Can Two Good Weeks Constitute a Rally?

Each weekend on Financial Tides I review the previous week by using a BarChart analysis of the Value Line Index and the market as a whole. I use the Value Line Index because it contains 1700 stocks which make it a much broader index than the Dow 30 or the S&P 500. The Index was up for the second week in a row by 1.65% and 5.06% for the month. That's only 4.26% off its previous high made on 10/18/01. Each month I also include the Conference Board's Index of Leading Economic indicators which will be published this month on 11/19/01.

Value Line Index -- contains 1700 stocks -- Index up

• BarChart's technical analysis indicators rate the Index a 32% buy with 7 buys, 3 holds and 3 sells -- not great but better than last week.
• The Index is tracking above its 20, 50 and 100 day moving averages - a sign the market is trending upward.

BarChart's Market Momentum -- contains approximately 6000 stocks -- percentage of stocks trading above or below their daily moving averages -- momentum up

• 20DMA -- 53.79% trading above
• 50DMA -- 51.21& trading above
• 100DMA -- 71.44% trading above

Ratio of stocks making new highs to stocks making new lows for various time periods -- above 1.01 bullish, 1.00 neutral, below .99 bearish -- this week we have a long term bull with 2 short term bears

• 20 day new high/new low ratio -- 422/611 = .69
• 65 day new high/new low ratio -- 225/302 = .84
• 100 day new high/new low ratio -- 230/199 = 1.20

Summary -- The market appears to be back into an upward trend but the new high/new low ratios shows we have a way to go before we can give a full blown bull signal. Don't be afraid to either stay invested or get back into the market.

Wall Street Survivor results -- On Top Stocks the contributors that mention stocks place those recommendations is a fantasy portfolio for a little friendly competition. For the week my portfolio was up 2.15% vs. the S&P gain of .57% and for the month I'm up 9.22% vs 5.33 for the S&P. I beat the market but that wasn't good enough to beat our leader Anthony Mirhaydan for both the week and month to date. His return is a fantastic 11.61% for the week and 29.58% month to date.

Disclosure: I do not hold any positions in the stock of my Wall Street Survivor portfolio at the time of publication.

Comments

[Moon Kil Woong:]

It's always good to hold good stocks, especially if beta is low. However, since most people are happy just to keep up with the indexes I would advise caution. If the Federal Reserve stops the money pump even for a second it can spell disaster for equities. There is every reason to feel that they might even with Bernanke in power (concern for more dollar depreciation in 2010, demands by Congress and other to explain their QE policies and disclose their holdings, rising gold and commodities which have sucked out all the export advantages of a weak dollar since the final trade deficit expanded not contracted, and higher and higher pressure on bond rates due to growing unease by overseas investors). Some would say tightening money supply is way overdue including of course myself.

Even I have felt is important to pare my gains last Thursday. If you want to catch the top in a market run up, be prepared for the sell-off.

Nov 15 11:00 AM

[bob adamson:]

As Mr. Van Meerten implies in his article (particularly in the title of that article), many things may be happening under the surface but it is difficult now to discern future trends with any conviction.

Both the economy and the stock market are at interesting points marked by uncertainty about future direction in the near to middle term. The economy has stabilized after the narrow avoidance of a deep deflationary collapse during the October 2008 to March 2009 period but the quality of the underpinnings of both that stability and the future near term potential for further improvement is questioned, with cause, in many quarters, while others, with justification, can point to improving trends, particularly outside North America. Many of the economic problems that set the stage for the meltdown crisis of October of 2008 remain to be addressed let alone resolved but the governments and central banks give every indication of their determination to maintain vigourous fiscal and monetary stimulus measures for as long as needed to give time for reform and recovery.

Turning to the stock market, the back-story for most investors is as much their losses and experience of deep unease and loss of control of 2008 as their gains since March of 2009. After a spectacular eight month surge in the stock market, the usual euphoria of investors and consequent overbought market conditions following such a surge are decidedly absent now.

In short, these are unprecedented times and it is premature to assume that a bull market has begun as the foundation of a bull market can not rest only on continuing stimulus measures, signs that an anemic economic recovery may have begun and the fact that significant potential investor money remains on the sidelines. On the other hand it can be reasonably argued that the relief rally since March of this years has legs, will likely continue for a couple of months and may morph into something better.

Nov 15 01:11 PM

[David Van K...:]

The answer to "Can Two Good Weeks Constitute a Rally? is, "yes," IF you are accustomed to trading within timeframes that short. Investing timeframes are key, and they often go unmentioned when people argue about "bull," "bear," "bear-market rally," and the like.

The key concept isn't any of those, it is investability. Is the rally investable according to your strategies, methods, and circle of competence? For me, two weeks is too short, but for others, it's way longer than they need. My comfort and confidence kick in at about a month or a little less. Some others require longer, and judging by some comments here on SA, many others require secularity (something exceeding 5-10 years) before they will pronounce a trend real or legitimate.

I'm glad the author's title created a specific timeframe to talk about. Too many articles and comments turn into red-faced screamfests when the real difference is that people are using different timeframes without recognizing it.

Nov 16 10:23 AM

[JeffDB:]

On Nov 15 01:11 PM bob adamson wrote:

> "...but the governments and central banks give every indication of their determination to maintain vigourous fiscal and monetary stimulus measures for as long as needed to give time for reform and recovery. ..." >
-----

From my point of view, that's rather like a drunk driving as fast as he can to get home because he's too drunk to be out on the road. It's not as likely to improve the odds of a safe journey as he might think.

I'm in the camp of those who feel that "their determination to maintain vigorous fiscal and monetary stimulus measures for as long as needed" is what got us into this mess in the first place. It is not a safe and stable foundation upon which to (re)build a healthy economy.

Nov 16 03:17 PM

[Jim Van Mee...:]

As I've stated my theme on my blog Financial Tides it to swim with the tides not against them but I always keep my stop losses currrent as a life preserver. No trend is forever.

Nov 16 04:27 PM