Bear Stearns Shocks the Stock Market
S&P – A surprise announcement that JP Morgan Chase will be buying Bear Stearns for $2 a share rocked stock index futures. The news underscores the vulnerability of banks, which have been speculating on high risk mortgage investments. In its boldest move yet, the Fed is providing financing for as much as $30 billion of non-liquid assets owned by Bear. Furthermore, the central bank will eat any losses associated with the sale of these assets, which include a large number of mortgage-backed securities. The news will probably weigh on the stock market for the remainder of the session – particularly financials and banks, which are sharply lower in pre-market trading. The June e-mini S&P chart continues to look like a disaster, taking out both the relative and contract low. The market has not yet attained the measured move of the bearish wedge formation, which hints at low 1200’s as its target. Support now comes in at 1252.00, 1211.00 and 1169.00, while resistance can be found at 1335.00, 1377.00 and 1418.00.
Crude Oil – The energy sector is sharply lower on the fire sale occurring in the equities market. The trouble in the banking sector has some very ominous implications for both the corporate sector and consumers, with banks likely to continue being stingy in providing financing. Home values are likely to plummet and the loss of wealth will likely lead consumers to be much more conservative with their spending, which will impact the U.S. economy and possibly China. The market may begin moving more in line with fundamentals, especially if the overseas and fund money that has been flowing into the market begins to ebb. Wariness among shorts – after getting burned so many times during Crude’s historic ascent – may keep the market from completely collapsing unless they can muster the fortitude to test the waters once again. The lows reached by the April contract were flirting with forming a bearish engulfing pattern on the chart. There does appear to be solid support in the 103-104 area, but failure to hold this area could result in the market falling well below the 100.00 mark.
Rob Kurzatkowski, Commodity Analyst
