800 Points in Eight Days

Have fears of a subprime-induced meltdown finally made it into the rearview mirrors of traders and investors? A few weeks ago, write-downs and subprime blow-ups filled the news headlines like leaves scattered after an autumn storm …

A combination of factors seemed to help give buyers the necessary courage to begin bottom-fishing for bargains in late November. But there's no denying that Big Government deserves its due for helping put a floor under the negative sentiment that reigned during the fall correction season. Last week, the Fed shifted from their rate-cut agnosticism to something widely believed to be fully accommodative. This week began with Treasury Secretary Paulson making the rounds and touting a subprime mortgage reset fix that has at least temporarily improved the fortunes of an industry full of troubled banks, brokerages and borrowers (see below).

This good news was widespread enough to bring the market up for its first consecutive up weeks since the first half of September. In doing so, the Dow, S&P 500 and Nasdaq all managed to rally back above their 200-day moving averages. Without getting too technical, this news is as good for investors as it was bad when all three indexes fell below the 200-day back in mid-November. And with the likelihood of a test of the November lows fading with every tick higher, the question for investors has shifted from how low will we go to how high can the current cautiously optimistic mood take us?

The Fed's Subprime Fix

Traders and investors tend to think of capitulation as the moment when market players give up. But capitulation is only a brief phase before the far more important "I'm mad as hell and I'm not going to take any more" moment arrives. That is the moment that gets people, institutions -- and as we saw this week -- governments into gear and into action mode.

The decision to freeze rates on subprime mortgages for five years falls right into this category of "when the going gets tough" behavior. The plan, put together by the White House, the Treasury Department, and a committee of lenders including subprime problem child, provides significant rate relief for qualified borrowers who are current in their mortgage payments.

Expectations from the fix are mixed. Democrats have given the plan guarded praise, although the most common refrain has been along the lines of "it took them long enough." On the other side of the political spectrum, Republicans and conservatives accused the White House of betraying the free market with an unworkable intervention. Echoing Treasury Secretary Andrew Mellon at the dawn of the Great Depression, conservatives sounded the "liquidationist" theme of letting the market sort things out.

A number of stocks in mortgage-related businesses were up on Friday as the plan was finally unveiled. It is worth noting that many of these stocks were oversold going into this week, so many of these names may have been merely due for a bounce. If there is any consensus on the subprime plan, then that consensus suggests that the fix -- like the bounce in housing and mortgage-related stocks -- is likely to only stave off the ultimate reckoning, not completely solve the problem.

Worker's Paradise?
Stocks had already been moving higher when the ADP survey of private job employment came out mid-week, which meant that all that report and the more important non-farm payrolls at the end of the week had to do was "not screw it up." Friday's number of 94,000 jobs created in November seemed to be an ideal Goldilocks number -- not so high as to completely kill the idea of a Fed fund's rate cut next week, but not so low as to panic investors into believing that the deflating mortgage bubble had begun to affect employment in general.

Add to this good news on the jobs front, data supporting rising incomes, continued low unemployment, and a strengthening dollar that helps make those income gains feel like real money in the pockets of workers and consumers and it becomes almost difficult to believe that only a few short weeks ago you couldn't listen to the financial media without some wiseguy warning about impending recession -- or worse.

Those voices remain, however muted compared to their mid-November performances. But the more willing investors are to climb the wall of worry, the more likely it will be the resumption of the bull market -- rather than the fear of breadlines and bankruptcies -- that investors are thinking about as 2007 works its way to a close.

Stocks In the News

The stocks that made the headlines this week were a mixed back of technology, finance and retail, with the good news from companies like Vivendi and its big acquisition of Activision helping offset not-so-great news from MBIA.

AMD [NYSE:AMD] and Intel [Nasdaq:INTC] both attracted investor interest this week following bullish projections from Goldman Sach's chief equity strategies, Abbey Joseph Cohen.

Vivendi [NYSE:V] made the news early this week with its bold purchase of Activision [Nasdaq:ACTI], in an move that will create the world's largest, software gamemaker.

Ed Zander, whose reign at the top of Motorola [NYSE:MOT] included the company's slide to third in the market for personal mobile communications, left the company this week to be replaced by president and COO Greg Brown

Target [NYSE:TGT] got a much-needed vote of confidence from activist investor and money manager, William Ackman, who called the company "the best retailer in the world" this week.

It was announced that GameStop [NYSE:GME] would be joining the S&P 500, bumping out Dow Jones Company.

MBIA [NYSE:MBI], already under attack by short-selling hedge funds, found itself on the wrong end of a Moody's analysis that the company would have difficulty raising capital going forward in 2008.

Nokia [NYSE:NOK] stymied investors with greater profits on lower sales in an announcement this week. The world's largest mobile phone maker …

Herman Miller [Nasdaq:MLHR] was in the news this week after investor Bill Miller of Legg Mason reiterated his firm's positive outlook for the company.

What To Look For Next Week

Monday: Pending Home Sales Index
Tuesday: FOMC Announcement / Chain Store Sales / Retail Sales Index
Wednesday: October Trade Balance / November Import Prices
Thursday: Jobless Claims / PPI / Retail Sales / Business Inventories
Friday: CPI / Industrial Production

Best Performing Stocks (PR 8-10) of Last Five Days

Here are some of the best performing, high PowerRatings (for Investors) rated stocks of the past five days. This week, all of the listed stocks have PowerRatings of 8, 9 or 10.

Cellcom Israel (CEL@CEL | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 8

Chicago Mercantile Exchange (CME@CME | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 8.

Copart (CPRT@CPRT | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 8.

Nippon Telegraph and Telephone (NTT@NTT | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 8.

Techne (TECH@TECH | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 8.

Worst Performing Stocks (PR1-3) of the Last Five Days

Here are some of the worst performing, low PowerRatings (for Investors) rated stocks of the past five days. This week, all of the listed stocks have PowerRatings of 1, 2 or 3.

E-Trade Financial (ETFC@ETFC | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 2.

First Marblehead (FMD@FMD | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 3.

Force Protection (FRPT@FRPT | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 1.

Imergent (IIG@IIG | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 3.

VeriFone Holdings (PAY@PAY | Quote | Chart | News | PowerRating). PowerRatings (for Investors) rating: 2.

David Penn is Senior Editor at PowerRatings.net