After A Big Bounce, What Next?


“It remains to be seen whether (Tuesday’s rally) is a dead cat bounce or the bottom of the market.  As the uncertainties remain large, we expect the volatility to continue….”

Sep Van de Voorst (subscription required), Strategist, Dutch firm SNS Securities, in a note to clients

Yesterday’s big rally was more about bargain hunting than news.

Walmart (WMT) reported a solid, but not great, 3rd quarter with revenues up 9%, same store sales at US Walmart stores up 1% and net income up 8% (WMT 3Q Earnings Release).

Walmart’s shares rallied 6%.

Home Depot (HD) reported another tough quarter, with same store sales down 6.2%, revenues down 3.5% and net income down 27% (HD 3Q Earnings Release).

After being down in the morning, Home Depot shares participated in the afternoon rally, finishing up 2.3%.

Goldman Sachs (GS) CEO Lloyd Blankfein told a conference at Merrill Lynch’s Banking and Finance Conference that Goldman would not be taking a mortgage backed securities writedown in the 4th quarter and that Goldman was net short mortgage backed securities.

Goldman shares exploded, up 8.5% on the day.

Markets took the opportunity to put in an excellent rally.


Today’s news is again on the light side.

Bear Stearns (BSC) told the same Merrill Lynch Conference that their mortgage securities writedown for the 4th quarter will be $1.2 billion – and investors seemed pleased with the magnitude sending Bear’s shares up more than 5%.

HSBC (HSC), a large British bank with substantial exposure to the US subprime mortgage market due to its 2003 acquisition of Househould International, gave a 3rd quarter trading update.

In a “Heard On The Street” column (subscription required) on Monday, The Wall Street Journal quoted one analyst who said HSBC might have to boost reserves against it’s Mortgage Services book by $2.4 billion – but they in fact boosted it by only $300 million (HSBC 3Q Trading Update).

They did, however, take a $3.4 billion impairment charge in their US Consumer Financing loan portfolio, mostly due to unsecured loans and credit cards about which they said:

“Deterioration in US housing markets is affecting consumer finance credit quality more broadly than hitherto and loan impairment charges are expected to remain high in these conditions.”

On this basis, they announced that they are in the process of closing or consolidating 100 US Consumer Finance branches and plan to close another 260 to reduce their branch network from 1260 to 1000.

HSBC’s American Depository Receipts (ADRs) are up 1% today.

Macy’s (M) reported a weak 3rd quarter with flat revenues and a .8% decrease in same store sales.  They earned $33 million, $50 million excluding a charge, or 8 cents/10 cents a share (M 3Q Earnings Release).

Investor’s weren’t thrilled with the report sending Macy’s shares down 4%.


Stocks are putting in a bit of a continuation rally, up slightly, but mostly seem out of gas after yesterday’s big move.

What next?  Wish I knew!

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