Posted At : May 18, 2009 10:32 AM
The market continues to rise on a very rosy view and a wall of worry, which could easily go higher albeit with a long overdue correction. Keep in mind; this is simply a bear market rally in a secular bear market. Recovery rallies within extended bear markets are often very impressive. If the rallies were not impressive they would not fulfill their function. They frequently last just long enough and carry just high enough to convince large numbers of investors to jump back into a perceived new bull market. Thus far, this recovery rally has been very impressive. The majority of recovery rallies within extended bear markets tend to last around eight weeks. A smaller number have continued into a third month, and there are a few outliers in history that have extended to as much as five months before the primary downtrend resumed.
In the immediate term, a cause for concern is this erosion in the % of NASDAQ Stocks Above their 10-DMA. With the NASDAQ Comp. down only 2.7% from its May 4 closing high, the % of NASDAQ Stocks Above their 10-DMA has declined to just 41.4% as of yesterday’s close, its lowest level since the Mar. 9 low. The deterioration in this indicator warns that fewer stocks are now participating in the rally, suggesting internal erosion is taking place that is not readily apparent in the Index itself. Given that NASDAQ has been a leader throughout the majority of the rally dating from the Mar. 9 low, an erosion in this Index’s performance may not bode well for the market overall.
Regards – Keith Springer