Does the stock market rally have legs?

By Prieur du Plessis, on November 7th, 2011 posted in: Investment, Stocks

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.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.