Daily Market Reports | Mar 12 2009
By Greg Peel
The Dow closed up 3 points while the S&P added 0.2% and the Nasdaq a healthy 1.0%.
The Nasdaq kicked on from Tuesday’s 7% gain, once again reinforcing the volatility of this index. There are likely two reasons for the Nasdaq’s strength. Firstly, tradition dictates that the financial sector is always the first to turn out of a bear market, and then industrials follow a few months later. But tradition does not account for a technology sector, and many observers believe it will be tech stocks leading the way out of this rally given they represent the new frontier of US exports. Tech stocks have outperformed so far in the bear market.
Unfortunately there’s nothing much for Australia to latch onto here.
The second possible explanation for tech strength is simply that outperformance has led to shorting, and the shorts are scrambling. Arguably the most highly shorted sector, nevertheless, has been the financials, and while the broad index closed flat last night the banks were largely stronger again, thus inciting references to the aforementioned tradition.
It also helped that in the wake of Tuesday’s claim by Citigroup that the bank was profitable in January and February, the JP Morgan CEO confirmed the same result when asked by CNBC overnight. The JPM claim is likely to be more efficaceous.
There was otherwise little news to speak of on Wall Street last night as traders simply argued the “dead cat bounce” theme. Big rallies, such as Tuesday’s, are often followed by a bit of selling the next day, so to hold steady after 5-6% jumps is encouraging for the bulls. The real test of a rally comes on Days Three and Four however. If these are also trips into the green then we could be forgiven for thinking a more sustainable rally may have begun. But those who suggest a definitive bottom has now been seen are few, while the majority believe Wall Street was due for a bear market rally that may last a couple of months and run up 20% or more, but that’s all. Thereafter, a return to retest the lows is considered most likely.
Enthusiasm nevertheless had the Dow shooting up on the open to be up 89 points on the positive side of 7000, but then the expected selling came in. The index was down 59 points at 2.30pm and it looked like the script would be followed, but the buyers returned for another shot at it, only to meet very late selling.
Enthusiasm in the oil market surrounding possible OPEC cuts somewhat waned last night as the weekly US crude inventory figures were released. Traders were expecting a fall in inventories but instead they rose, sending oil down 6.5% or US$2.96 to US$42.75/bbl. Oil is stuck in a distinctive range of around US$35-45 and doesn’t look like breaking it for a while until something meaningful happens.
After some recent gains, base metals fell back again in London, with copper the worst performer losing 3%. While a failure by Wall Street to kick further disappointed the LME, focus was also on the release of the Chinese trade balance data. Economists were expecting February to show that Chinese imports in February had fallen 25% from February 2008, and that exports had fallen 5%. While they were right about imports, exports fell 25% as well. This was the biggest fall since China began releasing data in 1993.
Gold made a welcome recovery last night having been hammered on Tuesday in the flight away from quality. The metal jumped US$10.90 to US$906.30/oz, reinforcing the belief that the US$900 level will be the battle ground for the time being.
The Aussie was buoyed by local data yesterday and yen selling last night, adding another half a cent to US$0.6508.
The SPI Overnight added 21 points or a solid 0.6%.
