Wall Street's almost 400 point gain overnight and Nasdaq's rally by 88 points has reversed the sharp losses of the previous week with the Dow and Nasdaq closing yesterday at 8443 and 1472 respectively. This rally was spurred by the rescue of Citigroup which Asian markets had ignored yesterday afternoon and according to some to confidence in President elect Obama's new economic and financial team. This is another sentiment rally or a bear rally and our eight or ninth since the financial crisis started. Remember the rallies when Fannie/Freddie and AIG were rescued and the US$750bn mother of all rescue packages rally - none of them held onto their gains. Let me try and put this "rally" or 'bear trap" in some context. First the Dow and Nasdaq had a terrible week last week until Thursday Nov 20,2008 - where the Dow had shed 11.1% or 945 points to fall below the 8000 point level to 7552. An impending collapse of Citigroup and continued weak US economic data accounted for the weakness which was also on low volume. So this rebound over the last two days brings us back to where we were before last week. Even last night's rally saw about 20-30% of the intra-day gains being wiped out in the last hour - signalling possible short covering or a higher than normal level of trading activity (see Intra-day chart below of the Dow). Read more...