Recent stock market gains remain random, with no firm market indicators currently pointing in the direction of a strong rally. So far, Mike says, this rally feels like it's of the "pushing-a-rope" variety.
We have not altered our view that the market is currently more random than not. Nor have we been much of a believer in the strength of this rally. Primarily this has to do with the fact that our internal market indicators have not “kicked in” to validate a strong rally.
Our next blog will be discussing this in more detail -- I've found them to be highly reliable in predicting tradable rallies from a “signal follow-through day.”
IBD® Investors Corner recently discussed that market index follow-through days are not always occurring with turnover greater than say, a 50-day moving average. Good potential rallies can take place with lower volume. In my opinion, breadth and up/down volume thresholds on a moving average basis need to be solid for a rally to have more conviction.
So far this rally feels like it's of the pushing-a-rope variety. Breakouts are occurring, however mixed, on the usual and preferred volume requirements we like to see.
The plausible scenario, the “bounce and weak rally” we outlined in our May post continues to play out.
The important thing is to remain objective and open. A random and floating rally can go on for a while, and an improving number of technical underpinnings and factors could mean going long and increasing our stock exposure. More than likely, it could be a short window at best for the bulls.
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