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Jonathan Yates
Should the Corks be Popped after Today’s Broad Based Rally on Solid Economic News?

There was another strong stock market rally today, based on another round of bullish economic markets.  Last week, it was a US jobs reports that beat the expectations of the analyst community.  Today it was retail sales that were stronger than anticipated.  In addition, Kansas City Reserve Bank President Esther George stated last week in a prepared speech that the economy was improving.  After three days of losses, the bull can back strong today.

Despite that reversal into today’s rally, the Standard & Poor’s 500 Index is still trading beneath its 20-day moving average, as the chart below shows.




What should concern investors even more is that there is a 29.10% short float on the SPY.  A 5% short float is considered to be troubling for a security.  Even though the market was up 1.6% today, volume was still weak.

It would seem likely that a large portion of this short position is based on the Federal Reserve ending Quantitative Easing III soon.  There is no doubt that this rally has been liquidity induced, as detailed in a previous article on this site.  Earnings season was not that bad, yes, but only because costs are down due to lower interest rates and reductions held over from The Great Recession.  There has not been in an increase in revenues to justify a bullish stance for the market.

Today was a powerful show of force for the bulls, nevertheless.  Stocks advancing outnumbered those declining by better than 5-to-1.  While all three indices ended on a down note, there is still a prevailing bullish sentiment.  When the closing bell rang, bullish sentiment was at 53% with more than two-thirds of the stocks above their 200-day moving averages.

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