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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
December 15,
2008
Last week, the market's technical action continued to impress. We woke to
news Monday that both 3M (MMM) and Illinois Tool Works (ITW) were going to
miss earnings expectations and that Dow Chemical (DOW) was planning major
plant closings, yet the futures were up, volatility slightly down and the DOW
closed with a 300 point gain. Tuesday brought similar bad earnings news from
Texas Instruments (TXN) and Federal Express (FDX) and the market did trade
down, yet volatility readings did not increase appreciably. Thursday brought
a sickly unemployment report, yet the market threatened an upside breakout
before failing. Friday's wakeup call brought no Armageddon-saving GM rescue
loan bill from Congress and a Wall Street Ponzi scheme the likes of which
we've never seen. Predictably, the futures were down significantly, testing
support levels of SPY83 that have been discussed previously. At about 8:45am,
word from the White House came that they would consider using TARP funds for
the GM loan. This sparked a rise in the futures so that when the market
opened, lows of the session were established and we never looked back. What
are we to conclude from this market action? This critic concludes,
technically, that the market's ability to continually bounce off of support at
SPY83 must now be respected, until proven otherwise. Fundamentally, the
market has finally come to terms that the current news is, and will continue
to be, horrible and is now attempting to look forward and size up how current
government actions will affect these businesses longer term. Credit and risk
taking are still non-existent displayed by this week's Treasury auction of
short-term bills that yielded 0.00%. Volatility, though, has come in and has
refused to spike on sell offs. As a result, one must err on the bullish side
and ask the question "What will happen if this credit freeze starts to
thaw?" The answer here is that the assets that flowed into Treasuries
from riskier assets will reverse, leading to a liquidity rally. This, I
believe, is what the market is sniffing out and, as always, wants to be ahead
of it. As a result of Thursday's breakout test and the continued lack of
negative reaction to fundamental news, I have started to loosen stops on
positions that are opened which will tend to accumulate positions in
portfolios over time. While seeing a few rays of sunshine is apparent from
this writing, I also want to protect against it being the oncoming freight
train that runs us over on the way down. A close below SPY80 would negate
this thesis and require a new drawing board.
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