The bulls are back in town, or is it the bears? Does it even matter?

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On Monday, the Dow Industrials was up 235.44 points, or 2.85 percent, the Nasdaq was up 3.11 percent and the S&P 500 was up 3.04 percent. [While Tuesday stocks ended mixed, they are again recording significant gains Wednesday.] Following any such rally we tend to always ask -- is this a new bull or a sucker's rally?

The bear case is quite evident: between the recession, financial crisis and depressed housing and labor markets, the fundamentals don't look to be supporting the rally. Moreover, even with the so called green shoots that are starting to emerge, most believe the recovery will be long and painful, rather than a sudden growth spurt as the stock market rally suggests.

The bull case is also quite evident: the stock market rallied. Period. And if you snoozed, you lost out on an over 30 percent gain. Fundamentals aside, technicals, government intervention and positive sentiment (that the free fall has stopped) supported the rally, and for now continue to support it. The recent green shoots fundamentals are just a boon.

The bears have fundamentals on their side, at least for now. For all we know, a "depressed economy" could indeed last as long as five years, as Paul Krugman suggests. Even if the economy comes out of recession in the second half of the year, job losses are likely to continue into 2011, depressing the economy until 2013 or 2014. Other economists agree and make a point to differentiate between stabilization of the economy, which is now in the works, and recovery. Stock markets are forward looking, but they don't look that far out, bears would say.

They further argue that what has supported the rally so far -- the fact that financial system collapse has been averted, the fact that governments have been printing money, the fact that yields are near zero (the latter two pushing money into stocks) and stress test results -- may not last.

Bulls will counter that while banks may have so far led the gains based on government actions, they now see other depressed sectors that could continue to drive markets upward, sectors such as commodities, technology and consumer discretionary, as well as solid companies with healthy balance sheets.

But where bulls see possible upswing, the bears differentiate again between what would drive the economic recovery. While it's true that GDP may start growing through industrial production turning up, even as unemployment continues to worsen, there still isn't a case for a bull market without profit growth, and so far nothing points towards earnings growth, quite the opposite. The bears will not be the suckers buying into this rally.

The thing is, though, that bulls say that strategies must adapt to different environments. Buy and hold is dead. Buy and trade, or some hybrid of the sort, is the way to take advantage of this market, if the rally is here to stay or not. Perhaps these are no bulls in the strict sense of the word, but rather market participants who don't sit on the sidelines. And that may be the real issue: it doesn't matter if you're bull or bear, but whether you choose to participate.

As for what the markets will do, I will share my forecast despite knowing how foolish it is to do. Markets will continue their general upward climb, albeit at a much lower rate than the rally so far, stabilizing just as the economy is showing stabilization signs. I don't see a large, persistent downward swing again, but only sell-off spurts.

Then again, who really knows?
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