What a wild ride these past few weeks have been. Only a month or so ago the Dow Jones Industrial Average traded down to 6,500 amid an onslaught of catastrophic economic news. The market has since rallied 25% from its low with insolvent banks such as Citigroup and Bank of America quadrupling in value. Jim Cramer has called for a market bottom (Again), as the pundits have assured the public that the worst is behind us (Again). Why is it that the people who’ve called a bottom are the same ones who never saw this coming in the first place?
NYU Professor Nouriel Roubini is one of the economists who did see this coming and so we tend to put more weight in his opinions rather than those who have been wrong for the past 3 years (Call us crazy). Roubini believes that the recent market rally was nothing more than a “Dead Cat Bounce” as stated in a recent article written by the NYU professor. “This consensus optimism is, I believe, not supported by the facts,” says Roubini. As for the “Second half recovery” the media is peddling he says “I expect that while the rate of US contraction will slow from -6 per cent in the last two quarters, US growth will still be negative (around -1.5 to -2 per cent) in the second half of the year (compared to the bullish consensus of +2 per cent)”
The charts suggest that the spring rally is either complete, or very near completion. The major averages are coming up against strong resistance with the Dow Jones bouncing off of its downtrend line.
Much of the spring rally was lead by beaten down sectors such as Financials. Morgan Stanley and Goldman Sachs have emerged the strongest in the sector but are failing at the downtrend line which suggests a wave of selling to come.
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