What Now?

Equity mkts took y'day on rumours of better earnings from certain companies and a relief rally that has the 'street' short. The mkts are right up against resistance levels. Can they break through? My guess is yes as the 2 yr treasuries are now above 2%-up from 1.6%. Mkt players are coming to the realization that the FED is not going to slash rates to 1% unless a major problem develops before the US election. 25 bps at the next meeting is the most likely outcome.
Stocks are diverging, financials are still for sale while real economy companies are delivering results ahead of consensus.
Commodity companies blasted off y'day lead by the agri companies. POT announced a 200% increase in potash prices. That is unbelievable. Arcelor Mittal announced a surcharge on US steel contracts. Oil trades above 115, and gold trades above 940. Copper testing 4$.
The mkt is starting to revalue some of these base commodity producers and discount the financials. Merrill announced a 2 bln $ loss as they marked down their positions. But once again, the balance sheet is so confusing to obfuscate the damaged positions. Until the B/S clears up, the bid for financials in general will be limited as there will be plenty of sellers on upticks. JPM-which avoided most of the subprime issue-is looking to raise 6 bln in prefferred shares-yielding 7.9%. US 10 yrs are yielding 3.70%. Generous to say the least.
Mkt action is to sell the rallies if as and when companies beat earning expectations. Intel beat yesterday and guided higher-opened higher and then sold off all day despite the Dow being up 250 pts and the NDX up close to 3%-No follow through. IBM beat expectations and price action today indicates a sell on news scenario. NOK missed and is getting hammered. Risk still resides on the downside

Oil service companies are taking off-especially the Cdn drillers-either some hedge funds got caught short or there is some big aggressive buyers pouring in. CET.un and PHX.un-2 directional drillers are up 40-50% in 3-4 weeks. Maybe the depressed drilling fleet in Western Canada is starting t be used. Plenty of promotion of the Bakken in Sask., Montney in NE BC and the gas shale in Quebec.