Friday, April 9, 2010

Rally in Stocks Continues Despite Global Headwinds

If you understand anything about Socionomics, the widely-misunderstood study of people and markets which has Elliott Wave principles at its roots, you'd understand that the current, prolonged rally is nothing more than part of a corrective phase.

For Dow Theorists, the rally represents a bull move inside of of a secular bear market, or primary trend.

Either of those theories would be sufficient to explain away the outstanding gains of the past 13 months, but, it appears to be getting long in the tooth (though I've been saying that since January, so I'll take my forty lashes now, thank you), especially as 1st quarter earnings season approaches forthwith.

Much of the earnings expectations for stocks has already been "baked into the cake," so to speak, and, if that's the case, both the Dow Theorists and Elliott Wavers will be proven right over the next three weeks. However, nobody knows the future and nobody has yet invented a fool-proof predictive tool for markets, so we look upon this week's and todays gains as something of a marvel of modern media. Either that or there's a serious short squeeze going on out there.

For the second straight session, stocks have started slowly and gained momentum, finishing at or near their highs, usually a solid sign for the bulls, but today's reversion to low volume puts a less-optimistic spin on the day's trading.

Dow 10,997.35, +70.28 (0.64%)
NASDAQ 2,454.05, +17.24 (0.71%)
S&P 500 1,194.37, +7.94 (0.67%)
NYSE Composite 7,628.99, +63.66 (0.84%)

Advancing issues out-muscled decliners, 4028-2392; new highs jumped again, to 686; new lows were up as well, but only to 61. Volume fell back into its dull habits. Once again, stocks are being driven higher by speculation, not fundamentals, and, even though social mood may be improving, the overall dynamics of the global economy remain challenging. Greece comes to mind, as does California and New York states.

NYSE Volume 4,972,624,000
NASDAQ Volume 2,056,057,875

Commodities were mixed once more, with oil down for the third straight day, off 49 cents, to $84.92, though gold was higher by $8.90, to $1,161.10 and silver picked up 22 cents, to finish the week at $18.34. Gold is at a 3-month high, while silver has made its thrid foray above the $18 mark since November. It has not been able to continue rallies past the $18.25-18.55 range.

What this all means for stocks, money and your personal economy depends entirely on your allocation and how long you intend to remain invested. Cash appears to be less of a choice right now, which is as good a reason as any to build cash reserves. when nobody else is doing it, it's usually the perfect time.

In the coming weeks, we'll determine how prescient that idea is.

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