Suckers Rally

To those already have positions at lower price, hang on to the ride as long as you can. To those thinking of establishing a long position, I found an interesting article to share with all. The key points.

What are the reasons for sucker rallies?

Bearish sentiment is usually very high and even at extremes.


The high volatility VIX indicator at a major low is usually at extremes.


Economic numbers are showing signs of improvement, leading the pundits to declare that the worst is over.


Stock valuations are low. Value managers in particular tout the huge under-valuations seen in the market. Trouble is, stocks can become even more undervalued.


When a rally does get under way, many jump in from fear they will miss the move, thus fueling a further rally.

Why do sucker rallies come to an end?

Overconfidence creeps back into the market even as economic numbers may be beginning to slide.


Bullish sentiment rises.


The longer the rally goes on, the more are sucked back into the market as the smart money is selling. Sucker rallies are usually on low volume.


Rally ends suddenly as reality sets back in.

What kind of sucker rallies do we get?

Failed suckers - these are usually short-lived lasting a week to a most a week or two lifting the market less than 10 per cent from any low.


Mini-suckers - usually rallies of 10 to maybe 20 per cent from any low, lasting a few weeks to a month or so at best.


Big suckers - usually more than 20 per cent and could even rise as much as 50 per cent from any low. Big suckers can last a number of weeks but usually no more than a couple of months or so.


Really big suckers - can last for months and even years and gain 50 to 100+ per cent from the lows. It is usually during really big suckers that the pundits declare that the bear is dead and that we have entered a new great bull market that will go on for many years

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Click on this link if you are interested to read the whole article.
http://www.gold-eagle.com/gold_digest_08/chapman040909.html