Rallies have been hard to come by in the stock market during the first weeks of 2009, but the Dow is finally showing a few flickers of life. So far, most traders aren't really asking if the bottom is in. They expect the market to eventually retest its recent lows. Instead the debate focuses around just how big the current rebound will be.
Until the retest, this is merely a bounce in a bear market. But there are some encouraging signs, at least in the short term. First and foremost is the lack of bad news. Fourth quarter corporate earnings season is over, and the next monthly employment report isn't due for more than two weeks. Headline news this week also is looking a little better, with housing starts and new construction permits strong in February and producer price inflation subdued.
A move above 7500 on the Dow would set the stage for a longer rally that could take commodities along for the ride. While inflation remains a long-term concern, traders believe an improving economy would mean more buying of food and raw materials. Easing of financial tensions also causes profit taking in safe havens like the dollar, which tends to encourage buying of commodities.
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