Sucker’s rally or real McCoy?
by Peter Switzer
Is this a sucker’s rally with the Dow up 207.65 points? Or has sanity prevailed in the US Congress faster than any self-respecting American doubter could have expected?
Yesterday I pointed out that the American Association of Individual Investors Sentiment Survey bearish read was the worst since August last year before the stock market dived dramatically and that a low point in this survey is often close to a turning point. My historical memory — and maybe my hysterical memory — warns me, however, to treat this spike with caution as I have seen big run ups in a day or two that have been walloped by another succession of down days.
And adding to my reservations, I see Goldman Sachs is warning its clients that stocks could fall another eight per cent! Of course, great institution for investment it might be, its big call merchants sitting at their computer screens with their economic and market models have been wrong before.
On Wall Street
So let’s deal with the overnight facts from Wall Street.
The Dow ended up 207.65 points or 1.65 per cent to 12,795.96 while the S&P 500 rose 27.01 points or 1.99 per cent to 1386.89.
How come? You’d think there would be some more positive fiscal cliff utterances but there wasn’t with Congress on a break and President Barack Obama overseas — why aren’t they sorting out this mess? Meanwhile the US housing sector continued to deliver signs of improvement.
Interestingly, the VIX or fear index was down to 16, which is a good omen and it looks like talk late last week, which seemed to imply a deal would be struck to avoid the US economy falling over the cliff into recession before Christmas, has buoyed market players.
There was some good news for Greece that eurozone finance ministers will approve more funding for a loan that will mature soon. It’s hard to work out the importance of EU revelations and so I use stock market reactions and they were firmly positive overnight in Europe. The UK, French and German markets were up over two per cent! That’s a pretty ringing endorsement.
On the housing front in the USA, both existing home sales and homebuilder sentiment were strongly positive for optimists like me who have believed in the US economy.
For those who want some technical reasons to believe the optimism can really turn around the four weeks of falls on the US stock market, watch the 1382-level on the S&P 500. This will be an important test but I still have my doubts about this rally. Regular readers know I prefer to be positive but I’m not sure this is the real McCoy — I expect more argy-bargy out of Congress and the White House before this fiscal cliff is fenced off!
I don’t mind if I’m wrong, even if I miss a bounce, because after that I expect a nice rally into February or so.
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Published on: Tuesday, November 20, 2012
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