And The Winner Is…

As the stock market continues its fascinating and impressive run since March 9th, the obvious question becomes when will it end?  The short answer is nobody knows but this is where the charts or technicals come in.  If you’re watching the fundamentals and waiting for them to improve, you haven’t made a penny during this rally.  And, that’s a shame because it’s been a great rally.  Don’t get me wrong, we certainly need to pay attention to the fundamentals because over the long run, they correlate with stock prices.  But, in the short run, the charts matter more. 

During this rally, the stock market has only managed mild pullbacks.  Here we are on Thursday and the Dow has managed two 100 point rallies in the past two days.  So, is it off to the races again?  Take a look at the chart below.  You can see there was definitely some indecision on the part of investors today.  It was a very wide range where we finished not at the top and not at the bottom. 

I’ve drawn a few lines below to illustrate various possibilities going forward.  There’s been a definite clear uptrend line since the March 9th bottom.  The obvious stop goes right beneath 850 on the S&P 500.  You will also notice we are now at the February 9th high.  That could easily be the place where the market stalls.  Now, I’ve been calling for the rally to possibly get to 900 when it’s all said and done.  It’s certainly a possiblity if we break out above 875.  In fact, if we do go above 875, you could make an argument the market goes up to the next line, which is at 935 or so.  That would be an absolute huge move from where this rally first started.

sp500-4-16-09

I believe this rally is going to stall out fairly soon and we won’t make it to 935.  Many of the indicators I watch are starting to lose a little steam.  However, it was nice to see the volume improve today on an up day.  But, when you’re this extended, going up only makes the market even more extended.  So, I’m still cautious. 

Because we’re are this inflection point (yellow circle on the chart), I want my portfolio to match.  That means good positions that are heading up, a good deal of cash to insulate my portfolio from falling but also for ammunition if we break out to the upside, and it means having stops in place.   

We’ll find out very soon who the winner will be, the bulls or the bears.

This post published at www.karleggerss.com

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