That was quick! Yesterday, we had a 275 point rally in the Dow. This was spurred by some good news from Wells Fargo and may have been fueled by some short covering. There are some new requirements that limit "naked shorting" of stocks and this could be a contributing factor.  

Whenever we have a rally after such a big sell off, investors get the feeling that they are missing out on an opportunity so the whole thing starts to feed on itself. In short we could look for a couple of hundred points more over the next day or so and then most likely hit some resistance in the 11,750 to 12,000 range. At that point, investors will re evaluate where they stand and more than likely take some profits. That's my guess. If profit taking starts earlier and we move to new lows - That is not good. I will then be more convinced that we are headed down to 10,000 on the Dow.

Energy stocks have sold off across the board as oil prices declined. There is a lot of hot money in the oil sector and this money will move out very quickly. I am not convinced however that over the next few years that oil companies are going to suffer much. We still need production even if there is a softening of demand from consumers - which there is. Driving is somewhat optional - staying warm this winter will not be.  Meanwhile the beaten down financials via an index fund are probably a bargain. The financials have to survive for the economy to move forward. In short, the rally is refreshing but way too early to mean anything.  

Actually, most of Wednesdays point gain came at the open of the market. It was a carry over from Tuesday afternoon, then things settled from Wednesday afternoon into Thursday.

I think a good bit of the 350 point run up was from short sellers covering their positions. Keep in mind that a short seller, sells stock hoping to buy it back later at a lower price. If prices continue to go up forever, their losses are infinite. Since, over the long term the market tends to go up, they have to buy when they see a big reversal.

The rate cut was everything Wall Street asked for.  It could not have been better. Time will tell if it is the kind of medicine this market needs. Oil prices are breaking $80.00 per barrel, commodity prices are very high and the dollar is dropping in value. All of these things have inflationary implications and all the rate cuts in the world will not stop oil from going up. It might even help them go higher. So, I am feeling better now than I was three weeks ago, but caution is still in order. We may be finding our way out of the woods only to be baked by the sun.