October 28, 2008

Well, not really. This type of rally has been building for some time given how oversold things had become. It’s also why we closed our shorts and went to cash.

This rally began last night in Asia when Japanese authorities directly intervened in currency and stock markets. The rally then spread to other Asia-Pacific indexes.

In Europe a major short squeeze occurred with Volkswagen when Porsche raised its stake causing a major squeeze in the stock [up 93%] which spilled over to the German market and most other indexes as well. In fact, lil’ ol’ Volkswagen became the world’s largest company by market cap. Huh? Yep. I can remember long ago when GM executives laughed-off Volkswagen as a joke. They ain’t laughin’ now, eh?

Things weren’t so rosy in the US as Consumer Confidence was down by the largest amount in 41 years and home prices were off 17%. Nevertheless, things stocks flopped around buttressed by rumors the Fed will lower interest rates tomorrow by a large amount. Then as volume dried up during and after the lunch hour the 2:15 buy program express showed up and “bam” we were off the races.

Volume was heavy but especially so in the last half hour. Breadth was excellent as sellers were either washed-out or getting out of the way as Da Boyz steamrolled all in their path.

I noted the DeMark weekly sequential Indicator pointed to a “9” count this week which would signify trend exhaustion when viewed on weekly charts. Below is that chart again thru “yesterday” with the “9” clearly visible. [This chart does not include all other proprietary indicators.]

Major market sectors as well as many subsectors were, and many still are, much oversold.

Let’s not forget we’re approaching the end of October with window dressing efforts still in play. Further, this month is when mutual funds must book gains and losses. I’d guess they’d like to minimize the loss part.

We also have the Fed meeting results tomorrow with an expected rate cut announcement and lots of attention focused on “words” in the statement with the customary spin.

Many have wondered why we’re sitting on so much cash and not heavily short. Today was a good example of why. Some wonder, why not be a buyer. Well, we had that 900 point rally a few weeks ago and look where that got bottom pickers.

It was pointed out today by Merrill Lynch [remember them?] that during the bear market of 2000-2003 we had 15 days with 300 point or more rallies. With 800-900 point days being the new norm, should we expect more? Why not! This is a casino-like environment.

Then in a week’s time we’ll know [hopefully] who the new president is going to be. Despite some misgivings about future policies it shouldn’t surprise that a patriotic rally would occur. How long that would last is anyone’s guess. But the honeymoon will be short since the new president will face challenging economic conditions.

Sitting it out for a bit isn’t a bad policy to my thinking.

Disclaimer: The ETF Digest is long FXY.

Last 5 posts by David Fry

• MARKET COMMENT October 22, 2009 DRIVE-THRU SOUP KITCHEN 2009 So, what the hell was yesterday about anyway? - October 22nd, 2009
• MARKET COMMENT October 20, 2009 TAKING A BREAK It was a pretty strange day. - October 20th, 2009
• MARKET COMMENT October 13, 2009 EARNINGS WORRY WARTS I just have a spooky feeling but then I always do. - October 13th, 2009
• MARKET COMMENT October 8, 2009 GETTING SOME ALTITUDE SICKNESS YET? - October 8th, 2009
• MARKET COMMENT October 2, 2009 REALITY BITES BULLS Economic reality is meeting bullish enthusiasm and the results are disappointing and upsetting. - October 2nd, 2009