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Daily Blog -02/13/09- 2:23 P.M.


No Follow Through On The Bounce

Last night the bulls were declaring victory after a very impressive and very sharp last hour rally in the U.S. market. Sadly there has been no follow through higher on the bounce today, which casts doubt about the internal strength of the rally. The major U.S. averages have been oscillating on either side of zero this Friday. It's not just stocks that are down. Bonds, the U.S. dollar, even gold, the traditional safe-haven play, is trading lower today.

Chart of the S&P 500 index:

Chart of the NASDAQ Composite:

Once again the financial sector is weighing on the market. Earlier today in London the Lloyds Banking Group announced that HBOS Plc., a U.K. lender that Lloyds took over last month, would have a much larger than expected 2008 loss of more than $14 billion. Shares of Lloyds plunged 43% intraday and closed with a 30% decline. This news may have reminded investors here that the financials could have further losses to report. Plus there is uncertainty about how much of the burden banks would carry if the U.S. government starts modifying or subsidizing consumer mortgages. The BKX banking index is off 2.1% and the BIX banking index is down 3.4%. Yet surprisingly some of our bigger banks are in positive territory or showing some relative strength. Citigroup is up 0.3% at $3.62. BAC is only down 1.5% at $5.77.

One of the big stories today is the upcoming vote on the government's stimulus bill. The House of Congress is due to report on it early Friday afternoon and the Senate might vote on it later this evening. Seeing the $787 billion bill get passed could be seen as a sign of progress and no one really expects the vote to fail. I don't think this news is going to have much impact on the market unless the vote does fail.

Speaking of failure no one wants to consider the possibility that General Motors may end up going bankrupt if they don't convince lawmakers next week that their restructuring plan to reach viability is working well. GM and Chrysler are due to present an update to lawmakers as the two auto makers seek to reorganize and retool their business before the March 31st deadline. If government officials aren't convinced that these two companies have made big enough changes to survive in the new market place then the government is supposed to pull the plug on the life-support system currently keeping these companies alive. Shares of GM are down 4.9% to $2.52.

Looking at the wider market we definitely have some clear winners and losers. As I said earlier the financials are lower and they are the worst performers today. Biotech, drugs, insurance, healthcare, and gambling round out the rest of today's hardest hit industries. Sectors showing strength are railroads, home builders, defense stocks, oil, and semiconductors. The semis are probably the best performers today with a 2.2% gain in the SOX index. If the SOX can breakout over resistance at its 100-dma then it might herald a new leg in the up trend for semiconductor stocks.

The U.S. markets face a long weekend with a market holiday on Monday. Meanwhile in Rome the Group of Seven nations have sent their bankers and finance ministers to discuss ways to improve conditions in their economies, consider new rules for the financial markets, and how to avoid the trap of protectionism.



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