Lows Retested, Big Rally Ensues

Today was the day of reckoning, as the Dow Jones Industrial Index dropped to the 8000 level by mid-afternoon, but then rebounded strongly on a combination of speculative fervor and short-covering. Other major indices participated in a broad-based rally that lifted all by 6-7%, one of the best one-day gains of all time.

As usual, there was no real warning or news to spark off the spectacular, three-hour rally into the close. There was only the indications that stocks were once again falling to, or below, the October 27 levels, which marked multi-year lows on the Dow, NASDAQ and the S&P.

With reasons known only to the geniuses on Wall Street who brought us such fundamentally stupid ideas as subprime loans, credit default swaps, and now, government bailouts, today's big move is probably as consequential as leaves falling from trees in November, considering the day was devoid of any news which could be labeled "good."

Instead, the morning got off to a horrible start when the Labor Dept. announced a sudden jump in initial unemployment claims to 516,000 and the federal government released fiscal first quarter budget figures which showed the government already $237 billion in the red.

Dow 8,835.25 +552.59; NASDAQ 1,596.70 +97.49; S&P 500 911.29 +58.99; NYSE Composite 5,715.79 +395.09

Also weighing on investors minds was Intel's dire forecast for the 4th quarter, predicting sales lower by $1 billion for the world's largest chip maker, which was released after the market closed on Wednesday.

Those data points and earnings forecasts set a dull tone for early trading, which is why the massive rally should be seen as nothing more than a technical bounce. Lows will almost surely be retested again, as the economic conditions in the US and around the world have deteriorated beyond the point of desperation. Going forward, it's difficult to see how stocks can gain much ground through the holiday season and into the end of the year.

On the other hand, stocks are quite cheap compared to where they were just a few months ago. Google dropped below 300 for the first time since 2005 on Wednesday, but was boosted back to 310 by the close on Thursday. Many stocks are now carrying dividend returns in excess of 5 and 6% due to low share prices. It's unlikely, in an environment of such historically low interest rates, that these relative bargains will persist.

Market internals reflected the headline numbers, at least in the advance-decline line, where gainers outpaced losers by a healthy margin, 4739-1718. New lows, however, continued to grow, to 1416, as compared to a mere 13 new highs.

Volume was spectacularly high, which normally would be a strong indicator on such a huge upside session, though the clouds of short-selling and covering lay all across this maligned market.

NYSE Volume 1,991,154,000 NASDAQ Volume 3,038,288,000

Commodity prices were mixed, but probably more a consistent indicator of where things are heading than equities. Crude oil gained $2.03, to $59.06, recovering some of the huge losses of the last two weeks, though the trade may amount to nothing more than a one-day aberration. Oil has come down quite a bit, from a high of $147 in July, to current levels, which seem to be more sustainable.

Gold declined by $13.30, to $705.00, while silver priced 68 cents lower, to $8.80. One could not blame anyone for dipping a toe in the precious metals market at this point, especially silver, which is down more than 50% from recent highs.

Friday is likely to be another bummer for economic news as retail sales figures for October are released at 8:30 am. At 10:00 am, business inventory data comes out, and there is every indication that goods are beginning to collect dust on shelves not only in retail, but in heavier, commercial goods, as well.