SUMMARY:
- Big GM buy, mergers help spark upside that gained strength to the close.
- US to issue 30 year treasuries, finally cash in on lower financing rates.
- Oil and gasoline inventories surge as oil recovers $50.
- ISM Services soften, but less than expected.
- Stronger volume, good breadth, solid price move, leadership; looks like a pretty decent though modest follow through.
- A good start ahead of Jobs report, and we will take advantage of it, but this does not mean the market has turned over a new leaf.
News from a different quarter gives market a new outlook on life.
Earnings couldn't do it and the economic data certainly was not doing it with the Fed ready to continue its rate hikes and oil hanging onto $50/bbl. Change was in the air, but the market could not make that push to get over the hump and put together the interim rally we were looking for that would set up the next test to really set a good bottom.
Wednesday a rich, smart investor with a proven track record offered $31/share for about $28M worth of GM stock. With GM closing at 27.77 Tuesday, the offer turned heads. It also turned heads attached to the legion of hedge fund managers that have massive short positions out on GM. They were quick to say that at 87 Kerkorian had lost his mind, something of a rich, eccentric investor. With $6B in the bank, however, we are ready to defer to his judgment, particularly given his track record with autos. When the big money starts talking you have to pay attention even if you think it is wrong. It can so wrong it is laughable, but the big money drives the market and when it starts moving it behooves you to pay attention.
It was this new idea that perhaps laughable GM with its pension and credit problems was a value investment that provided the impetus the market needed. It did not change the character, but it did give the market the push it needed after the big struggle last week between the buyers and sellers as volume ratcheted higher. Earnings and slowing economic data were old hat versus an active Fed, but this was different. Someone with some weight came in and very publicly put his money on the table. He probably wanted the show because it will help him get his investment to do what he wants, but the result is the same. It gave the market a new outlook on life ahead, and that prompted a modest follow through session.
It was no rip roaring race higher. There were solid moves but it was not an all out, b- - ls to the wall surge. It was a follow through on the first day we were looking for one, and coming off the short double bottoms it provides some upside leadership that will allow the market to make that higher bounce we wanted to see off of this sell off. To be a really good bounce it needs to be more than the two weeks shown thus far. That two week double bottom has set up the current move that we anticipate will lead to a test lower and form a larger double bottom that will set a much better bottom. It could always continue higher from here as stocks did in August 2004 (NASDAQ), but with summer coming we think there is going to be a test ahead before a run toward the January highs. Either way we are participating in the move, and again the Wednesday action was a good next logical step to the action shown the past two weeks. |
