hope that the government might be able to facilitate the pricing of the toxic assets that have arguably acted as the biggest headwind in this economic debacle. We’ll see if new administration and Congress can come up with some new ideas, but those who were hoping for an honest-to-goodness rescue are starting to get nervous.

Most market players understand that time is the only thing that will help us move towards the next phase in the economic cycle, but even if the stimulus bill has a host of unintended consequences along for the ride, at least it would help to restore some confidence to Main Street. So much of economics depends on pure psychology, and if folks think that the government’s actions will help get us back on the right track, then it very well could simply because the expectation that things are getting worse (or better) will oftentimes results in a self-fulfilling prophesy.

We’ll see where the folks on Capitol Hill go from here, but hopefully, Wall Street won’t get themselves in a tizzy over any new proposals and set us up for another ugly failure after the initial wave of euphoria wears off.

The good news is that we are still in okay shape from a technical perspective. We’re above the lows from the 20th, but at the same time, the indices have put in a short-term lower low since the Santa Claus rally fizzled out a month ago. Like we said on Friday, the good news is that we have some clearly defined support and resistance levels, and how the market acts around those areas will give us good insight into what the character of this market might be as we move forward.

Unfortunately, so far this morning, it doesn’t look like market players are too optimistic. We’re off the opening lows, but have pulled back again after the better than expected reading on the ISM manufacturing index. We’ll see if the bulls will be able to regroup as the day progresses, but we’re not too hopeful that they’ll be able to put together a sustained move to the upside.

All in all, the news flow continues to be negative in general, but there have been a couple of bright spots in some earnings reports and economic data. However, the overall mood seems to be rather dour, but on the other hand, further bailout or stimulus news could trigger another round of short-covering by those caught leaning the wrong way and some anxiousness to follow along by underinvested bulls.

The bottom line, then, is that we’re in an interesting spot here as we kick off the new week and month, but again, we are far from having the type of environment that lends itself to building decent positions. Never mind the fact that there just aren’t many charts out there that support any substantial buying. The important thing, then, will be to watch how the pricing action develops, and to have a game plan in place to deal with whatever gets thrown our way.

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