One glaring characteristic of the recent rally is the lack of volume. The down days leading up to the recent rally were characterized by substantial volume and what appeared as though conviction selling. On the upside, however, we note the waning volume and lack of conviction. Despite this news, IBD is upgrading their outlook to bullish again as today’s bullish breakout confirms the breakout day from last Thursday. They note:
All the major indexes notched a follow-through day, a technical confirmation of a rally that began
lastweek. A follow-through involves a big gain in one or more indexes in higher volume from the previous session.
Monday’s follow-through ended a correction of abouttwoweeks. But keep in mind that some follow-
throughs fail. A confirmed uptrend is not a green light to buy anything that moves.
But does any of this matter? I remain in the camp that the market could remain firm through the official end of earnings season (the end of this week), but then will likely be thrown around at the mercy of the dollar (which I believe has limited downside as the Euro breaches $1.50).
Nothing matters more at this juncture in the market than Ben and his printing press. We’re likely in the middle of the greatest “don’t fight the Fed” market of all time. Of course, the bagholders from this Fed experiment are likely to be plentiful. Playing along with the Fed could prove to be equally disastrous. For now, it’s best to keep investment durations short and risk management tight. To say that I lack conviction is an understatement….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.