Bear market rally and market operations

Recent market gains are normal during a bear market. Remember a cardinal rule of the markets:

Markets do not go straight up or down instead they cycle up and down.

What is meant by this is that for every transaction there is both a buyer and a seller, no more, no less. This is what government bureaucrats and politicians don't understand, and is why they believe that by banning particular activities such as short selling, they are somehow protecting the markets. Their error is thinking that sellers operate or control markets by themselves. Every seller must find a willing buyer at an agreed upon price.

To find a buyer, a seller must offer a stock, future, or option as a price that will coax a buyer to invest his/her money in the belief that they will make a profit. The seller believes that he/she will make a profit as well, it's just that they are of different beliefs: the buyer believes the instrument will go up while the seller believes the opposite.

So this rally will continue to the point where 1 of 2 things will happen:

Buyers can not coax any more sellers to take the other side of their trades at prices the buyers want to buy at.

All interested buyers are fully invested in a particular instrument.

This minute-by-minute tug of war is of little value to most long term investors; however, it is precisely this action that produces the ups and downs that normal people find bewildering and sometimes silly.

This "bear-market rally" will probably run out of steam when the professional investors have purchased their fill from the general public that is in panic-mode. After this rebalancing of portfolios, the bad economic news or the current recession will begin the slow process of producing a bear market bottom from which the seeds of the next bull rally will spring.

Such operations will continue until the rules are so altered that normal market forces can not longer operate effectively. The current government intervention could cause the markets to change to where they no longer operate effectively. This is the real danger of government tampering with a free-market system.