Stock Market Analysis

Sunday, August 14, 2011

Dead Cat Bounce Starts?

The Dow rallied 125 points last Friday, ending the week down by a net total of 175 points with a price range of 830 points! Indeed, last week was a volatile week never before seen in the history of the Dow.

Last Friday's "rally" was of a more technical nature than anything fundamental. Nothing in the economic data or news last Friday could have contributed to such a move. Indeed, with bond yields that low and significant strength witnessed around this level due to bargain hunting all week long, it is easy to convince investors into a short term buying spree within a strong intermediate bear trend, aka Dead Cat Bounce. Indeed, last Friday's followup to Thursday's 423 points rally was a critical one in order to get the dead cat bounce going.

On the technical front, short term bullish momentum is also rising out of a grossly oversold market, supporting the coming short term dead cat bounce. Yes, a rally like this out of a grossly oversold area within a strong intermediate bear trend supported by strong bearish fundamentals can mean nothing more than a dead cat bounce unless something significant changes on the fundamental front. Indeed, it will take significant developments on the fundamental front to turn this bear market around for real.

It is leading indicators week this week with Empire State Index on Monday as well as Philley Fed and Leading Indicators on Thursday (see Stock Market Calendar). I would expect that even if these numbers beat expectation, it would only serve to feed the Dead Cat Bounce rather than turn the market around.

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