I view this week as a knock-down, drag-out battle between the US Government (Obama, Geithner, and the Senate who all want desperately to keep the stock market from falling) and the stock market itself which wants to drop precipitously. No doubt in my mind the government is aware that the timing of its news releases impacts the stock market drastically and this is why Geithner moved his speech from Monday to Tuesday. When the House passed its version of the stimulus package two weeks ago it was followed by a precipitous fall in the stock market in a classic “buy the rumor, sell the news” fashion. By postponing his speech until Tuesday, Geithner has the ability to make modifications for “damage control” purposes.
There will be no short supply of news this week with the Senate’s initial preliminary vote scheduled for Monday, Geithner’s speech tentatively scheduled for Tuesday, the Senate’s final stimulus plan vote also scheduled for Tuesday (which could easily be postponed), and many Senators believing a final bill will be on the President’s desk by Monday, February 16th as Obama has “ordered.”
In my opinion, the negative economic data is overwhelming at this point. The market actually rallied last week (especially on Friday), and at the very least we’re due for some profit taking sales. However, anticipation of all the news events scheduled for this week could actually prevent the massive sell-off that we’re due for, and who knows… Geithner and Obama may actually be able to pull some magical trick out of their sleeve that will result in an upward pop in the stock market the way it used to when the Fed announced an unexpected interest rate cut.
More likely, the bad economic data will be overwhelming and the S&P 500 will start moving downward. The big question for me is the timing of the short trade. Because the market rallied last week and because I believe we're due for a selloff, I'm looking for an entry point to get short again. Members will know if and when I hop back on the short side. And on a much bigger scale, this will undoubtedly be a very interesting week for the stock market.