But the market did not respond as expected. Presumably due to worse than expected earnings from bellwethers such as General Electric and big banks, the market dropped below trend on Monday and Tuesday. Now today, we are seeing more recovery as some regional banks announced better-than-expected earnings. The SPY has come back within the regression lines on good volume.
The higher low this week with an upturn above $132 is a bullish sign for the short term; this should act as support. The trip earlier this week emphasizes the trouble with the economy overall and the justified skittishness for investors. Be careful.
The NASDAQ has done even better today than the financial-laden SPY, and IBM reported excellent results after the bell and is trading up $7 as I type.
My surmise is that $138 on the SPY is very reachable this week as the countertrend rally continues. Shorts continue to put a nice bid on this market and lots of cash on the sidelines may also act to lower the risk for long positions. The economy sucks and the long term market trend is still down, but this bear market rally still has legs with support at $132.
Specifically, regional banks look appetizing. UnionBanCal Corp (UB) is my personal pick with favorable Return on Assets and even a 4.4% dividend. Many have been beaten down with all other financials, and the stronger regionals should be the first to recover.
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