Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19
Phase 1 of Stock Market Correction - 11th Mar 19
Long Awaited Stock Market Pullback has Finally Arrived - 11th Mar 19
US Presidential Cycle and the Stock Market - Video - 11th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - 11th Mar 19
Chinese Economic Data Shakes the Global Stock Markets - 11th Mar 19
The Fed Is Playing a Dangerous Game - 11th Mar 19
The Stock Market Has Called the Fed’s Bluff, What’s Next? - 11th Mar 19
Turkey Holiday Bazaar Extreme Jewelry Price Haggling - Fethiye Market - 11th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Stocks Bear Market Relief Rally is Weaker than Expected

Stock-Markets / Stocks Bear Market May 08, 2008 - 09:19 AM GMT

By: Brady_Willett

Stock-Markets Best Financial Markets Analysis ArticleThe only thing remarkable about the recent rally in U.S. equities is how unremarkable it has been. To be sure, you would think that with the ‘worst' being ‘over' stocks would be able to mount a significant bounce.  This hasn't been the case, at least not yet. 

To put the above rally in perspective, during the last bear market the S&P 500 notched 3-notable rallies before finally reaching a bottom.  Assuming the October 9, 2007 S&P 500 close of 1565.15 proves a ‘top' and/or we are in a bear market (which has not been confirmed on a closing basis), today's 11% jump is exceptionally weak by comparison.

Incidentally, there is the argument - recently explored by Russell the revisionist – that stocks are still in a long-term bull market. However, what quickly busts this theory is common sense: for the 7½ years ending October 9, 2007 the S&P 500 gained a total of 2.5%!  Does this price action really represent the continuation of the 1982-2000 bull market? (Russell the realist would no doubt remind us that the 2.5% gain in the S&P 500 from March 24, 2000 to October 9, 2007 translates into a significant decline when priced in most non-USD currencies).

Leaving the realm of bulls and bears, it may be important to note that the current market rally is backed by some potentially potent near-term drivers.  First and foremost, the yield on so called ‘sidelined' capital (primarily parked in money market funds) has reached a point where it doesn't match inflation. Some market timers think – a la Greenspan's 2003 trick – that this means the Fed has reduced interest rates low enough to entice some of this money back into equities. Next, volatility is showing signs of trending down, and with the Fed essentially guaranteeing the survival of any party too ‘interconnected' to fail it is plausible that we have entered a period of calm. 

Finally, the shorts, which aggressively covered some of their positions following the Bear Stearns bailout, are still holding a historically high short position. If a major move higher transpires these shorts could be burned, adding some volume to the buy side of the equation.

Is the ‘sidelined'/VIX/short selling story reason enough to buy stocks now?  Unfortunately no. Rather, the more pressing story is that as the Fed tries to hit the reset button on the credit bubble the U.S. economy is threatening to go tilt. Quite frankly, even if you assume that the Fed will be entirely successful in its efforts to stimulate lending and bring risk taking back to the financial markets, there is the real risk that dangerous amounts of inflation are sticking in the system (if the period of creative destruction that is ongoing in the housing market and structured finance markets is not enough to quell the inflation monster what are the odds that U.S. stock market and economic rebound in the latter half of 2008 will do the trick?)  When you combine these uncertainties with the unattractive market valuations it is clear that pinball wizards need only apply to the speculative bets being made in equities today.

In short, the mayhem that erupted in late 2007/early 2008 has indeed calmed, but many years will likely have to pass before it is removed.  With the Fed, U.S. government, and U.S. consumer forced to adopt emergency measures to simply keep up the norm a little while longer, those that cheer the relief rallies and unsustainable economic bounces may end up doing so at their peril.

“The increase in consumer debt totaled $15.3 billion at an annual rate in March, much bigger than the $6 billion increase that economists had been expecting. The bigger gain was seen as a sign that the weaker economy was forcing consumers to increase their borrowing to support spending…AP ~ FED

By Brady Willett and Todd Alway was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

Brady Willett Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules