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It may be just a bear market rally, but it's the best one yet

April 9, 2009 |  5:58 pm

Wall Street's search for "green shoots" in markets and the economy turned up enough for a decent salad Thursday.

That fueled a broad stock rally that surprised traders who were expecting a quiet session ahead of the three-day weekend.

Major U.S. share indexes were up between 3% and 6% on the day, after Wells Fargo & Co.’s upbeat earnings forecast and reports showing smaller-than-expected March sales declines at key retailers, a rise in U.S. exports in February and a drop in new weekly claims for unemployment benefits.

The market now is up five consecutive weeks since blue-chip shares sank to 12-year lows March 9.

You’d be hard-pressed to find someone on Wall Street who isn’t fearful this is just another short-term rally in an ongoing bear market. That’s only natural, after the last four rallies of 10% or more since Oct. 2007 all gave way to new market lows.

Fi-markets10 Trading volume was up Thursday from the low levels of recent days, but many market pros would have been suspicious of any big moves in stocks this week, with players’ ranks thinned by the Easter and Passover holidays.

Still, this now is the biggest rally since the bear market began 18 months ago. The Standard & Poor’s 500 index, which jumped 3.8% to 856.56 for the day, is up 26.6% since March 9, cutting its year-to-date loss to a modest 5.2%.

The last rally, which ran from Nov. 20 to Jan. 6, pushed the S&P up 24.2% before it fizzled.

Bespoke Investment Group analysts Justin Walters and Paul Hickey, who pore over market historical data for a living, say the action Thursday helped cement the view that "the current uptrend is the real deal."

"Just as investors played the prior downtrend by selling on big up days, investors now are playing the new uptrend by buying on pullbacks," Walters and Hickey said in a report.

Yet they, too, are nervous about the latest run-up. In technical parlance, the market is "overbought," they say, adding: "We remain comfortable with the longer-term implications of this rally, but we would still exercise extreme caution at current levels and wouldn’t recommend getting long until we once again pull back from overbought levels."

The question is how much cheaper of an entry point antsy bulls will want before jumping in, if "green shoots" keep appearing. . . .

That was the term Federal Reserve Chairman Ben S. Bernanke used last month to describe the improvements he saw in some corners of financial markets. The term also has been applied to very modest signs of improvement in the economy -- including data showing that things still are getting worse, but at a slower pace.

President Obama’s chief economic advisor, Larry Summers, said Thursday that the economy was nearing a point where "you’ll no longer have that sense of free-fall."

That hardly seems justification for a wild new bull market. But it may be a good enough excuse to lift stocks a bit more from price levels that may have implied Armageddon.

"We’re starting to see what we’ve been asking for," said Anthony Conroy, head trader at brokerage BNY ConvergEx in New York. That includes "signs that the financials are getting back on their feet, and that maybe there’s a bottom in the housing market."

So, happy holiday weekend -- until the hunt for green shoots begins again Monday.

-- Tom Petruno

 

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