(Marco Bonelli) Is the rally running out of arguments?
...a slight derivative to "running out of steam", which might not be appropriate to use given potential asset allocation shifts, plenty of money to be invested, massive share buy-backs and also performance pressure.
Renewed concerns in Europe with mixed economic data and rising bond yield, particularly in Spain, discussions regarding China's economic growth deceleration that also take a "hard landing" into consideration and a string of mixed to disappointing economic data in the US might have once again created the base for the broadly expected short-term correction, something that sort of happened in a very short 1 ½ days earlier this month but could easily see a repetition.
The Dow Jones, SPX, Russell 2000 and Value Line Index could form a classic double-top and also approach again the up-trend lines from October (in case of the SPX from November). In order to prevent the market from sliding lower, the psychological key support levels 13000 in the Dow and 1400 in the SPX should hold, otherwise the major indexes fall back into the trading range from February (something the Russell 2000 already did) and it will be need an extra dose of strength to attempt a break-out to the upside, given the weak market breadth picture (adv. Decl. ratio / up-down volume ratio / 52-week high-low ratio).
Industrials (and cyclicals in general), the sector that underperformed the last six weeks was once again among the weakest performers yesterday and bears the risk dragging the market lower, similar to CAT, UTX and BA (formerly poster children in the rally between October last year and February, now again trading below their 50day MA and closing in to the lows from earlier this months, when the industrials already showed considerable weakness) dragging the Dow Jones lower.
"Running out of arguments" could indeed turn out to be a short-term phenomenon as the right argument could appear anytime, it only becomes really difficult if "running out of arguments" gets coupled with "running out of steam" and buying the dips is no longer an option.
Trade well.
(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own.)
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