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The $SPX finished +3.6% yesterday to 1370.18 which is the 3rd biggest gain since 3/11 (+3.7) and 3/18 (+4.2). UBS (UBS | Quote | Chart | News | PowerRating) (+17.8) said it was going to raise $15 billion in capital, and Lehman Brothers (LEH | Quote | Chart | News | PowerRating) (+14.6) did raise $4 billion with a convertible preferred offering they said was oversubscribed, and it probably was with the very generous terms LEH had to give to get the deal done.
There had to be a tremendous amount of short covering in both stocks because they are not expected to follow the Bear Stearns (BSC | Quote | Chart | News | PowerRating) collapse in the near term after raising capital. You know there is a problem when a CEO (Dick Fuld, LEH) comes out and declares the panic was caused by the shorts. UBS has already written down over $37 billion in the last nine months, which is a big chunk of the estimated $230 billion credit loses/writedowns since early 2007.
The Fed has made some significant moves and says they stand ready to do what it takes. Seeing that it is an election year we must assume the Administration is all over the Fed to avoid anymore insolvent situations in the Banks/Brokerage firms.
Treasury Secretary Henry Paulson hit the talk shows over the weekend laying the ground work for his announcement on Monday that there will be a change in the oversight of financial institutions, which of course will be led by (you guessed it) our big-brother government - the same one that started this sub-prime mess in the first place, when in 1994, under “Slick Willy” Clinton, they passed a law that almost eliminated all financial requirements to qualify for home ownership.
Once again, like magic, the $SPX futures had already made a +1.0 VB (1339.75) before the 9:30AM ET NYSE opening, so maybe Paulson had his Plunge Protection Team gang do their thing to accelerate the market following his announcement. The odds are not very high that this Congress will get anything done that makes sense, but they are high that everything will get screwed up.
There were significant buy programs in the last hour as NYSE volume was only 1.07 billion shares at 2:45PM, and it finished at 1.69 billion shares, well below the 1.93 billion on 3/11 and 1.94 billion on 3/18. The volume ratio was 90 and breadth +2158, and the Financials led with the $XBD +8.6%, and $BKX +7.5%, but we have seen that many times before, and it soon ended. The $SPX finished at 1370.18, well above its +2.0 VB at 1356.80, and just below the +3.0 VB at 1373.66.
The price persistency was vertical, and both extended short attempts were stopped out for a small loss because they were good low common denominator entries. However, not everything gapped to the upside on the opening, as the energy and some commodity stocks opened to the downside, and there were RST 1st Hour reversals in stocks like Exxon Mobil (XOM | Quote | Chart | News | PowerRating), and NUCOR (NUE | Quote | Chart | News | PowerRating) to name a few, which were very positive even if most traders with good trade management had to exit well below the actual highs due to that last hour acceleration. I don’t hear anyone complaining about it.
The $SPX is +9.0% in ten days, and it has taken out two swing point highs, so this mini trend is up until proven other wise. It still remains below the downward channel from the initial 1396 high following that 1270 low (1/23). Yesterday was a significant time date measured from the 10/10/02 769 bear market low, and there is also time symmetry today and tomorrow. Continuation early strength will set up the best contra short move in the $SPX and other major indexes.
Have a good trading day!
