Is This A Turning Point?

This is the first time the Dow is up 2 days in a row for the month! In fact, 2 VERY big up days adding up to 546.01 points! The last time the Dow broke over 500 points in 2 days was way back in 2002! So, the market truly is behaving in unusual manners here. Could this be a turning point? Could this lead into the proverbial "Santa Claus Rally"?

Let's sum up the Fors and the Againsts...

Fors...
1. Oil price took a severe beating (For no reason apparently, Saudis actually commented that they are not going to increase production today).

2. Fed official commented that the Feds need to be more flexible, which increases the probability of a rate cut in Dec.

3. Gold and Bond retreats, indicating a flight to the equities market.

4. Increasing volume going into the past 2 days.

5. Seasonality supports this rally and the public might start pouring into this and make the rally happen.


Againsts...
1. Oil price's beating before an actual production increase may actually prevent a production increase from happening! The Saudis have defaulted on production outputs under such circumstances many times before.

2. A 25 basis point rate cut has already been fully priced into the market so far, in fact, the Fed Fund Futures have already started pricing in a 50 basis point cut! This means that unless the Fed cut by 100 basis points, it is not going to help at all! In fact, a 25 basis point cut might take the market down on disappointment instead!

3. Today's market action is a direct result of short covering according to Bob Pisani right off the floors of the NYSE! It has little to do with what the Fed said or how oil prices did!

4. Volume increase was mediocre and non-conclusive... the volume just look too measured for a reaction so knee jerking... the public just ain't buying into this possible bull trap yet.



This is definitely the reaction rally I talked about in my analysis a few days ago and it sure looks like it is coming to a quick end. The real deal is what happens on the coming pullback. If the next pullback do not bring the Dow back down to the lows of this correction, we might see the beginning of a trend reversal. According to the Dow theory, the pullback of a reaction rally usually determines if the reaction rally marks a trend reversal or trend continuation. It certainly is too early to tell now.