I hate how no one here on this board ever demonstrates market perspective in either direction. [View All]

[Zynx]

Even if you combine the last two days of rallies on the back of much better than expected bank earnings, the market in general and the bank stocks in particular are still down mammoth amounts from their all time highs. As for JP Morgan rallying on a decline in earnings or PNC or Wells Fargo(the latter two I have positions totalling about $6000 in) doing the same, much has to do with the fact the stocks have declined so much that if the earnings are not down as much as people expect, the stocks will rally to reflect that.

Let me use the example of a $100 stock with $10 in earnings. If the market suddenly expects the stock to earn $5 a share, the stock could quite reasonably fall to $50. However, if the company reports earnings of $6.50 a share instead, the stock could quite reasonably rally to $65 using the same PE ratio, even though it still reported a 35% decline in earnings.

The fact is that the market is not acting like all is better. Even in bear markets huge rallies can take place. They did in the 1930s, the 1970s, the early 1980s, and many many times during the continuous decline from March 2000 to October 2002. Hell, we had greater than 15% rallies in the midst of the 2000-2002 bear market which was the 2nd worst in the history of the country.

The same problem bothers me in more normal times on this board where with a 200 point decline the world is ending and with a 200 point rally the market is performing some act of conspiracy to screw over somebody or other.

The rally that we have seen in the last couple days has been led by the financials with the realization that the vast bulk of the banks will survive. Indeed, probably every major bank will survive with the possible exception of National City. The lessening of the risk of failure in many of these stocks has chased a lot of the shorts out and thus they have moved higher.