Is this really the end to the bear market and the start of a bull market, or is this just a bear market rally? That is the question of the day that everyone wants to know. Can we buy stocks again?
So how do we know if this is just a bear-market rally? Watch the pundits on the financial television shows. If all the pundits say: buy now, we’ve seen the bottom, the market can only go up from here, then probably we haven’t see the lows yet and this is nothing more than a couple of weeks of bear market rally.
Let’s talk about a technical indicator that might give us a clue…volume. Up until 2 weeks ago, trading volume on the NYSE and Nasdaq was dramatically reduced. Except for daytraders who were shorting stocks, institutional traders and hedge funds seemed reluctant to buy. While the tunnel is still quite dark, there maybe some light visible in the distance.
Share volume on the NYSE exceeded the 50day moving average on 6 of 7 trading days since the March 6. March 6 was a double bottom. During these last 2 weeks, the Market has been up 6 out of 10 days. In fact, we actually saw 2 and 3 days back to back being days when the DOW was up. We haven’t seen that since last October.
Last Wednesday the Feds announced that they were buying over $300 billion in Treasurys and share volume exceeded 2 billion, a 30% increase over the 50 day moving average. And this last week we saw significant negative news that was overlooked by the Market and the average volume still increased. Empire Manufacturing came significantly worse than expected. CPI jumped to .4% when it was expected to be .2%. Leading indicators dove to -.4% when January was up .1%. The TIC report was scary, showing a -$43 billion, with virtually no one buying equities, corporate bonds, or Treasuries. With all this extremely negative news, we still saw share volume increase and remain that way 8 of the last 10 days of trading. So there is a ray of hope that the stock market will improve.
If this trend continues, we might have a positive March, something we have not seen in months. The question of coarse is IF…
Next week we will see more economic news. Existing home sale and new home sales report. Last week, building permits and housing starts picked up. Unfortunately, only for commercial real estate. If homes sales pick up, that will be the first sign that we are approaching the bottom of the real estate plunge. With more and more homes being refinanced to stay out of foreclosure, sales of existing inventory may also pick up. Right now most of the Real Estate ETF’s show their price penetrating right through their moving averages, so that’s not a good sign. The rest of the week will be uneventful, with GDP and Michigan Sentiment both being revised reports. So with limited opportunity for bad economic news, the Market just might go higher.
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