Thursday, December 18, 2008

Rally Likely Short Lived

We appear to have a little Santa Claus rally on our hands. Stocks move sharply higher on no news, and flat or slightly lower on bad news. This may seem like good news for investors, but I'd urge caution before throwing too much money back in the market. Here's why:

-Fund managers are trying to salvage what has been a horrendous year for most. With lighter trading volume because a lot of money has been pulled from the market, its easier to make stocks move higher with less trading right now. These guys would like to make their yearly numbers look a little better if they can.

-Obama's stimulus plans are driving up stocks that may not even benefit. There have been some pretty big figures thrown out there (I've heard as high as $850 billion), but there has been no real specific detail. We've heard "infrastructure" and thus anything related to that industry has been trading with some strength.

-Take a look at last year. We had a steady stock rally around this same time. And this was when there were very few perceived risks compared to now. Do I have to remind anyone what happened last January?

Is this trade-able right now? Yes. Traders are making some money right now. But there is too much negative on the economic side, and there is probably more coming, so I can't say I'm putting much money into the market yet.

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