Liquidity rallies still persistent - Dow

The term liquidity rally refers to the low (0-25%) interest rates in the US; with the Federal Reserve transfixed on over stimulating money markets will excess liquidity. So as some commentators have remarked on, excess liquidity + low to zero rates on cash means speculation comes to the forte within the stock market. Which proved correct in 2009 when November 2008 lows on the S&P 500 and March 2009 lows on the Dow reversed with the goverment stimulus, and the Federal Reserve/central banks low rate policy. Wall Street was know longer in recession.

At this point in 2010 the fundamentals on a global economic scale haven't improved all that much. As new economic problems have arisen, namely the massive debt loads accumulated by EU countries (PIIGS), credit problems (in relation to commercial/property loans) in China and a looming trade war with the US, in the background also lies inflationary conditions on food and oil.

So if we look at the Dow in February 2010 the index fell 9904 points (8th Feb 2010) and in the next 33 trading days (to the 22nd March 2010) the index has only be able to add 881 points, or an average on 26.69 points a day from the 8th Feb 2010 low.

The Dow was trading in a tight trading range, refer to graph, which it broke through on the downside on the 20th June 2010. The trading range was consistent with the inflows on capital (volume). Presently the Dow appears legless and rangy with persistent liquidity rallies, a major downside move looks eminent. I have heard traders say that a 10% increase in stock moves is possible as the indices have 'momentum', I think this is incorrect instead I would say 10% to 20% move on the downside is more likely. The recent rangy markets particularly with the Dow indicate a lot of investors have a degree of uncertainty and concern with fiscal and monetarily policy. The liquidity rallies of 2009 may be but all petering out.