Miracle on Wall Street
10/05/2011 10:09 am EST
Tuesday’s violent rally doesn’t negate the market action of the last two months. But it did open a narrow window of opportunity for stocks, writes MoneyShow.com senior editor Igor Greenwald.
It would be wrong to underestimate the turnaround on Wall Street late Tuesday.
At the stock market’s lows earlier in the day, the S&P 500 was down 120 points, or 10% from its week-ago highs, in bear-market territory. It had failed to hold three straight morning rallies, and followed that with three straight high-volume swoons, the latest taking it right through the floor of the recent range and coughing up the last of the gains from the past two years.
The Wall Street Journal was reporting panic on the surviving trading floors, and that was before Federal Reserve Chairman Ben Bernanke testified the economy is “close to faltering.” The market managed a half-hearted rally try after Bernanke said the Fed would do more if the need arose, then squandered even that, slinking back down toward the morning lows 42 minutes before the close.
And then the fear that has savaged stocks for months reached some unseen threshold, vague talk of European bank rescues panicked the shorts for a change, and the selling gave way to a short-covering stampede. A virtually certain 2% daily loss transformed into a gain of more than 2% faster than anyone could say “near-term bottom.”
Maybe this is it. Maybe the short-squeeze will run another 5%, or perhaps Friday’s jobs report will give the bulls some overdue fodder. But a little hope can be a very dangerous thing in these unhinged times. It was the absence of any such thing that set up Tuesday’s late-day miracle.
Now traders will be wondering exactly what it will take for the Fed to do more, and for European policymakers to translate generalized expressions of renewed urgency (which cost little) into specific confidence-building measures (immensely expensive in both financial and political terms.) Now the stock market has to build on its comeback...and quickly, before the bears return.
The best thing that can be said for Tuesday is that it bought the market a little time, a few days at most. Set against the waterfall declines of the last two months, this is so far just a blip.
Odds are, that’s all it is. But even a small hope that the market’s turned is more than anyone could reasonably claim a day ago. Right now, it’s the one trump the bulls hold in an otherwise rotten hand. They’ll need to find some more, and quickly.