Is this rally for real?
Seems like the fundamentals are improving - is it temporary or will it last???
Answers
732 points
alanj answered 4 months ago …
Fundamentals improving? Where? or Which ones? The two major sectors that where the catalyst that put us where we are today where the Financial sector and the Real Estate sector. In the Financial sector it seems that every week or two there's another bank that has closed. And there's no indication that that has come to an end. In the Real Estate sector there's still an over supply of homes for sale. And until those two sectors show fundamental improvements any rallies you see is temporary. Fundamentals are used to determine what should happen in the future. Technicals are used to see what is happening now.
The see what's happening in the markets use the S&P 500 Index (SPX) technicals. And right now they are on the upswing. And the SPX has a ways to go before it becomes overbought. I wouldn't be too concerned whether this rally is temporary or will last. The key is to "TRADE WITH THE TREND", no matter what you are trading.
164 points
kobla answered 4 months ago …
I think the market has some more upside. When the S&P 500 gets upto 1350 or 1400 then I would start to watch more closely & try to get a feel of which way the market is headed.
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2703 points
MNSL answered 4 months ago …
I think Dow will go higher and higher in the near future probably it will pass 12000 due to following reasons:
Appreciation of US Dollar
Falling commodity prices will ease inflation.
Falling oil prices. Falling oil prices will help to control transport cost and production cost in many industries.
Collapse of commodity market. Some commodity prices have come down by more than 35%. Falling prices for Cocoa, Palm oil, coffee, gold, soya bean, corn, wheat, sugar and copper prices will improve profit margin rapidly in some sectors and companies.
Commodity money will come back to stock market sooner than later. Some top commodity investors are shifting their funds into neglected sectors in the stock market from commodity market. Selected sectors and companies will benefit most.
299 points
thinker70 answered 4 months ago …
While it is true that falling commodity prices will tend to ease the pain of inflation and lower costs temporarily for transportation and other inputs, I would not count on this lasting very long!
Supply and demand is still fundamental and with the rising middle class in Asia in particular, there is RISING DEMAND that is not being met ny rising supply.
I would submit that the SWING in sector favour has more to do with short sales/manipulation than it has to do with fundamentals! The bull run in commodities is not over, just temporaily interrupted by the BIG MONEY changing where they invest/manipulate, I agree with Alanj, don't fight the market, but don't believe the pundits on Wall St either, the financial sector and real estate sector still has a lot more PAIN to inflict. Myron Martin
2703 points
MNSL answered 4 months ago …
I like to add some more:
I do not think we will see continuous bull market for the commodity market in the next 02 years. Most probably, we will see side way market or bear market. We were due for sever correction and it is happening now. However, there will be some volatility in addition to short-term rally.
In the long run, we can see Bull Run not only for the commodity market but also for stock market and real estate market. That also depends on world growth rate, invention of alternative oil, supply situation, crowd behavior, market sentiments, world political situation, different instruments used by market players and, futures market activist etc.
We had a continuous bull market for all types of assets for the last 07 years. When any market develops into bubble stage it will naturally come down or will burst.
It is true that no body can predict market direction correctly and investing in undervalued assets will be most prudent strategy to follow.
In think financial sector will recover once they sort out present credit mess and liquidity. Subsequently real estate market also will recover gradually in the long run.
However currently there are plenty of opportunities to invest in undervalued, neglected sectors with great potential and with future earnings changes worldwide. For example some egg and chicken
companies have great potential to grow.One outstanding company in the USA is:
Cal-Maine Foods. I think there was an excellent article written by Wayne in the weekly tikerhound news about this sector. Did anybody invest in this company in advance?
Global investors will reap maximum benefits in the next decade and, some neglected, and out of favor sectors will have above average growth than other sectors.
Sometimes there is a possibility even DOW will exceed 15000 at the end of this year due to some facts. In the mean time, some stock markets will have bullish sentiments in the near future. Now some intelligent investors have reacted to the market completely different from the majority herds.
There will be excellent opportunities to invest in undervalued stocks through out the world in the next 18 months. Commodity countries and currencies will hit hard.
Finally, I think US Dollar will appreciate against other currencies in the next 12 months and commodity prices will come down due to certain facts. This will help to ease global inflation. Because of this, some sectors and companies will benefit most.
1786 points
ChaosNantuko answered 4 months ago …
I think its temporary. The turnaround in financials is more a matter of false hope then a fundamental change. That being said, i see this rally bringing the S&P t around 1330-1350, based on the double top pattern that has appeared on the daily chart over the last 3 weeks, and the subsequent breakout on friday.
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115 points
SamCollins answered 4 months ago …
I don't think so.
Looking at the numbers, 1.2 billion shares of stock trading on the NYSE during a 300-point rally probably isn't the result of smart money driving prices higher.
In fact, this is the kind of bear-market rally that public enthusiasm and short covering are behind. When low volume is coupled with high volatility (rather than being a turning point or a point that helps prices jump higher) it usually leads to buying climax and a testing of the market's previous lows.
The markets are showing an overbought stochastic signal, overbought internal indicators and light volume, which leads me to expect the advance to falter within the next five to 10 trading days.
393 points
jester112358 answered 4 months ago …
Any rally led by the sector reporting the weakest earnings and worst future prospects should be viewed suspeciously. In this case, the low trading volumn involved combined with the enormous fraction of shares held short in the financial and home builders (30-50% or greater in many cases) suggests a short covering rally with profit taking. Once I see consolidation in the market, it should be a good time to short the financials again, since nothing fundamentally has changed. We can expect more bankrupties, corporate bond defaults and bank failures throughout this year and continuing to the next. Lots of negative news in the future.
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