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Now I'm confused...

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May 06, 2009 – Comments (6) | RELATED TICKERS: SKF , C , BAC

I know I sound like a broken record regarding my skill level in the market...novice.  But I am seeing things this week that don't appear to make sense to me.  It is almost as if folks have blinders on or are in some kind of denial.

Jobs Reports

Today, a jobs report comes in that paints a rosy picture...or more correctly a not nearly as gruesome a picture as was expected.  Everyone takes that as some kind of sign that the job world is improving.  On the same page that I read about the jobs report is a report on the potential loss of thousands of jobs when Chrysler gets re-organized or whatever they are calling it now, and the thousands more when GM's fate is actually determined.  Not to sound too much like Alstry here, but this doesn't make sense to me.  Yes, today's news was a positive indication, but it doesn't change the fact that the not too distant future does not look so rosy.

Banks and stress tests

All week and last, I have been reading about the concerns surrounding the stress tests.  Like many, I am working under the assumption that our government would not come out with something so damning as to cause another market crash.  That would simply further paint the Obama administration into a box with regards to public opinion on how they have managed this economic crisis. So I do not think the stress test results will be a catalyst for a market failure.  I do think they will be a cause for concern and will potentially put a top on the current rally.  Will the market pull back, I think so.  How far, I can't say.  Novice...remember?  At any rate, I keep reading about all of the potential capital requirements that may come from these tests, and today, the financial sector seems to be taking off like a raped ape.  Am I missing something here?

Again bull/bear?

Again, I am neither a true bull or bear.  My CAPS picks would paint me as a bull, and I do tend to lean that way at the moment.  BUT, I am more of a realist and realize that the market moves both ways and can do so rather violently given the right stimulus...or the right amount of media sensationalization of an issue.  But I am still wondering what the heck has everyone piling into the financials given the potential pullback that may come from tomorrow's release of the stress tests.  Or am I witnessing one of those mythological buy/sell the news moments in the market, where everyone has money burning a hole in their pocket and just needs to throw it somewhere...

At any rate, confused here and trying to gain some knowledge...so...Fool on...but please help me understand what the heck I am witnessing... 

6 Comments – Post Your Own

#1) On May 06, 2009 at 3:31 PM, biotechmgr (34.09) wrote:

One theory is that social mood rises and declines in waves. The stock market is a barometer of social mood trends and swings. There is all the reason to be bearish yet stocks are going up?!

Check out www.elliottwave.com for explanations. I have found this to be an incredible tool in my trading. Not perfect, no theory is, but it has been of great utility in explaining just the kinds of questions you ask now.

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#2) On May 06, 2009 at 3:50 PM, MikeBobulinski (< 20) wrote:

Thank you for sharing.  I'll check it out this evening when I have more free time to read.

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#3) On May 06, 2009 at 3:51 PM, TDRH (99.49) wrote:

"irrational exhuberance"

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#4) On May 06, 2009 at 4:07 PM, stockgripes (99.18) wrote:

Exactly. I am not sure what is going on there but I read it somewhere of conspiracy theory that gov is in cahote with Goldman Sach in generating this traffic and hence there is an appearence of bullish trend. Add some confused and "I missed the rally folks" and you have a bump everyday.

I am not sure but when/not if we get hit by the downward spiral, what is gonna happen to the poor folks? The smart money/funds are already leaving and folks are setup for the fall, IMHO.

 

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#5) On May 06, 2009 at 4:09 PM, stockgripes (99.18) wrote:

Exactly. I am not sure what is going on there but I read it somewhere of conspiracy theory that gov is in cahote with Goldman Sach in generating this traffic and hence there is an appearence of bullish trend. Add some confused and "I missed the rally folks" and you have a bump everyday, IMHO.

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#6) On May 06, 2009 at 8:51 PM, StockSpreadsheet (69.03) wrote:

Could be Obama's version of the Plunge Protection Team at work.  Since the banks need to raise more capital, it would be easier for them to do if their stock was at $13 a share as opposed to $8 a share, (as in fewer shares needing to be issued to cover $35 billion in new capital).  Also, as the new shares would be dilutive, thus driving down the stock, it is better if the stock price is higher initially so that when it is cut in half due to the dilution that it doesn't end up falling below the minimums set by the major markets, (NYSE, NASDAQ, etc.), which are usually around $5 a share from what I remember.

Another explanation could be that investors assumed that the banks would need to raise $70 billion each, so if they are told they "only" need to raise $35 billion, then that would be good news.  (Easier to do, less dilution of existing shareholders, etc..)  If funds think that the banks are worth $30 a share right now, but were afraid that the need for more money would dilute the shares down to $5, then the fact that they would need to raise less money could mean that they think the resulting fair price of the stocks are $15 a share, so the rally today.

All this is speculation on my part as to what could be rational reasons for the strong rises in bank stocks today.  Don't know that I believe any of the above, (and I wouldn't want to touch a bank stock with a 10-foot pole right now as I think most of the banks are inept and insolvent by any reasonable measures), but the above could be valid explanations in someone's mind.

Hope this helps.

 

Craig 

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