Editor's Note: As an emerging-markets banking analyst, James Kostohryz has firsthand experience of banking collapses and their subsequent resolutions in Mexico, Argentina and Southeast Asia. Since leaving his position as Head of International Investments at Brazil's Banco Pactual in 2000, James has worked as an independent trader and investor.

The Bases for a Major Countertrend Rally 

As most of you know, on March 2, on the Buzz & Banter, I announced that I was initiating a 50% long position in US equities (from 10%) with the S&P at roughly 700. On March 5, with the S&P at around 680, I implemented a 100% long position.

I've maintained this core position since then and have traded around it using leverage. Since then, I've reiterated various times that I believe that the market has put in an important intermediate term bottom, and that the market will experience a major countertrend rally.

In a series of articles which I'll publish over the next few days and weeks, I'll make a detailed case for a major countertrend rally that should take the S&P 500 to at least 950 and possibly to 1100. In this article, I'll merely outline the case.

The Fundamental Bases 

1. Central banks and governments around the world will frequently announce implementation of increasingly coherent policy measures to deal decisively with the economic and financial crisis.

Injections of liquidity through low interest rates and quantitative easing, combined with stabilization of the financial system, are the keys to success. Fiscal stimulus is practically a sideshow. Policy actions by the US Federal Reserve have been decisive and are providing global leadership. After a slow start, US Treasury measures to stabilize the financial system will gain increasing traction as investors realize the profound implications of these commitments in the short and medium term. European, Japanese and other global policy makers will soon step up the pace and scope of emergency actions. Increased global coordination is likely.

2. Between March and May 2009, we'll see a surprising and dramatic turn in the second derivative of economic data in the US, Japan and a few Asian Tiger nations.

The data will show that the pace of contraction is slowing. In some cases, data will rebound sharply and even show growth. This will surprise investors, and will lead many market participants to believe that global contraction has bottomed out. While I believe that such positive data will likely be misinterpreted, I also believe that it will come as a very positive shock to the market and will sharply call into question the mega-bearish economic scenarios that have become part and parcel of the market consensus in the past few months.