Yesterday the market staged the best rally attempt I've seen in a while. It was strong and sustained. It might actually have some legs. The financial pundits and talking heads are all over the map on what yesterday actually meant. Most posit a bear market rally. Some are more optimistic. Some compare this to the 2002-2003 bottom. Some compare it to the 1937-1938 bottom. There was no obvious capitulation event... Some say last week was akin to capitulation...
All of this can be very confusing for some.
Individual opinions, however, do not matter one little bit. Larry Kudlow's cheerleading does not matter. The thoughts of Gartmann, Buffett, and Cass do not matter. Dennis Kneale's thoughts are never worth listening to. The only thing that matters is the action of the market and its effect on your particular style/time frame of trading and investing.
In a few days we'll know if this market is starting a true rally. We'll see a follow through day which will confirm yesterday's rally attempt as a credible event.
Even if we do get a follow through day on Friday or next week, that doesn't mean it's time to jump in yet either. Normally, it takes a couple weeks for leading stocks to successfully break out. Often, when they break out at the beginning of new rallies, they will fall back into their bases once or twice as volatility swings the markets far and wide, chopping trading accounts and traders into tiny little bits and pieces.
We aren't far from earnings season.
The period between now and then will give leading stocks a chance to set up...if the rally is for real.
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5 comments:
ST - I always enjoy your blog.
Curious about your count on the rally attempt, from my view the SP began a rally attempt last Friday, my understanding is that each indez works independently in this regard.
Can you explain for my benefit how you track the rally attempt?
Thanks,
-Geoff
Yesterday's rally attempt was obvious. Heavy volume. Decisive action. Big gains for all the indexes. Sustained buying.
Friday's volume wasn't that great on the S&P 500. The daily bar ended in a doji...indecisive. Gasins couldn't be sustained.
To tell you the truth, and I could be wrong, I never even considered Friday's action to be representative of a rally attempt...because the gains couldn't be sustained.
Yesterday, though..now that was different...and today's action was positive too. But how many stocks are really ready to blast off on a follow through day? That's a little problematic.
Thanks much for the detailed answer. I always viewed it as the first day an index closes up, a new rally attempt has begun. Obviously it pays to be skeptical these days though!
I'm excited about a few stocks - TNDM, MYGN, SNDA - but a few stocks don't make a rally of course.
It also seems we are 'due' for a rally but as you said in your blog entry, none of that matters.
I will say that as of last Friday the market has my attention. I like the reversal action.
If I understand WON's definition of an attempted rally then day one starts with the 1st day an index closes up. For the S&P that would be last Friday.
Something I've done several times over the past year is I've been collecting data on past great stocks from old Daily Graphs at the university library. Scanning these old Daily Graphs books at/around previous successful follow through days is extremely eye opening on what type of action will be present in stocks. At these times I noticed dozens and dozens of stocks setting up in bases (cup&handle, etc).
ST
I too enjoy your blog and am thankful for Bill O'Neil keeping me out of stocks during times like these. I have,however, played the inverse ETF's which I exited on 3-11-09. I've used them to recover losses from failed rally attempts but with very small percentages of my portfolio.
You've made me much more cautious and attentive to the fact that a "Confirmed Rally" is purely a technical indicator and it must prove itself before one risks significant money to Mr. Market. I extend my thanks to you for that.
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