Since, by my measures, this is a bear-market, I am calling this a bear-market rally. These rallies can go on for a few months and pull back more than everyone expects - in the autumn of 2007 the market made new highs on the first bear-market rally.
The way up is punctuated however by strong sell-offs. I looked at previous cases and the first such sell-off will most probably come after a break above the important level highlighted by blue segment below.
This, especially as the behavior of the total put/call ratio suggests there still are many stubborn shorts that got caught wrong footed and have not bailed out yet. The ratio has spiked towards oversold yesterday despite the huge rally (the scale is inverted below).
2 comments:
Adi,
I think we are having big giant bull market. The picture is very clear after I saw Spain's bailout. All the banks will be bailout including US, CHINA, EUROPE. This market will rally much much higher due to currency printing, IMHO. If you don't buy, you will lose since your money will be devalued....just IMHO.
I hate people saying BTFD...BUT I have to admit it is the truth. Shorting this market is the wrong way.
Anon,
Thanks for sharing your opinion.
If this is a replay of 2010 or 2011, it will become visible in the behavior of the indicators. I will eagerly buy then.
I agree that central banks can push this market back into a bull but, unfortunately, they do not seem to have the guts to print the way they should. I remember they got this shy in November 2007 also, after a few rate cuts.
Taking into consideration the heat that the Fed had to take after QE2 and also the record low long term interest rates, I am even inclined to think that the Fed might try to find an excuse for no more QE, or, in any case, for too little new QE.
I remember that QE2 was considered by the Fed as being the equivalent of a 75 basis points rate cut – certainly not enough. In 2008, such “important” rate cuts as well as bailouts accompanied the markets and the economy all the way down.
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