Springtime for Stocks: Rally May Finally Beat Down Bear
The bear may finally be beaten.
As investors digested this week's flurry of good news—or at least better-than-bad news—talk grew that the long slog through the debilitating bear market could be over.
"The world is not going to zero," Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh, says of investor sentiment these days. "Things seem to be getting better. Deals are getting done and people have more swagger in their step. So maybe we are coming out of something."
The markets kicked off the second quarter in the face of a series of positive developments that sent stocks soaring in Thursday trade.
Consider:
Mark-to-market accounting rules, the long-despised bogeyman keeping banks' toxic assets from being sold, were altered substantially, kickstarting the Wall Street rally.
The Group of 20 world economic summit yielded a $20 billion pledge to resuscitate the global economy.
Auto sales numbers, while still dauntingly low, beat expectations and analysts foresee more lending to get the sales pace accelerated.
Add some stabilizing in housing numbers and improvement in investor sentiment to the mix and you had both technicians and analysts of fundamentals cheering on the surge that has welcomed in the second quarter.
Market pros consider this a strong buying opportunity, with banks, materials and technology the main sectors to pull the market out of its malaise.
"This is a really big moment," says Uri Landesman, head of global growth strategies at ING Investment Management in New York. "The real question in my mind is if we are dragging the floor up."
The Standard & Poor's 500 put in an intraday floor of 666 on March 6, and Landesman now sees the market gradually setting higher lows, which he says is a building process towards a bull market.
On the other end, traders were watching 840 as a possible new resistance level that the market hit but did not exceed Thursday. Breaking through that and then past 845 would be seen also as strongly bullish trends.
"If they go through that I think they'll catch a lot of shorts flat-footed and it will overtrade on itself," Art Cashin, director of floor operations at UBS, told CNBC (see video). "But I think the bottoming process looks very healthy here and we'll see if they do pull back to retest anything."
Whether the latest effort at recovery takes a perfect "V" shape is up for debate.
Unemployment appears to be posing the strongest headwind to the market now, and first-quarter earnings also will pose a significant challenge to investor sentiment.
The changes to mark-to-market accounting left some uncertainty as to what impact they will have on the earnings reports that will kick off next week, with most expecting the greatest impact to come in the second quarter numbers released over the summer.
"We're going to go through a very rough earnings period now," Landesman says. "I don't know one month from now if we're going to be higher than we are today. But I think once you get first-quarter earnings out of the way we could be poised for a pretty good move."
The accounting rules changes received most of the credit for Thursday's rally.
Banks have been hampered from lending because the distressed assets were impairing capital ratios, but the new rules are directed at that problem and were widely expected to goose lending across the financial industry.
"This is kind of like the gum that's been holding up the dam," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "When they peel this rule back and say that the toxic or Level 3 assets can be moved back to either off the balance sheet or quoted at a reasonable valuation to their timeline ... all hell is going to break loose on the upside."
Using the Fibonacci numbers sequence to predict stock movements, Hager says 8,330 and 9,313 will be critical resistance levels for the Dow, with 10,220 seen as a breakthrough that will firmly establish the potential to challenge the historic high of 14,164 on Oct. 9, 2007.
In the meantime, though, he says policy makers are on the right track to getting the market back to health. Thwarting short-sellers by reinstituting a rule that prevents shorting stocks unless it is after an up move would complete the picture, Hager says.
"If they could add one thing more to this cake they're baking, it would be the uptick rule," he says. "If they come off that uptick rule it's off to the races."
If there is any other wariness over the rally it stems from inflationary concerns--that in priming the pump with trillions of printed money the government may overshoot and create more problems down the line.
Read more here .
Analysts mull replacements if GM leaves Dow
Goldman, Cisco are among candidates to replace troubled automaker
By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) -- With General Motors Corp. possibly headed into government-sponsored bankruptcy, the automaker's standing as one of 30 members of an exclusive club -- Dow Jones Industrial Average -- is now viewed as shaky.
Goldman Sachs Group Inc. (GS 119.48, +5.26, +4.6%) is among the picks of analysts weighing in on likely replacements.
General Motors ( GM 2.10, +0.01, +0.5%) and another Dow component, Citigroup Inc. (C 2.85, +0.11, +4.0%) , were days ago dropped from Dow's global stock index. News Corp. (NWS 8.79, +0.25, +2.9%) , the owner of the index as well as of MarketWatch, citied market conditions for their ouster.
Pulling a company from the global index is often a "trial balloon" for an eventual ousting from the Dow industrials, said Doug Roberts, chief investment strategist for Channel Capital Research .
Read the rest here .
Earnings will test the rally
SAN FRANCISCO (MarketWatch) -- April is the cruelest month, the poet T.S. Eliot once wrote, and stock market investors are hoping next week won't live up to that epitaph and dash the hopes of those who believe the current uptrend will continue.
Next week isn't the first full trading week of the month -- markets will be closed on Friday in observance of Good Friday -- but it will bring the official kickoff of what will likely be a grim first-quarter earnings season. It will also bring trade data and the minutes of the U.S. Federal Open Market Committee's March policy meeting, which could provide more clues about whether a bottom for the U.S. economic downturn is anywhere on the horizon.
The earnings reports "will be a real test to see if the current rally is just a technical rally within the overall context of an ongoing bear market or the first leg of a new bull market," said Frederic Dickson, chief market strategist, Davidson Companies.
The Dow ended above 8,000 for the first time since Feb. 9, but it's the broader S&P 500 that many market analysts are watching for a turnaround signal.
"Any close above 850 for the S&P 500 next week, then it's would be safe to say the bear market has ended, and we can work our way higher," said Peter Cardillo, chief market economist at Avalon Partners. (Click here to read the rest of this story.)
