U.S. equities staged a tremendous rally on Tuesday, with financials leading a broad based global comeback for stocks, as Citigroup’s chairman announced that the financial institution is on track to post its best quarterly earnings since 2007. The anticipation created by the sense that worst of the banking crisis may be behind the markets allowed a number of major financials to rally nearly 30%. General Electric, a major bellwether of the sorrow of equities, rallied over 20%. Equities and other risk exposed asset classes also received an additional element of closure today as it was announced that the “Ponzi Pirate” Bernard Madoff was set to plead guilty to 11 counts of financial fraud. Madoff faces the possibility of life in prison for his role in defrauding multitudes of investors over years and contributing additional erosion of confidence to markets that were already reeling from scandal and losses due to financial mismanagement. Additional support was garnered from comments supporting the reinstatement of the uptick rule and a reworking mark to market accounting procedures. Both of these rules have been cited as major roadblocks to working through the credit crisis in the timely manner.
The Citigroup news sparked a global rally, with European indices jumping well over 4 %. Asian markets are expected to follow suit on their Wednesday open. The question remains whether this rally will have any legs, as confidence in the financial outlook of one entity is likely to be short lived without follow through from additional sectors. There needs to be some demonstration that the reworking of businesses into institutions that are not “too big to fail” can begin to produce revenues based on efficiency and better client/product service. Hope this is not too much to ask, otherwise today’s gains could quickly fade back into the maelstrom of false breakouts and volatility. Speaking of volatility, expect a continuation as the battle before option expiration begins to heat up. March equity options and futures go off the board next week.
Technically, March Dow futures filled its recent gap left from 6800. The break above this level leaves the index in a technical no man’s land. Whether the recent low to 6500 is a initial bottom remains to be seen. For now, expect the first level of support at 6805. If this level breaks, market could retrace back to 6730. Initial resistance at 6946, with a hold above this level setting up for a move back to 7020.
EQUITY RANGES
OPEN
HIGH
LOW
CLOSE
CHANGE
DJH9 (MARCH DOW)
6645
6925
6635
6887
+359
SPH9 (MARCH S&P)
690.00
721.20
688.50
716.00
+40.10
NDH9 (MAR NASDAQ)
1066.00
1113.00
1062.00
1106.00
+59.00
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