Another counter-trend rally for stock indexes

Stock indexes rallied sharply today, with the Dow closing up nearly 500 points. The reason being reported is mainly better clarification of plan to remove bad assets from bank balance sheets, as well as some better home sales numbers. This may be, but the urgency of the move would indicate that many shorts were wanting to cover their bets. On the positive side, volume did show some decline during the two down sessions at the end of last week, while volume picked up a bit on the rally today.

To get a longer-term perspective I have the weekly chart of the S&P eft, along with the double stochastic indicator in the lower sub-graph. The price action does not suggest that the trend has changed from down to up. Momentum had been deeply oversold and is now rising, but within the context of a downtrend. I find it is usually a good idea to be very careful being short when the weekly double stochastic is rising from the oversold area. There was a similar short lived up-move in early November where the indicator started to turn up. But the downtrend quickly resumed. So this indicator is not perfect as no indicators are, but it can be a helpful piece of the puzzle in deciding market direction based on the daily chart. Some of my daily indicator were beginning to show weakness late last week, but the weekly indicator suggested being cautious on the short side. Counter-trend rallies can be very deceptive. They can tempt traders to get on board, especially if the market is deeply oversold and there seems to be once in a lifetime bargains. I have to think that shorts, and perhaps some bottom pickers, were looking for any little slice of good news as an excuse to buy.

The bigger picture still suggests to me that this administration is really just winging it. They don’t seem to have a clue. During the major market bottom in 1982 President Reagan used optimism and tax cutting to spark one of the greatest bull markets in history. Mr. Obama is using just the opposite, that is fear and tax hikes. He is pitting Main Street against Wall Street. He is creating villains out of successful people. It seem by his actions and rhetoric (teleprompter) that Mr. Obama really doesn’t want the economy to get better. He may say he does, but I think there is a larger agenda. If the economy gets bad enough, and if anti-business sentiment gets strong enough, conditions would be ripe for an extreme move toward all-out socialism. If that were to happen, then these stock market bounces will mean little when the backbone of the country becomes nationalized. I’m afraid there is little need for stock and commodity markets in the world vision of Obama. I hope I am very wrong. Even more, I hope that the American people wake up and change congress in the 2010 mid-term elections, so Obama’s vision will not be realized.

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