The Wall Street crowd liked what they heard last week and pushed the Dow Jones to a new high. In particular, the trio of the Republican landslide victory, an overall positive Q3 earning season, and a good jobs report that showed unemployment dropping to 5.8% was behind the rally.
And what a rally it was. Since the start of earnings season on October 8, the S&P 500 has increased by 3% and has bounced by an eye-popping 9.1% from the October 15 low.
Many of my peers have already popped the champagne and drunkenly declared a coast-is-clear resumption of the great bull market.
Not so fast. There was a trio of negative news pieces last week that tells me there is more to be worried about than there is to celebrate.
‘V’ Is for Vulnerable… Not Victory You shouldn’t trust ‘V’-shaped bottoms.
Instead of being encouraged by the 9% moonshot since the October 15 low, I am even more skeptical. The S&P 500 shot up by 220 points in just three weeks, which tells me that the rubber band of stock market psychology is overstretched.
The stock market’s massive mood swing from fear to greed can change just as quickly to the other direction. Sharp trend reversals followed by sharp rebounds is not a kind of bottom building behavior.
The rally has been accomplished with low trading volume – a classic definition of an unsustainable bounce because it shows that the rally was more from a lack of sellers rather than an abundance of buyers.
This post was published at Mauldin Economics on NOVEMBER 11, 2014.
Follow on Twitter
Recent Comments