Financial services stocks have advanced smartly in the past few days after Merrill Lynch (MER) announced it would accept a massive write-down on damaged mortgage derivative assets and raise more capital through a stock offering.

But I can't help but wonder if this is going to be short-lived, as Merrill's deal was not everything it seemed.

On the day the deal was announced, Merrill shares initially collapsed. But then buyers came in, and by the end of the day the stock was up 20% from its low and up 8% for the day. A touch more than 293 million shares traded hands, which is a ton. 

Just to give you give you some perspective on the size of that move, the largest previous day of trading for Merrill was around 60 million on three separate days around the March low this year. So it certainly conjures up the old cliché about shares moving from weak hands to strong hands. And the fact that it rallied on bad news gives the event special flavor.

Yet is it really that big a deal? The previous time I recall this sort of move occurring was, well, two weeks ago.

Merrill rallied from $23.64 on July 17^th to $36.97 on July 23^rd, a 60% jump. Then it fell by 40%. Before that, the stock rallied 44% from mid-March to mid-May. Then it fell by 55%. Before that it rallied by 25% twice, once in January and once in November. And it's down 60% from there.

The only constant in all of these rallies is that they have become progressively more intense, and they all ultimately ended in new lows.

Why should this one be any different? I would look for the rally to continue for awhile, possibly another 40% higher to the $37 to $40 area, before the bears return for their next attack.

Here's why: There's little doubt that what Merrill announced on Tuesday took courage. It acknowledged that its attempt in 2006 and 2007 to become the largest underwriter of collateralized debt obligations was foolhardy and accepted an 78% loss on inventory with which it had been stuck. A set of senior debt securities with a notional gross value of $30 billion was sold for $6 billion, and Merrill had to finance 75% of the sale to boot.

But let's not forget that this move simply allowed the new chief executive, John Thain, to blame the loss on previous chief executive Stan O'Neal. So "courage" may be a bit strong for an act that was politically expedient.

And MER was not the first to do this. You may recall that in my Friday report ("Don't Trust the Bank Bounce") I called your attention to the fact that National Bank of Australia decided last week to write down 90% of the value of its U.S. mortgage derivatives, a move that was shocking to many.

Now the problem is...