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Markets Livin’ On A Prayer?

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Well, as you can see on the chart above, the markets have corrected quickly and strongly. The S&P 500 is hanging onto the critical 89-day moving average waiting for news of the Fed’s monetary policy decision and the potential-but-not-certain reconfirmation of Ben Bernanke as Fed Chairman.

We are right in the middle of earnings season, and earnings have been pretty strong. Unfortunately, traders are starting to look at the political situation in the country as opposed to earnings for trading direction. That happens from time-to-time, but the market got spooked when the President came out and said he was at war with the banks and Senators stated they were planning to reject the President’s recommendation to reconfirm Bernanke. Those big down moves on the chart above coincide with statements from politicians rather than positive earnings announcements.

Investors had a very good year in 2009 to follow up a VERY bad year in 2008. Now that we are in 2010, they are looking for reasons why the market should move back to the lows. Political statements about changing the head of monetary policy to someone presumably more pliable to political pressure and potentially negative policy stances toward the country’s largest industry are enough to cause traders to sell. Oddly enough, if you actually look at the policy statements of the Volker plan for banks, its quite logical in its intent to protect the country’s financial system. The unfortunate part is that the delivery of the message tilted toward populist rhetoric and that kept traders from actually hearing the substance of the message.

If you look at the technicals, the two short-term readings (Stochastics and RSI), they are both in oversold territory, which indicates we should see a bounce up at some point. Unfortunately, the other indicators are mixed (some showing further intermediate downside and some showing no indication at all).

If we can hold the 89-day moving average, consolidate there and let the political blah-blah-blah move past, then maybe we can move back to earnings as the catalyst for stock market pricing. The past few days we’ve had sentiment govern pricing and the sentiment was clearly influenced by the politicians.

I’ve always liked this rock ballad. Its hard to believe that its going to be 25 years old soon. Your trivia question of the day is whether you recall which Presidential candidate used this song as his campaign theme song. I remember it being so, but even at the time I didn’t understand the connection (hint: the candidate is not from New Jersey).

Also, does anyone out there know why they decided that half way through the video they’d switch from black and white to color like a big-hair Wizard of Oz? If so, email me – I’ve always been perplexed by it.

Mark