Does the stock market rally have legs?

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The past five weeks have witnessed stock market rallies of breathtaking proportions. At this juncture, the pressing question is whether the recovery would be sustainable, i.e. are we back in a cyclical bull market.  Let’s turn to Arthur Hill of StockCharts.com to cast light on this issue.

Hill said: “It is of our opinion, that it [the stock market rally] does have ‘legs’, and it does so given the Financials (XLF) are rallying … but more importantly – the Homebuilders (XHB) are leading the rally. And, we think the XHB shall continue leading and actually do better than anyone anticipates at this juncture.

“The ‘head & shoulders’ bottom on the weekly chart is very clear; although it is not yet confirmed. However, the 30-week moving average is on the verge of being given, with the 20-week stochastic turning higher through it’s trigger point. Again, in the past, this has resulted in a sustained rally – and if neckline resistance is violated as we believe it shall be – then targets in the range of $27.50 to $37.50 come into view. This is certainly not the consensus view, but as they say – ‘every dog has its day’.

“Therefore, any weakness broader market in the days ahead can be used to consider long positions.”

Source: Arthur Hill, Stockcharts.com, November 5, 2011.

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