Archive for April 26th, 2009
Sell the Bank Stress Test Report
April 26th, 2009
Stocks last week extended from a technical indicator perspective an already over extended rally to close at Dow 8,076.29. The Dow was up 119.23 on Friday, or 1.50% for the day. This was the seventh week in a row that Nasdaq stocks have been able to climb the wall of worry. The NYSE fell just a little short of a seven week run but advanced in six out of the last seven weeks.
Stocks had a volatile day up and down until after 2.00 PM when the bank stress test guidelines were released by the Fed. Guidelines is perhaps too generous of a term to use as the report actually continued little detail as to exactly how the stress test have been conducted. For whatever reason the market rallied after the news release and was firm going into the close.
While the nineteen banks included in the tests were told the results Friday afternoon the public will have to wait until the week of May 4th. Since the banks and the Washington honchos are now sharing this information rumors, leaks, misinformation, and perhaps even some real nitty gritty information will probably influence the markets volatility next week. I expect that an already nervous market will be even more nervous then usual as various bits and pieces of news about the street tests hit the street.
Since the market has had such a good run while the stress tests were being carried out I expect that the old Wall Street rule of selling on the news will kick in once the results are released. In my opinion, even though we have experienced an impressive rally it is still an impressive bear market rally so the sell off could be fast and severe should the test results spook the market in anyway.
While the talking heads seem to be all excited about a market that has turned around on improving fundamentals I expect that most of the perceived improvement has been of the engineered smoke and mirrors variety, such as he mark to model accounting changes for the banks, and as reality once again sets in the big bad bear will have his way.
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