Uptick, mark-to-market, and the much awaited rally!

Today marked a temporary end to the destruction of wealth on Wall Street as the market displayed a massive rally: a 5% (379 point) increase in Dow, 6% in S&P 500 and, 7% in Nasdaq.  All Dow components saw a move to the north, led by the financial stocks.  Specifically, Bank of America climbed 28% higher to $4.79, JP Morgan also had a 23% movement to $19.50 a share, while GE shot up 20% from its 7-plus price to close at $8.87.  But the biggest movers of them all- Citigroup with a 38% move (or about 50% if you included the after-hours trading).  Materials Alcoa, Semis Intel, Industrial Caterpillar and Financial American Express all saw an increase above 10%.  Various things might have contributed to that.

First, it’s just been a terribly oversold market.  Prior to today, the Dow was perhaps in the green only two or three times within the last 2 weeks and about the same for S&P.  Without anything good to feel good about, the investors similarly didn’t see any goood  reason to be buying. Jeff DeGraaf, #1 technician on WallStreet came out on CNBC’s Fast Money yesterday saying that we’ve never been this far from the 200-day moving average since 1931 and that we would need a 35% upswing only to touch that average.  Yes, despite Obama’s statement that profit and earnings ratio might be reflecting valuation where buying stocks might be a good idea.  Market futures are brewing to again be positive, albeit on a smaller scale.  Be careful, this is highly likely to be simply another bear market rally, with some people covering their shorts.

However, Rep. Barney Frank spoke about the possible reinstatement of the uptick rule and that may have been one of the few that triggered the rally.  With the rule, investors will not be able to short a stock until there is a previous move to the upside (hence the “uptick”).  So something good might actually still come out of Washington. On Thursday, there will also be a hearing in Congress relating to mark-to-market accounting and its possible suspension- something others also perceive to be necessary at the moment when banks are heavily burdened with the toxic assets and marking them to market will just increase the bleeding.  Although in the past, hearings have been nothing but a disappointment.  People might be buying on the mere idea of a possible suspension of the rule but I’m not sure how much of a help it would be come Thursday.  It might end up being another market confidence buster.

Early in the morning, Citi’s CEO Vikram Pandit also came out saying that the firm has been at its best since the 3Q of 2007 and that Citi has been profitable for the 1st two months of the year.  It doesn’t take away their toxic assets nor does it free them from their miserable state, but hey, if they’re earning money despite what’s going on that could still be good.  The rally for Citi might not yet be over particularly if the hearing on Thursday about mark-to-market surprisingly goes well.  If so, Citi won’t be the only beneficiary.  After all, Wells Fargo’s 18% rally is probably nothing but cooperation with other financials to get some breathing space.

Maybe the report that Madoff was charged on 11 counts and that he might give a guilty plea to the courts today also cheered people a bit!


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