It was just a short-covering rally?…..That is what the skeptics ask whenever the stock market rallies on one day during an extended correction or bear market. The problem is that pretty much all rallies that take place during a correction/bear market START with short covering rallies. The ones that fail quickly…the ones that last several weeks…AND the one that signals the end of the entire decline all start with short-covering. Therefore, it is impossible to know which one of those three it is until at least some time has passed. In other words, trying to decipher which one the bounce that began late Thursday is impossible at this point in time.
Of course, that won’t keep us from trying to guess which one it is…but we readily admit that we won’t know for at least a few days…..We believe that it is likely the middle of the three choices just highlighted. We think it’s probably the beginning of a short-term rally. The reason we think this is that will last for more than 1 or 2 days is that it is quite evident to us that we have seen a serious bout of “forced selling” (that took place last week that derived from the crypto market). Markets tend to see bounces that last for while after a case of “forced selling” subsides, so we think we could/should see some upside follow-through this week.
However, not everything points to a further rally. For one thing, Friday’s rally came on much lower volume that we saw when the market was falling last week. Also, we got some very negative economic news out of China last night…which lowered the outlook for global growth. (Industrial production was -2.9% vs the consensus estimate of +0.5%...Retail sales were -11.1% vs. a -6.6% estimate…and the unemployment rate ...
