As discussed in US earnings - rallies markets into widening volatility, the perpetual bull run ran out of steam in January 2010. The arguments for a sustained bull run in stocks run from two perspectives 1. It was direct stimulus from governments that encouraged consumers to spend hence increasing confidence in the short /mid term (Housing positives) 2. Liquidity and volume; not to so much the average self funded trading but institutional trades that were funded by underwriting losses; the Federal Reserve was responsible for this, as was the Treasury/US government (TARP funds). To estimate how much money went into stocks to drive them up into 2009/10 highs (dow 2009/10 high @ 11205, S&P 500 2009/10 high @1219) would be on balance to the profits that were made (banks) - the main mover of stock rallies in 2009/2010. But, investment banks, retail banks, brokerage firms don't make money on trading alone. The 'other' way is to increase profit is with leverage trading especially with risk assets like housing, commercial property derivatives, M&A's; the other factor is at some-point banks have to start to consolidate toxic assets that they hold off balance sheets from 2009 onward. So in simple terms, we get moves in stocks from institutional buyers on large volume buys, retail/self funded traders then buy on confidence via government stimulus and rhetoric please refer top a 2009 blog post title How are the markets trading? Liquidity inflows? Green Shoots? Or market hysteria? which centers around the 'Obama bounce' rally in 2009.
The 2009 bull run in stocks was based on profitability of the banking sector, this may not occur in 2010; therefor stock rallies will not adjust to 2009/10 highs. To what extend the Federal Reserve will instigate more quantitative easing is disputable how much (this time) will flow into bank profits. This will effect investor sentiment in a negative manner.
In 2010 we have less liquidity in the market (check your volume indicators) and a lot of volatility. Smaller funded traders or 'dumb' money is still lingering in the market, and buying on the back of smart money selling on rallies; this is 'marked up' distribution. The earnings season for the US has been relatively disappointing with Bank of America, Citigroup, General Electric all reporting less then expected profits for the quarter. A seasoned analyst may look at why earnings have risen (banks) but net profits have declined, which could indicate that there is still asset deprecation on balance sheets sucking up profits.
All and all, it indicates that the rallies of 2009/10 have certainly come to end, are we currently sliding into a bear market? Not yet, what we have now is large swing volatility which is more of a bull trap for light volume 'dumb' trading; but the problem is anyone hedging with gold/some commodities to off set stock volatility will get the commodity price swings (on the downside) which is the China slowing down 'syndrome'. What is left is some fixed income trading of high yield assets, but that is just swing trading from high/lows and scalping profits.
Until we get a clear sign that the market is going to roll over into a large sell off; short selling will be a brave endeavor. Governments/central banks (if you want to talk about intervention etc) are holding off the short sellers on the EUR and this was done extremely well. The shorting will probably take place, as discussed in the post: China is about to crash: GDP q2 at 10.3% and falling of the commodity producing countries and their currencies. Should be some nice clear sells in the coming mouths.
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