I wouldn’t get complacent about this rally but it passed some milestones yesterday and today (March 9) that argue it has some more room to run.
Here are the positive signs:
- In the final hour today volume picked up. That’s a huge positive because if a rally is to continue more investors have to participate as prices go higher. Falling volumes, which the market saw on Monday, indicate that investors are stepping aside as prices rise. Higher volume at this point in a rally—this move upwards dates from a low on February 8 at 1057 and as of the close today now totals 7.9%–usually means that some big institutions have decided that stock prices show enough upside momentum for a buy.
- The NASDAQ Composite Index has broken above its January 19 high of 2320 to close at 2341 today. Technology stocks are usually a key sector leading any rally so a new high from the technology-heavy NASDAQ is a big plus here.
- The Dow Jones Transportation Index closed above its January 11 high of 4263 at 4269 today. Much of the recent strength in the index has come from railroad stocks, which tend to move up when investors believe that economic activity is picking up. The Dow Jones Industrial Index often follows the Transportation index upwards.
Don’t get carried away. This is a time to let what you already own run higher rather than placing big new money bets. We’re in March—which means we’re looking at the end of the strongest six months of the year for the stock market in May and the beginning of the weakest six months.
This rally might also be a good time to sell anything that you’ve been holding onto hoping for a recovery.
I don’t think we’re looking at a crash or anything of that magnitude in the months ahead but do remember that this rally isn’t built so much on good news as it is on relief that our worst fears—a default by Greece, a meltdown of the euro, a contraction in economic growth in China—have turned out to be over blown.
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