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Despite the rally in the stock market in the last couple of days, I find this rally to be rather unconvincing. First of all, a look at the Spyders show that the rally was on tepid volume and the ETF kissed its Fibonacci retracement target yesterday:

There is a lot of financial risk emanating from Europe. If the rally was for real, then the indicators of pressure on the financials should be coming down. Why have the US banks been under-performing in the last two days? (Note that this performance was before the news of the wholesale Standard and Poor's bank downgrade.)

Across the Atlantic, the message from the bond market is a story of increasing risk. The yield on the 10-year Portuguese notes have been skyrocketing in the last two days:

The yield on the 10-year Irish note substantially rose yesterday as well:

The 10-year Italian note, which somewhat stable, isn't looking all that healthy either:

If this was to be a sustainable bull phase, then measures of financial risk should be coming down. They're not, and that leads me to think that this market experienced a brief short covering rally and has more potential to the downside than the upside.

Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.