Rally In Jeopardy?

After a suspicious reversal to the downside yesterday, Wednesday, May 23, the market again opened to the upside on a strong durable goods number and continued to add to gains as the strong new home sales data was released at 10. These gains quickly reversed. This is day 2 of a heavy market. Because of the market momentum I would expect a much more volatile market, very similar to the nineties, to start to emerge. This would mean more buy on the dip mentality rather than an abrupt end to the rally. It should be noted that Greenspan had to open his mouth from retirement to voice his concern about the unsustainable move in the Chinese stock market, almost an "irrational Exuberance" repeat. The IBD notes 5 distribution days for the Nasdaq over the past month so this rally certainly has its cracks. I would look to raise some cash if the market can't prove itself into the close. No more than 10% should be necessary at this juncture.

Rally continues

This stock market rally continues unabated, along with the skepticism to fuel further gains. The earnings season is nearly complete and corporate America has continued to hit the cover off the ball, blowing away the tepid estimates set by the Wall Street herd. The volume is lacking in the current days trading, which may or may not be a warning sign of some future profit taking. Also the vix has traded down during the session along with a put to call ratio (.76) that is weaker than recent rallies. The Semis and the Nasdaq are showing signs of outperformance although they are one of the only remaining groups with overhead resistance/ holders of stock at higher prices. I expect this rally to continue, but with increased volatility. Expect further gains with corrections/ shakeouts that resemble those we experienced in the mid to late Nineties. The new hedge fund kabol has short interest at all time highs, just the thing needed to keep fueling a sustained rally. Also the retail investor has not embraced this rally, apparently still licking their wounds from the tech bubble. Speaking of tech, I would expect growth to return to the sector in the coming years as many companies try to continue to cut costs and keep productivity high, all technology driven. Many maga techs are now at reasonable valuations compared with the market and compared with their potential growth rates going forward. This is by no means an endorcement of an all tech portfolio, but a universally hated group can be a source of superior investment returns. Hopefully the next post won't be so far in the future..........