3 key traits to look for in a lasting rally
Timothy J. Truebenbach is the
President of True Capital Management and general partner of True Capital
Partners LP, a hedge fund. He uses a disciplined model that trades on the
intermediate-term time frame. For a free trial to Tim’s Nightly Stock Analysis
Report
click here or call
888-484-8220 ext. 1.
We have to love the stock market! Bad markets can appear good
and great markets will always do their best to appear bad. We are still in a
down trending market in my humble opinion. Most major indexes took out their
6/14 lows and have yet to post a convincing follow through day to change the
trend.
The S&P 500 has been one of the few to show unusual strength and hold the prior
low. A bullish sign would be if the index could set a higher price than we saw
on July 3rd. Nevertheless, we would still need a follow through day to confirm a
new rally is underway. The reason for this is because it gives ample evidence
that institutional money is moving into the market rather than providing a
neutral or negative stance.
The next key trait to look for are quality growth stocks ready to emerge from
new base patterns. By this we are referring to companies that are posting strong
quarterly earnings growth over prior years’ quarters and they have formed base
patterns of at least 7 weeks. Currently, there are not very many stocks to pick
from. For example, I run a small-cap stock screen that can produce 15 to 20
stocks or more in a good market. Right now, it displays only 6 names.
If the rally we are seeing is anything real, it will become more evident in the
upcoming days and weeks, but right now we are probably seeing a bad market
appear good.