Is This Rally Sustainable?

Isn't that the million dollar question? I mean the market has raced up some 35% since the beginning of March and the S&P is now positive for the year, after having hit 12 year lows less than 50 trading days ago. Here are just a few things to consider:

• This rally could be nothing but shorts covering.
• S&P index, represented by SPY, while above its 50 DMA is still below is 200 DMA. Failure of the 50 DMA to overcome the 200 DMA might bring out the technical bears again.
• Summer, and specifically May, marks the beginning of a 2-3 month lull period during which the markets have historically given back some gains.

On the other hand:

• This rally could be the real thing. After all, we know the markets were oversold and didn't deserve to be cut over 60%.
• While the market has moved up strongly, many investors who had moved to safer havens like bonds or CDs are still on the sidelines watching in horror as they miss out on this brilliant move. If this is true, once they start piling in, the market could be propelled much higher.

Then again, all of the above could be true. I just don't know whether the bullish or the bearish case wins out. At any rate, proceed with caution. If you have profits that are unrealized, sell some stocks. If you are not in this market, start buying some ETF's on down days.

Comments

[Lincolnpark:]

So you're saying the market might go down or it might go up or it might do both. If you own stocks, sell. If you don't own stocks, buy. Thanks for the advice!

May 05 08:36 AM

[TheFounder:]

Not much of a position I would say.

May 05 09:16 AM

[MGA_1:]

Couple things to consider:
* The govt has pumped about $1.2 trillion into the market with purchases of fannie/freddie bonds and direct purchases of long t bills.
* The banks were able to change their accounting from Mark to Market to Mark to Model making them look better this quarter.
* Even with bad news with the stress tests (recapitalization required), the govt has essentially guaranteed the banks solvency.
It seems that since the economy is simply not "awful", people are flooding back into the market. I look at this as a bear market rally that may continue into summer and possibly beyond. Long term though, the US economy is still in a lot trouble and I don't expect a true recovery for several years.

May 05 09:55 AM

[Analyst Mayank:]

Totally agree with Lincolnpark. Most confusing, rather confused article ever read.

May 05 10:49 AM

[j_remington:]

When everyone says the rally will continue then it will end. The government has used up all its tricks. No more fabricated data statistics. We have all seen the manipulated financial reporting by the banks.

The real question is ...Why would you buy without a pullback?

May 05 12:08 PM

[j_remington:]

11/12 commercial banks need to raise equity. What does that tell you?

May 05 12:10 PM

[nyoneway:]

Either way he is right!

May 05 04:16 PM

[Baboon:]

What sectors are going to lead the rally and the economy? What sectors are going to expand & will start hiring those millions of unemployed?


On May 05 10:11 AM Cetin Hakimoglu wrote:

> In a short answer; yes, the rally is sustainable. The S&P has
> smashed all short term resistance, and the next target is 1,050 easily
> by the end of year. Best luck folks.

May 05 07:29 PM

[Old Trader:]

Baboon,

I think it important to differentiate the two (the market and the economy). Its been said that the sector that lead the last bull, rarely, if ever leads the next bull. If that's true, despite the market action of the last few weeks, we shouldn't be looking at the financials, despite their run-up, since there's not much doubt that there's more pain ahead in that sector.

An early, and somewhat obvious candidate would appear to be the tech sector, which has also come along for the ride, and there at least, you've got companies with decent balance sheets, and, in some cases, mountains of cash.

The economy is a horse of another color, and I really haven't a clue where the jobs are going to come from. The tech sector won't be providing them (earlier today, MSFT mentioned the possibilty of another round of lay-offs, after the 3k already announced). I don't see "green industry" providing a sufficient number of new jobs, although there will be SOME growth there. Real estate, both residential and commercial will be down for the count for QUITE some time.

In short, I think we may see yet another "jobless recovery"....with the market slowly grinding higher, while unemployment stays stubbornly high.


On May 05 07:29 PM Baboon wrote:

> What sectors are going to lead the rally and the economy? What sectors
> are going to expand & will start hiring those millions of unemployed?
>

May 05 08:56 PM