Is It Finally the End of the Bear Market?

I am probably not the first, and definitely not the last, to write about the recent surge in stock markets worldwide. It has been so long since investors have had a strong rally like that to play with. Now that markets have rallied almost 10% worldwide in one week; one question remains: Is it safe to invest in stocks again?

For many months now, investors have been trapped in a fake bear market rally that proved to be short lived. Markets worldwide have continued to hit long-time lows in February and March ’09. The strong rebound this past week has surprised quite a few people and it was clear that short sellers had to cover their positions after Tuesday’s rally. Many are still skeptical that stocks are a good play right now, however, this time they could be different for few reasons:

• Banks sent positive signals with Citigroup (C), JP Morgan (JPM) and Bank of America (BAC) announcing that they all made a profit in January and February. It is definitely a sign of relief for investors as rumors of bankruptcy and nationalization have persisted in markets recently.
• Economic indicators are turning positive for the first time in many months (see graph from the WSJ below). Previously, a market rebound typically occurred while economic data was still in a free fall. The recent turnaround in economic data could indicate support for a strong stock market rally.
• Many indices are hitting important long term support level which could also bring more buyers in the market (CAC40 is right on its 2003 support level …)

There is exceptionally strong evidence that the recent earnings announcement by three of the biggest banks in the US (that all three made profits in January and February), at a time when almost everyone gave up on them, was the trigger for the rally. It is still unclear and too soon to really say that the worst is over for these banks, but we can now admit that the Fed actions the past few months have been a success and that it clears the sky a bit.

Both the CAC and the Dow rebounded on strong support levels and are expected to continue their rally for couple more weeks (weekly charts). On the other hand, the Nikkei 225 is still below a long term support level of 2003 but rebounded strongly when the index retested its last October low. However, recently the correlation between the Dow and the Nikkei 225 has been 0.98, which makes me believe that any rebound in the US stock market will also be felt in Japan.

I have a feeling we are going to enjoy watching CNBC or Bloomberg TV over the next couple weeks and it will certainly be an enjoyable change of pace to actually look forward to reading the Wall Street Journal or the Financial Times.

Comments

[peterthepai...:]

whistling helps keep the spirits up...

bouncing up on the way down...

but down is the way...probably...

Mar 17 07:58 AM

[HiSpeed:]

Economy is getting weaker as GDP and unemployment head into the double digits. Washington is pursing many of the same policies that contributed to the great depression.

Folks need to simply learn to live within their means.

I know it's unpopular to say, but Dow 5000s still a lock.

Mar 17 09:00 AM

[J. D. Swampfox:]

The writer says, "we can now admit that the Fed actions the past few months have been a success and that it clears the sky a bit." a success? - I don't accept that at all... Bank bondholders have to take a haircut... but if they are forced to, all the CDS's written on the banks bonds will be triggered and payable, leading to another meltdown. The TALF and so-called Public/private partnership is just another re-arrangement of the deck chairs on the Titanic...see Mike Whitney's article in the Market Oracle here: www.marketoracle.co.uk...

We certainly may see a little more upside, but deeming the FED's actions a success? -the sky is not clear at all

Mar 17 10:13 AM

[Crashnburn:]

Bear markets typically end not with a bang, but a whimper, when the last weak-kneed investor finally capitulates. I think last week was just a dead cat bounce (If you drop a dead cat from high enough, it'll bounce when it hits the ground.)

Mar 17 01:45 PM

[drbob66:]

The market could very well go up more than most people think.

www.marketoracle.co.uk...

Mar 17 03:08 PM

[PainfullyAware:]

Banks making profit while taking public funds is fallacy.

My interpretation of the "Rally" is Weak Minded Investors succumbing to a coordinated attack on the markets by the Plunge Protection Team and the Talking Heads Extolling Sunshine.

All metrics are still dire and the looting of the treasury continues.

Investing in "Disaster Sectors" long term would be advisable. Education, Food Production, Gun and Ammo Production, Gold, Motorcycle and Small Car Manufactures, Bulk Commodity Distributors, and Alcohol Producers are just a few things certain to gain. (limit the exposure of company diversification for best results)

Mar 17 04:20 PM

[PainfullyAware:]

One Can Come To Any Conclusion If One Limits The Data To Only That Which Supports The Chosen Paradigm.

There Is More Than Just "Fundamentals" At Work In The World Economic Situation.

No Mention Of "Financial Engineering or Shadow Banking" in this linked article. The root cause of collapse in market confidence was not explored.


On Mar 17 03:08 PM drbob66 wrote:

> The market could very well go up more than most people think.
>
> www.marketoracle.co.uk...

Mar 17 04:34 PM

[drbob66:]

The linked articles does not refer to any "fundamentals"...in fact, it specifically states "do NOT pay attention to the fundamentals, they are IRRELEVANT AT MARKET JUNCTURES."

Did you even READ the article?

Mar 17 08:04 PM

[drbob66:]

Sorry... this is a reply to the comment from "Painfully Aware" above...not to the article by Emerginvest.


On Mar 17 08:04 PM drbob66 wrote:

> The linked articles does not refer to any "fundamentals"...in fact,
> it specifically states "do NOT pay attention to the fundamentals,
> they are IRRELEVANT AT MARKET JUNCTURES."
>
> Did you even READ the article?
>
>
>

Mar 17 08:25 PM

[BxCapricorn:]

Eh, where's the beef? Is that the sum total of the bullish case? Good gracious, do realize that retirement funds are pouring into the stock market based on this type of reasoning. Couldn't just watch them lose 40%, no....the stock market has to throw another 20-40% of their "nest egg" under-the-bus. Like robots, the average money manager looks at the pie chart and distributes their money into the various sectors, in a perfect Modern Portfolio ratio. It didn't work before, why not try it again though, heck, this ain't "science" people, it's a game. Spin the wheel. Heads or Tails.

Mar 17 11:55 PM

[Moon Kil Woong:]

The banking sector is happy that they are able to violate market to market a little since Fasb is being pressured. In reality it just means banks can lie about their financial a little bit more. Not that their financials aren't already suspect. So fine and dandy there, lol.

The real good news was techs finally taking the lead. It is these market segments, if they bounce back and grow that will really lead the economy out of the abyss.

Positive signals but the crystal ball is not completely clear. The tech bounce could just be a n oversold bounce or could be signs of emerging health. The financials are pretty much a suckers ruse.

Mar 17 11:55 PM

[damienhaas:]

Agree with comments from drbob66. Too many articles get arrived on their findings based on technical analysis. So does it mean that nobody care about market fundamentals?

Mar 18 12:57 AM

[PainfullyAware:]

Yes I did read the article - lots of rosy optimism.

Did you read my comment?

No Mention in the linked articel of the Root Cause of lack of confidence - Financial Engineering and Shadow Banking.

If you do not consider these in your analysis you will not understand the reality of our situation.



On Mar 17 08:04 PM drbob66 wrote:

> The linked articles does not refer to any "fundamentals"...in fact,
> it specifically states "do NOT pay attention to the fundamentals,
> they are IRRELEVANT AT MARKET JUNCTURES."
>
> Did you even READ the article?
>
>
>

Mar 18 10:25 PM

[Old Trader:]

Regarding some banks being profitable for the first two months of the year...I must be missing something, and hope someone fills me in. I was laboring under the illusion that the banking crisis stemmed NOT so much from the profitabilty of day to day operations, or lack thereof, but from the fact that in many cases, their balance sheets contained oodles of assets of dubious quality, which is an entirely different issue.

If/when a bank gets "free" money, (via various Fed/Treasury programs), how can it NOT be "profitable"? (Unless, of course, it has to take massive balance sheet writedowns).

Mar 19 01:18 AM