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This rally has the characteristics of bull markets. Since April 2009 market staid over bought and except 2-3 days indicators never shown oversold condition. We experienced a huge bounce of extremely oversold market, but after +76% rally I have a hard time to find anything cheap. Companies have to come with door bust earning to justify these gains, they fired employees and closed facilities and now is time to see real top line growth. They must show decent revenue growth. Q1 will be a good indicator for many analysts including me to see if this rally has some leg or it was just a humongous bear market rally? We shall find out soon.
Recently I have noticed most of rallies has happened over night in Futures market and S&P500 usually gaps higher and not much happening during the day. To me it is nothing more than market manipulation with big institutions who got cheap money from "Mr.Bernanke & Co.". Due to high leverage in Futures market it is not hard to move a futures market. All is needed is 50-53 billion dollars. As a contrarian analyst, I’m suspicious a small number of institutions are involved and when market start to roll over there won't be many buyers.
Stock market is a different animal than real economy. The big institutions run the show, compare with real economy that every one of us play a roll in it. Speculation and greed cause the market to move. Market could roll over before the real economy shows the first symptoms of weakness or as we seen in 2007 it could continue to move higher despite weakness in real economy, but in the long run we have to come back to the basics. Fundamentals always have the last word as we seen in 2007 despite many analysts call for Dow Jones 15000 and S&P 1700 we entered into the second biggest bear market ever. S&P should of rolled over in August of 2007 when it broke 1495 levels, but big institutions could manipulate the market for a couple months despite the first warning signs of weakness in housing market stated with decrease in residential permits in 2006 and it followed in 2007 by huge jump in loan charge-offs, under performing the home-builders or increasing foreclosures, they ignored them all, but in the it came back to bite them. They succeed to manipulate the market and sent the S&P500 higher, but in the end the had to face the reality.
"Source Philly fed"
Many companies became history and many others like City group, Goldman Sachs, BOA or AIG who should be long gone, with the generous helps of Bernanke and Henry Paulson and his successor Timothy Geithner could continue to live by sucking the taxpayer’s blood. It would be interesting to watch what are they going to do when the Option ARM tsunami hit them by 2nd half of 2010 and second and third quarter of 2011?
Question is what is next? What tricks Bernanke could pull out of his hat? or in a better word is there and tricks left?
Option ARM Tsunami Is On The Way