SHORT TERM: market rally extends on "bad" bank proposal, DOW +201
Shortly after the close tuesday rumors circulated that the Treasury Dept, under its new secretary Geithner, was preparing to create a "bad" bank that would buy over $1 tln in bad assets from the nations banks. The Treasury, however, would wait until next week before going public. Bank stocks, the financial sector and stock indices rallied on the news. Overnight the Asian markets were all higher. Europe opened higher and closed +3.45%. US index futures were much higher overnight and the market gapped over the SPX 848 pivot at the open, and then rallied right through the very short resistance at 857/858. Within the first few minutes the SPX hit 865, and then pulled back to 860 by 10:00. After that low the market continued to rally until the FED concluded its FOMC meeting with the following announcement: http://www.federalreserve.gov/newsevents/press/monetary/20090128a.htm. After the press release the market spiked to SPX 878, and then pulled back to 865 by 3:30. This was followed by a spike rally into the close. For the day the SPX/DOW were +2.90%, and the NDX/NAZ were +3.50%. Bonds lost about 3/4 points, Crude gained 65 cents, Gold dropped $12.00, and the Euro was lower. Support for the SPX notches up to 848 and then 789, now that the market has broken through its trading range, and resistance shifts to 912 and then 935. Short term momentum reached an extreme overbought level at the highs and is now backing off. Tomorrow, the weekly Jobs report at 8:30, along with Durable goods orders, then New homes sales at 10:00.
With the market gapping up this morning there was little time for the SPX 848 pivot, or 857/858 to offer any resistance. After the first few minutes of action the market broke out of its recent trading range, and gathered upside momentum throughout the day. The FED essentially had nothing new to add after meeting for two days. The focus now will be on tomorrow’s jobs report and friday’s Q4 GDP report. For now, as long as the pivot at SPX 848 holds, this market has an opportunity to test the next resistance level at 912. The government’s plan to swap bad debt with good debt, by creating more debt, continues to amaze. For the sustainablility of this rally one should monitor the KBE and XLF indices which both gapped up this morning. Financials leading again. Best to your trading!
MEDIUM TERM: downtrend, but rallying from SPX 804
LONG TERM: bear market