Although oil prices and Treasury yields have been falling in anticipation of a widely advertised economic slowdown in Europe and China, U.S. stocks are rising as though boom times lie ahead. What is going on?? It would appear that bulls simply cannot control themselves when there is talk of Fed easing. The prospect of QE3 has been in the news lately, driving a short-covering rally that has pushed the Dow Industrials up by more than 700 points in the last two days. The move lost a little power on Wednesday, but it is unlikely to fade much more with the weekend approaching. If DaBoyz can sustain altitude on Thursday, odds are good they will be able to break a six-week losing streak in the broad averages.
Sure, the rally stinks to high heaven and begs to be shorted. However, we need to keep reminding ourselves that its very purpose is to chasten bears who think that merely being right is an easy ticket to profits. Indeed, the more skeptical we grow of the rally, the more steeply it will rise. Can it possibly reach a purely technical S&P 500 target at 3095 given here earlier that lies nearly 10% above current levels? I remain skeptical, but that doesn’t mean I am willing to fight buyers every inch of the way. For now, we hold no position, having cashed out a profitable ‘counterintuitive’ long in the E-Mini S&Ps entered on Tuesday.