Market Rally Nears its End

Four straight days of positive gains across the board for all three major indices as the market finished the week well to the upside. The question on all investors minds though is simply, “how long will this rally last?

What first needs to be decided is whether or not this latest rally is a standard bear market rally or the newly formed “March Lows” are in fact the ultimate lows. Based on our post last week comparing bear markets today and the 1929 crash it is fairly safe to say this will not be the ultimate bottom.

Now to answer our original question, “how long will the rally last?” While I have been over 98% cash since August 2008 and will remain that way regardless our guess is that the current four day rally will stall dead in its tracks or end completely sometime next week.

For stock chart analysis we have the S&P 500, the Dow Jones, and the CBOE Put/Call Ratio as our contrarian indicator.

spx1

After watching this bear market closely the last year and a half I have decided that the most important index to keep an eye on is the S&P 500. This means watching for key technical breakdowns or breakthroughs, support, resistance, etc. The reason being the Dow is not respected enough because of its narrow focus of stocks and the NASDAQ is tech which has trailed the rest of the market the whole way down. The Financials which are the focus of the S&P 500 have and will continue to be in focus resulting in the majority of investors closely monitoring this index versus its peers.

djia1

Back in February we proved accurately that the CBOE put/call ratio is a contrarian sentiment indicator and thus we have it to show again. Any reading under .75 suggests there is too much bullish sentiment suggesting a sell off is looming whereas a high reading above 1.15 almost always results in a rally due to excessive bearish sentiment.

Thus Friday’s close of .71 to us is a tell tale sign that a sell off of some magnitude is guaranteed for next week.

put-call-ratio

For further analysis of the market indices and the latest rally feel free to watch this video from our partners at INO.com.

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