The four indexes we track all closed substantially higher after testing double and triple bottoms. The support level for the DJI was at around 8000, for the S&P 500 at around 850, for the NASDAQ Composite at 1550 and for the Russell 2000 at 470. Although the DJI and S&P 500 closed down it has to be considered that they recovered from very deep declines as did the NASDAQ and Russell 2000 which closed in positive territory and posted their first accumulation day in 15 sessions. The DJI and possibly the S&P 500 would have closed positive were they not weighed down by a fall in energy stocks as crude oil for November delivery fell 10%.

The Lehman Brothers CDS auction was concluded at around 3pm without the dire consequences for financial stocks that had been feared. This sparked an immediate recovery as it appears no one firm would fail. (A contrarian view is that the rally was due to short covering as the shorts did not want to be exposed to unpredictable Government intervention over the weekend).

Treasurer Paulson announced "We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability,". This was a welcome about-face from two weeks ago when the emphasis was on buying derivatives (toxic assets) only and he refused to consider purchasing mortgages directly and injecting liquidity into banks.

Paulson did not go as far as he should have done. In addition to taking equity positions in banks, he should also guarantee inter-bank loans, as the British have done. This seems essential if banking institutions are to have the confidence to start lending to one-another again.

The G7 statement on Friday was weak. It contained the usual trite catchphrases - take decisive action, all necessary steps, take action where appropriate, etc. but lacked any specificity. We will hopefully get a more substantive final communique over the weekend.

The TED spread continued to increase and again closed at a new high on Friday. Until the TED returns to its normal range, the markets will continue their volatility.