Optimism Creeps Back...

On a day without any major releases to change the pessimism of yesterday's releases, anyone would have expected the sell off to last throughout the day, right? But amazingly, stocks came back in a BIG way by the final hours, taking the Dow up to almost breakeven for the day and NASDAQ ending positive! In fact, if the market had been 1 hour more, I am sure all 3 major indices would be positive. What actually happened? I can see 3 main reasons:

1. Gold and Black Gold (oil) seemed to be retreating in a big way. Is the bubble bursting? Maybe. But one thing we can all be sure is that if big shots like Jim Kramer is recommending gold and oil right now only after they have both gone so high, it is certainly time to sell them.

2. The Dow almost touched the January Low of about 12000 intraday, which is a point from where a lot of analysts, including myself, believe a rally would start from.

3. Bond yields are so low now that it doesn't make much sense anymore. With such a steep bond yield curve, it is also expected that some to-be bond investors would move strategically back into stocks. (see bond yield curve)

From a technical point of view, it is now clear that the January lows have already been hit and taken in the minds of investors and a relieve rally from this point onwards seems totally reasonable. HOWEVER, I still see any rally from this point as nothing more than a short term relieve rally, possibly lasting no more than a few days as a lot of unknowns still surround the Job Report this Friday. BUT, if the Job Reports turn in ok, the relieve rally could go on for a while. Again, time to be nimble, time to stay invested and time to learn about stock options!


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