Tuesday, February 17, 2009

Utter Hopelessness Setting In...Is That Good For The Market?

The big stimulus bill was signed by President Obama today, and the stock market was less than thrilled. As far as the market is concerned, the stimulus bill is actually old news at this point anyway, but the lack of confidence in the moves made by the Obama administration in the past couple weeks is clearly being reflected in the market. Folks have no sense of certainty about our economic future, and they aren't going to be doing much investing until they do.

We still have the extreme short-term traders out there giving us some last-hour volatility but the most notable thing about the market today was how broad the selling was. On the NYSE there were only 219 stocks advancing, while 2,905 declined. That is a very extreme level, and frankly, I'm a bit surprised the indices weren't down more.

Part of the reason the DJIA wasn't down more is that since the index is priced-weighted, stocks such as GM, C, BAC, AA and GE have a miniscule weighting compared with IBM, XOM and CVX. IBM has roughly 30 times the influence of Citigroup on the DJIA. With C down 10% or so compared with IBM's drop of 3%, that saved a lot of points for the Dow.

Nonetheless, the DJIA still managed a pretty hefty loss, and the S&P 500 dropped 4.5% and took out the key 800 support level. Volume picked up, breadth stunk, and we closed at the lows of the day. That may not bode well for the future.

Days like this make people feel they are trapped in the market, and all they want to do is escape. That creates major headwinds when we do bounce, as people take the opportunity to move back into cash with a little less damage.

What we saw today was some real discouragement. There are contrarians who will see this broad selling and very sad sentiment as a positive indicator. Perhaps it is, and we will see a bounce, but it is painfully obvious that we are in the grips of a nasty bear market, and trying to fight that fact is not a great way to make money.

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