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Market Recap: Did Fed Induce A Short Squeeze?


Fed action caused a running of the bulls today.

Stocks surged on the Fed today. The Dow Industrials added +416 points, or +3.55% to 12,156, the S&P 500 gained +47 points, or +3.71% to 1320, and the Nasdaq Composite finished +86 points, or +3.98% to 2,255.

Equity futures jumped higher this morning as the Fed announced more moves to stabilize the credit markets. Prior to the opening bell the Fed stated it would lend up to $200 billion of Treasury securities and other collateral in coordinated action with central banks around the globe. The treasuries will be available for 28-day periods to 20 banks and securities firms that deal directly with the central bank. Check out Professor Kevin Depew's Five Things You Need To Know.

The move; however, reminded Mr. Practical of a similar situation with a crash in oil prices in 1984. "What made business sense (positive cash flow and asset values supporting high leverage) with oil at $32 did not make any sense with oil at $14 a barrel. Cash flow dried up and asset values plunged.

"The heavy leverage at the banks left them trying to collect collateral as all these companies stopped paying loans. But with no use for the collateral their value fell as well. The banks found out quickly they had no real capital and they all went bankrupt." Check out his column Let History Guide Us.

Nonetheless stocks surged with the markets being led by the financials. Notable gainers included Morgan Stanley (MS) +11% to $42.49. Wachovia (WB) gained +13% to $29.78. Lehman Brothers (LEH) added +7.8% to $46.3. Even Bear Stearns (BSC) recovered from more solvency concerns to close +1.08% to $62.97. Read Toddo's Random Thoughts.

Tech shares continued another solid day of gains. Betas led to the upside. Apple (AAPL) gained +6.8% to $127.93. Research in Motion (RIMM) finished +8% to $101.00. Baidu (BIDU) added +8% to $261.58, and Google (GOOG) finished +6.45% to $440.01.

Commodities moved higher. Crude oil finished +0.85 to 108.75. Gold added +4.20 to 976.00. Silver fell -0.022 to 19.676 and copper fell -0.95 to 379.90.

Check out Professor Guy Adami's article Will Schlumberger Rise With Crude?

The dollar index gained +0.284 to 73.277.

For more summaries, click on Minyanville's Buzz Bits.

Below is a recap of some of the idea flow on today's Buzz & Banter. Please note that stocks may appear in both bullish and bearish categories, due to long and short term trades by our many Minyanville professors.

Some bullish trade or investment ideas: SPY, SGP, MS, GOOG, GLD, MSFT, AAPL, FTI, QQQQ, BSC, XLF

Some bearish trade or investment ideas: SLB, HAL, BSC, ANF, HNS, C, JPM, drillers, crude

Will this rally follow through? See you on the hump. Have a good night!

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No positions in stocks mentioned.

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