Dealing The Death Blow To The Bears...

FUNDAMENTAL ANALYSIS
The Dow made yet another strongest one day surge in 5 years today beating the single day 416.66 points surge last week with a 420.61 points surge today! Who says records are broken only once in a blue moon? How about once a week?! :)

The Fed really dealt the death blow to the bears with a 75 basis points cut to both the fed fund rate and the discount window rate today. The bears have already been trashed and bleeding with all the Fed action so far and today's 75 basis points cut, although a little disappointing to investors expecting a 100 basis point cut, dealt the death blow which totally defeats the bears. The Fed has communicated it loud and clear, "there aren't going to be no crisis as long as we are around!". Not surprising, the financial sector led the way in today's rally moving up 5.64%.

In response to this optimism, investors fled from gold and long term bonds today back into stocks and with the extremely steep bond yield curve promising almost no return on the short term bonds, we should be witnessing the return of short term speculative money back into equities real soon. The economy may not be looking all rosy right now but let's not forget that the stock market is not a direct reflection of the economy and usually leads the economy by 6 to 12 months.

TECHNICAL ANALYSIS
Another record breaking day in the Dow today. The thing I really liked about today's rally is that it happened with slightly above average volume and not a huge volume surge. A huge volume surge will suggest that this is a blow out day where all the bulls are exhausted in one day. No doubt we should see a good follow up over the next few days. However, don't be surprised even if tomorrow and Thursday end up sideways or slightly negative due to profit taking ahead of the long weekend (see economic calendar).

Is this going to be just another dead cat bounce aka relief rally? This is a question that needs to be answered by the 12750 resistance level. The 12750 has proved to be an extremely strong resistance level, stopping the Dow dead in its track twice on 4 Feb as well as on 28 Feb, ending both relief rallies. What is different this time round is the strength displayed in this rebound so far and the fact that the Dow formed a double bottom formation on the conservative Jan lows that I proposed last month. I maintain my optimism and look forward to how the market does at the 12750 level. Those of you who wants a risk limited way of speculating on this rally, you might want to learn how to trade stock options.


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