Treat, or Trick?

Are the last several days of gains the beginning of a new bull market or is it just a breather in the current bear cycle? In other words, is this a treat or a trick?

The fundamental arguments concerning the extent of the credit crisis (perhaps for another year or more?*) and the strengthening of the greenback point to a protracted bear market. Sure, stocks may not have much farther to fall, but they probably won't be breaking out of the gate anytime soon, either. Technically, the VIX is still high but if it fails again on Monday, I strongly urge you to either protect or dump your short positions. I don't mean to frighten you, and although it's a bit too soon to tell, the market could be staging a temporary comeback.

Even if the market firms up, it's still not a green light. First, we have to get through a presidential election followed by the meeting of the G20 on November 15th. (FYI, the G20 is an annual meeting of serious financial suits from 20 advanced and emerging market countries. This year Brazil is providing the tea and scones. The major topic will undoubtedly be the global credit crisis and the rising dollar. I'm sure the talks will be accompanied by a lot of finger-pointing directed principally towards the US along with a chorus of me-need-da-money rap tunes.) Many market pundits don't know what to expect from this summit and I certainly don't. Since nobody knows anything, adopting a wait-and-see stance couldn't hurt.

The past few days of positive price movement might have been nothing more than end of the month window dressing and portfolio rebalancing. I can't tell. Next week, we could be in for another wild ride due to the elections. (Unless the Obama win is already priced into the market.) I apologize that I can't offer anything more concrete; I don't think anyone out there can either at this point.

So, protect your short positions and be judicious in taking on any long ones--just don't be left holding the bag. Unless it's filled with candy.

Happy Halloween from all of us at the Stock Market Cook Book!



*For an excellent article on the future of this recession, see Jim Jubak's column today on MSN MoneyCentral: What's scary about this recession?