Thinking about yesterday's spike
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers rose .2% versus the prior week but down .9% versus the comparable period in 2008; Redbook Research reported month to date retail chain store sales down 1.4% on a year over year basis.

    January wholesale inventories fell .7% versus expectations of a 1.0% decline; however, once again wholesale sales dropped at a much faster rate (-2.9%) keeping the inventory to sales ratio at elevated level.
http://econompicdata.blogspot.com/2009/03/wholesale-sales-durable-goods-down.html


   Other

    Consumer credit card debt, another looming problem:
    http://online.wsj.com/article/SB123664459331878113.html

    But here are a couple of positive signs pointing to recovery:
    http://mjperry.blogspot.com/2009/03/baltic-dry-index-reaches-5-month-high.html
    http://mjperry.blogspot.com/2009/03/caaffordable-housing-retuns-due-to.html

Politics

  Domestic

This is a little long; but nonetheless it is a thorough review of ‘card check’:
http://www.american.com/archive/2009/march-2009/the-end-of-the-secret-ballot

  International War Against Radical Islam

    This is also a but long; but it addresses recent court decisions as they impact our ability to hold and interrogate enemy combatants:
    http://article.nationalreview.com/?q=ZDQyYjEzMTg3ZDBjZTA4MzExNjU1MTE2MzkwYTRiMTc=


The Market
    
    Technical

    Notwithstanding yesterday’s Titan III shot, the indices (DJIA 6926, S&P 719) closed well within their current downtrend though they are nearing a previous support level (DJIA 7146, S&P 741) which now serves as resistance.  However, volume expanded; and more impressive, breadth was broad.  The volatility index, on the other hand, closed right on its February 2009 to present uptrend (that is a negative trend).

    S&P moving averages:
    http://bespokeinvest.typepad.com/bespoke/2009/03/sp-500-moving-averages.html

   Fundamental
    
Part of yesterday’s positive performance was just the Market having been down 12 out of the last 15 trading days; though by a number of measures it was not dramatically oversold.  

Part was short covering.  Conversations with traders suggest that the magnitude of that short covering was much greater than we have seen in rallies of the last three months (i.e. instead of covering 5-25% of a short position, they were covering 50%+)

Part of it was the announcement by Citigroup that it is making money so far this year.  Question: is that before or after the write downs that have occurred with regularity for the past year?  Cynicism aside, perhaps this is a sign that the banks are not in as bad a shape as many fear.  Some ‘experts’ have been making this exact argument, pointing out that the ability to borrow at 0% and lend at 5%+ leaves lots of room for making money.  My problem with this notion  is that supposedly strong banks (eg. Wells Fargo, US Bancorp) keep cutting their dividends. Nevertheless, I think that it calls into question a statement that I made in yesterday’s Morning Call: I don’t think that there is going to be any improvement until the headlines out of this administration address the banking crisis rather than stem cell research.  In other words, we need to be open to the notion that recovery in the banking system could come from internal improvement versus outside assistance from the government.  

    But then there is this:
    http://www.ritholtz.com/blog/2009/03/haircuts-for-bond-holders/

    And this:
    http://www.calculatedriskblog.com/2009/03/more-credit-tightening.html

    Part of it was Barney Frank’s statement that it might be time to reinstate the up tick rule.  Frankly, I have never thought that the absence of the up tick rule in an age when stock prices were quoted with a couple of pennies spread (versus the eighths, quarters and halves of yesteryear) was that significant.  The larger problem on the short selling side was and, as I understand current Market workings, remains naked short selling.  So I am not sure how big a deal reinstating the up tick rule really is.





Posted 03-11-2009 8:23 AM by Steve Cook