Will the Citi bailout really help to set a floor on the stock market?

While it is likely that the news of the Citi bailout will give an early, short-term boost to the stock market, the question is whether the boost will be sustainable and firmly set a floor to the stock market for this business cycle, or whether the rally will be short-lived and unwind soon enough. Alone, the Citi bailout might not be enough to set the floor, but coupled with the formal, official announcement of members of P-E Barack Obama's economic team and talk of additional fiscal stimulus in the $500 to $700 billion range, it could do the trick.

Some scenarios:

1. An early "pop" that fizzles and turns into another decline by the end of the day.
2. A pop that surges into another massive short-covering "squeeze" and results in a 500 to 1,000-point rise for the day.
3. A sharp rise today, but then a gradual erosion of that gain in coming days, ultimately leading to a new market low within a week or two.
4. A partial-fizzle of an early pop, leaving the market with a modest to moderate gain for the day, but still having an overall weak rather than strong tone.
5. A moderate pop that gradually "grows" on people and only gradually builds over the next week or two as the "bears" grumble about this and that and how the market never set a proper low with true "capitulation."
6. A strong, multi-week rally that peters within a few weeks or a month as the Obama-is-coming euphoria wears off and hard-core reality sets in. We could see a new "test" of the market low a few weeks or a month from now. One scenario is that a new low gets set. Another scenario is that the current low is successfully tested and holds and kicks off a renewed rally.
7. A strong, multi-month "Obama" rally that peters out as the Obama honeymoon wears off and hard-core economic reality sets in. We could see a new "test" of the market in the March to June timeframe. Again, there are two likely outcomes, based on either a "test" that results in a new low or a successful test that reaffirms that the low is already set and that a recovery has begun.
8. A strong rally that is merely part of a reversal of a market stuck in a trading range (7,500 to 9,500 for the Dow). This back and forth trading action will continue until we finally start to see the recession starting to wane or worsening.

Personally, I still suspect that Friday was the market low and that "Team Obama" really is gathering momentum.

Ultimately, it is about confiidence in whether the government truly is on a track to fully grapple with the full magnitude of the full economic and financial problem. But within a few months we will need to see clear evidence that the government "plan" is really on track and actually delivering positive results.

As a side note, I am relieved that people are starting to use the abbreviated name "Citi" rather than having to struggle to figure out whether it is Citibank or Citigroup. I think it is still Citigroup, but in some contexts it is actually supposed to be Citibank. No wonder this bank or whatever it really is is having problems.

-- Jack Krupansky