Has the Rally Run Its Course?

04/24/2008 12:00 am EST

Focus: MARKETS

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit, editor of VRTrader.com, says the major indexes need to break through resistance levels decisively for the recent bull run to continue.

I have been on a Buy signal since early April anticipating a rally phase. I am still not convinced that this is more than a bear market bounce, but we have to take it a day and a week at a time. I keep trying to remind myself that the reason I was bullish coming into 2008 (obviously prematurely bullish) was due to the fact this was an election year and the fact the throughout this century years that end in “8” experienced sharp rally tries and in most instances posted a positive return.

I am hearing a lot of talk about how the bottom is in place and we have nowhere to go but up from here. We might be in for a few flat or down days to calm this market down. For now we remain bullish, but we may ring the register and take some profits if I see warning signs.

Part of what is happening from a technical perspective is [that] the 200-day moving average is acting as a “magnet” to the major indexes, but also will act as important resistance should we get there.

I'm inclined to think we can trade toward those moving averages: 13,100 in the Dow Industrials, 1435 in the Standard & Poor’s 500. The NYSE composite is now [also] within striking distance of its 200-day moving average, which should be tested soon. We cannot discount the possibility that these levels could be exceeded. In fact, a surge in the Dow toward 13,500 may be a real short-term possibility.

According to Marketwatch.com, "The Dow Theory appears poised to go on a buy signal as of Friday's close." Dow Theory says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high [and] is accompanied or followed by a similar advance in the other. The Dow Transports and Industrials confirmed each other's move on Friday.

Cyclical work points to a time running out on this rally unless we see some real strength soon. We will need to see the February highs taken out decisively to aid the bullish case. Next week's Federal Open Market Committee meeting, along with month-end window dressing, could provide a boost to the bulls, but they had better get their act together soon or the bear could begin to growl again.

Except for some strong sectors such as commodities, fertilizers, metals, and—believe it or not—housing, most of the market has not been showing much life to the up side. For the most part, it has been a trader's market and I'm afraid it will continue to be so for a while. Once this rally runs its course, I will flip back to a “Sell” signal and take it from there.

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