Government Intervention Settles Stock Market Fear of Collapse

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Once again Secretary Paulson and the Government step in to “save the day.” In addition the SEC halted short selling on 799 financial stocks in an effort to curb the downside. All told, we had two extremely bullish days in Thursday and Friday with massive volume. The gains were enough to lift the major indexes back to their 50dma but at the end of the day failed to close above it. Some positive news New Highs were able to outpace new lows by a 2 to 1 margin. Friday was day 2 of an attempted rally, Tuesday thru Friday we’ll need to see a follow through day to confirm this move off the lows set on Thursday.

I was ready and set to look forward to a new bull market but there aren’t many quality growth stocks setting up to make a run. The IBD 85-85 index has 4 stocks with EPS quarter vs. prior quarter growth above 100%, none over 400%. This is not the type of thing you want to see moving off the lows. Ideally, there would be many stocks with growth rates above 100% and you would also see 2-3 or more with EPS growth rates above 999%. We simply do not have the leadership we need to cintinue to move forward in this market. If we can rally a bit here, great and maybe we can make some gains but the fact remains our new bull market is still well off into the distance.

The government bailout of the financials is simply like putting ductape on your driver’s side rear view mirror; you are going to fix the underlying problem. Our problem was lending practices and the exuberant price gains of the real estate markets this decade. Putting bandaids on Wall Street firms is far from what will cure the problem of real estate. It will be a matter of time before we roll over and retest the lows set on Thursday. Wait for the follow through day and make some gains but do not over commit yourself to this market.

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