WOW!!

Why The Bounce?


So we had an okay kind of day, UNDERSTATEMENT!!! Second largest point climb in the Dow ever! So the real question becomes, why? Are we at the elusive bottom, is it a dead cat bounce (my wife hates this phrase by the way), was it some news that was announced or are people just bored and wanting to do something with their money. THE ANSWER IS - YES!!


In short, we were ready for a bounce, ready for any news to justify it and the market was a great deal oversold. And there were some positive signs today justifying a change in direction. Perhaps not the - Starsky and Hutch slam it in reverse at 90 miles per hour and flip the car into reverse - kind of change in direction, but who does not like a little drama. With the VIX hovering near all time highs, this kind of volatility is not altogether surprising. Let's dig a bit deeper on why.


As noted this morning, cheap valuations and BP beating estimates is hardly an excuse for this big of a rally. Small rally yes, near record settging, not. Valuations, I must say, should not be underestimated, as we are incredibly cheap. That explains some, but not these levels as valuations have been cheap for some time.


Money sitting on the sidelines itching to get in is another reason, but again this has been the case for weeks. So why now?


Well Bloomberg is now in part attributing the rise to some fairly significant progress in commercial paper. Not to toot my own horn, but I said yesterday that the most effective move by the government to date was to insure that the companies in this country that are our life blood - not the assinine banks - get the credit they need, is the key to moving us off the mark. Well, it seems insuring credit to those that matter, not those that got us here, may be important. May not be the end all and be all, but this is my bet on why the markets did so well today - at least one of the top of many reasons.


http://www.bloomberg.com/apps/news?pid=20601087&sid=aAVJwAsjSn2Y&refer=home


There are other reasons here, probably millions of them, but these seem to be up on the list. One issue I have with Bloomberg is that they seem to pick a reason or two for any market change and leave it to that, which is a disservice. Don't get me wrong, Bloomberg is one of the best financial news servises and has less agenda than most others, but they are always providing the "why?" whether they have any clue or not (and of course I just tried to do the same.) Their headline today could have plausibly read "Consumer Sentiment Reaches Record Low - Stocks Gain The Second Most Ever." Oddly this would have been factually correct, which is another reason I expect a bit of selling tomorrow into this rally. Yes,it seems, we consumers are a rather depressed lot, moreso than ever since records began in the 1960s:


http://www.elliottwave.com/freeupdates/archives/2008/10/28/Lowest-Confidence,-2nd-Highest-Stock-Gain-What-Gives.aspx


So What Is Next


That is the question daily. What is next? Will people play into the rally and cash in some short term gains? Will this have legs for another day, another week, another month or are we at bottom and into a sustained long term rally? I can decisively say that no one in the entire world has the answers to these questions. But, if you want input from someone who hears nothing, sees nothing, knows nothing and promises nothing, here we go.


I think this is a short term bounce. It is anyone's guess whether this is a one day bouce or a three day bounce. If we see any more significant bounce on Wednesday, I can live with that, but I will be surprised to see more bounce Thursday if that happens. Too much turmoil to support a sustained bounce in my opinion and I still think hedge funds have more liquidations to do in the short run, though no sudden drop in the last half hour today (like yesterday) is promising that the hedge fund redemptions are mostly "spent" for this quarter (like Johnny Holmes (God bless his soul) at the end of one of his movies). We will see.


Tomorrow, two scenarios are leading the odds in my thinking. There could be a further rise off of today's momentum. But given today's near record climb, I expect some profit taking. Nothing too major compared to today's climb, but I expect a 2-3% decline. The better question is after that, and this depends more on news than market dynamics. The banking crisis seems to be largely behind us (systemic crises ONE), the credit crisis - mostly commercial paper - seems to perhaps be behind us (systemic crisis TWO) and we are now working on the submerging economy/currency crisis, which is not yet behind us. Improving markets globally will help this last crisis a lot, but it is still a worry. If we can put this latest systemic crisis behind us and no more line up to replace it, it could be off to the races- but for that old nasty recession (longer and deeper than most) that we are squarely in. Still, recession is one thing and systemic crisis is another. If we get behind the latter, I am all in on the market as the valuations in the market are indeed ridiculously low. You decide for yourself.


Okay folks (or perhaps just folk based on my hit count) but I am sick, literally, tired, literally, and I would love to post more but I need rest. Tomorrow. Peace.