Bounce of a Dead Cat

Both the Dow Jones Industrial Average and the S&P 500 have given back more than two-thirds of their opening rally by 11:30 a.m.

David James of James Investment Research says the fear gripping the U.S. stock market make conditions good for a rally, but he adds, “Unfortunately, the expected rally is unlikely to be the start of a new bull market.” In addition to concerns about the sustainability of economic growth, valuations are still to high. “Looking at the CAPE (Cyclically Adjusted Price to Earnings) ratio, we find most bull markets begin when one has to pay $10 or less in stock price to get $1 of corporate earnings. Today? One must pay over $20; too expensive.”

Graham Summers of Phoenix Capital Research says,”In plain terms, the market’s are in full-scale Crisis mode. While stocks have bounce hard temporarily the rest of the financial system is in a complete and utter panic.”

Even as the markets rise, so does gold. The SPDR Gold Trust (GLD) was up 2% to $184.

It’s a dead cat bounce, kids. And a good time to put in some shorts if you couldn’t last week.

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