Is The Rally Here?

The big news in the markets this week is the very strong rally, which was prompted by two key factors. The first is the expected Congressional approval of an $816 billion economic stimulus plan. Yes, that’s billion, with a "b".

The second factor driving stocks higher is today’s announcement by the Federal Reserve Open Market Committee that it would, "…employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability."

The markets liked the sound of that, because it means that the Fed is firmly on board with the government’s broader efforts to combat recession and to ameliorate the damage done by the financial crisis. I heard one "mad" market commentator say this was the biggest buy signal he’s heard in years.

Whether the Fed or other governmental attempts to cure an ailing economy will work are all legitimate points of some very heated debate, but there is certainly no debate that bull-starved equity buyers liked what they heard today.

I think that we are going to see a nice bounce in the markets here as a result of the new stimulus, the new focus by the Fed, and the new assurances by the federal government that the banking industry will not be allowed to fail.

The question for you, the investor, is how long is this bounce going to last.

I certainly think that today’s push higher could continue for a while, but I also think that we have to remember that this rally must be considered just another bear market rally until proven otherwise.

This is not to say you can’t make some good money in bear market rallies. In fact, just today I recommended that clients of my ETF Trader advisory service take two new positions designed to profit from this bear-market rally.

Now, if you are a regular reader of the Alert, you know that one of my big themes for 2009 is taking advantage of what will likely be a series of short-term bear market rallies. To reread all of my themes for 2009, click here .

One of my other big themes this year is that you need to have enough cash on hand so that you can take advantage of bear market rallies as they occur. If you don’t have some money at the ready to pounce on the inevitable bounces that take place during down markets, you aren’t going to be able to make much money this year.

If you’d like to find out more about my ETF Trader service, click here (insert ETF Trader offer link).