Nothing to do with Kry but a prediction for the rise SP in general.

oiramoric

As the bears enjoy a feast, bulls pin hopes on year’s end
Web posted at: 11/30/2008 6:2:23
Source ::: FINANCIAL TIMES

By Anuj Gangahar and

Michael Mackenzie

in New York

Equity market bears are feasting on turkey this Thanksgiving, leaving the bulls hoping there is room at the table before Christmas. A powerful year-end rally in stocks is not out of the question. Bear market rallies are often explosive and can produce gains in the region of 50 percent.

Understandably, pessimism hangs heavy in the air on Wall Street about the sustainability of a rally. Since it peaked in October 2007, the market has been battered by the worst financial crisis in more than 80 years.

“We should know in the next couple of weeks if stocks can hold and give us a substantial rally,” said William Strazzullo, chief market strategist at BellCurve Trading. “The end of the year could be wild and I have a hard time thinking the equity market will just sit here.”

A raft of largely disappointing economic data this week produced no more than a blip of negative sentiment as the S&P 500 notched up its fourth winning day in a row on Wednesday, equalling its best run since late May.

Equities also shrugged off a troubling message from the US government bond market. Plunging yields, with the 10-year Treasury note below 3 percent for the first time since 1958, indicate that the economy and corporate earnings face a long, hard road. These could well determine the extent of further rallies in equities.

“We are starting to see Japan-style rates in the long end of the US bond market and that means the risk of deflation and a long period of weak economic growth,” said Strazzullo. “The bond market is clearly sending a negative message for stocks.”

Opinion also differs as to what would constitute a significant rally given that the S&P has fallen 42 percent overthe past year. The recent rally in stocks has sent the index up 16 percent from recent lows. History provides some useful benchmarks. “After the horrible 1973-74 bear market, equities traded up, though unevenly, until 1982 with six specific bull runs that generated an average 32 percent gain,” said Tobias Levkovich, head of US equity strategy at Citigroup. But he added that a buy- and-hold strategy over that time period only yielded 9 percent compound annual gains, which merely kept pace with inflation. “Accordingly, the idea of meaningful trading rallies may be the great lesson of equities following massive market corrections, similar to the one just suffered by investors and the one experienced in the 2000-2002 period.”

“In this context, understanding nearer-term sentiment trends, earnings implications, credit conditions and excessive valuation dislocation may prove to be important factors for investors looking to benefit from more active trading,” said Levkovich.

The options markets also suggest that the worst may not yet be over, particularly with respect to some of the most embattled stocks such as Citigroup.

Over recent sessions, option implied volatility on the Financial Select Sector SPDR Exchange Traded Fund has dwindled from 130 percent to 102 percent.

This is due in part to planned fiscal stimulus schemes by the next Congress and President-elect Barack Obama and the apparent resolution to the Citigroup situation, according to Andrew Wilkinson, of Interactive Brokers.“Investors have become accustomed to so many false dawns in this protracted economic slump that it has us on the prowl for contrarian trading patterns when good news is delivered,” he said. “Our observation is that investors seem to feel somewhat comforted by the strides taken in underwriting assets but don’t necessarily take this to mean that the bank’s shares are off tothe races,” added Wilkinson.

Analysts have been predicting a bargain buying spree for some weeks now, pointing to how cheap valuations are.