10.10.2011
By Terry Flanagan

Equity Outlook Brightens

Recent market upsurge has traders rethinking bear thesis.

The last month of trading has proven extremely volatile for equity traders as concerns mounted over the European debt crisis and a possible default.

Some traders who spoke with Markets Media were of the opinion that the Dow Jones Industrial Average would continue to fall to a level between 8000 and 9000 points before market participants would begin buying en masse again. The corresponding level for the S&P 500 was around 1000.

But new plans for Germany, the IMF and other fiscally stable countries to support countries like Greece, Spain and Portugal has reversed the bear market trend, with the Dow now over 11,000 again. New talk is that 12,000 is not far off. U.S. Equities rallied several percentage points during trading on Monday.

It is also worth noting that the partial bailout of Belgian bank Dexia helped alleviate fears of a default. Credit default swap prices had surged in recent weeks as investors purchased protection on the financial juggernaut.

The buy side also played a significant role in Monday’s rally as managers engaged in short covering. New research suggested that $6.1 billion of new money flowed into hedge funds during August.

One trader told Markets Media that they would continue buying into the end of the year, indicating that the market is quickly switching from bear to bull territory.

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