Sure looks like it. I predicted exactly a week ago that 'the Freddie and Fannie show may be seen in hindsight as a cathartic moment setting the scene for a sharp rally in coming weeks, particularly in unloved financial stocks.' Well, it's started with a vengeance; the financial sector was up 11% on the week, the KBW index of US banks having lost 25% of it's value by the low point on Wednesday (with a massive spike in volumes screaming capitulation, see chart), only to gain 33% by Friday's close. The Vix briefly shot above 30, Gold spiked, and the Armageddon crowd hijacked CNBC warning us to head for the hills with a crate of gold; I hope they take their own advice and stay in those caves for a while. The last time I called a market turning point was in mid March in Crackheads in a Casino , when I stated that the economically destabilising activities of hedge funds in financial stocks would have to be reined in, and they finally have been. Oil is next in line for tougher regulation.

 We have now seen the two hottest momentum trades of the last few months, long oil and short financials, thrown into reverse. The key factor last week, aside from the mildly encouraging results ex Merrill's, was the new SEC naked short selling restriction on financials, and this is hugely important not only in its own right, but as a harbinger of a far more interventionist policy. In Washington, free market ideologues and Wall Street lobbyists are no longer invited to the best dinner parties, as politicians finally realise that left to their own devices, markets tend to excess, not equilibrium.

Bigger, more proactive government is now inevitable in the US under either candidate, implying structurally bigger fiscal deficits and higher bond yields (not just in the US; the UK is now deficit spending like a teenager let loose with a credit card, one reason why I'm a Sterling bear). The combination of the long overdue bursting of the energy bubble (see chart below) and the extreme oversold level in financials made this rebound inevitable. So now where? Short term, there will be certainly be more bank failures and negative earnings surprise as the deleveraging process grinds on, but despite that backdrop gold and oil look like huge double tops, the dollar looks cheap, and a 10-15% equity bear rally has just begun (although mixed corporate results will create volatility, and I doubt we've seen the cycle bottom).