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The Keys To A Sustainable Stock Market Rally

|Includes: SPDR Dow Jones Industrial Average ETF (DIA), QQQ, SPY, UUP

The markets are higher again. The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) is trading at $115.28, +1.27 (+1.11%). Last Tuesday, the DIA traded at a low of $103.84. It has been an impressive move higher but is it sustainable?

The vertical nature of this move is not sustainable. Obviously, 12% in a week cannot happen forever. That is obvious. However, could the markets be heading back to the 52 week highs over the next few months?  This can only be achieved if major steps are taken to avoid a global recession. Based on current models, recession is almost unavoidable.

This rally so far is on hopes and dreams. There has been no legitimate action taken in Europe. While the blast higher in the last week has come on hopes of a bank recapitalization plan, there is nothing in place as of now. In addition, once that is done, what happens to Greece? What happens to Italy, Portugal, Spain, Ireland? When the markets were trading at 52 week highs back in early May, the world thought there would be an end to the global recession, growth was resuming in full and pigs flew. This was obviously not the case.

This market has two personalities, greed and fear. A true trader profits by finding the opposite emotion and going with it. When greed hits its high, go the opposite way and short the market. When fear peaks, buy the markets.

There is little doubt that the markets are factoring in the best bank recapitalization plan in the world. While there will be some plan, it is unlikely it will exceed market expectations. That may cause some minor selling. In addition, once that hurdle is taken out, all eyes go right back to Greece and Italy. This will cause a larger amount of selling. Greed is beginning to hit its highs again.

Gareth Soloway