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davejh23 (< 20)

Why is the Dow up 550+ in two days?

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September 27, 2011 – Comments (7)

According to the media, that likes to provide an explanation for every single market move in either direction, this move is all based on "hope".  Nearly every headline from yesterday and today has read something like "Stocks soar on Europe hopes".  Some of these articles have cited specific rumors, some have discussed probable details of the next loan for Greece, and some have provided no details at all...just that investors hope things will work out in Europe.  This doesn't really sound like the recipe for a lasting rally...especially as we approach Q3 earnings season and lowered guidance and weak earnings have far outweighed positive earnings news lately...something we haven't seen for quite a while now.

7 Comments – Post Your Own

#1) On September 27, 2011 at 11:19 AM, EnigmaDude (58.58) wrote:

This time I agree with you.  I think the market is giving us a head-fake.  I'm not buying.

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#2) On September 27, 2011 at 11:58 AM, amassafortune (29.19) wrote:

Some money is coming out of bonds that had a huge rally. Money is moving away from China and BRIC countries as evidence mounts of a slowdown and credit crunch. Money came out of gold and silver, though some is flowing back in today.This cash has supported the U.S. market recently.

The recent U.S. market has been driven by the fluctuations of the dollar and less so by earnings that you correctly point out may have topped.

The "hope" for Europe is the hope that the euro will be propped up by another round of extend and pretend. Geithner wants them to lever-up all available funds. Geithner's prodding of Europe supports the work he and the Fed have done to keep the dollar weak.

There is also some quarter-end window dressing buying being done by funds.

Thursday is significant because Germany will make a decision on the legality of some of the proposals. Germany has tried to be a team player for the past year, but the German people are tired of bailing out the fiscally irresponsible. Greece is like the drunken brother-in-law you employ in your business who does not contribute much and only destroys morale with the things he get away with. 

Bottom line, the EU continues to spend and owe more than it generates to service debt. It is weaker now than it was last year when the market rallied on bailout news. More leveraged bailout funds will temporarily spike the Euro, weaken the dollar, support the U.S. equity markets, and ensure that the EU and euro bleeds out any remaining equity at a faster rate.   

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#3) On September 27, 2011 at 1:35 PM, leohaas (30.15) wrote:

Use it as a tradable event: go long FAZ, SDOW, SRTY, TZA, SOXS, TYP, SQQQ, MWN, SMDD, BGZ, or SPXU!

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#4) On September 27, 2011 at 2:04 PM, davejh23 (< 20) wrote:

Leo - I wanted to use it as an opportunity to short NFLX, but NFLX is already down big today...not trading with the broader market.  AAPL is lagging significantly as well.

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#5) On September 27, 2011 at 4:58 PM, leohaas (30.15) wrote:

I don't share your negative view in general, but agree with you that this move up was crazy. I used it to sell a few positions into strength.

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#6) On September 27, 2011 at 5:15 PM, AvianFlu (< 20) wrote:

You'd have to be nutz to believe the efficient markets theory when you see what is happening these days!

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#7) On September 28, 2011 at 4:10 AM, walt373 (99.86) wrote:

I have heard it argued that the fact that there is a plan for Euro TARP is bullish, since it removes the worst-case scenario (banks collapsing) off the table. However, I would argue that it was never priced in to begin with. I have to agree with you guys that today's move was not justified by fundamentals.

By the way, I think NFLX is gonna be under $50 in a couple years. They have like five serious issues (and the stock is still richly valued somehow). One of the lesser discussed issues is weak financial strength - see my post.

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