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Friday, June 17, 2005

The Trouble With This Spring's Rally

Alan Farley has written pretty interesting column about the recent rally on the markets. I can't say that I fully agree with he's thoughts, but I don't regret that I read it though. It's some days old, but it really doesn't matter that much, because he has given more overall take on the markets.

The Trouble With This Spring's Rally

By Alan Farley Contributor
6/14/2005 8:10 AM EDT

Let's look at three things I don't like about the spring rally. This concise listing isn't a prediction, because I doubt we've seen the highs for the move yet. But these elements raise serious questions about the market's ability to break out once we reach the 2005 highs.

High-beta dogs that grossly underperformed over the last year have led this spring rally. Not surprisingly, these are also the most shorted stocks in the market universe. This raises the possibility that we're looking at the biggest squeeze of the year rather than a sustainable rally.

The last-hour indicator compares price action during the first and last hours of trading. This calculation exposes institutional participation because of the tendency of big players to be most active at the end of the day. The persistent downtrend of the last-hour indicator is quite disturbing to say the least. While the indices just tagged new highs for the move, the last-hour indicator is nearing its lowest levels of 2005. This rollover suggests the big boys aren't buying this rally despite all of the upgrades and happy talk.
Read further: The Trouble With This Spring's Rally


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