We've Passed This Way Before

Well, a nice steady rally brings us back to about where we were last Tuesday around 11 a.m. EDT. Yup, after the DJIA puts on its biggest one-day rally in two weeks, we've just about crawled back to where we were a week ago. More to the point, we're still down sharply from where we were before the Chinese stock market crash turned this market against itself.

And it's going to take some hard work to lift this market and rally these stocks to new highs, even though highs are tauntingly just a single-digit percent-move away. The markets have probably finished digesting this subprime contagion as we now see it, but the big risk to the market is that the developing housing meltdown could completely undermine our still-booming economy.

That obviously would make the earnings estimates for next year too high across most sectors. And that doubt makes the possibility of a pending multiple expansion for the market less likely in the near term than it otherwise would be, given that so many stocks are trading at historically low valuations. That includes Google (GOOG - commentary - Cramer's Take), which is trading at a lower forward price-to-earnings multiple than it has in a long time.

Today's green on the screen (rally, that is) looks great and feels great after the nasty close to last week. But the path of least resistance remains down -- until it isn't, and today probably didn't change that.

Two parting shots then, before I head out to Seton Hall to teach for the evening:

1. What, besides "This stuff sure doesn't happen at market bottoms," are we supposed to take away from the fact that we all wonder how many tens of billions of private-equity and other deals we're likely to see before this week ends?

2. Who's more scared right now, the longs or the shorts?

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Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.