Part Two of the 'Monster Rally' Has Begun

We believe we are currently leaving the station for part two of the "monster rally" that began March 9, 2009.

However, we believe we may see some sector leadership changes during part two, with financials continuing to lead the way ahead along with consumer discretionary and technology.

We are keeping a close eye the relative chart of the Financials ETF (XLF) versus the S&P 500 ETF (SPY) for confirmation of this stance (please see chart below).

If we compare the returns from part one of the rally March 9 to June 6 (Research from Ned Davis Research in the table below), the rankings to date have been very similar to previous market recoveries from bear market lows. Many investors are calling for materials and energy to drive the market recovery higher along with emerging markets.

We don't agree with this sector stance, believing instead that they will perform as they have done historically with materials mildly outperforming and energy underperforming.

On emerging markets we continue to support our earlier comments (July 12, Seeking Alpha) that following the tremendous gains they’ve had since November, we expect them to underperform developed market gains during the summer rally.

Disclosure: No Current Positions

Comments

[cameroni:]

I am seeing another rally too based on Q2 to date despite some serious reservations about fundamentals. we look bouyant in a still thinly trdes market. This is going to be a real suckers rally though as sidelined money is drawn back in. I feel it will have a very bad ending later in the year so take care and be forewarned. These earnings are deceptive.

Jul 16 05:33 AM

[predictorma...:]

Rally through the summer. Heading back down (but not retesting the lows) in October.

Jul 16 08:50 AM

[Baboon:]

Correction: treading water through the summer.


On Jul 16 08:50 AM predictorman1000 wrote:

> Rally through the summer. Heading back down (but not retesting the
> lows) in October.

Jul 16 01:17 PM

[thiazole:]

"We believe we are currently leaving the station for part two of the "monster rally" that began March 9, 2009."

It is looking that way to me as well. This is really going to blind-side the bears who were thinking the end of the world was going to start soon (remember the sell in May chant?). On the down side, we're going to have to listen to more conspiracy theory crap to excuse why they were wrong again.

Jul 16 03:03 PM

[Mad Hedge F...:]

I'll believe it when I see it. The “head and shoulders” is off the table, and now the S&P 500 is looking at a double top at 950. This is why I hate listening to technical analysts, and why they shop at Men’s Warehouse and drive Hyundai’s instead of Bentley’s (see my earlier piece at www.madhedgefundtrader...). Generally, technical analysts tell you to buy every rally, sell every dip, and in a market that’s going nowhere this is a perfect formula for losing money. Watch them tell you to load up if we hit 950. It is clear from the ferociousness of the 70 point, three day rally that too many hedge funds were drinking the Kool Aid, and the blood is flowing as a result. One meekly explained to me that “head and shoulders” formations fail only 6% of the time. Well, welcome to the 6%. They are going to have to invent a new name to describe this formation (“head and shoulders with a hump back?). This is why I issued my now famous “Sell in May and Go Away” piece at www.madhedgefundtrader..., because the quality of the trades you usually get in the three months that follow is uncommonly low. Look at the chart that has ensued so far at www.madhedgefundtrader...). It looks like a lot of nothing.

Jul 16 05:40 PM

[nmelendez:]

....waiting for the California Principle to hit jejeje :)

Jul 16 10:41 PM

[nmelendez:]

I really do not think this a Bear or a Bull market. I prefer to call it the Great American 401k retirement ripoff. These a-holes and jerks in banking wanted to make a fast buck on a flawed structured investment. Now we are paying the price. Personally, been outta S&P since 1300, saw it coming. Now it's gonna be a raise and dump. Why do you think the chinese only allows US to trade in B shares and restricts A share to mainland chinese and only as funds for others. They do not want the market rigged for their people.

Jul 16 10:52 PM

[Bruce Pile:]

One good argument for a big part two of the rally even bigger than part one is simply the absolute level of Lowry Research's Buying Power, half of their proprietary Buying Power vs Selling Pressure market timing, which has a stellar track record. They don't use just the buying half to predict market turns, but if you look at what happens historically charted when the buying power arrives at near all time lows as I did in the 7/15 article at my website (click above to view) you see it predicted some of the most powerful climbs in history. We are at such a low right now - about the same level at it was February, 1933, September 1942, and March 9, 2009. Yet Lowry is predicting a collapse of the rally to new lows. Their reasoning must be that if the rally off the March 9 low was really a bear ending rally, buying power should continue to build instead of quickly evaporating as it has done - historical lows shouldn't be just a few months apart. I think we are at a big turn point that should soon tell us how we should interpret the Buying Power only as an indicator.

Jul 16 11:39 PM