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Rally Continues Or Start Of Correction?

A rally continues, or the start of a correction? It's true, as Lowry noted this morning, that "it's probably still too early to declare the long-awaited short-term correction has arrived."

But technicians will be watching internals very careful in the next couple days for a bigger pullback on an increase in volume.

This is an important inflection point, because we could just as easily advance.

With the exception of the NASDAQ, all the major indices are sitting just below their 200-day moving averages; if we can advance a few hundred points on the Dow, for example, we will cross that line and technicians will go crazy declaring a new leg to the bull market.

Elsewhere:

1) Ford announced an equity offering of 300 million shares (about $1.8 billion). This is being greeted as good news, because: a) this is a clear signal that Ford does not need government money, and 2) they will be able to use the proceeds to fund their healthcare obligations to the UAW without giving the UAW an equity stake.

This is not as dilutive as it sounds, because the UAW obligation, if paid in equity, would have to be funded at about $2 a share (Ford is currently trading at $6). This would be more dilutive than the new equity and would give the UAW a big stake in Ford--about 24 percent if the obligations were fully funded by equity, by some analyst estimates. Funding the obligations with cash avoids this.

Skeptics note that Ford's runup, from $2 in March to $6 today, is not justified by the sales estimates for the next year.

Ford down about 4 percent per-open, GM down about 15 percent (a new low).

2) In what is likely to be the first of several sales, Bank of America sold $7.2 billion worth of shares in China Construction Bank, though at a 14 percent discount to their Monday close. This will be a downpayment on the $34 billion they need to raise due to the stress test results.

3) Foundation Coal Holdings shares surged 30% pre-open after it agreed to be acquired by rival Alpha Natural Resources for $2 billion in stock or $32.73 a share, a 41 percent premium to Foundation's closing price. The combined company will be the 3rd largest coal producer in the U.S. Other coal stocks gaining on this acquisition news.

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