Wednesday, April 04, 2012

The rally will continue (for a little while)

The most basic stock market rallies are characterized by a relatively large number of small up days combined with smaller number of big down days - like today. The straight-line nature of the current 3-month rally is suspect and won't last forever, but in general shallow rallying and steep declines like this tend to presage more rallying.

Despite the steady gains, investors have actually gotten less optimistic in the last couple of months - a sure sign that the rally still has room to continue.


When the Drudge Report has a blaring headline in response to the first significant down day in a while, you know that the consensus (and therefore probably wrong) short-term forecast is for a market decline. However, the above is only the technical analysis of current conditions based on price changes and investor sentiment. The longer-term fundamental conditions of ever-growing debt, Europe on the brink and low dividend yields are still quite bearish.

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