Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stock Market Rally, Was That the Bottom?

Stock-Markets / Investing 2009 Mar 26, 2009 - 01:45 AM GMT

By: Q1_Publishing


Best Financial Markets Analysis ArticleAn old friend of mine stopped by the office a few weeks ago and he unwittingly reinforced my complete confidence that you can still do very well in the markets. This is saying quite a bit given the frustrating state of the markets where government decree drives nearly all of daily trading activity.

Now, he wasn't overly bullish or bearish. He wasn't betting big on a rally with banks. And he didn't just make a huge score on some triple-leverage ETF or anything like that. He's simply running his business and, in the midst of the worst economic downturn decades, it's doing exceptionally well.

You see, my friend is a coin dealer. He sells gold and silver coins and bullion. But just the fact more people want more gold and silver bullion “insurance policies” during this time of uncertainty isn't what has reinforced my faith in the markets. That's actually a bit unnerving. It is how his sales were moving on a day-by-day basis which had relieved any angst I may have been feeling.

He told me, “ Ya know, when gold is at $800 or $900 an ounce, orders come in at a pretty slow rate. The volume is good, but it's not overwhelming. When gold passed $1,000 an ounce, orders just flooded in.

It doesn't make any sense at all right? Wouldn't you want to buy gold at $800 rather than $1,000 an ounce?

Well, as we've seen time and time again though, the herd doesn't care. In this case, they couldn't get enough gold at $1,000 an ounce and they have much less interest when it's at $800.

Some things just never change. And the sooner we realize the most recent government intervention-inspired rally is what it is, we can get prepared for what is coming up next.

Was That the Bottom?

There's no denying the recent rally has been a strong one. The 18% move over the past 10 days has been the biggest one since 1938. And there are untold number of folks claiming that was “the bottom” or a new bull market has emerged.

Quite frankly, no one knows for sure how far this one will go. But right now, a lot of indicators are still flashing “buy.”

Dr. Copper says the world economy is showing some signs of life. The price of copper has climbed more than 40% from its December lows and now sits at $1.77 per pound. Leading the way for copper consumption was China.

The housing market is getting a nice bounce as well. Although prices are still in the downtrend, activity is starting to pick up. The National Association of Realtors (NAR) reported yesterday existing home sales increased 5.1% in February. The NAR's chief economist noted, “Distressed sales accounted for 40% to 45% of transactions in February.” The housing data just added fuel to the rally.

The thing is, we have only experienced a market like this a few times before and it's all part of a quickly changing investor mindset.

A Spoon-Fed Rally

This rally has its foundation squarely in the hands of the government. As we've mentioned before, the government has a vested interest in ensuring the stock market stays up . This time around, they made a highly coordinated attack on the markets. Just take a look at what has happened over the past three weeks.

First, 60 Minutes was allowed to go “behind the scenes” with the FDIC as they took over a small bank. This was used to help explain how the FDIC works and how, if you're bank is taken over, you shouldn't be worried about getting your money. The FDIC is good at what it does.

Two days later, word leaks about the reinstallation of the “uptick rule” which prevents short-sellers from driving a stock artificially low. At the same time we get news Congress is investigating what would be the impact of relaxing the “mark to market” accounting rules on bank balance sheets.

Then, its 60 minutes at it again with a very rare interview (the first one in 20 years) of Fed Chairman Bernanke. Two days after that, Bernanke announces the latest Fed action to pump more than one trillion into the economy and push long-term interest rates significantly lower.

Then comes a weeklong PR campaign from President Obama to try and instill confidence in his economic team (they've clearly learned their lesson when it comes to Secretary Geithner speaking to the general public) right before the latest version of the Treasury's “rescue plan” is detailed.

Through all that the government was spoon feeding the markets more and more information about what the government's plans are. And when we reached a point where any news is good news, the markets naturally recovered strongly.

Uncertainty Reigns Supreme

There is a lot to be said for this rally to continue all the way up to the G20 meeting in two weeks. After all, that's really what the government wants. So it can say we're making all the right moves and can point to the stock market's vote of confidence as evidence. But I don't know what they could possibly have planned next over the very short term.

But there are some days on the calendar where we can expect to get some information about the government plans and right now, any details are received exceptionally well by the markets.

For instance, the finalized government plans to rescue GM and Chrysler are due out by the end of the month. We can expect some big cash infusions given the recent bailout of the auto parts suppliers. (I sure hope Toyota, Honda, and Nissan are paying their taxes so they can get redistributed to GM and Chrysler).

By the first of May, we'll know which are the five “chosen” firms to participate in the Treasury's low-risk, high reward Public-Private Investment Program (PPIP).

Also in the next few months, we'll have a clearer picture of what new powers will be afforded the Treasury Secretary and the Fed Chairman to take apart a zombie bank. We also should have an idea of how much meddling Congress expects to do in all this. And we might get some sort of idea as to the extent of how much more regulation will be coming the way of the banks.

The Keys to Success

So, like I said before, the short-term movements of the market are anyone's guess. All of the technical indicators are up and there are still trillions of dollars on the sidelines which have yet to flow into the market.

The latest version of the bank bailout plan was greeted with open arms, but there are huge lingering questions which will likely prevent a sustainable rally beyond another 20% to 30% from here.

For instance, when it comes to how successful the latest bank bailout plan will be I think of the words of Milton Friedman. The Nobel laureate and free market advocate said, “If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.”

There's no reason to expect anything different from this bailout plan. Just think of how far we've come. It's been half a year since this crisis really got rolling and we've just got the basic outline of a plan.

We still have budget issues in over 40 states. Real estate prices are still falling and there is so much inventory and “shadow” inventory (home owners and investors who are just waiting for a slightly better market) to work through. Unemployment is still on the rise. Overstretched consumers are paying down debt and getting their personal balance sheets fixed.

On top of all that, we're facing one of the largest U.S. government deficits in history and a knockdown, drag out struggle in Congress over the details of it. Along with this budget (even in its eventual watered down form) comes higher taxes. Some of them will be levied directly against businesses. Others will be hidden ones like the “cap and trade.” And don't forget about the very real possibility of an increase in the capital gains tax was an option during the campaign.

Right now the markets are weighing the good, bad, and not-as-bad-as-we-thought. The not-as-bad-as-we-thought is winning.

As a trader, this is a strong rally. And it's not one I'd be willing to bet against…yet. We still haven't seen the “panic buying” from folks who are afraid they'll never get to buy this low again which normally signals the end of the rally.

As an investor, I'm still sticking to a defined plan, buying stocks strategically, and trying not to get caught up in the day-to-day ups and downs. I always keep the herd in the back of my mind. They can't get enough gold when it hits $1,000 yet won't touch the stuff when it's 20% cheaper.

Those are the real keys to investing successfully in a market like this.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing 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