It wasn't supposed to happen this way. I was out last night with a group of hedge fund traders, and as the news came in that AIG's numbers were lousy, and Cisco was a mess, the traders nodded approvingly. They were anticipating a large down day today, then a rally on Friday, and one trader said most of the traders in his shop (a well-known fast money firm) had a large sum in cash in preparation to buy on Friday.
His only caveat: the retailers, who had been so heavily shorted, could turn on a dime if anyone had anything positive to say. Well, the retailers came in generally in line with the gloomy expectations: plenty of markdowns on warm weather.
So what gives? We've got a modest rally going, which started in Europe. Here's the thinking of those buying this morning:
--Retail comp store sales are weak but stocks have already discounted that;
--Morgan Stanley not as bad as feared;
--BHP Billiton making an opening bid for Rio Tinto keeps the global growth/commodity story front and center;
--Ford , posting narrower than expected loss, better than expected (close to selling Jaguar and Land Rover);
--AIG is already down 21 percent from its high, and did not drop any huge bombs concerning CDOs or other credit derivatives and insisted that their exposure was high quality and that they had adequate protection from subprime losses.
Bulls are delighted; their position is that banks and brokers just need to come clean (I keep getting emails asking about when Goldman will announce a write-down, despite their persistent denials), price the subprime stuff and we are setting up for a great close to the year.
Maybe. But don't get complacent. There are plenty who think we will see an effort to sell into even this modest rally some time today.
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