PROFIT-TAKING, LIKE THANKSGIVING, GROWS out of a desire to count one's blessings, and for a change, the battered market actually had blessings to ponder. Stocks had already jumped 18% in the four days leading up to Thanksgiving, and Friday's holiday-shortened half session presented a logical chance to book some gains.

So was Friday's continued advance evidence of an absence of traders or the increasing absence of fear? The Standard & Poor's 500 hadn't even managed back-to-back sessions of gains all last month until it sprouted a five-day, 19.1% pop that became its best five-day rally since the Great Depression.

It should surprise no one if the inevitable profit taking arrives this week, especially if an escalation of the terrorist attacks in Mumbai reminds investors of recently forgotten geopolitical tension. History shows that the best five-day rallies were often followed by sober retreats averaging 2.4% over the next five days, says one Wall Street analyst. But the spirited bounce off the market's Nov. 20 low reinforces hope that stocks may have suffered the worst of the selling pressure, and that the government's frenetic attempts to prop up the financial system could begin to contain the panic.

"I think we're establishing a bottom, with the Dow ricocheting back each time it falls below 8000," says the president of a wealth management company. "We're getting our arms around the credit crisis and quantifying the mortgage problem, which could set the stage for stocks to work higher next year."

The Dow Jones Industrial Average gave up 5.3% last month and absorbed its third straight monthly loss. But it ended November with its first five-day rally in more than a year. Last week, it gained 783, or 9.7%, to 8829. The Nasdaq Composite Index rose 151, or 10.9%, to 1536, and the Russell 2000 index rallied 67, or 16.4%, to 473.

Last week the government moved to shore up Citigroup (ticker: C) without unduly punishing its shareholders, and stitched together an $800 billion plan aimed at reviving loans to consumers and small businesses. The rate for 30-year mortgages retreated a half percentage point to about 5.50%, and commodity prices stabilized after China, in an attempt to stimulate  spending, slashed borrowing costs with its biggest rate cut in 11 years.

The yield on 10-year Treasuries slipped below 3% — its lowest in decades and well below the S&P 500's current yield of nearly 3.44%. While this indicates some worry about the sanctity of companies' dividend payments, it also suggests the market has all but given up on profit growth in the near future.

"Yield support beyond the risk-free rate joins a growing list of valuation measures that limit downside risk to equities," argues a Wall Street strategist.

Evidence of economic deterioration continues to mount, with home prices tumbling and orders for big-ticket items slipping 6.2% in October, but how much of this is already priced into stocks? A 4% contraction in the real economy would rank this fourth quarter as one of the worst in postwar history, yet stocks had previously gained an average 5.5% over the 11 weakest postwar quarters for real growth in gross domestic profit. The stock market's 23% loss so far this quarter "is telling us something about the size and the scope of economic pain we're likely to face in 2009," notes a well known strategist. Still, the Fed's most recent actions suggest that a 'no holds barred' approach to fighting deflation might lead to a quicker rebound in the markets, if not the economy, than we might have originally thought.

(Source: Barrons On-Line).