All we know, dear reader, is that following great crashes we get great bear market rallies. And these euphoric rushes of blood to the head have a nasty habit of suckering overoptimistic investors. As resource investing legend Doug Casey put it in yesterday’s Casey’s Daily Dispatch, there were eight such rallies during the Great Depression. These rallies lasted an average of 11.3 weeks, during which time the average increase was 52.6%.

Simple math will tell you that this rally has lasted almost twice as long as the average bear market rally during the Great Depression.

Doug reckons what he calls the “wonder rally” on Wall Street won’t survive the September. He points out that options traders are now betting that the VIX – the volatility index – will increase 13% in the next five weeks, according to data compiled by Bloomberg.

That’s the biggest spread since August 2008 – just before the S&P 500 saw its worst two-month plunge in 21 years. See, these two indexes – the VIX and the S&P 500 – have moved in opposite direction 81% of the time over the last five years.

As Doug says, however, it’s critical that underground investors keep an open mind regarding equities right now. The reason is simple. The government is pumping phenomenal amounts of funny money into the economy. And equities are extremely sensitive to this kind of fiscal policy (more sensitive, that is, than the wider economy, which tends to react slower to stimulus).

This is a big wild card. And in our humble opinion it’s a big reason behind why stocks are doing so well right now. Long suffering readers will recall that here at Notes we believe traders and investors are betting on the government’s ability to backstop the market rather than on the market itself.  There is also a strong likelihood that Washington’s fiscal and monetary stimulus will trigger an inflationary cycle, which would also benefit stocks in the short-term.

Common sense isn’t exactly fashionable these days. But take a moment to think about just how extraordinary a 49% rally stocks is over just five months. As our favorite underground analyst, David Rosenberg, points out, this is “unprecedented back to the 1930s.”

In the last cycle, it didn’t happen until February 2004 – 18 months into that bull phase where again there was tremendous policy stimulus and an oversold low to climb out of. In addition, household credit was expanding rapidly. Even coming into what was a secular bull market in 1982, it took a good seven months to rally 49% – and that was with the benefit of a V-shaped economic recovery. Going back to 1950, it has taken an average of around 18 months for the market to rebound 49% from a recession trough, not five months as has been the case thus far.

That stocks have climbed out of their recent recession trough over three times as fast as after the average recession sets serious alarm bells ringing here at Notes HQ. As we’ve said before, if you have money in stocks right now, you better be sure that money is nimble.

No matter what our government says about the true health of bank balance sheets, the real stress test for the U.S. stock market lies in what happens next to the BKX. I have a feeling the major averages will start following the banks should they continue moving lower, but who really knows? The safest prediction I can make is that the S&P 500 won’t be hanging around 850 much longer.