By: Larry MacDonald

Markets rallied vigorously on Thursday, Nov. 13, for no other reason than they were testing their lows of Oct. 10. There is a belief among many traders and technical analysts that bear market bottoms retest their lows before beginning a sustained rally, and this belief was what largely caused the major indexes in North America to rebound about 10% from their intraday low just after lunch – even as U.S. jobless claims came in higher than expected and Wal Mart downgraded its outlook earlier in the day. 

Will the upturn hold? There is, no doubt, still a lot of bad news in the pipeline. It could arrive as soon as the morning after the “spectacular rally,” with the release of U.S. retail figures. But if a true bottom is in place, at least for the intermediate term as many technical analysts argue, the market will ignore bad tidings and continue to climb. The G-20 meeting on the weekend may also lend support early next week.

The pessimists point to still high interest-rate spreads in the debt markets. And Libor rates are still elevated, and, in fact, have recently reversed their steady decline that commenced mid-October. Credit conditions need to ease more, it is suggested. And Ground Zero, the U.S. housing market, still shows few signs of bottoming out: inventories of houses for sales remain high, as do defaults.