How do we explain the recent surge in the three major indexes, Dow Jones, S&P 500, and the Nasdaq, Wall Street Journal poll that 9 out of 10 American are “fed up with the market and done with stocks?”
On the technical side, the major market indexes were extremely ‘oversold’ beneath their 200-day moving averages. Once markets move steeply below this benchmark, all that is needed for a “bear market rally” is good news. Good news from the very companies that got us into this market crash in the first place, THE FINANCIALS. Although, AIG is still having troubles, Citigroup, after posting five straight quarters of losses, has just reported that the company is operating at a profit so far this quarter. This is an indication that banks are starting turn profits as bad mortgages continue to come off their books. In January and February Hedge funds were selling heavily to meet record levels of investor redemptions. But as hedge funds only allow investors to withdraw their money at the end of each quarter these selling pressures have now abated.
Whether this rally can continue into a 60 day rally depends on the institutional investors, pension plans, insurance companies, etc., and their belief the rally will continue. These major players are holding more cash on the sidelines than ever before. If they jump back into the market, we should see sustained growth until at least until we reach the 200-day moving average. That would represent a 35% increase in the S&P 500.
