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A Day Full Of Mixed Messages

There are a lot of mixed signals in the markets today. Stocks have sold off midday on some disappointing over the 5-year auction, and comments from Moody’s on Wells Fargo.

The good news: 20-year lows in mortgage rates, and better than expected durable goods and new home sales figures.

The bad news: a failed auction of gilts in London and then, around 1 PM ET, a somewhat disappointing 5 year auction, with a bid-to-cover ratio (the ratio of bids received to bids accepted) of 2.02, below the average over the past year of 2.13. This is not nearly as bad as the 0.93 bid-to-cover for the British 40-year gilt auction, but it was still a topic of discussion, and stocks moved down as that auction was announced.

Also, midday Moody's cut various credit ratings on Wells Fargo , included reducing its preferred stock to junk status, saying capital ratios could be under pressure in the near term.

This, of course, revives the old fears: that despite operating profitability there will be sizeable credit losses in the next year.

It also makes changes in the mark-to-market rule more important, since changes in those rules might lessen pressure to raise capital. And the only source of capital right now is the U.S. government.

Bottom line: after a 20 percent gain, many traders are betting stocks will take a break and consolidate as we head into the end of the quarter. The next big test will come in a couple weeks with quarterly earnings and guidance; the news will be grim, and the reaction of the market to poor news will determine if the rally has legs.

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