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The recent market rally has let many people wondering if the economy is recovering? 

According to an article I read online , it mentioned  two out of four conditions need to be met for an economic recover to begin and for the moment , only the fourth condition is partly fulfilled, with timid signs of recovery in China emerging.

i) House prices need to stabilize
ii) Banks must start lending again
iii) Consumers must start spending again
iv) Rest of the world must pick up

Reasons why I think economy has not bottomed out yet.

1) Inventories of house for sale remain high and house prices continue to tumble. The Case-Shiller Home Price Index dropped in January by 19% from a year ago, following an 18.6% year-to-year decline in December.

2) Job losses have been accelerating in recent months

3) Unexpected drop in retail sales as reported on 14 April 2009

4) GM/Crysler bankruptcy repercussions have not even hit yet

5) Standard & Poor’s reports there was a record high in the first quarter for the number of companies cutting dividends (367) and a record low for the number raising them (83)

6) Lot of speculation about which corner of the economy is likely to implode next and start to write the next chapter in the current financial crisis. Credit card debt and commercial real estate are two of the most frequently cited potential culprits

Based on the above, I will still play the momentum game by trading short term and also take more precautions in risk management (i.e not taking excessively large positions and profit take when opportunity arises) or cut loss when my stop loss is hit.

The above info are consolidated from the website http://seekingalpha.com


Reproduced with permission from http://melynn-lynch.blogspot.com