IBD UPGRADES MARKET OUTLOOK
Investors Business Daily has updated their market outlook from negative to positive. In justifying their strategy change they note the S&P 500′s move above the 50 day moving average, strength in important sectors such as tech, and the increasing number of new highs. This leads them to believe institutions could be more active buyers of equities in the coming weeks.
Using history as a precedent, they see Monday’s rally as an encouraging sign for future returns:
“There are some encouraging precedents for Monday’s follow-through. In 2005, the market posted two follow-throughs that came with index gains of about 1.5% or 1.7%. Those May and October moves produced meaningful market advances.”
Perhaps most important is strength in China, which has no doubt been the engine of the global recovery.
“Another positive note came from the market in Hong Kong, which staged a follow-through of its own Monday. Anumber of Chinese stocks rallied Monday and are U.S. market leaders.”
Nonetheless, they don’t appear to have the same conviction they have had with some of their past bullish calls (which included a March ’09 buy call). Specifically, they are concerned about the weak gains during the recent rally as well as the poor accumulation levels. This makes the rally particularly susceptible to breaking down:
“Although the market has made a bullish signal, questions remain, partly because Monday’s index gains weren’t so lofty. The NYSE, S&P 500 and Dow still have poor Accumulation/Distribution Ratings. Market uptrends always begin with a follow-through, but not every follow-through works.”
Source: IBD
IBD had several failed rallies in the summer of 2008. The situation was somehwat similar – low volume, tight range. May be this is another one of those. It is hard to see this one as another leg up. But really it could be, it odepends on the liquidity sloshing around. FED stops MBS purchases in March. It is very surprising the market is not spooked by that.
If the market is at all forward looking, it is probably just by 1 day. I think market is direct reflection of liquidity available. And liquidity is forward looking in a sense that it causes all assets to go up. But as FED stops its programs shouldn’t liquidity diminish?