SHORT TERM: roller coaster day as FED/Treasury announce CAP bank program, DOW -80
Overnight the Asian markets were mostly higher. Europe opened higher but closed mixed. US index futures were flat overnight, the SPX opened at 771 and then headed lower. At 10:00 Existing home sales were reported to have resumed their downtrend after a one month bounce, 4.49 mil v 4.74 mil units sold. The market continued lower until 11:00 when it hit the low for the day at SPX 753. The SPX then rallied into noon and 765, before retesting the low by 1:00. Another rally followed to 2:00 when the FED released the following statement regarding the new bank bailout: http://www.federalreserve.gov/newsevents/press/bcreg/20090225a.htm. The market immediately sold off on the news, but bottomed near 760 at 2:30 when various Treasury statements hit the wires. The following generally sums up the CAP plan, subject to modification: http://apnews.myway.com//article/20090225/D96IPTR81.html. By 3:30 the SPX had rallied to 780, but gave way in the last hour of trading closing at 765. For the day the SPX/DOW were -1.10%, and the NDX/NAZ were -1.00%. Bonds dropped over one point, Crude rallied $2.45, Gold lost $19.50, and the Euro was lower. Support for the SPX remains at 768 and then 734, with resistance at 789 and then 848. Short term momentum displays a slight negative divergence at this afternoon’s highs, and the very short term Globex charts do as well. Tomorrow, weekly Unemployment claims at 8:30, along with Durable goods. Then at 10:00 New homes sales will be reported.
Today’s afternoon rally only made it to 780, falling short of the resistance at the SPX 789 pivot. That pivot may still be tested before this rally turns over. Thus far, the two day rally from SPX 742 looks quite choppy and correctional in nature as expected. When this Minor wave 4 does conclude we’d expect lower prices ahead. The new bank bailout program (CAP) announced today, suggests an absolute blank check for all banks with assets over $100 bln. The preferred shares – common conversions appear to cap the market price of these banks at 10% below the close on Feb 6th for the next two years, or until they recover. Best to your trading!
MEDIUM TERM: downtrend
LONG TERM: bear market