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MV Weather Report: Don't Expect Sunshine from Geithner


Rain or shine, we review the day's biggest stock stories.

The jobs data was ugly: The unemployment rate came in at 7.6%, the highest since 1992. Non-farm payrolls fell by 598,000 in January - the worst since December 1974. Yesterday, I asked if the number was already in the tape. It must have been, because the market shrugged off the data and the S&P 500 rallied 2.67%.

Professor Bennet Sedacca wrote on the Buzz this morning: "Worse yet, I hear that the market is rallying due to the unemployment rate being not as bad as the 'whisper number'."

Also on the Buzz, Professor Smita Sadana spoke of the importance of the S&P at 870, which turned out to be the high for the day.

"The S&P 500 has surmounted the 850 resistance as it stands now. It was a critical area where the top of the pennant and the horizontal trendline resistance and 20-day moving average (not shown) coincided.

"Now we are coming to the 50-day average; of course, the market has been successful in closing over this widely followed average, but not for long.

"It looms at approximately 870."

Nevertheless, the S&P 500 just put the first winning week on the books for the year. Traders can now focus on the stimulus package and Timothy Geithner's speech Monday.

A rumor that Geithner will make changes to mark-to-market accounting practices has been going around. It's my belief that the market has been rallying off of this news - particularly the banks, which have made nice moves over the last 2 days. Here's Professor Sedacca's take:

"I keep hearing that a change in 'mark-to-market' rules may change and will help things.

"I hate to break the news, but Moody's and S&P have already downgraded 9,000 Alt-A tranches this week alone, and this will lead to many tranches not paying (many went to CCC or D); hence, they're becoming impaired and have to get marked down anyway. Then, yesterday, Moody's put $302 billion of senior CMBS on watch negative, and expect 4 to 6 levels of downgrades.

"Furthermore, Moody's said to expect 30% default rates in option ARMs from 2006-2007 vintages.

"So, unless jobs get recreated (I doubt that will happen with any stimulus plan), those hoping for a rally and economic recovery based upon a change in 'mark-to-market rules' are dreaming.

For more on next week's trading, check out the trading radar.

Have a great weekend, Minyans!
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