Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Rallies and Rhymes: Prepare Yourself Now

Stock-Markets / Stocks Bear Market Mar 12, 2009 - 06:34 PM GMT

By: Q1_Publishing

Stock-Markets

Best Financial Markets Analysis ArticleMark Twain said, “History doesn't repeat itself, but it does rhyme.”

Right now, investors and traders are getting ready for it to rhyme again.


Earlier this week, the government felt the stock market was getting a bit too low again. Our great leaders delved into their ever-shrinking bag of tricks and pulled two of them out. In the process, they sparked the strongest rally since last summer when they stepped in.

Barney Frank, the House Financial Services Committee Chairman, told reporters he has spoke to the Securities and Exchange Commissioner and said, “ I am hopeful the uptick rule will be restored within a month.”

Frank went on to add his support to the current mark-to-market accounting rules (which will make the bank “stress tests” much less stressful).

Surprised? You shouldn't be ( we were waiting for a change in the “uptick rule” ).

Analysts, pundits, and traders have been pleading for these rule changes for months. We warned the government still had these rabbits to pull out of their hats. The only question we had was “how bad would the markets have to get before they would?”

Now that the market has fallen enough, the government gives Wall Street what it wants. And Wall Street gave the government what it wants (especially right before the G20 meeting), a climbing market.

A Sucker's Rally?

I wouldn't get too excited yet. If this lasts through the weekend, we'll undoubtedly be bombarded with “that was the bottom” calls. Odds are, however, this rally will sputter out very soon – just like every other government created rally in the past.

You see, bear markets are a fickle animal. The two down days, one up day pattern can and has wrecked many portfolios.

The pattern provides the right mix for complete disaster. It provides just enough hope to keep a lot of investors hanging on. In the end, there is still a lot more down than up and the markets end up lower.

Of course, this hasn't been your average bear market. The two days down, one day up cycle has been stretched out into five down days, one up day. But those rare up days are usually pretty big ones. Whether it's short-covering or investors thinking “that was the bottom,” hard and fast upswings are a telltale sign we're still in a bear market.

But right now, the stock market is racing upwards. Day traders who jumped on early are enjoying a nice ride, but the ride may soon be coming to a screeching halt.

History is Rhyming

Quite frankly, I'm wary of this rally for a number of reasons. The number one reason is because it's all coming from the anticipated swipe of a bureaucrat's pen.

This isn't a major change like rewriting the tax code to redistribute wealth from companies who “make too much money” (read: oil companies) and implementing policies which will increase everyone's utility bills. That's a different matter which forces, for better or worse, structural economic change.

This is a one-time deal like the stimulus package, an emergency Fed rate cut, or temporary ban on short selling. As we've seen time and time again during this downturn, they just don't last. Just take a look in the chart below. The numbered circles are when the Government intervened (please keep in mind, I'm an analyst and publisher, not a graphic designer):

1. January 2008 Meltdown – Everyone thought this was the BIG ONE . The world later learned it was just the start. That wasn't going to stop the government (or technically de facto government – Federal Reserve) from stepping in with a temporary Band-Aid. The Fed made an emergency rate cut of 0.75% - the biggest one-time cut since 1984.

2. July 2008 Bank Stocks Plummeting – “The banks were ‘fine.'” It was the short sellers to blame. SEC bans short-selling on financial stocks and sends bank shares soaring…temporarily.

3. TARP Unveiled – Nobody knew what it was supposed to do, where the money was going to go, or exactly how it was going to work, and they still don't. But it meant most of Wall Street bets would get paid. Good enough for a brief rally.

4. Obama Stimulus – Obama won! The initial idea of $787 billion spending spree unveiled. The economy will be saved. By solar and infrastructure stocks! Or so they said. As we expected, it didn't last.

5. Uptick Rule Reinstated and Mark-to Market Rules Relaxed – Strong three day rally which eventually ???????

See a pattern?

The government is setting them up again and, if history is any indicator, there will be a time to knock them down again soon.

There is absolutely no reason not to expect this time to be different than any other time the government intervened in the markets.

That's why, now more than ever, you've got to stick to your disciplines. A couple of rule changes are not going to make too much of a difference. The U.S. and world economy are in drastic need of structural change and it's not going to be easy.

And just wait until the fireworks really start going at the G20 meeting in a few weeks. I expect the world's leading economies to blame the U.S. for everything, renounce President Obama's call for them to go deeper into debt (retaliation for someone sticking their nose where it doesn't belong), and for them to demand a stronger dollar thereby hurting U.S. exports.

Yes, I'm going out on a limb here, but it just doesn't make any sense. But, at the Prosperity Dispatch , we also went out on a limb talking up stem cells the day after the market's bottomed in November. And we did it again when we picked apart infrastructure stocks when they were all the rage in January.

So we're due for being wrong on another short-term call (the markets have a way of doing that), but as long as we have sound rationale on our side and by maintaining discipline and not getting caught up in the euphoria, we'll be better, much better off over the long run. Again, history has a way of regularly rhyming. If it rhymes this time, this rally won't last much longer.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in