By: Billy Fisher

Contributor, Stock Traders Daily -  Rule-Based Trading Strategies

(La Jolla, CA) The broader markets have been on an impressive rebound since the lows of early March. The SPDR S&P 500 ETF (NYSE: SPY – Trading Report) has climbed 38.5% since March 6^th. The PowerShares QQQQ (Nasdaq: QQQQ – Trading Report) is up 39.6% over the same timeframe. Is this rally really sustainable though?

Monday’s pullback definitely left investors wondering whether or not the market’s next move is downward. “When is the last time that you saw the transportation index as weak as the overall market,” remarked Thomas H. Kee Jr., president and CEO of Stock Traders Daily. “Retail, durables, materials, housing, financials, minerals, go down the list and everything was weak on Monday.”

Among the negative headlines on Monday was U.S. credit card defaults rising to record highs. Bank of America (NYSE: BAC – Trading Report) has been among the hardest hit as its default rate hit 12.5% in May. The default rate at American Express (NYSE: AXP – Trading Report) hit 10.4%. Conditions were similar at Citigroup (NYSE: C – Trading Report) where chargeoffs inched higher to 10.5% in May.

Some of the smaller players in the space noted rises in their default rates, although the increases were less than expected. Capital One Financial (NYSE: COF – Trading Report) and Discover Financial Services (NYSE: DFS – Trading Report) were among the names that experienced less deterioration than expected in their lending portfolios.   

The trend in consumers defaulting on their credit cards bares a strikingly similar resemblance to the precarious financial condition the U.S. as a whole is beginning to find itself in. “No one wants to admit it, but the United States is bankrupt on paper,” Kee wrote in a report to clients on the state of the economy and the financial markets. “We have two choices. Either the government can slash spending across-the-board, or it can raise taxes on the U.S. consumer. Clearly, a combination of the two is also possible.”

It will be some time before we know for sure if the market’s recent moves upward are in fact sustainable. There is an ample amount of indicators that the economy as a whole continues to remain very weak. Even if the market heads south, there will continue to be trading opportunities for those that employ the use of adequate risk controls.

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In 2008, Kee’s Stock of the Week selections returned 60.8%.