Has the Market Rallied Too Quickly?

The Dow was down as much as 130 points yesterday then suddenly reversed and closed even for the day.

It's not clear why. Some traders said shorts began covering aggressively in the final hour. Others credited comments by economist Paul Krugman.

Bloomberg reported that in a talk delivered at the London School of Economics Krugman predicted the recession would end by September.

I'm hearing more and more talk that the market has rallied too far too quickly. Many investors (including myself) have been expecting a near-term sell-off. Yet every time stocks start selling off, buyers jump right back in and push them back up again.

Since I'm long, I'm not complaining. However, I still see enough problems in the economy to worry me.

As of yet, I haven't seen anything that justifies a 35% rally in just three months.

Comments

[Davewmart:]

An alternative explanation for all the mysterious last minute rallies is that this is a market that is being manipulated to show green shoots until sucker money has been drawn into refinancing the banks.
This would explain some of the reluctance to explain what is done with taxpayer dollars, working as always through the ever-reliable Goldman Sachs.

Jun 09 07:48 AM

[swaps:]

Do we really know who is buying these stocks? Mutual funds? Banks using TARP money? The plunge protection team? China?
We know Mine that Bird may have moved too soon in the Belmont.
But I am glad the market has moved up. My tattered IRA looks 30 percent better. In two months. Sounds like a solid move, right???
The usual August slump may bring them down.

Jun 09 01:53 PM

[tc1:]

Here, from Tom Petruno's column, "Stocks rebound in last-hour rally," L.A. Times, Business section, 6/9/09, is the actual excerpt-quote from Paul Krugman: in his London speech he said he would "not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer."

Petruno goes on to add: "Krugman has been mostly downbeat about the economy's future because he doesn't believe that the Obama administration has done enough to ensure a strong recovery. But he already has said that the recession could end this summer. He told an audience in Hong Kong on May 22 that the end of the downturn may be dated--after the fact-- to August. Krugman's concern remains that the recovery won't look like much."

Like swaps and Vahan and so many others, i, too, am mystified by just who these buyers are who won't just let the market undergo a major correction. Maybe the old adage about the market "anticipating the recovery by 4 to 7 months (or is that 6 to 9 months)" is indeed quite correct, as that wild and crazy guy Jim Cramer has been telling everyone the last two months!

Jun 09 05:54 PM

[buoy:]

If the market was predictable, it wouldn't be any fun.

Jun 10 03:24 PM