Talk of help for the banking sector leads to sharp gains for stocks Thursday. The Dow ($INDU) added 410.03 points, or 3.86 percent, to close the session at 11,019.69. The S&P 500 ($SPX) gained 50.12 points, or 4.33 percent, to 1,206.51. The Nasdaq ($COMPQ) tacked on 100.25 points, or 4.78 percent, to 2,199.10. Volume remained heavy, partly due to quadruple witching Friday, with 2.43 billion shares traded on the NYSE and 3.91 billion shares exchanged on the Naz. Market breadth was positive by a 24-to-6 and 22-to-8 margin on the Big Board and Naz respectively.

After a volatile session, the major market indices moved decidedly higher the last hour of trading. The catalyst was a report on CNBC that the Treasury is looking at putting the Resolution Trust Corporation [RTC] back in business. The RTC was created back in the late 90’s due to the problems from the savings and loan crisis. The RTC would allow banks to push bad debt off their balance sheets. As a result, banks could return to borrowing money, which should lead to a quicker recover in the housing sector.

Another bid story on the session was the move by the SEC to further curb short selling on financial shares. In fact, CalPERS, the giant pension fund, announced it would no longer loan out shares of Goldman Sachs (GS) or Morgan Stanley (MS). At the same time, Britain’s Financial Services Authority has banned short-selling on financial stocks until Jan. 16. Shares of GS fell 5.68 percent to $108.00, though MS shares gained 3.68 percent to $22.55.

Bad news continued for AIG (AIG) Thursday with the insurance giant told it would be taken out of the Dow Jones Industrial Average starting Monday. The stock will be replaced by Kraft Foods (KFT) with KFT up 3.3 percent and AIG recovering from its recent free-fall, up 31.2 percent to $2.64.

Shares of Washington Mutual (WM) rose sharply today, up nearly 50 percent on news the company is looking for a buyer. Possible suitors include Wells Fargo (WFC), JP Morgan Chase (JPM) and HSBC Holdings (HBC). All three stocks rose at least 9 percent on the session with the KBW Bank Index ($BKX) rising 13.8 percent on the session.

In economic news, jobless claims rose 10,000 to 455K, which was 15,000 higher than expectations. The four-week moving average rose by 5,000 to 445,000, pointing to further weakness in the jobs market. Leading indicators were also a weak spot Thursday with the index falling 0.5 percent when a smaller decline of 0.2 percent was expected. The only good news came from the Philly Fed Survey, which showed a reading of 3.8 when a figure of -10.3 was expected. The Fed did continue to add liquidity to the financial system, as did many central banks around the globe.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site