Rally Time?

There's been a lot of talk about an impending rally in the equity markets and yesterday we finally got our first taste of positive tape. It seems to me that this rally (if it is realized) will be more of a self-fulfilling prophecy than a fundamentally sound move higher. Over the past month we've experienced a dearth of even half-decent economic data, so the oversold level may have been breached. As in all bear markets, there will be rallies. We rallied after the Bear Stearn's "capitulation," we then rallied over 20% through the new year and it looks as though we're due for another rally in the near future. The only factor that these rallies have in common is the fact that they each succeeded in making new lows after the subsequent rallies. I wouldn't be surprised if we see another 20%+ rally, but be prepared for market participants to take advantage of a prime selling opportunity. Until there is sound fundamental improvement in the underlying economy, a significant rally will not be sustained (see leading economic indicators). Remember, with over $4 trillion on the sidelines, rallies are inevitable, but there will only be one bottom. Below is a rather depressing chart (no pun intended). I am not saying we're entering the next Great Depression, but this chart just goes to show how many false starts there can be before the engine finally gets going.