Pre-market Analysis 7/25

Was looking at the DOW chart and noticed a few things.

Market saw its peak in Oct last year. From then on, we've seen some rather fierce rallies but more often than not, they are immediately followed by steeper declines.

Jul 16's rally after the sell-off in mid May seemed short-lived. But that's hardly surprising.

July usually doesn't end well during bearish times.

Today's Friday. Friday in a non-bullish time. Generally, this means market participants will be more reluctant to hold their positions through the weekends.

Yesterday's sell-off came after the rally that began on 16 July. Whether the rally will resume is really a matter of how confident people are that there's a basis for the rally. Positive company earning reports aside, mid July is traditionally bullish anyway thanks to the inflow of retirement funds...

I'm thinking it's likely that today would see a follow-through from yesterday's sell-off.

Why do I think that?

Because the US economy seems to suck, albeit not big time:
- Weekly jobless claims figures are bad,
- Existing home sales figures are not rosy either (spells trouble for the financial sector, which has been THE sector moving the market for a while now)
- Sectors such as the hotels, resorts & cruise lines, automobile manufacturing, etc did poorly (when these guys don't do well, it says a lot about people's confidence in the economy)

On the news front, we see a mix of good and not-so-good reports and news from various companies across the sectors. But what caught my eyes was this report:

"...after BofA's (BAC) disclosure of Countrywide's loans, could be worth far less than the stated values, and reserves taken against possible losses are inadequate. And if bank capital is overstated, firms could again be forced into dilutive capital raising. The reduction in the value of Countrywide's loans raises the question of what would happen to other banks if they similarly marked loan portfolios to prices they could fetch if sold in the market today. Typically, banks create reserves equal to 1.5% to 3% of those portfolios, but the prices applied to Countrywide's loans show those set-asides could be too low. Applying a mark of 5% -- more aggressive, but still well below Countrywide's -- at Citigroup (C), J.P. Morgan (JPM), Wells Fargo (WFC), Wachovia (WB), Washington Mutual (WM) and Bank of America (BAC) results in 10% to 30% reductions in the banks' stated book values. Push the mark to 7.5% and book values are 20% to 50% below stated levels. "That is why you see so many banks trading at such a discount to book value," says Craig Emrick, a bank analyst at Moody's Investors Service."

AND, OIL HAS RISEN AGAIN, a follow through on previous session's gain after dropping for 2 weeks.

So, I'm really not so sure that the market will fade up today.

But then again, this is a crazy market, and anything can happen.