QOTD: “Strong” Rally ?

May 22, 2012 10:30am by Barry Ritholtz

Lowry’s had this very astute observation about those who called yesterday’s market action “Strong” —

“All the major price indexes ended yesterday essentially at their highs for the day, as CNBC proclaimed a “strong rally for stocks.” This assessment of strength was apparently based on the point and percentage gains in the market indexes. But, classifying a rally as “strong” based on price is somewhat like judging a boat as seaworthy based on its paint job.

In fact, the quality of yesterday’s rally was anything but strong. Rather, the characteristics of the rally appeared to fit nicely into a classification as a reflex rally based on a short-term oversold condition.

It’s possible that the decline since early May finally exhausted Supply, allowing the market to rebound on lackluster Demand and Volume. But, if that’s the case, then any further rebound should show a distinct improvement in both Demand and Volume. Lacking that, any further rally will probably be living on borrowed time.”

I agree.

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