Today is a victory for bulls, and all sane, right-thinking people. All right, I'm exaggerating, but really I am very pleased with nothing happening. Why?
A) A big rally would have most certainly been sold off late in the day by bears fed up with the jubilance;
B) A big selloff would prove the rally was nothing but a wimpy short-covering rally and would have forced many bulls back onto the ledge (no doubt a few would have jumped).
Late day comments:
1) Low volume, low volatility day. Perfect. Modest weakness in financials (acceptable). Energy stocks regain leadership despite the fact that crude reverses a $4 gain, ending flat (very interesting--are speculative longs in oil going to bail? WATCH THIS STORY IN OIL).
2) Lousy durable goods, housing, and weekly jobless claims report. Will economic weakness mean the stock market has further to drop? Not necessarily, says Michael Darda, MKM Partners. His note to clients: "Importantly, the massive risk premium priced into equities (relative to Treasuries) was not in force prior to the last two recessions (or the mid-cycle environment in 1995) and suggests to us there is limited downside risk in stocks and much upside potential."
3) Mortgage rates dropped this week, to 6.10%, according to Freddie Mac , but note that this is essentially the same rate as last year at this time, when it averaged 6.14%. This despite the fact that 10-year bond yields are notably lower today than a year ago. Normally, there is a loose relationship, but this has been broken.
Dislocations in the mortgage markets appear to be keeping mortgage rates artificially high. I want an investigation. We need lower mortgage rates!
4) NYSE floor traders have been waiting for announcement from the NYSE about who will win the auction for specialist firm Van der Moolen.
I said two days ago that Lehman would be the winner. Punk Ziegel analyst Richard Bove put out a note this afternoon trying to address why Lehman might be interested in a business that is losing money. Bove noted that it is widely anticipated that the SEC will agree to rule changes concerning how specialists operate that may make it easier to make money and make more liquid markets. If that happens, Bove notes, "Lehman could be making a very good deal here."
That may be true, but Bove misses several other reasons that may be motivating Lehman. They may feel that:
1) They are more aggressive traders, or have better algorithms;
2) The relationships they will build with companies by being specialists will be a big help to the firm. Indeed, controlling 400 stocks, including big names like Disney and Pfizer , along with the close relationship that occurs from being the specialist, may be the main reason for Lehman's involvement.
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