Wednesday, January 28, 2009

A Nice 200 Point Rally

Top Line: We are still bullish but a pullback may be inevitable after several up days in a row. Any pullback would be a good buying opportunity.

The stock market followed through on late Tuesday's "bad bank" talk. On the back of that the banks led a 200 point rally. The non-news out of the Fed in the afternoon didn't slow the move down. The Fed did say they might be willing to buy long dated Treasury bonds...maybe that's the reason they fell out of bed right after that announcement.

The news of the economic stimulus package getting through the House provided some additional fuel to the stock rally. Tonight the House did pass the bill and will be sending it on to the Senate even without one Republican voting for it...so much for bipartisanship. Again, we don't want to get into what happens, just how the market reacts or will react. We think the market likes the idea of this news, that being the anticipation of the final news and will sell the actual news.

This fits with what we have been thinking...that the market wants to jump over the next couple of weeks. As we said earlier, the market will have some pullbacks in the next few weeks which we think are buying opportunities.

The end of the month is upon us and the next ten days of trading should give us a pretty strong rally. Company earnings' reports are nearly done and this is time when stocks can be doing whatever they want because no earnings reports are coming out for three months.

The Treasury selloff today does create the possibility of a sharp drop of a couple of points on the TLT which may be the end of the first down move. What comes after that? Right, a corrective move back up part way. With that rally expected in the next few trading days, and with the volatility indexes matching their lows of a couple weeks ago, the possibility of a pull back in stocks is right in front of us. The nice rounded bottom of this last few weeks should give us a solid footing for a good rally but in order to scare some of these late bulls the market may have to take a quick dive in the pool to shake some of them off.

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