Big Day for the Dow? So What?

Treasury Secretary Henry Paulson summoned the big banks including JPMorgan Chase (JPM Quote), Goldman Sachs (GS Quote), Morgan Stanley (MS Quote), Citigroup (C Quote) and Bank of America (BAC Quote) to talk about the government's efforts to spur liquidity. Unfortunately you can lead a bank to liquidity, but you can't make it lend.

The next area to keep an eye on is the seven-day commercial paper rate and the volume of commercial paper issued. Commercial paper is essential to credit cards, car loans and even companies making payroll.

Commercial paper is not backed by collateral and only issued by companies big enough and solid enough to give investors comfort in buying the instruments. The system is known to be able to flush out unstable entities and as a result has seen very few defaults. This market has contracted to $1.55 trillion for the week ended Oct. 8, according to the Fed. The weekly average in 2007 was more than $2 trillion.

In addition to fewer issues, the commercial paper market is suffering from the rate companies are being forced to pay to entice investors to buy it. Normal levels had been around 2.5%, yet the seven-day rate is trading at roughly 4.5%. As the rates come down, companies will be able to return to the market for their financing needs.

The U.S. bond market was closed Monday for the Columbus Day holiday, so it is difficult to gauge any improvement among the credit market amid equities' 936-point explosion. But before getting too excited about Monday's rally, keep an eye out Tuesday morning for these more telling indicators.

Stop watching the Dow.