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What Happened Up to Now? 12 Step Program For a Market Rally

April 26th, 2010
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What Happened Up to Now? 12 Step Program For a Market Rally

original article written by Net Advisor™

Usually when people ask me this question, such as why is the market going higher, why it dropped, etc, and what happened from the beginning until now, I usually like to quote a line from the 1980 movie Airplane.

“We’ll, first the Earth cooled.

Then the dinosaurs came. But they got big and fat so they died.

Then the Arabs came and they struck oil and bought Mercedes-Benz’s…”

So in short and there is much detail I am not including here right now, here is the skinny from about 2008-2010 (today, 04-26-2010).

1. Credit markets and banks nearly collapsed due to massive defaults by consumers, institutions tightened credit, liquidity dried up in this market, and consumers effectively stopped spending. The FED, HUD, certain members of Congress also had in a hand of creating and or contributing to this problem.

2. The stock market did not crash by definition. We were in a Bear Market by definition – a 20%+ down move in major indexes such as the S&P. The Russian stock market did crash in what 2008 on a single day.

3. Oil prices hit a low in the $30-35 bbl range in early 2009. China has been buying oil and other major commodities instead of foreign of currency. Part of this purchase of oil and other commodities such as steel and cooper is to expand the growth in China. Oil hit $85 bbl (April 2010) and has flirted up and down this level since.

4. U.S. unemployment is high, actually higher than the government is willing to admit or bother to correctly calculate.

How The Obama Administration is Misleading The American Public About Jobs (article by Net Advisor)

5. The movement in stock is not due to individual investors. ALL of the reports suggest that the typical investors are still not in this market. The trading volume has been low during this entire (March 2009 to April 2010) rally, which further give evidence to this fact.

6. The movement in stocks since March 2009 began when the government basically said no one is going to fail. The “to big to fail” concept guarantees bailouts for everyone, except consumers because we don’t continue enough money to their campaigns. The stock market also hit a technical bottom back to the October 2002 lows.

7. We then experienced and ever since, a massive short covering rally. The result has been that short sellers got squeezed into buying back their positions, helping the rally.

8. Fund managers with cash from all that 2007-2009 selling, went into the market further pushing the market up. Since trading volume has been low during this time, it was “easy” for the market to move higher.

9. Momentum continued the rally as companies reported better than expected earnings. This is a bit misleading in some cases. If one looks at forward earnings expectations from 2008, the market expected everyone to go bankrupt. So you could walk over that hurdle. Thus companies easily beat earnings expectations, most of which was cost cutting not new sales.

10. Momentum continued the rally as companies reported better than expected earnings again. In March 2009 to March 2010 earnings expectations were again very low, but still easy to beat, thus pushing stock higher.

11. During the whole time (2009-2010) the Bears have been in disbelief and for arguably a good reason regarding the rally. Thus they have continued short selling, and losing more money forcing to cover seeing the market even higher.

12. Trading volume is still low, and the average investor is still not in the market. When he gets in it might be time to get out.

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