(Scroll down to skip the musings and get to the analysis recap list.)

Some icky late-night news a-brewin’, as apparently $BAC has a biggish cap problem and $GM is gonna blow its shareholders out the value tailpipe. Oh and a lot of people own a house plus excess debt instead of just a house. Apparently, futures are not happy, and actively so. This feels like maybe one of those news/tape merging moments, though I have now watched a number of such days come and go with a what-news skip up.

I’m forever on about news vs. tape, I know, but isn’t it interesting that $BAC buyers might shrug off needing some capital but sell off needing a lot? Now, granted, as that Times headline says, this is the word straight from the administration’s mouth–this is not speculation any more, it appears, but a pre-Thursday leak of an actual result. What is confusing is that a bank needing any capital against an arbitrary and perhaps understressy set of baseline assumptions could be described as doing anything other than failing its stress test. And we were told most banks would pass.

At some future date, the results of the stress tests will be irrelevant, because the banks will be living through (or dying under) the actual stress. If the baseline assumption has been too high–if the economy worsens worsily–and a bank has still failed, and if the markets continue to rise or even just holds, there are only two possible rational explanations: one, failure is priced in, and a company like $BAC has rallied 400% off its yearly low because insolvency is more like a $10-a-share problem than a $2.50 one. Or, alternatively, this rally has been purely speculative, i.e. based on assumptions that the banks wouldn’t fail (which they are now doing), or that the economic conditions described in the tests would not become reality. If it’s the first, then the real stress test in the market is seeing how much more bad news it will take to find something not yet priced in. If it’s the second, uh-oh.

Of course, I’m not calling this rally rational. In fact, I’ve been calling it irrational here several times a week, and on twitter several times a day. But as I point you to various wrap-ups and primarily tape-based analyses of the markets, I would point out that the more speculative the rally, and the more rational appreciation of fundamentals creeps into coming market action, the less these analyses will matter, until fear settles out again. As stress tests of support levels go,  speculative support levels might well be expected to give more easily than a rational one. We have built very little support into these last eight weeks.

One more stressy note: the “more adverse” scenario the government uses, as charted in the Ritholtz link above, shows GDP decline bottoming this quarter or next, at just under -4%. So Q1 numbers, apparently, would appear to have failed, too.

Without further ado…

  • Trader Mike with a quickie. Sees “resilience”.
  • Market Talk with a quicker quickie. (What is this, cinco de mayo or something?) No charts.
  • Tickerville is “angry with cash”, which translates into the most table-poundingly bullish tape reading I’ve heard anywhere in a long time (~18 mins)
  • Jack McHugh is still skeptical, and again being visited by martians.

On the whole, sounds like it might be time for a swan with a few dark feathers. I leave you with a chart observation making the rounds on StockTwits this eve, courtesy of TodayTrader: my bellwether $SPY.

Good luck out there, and good night.