With Tuesday's sharp rebound in the stock market and Wednesday shaping up to deliver more big gains, you might be tempted to think that this is the start of a meaningful rally from bear market lows. Here are a couple quick points to dissuade you from such optimism.
David Rosenberg, chief economist and strategist at Gluskin Sheff, points out that the recent ISM readings on U.S. manufacturing and non-manufacturing activity for September, while still clinging to expansion territory, look awfully familiar. The ISM non-manufacturing reading slipped to 53 in September, exactly where it was in November, 2007.
The manufacturing index was 51.6 in September – also where it was in November, 2007. Call it a coincidence if you like, but Mr. Rosenberg noted that the recession began a month later, and the stock market went into a bear market tizzy.
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Meanwhile, Mary Ann Bartels, head of U.S. technical analysis at Bank of America, argued that Tuesday's late-afternoon stock market bounce was an attempt to form a market bottom, but probably wasn't. Volume was too light, for one thing. As well, market bottoms take time to build – as in, months. She explains:
"This process can involve additional tests and/or undercuts of the 1100 and 1075 area lows. In the late October, 2008, to early March, 2009, the basing process from the climactic low in October for the S&P 500 undercut the prior lows by 10 per cent to 12 per cent, which suggests that a probe into the 985-910 is not ruled out. The 1020 area also remains a key support level. Resistance within a basing process for the S&P 500 is the 1150 to 1230 zone."