Market Insider/Thursday Look Ahead
Whether it was the result of bulls stampeding or bears running, Wednesday's 631-point pendulum swing in the Dow certainly lays the groundwork for more high velocity action Thursday when the markets have more earnings and economic news to consider.
Weekly jobless claims and earnings from important names, like AT&T , Nokia , Ford , Union Pacific , Lennar and Northrop Grumman cross the tape ahead of the opening bell in the morning.
Traders will also be watching news from Wednesday's after hours earnings. EBay shares were falling after a disappointing forecast and news that CEO Meg Whitman plans to retire in March. Symantec, meanwhile was on the rise after its better than expected results.
Existing home sales for December are reported at 10 a.m. ET Thursday, and oil inventory data is reported at 10:30 a.m. Microsoft , Amgen , and ETrade report in the after-hours. Former Fed Chairman Alan Greenspan speaks in Vancouver at 2:30 p.m.
But investors will also have to look to markets in Asia and Europe for clues to Wall Street's open after a dramatic trading day that saw the Dow dip as low as 11,644 before closing at 12,270. The Dow was up 2.5 percent after an impressive late day run up that has triggered more talk that perhaps the market may have touched a panic bottom.
The Nadaq finished 24 points higher, a 1.1 percent gain. It had been down as much as 3.9 percent on the day. The S&P 500 rose 28, or 2.1 percent in its biggest one day move since November 28.
Financials were the big drivers behind the rally and were spurred on in part by talk that New York regulators was meeting with banks on troubled bond insurers.
"There was a very large reversal today," said John O'Donoghue, a head trader at Cowen. "What's funny is a lot of the big cap leaders in certain sectors, like Intel, really came to life ... It will be curious to see whether the Home Depots and the Lowes will continue with this up ramp" in Thursday's session.
"What' s interesting too is the Treasurys actually reversed, and it looks to me that there was a large rotation," he said. O'Donoghue explained the big selloff in Treasurys mid-afternoon came as equities headed higher, and at the same time the market was rife with rumors that some fund was facing a forced liquidation.
The unsubstantiated rumor that a quant fund was forced to sell had been pressuring stocks in the early afternoon, when the market was moving like a yoyo at lower levels. Also around that time, news that New York state's insurance regulator finished up a meeting with bond insurers gave traders hope that the troubled sector, including names like Ambac , would find some fresh capital. That talk lit a fire under already rallying financial stocks.
Top that all off with the belief that the Fed will add more relief in the form of rate cuts next weeks; signs that Washington will actually develop a fiscal stimulus plan, and the idea that maybe some of those earnings aren't really all that bad, and you had the formula for a big swing out of negative territory. That move also forced more shorts to cover, and that helped create a melt up in many stock sectors.
Check out the home builders, up 14 percent. Financial stocks were up 7 percent. The Dow Transports added 7 percent.
All the recession talk out there has made the market exceedingly nervous. So for REAL news instead of Wall Street crystal ball gazing, it's sometimes important to listen more carefully than normal to the people who actually run companies. The World Economic Forum this week has given us a great opportunity to hear what CEOs have to say.
In my discussion with O'Donoghue, he pointed to "Squawk Box" host Becky Quick's interview from Davos with the CEO of Duke Energy, who gave a positive outlook. O'Donoghue also mentioned that the Texas Instruments CEO, who usually says little, gave "very placid and benign guidance" after earnings Thursday. That in his mind was fairly bullish.
There were also some reassuring words from CEOs interviewed by Maria Bartiromo at Davos. Coca-Cola Chairman Neville Isdell appeared on the "The Call" Wednesday, and said he and other CEOs at Davos see a more than 50 percent chance of a U.S. recession but not a full blown global recession. "The bigger question is the big R, is there going to be a global recession? And the general view on that is ... provided the policy makers ... handle things well ... is there's not going to be a major contagion," he said.
Just before that interview, Sony CEO Howard Stringer, also on "The Call," told Bartiromo there is panic out there but he doesn't really believe it is justified.
"It's hard for me to be suicidal along with everyone else when things aren't looking so bad in that sector," he said of consumer electronics and entertainment.
"I wonder if whether it's part of the Shirley Temple effect, where people in a depression want their entertainment and they are going to buy that regardless," he said, adding that Sony's high definition televisions have been in big demand. "There isn't anything that is facing us that is terrifying at the moment."
Oil continued its slide to close at $86.99 per barrel. John Kilduff, senior vice president of M.F. Global, has been predicting that oil will hit $80 per barrel since shortly after it touched the $100 per barrel mark in early January.
"The continuing worries about the global capital markets and the worsening economic situation here in the U.S. is pulling a major leg out from under what had been a year long rally in crude prices," he said. He expects Thursday's inventory data to show a continued build in crude supplies, a negative for oil prices.
He said he would reassess his price target for another possible downgrade when oil reaches the $80 per barrel level. "The positive to this is it should be filtering through to the gasoline pump, and the heating fuel pump to help out consumers over the next couple of weeks," he said.
CNBC's Rick Santelli explained that the late day reversal in 10 year note futures and cash S&P 500 equities was based on technical factors and is something to watch tomorrow. If you believe the technicians, the reversal signals a buy for stocks and more selling ahead in bonds.
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