On the back of AAPL’s earnings the stock market confirmed a new market rally with an explosion to the upside. While confirming a new rally is always exciting this was done very quickly and well away from lows. The shape of this rally is not one we like to see to begin a rally. V shape rallies typically are not too reliable and are prone to failure. This does not mean our current confirmed rally will fail odds simply do not favor a sustainable rally. We will remain cautious and work with our signals. Position sizing and exits are always key and this time will not be any different. We have a confirmed rally and will up the ante on the long side of the market, but remain cautious.
Typically when a rally is confirmed it is not from a V-shaped rally. Normally, you will get a quiet day 2 or 3 and on days 4 through 7 will confirm a new rally. Many will point to earnings as the reason for this market to confirm the rally. It may very well be the reason. The only issue with this assumption is we have not gone through majority of earnings and we have a Federal Reserve meeting next week. Remember, last Friday Bullard came out with comments the current QE taper may be delayed. Could it be traders and money managers are afraid of missing out on a huge market move if the Federal Reserve extends QE?
Another issue with the current market are the lack of stocks in sound bases. We simply have not had the time to form sound bases and there are such a lack of leadership it does make us wonder if this confirmed rally can hold up. Patience is going to be key in this market alongside a healthy respect for risk.
If this rally is going to last we are going to have plenty of time to get long and strong. Many think if you do not get in at the bottom you will be left behind. This is not the case. Not all big winners breakout on a confirmed rally day. Be patient and wait for opportunities to present themselves. When they do you have to be ready to take advantage.
