What's Really Bad News For The Rally?

Bullishness rises, and that's bad news for the rally.

I've been away in New Orleans for a few days, and my email are stuffed with more optimistic commentary from traders-about Bernanke's testimony, about better economic news.

The message seems to be that recovery is coming sooner than expected.

If true, that is good news, but rising bullishness is usually bad news for rallies, particularly a rally with as much "oomph" as this one: the S&P 500 is up 34 percent off its March 9th bottom.

The best thing the rally had going for it was the high level of bearishness: most professional traders remained convinced that there was another leg down this summer.

But that has been changing since last week, and yesterday's late-day meltup is causing more traders to throw in the towel.

Mark Hulbert, who tracks the advice of financial newsletter writers, noted that "the quick rise in sentiment since March 9 is far more consistent with what has happened during prior bear-market rallies."

Ground zero for the Frustration of the Bears has been bank stocks: there's been no selloff on the stress test worries. The scenario was simple: rumors that a large number of banks would require additional capital (at least $30 billion, by some estimates) would spark a selloff in bank stocks and a wider selloff in the markets.

It hasn't happened-at least not yet. In fact, the Bank Index (BKX) is near its highest level since January. This is a disaster for shorts, because bank stocks have been among the most shorted of all names.

Elsewhere: TALF finally gets some action. Today, CNH(the agricultural and equipment arm of Fiat) launched $1 billion in a TALF-eligible asset-backed securities (ABS), up from $780 million. Our parent General Electricalso which issued $1 billion in TALF-eligible ABS, as does Harley Davidson, which has a $500 million deal. And just a few moments ago Dow Jones said Sallie Mae had sold a $2.59 billion TALF eligible deal.

Two others also increased the size of the offering: Honda launched a $1.5 billion bond (up from $1.25 billion) backed by auto loans, as did Volkswagen, which issued 1.75 billion, up from $1 billion.

On Monday, JP Morganalso did a $5 billion TALF-eligible deal backed by credit cards.


The Term Asset-Backed Securities Loan Facility (TALF), which was created in November, was designed to lend money to buyers of asset-backed securities collateralized by auto, credit card, and student loans.

It's seen very little action--until now, and this is another "green shoot" being cited by bulls.



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