The news story of the morning was Warren Buffett’s deal to buy $5bn of BAC warrants paying him a 6% yield. Bank stocks soared on the news pre-market cheering the oracle of Omaha’s investment. Ignoring a jump in jobless claims futures pushed higher into the market open. The party would last only for a few short minutes, the pop in the market gave an opportunity for sellers to push forward and knock down the market. Volume ended the day mixed giving the S&P 500 a day of distribution, but failed to notch a distribution day for the NASDAQ. Despite the NASDAQ narrowly missing the day of distribution the destructive price action overrides volume. The market remains in dangerous territory and we need to proceed with caution.
Just a few weeks ago BAC told the market it DID NOT need any CAPITAL! Yet, today we find out they actually need capital to stay afloat. The market certainly figured it out the past few weeks and with Buffett’s capital infusion it proves the market was proper in its pricing. Goldman Sachs was another big gainer at the open, but found itself succumbing to the pressure of sellers. Perhaps Mr. Buffett will go ahead and get another deal for warrants with GS, given the recent price action I’d say it isn’t out of the question.
Sentiment still remains rather bullish considering the conditions of this market. This week the number of AAII bulls was higher again, for the third week in a row. Quite surprising as we would assume the crowd would be much more bearish after all we have seen in the market. The number of bears increased too, they now account for 40% of the survey, but still not overly bearish here. This market remains at a crossroads and clarity appears to remain on the downside.
Tomorrow features a GDP report before the market open. We have seen a few revisions to GDP and this one I would expect nothing less. Given what is in front of us I would think it would be a weak report. I am not about to “guess” what the report will show. It is a foolish endeavor, but given the signs we are seeing regardless of what that GDP report says this market is heading lower.
Stay focused and for those who are on the East Coast, good luck this weekend with Hurricane Irene.
