Friday Oct 28, 2011
March 2001
Hmm 1075 to 1275 in a month...note the date, 2001
March, 2008
March 2008 spawned a similar 180 point rally over a short time frame. It then gave the gains back in short orders, about the same length of time. And of course in the fall it fell completely apart.
Now
And now, bingo, another 200 point rally. Such things are not characteristic of bull markets. Such violent action is characteristic of bear markets. I suspect the reason is that the fund managers act as a crowd. Their quant systems generate sell signals on breakdowns, like the one above as the market fell through 1125 in early October. Many got short at that point only to realize it was false breakdown. then they all reversed. Think about what happened.
The funds are waiting for a signal. The markets drop. The computer says sell, they all sell x million shares. That signal is erased three days later. The computer says buy. And so
the funds have to buy to cover all the x million shorts
they then buy an equal amount to go x million long, so we get a double whammy to boost the market.
And in the ensuing days all the rest of the funds pile in, fearful of missing the rally.
The Friday WSJ is chock a block full of stories suggesting that the Europeans are as the saying goes, re-arranging the deck chairs on the Titanic. This replicates saving Bear Stearns and then letting Lehman go.
I suspect the seasonal Christmas rally will tide us over until the new year. Then reality sets in again.
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