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Another rally: can it last?

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by Peter Switzer

What is the opposite of a bloodbath? That’s what we got yesterday on our market with the S&P/ASX 200 up 110.3 points or 2.64 per cent. And Wall Street has done the same with the Dow recording a 213.88-point, or 1.9 per cent, jump to finish at 11,482.9.

The S&P 500 was up 25.68 points, or 2.18 per cent, to end at 1204.49 and last week’s losses have been cancelled!

What downgrade, you might be asking? What Euro-debt drama? Well, the former was a beat up, market-wise, but the latter was a concern and still is.

But back to the bloodbath issue as it says a lot about what the media can do to investors’ thinking.

You know, when markets slide big time my phone never stops with media outlet after media outlet wanting me to pass my judgement on the seriousness of the market massacre. Generally, I disappoint by not being too dramatic as markets go up and down. The GFC crash was an exception, but at one point I started saying the bloodbaths were buying opportunities. In fact, in 2008, I created Good News Daily on this website to show that there was actually good news out there that was being passed over, which meant a market bounce would happen.

Market wrap

So what’s happening now and is the bloodbath over? Let’s sum it up:

The VIX, or fear index, is down 10 per cent to 31, which is still high and means volatility is still on.
The big watch now is the Sarkozy/Merkel meeting where hopefully the leaders of France and Germany can give confidence to the market over the Euro-bond problems.
Oil prices are rising, which is a better sign for future global growth.
The Empire State Manufacturing Index for the state of New York fell to the lowest level since November 2010.
Some chartists think the S&P 500 goes to 1250 and turns around and falls. They think we have seen this year’s high! (I don’t agree, but we need something good from Europe as I think the US can gradually improve and dodge a recession provided stocks don’t slump again.)
Others think we have been to the lows for the year and the highs are behind us! They are punting on sideways trading.

What’s ahead?

The question marks over Europe and the US’ possible recession will mean we will be in a holding pattern until good to great news shows up.

I think if we can avoid terrible news, then US confidence will come out of low interest rates and a weak dollar and so the last quarter of 2011 should bring a rally. I also believe Federal Reserve chairman Ben Bernanke will try something positive for his Jackson Hole meeting, which he did last year when he announced QE2.

He knows he has to get the stock market into positive territory to get confidence rolling.

Go Ben! Go Europe! Go stocks!

Published on: Tuesday, August 16, 2011

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