I Eat Bear

Today the Dow had it biggest point gain ever. That would be a marvelous thing for investors, had it not been at historic lows before the spike. Plain fact is, the rise today represents a pitance to the amount most investors have already lost in this market.

Which brings up the question of have we hit bottom in the market? Sometimes, it is nice to be wrong, but I don't think so. It is most likely, just a bear market rally, and it won't last.

Why? Because the fundamentals have not changed. Housing is still falling off a cliff, banks are still struggling, and the economy is in dire shape. Add that there was no catalyst for this rebound, and the only conclusion you can come to is it won't last.

So, what happened, and why?

The answer is much the same as it has been. Struggling financial institutions. They had gotten about as much as they could from the market before. Not totally, but close enough to cause them to panic. To get more, they need a market rebound, so they can do it again. Keep- in mind, they are not fools. When the Dow was 8300, the next support level was 7800. There simply was not much room to maneuver. Solution, a short term rally.

Incidently, this is the first of three rallies, before money will start returning to the markets en-masse. Most private investors are still keeping a lot of cash on the sidelines. And, it is this money on the sidelines that will be the cause of the markets returning to normal functioning.

Now, there is a catalyst at work that could make this rally hold, at least some of the gains. That catalyst is earnings season. It may not be as bad as predicted by many analysts. Still, I would have to bet on a 500 point drop before the week ends.

In the mean time, I tend to think the investment houses, and fund managers just threw the dog a bone. Good doggy. If they had a heart, it would make them feel good about themselves.
But, that is not the case either. These same managers are paid for performance, and that has been pretty dismal this year so far.

Well, what is the bottom then? 8350 was close. Keep in mind it was more than five years ago when the 7800 support level was created. There has been some market value added since then.

I wish I could be more optimistic about all of this, but without any catalyst to push the market upwards, my only conclusion is that it can't last.

Still, the market did get a nice bone today, and the dog is grateful.

Comments: View Comments |  Monday October 13, 2008