Rebel Traders - Stock Market and Economic Analysis

Well now… wasn’t this an interesting day!

We have a LOT to cover tonight so be sure to come back tonight for the full wrap up, you won’t want to miss it.

Want to know what got the market so excited today? Some people think that it is OK for financial institutions to keep losing money, as long as they keep getting additional money injections. It is akin to having diarrhea and eating at the same time. In one end and right out the other.

So Lehman (LEH) and UBS (UBS) can keep losing vast amounts of money out the bottom, and just as long as they keep new money coming in the top end all is well. Do you see any logic in that? I hope you don’t.

Check back tonight for the entire story, and all the charts.

P.S. – Your tax dollars… we now know that they will be used to "cushion and comfort" JP Morgan (and Bear Stearns) in the Government bail out. Yes, your money will be used to pay off the debts and failures of the companies that took your money in the first place (i.e. mortgages). Treasury Secretary Henry Paulson has picked your wallet.

"What’s in your wallet"?

Watch out… he is reaching for another wallet now !

This is a market that is out of control.  The Dow up almost 400 points, because Citigroup (C) is up 10%, AIG up over 8%, American Express (AXP) and Bank of (not my) America both up over 7%.  There’s been a shift in the continuum here for me, and it’s not because I don’t believe the market should be going up.  I’m glad it is, as it should be providing many the opportunity to get out of bad long positions.  This article was the last straw for me.  I’ve been thinking about writing an article on this Bear Stearns subject, but I didn’t want to seem an alarmist.  Well, I no longer feel that way, thanks to this article and I will now write on the subject.  But, later.  I’m honestly quite angry at the moment.  Stay tuned!

All the bad financial news out today is being seen as…..are you ready?…….a floor for the equities market!  That’s right, another floor (let’s not call it a bottom, just a floor).  Where are the good contractor’s?  We sure need one, because we have WAY too many floors, sub-floors, sub-sub-floors, etc.  Bids continue to be pushed up on diminishing volume today.  Personally,  I wouldn’t go long this market if Hank and Bennie Boy paid me to do it.  I really don’t know how many of our readers are traders and how many are investors, but do not get sucked into this vortex, as it will suck the money right out of your account!  Be careful out there!

For now.. the rally has run into a wall of resistance. Last night I showed you the volatility index with the trend lines. With the gap up buying this morning the volatility has come down to support.

this would signal that we have reached the extent of the buying ‘frenzy’ and will probably hold here or start to sell down into the close. At least from a technical perspective that is how it looks here.

The Dow is up around 272 points, with the financial components leading the way.  Pardon me if I don’t get excited by that.  Gold and Oil stocks are holding their own.  The wire service reports that, in a letter response,  the US Treasury says Bear Stearn’s (BSC) assets are mostly mortgage-backed securities that include some "related hedge investments".  S&P has placed Republic of Iceland long-term foreign currency and AA long-term local currency sovereign credit ratings on credit watch: 

‘A-1′ short-term foreign currency and ‘A-1+’ short-term local currency ratings on Iceland, along with the ‘AA+’ transfer and convertibility assessment on the sovereign, were affirmed.

Construction spending for February and the March manufacturing numbers are not as bad as expected.  Check out those "Prices Paid" numbers:

*MAR ISM MANUFACTURING: 48.6 V 47.5E; PRICES PAID: 83.5 V 75.0E

*FEB CONSTRUCTION SPENDING M/M: -0.3% V -1.0%E
- prior revised to  % from -1.7%
- No Revisions

The first day of a new quarter, it’s April Fools day, the futures are up on heavy losses, and they have a chicken on CNBC this morning. Oh what is this world coming to?

The way I see this current situation is that the bad news released by UBS and Deutsche Bank overnight is a sense of "the kitchen sink" has been thrown out the window so all is up from here. Sounds like a perfect trap being placed to castrate the bulls to me.

Remember that rallies in a bear market are historically always violent and large, to only end in disappointment for those that are bullish. We have a lot of resistance at multiple levels overhead so any rally is likely to be a gap up and then flatten out. We still have ISM data to come out at 10:00 am and it is still a very long week of significant economic data to come. Don’t get excited about bear market rallies.

See the hourly chart of the S&P 500 below:

(S&P 500 Hourly Chart)

Ascending triangles resolve to the direction that preceded them, so in this case we will look to see a resolve to the downside in the near future.

Don’t forget about the recession, which is showing signs of still getting worse…

ICSC/UBS WEEKLY CHAIN STORE SALES W/E MAR 29TH: -0.2% W/W,  +0.5% Y/Y
- Lowest Year over Year reading in eight years

UBS: GUIDES Q1 NET LOSS CHF12B; PROPOSES CHF15B RIGHTS ISSUE; SEES $19B WRITEDOWN; CHAIRMAN STEPS DOWN
- Sees Q1 write downs of $19B on US real-estate and structured credit.
- Notes that sub prime exposure fell to $15B in Q1; Exposure to alt-A fell to $16B
- To create a separate unit to manage its US real estate positions
- Environment remains difficult
- Says that the number of new shares will not exceed 1.25B
- Earlier today the Financial Times reported UBS is poised to reveal further write downs of up to $18B and seek a capital increase of about $13.1B. 
*** Note that this is a Q1 pre-announcement; The company is due to report Q1 results on May 5th.