Monday, October 13, 2008

Today's Markets


Let's try and filter out the daily noise and see that this daily chart tells us.

1.) The market was really oversold and due for a rebound. I said so, but I am hardly alone in that pronouncement.

2.) The blue horizontal lines are from previously established price levels on the chart. As such they will now provide upside resistance.

3.) There is also upside resistance at the 10 day SMA

So, we have several levels of resistance. While today's market action is encouraging, it can also be seen as a way for the markets to make-up for all the selling from last week.

In addition, consider the fundamental background.

France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.

The announcements came as Britain took majority stakes today in Royal Bank of Scotland Group Plc and HBOS Plc. The coordinated steps followed a pledge yesterday by European leaders to bolster market confidence as the global economy slides toward recession.

``What it should do is stabilize the banking system,'' said Peter Hahn, a fellow at London's Cass Business School and former managing director at Citigroup Inc. ``Will it stop us from having a recession? No, nothing is going to stop us from having a recession.''

The agreement among heads of the 15 countries using the euro helped trigger a rally in stocks and the euro after a market rout. The Dow Jones Stoxx 600 Index rebounded a record 10 percent today, after slumping 22 percent to the worst drop in its two-decade history last week. The currency had its biggest gain in three weeks, climbing 0.9 percent to $1.3526.

This is a huge move by the respective governments. It indicates they realize the severity of the situation. In addition, it tells us they are willing to "put their money where there mouth is" so to speak. Bottom line, this move has greatly eased the market's tension -- at least for now.