Confusion: Market Rally vs. Dell Disappointment

The markets have staged an impressive two-day rally on:

--stronger GDP and durable goods
--lower oil, natural gas
--stronger financials

Still, the disappointing showing from Dell (down 10 percent after the close on a disappointing earnings report, noting that IT spending in the U.S. is conservative, and that conservatism is spreading to Europe) is a reminder that the global economic slowdown is not going away.



If you are not confused, you're not paying attention. Traders are bitterly complaining that volumes on both equity and options exchanges are at pathetically low levels, levels that some haven't seen in years. This is more than seasonally slow trading, this is because the data is confusing.


1) Two weeks ago, the economic news was grim and we were anticipating continuing poor data into 2009. Now durable goods and GDP have come in stronger than expected, and some are hopeful that next week's retail sales will provide better commentary on back to school than many have expected.

2) Two weeks ago, Fannie Mae and Freddie Mac equity was worthless, and the Feds were likely to bail out the company.

Today there's considerably less anxiety and many are now hopeful that if the two entities can successfully refloat a large amount of paper that is due in the next month, a final decision on federal involvement could be put off until after the election.

The hope for the bulls is that September (worst trading month of the year, and infamous for crushing rallies) will prove to be a turning point:

--that retail sales will actually surprise a bit on the upside, confirming the stronger numbers from GDP and durable goods, and most importantly

--fourth quarter EPS estimates, which have slowly been coming down, will stop their decline.

Bears say this is laughable, that this is the classic bull trap that has sucked traders in all year. The real estate market is about to take a leg down on higher rates, and the credit crises will deepen as delinquencies on credit cards, auto loans, and commercial real estate rapidly increase.

Questions? Comments?