Friends
The big news this week was the General Motors IPO (initial public offering) and basically it totally consumed the media and the market on Thursday. In general, the offering was a success, as the price came at the high-end of the expected range ($33) and trading volume on the first day was enormous. Now, the long-term viability of GM and the car industry in general is debatable, but for one day the markets applauded the success of the offering and investors felt good about things overall. What we will be watching is how the stock does over the next few days. It traded nicely above $35 most of the day on Thursday, but if it cannot hold its gains and breaks down below the offering price, then the market will be discouraged. Believe me, there are many forces that would like to keep the share price above that $33 level. If they cannot do it, shares in unstable hands will tend to bail.
Stocks were able to regain much of their losses from earlier in the week on Thursday. So far, the early indications this morning are for a slightly weaker opening. The S&P 500 was unable to close above the 1200 level, so we will look to see if that now becomes a resistance level that we need to break through to get a year-end rally. The very important 1180 area held as support earlier in the week, so we now have our new range defined, and we will see which end of the range traders attack next. The Dow Jones Industrial Average is above the 11,000 level again, and on a psychological basis it would be helpful if the bulls can keep the average above that number as we work through the newest macro issues.
On the macro front, China continues to raise rates on their banks to slow their economy and inflation pressures, and the European debt issues never seem to actually get solved. The day of reckoning keeps being delayed, but market participants continue to keep a sharp eye on the situation in Ireland, Greece, Portugal, etc.
QE2 has begun, as the Fed continues its program to buy Treasury securities. What is disconcerting, is the lack of unity from the Fed officials, as there seems to be very much doubt that the process will have any positive effect at all. On the contrary, what we are hearing is more to the tune of what long-term damage flooding the system with more liquidity will cause. The jury is out on that one, but in the meantime we will deal with the hand we are dealt. The Fed is in a very accommodating mood, and stock market history tells us that it would be unwise to fight them. In the meantime, we will watch the continuing battle between macro- economic forces and the Feds attempt to increase the wealth effect through rising asset values.
Have a great weekend everyone. The holiday season is upon us. Don’t get too stressed!
