Rally Getting Tired But Not Over

trader88

Rally Getting Tired But Not Over


The last time we checked in with Lowry Research was in late October and they were still confident in a continuing rally.

While still believing in the bullish thesis, at the same time, Lowry was cautioning that a pullback to the support area of 1045 was very possible. That was a prescient call as the S&P 500 indeed fell to its 50 day moving average before bouncing higher again.

Currently, Lowry is still not abandoning the long side, believing that while momentum is waning, it could take months for the rally to end. This is primarily based on their proprietary Selling Pressure index which has yet to rise enough to indicate that sellers have the upper hand.

This selling vacuum was also identified by Investech through their own proprietary model which tracks selling pressure in the stock market. So we have two separate metrics confirming each other, allowing us to have a higher confidence that this rally is not yet finished.

Paul Desmond is yet again cautioning that while the rally will go on for a few more months, we are in for short term turbulence. They base this on the loss of leadership in the market. Important sectors such as the financial sector (Philadelphia Banking Index) and the energy sector have not been able to surpass their October highs. In fact, while poorer, more speculative quality stocks had the upper hand and gained more than higher quality stocks since the March 2009 lows, more recently this trend has been reversed:


Source: WSJ

Since October, large capitalization stocks have been able to hold their own much better than their small cap brethren. And this narrower participation is a sign of a tiring rally and a concern for many market technicians.But right now, most are cruising on the positive seasonality that December provides.

Everyone on Wall Street wants to end the year on a high note, especially after the horrible year we had in 2008 (year end bonuses… hello!?). So expect things to be mild until 2010. By mid to late January, professionals will have returned sober from holiday festivities to face a clean slate and a whole new year of possibilities. As well, by then the seasonality tailwinds will have abated and we’ll have some exciting things to look forward to.