Thursday, March 26, 2009

US market: End Mar rally - is this the turning point?

After falling forever, the market is now in the 3rd week of a rally attempt:

A closer look at the attempt:
First 2 weeks: Rally started on Mar 10th. Its first week was unimpressive. Started as a reaction to an 'leaked' Citibank memo saying it was 'operationally profitable' - any excuse for a rally. There was a distribution day on Mar 16th soon after. Depth sucked - Bespoke reports that the big day up on Mar 10, and again for the whole first two weeks of the rally (including the big day up on 23rd).

Bespoke: Before the 10th, the market was so oversold that it requires a substantial rally just to work it off : "Before Tuesday's move can be considered anything more than an 'oversold' rally, we are going to need a few more days of similar action.".

We may be willing to overlook the distribution day on the 22nd due to options expiration.

Conclusion: First two weeks are just an oversold rally. Doesn't mean anything yet.

3rd Week: Starting to see a better pattern of accumulation days on high vol and drops on low vol.

IBD reports market depth starting to look OK (26th Mar):
  • IBD100 keeping up with indexes, but "only a handful" of top rated stocks rising in high vol.
  • Bredth of the rally is impressive: only one industry group (funerals) is down since the Mar 11th rally, and defensive plays (food, utilities) are up less than the indexes.
Short term, the market looks overbrought now.

Conclusion: Wait for the pullback - on lower vol. See if market depth keeps improving. That would convince me that this is at least this is at least a tradable rally. It may even be the turning point....

No comments: