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Daily Blog -02/11/09- 2:14 P.M.


Oversold Bounce is Fading

Wednesday's session started out with some hope that Tuesday's drop was overdone and that stocks were short-term oversold. Investors were buying the dip this morning but it looks like enthusiasm for stocks is quickly fading. The gains in the major averages have melted into losses and the markets are on the verge of breaking down under their short-term trendlines of support.

Chart of the S&P 500:

Chart of the NASDAQ Composite:

Financial stocks, the sector hit hardest by yesterday's post-Geitner sell-off, were leading the rally this morning. Gains in the banking indices have decayed to about +3% in the BIX and BKX banking indices. Major financials are seeing a bit better performances. Citigroup is up 5.9% at $3.55. Bank of America (BAC) is up 7.3% at $5.96. J.P.Morgan (JPM) is up 3.7% at $25.60 and fading from its highs. There are a lot of pundits that suggest investors stay away from financials and believe that the lack of clarity in the government's plan will portend more pain to come for this industry. Many don't want to buy banking stocks when the rules are subject to change on a week by week basis.

Most of the market has turned south again. The only sectors showing gains besides the banks are broker-dealers (+1%, like Goldman Sachs and Morgan Stanley, which I guess are technically banks now), biotech is up (+0.2%), drug stocks (+0.6%), gold stocks (+5.8%), insurance stocks (+2.1%) and homebuilders (+2.1%) round out the sectors still in the green.

The worst performers today are transportation stocks like airlines and railroads, and energy stocks. Crude oil declined for the fourth day in a row after the weekly inventory numbers showed another build in stockpiles. Inventories have reached record levels and crude oil has fallen to new 52-week lows.

Meanwhile in other news the Senate and the House are nearing an agreement on the stimulus package if they can keep it under $800 billion.



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