Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter


Stocks New Bull Market Rally or Bear Market Trap?

Stock-Markets / Stocks Bear Market Jul 19, 2008 - 05:45 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: Editor's Note: After stock prices surged strongly on Wednesday and Thursday, we decided to look to see if we could determine whether this was a bear-market trap, or the start of a new bull market rally. Our findings may surprise you.

"Put this bell on your pack.”

The odd-sounding order came from my guide, a lifelong mountaineer and expert tracker who (and I'm not making this up) answered to the nickname, Buck.

This took place several years ago, when I was hiking just outside Cody, WY. I'd been in the area several times, but my companions felt compelled to have me attach one of the little noisemakers to my backpack, and I obliged.

Buck continued to speak, as we got ready to move out.

“It helps to take precautions,” he said. “Also, make sure to carry pepper spray in case you meet a grizzly bear unexpectedly.”

As we started to walk, Buck cautioned me to “watch out for signs that grizzlies are in the area - like fresh bear [droppings].”

“How will I know when I see it?” I asked, not realizing that I was about to “step in” something myself - in this case, a joke that was on me.

“Because,” Buck noted with a wry smile, before turning away to head down the trail, “it'll smell like pepper and have lots of small bells in it.”

There's a reason I'm telling this story (besides figuring you could probably use a good chuckle right about now), and here it is: Being aware of your surroundings is crucial when you're hiking the grizzly-infested mountains of Wyoming - and it's no less important when you're attempting to navigate Wall Street's wilds.

Especially lately.

That's why I wanted to make a special point to the folks who are viewing this week's two-day rally as the potential start of a massive bull-market upswing. And that point is this: None of the factors that we were worried about before the rally have changed or gone away. Nor have any of the other potential pitfalls that we've repeatedly warned you about.

The U.S. Federal Reserve is still scrambling to deflate the asset bubble it created - and is trying to do that in an orderly manner (a mistake on both counts). But the backstory isn't pretty. Banks are still taking big write-offs, and in some cases also are under investigation. And there still are many reasons to be worried about commercial real estate, the U.S. housing market, inflation, stagflation, soaring food and commodities prices, and stratospheric energy costs.

The other thing that concerns us is that the markets tend not to do well when bad news is interpreted as good news - as Citigroup Inc.'s ( C ) latest numbers were overnight. Somehow the Street thinks that Citi's loss of a mere $2.5 billion this quarter is good because it was less than the $2.86 billion of red ink that the Street was expecting.

Let's not forget that the beleaguered banking giant has written off nearly $40 billion in the past 12 months, revenue has fallen 29%, and that it is laying off 15,000 employees.

That brings us to the broader markets, and our belief that rallies like those we've had in recent days are suspect, at best. The data seems to support this.

The bottom line: As much as we wish this weren't the case, the strength we've seen in recent days may be nothing more than a massive short-covering rally. [Interestingly, Money Morning Contributing Editor R. Shah Gilani said precisely the same thing in his “Inside Wall Street” column published earlier today (Friday).]

While it's true that we may have a tradable bottom here that takes us as high as 1,370 or thereabouts on the Standard & Poor's 500 Index (only about a 9% increase from current levels), such numbers are hardly impressive when viewed against the harsh light of history.

For instance, according to our friends at the Bespoke Investment Group , the 150 stocks with the highest short interest are up an average of 15.1% over the last two days (Wednesday and Thursday). Yet, at the same time, stocks with the lowest short interest have climbed a mere 2.2%.

Volume also remains light at 80% of total New York Stock Exchange ( NYX ) up/down volume, and well short of the 90% up day that typically accompanies real reversals, and which has historically represented the foundation of sustainable bull rallies. In addition, in crunching numbers last night (Thursday), we see no evidence that institutions are accumulating shares, which is, of course, something else that typically happens when the bulls come out to play in earnest.

Technically speaking, we've seen the Chicago Board Options Exchange Volatility Index - usually referred to as the VIX Index , and generally regarded as a proxy for fear in the markets - move higher as the markets have moved lower. But just prior to the rally, it was nowhere near the high levels that have characteristically preceded the serious reversals that fuel new bull markets [ Editors' Note : For a recent Money Morning research report on “market bottoms” that explains this reversal concept in deeper detail, please click here .]

All of which suggests, once again, that while we may see a “dead cat bounce” for the next little while, there is ample room for another melodramatic move to the downside.

Boy do we hope we're wrong.

[ Editor's Addendum : If the whipsaw markets we're experiencing lead to the so-called market “SuperCrash,” shrewd investors will be able to capitalize on once-in-a-lifetime profit plays . For a free report, which includes a free copy of CNBC analyst Peter D. Schiff's New York Times bestseller, " Crash Proof: How to Profit from the Coming Economic Collapse ," please click here .]

News and Related Story Links:

By Keith Fitz-Gerald
Investment Director

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning 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