It seems to me that the market has been oversold for quite a while and a snapback bear market rally, especially in the most shorted stocks (financials, brokers, etc), was overdue. We’ve had some decent earnings that claimed the losses were less than expected in Wells Fargo, JP Morgan and Citigroup.
Now I have a few questions that everyone on Wall Street will have to ask themselves next week:
A) What has fundamentally changed, if anything, to improve the longterm outlook?
B) How will these banks do in an increasingly government/Fed regulated environment?
C) What catalyst will arise to spark the next bull market? Green energy subsidies?
D) We still have foreclosures rising and credit spreads widening. Won’t more banks be very troubled by this?
This chart below of the NASDAQ QQQ ETF shows a very strong resistance at the 20 day EMA. We also had negative earnings from AMD, MSFT and GOOG which has really compromised the confidence behind tech stocks. With all the leadership sectors like techs, energy, materials and utilities rolling over, we also have to ask what’s left to lead the market higher.