25 November, 2008

Markets find 3rd day in the green. Thrice a trend?

For Wall Street the last month has been a mixed bag somewhere between bearish disaster and depression era sell-off, so when some optimism floats in Traders are left to revel within themselves whether the terms "turnaround" or "dead-cat bounce" are most appropriate.

On the heels of some optimistic news, which the market has used to bid up stocks, the Dow finished in positive territory for the 3rd day. It began with President-elect Barack Obama naming members of his economic team, initially naming New York Federal Reserve head Timithy Geithner as Treasury Secretary. This followed a weekend of talks that led to the $300Billion-plus Government guarantee of Citigroup (C) assets, sending Citi shares up 60% yesterday, finally culiminating in a subdued, yet rebound worthy, day for the markets as a new Fed stimulus plan hit the news-wires.

The Technology-laden Nasdaq was the only major to finish in the red, down about half a percentage point capping its 2 day rally to 11%, while the Dow and S&P extended their gains to 12% and 14% respectively over the 3 day period. So are traders seeing thrice as a trend and these extended government backed plans as a sign of turnaround hope? That's the question of the hour, and if the "bleeds it leads" media is to be believed it could very well be. To be sure the major media outlets aren't producing nearly as many gloomy headlines as in the past, however the news story is still mixed to say the least.

The Associated Press (Link) reported American consumer spending fell to the worse levels in 28 years during October, which was even worse than expected and initially extimated (3.7% spending decline versus an expected of a 3.1% fall). GDP was also worse than economists expected (0.5% drop in GDP versus an expected 0.3% decline), however initial reports of consumer confidence metrics for November were on the rise after all-time lows in October.

This is a significantly better sign to everyday market participants, compared to the non-stop bearish headlines that flew across magazines and newspaper for most of October and early November. Now can this translate into a December Santaesque Rally? While opportunities are certainly there for gains on over-sold stocks, to say this is a Bullish trend yet remains to be seen.

But with Obama capturing headlines for plans, partners and policies on "recovery", the mindset of the everyday consumer/investor will begin to shift from profoundly bearish to slightly bullish, and that's where the opportunity will lie. Notice how there's no more American Auto Industry on the verge of failure headlines just like that?

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