As we have said before, it is not the points gained or lost that matter, but rather the conviction behind the move. Monday’s internals did not disappoint, with the NASDAQ and NYSE both scoring up to down volume ratios and advancer to decliner ratios that were superbullish. This rally confirms the comments we made on March 10 and then again on March 18.
Excerpt from FusionIQ comments on March 10: “Market internals (i.e. the number of advancers to decliners and up volume to down volume) on today’s advance were the most bullish internal readings seen since the move off the 2002 lows … ” We also added: … “That said, we believe today’s rally is the start of a good move higher (again it may not be the ultimate low – only hindsight will tell us that); however, the surge of momentum suggests this rally will be worth participating in.”
On March 18 we stated: “So that said, we continue to view this current rally as having legs with maybe another 10–15% up from present levels. (So buying on dips with appropriate stop losses would make sense for the time being.) We also continue to view this as an opportunity to make money on the long side for a narrow window of time (1 to 3 months).”
We think the S&P 500 can still rally up to the 850 – 860 in the near term on the heels of the unwinding of the deeply oversold conditions, the large piles of sideline liquidity and additional money managers are allocating to stocks so as not fall too far behind their benchmarks. At the aforementioned S&P 500 level some more aggressive profit-taking is likely to ensue and it may be a good time to take some chips off the table (i.e. lock in some profits)
Source: Kevin Lane, Fusion IQ, March 24, 2009.