Recovery or Dead Cat Bounce?

[M34N]

It certainly made the dow futures dive and now the dow is in free-fall, never underestimate the power of a few stories like this to panic the market.

Remember this current rally was sparked by the rumour that a US bank might actually make a profit this quarter, yeah right

Dow down 41 points for the day and it's in free-fall? LOL

The Dow hit a low around 6,500 and now trading at 7,900, that's some dead cat indeed. Also notice that every down leg in this current run up since March has been bought into and proceeded higher, albeit now with less volume in the last few sessions. I've said it before and I'll say it again, earnings season will be what pushes this market now.

 

[psychic]

Honestly do you think earnings will be any better, or future guidance. This is false hopes. Lets wait till the end of April and see what kinda results come out of the US. Will they match forecasts?

 

[psychic]

Dow down 41 points for the day and it's in free-fall? LOL

The Dow hit a low around 6,500 and now trading at 7,900, that's some dead cat indeed. Also notice that every down leg in this current run up since March has been bought into and proceeded higher, albeit now with less volume in the last few sessions. I've said it before and I'll say it again, earnings season will be what pushes this market now.

At one point last night the Dow was down 146 points, so it was in free-fall

 

[M34N]

At one point last night the Dow was down 146 points, so it was in free-fall

Was being the operative keyword there

In other words, the markets are so volatile that a loss can become a gain, and some would even consider today's price action bullish considering the news out today.

Also, I never said I expected the upcoming reporting season would be positive, I said it would be what drives the markets next, whether it's positive or negative who knows, the markets have already fallen some 50% from their peaks and have factored in a recession, just how big of a recession no-one knows, and these results will provide a forecast of how things will be in the immediate and longer-term future.

 

[MrBurns]

I think a lot of this action is because there's nowhere else for the money to go, whats the interest rate in the US ?

It's bad enough here so I imagine everyone over there with cash is desperate to get a return.

 

[Gordon Gekko]

Analysts have been expecting better results for US financials for the past year. Everytime they have been disapointed and the market has gone down. Is it possible that this time they may actually have lowered there expectations to allow for slightly better than expected results?
That with the changes in the accounting standards in the US should see "green shoots of hope" or some rubbish along those lines.

I would also expect better results of commodity companies considering oil has done well in the last quarter. If not better results than at least flat which is good no?

If we could move sideways from here for the next 2 weeks I would be very happy!

G

 

[wonderrman]

If we could move sideways from here for the next 2 weeks I would be very happy!

A sideways movement from a technical level would be a very bullish signal here suggesting the market is getting ready to push up again. I will be buying the large caps if this starts to happen on the screen. wonder.

 

[M34N]

A sideways movement from a technical level would be a very bullish signal here suggesting the market is getting ready to push up again. I will be buying the large caps if this starts to happen on the screen. wonder.

Yep, looking for the same. I still think any positive news out there, regardless of how small, will be taken by the bulls and take the markets higher, and we are seeing this now. I'm personally just following the herds and will jump on this rally, it has been a substantial rebound already and I will look to benefit from it as much as possible.

But in the longer time frame, I'm still not in the market for that, only trading and holding at most for a few days. Not confident this is the end of the bear and it will, IMO, most likely return. Either way I would like to see a pull back first before the market goes a bit higher from here, things just don't 'feel' that cheap considering we are in a recession. Again, just my

 

[Beej]

has anyone else noticed that on Thursday last week the XAO closed above the 60, 90 and 120 day simple moving averages? This was the first time the XAO has done that since May 2008. We would have to drop back below 3553 to fall back below the 120 day SMA (a ~150 point fall from yesterdays close), and below ~3400 to be back below to 60 day SMA (a 300 point fall). The XAO has been below all 3 SMAs the entire time since a brief peek above the 60 day in Sep 08 (See chart here: http://finance.yahoo.com/echarts?s=...=on;ohlcvalues=0;logscale=on;source=undefined

That seems a fairly bullish indicator? I guess it will be as others have said if the market can move sideways for a while and stay above those SMA levels for a couple of weeks?

I think it is pretty clear that this rally was/is more than just a dead cat bounce, as surely a dead cat bounce should have reversed and revealed itself after a few days to a week? Comes down to semantics/definitions I suppose. However, only time will tell if it proves to be a bear market rally vs the bottom of the current bear.

Cheers,

Beej

 

[sammy84]

I think it is pretty clear that this rally was/is more than just a dead cat bounce, as surely a dead cat bounce should have reversed and revealed itself after a few days to a week? Comes down to semantics/definitions I suppose. However, only time will tell if it proves to be a bear market rally vs the bottom of the current bear.

Very well said

 

[nunthewiser]

um .... sucka rallys been known to take months at times to play out

might pay beej to bring up a chart actually . FIRST dead cat ran from aprox mid/late march08 to mid late may 08

not gunna type up every timespan on every sucka bounce over the years but do suggest looking at achart first

 

[sammy84]

Nun looks like we have different definitions of what comprises a dead cat bounce. For me this turned into a bear a market rally or recovery the second the XJO surpassed the 3520 mark. From my analysis this was where a technical correction should have ended.

Sammy

 

[Beej]

um .... sucka rallys been known to take months at times to play out

might pay beej to bring up a chart actually . FIRST dead cat ran from aprox mid/late march08 to mid late may 08

not gunna type up every timespan on every sucka bounce over the years but do suggest looking at achart first

gee thanks for the pointers about charts Nun! I've never looked at those before..... might have helped with my day trading in a previous life if I had!

If you look at the chart I posted a link to, it has your Mar-May 08 suckers rally on it. Certainly this one could still pan out as you seem to be expecting, but equally it may not. That's why I think side-ways for a couple of weeks will be needed to differentiate this rally from that other one (which is the only other time all 3 SMA have been crossed since the start of the big bad bear).

Cheers,

Beej

 

[nunthewiser]

Nun looks like we have different definitions of what comprises a dead cat bounce. For me this turned into a bear a market rally or recovery the second the XJO surpassed the 3520 mark. From my analysis this was where a technical correction should have ended.

Sammy

each to there own m8 . heard many a bottom called . even in mar 08

i personally think we havent seen the overall lows as yet , but hey i dont really care either , trade it dont fall in love with it ......

each to there own and good luck if ppl want to make this there bottom that they been searching for and investing accordingly

 

[nunthewiser]

I think it is pretty clear that this rally was/is more than just a dead cat bounce, as surely a dead cat bounce should have reversed and revealed itself after a few days to a week?
Cheers,

Beej

thats what you posted , i pointed out that dead cats can last a LOT longer than a week

please do not take offense and me pointing out that you should look at a chart first

 

[sinner]

I have been adding shorts to the "Australia 200 Cash" instrument on IG at anything above 3730 for the last 16 odd hours and the resulting breakdown of the diagonal red line has provided a nice profit.

Even a healthy recovery requires the occasional pull-back or consolidation. If we break down from the 3700 region I will hold until the 800ma (orange dots) on the 15m chart and re-examine position there, or exit here if there is any hint of a bounce after 4pm.

 

[sinner]

It's also worth noting, we have not had any meaningful retrace from the lows of October, November or March.

I think we could probably hope for a retrace to at least 23% fib level of the all time highs to March lows. If we can't make this level then we should be verrrrry worried!

 

[sinner]

Well, that spike took out all my trailing stops. Who knows what will happen now, I'm waiting for 6pm so I can start on GBP/USD

Can anyone confirm that spike actually occured and not just IG playing silly buggers? Open 3710 close 3730.

 

[psychic]

Its a dead cat bounce, check this out

http://business.timesonline.co.uk/t...ectors/banking_and_finance/article6047929.ece

Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.

Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF's new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.

Paul Ashworth, senior US economist at Capital Economics, said: “The first losses were asset writedowns based on sub-prime mortgages and associated instruments. But now, banks are selling ‘plain vanilla' losses from mortgages, commercial loans and credit cards. For this reason, the housing market will play a crucial part in how big the bad debt toll is over the next year or two.”

In its January report, the IMF said: “Degradation is also occurring in the loan books of banks, reflecting the weakening outlook for the economy. Going forward, banks will need even more capital as expected losses continue to mount.” At the same time, there is a clear shift in congressional attitudes in the United States about simply pumping money into the system, Mr Ashworth said. The British Government is also under pressure to repair its tattered finances. Injecting more money into the banks could further undermine its fiscal position.

The IMF's jump will come as little surprise to economists who have suggested that the bad debts will be much higher than anticipated. Nouriel Roubini, chairman of RGE Monitor, expects bad debts from US-originated assets to reach $3.6 billion by the middle of next year. This figure is expected to rise when bad debts from assets elsewhere are calculated, he said.

 

[wonderrman]

thats what you posted , i pointed out that dead cats can last a LOT longer than a week

Yes this is very true. Retracement levels are common and this bounce could push up by 38%, 50% or 62%. The reaction at the level of resistence of ~3800 as I said previously is going to determine how high this retracement will go. A slow zig zag drop down will be a bullish signal that this bounce has more to go.

It doesn't mean it is not apart of a more longer term down trend that I believe we are in. I simply do not know how this market can turn around and form a new bull market when there is still so much more bad news economically to come. We must not forget that during the great depression markets rallied some 50% in 1930 before dropping another 90% in 1932. History is your friend.

Remeber though that the stock market is not the economy and does not provide a reliable forecasting tool of what is to come economically. We are headed into a debt tsunami that is really unheard of in history. The charts show it and the facts show it. The global economy is in trouble either way (through inflation or bankruptcies, this is the only way out of this mess, unless we just prolong the debt dubble and we will face the same problems again in say 5 yrs time). Economically we are really quite stuffed.

Having said that, the market is obviously still tradable. The economy is not the stock market. You must take advantage of oversold rallies like this one before the next downtrend. Buy and hold is going to be hard over the next few years, trading I think is more favourable. wonder.