Tuesday, October 28, 2008
US stocks stage huge rally
In a stunning and dramatic rally, stocks soared amidst growing signs that the worst of the credit freeze was over. The Dow was up over 800 points and closed at 9065 while the S&P finished at 940. The rally was a continuation of a rally that began overnight in Asia and specifically, Hong Kong, where buyers rushed in to buy up bargains.
I did not foresee this rally, although I was fairly tentative about the market sentiment in advance of tomorrow's Fed meeting and that that some gains midweek were likely. In my weekly forecast I also noted the possibility of a Tuesday afternoon rally ahead of the Sun-Moon conjunction, although I had no inclination that we would witness such as huge upswing. While I am still cautious about this market, I do think that the strength of this rally should not be underestimated. A retest of the 2003 lows in November seems improbable now, and even a retest of 7773 is going to be a purely speculative play. Tomorrow will likely see another plus day ahead of the meeting and some selling afterwards but likely positive overall. 9500 is possible. But Thursday and Friday still look quite negative to me, so I think the market will once again trade down towards the 8500-9000 range. For those thinking of closing out short positions, that might be the a good opportunity. Monday also seems negative from here, so I would be reluctant to take on any large long positions this week. The market will likely continue to be volatile for another week or two. But on balance I think November will be positive, especially in the second half of the month.