Always pay special attention when the market rallies on bad news.  One of the clues that a significant rally is about to kick-off comes when the market rallies after bad news is released.  This indicates that the market had already priced in the bad news and that the news release failed to spark enough fresh selling to push the market lower.

Yesterday the monthly US employment report was released for November 2008.  It was bad news – the FT ran the headline “Shock US job losses…” and a notable economist was quoted describing the 533,000 jobs lost in November as “almost indescribably terrible”.  For the first hour of the session the Dow did indeed sell off and broke briefly below the 8,141/43 lows posted earlier this week.  However that was the end of the selling and the Dow then rallied 7% to close above yesterday’s high on the highest volume of the week at 346 mln.  The S&P ended the day up 3.7%, outperforming the Dow which closed net 3% higher.  The odds now favour a rally but these hopes will be extinguished with a Dow close below yesterday’s intra-day low of 8,118. 

Note :  The US markets also closed higher after last month’s employment report (7 Nov) but that performance was less noteworthy as the markets had fallen 10% over the prior two days and the rally was on comparatively lower volume of 246 mln.  It looked more like the dead-cat bounce which it eventually proved itself to be as the Dow fell below 8,000 later in November.  Also note that economists are experts in the subject of economics as opposed to stockmarkets.