A rally today in the face of [the Jobs Report] would help show that the market is convinced of three things: 1) the bottom has already been put in, 2) if we’re in a recession, that it won’t last long due to an aggressive Fed, and 3) valuations now support higher stock prices with the return of M&A activity. That sounds too good to be true. But, as we’ve seen this week, with the market hyped up on interest rate cuts, we’ll see if they can continue to keep the faith. The action today will be telling.
– Charles Kirk, “February Fun”, Friday February 1st, 9:14am EST
I have to admit that I have been surprised by the market’s strength the last two days. I called the end to the rally after Wednesay’s failed rally after the 50 point cut by the Fed (“And The Rally’s Over”, Top Gun FP, Wednesday 1/30).
Amazon (AMZN) came out after the close and got hammered on Wednesday – but markets rallied powerfully after a gap down at the open on Thursday.
Yesterday, Google (GOOG) disappointed after the close, which ordinarily would be a catastrophe, and on top of that we had the first negative jobs report since August 2003 before the open this morning (Jan Jobs Report). This report seems to take the last leg out from the bulls, the argument that as long as employment holds up consumer spending will too.
Obviously we had the blockbuster Microsoft (MSFT) bid for Yahoo! (YHOO) (MSFT Press Release).
But I still would have thought that the weight of this news would result in a significant down day.
With the S&P at 1393 and the Dow at 12,730, they are approaching their August and November lows around 1400 and 12,800 which I’d think would be resistance – since there is now the general belief that there will be a recession whereas then it was just a probability. The Nasdaq is at 2414 which is approaching the August lows around 2450.
So I’d expect to see this thing fizzle out soon. If we get a convincing move up from here, I’d have to reconsider my outlook but for now I’m still bearish and don’t expect too much more upside from here.