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That Bull/Bear Thing

As we approach the end of a tumultuous quarter, it's time to do the bull-bear thing.

First, a quick stat: Laszlo Birinyi noted this morning that the S&P 500's gain of more than 20 percent in a few days in March was the quickest 20% gains since 1938!

Bull/bear:

1) roughly 80 percent of traders believe that the March gains are a bear market rally, and we will again test the lows.

Exactly when is disputed: some believe it will come quickly, in April and May, but about half think that we will move sideways through the summer, with small rallies and selloffs, until we ultimately drop down in the late summer for the "final bottom." This last one, coming so late, will be the ultimate heartbreaker.

2) While 80 percent bearish sounds bad, this is better than a month ago, when almost 100 percent of traders thought we had not seen the bottom.

3) Among the 20 percent who think we have seen the bottom, a large percentage (more than half) believe that the most likely course for stocks is consolidation (read: sideways with a few rallies and selloffs) through the summer, before the market ultimately starts an upswing later in the year.

4) A small group (less than 10 percent) are outright bullish. This group believes that all the conditions are in place for a rally in stocks globally.

They point to the following:

a) massive stimulus programs in the U.S. and China, with a likely large stimulus program coming from Japan;

b) signs of a bottoming in some U.S. economic stats, particularly housing;

c) dramatic inventory adjustments in autos, electronics, metals.

d) an improvement in commodity prices and commodity stocks.

As for today’s action, there are a lot of trader cross-currents: principle point is we are approaching the end of the quarter, with big gains for the month. A few traders went long in the early part of March, and are looking a lot better than others who stayed on the sidelines. This catch up and outright short covering is a big part of the last segment of gains.

The strategy now is lighten up into the end of the quarter. Bears believe that the earnings commentary will be ugly and conservative when they begin in mid-April; bulls agree the commentary will be grim but are betting that stocks will not drop on the news.

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