[Todd Sullivan writes] Looking at the data from the 1929-1934 market, there were plenty of times during that market it rallied for prolonged periods but one thing remained the same, the underlying fundamentals of the economy were lousy, just like they are today. The FDR government underwent a massive spending plan designed to "boost growth", just like today (it did not work, just like today). Markets will rise on the hope "things will be better soon" as folks want to be in on the bottom. As it rises others come rushing in, not wanting to be late for the party, and the market bursts higher.
Then, things do not get better and a market that looked cheap just a few months ago based on the hope people had now looks grossly overvalued based on today's reality. Then comes the slow selloff as reality sinks in. If you look at the time frames in the above chart you see the trend. Violent rallies up followed by slow painful selloffs.
Remember, this market decline started in October 2007 after it peaked. It gained speed in September 2008 and then again in February 2009. The recent near 30% rally has taken less than a month. We cannot sustain the rally and turn the corner until the economy does, period.