Wednesday Outlook: Bulls Storm In

Bulls, desperately seeking any good news, jumped on hopes for a mortgage relief bill from the senate, Bernanke’s willingness to open the Fed window to Wall Street banks through 2009 (both measures are a raid on your wallet) and another decline in oil prices. These combined with oversold conditions allowed bulls to storm markets late in the day.

Volume remains heavy, and breadth was positive for the first time in a while:





With breadth positive, oversold conditions were somewhat relieved.
























































































That’s about it today. Bulls had their day and with markets as oversold as they were some countertrend rally should be expected. Almost every media outlet in the world was screaming “bear market” so you knew a rally like this was inevitable. Will it stick? It might for a week and bears have to remain tough and disciplined.

Have a pleasant evening.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: SPY, SDS, MZZ, IWM, TWM, QQQQ, QLD, XLI, SIJ, XLY, SCC, IYR, SRS, GLD, DGP, DBA, DAG, EFA, EFU, EEM, EEU, EWZ, RSX, FXI and FXP.

Comments

[gabe borens...:]

This is only the beginnig of the unprecedented rally.The recession that most of the experts are referring to ,statistically does not exist(two consecutive quarterly declines in the GDP).
Market "Bears " will have to adjust their positions(short)to reflect the true state of economy(deceleration),... a wishfull thinking(recession).
Short covering is only a partial argument for the stock market rally.
The ultimate "engine" responsible for the record equity rally will be the Great Economic European and Emerging market implosion,driven by the high rates and the record leverage in these geographic/economic areas.The flight to quality(dollar) that will follow ,will overwhelm the "shorts" and the experts.

2008 Jul 09 12:54 AM

[pitaking:]

Gabe, you are crazy. How would an implosion in Europe and emerging markets signal record rally? This market is still going lower, it's a good oppertunity to add to your SDS, DXD ect...Love the charts, this is the best thing on this site.

2008 Jul 09 01:16 AM

[ForecastS.Com:]

Today (July 8, 2008)’s Last Two Hours’ Rally

What a prudent trader looks for are extreme values before putting in his trades. But the market does not always oblige by steadily heading towards those extreme values, positive or negative.

The readings in SPY and QQQQ were mildly positive as of yesterday, July 7, 2008. It would have been better if there were no rally during the last two hours today, if a stronger, more sustainable rally is to become more likely.

As it is, we now have a premature rally, that began during the last two hours of today’s trading. This also means that the movement will likely be limited before a re-test of the recent low ensues.

2008 Jul 09 01:33 AM

[hedge dude:]

When you hear that kind of argumentation, you understand why the market is so inefficient.... Don t dream Gabe... Staglation fear is spreading... look at the different CPIs, PPIs in all the different economies. High oil prices doesn t come from speculation, you ve got structural issues now, supply issues more than demand issues. Accordingly, it will weigh on costs.... And the main problem is cost inflation that will accelerate inevitably. It means that central banks will raise rates now. China is not anymore a safe haven as well. Finally, if you look at the earnings growth estimates for this year (excluding financials), you still have 14% growth ! How could you believe it is sustainable?... So the street has to revise down.
If you look at technicals, that s not good as well. All the rebounds are weak and driven by short covering, but mutual funds are not ready to buy this market in this context because there is no catalysts...

2008 Jul 09 04:55 AM

[jotenn:]

This rally was a good chance to add to shorts, which is what I did. Good luck in getting a sustained performance in this market, unless oil drops below 130 and keeps on dropping....

2008 Jul 09 06:48 AM

[Sidj:]

A couple weeks ago the Royal Bank of Scotland warned about a potential plunge in the markets, but that a rally could occur in early July first. Might this be it?

2008 Jul 09 08:33 AM

[jackh:]

Let's see here, if the consumer is 70% of the economy and cars aren't selling, or houses, or other big consumer items, stocks are prepped for a multi year rally???

I don't think so!

2008 Jul 09 08:52 AM

[kkin365:]

Excellent presentation. Unfortunately, the author is too shy in giving us his view and strategy. How is a novice to interpret the action?

2008 Jul 09 08:56 AM

[sieraromero:]

would you please add silver to your charts. thank you!

2008 Jul 09 08:28 PM

[User 114285:]

Gabe, the week's not over dude....

2008 Jul 09 09:07 PM

[pitaking:]

Gabe, can we call your rally dead?

2008 Jul 10 01:15 AM