It's a cliche, but "buy the rumor, sell the news" is the mantra for the week.
The big issue this week is 1) how much of the "stew" of TALF, TARP, stimulus, aggregator bank actually becomes real, and 2) how many traders will end up believing that this creates some kind of bottom in the economy, so it's safer to buy stocks, or at least stop shorting them?
Short-term (the next few days) most agree it is tough to short aggressively ahead of the TARP/stimulus/aggregator bank juggernaut.
Bulls—or at least those that are not outright bears—think all these plans are part of the process that will be building a bottom, sooner rather than later, and that is why the idea of spending money is generally supported.
On top of that, credit spreads continue to improve - so fear of a systemic collapse has declined.
Bear say the big post-stimulus hangover will be a doozy. Bears are convinced that once this stimulus juggernaut is out of the way, we will be facing a long period—mid February into the third quarter—where most of what can be done, has been done.
We will be staring at awful numbers (first quarter will be very bad) and bears say they will play their trump card:
1) They will argue that second half earnings are way too high (particularly for financials and consumer discretionary) and will have to come down;
2) Traders will realize the market is no longer cheap and the market will drop to--and surpass--the November lows (some bears are at 600-650 on the S&P; the November low was 741, we are currently at 867).
Let the battle begin!
- Stimulus Plan Faces Tough Road Through Congress
Questions? Comments? firstname.lastname@example.org