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The Dow Futures Report

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Majority likely to pass Government "STRESS TESTS"

Wed, Apr 22 2009, 05:32 GMT
by Paul Brittain

Alaron

US EQUITIES REBOUND ON TREASURY SECRETARY COMMENTS REGARDING US BANK BEING “WELL CAPITALIZED”. MAJORITY LIKELY TO PASS GOVERNMENT “STRESS TESTS”

US EQUITIES rebounded from Monday’s pullback after early pressure from disappointing earnings abated. The turnaround was driven primarily by a positive series of comments from Treasury Secretary Geithner regarding the “well capitalized” positions of US financial institutions. According to the Secretary, preliminary readings for the government’s “stress tests” for US financial institutions are positive, with the majority of major institutions expected to pass the solvency tests set by the Treasury and government auditors. The complete results are expected to be made available on May 4th.

Additional support for equities resulted from higher than expected readings on investor confidence in the US and Europe. The renewed sense of stability helped the major averages all close near their highs of the session. Financials, Commodity, and Technology stocks led the equity recovery. A wide number of earnings offered a mixed picture today, with technologies earnings led by traditional outperformers IBM showing the most promise.

While the outlook for US financial solvency is apparently improving, it would not be surprising for traders and investors to begin to question the criteria and reliability of the government auditors’ findings. Look for a tie in between the current position and the ability for banks to provide future improved guidance. If that happens, a sustainable rally could be possible sooner rather than later.

Technically, June Dow Futures continued to trade within a range. Support is likely to be found at the 7820 level while resistance should be found at 8060. The narrowing range should be a prelude for a possible breakout to the upside test of 8160.

Published on  Wed, Apr 22 2009, 05:51 GMT