Monday, March 23, 2009

Market Rallies... but why?

Today, the Dow started up 200 points, and ended the day up nearly 500 points, or a gain of 6.84%.

In the last two weeks, the Dow is up 1149 points or a gain of 17.34%.

How do you even begin contemplating the rationale behind such a huge upward swing, which is so counter to the past 6 months of bearish movements? Over the past 6 months, the Dow is still down 3078 points or a decline of 28.36%.

So what explains this?

I still think we're in a period of rash exuberance, heavily led by day to day government policy decisions. However, I still want to see some good economic data points to back this up.

While housing sales have increased, this has been primarily driven by increased foreclosure sales. Gas prices are still going up, driven by the falling value of the dollar. Unemployment rates continue to rise, heading toward 10%.

I think its possible that the stock market is close to a recovery period. But for the average investor, I would suggest waiting a bit more, to wait until something more substantive than a quick 2-week upswing, that could easily become a dead cat bounce by week's end.

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