Wednesday, December 2, 2009

Equity's Steady Gains

The stock market has gained more than 20% since July with no "daily gain" materially over +2%. As we mentioned in a previous post, we have climbed a "wall of worry" -- and our indicators favor more gains in the near-term.

At some point, we should get a "capitulation" rally -- with the bears and shorts throwing in the towel. This could lead to a +3% day or more... We can't tell when this is coming -- but bad news has been "rolling off" the equities for a while. Overnight, there was some good news for banks/financials (Bank of America will pay off a chunk of TARP money) -- and the markets are calling slightly higher.

Currently, there is still a lot of bearishness out there -- making a good case for a contrarian bullish call. On the other hand, a capitulation rally will be a sign of a near-term top. The financial markets contain a lot of randomness -- but students of "technical market action" can put the probabilities on their side.

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