Market Update: 2008-10-13

All three major U.S. stock market indexes including the Dow Jones Industrials, S&P 500 and the Nasdaq Composite, were up more than 11% today! That is the good news.

The bad news is that just about all other “biggest one-day percentage gains” in history occurred in a bear market. Bull markets do not see such big, one day events. Rather, they see steady increases over the long haul.

As I said last week in my 10/08/2008 Market Update, Congratulations, President Obama, this market was oversold and due for a relief rally. Specifically I wrote, “I am not even convinced that our markets will get a bounce from this cut today [the Fed rate cut, that is, and stocks did not bounce that day as some expected they would]. The only thing going for the stock market right now is that it is a bit oversold, which means we could get a relief rally any time now.”

Well, it looks like we got the bulk of our relief in just one day! Today marks the beginning of a dead-cat bounce that should help us recoup around 50% of the recent losses. That means the S&P 500 could see an additional 10% or so in gains (to around 1100 or slightly higher) before we head back down to test the lows later this year or next.

If you don’t know what a dead-cat bounce is, just think about it. What happens when you drop a dead cat on the floor? It bounces! But in the end, once all the bouncing is over, the poor cat is still dead.

We will know more about how high and long this dead cat will bounce later. Until then, Happy Investing!

Gregory