Since the onset of the credit crisis last Summer, the S&P 500 has now had four rallies of more than 5% (using closing prices), which are highlighted in the chart below. Many investors believe that the market has a different and more positive feel during the current rally, and when we compare it to the prior two rallies, they have a point. Prior to this run, the S&P had two rallies that lasted two weeks or less. With the current rally continuing on for more than thirty trading days, things should feel different.
However, before we all call an official end to the market's declines, we would note that from last August through October, the S&P 500 rallied by more than 11% over a 38-day period. The current rally, on the other hand, has shown a gain of 9.77% over a 33-day period. Until this rally shows that it has more staying power (in time and/or magnitude) than any of the prior head-fakes, investors should continue to keep a cautious stance, and keep tight stops on their short-term positions. With a flood of economic and earnings reports, an overbought market, as well as a Fed meeting which could set the stage for a pause in rates, the reaction to this week's news will tell a lot about the market's health.