Balancing the Factors Impacting a Rally

NOTE:  This Trading alert was originally posted at Ritholtz Research & Analytics on Thu 8/17/2006 11:40 PM EDT; An email went out to subscribers alerting them shortly there after.

This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers. We
expect to post future advisories in a similar manner — after the call,
but in the correct chronological location on the blog.


While my long term views remain cautious, the markets most recent behavior implies that the short term path of least resistance is up.

Rather than guess, or rely on "gut feel," we track a variety of factors which we think provides insight into the market’s "intentions." 

Here are the balance of factors we are closely wacching; These will be crucial to ascertaining if this rally has any legs, or if it ultimately amounts to little more than a late Summer bounce:

Technicals have improved
Downtrend from January Broken
Market Internals (Up/Down Volume) has been good
McLennan Oscillator was oversold
AAII sentiment data was at multi-year lows
Newsletter Writers and Investors Intelligence poll overly bearish
Earnings Predominantly Positive
Few people believe the rally, consensus view is sell into any strength

Volume is totally lacking
Mutual Fund Cash at low levels
Hi/Lows still predominately negative
Improved Oil Still Relatively High Energy Prices
Transports trade poorly
Guidance has been Mediocre
Earnings Already Reflected in Stock Prices
Inflation Data not nearly as benign as PPI/CPI suggests

The bottom line remains that until all the evidence is assessed, we treat each bounce as if it was just a bounce, keeping an open mind until the data gives us more confidence in one outcome of the other . . .

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