Rusty Market Musings » Federal Reserve Chairman

05/05/2009 Profit-taking

LtPinback — Tue, 05 May 2009 22:13:35 +0000

Tight choppy channel between yesterday’s high and 897. Volume was average.

S&P 500 Index 5min Chart

S&P 500 SPDRs 5min Chart

Federal Reserve Chairman Ben Bernanke said the three-year U.S. housing bust may be near a bottom and that he expected the recession to end this year.

S&P 500 Index Daily Chart

Trading day for everyone

LtPinback — Tue, 24 Mar 2009 22:16:53 +0000

A bit of chopfest until 12:00am for the scalpers, a rally to test yesterday’s high for the daytraders to take profit or to initiate new short positions and finally a sell off almost to the 800 support for the bears and those bulls that like healthy retracements. Volume was average and trending down.

S&P 500 Index 5min Chart

S&P 500 SPDRs 5min Chart

Congressional hearing with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner was a non event with only some amusement value when some congressperson shows its lack of understanding of the current financial crisis or for that matter how the constitution grants powers to the different branches of goverment and how that power is then delegated.

Paraphrasing:

Congresswoman: Where in the constitution is the Federal Reserve granted with such powers?

Ben and Timmy: Err what?

Congresswoman: Point to the clause in the constitution by which you are granted such powers?

Ben and Timmy: Article 1. Clauses 1 and 8. “All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.” “The Congress shall have power… To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.”

Congresswoman: Err this job is way too big for me. I will resign. (aide murmurs something to Congresswoman) As one of my aides points out Article 1. clause 2 does not say anything about congresspersons that are incompetent fools with no even basic knowledge about government. So I will finish my term.

Thus the sad state of moderm politics.

S&P 500 Index Daily Chart

Banks may be sound investments again thanks to the taxpayer

LtPinback — Mon, 23 Mar 2009 22:52:53 +0000

Market opened on large positive gap and rallied the first hour of trading to the 800 resistance level. Then price oscillated above and below that level without any clear direction until 2:15pm when volume exploded taking price to the upside huge and ending the day printing a +7.08% day for the S&P 500 Index. Volume was high and still trending down.

S&P 500 Index 5min Chart

S&P 500 SPDRs 5min Chart

Treasury Secretary Timothy Geithner released more details on the toxic asset plan and several large investors said they would of course participate in the free money hand out. Also existing-home sales increased in February boosting market sentiment. The result was a huge rally taking in one move the retracement of the previous 2 trading days, the 50 day SMA in the S&P 500, the downward trendline from the early January top and the 800 resistance level.

As things stand now the Financial Sector and in particular large banks may be the best investments forward. The Federal Reserve has created an environment where banks make money just by existing. Today we can safely add that the toxic asset plan will clean their balance sheets. The result is a risk free investment on healthy money-making banks that at some point will generate large wealth for their shareholders. This situation will not change as long as the Federal Reserve maintains near-zero interest rates. Federal Reserve Chairman Ben Bernanke has stated that near-zero interest rates will be the norm for a long time. Thus explaining today’s rally in the Financial Sector. I am clueless as to why the rally was broad-based. This will undoubtedly ease credit overall but the economy will still take years to recover and inflationary fears will ensure that the Federal Reserve will act promptly and decisively to counter any economy overheating thus ensuring that any future growth will be slow.

The only problem I can see in this mini-essay is the answer to the following question. At what price the banks will be willing to sell their toxic asset?. If at a price below current markdown levels then the thesis of a healthy well capitalized banking sector fails but so does the Government plan to ease credit. If at a price consistent with markdown levels then the danger of future shareholders dilution still hangs around and will ultimately depend on how quick does the economy recover and on how well management does in each bank. If at a price above markdown levels then it will serve to capitalize the banking sector without nationalizing it (isn’t this ultimately the aim of the administration?) thus resulting in the scenario pictured in the above mini-essay and the outcome I see most likely.

S&P 500 Index Daily Chart

Healthy retracement

LtPinback — Mon, 16 Mar 2009 22:24:00 +0000

The day started gaping up and rallying to the resistance at the 30 day simple moving average (SMA). The resistance was tested twice and the retracement sell off ensued. The day ended in red but almost flat. Volume was high and broke trend. It looks like a normal retracement movement after a large rally. Fibonacci suggest price will print 734 or 721 on the S&P 500 index before the rally continues onward.

S&P 500 Index 5min Chart

S&P 500 SPDRs 5min Chart

The Financial Sector showed strength early in the day on Barclays Plc (BCS) joining the “me too” profit club and by news that the Financial Accounting Standards Board (FASB) proposed to allow some relaxation on mark-to-market accounting rules. The Market mood was also improved by comments from Federal Reserve Chairman Ben Bernanke during an interview on “60 Minutes” on Sunday stating that the U.S. recession could probably come to an end this year. The only downer in the day was American Express (AXP) news that the number of people struggling to make credit card payments grew in February. The S&P 500 printed a Bearish Doji.

S&P 500 Index Daily Chart

Intra-day suckers’ rally

LtPinback — Tue, 03 Mar 2009 22:15:01 +0000

The market opened green on rumors of a bottom. Fading the gap commenced immediately after the start taking the S&P 500 to new lows. Volatility was due to the Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner testimonies before the congressional committee. Bernakle’s effect was negative while Geithner’s effect was somewhat positive ultimately starting a rally that reached the opening highs. Then news of BAC downgrade by S&P woke up the market to the reality that no real change had taken place to justify the rally. At that point price came back to the lows. The only positive aspect of the trading day is that crashing mode was halted and that after the new low only higher lows were printed. Volume was high.

S&P 500 Index 5min Chart

S&P 500 SPDRs 5min Chart

Today movement cannot be defined as free falling. Other than that new lows were printed and an intra-day suckers’ rally took place. That there was a suckers’ rally reflects on the oversold condition of the market. That the rally was reversed reflects on the dire sentiment of the market.

S&P 500 Index Daily Chart