I enjoyed this rally as much as everyone. Now let's see what we can expect in the nearest future.
Here's the chart of Dow Jones index, represented by DIAMONDS Trust, Series 1 ETF (DIA). Click on the chart to see bigger picture.
The only plus I see on this chart is that DIA is still above 13 days moving average. Other indicators are negative. DIA failed to break through Nov 20 low, break through downtrend and through 50 days moving average. Technicals are mostly bearish.
Sentiment remains extremely bearish. Almost nobody believes that this is more than bear market rally. I agree with majority here, but have to admit that such bearish sentiment is actually a contrarian indicator. Sentiment is bullish for the market.
Fundamentals don't matter much in current market. But they matter. Most fundamentals are related to the government actions. So far we have:
Strong statements from Fed and government that banks won't be nationalized and big banks won't be allowed to fail. Bullish.
Noise around AIG bonuses. Bearish.
Fed's decision to buy a lot of corporate debt and monetize government debt. Hard to estimate. It should be regarded as bullish, because Fed is injecting money into the system. But a week ago Bernanke said that Great Depression scenario is off the table, and government debt monetization is exactly what Fed did during Great Depression. Until I see FOMC meeting notes, let's call it neutral.
Technicals are bearish, sentiment is bullish, fundamentals look like neutral so far. It's a tough call. I'd say that technicals are most important in this market, so bearish case wins with a small score. Unless rally continues and breaks through Nov 20 lows, Dow remains in 6500-7500 range, with prevailing trend down.
We have two calls for global bottom in this market. Mark Haines from CNBC thinks that S&P 500 at 666 looks like a beautiful bottom. Doug Kass thinks that decisive government actions made March 9 low a bottom. I'm not sure. I'd love to see Mark and Doug right, but I still think that market bottom will be after we see "Great Depression II" headline on the front page of national newspaper or at least magazine. Or after signs outlined here. Of course I can be wrong, market can humble anybody.
Full disclosure: at the time of publication author didn't have any positions in DIA. Positions can change any time.