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Further mending of sentiment spearheaded by Bear Stearns has Wall Street extending last week’s gains. As of 11:05 ET the “SPYder” (SPY) and “Cubes” (QQQQ) are up 2.10% to 2.62% on lighter and unassisted volume totals.

In the Dimon vs. Lewis heavyweight match, more fighting is underway. JP Morgan (JPM) and its CEO are in further talks to raise its existing $2 bid to $10 per share and more than $1B for Bear Stearns (BSC). Still well-removed from its 2008 highs near $20B, shareholders of the 85-year old investment bank, including the heavily-invested British financier Joe Lewis, systematically balked at the original terms of the deal which Barron’s declared to be a “steal of a lifetime” this past weekend.

For traders and judging by last week’s close near $6 in shares of BSC and continued large OTM call bets placed beyond March, more than just balking was being demonstrated in front of today’s report. To wit, a regular quarterly dividend distribution to preferred shareholders unnoticed until last Thursday suggests some cash in the coffers and one reason why those prescient bulls are being rewarded.  Intraday, shares of BSC are up 4.15 near 10.10 and JPM up by .90 at 46.89 as some prior stealing has turned into more deliberate dealing.

Elsewhere, a bevy of catalysts are also aiding in Monday’s continuation bid. The Federal Housing Finance Board announced member banks to increase their purchases of mortgage-backed securities. The move is the latest to promote additional liquidity and restore confidence in the housing and credit markets. Intraday, Fitch has helped boost market prices slightly higher. The credit watch agency maintained its financial and debt ratings on bond insurer MBIA (MBIA). Shares of MBI are up 1.25 near 14.

In earnings news, Monday’s small dose has sparkled with investors. Walgreen’s (WAG) is up 1.45 at 38.23 after posting a two-cent beat of .69 per share. Separately, high-end jeweler Tiffany (TIF) topped Street views by six-cents with its 31% profit increase to 1.27 per share while raising guidance. Shares are up 5.05 at 43.65 and currently clearing two and one-half months of lateral resistance.

On the economic side, a surprise 2.9% increase in existing home sales is the latest figure to factor in with bulls that a bottoming process in the housing market is at hand. Analysts had been calling for a slight drop following January’s .4% decliner. Instead, an annualized 5.03M units trumped estimates by 158K and diverted forecasts pegging sales at their lowest levels since 1999. For their part, traders are building on a six-week “W” base in the homebuilders ETF (XHB) with an intraday breakout on heavier volume, up 1.05 at 23.39.

Price stabilization following some “heavy metal” profit-taking in the likes of Comex Gold (GLD) and bearish digging in crude oil (USO) is helping equities and sentiment as well. Traders are nibbling from the buy side in two of the market’s most celebrated uptrends as an alternative and optimistic reality to the sometimes popular message of economic doom and gloom is being administered. Intraday, shares of the GLD are up 1.15 at 91.05, while the USO trades flat on the session near 81.25.

In financial anchor news, Goldman (GS) remains cautious on the financials according to an analyst note. The S & P ratings agency might liken that investor alert to the “pot calling the kettle black.” Late Friday, both Goldman and peer Lehman Bros. (LEH) were revised from “stable” to a “negative outlook.” The agency didn’t change its senior-debt ratings, a good sign, but maintained that despite recent Fed initiatives, it sees a continued deterioration in capital market revenues approaching 20% to 30%. Separately, the NY Post reports Goldman will reduce up to 15% of its work force, with job cuts centered on its capital markets division. Intraday, shares of GS are up .35 near 180 in volatile but mostly choppy conditions.

It’s a nice start to the week for many investors and for bulls focused on market follow-through days. Thursday marked the latest confirmation that the extreme price volatility of late is the type defined by intermediate bottoms, as the Dow Industrials (DIA) scored a higher volume price thrust worthy of IBD’s affections. Entering the “Noon Balloon” and short-term conditions are now squarely into the realm of being overbought. In a bear market, most traders will rightfully point out that’s when you “sell the rip.” In a more optimistic market defined by a nascent intermediate bull rally, “schnitzeling from the top” or reducing risk, but waiting to re-enter on technically-correct pullbacks is an approach generally appreciated. After an excellent Thursday, a “Good Friday” and an even better Monday, this corner prefers the latter reality.


Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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