Tuesday's Action: Sign of a Bottom?

The markets are really off to the races here. The Dow is up more than +300 points as I write (I hope I didn't just jinx it), and the financials are surging higher.

First, one of the most surprisingly different set of events today was the fact that there was more negative financial headlines, but the stocks shrugged it off and rallied.

UBS announced another $19 billion in writedowns, bringing its total to $33 billion. Deutsche Bank (DB) announced a $3.9 billion writedown, and both of those stocks are much higher! Also, Lehman (LEH) is raising $4 billion in a preferred stock offering that was "significantly oversubscribed". And LEH is up +13.5% today.

This is a big change of character for the financials. Normally, these news items would have the shorts pressing their bets on these stocks, and all financials would be lower. But today these groups are leading the market, with the broker index +6.0%. Nice.

Also, commodities are mostly lower today, led by gold. Gold is down -$35, breaking below the $900 level. This is occurring in tandem with a firming dollar, which is up against both the Yen and the Euro. The Yen ETF (FXY) is down -2.4% today. I would like to see this trend continue and for the Yen to keep falling.

The volatility index [VIX] is dropping -10.5% right now, and testing support at its 200-day average. A break below this level would be another bullish development.

Asian markets were mostly higher overnight; bond yields are higher, with the 10-year yield up to 3.53%; and the ISEE index is very low today, expressing skepticism of this rally.

It is rare to see so many indicators lining up to support a higher market. We have seen things reverse quickly in recent months, but if this continues, it would bode very well for the market in the near-term.

Comments

[Jonathan Liss:]

Jordan,

Gold/Dollar action aside (I think a falling VIX is of questionable value to bulls), what do you feel is lining up to push markets higher? Fundamentally it doesn't seem the financials are ready for a full recovery - ignoring the bad news (which I personally think we've been seeing a lot of over the past few months) to me is reason to keep my chips off the table for now. If the financials can't support lofty valuations, the markets will catch up eventually.

Respectfully,
Jonathan Liss

2008 Apr 01 04:34 PM

[zenalgorithm:]

The baer market is over!*






* - (not really)
(see 2001 bear market rallies)

2008 Apr 01 04:43 PM

[DC Housing ...:]

Ditto. Perma-bulls are never able to talk fundamentals simply because the fundamentals are terrible. Grasping at straws. This is another dead cat bounce. Can we talk about the profits that financials need to support their current valuations?

2008 Apr 01 04:46 PM

[Jason Rines...:]

Agreed, it is too premature for optimism. In June I forecasted two quarters of recession this year, Q1 & Q2. We appear to have about one quarter left to bottom and DC housing bear is right, fundamentals are not looking solid, except powerhouse corporations investing overseas or conducting M/A's.

Mortgage ARMs are still adjusting upwards meaning real estate has not hit bottom (end of this year) and until home ownership stabalizes, the consumer will not come back and fully spend again. Q3 should be slight growth and Q4 back into 2% growth more from stimulus then anything else. I expect policy and a new President will dictate how 2009 shapes up. Treasury should be focusing on job creation now, especially in domestic energy production and the President should be spearheading this charge, declaring a new energy crisis and executive orders to drill EVERYWHERE and NOW, build nuke plants and subsidize hundreds of billions into biodeisel and coal liquification and solar. We do this, we give the global consumer what they need and want to grow and create millions of skilled jobs in the process. Do it not and $100 oil on top of housing mess will continue to erode Main St. and this will eventually topple Wall St. rallies.

2008 Apr 01 05:40 PM

[Ames Tiedeman:]

I am a skeptic. Period.

2008 Apr 01 06:12 PM

[sliman:]

More proof a bottom is in. No one is positive on almost any board I have read today.

2008 Apr 01 06:24 PM

[Wez:]

Housing will suck for a long time to come.
We have yet to see any effects from the credit crunch. (read economic slowdown)
Treasury has not solved anything, only treated symptoms.
I'm loving this rebound because I'm 100% long all the time, but not convinced we're out of the woods yet.

2008 Apr 01 06:56 PM

[J_NY:]

When we find the floor on house prices we've truly bottomed. The consumer will be unwilling to spend and buy homes in mass until then.

2008 Apr 01 07:34 PM

[triznix:]

Yay, hurray!! The recession is over!!

2008 Apr 01 07:50 PM

[MCHEAL:]

The beginning of a long slow bouncy turn around...yes...recover... yet my friend

2008 Apr 01 09:12 PM

[Totally a b...:]

Another fool who wants to simply turn a blind eye to the grave problem the US & the world economy is facing...

People like you do not understand what grave a risk our US and world economy is because of stupid over-consuming and under-savings Americans. People like you do not understand what a Trade Deficit is or what owing $3 Trillion dollars to the rest of the world can do to us. People like you do not understand that the rest of the World cannot and will not continue to finance our spendings for ever while they under-consume, save and live within their means.

People like you do not know or understand that the next biggest thing to hit us is over $3.6 trillion in credit card & HELOC debt which the bubble-heads borrowed against their home appreciation which has now seriously depreciated. Either they will simply walk away or simply pay them out of their skin and reduce discretionary spending and cut and trash their cards.

People, seriously there is a very grave problem in our system. I was long till I came across Peter Schiff's Crash Proof. You have to see and listen to some of his videos and how right he has been for the last 2-3 years. Not only he predicted the current crisis but also he was right on how it was going to pan out. He was talking about stagflation 2 years back and how the RE bubble will affect Mortgage banks and Bond insurers and major FIs and that major banks and FI could go solvent which it did if you consider the case of CountryWide, ETrade and Bear Sterns so far. And possibly C, WM and LEH to follow...

2008 Apr 01 09:35 PM

[cromag:]

OMG! If I had a nickel for every time that CNBC and their guests mentioned hitting a bottom at every rally I'd be able to get at least a nice steak dinner, without corn, that is. or corn bread. Talk about inflation, corn bread must be getting hit the worst :)

Bring on the bear, and let CNBC keep pushing their bull.

2008 Apr 01 09:54 PM

[Disco:]

Even if this is not the bottom its close... going long now is what so many now rich investors have been doing forever. Perfect timing is impossible, well unlikely, but being on the low side of the regression line is usually profitable.

So many are running for the doors - negative on the market - that we may be there already, or very close. Sliman, I think youre on to something. Hopefully there will be a pull back tomorrow and opportunites will present themselves.

2008 Apr 01 11:11 PM

[KL:]

seems to me there is still a lot of (not yet retired) baby boom capital out there that is desperate to be invested, which keeps artificially supporting the market. if a market slump is staved off this time, it'll be yet another "bubble displacement" from RE to stocks, but we can't hold off catastrophe forever.

2008 Apr 01 11:13 PM

[User 171445:]

Today’s move is questionable……in my opinion, this is a tremendous amount of short covering. I doubt a 3.5%+ moves on the S&P and Comp with average and below average volume. My guess is that the major indexes move up a few percent more (Comp to 2,400 and S&P to 1,400) then you put out shorts. I would short financials and any high P/E tech stocks ….good for P/E compression (ala GOOG, BIDU, etc….). If this is truly the “bottom” it will have been the shortest “bear” market in history……. BTW, Jim Cramer is an IDIOT !!!!!!!!!!!!!!!!!! Cramer is a self-promoting ASS.

2008 Apr 01 11:35 PM

[ganeshji:]

I'm a bear, but I know when I should get out of the way and go back to the woods. I was short S&P with options (Yes ouch it hurt a little:(!) However, I'm not out of the way I expect to see a few people throw money at this rally tomorrow in the AM and I plan to add to my short and add to my long energy service stocks. But the bulls are right today. I will say I can see more value in this market today then a year ago. I just hope to find a little more value. I do think the market needed a little hope and that is what this is about people just thinking it can't be that bad...can it?

2008 Apr 02 12:39 AM

[punk_ash:]

I am stunned seekingalpha allowed this guy to post, this is by far the worst article I have read here

2008 Apr 02 01:31 AM

[spendy:]

One correction to "IThinkBig's" comment, mortgage rates are not adjusting higher, they are adjusting lower. Almost all ARM's use the 1 year treasury and Libor indexes to calculate the new annual rate. Both of those are currently very low due to the Fed's action. Home's are currently foreclosing due to lower values, not rates adjusting higher.

2008 Apr 02 02:03 AM

[ussmex:]

Today's rally, and all the hooplah that went with it, was amusing. How quickly we lose track of the fundamental realities. You can't shift that much capital to unproductive investments and expect to prosper. At least during the Internet bubble we built out computing and communications infrastructure and brought half the country online. What do we have to show for this latest fiasco? A bunch of crappy cookie-cutter homes that will not be supporting new productivity anytime soon.

We're about one-fifth of the way through the fall-out from our latest misallocation of resources. We still have billions and billions of mortgage adjustments coming that, even if they don't break consumers, will severely crimp their disposable income over the next three years. Since the consumer led the last U.S. bull market, is it really time to start calling bottoms?

Slowly but surely it will be the most fundamentally sound companies adding real value that lead us out of this mess, not investment banks.

2008 Apr 02 03:09 AM

[mediafright:]

Right on my friend. I see 2700 coming by end of May. Thanks !!

2008 Apr 02 04:12 AM

[Karl M.:]

Are most of you kidding? The fundies are using whatever fresh money comes in to bid up the biggest sector of losing trash. The huge move in financials is key evidence of this. Its been going on at the end of every month lately. Criminal.

Let's see how long this lasts, and if longs from much higher levels decide to unload at the first acceptable loss level.

2008 Apr 02 05:10 AM

[cynic69:]

Wait a minute Jordan! The leading sector in yesterday's rally was the financials. This tells me that the "rally" was simply the shorts falling over each other to see who could cash in first. The price of oil is still over $100. This economy/market is not going to improve until the price of erergy falls far enough so folks can afford to fill up the Tahoe and get to work and to the mall.

2008 Apr 02 10:21 AM