Does The Rally Still Have Legs?

Last week the DOW was up 9% and the S&P rose 10%. We were looking for a 10%-20% Bear rally so we just need to see how much higher we can go. The OPEC ministers aren't going to cut production at this time so oil prices won't be a drag on the economy. Mr Bernanke expects the economy to bottom this year but only if the financial system is fixed. It seems realistic to believe that we won't have a depression but unemployment will continue to rise. All these factors lead us to believe the market may rise some more but it will likely retest last Monday's lows before it can resume a longer term uptrend.

Bank profitability on an operational basis is strong but many more asset write downs are in the cards. Hence, the financial industry is not out of the woods yet. Bank stocks had a very strong performance last week as some optimism from the CEO's of CITI, BofA, and JPM created some bullishness in the sector and probably a bunch of short covering. The market needs the financials to recover before it can resume its upward movement but stability in housing is needed also.

Let's watch for the next wave of mergers and acquisitions and perhaps a few more positive tea leaves to keep a bright light on stocks but it is very likely we are just having a bear rally. If the economic recession is going to end this year, then maybe stocks can start a new bull market in a couple of months but until then earnings season will likely bring some negative surprises and falling stock prices once this rally ends.