By Charles Payne
You could sense that the market was going to turn yesterday even as it was lurching toward falling to an intra-day low. This doesn’t mean that we don’t get more volatility, but that was a sign buyers stopped cowering in the corner long enough to nibble here and there. I wrote about such a move being a buy signal, but the market isn’t out of the woods yet.
It was a great sign to see a reversal when there could have been more capitulation. In fact, I’m more impressed with yesterday’s action than last Monday’s 400 point romp on the Dow. Not only did the market climb off the canvass on essentially no news, but it picked up volume throughout the session. It proves there is a pot of money itching to get in the mix and prone to buy in a panic if there is a sense similar pools of funds are making their move.
The thing is, these pools by themselves aren’t large enough to carry the market over a sustained period of time. They emerged just in time to save the market from a dark cloud that would have haunted trading all week long. A key support point of 10,550 was breached, but only on an intraday basis, not on a closing basis. That’s very important, and in fact, where buyers made their late move.
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One of the characteristics of the Great Recession Rally is the fact that frail investors still driven by a desire to make money were okay with buying on dubious news as long as they weren’t the only buyers in the mix. With that in mind, it’s going to be tougher for a while if the initial reaction becomes to sell first rather than buy, no matter the news.
I’m seeing solid earnings results and guidance met with disappointment. But Lowe’s (LOW) posted a good number and okay guidance. Last week Cisco (CSCO) looked like it had a home run with both earnings results and guidance, but a cautious John Chambers sent investors scrambling for the exit. At this point investors in Cisco should take cautious comments from Chambers with a grain of salt, as he has been so overly cautious over the past decade that I think he’s held back the stock by 50% and maybe even 100%.
Flow of Funds
Don’t look now but Libor or London Inter-Bank Offer Rate is climbing fast. Libor is a computation of rates that banks charge other banks. Libor soared in 2008, sending the so-called TED spread substantially higher, exasperating global firms which saw the flow of cash grind to a complete halt.
The TED spread peaked at 330 basis points in October 2008, while at the time 3-month LIBOR was north of 2.50%. We are a long way from that level now, but LIBOR is soaring and the TED spread has climbed to 30 basis points from just 10 basis points in March. Beyond the issue of funds flowing to enable capitalism, is the question of trust. If banks begin to distrust other banks, governments may feel the need to grease the wheels despite the flood of cash made available through quantitative easing and government bailouts.
Disclosure: No positions
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