So, once again yesterday, the question of the day was âwhat sparked the morning rally?â Basically, details began to seep from the White House about the upcoming bank rescue package. Apparently included on the rumor mill is that the plan will be smaller than originally expected with a centerpiece of government guarantees and insurance on troubled assets. Most importantly, according to articles all over the business news media, the latest round of discussions also address pricing of the securities- the hardest concept to bargain upon as discussed in the good bank vs bad bank post a few days ago. At this point, the government would buy toxic/illiquid/bad/choose your word assets below the âcarrying valueâ (i.e. market value) of said assets, but not at fire sale levels. The plan could be the impetus for a major accounting problem for the banks as theyâd have to write down the values of the assets resulting in losses, but supposedly the administration is attempting to find a solution to rectify that issue which may include a temporary halt of standard accounting rules. Or there could be a change to the rules, i.e. maybe the losses would be amortized over a period of years. All of this is over my head as far as trying to figure it out except for one thing- how do we trade off of this? And I know one thing as far as yesterday was concerned: buy the rumor. Part of the weakness in recent days has been the delay in a âfixâ for the economy as many people were optimistically albeit unrealistically thinking that a plan would be released as soon as Inauguration Day. As that hope dissipated, so did asset prices. Thus, what the buying was yesterday was a lot of hope. The sum of all of this is as such: the sooner that a plan is ratified, the sooner and harder that the market will rallyâ¦but if the market does not rally on the plan and the âsell the newsâ phenomenon went into effect, things can get perilous rather rapidly. Markets in Asia bounced overnight with prices up about 1%-2% across the board. Bourses in Europe are higher as well by a fraction of a percent following Wall Streetâs rally yesterday. Currencies are quiet this morning after the huge rise against the yen by the dollar yesterday with commodities and bonds quiet too. This will all change with the jobs report at 8:30AM. A terrible number seems to be priced in. What will truly drive stocks today is the rumor bill regarding the stimulus plan. Futures are down now, but the upside bias from yesterday will likely kick in no matter the number for the early morning. After that, it will be wildly choppy with the rumor of the moment dominating the situation- truly a difficult day traderâs market. Reiterating- Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea. If the whole story is not there - If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified- Good- The following stocks have good news and/or a strong technical pattern PBI â beat earnings for quarter BAC- closed near a high amidst hopes it will not be nationalized CI- closed near a high NFLX, MOS- mentioned positive on âMad Moneyâ TSYS- good earnings EXP âclosed just off of a high WW- closed near a trend high AMX- good earnings BIIB- guided year slightly above estimates Bad-The following stocks have bad news and/or a weak technical pattern HWAY- warned badly PFWD- warned on its earnings MTD- terrible earnings SRCL- missed revenue estimate THOR- missed earnings estimate HIG- earnings OK, gave decent guidance, but then oddly said that its guidance will likely be incorrect. SKX- bad earnings RATE- bad earnings NWS- bad earnings, but doing major cost restructuring which may well prove to be a positive for the stock particularly if the market rallies MELA- closed near a low ASFI- closed near a low AIV- closed near a trend low LTM- closed slightly off of a low Earnings: FRI FEB 6 BEFORE AIV AOC ATO BECN BIIB OHI PNM SYT TE WY Good luck today. Erik R. Kolodny