Monday, May 4, 2009

Buying Panic In The Last 15 Minutes

Stocks stayed strong all day but there was an absolute frenzy in the last 15 minutes of trading to take out at the highs. It was probably a combination of short squeeze, performance anxiety and downright panic, but whatever the reason was you were run over if you tried to fight it.

The great dilemma of this market now is that the action is so strong that you don't want to be left out, but you have to wonder if the bulls can stay this frothy for much longer. At some point we will see a spike down that stings a lot of overanxious bulls, but in the meanwhile there is money to be made chasing crazy momentum.

Calling a market top into this sort of action is easy to do. There will be a pullback at some point, but it's all about the timing. At the moment it is just a big celebration of bullishness -- the party might be running awfully late, but it's still going strong.

Going into more detail, in summary, the S&P 500 spiked past 900...Stocks are now sporting a modest year-to-date gain after a strong session in which strength in foreign markets, better-than-expected economic data, and leadership from bank shares helped the S&P 500 ascend to its best level since January... Monday's gains were broad-based amid relatively high trading volume, which had showed signs of tapering off late last week. More than 1.7 billion shares traded hands on the NYSE this session... Buyers took early cues from overseas markets, where Asian stocks marched higher following word that several Asian finance ministers ordered that an emergency liquidity fund of $120 billion be pooled. News that China's second quarter GDP is expected to outpace that of the first quarter and a better-than-expected April PMI provided additional support... European bourses fed off the good news, shrugging off news that the European Commission expects the European Union economy to shrink 4% this year, which is down from the 1.8% contraction that it had previously forecast, according to The Wall Street Journal. Germany's DAX gained 2.8% and France's CAC advanced 2.5%. Britain's FTSE was closed for holiday observance... The upbeat tone abroad helped support a positive sentiment heading into the U.S. open. Optimism was further bolstered by news that pending home sales for March advanced by a better-than-expected 3.2% month-over-month. Though the news feeds into the housing recovery argument, it threatens to stall a housing recovery since rates could respond by moving higher... Construction spending in March increased 0.3% month-over-month, exceeding the 1.6% decrease that was expected. In turn, the March report will likely make an incrementally positive contribution to first quarter GDP revisions... The better-than-expected data helped propel the major indices markedly higher in a broad-based advance, but financials garnered the most interest. Led by diversified bank stocks (+20.5%), the financial sector gained 10.1%... Despite what seemed to be a vote of confidence in banks, participants expect that several banks may need additional capital to satisfy the government ‘s bank stress tests, which are scheduled to be released on May 7. In fact, an AP report said that regulators told Wells Fargo to shore up its balance sheet since the bank would have trouble surviving a deeper recession. Earlier in the morning, billionaire investor Warren Buffett indicated in a CNBC interview that Wells Fargo and US Bancorp would be fine if macro conditions deteriorated further. US Bancorp was actually put on watch negative by Standard & Poor's, according to Dow Jones... Participants' determination to bid financial stocks higher supported buying in the broader market. All 10 major sectors in the S&P 500 finished with gains of at least 1.5%, helping the S&P 500 cross the 900 level for the first time in months... The positive tone in equity markets lent itself to the commodities trade, helping the CRB Commodity Index climb 1.5%. June crude oil contracts closed at $54.43 per barrel, up 2.3%. Gold futures shot above $900 per ounce to close 1.6% higher at $902.00 per ounce...

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