Who Doesn't Doubt This Market Rally?

The S&P 500 rose 17 points Tuesday, closing at 850, retracing about half the decline from Monday.

Volume picked up, with the NYSE Composite trading 7.2 billion shares compared to Monday’s 6.85 billion shares. Volume has averaged about 6.7 billion shares since the beginning of February.

Breadth was 5:1 to the upside. On Monday, breadth was 27:1 on the downside as the button-pushers did their thing.

We continue to be in an upward sloping trading channel. The indices touched on the lower band Tuesday morning and immediately bounced. Nothing has changed over the past few trading days.

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The VIX closed at 37, recouping 40% of the rise Monday. It is in a downward sloping channel. The rise in the index Monday did not change that.

There is something different about this rally. Stocks are going up on bad news. Tuesday, Caterpillar (CAT) and AK Steel (AKS) were both up off lousy earnings.

This has been going on for awhile. Last week, Ingersoll-Rand (IR) pre-announced a bad quarter and went up. Likewise, REITs that have been able to float stock – such as Kimco (KIM), whose offering last week was oversubscribed and closed up a point and a half on the day of the issuance – have bounced hard off the news.

Have you seen Apple (AAPL) and Google (GOOG) lately? Both look like they have put in a definitive bottom.

I am of the opinion that this is a bear market rally. But who does not believe that? Virtually everyone whom I speak with and almost every article I read doubts this rally. Even I do.

The rally could go on for awhile, though I remain open-minded that we may be topping. We are very overbought, and I am watching closely to see evidence that the market is rolling over so I can dump my ETFs.

However, the skepticism so many people have regarding the sustainability of this rally makes me think we could go significantly higher.

Comments

[Obi-Wan:]

When earnings for a company show a sharp decline and the stock price goes up, does that signal investor confidence that the sour earnings are already priced in? Would that also signal that this bear market rally has some legs and can hold its own against some significant earnings headwinds? I think we're about halfway through earnings season and, despite the horrid results and dire predictions, this rally hasn't folded and headed for new lows (not below let alone near March 9 bottom). So what does this all mean?
Well, aside from the earnings bad news (which shouldn't be a surprise to anyone), there are actually some bright spots here and there, if you look for them. Bank capitalization might not be so bad after all. China consumption is on the rise (just placed a 180k MT order for soybeans from us, for example). Commodities are hanging on (oil is still basically flat, metals showing some strength). Emerging markets showing some rebounding signs.
Things seem to shake out thusly: if you're long, you're not all doom and gloom. If you're shorting out there, then your message is ALL doom and gloom. Gee, go figure!

Apr 22 08:54 AM

[cbc:]

Obi Wan:

Must disagree with your bright spots.
1. If you believe Geithner and this Government about bank capitalization you need to do some more research. I will not provide you with the links, you need to use your resources and your head.

2. China's consumption is up based on an order for soybeans? Please! Where the hell do you think soy sauce and tofu come from. Billions of Chinese have to eat economic downturn or not.

3.Commodities are always the first to turn around in a recovery and so when people see "bright spots" or "green shoots" they invest in commodities. Your not seeing indicators of "bright spots" but the results of seeing "bright spots".

4. I live in one of the Emerging Markets (Panama) and the impacts of this recession have not even begun to affect let alone begun to rebound. And we use the US dollar here.

In short, step out of the dark and don't listen to the talking heads and your government. You are acting like a lemming.

Apr 22 12:35 PM

[logicalman:]

cbc, anyone who is long right now is certainly not a lemming.."au contraire"....cetin, you are right on again as you have been since the beginning of this "rally"...and rally it has been...the market has a mind of its own..and if you go against it,you often will regret it..bear mkt rally? who knows...beginning of a new bull? play it..don't fight it!!!

Apr 22 03:27 PM

[cbc:]

logicalman, I referred to Obi Wan as a lemming. Are you assuming he is long? I fail to see where he says he is long or short. Assumption or Logic?

Apr 22 04:50 PM

[Old Trader:]

"Likewise, REITs that have been able to float stock – such as Kimco (KIM), whose offering last week was oversubscribed and closed up a point and a half on the day of the issuance – have bounced hard off the news."

Tyler Durden has an interesting article about this in today's issue. If you've not read it, its worth checking out.

Frankly, current market conditions have me more than a bit confused. I took a small position in SDS a couple of weeks ago...got stopped out fairly quickly (and it wasn't an especially tight stop, given intraday volatility)....and I'm just watching and waiting, basically. Some cash.....some PM miners....heavy fixed income exposure (foreign sovereign debt)...fairly heavy energy, via CanRoys....a smattering of large cap blue chips, and some odds and ends that throw off decent yield, like pipeline MLPs. What I view as a fairly "neutral" portfolio, overall.

Apr 22 09:17 PM

[Moon Kil Woong:]

If you are a pure trader if you want to get into the "rally" now you are a bit late and probably missed most of it. If you are a bear you probably feel that the risk of further upside are limited and that falls from grace are steep making such down bets pay off for the risk involved. Both assumptions are probably right.

Although some are positive that the recession will end in 2009, a real inflection point needs fundamentals not just talking heads and accounting gimmicks. So far I find such data lacking.

I personally believe dips are always good to buy fundamentally sound stocks, especially growth tech related stocks that don't need cash infusions. And rises in the market are always good ways to dump dead wood in portfolios. There is plenty of dead wood to go around and if you're savvy you may pick up a few gems like XIDE and IXYS. I currently hold both.

Apr 22 09:49 PM

[dcb:]

If you have washed out every seller on the last leg down, then the only people around to sell are the people who bought on the way up. So, you have very low volumes and a market that is very easy to manipulate. To be able to move down a market must have enough people in it to sell enough stocks to force the move. So, there is a good chance of a further move up before a fall. at this point one certain company can by itself keep the market up with well timed trades. they can buy, move things up, sell and buy again over and over in a cycle.
I do no think you have enough volume to force the market down at this point. Unless specific players want that to happen.

Apr 23 06:03 PM

[j_remington:]

house of cards rally...

Apr 23 07:27 PM