Will the Bull Stick Around?

The market reversal from bear to bull has occurred, but will the current rally be sustainable? This is a question that I have wondered about for quite some time, since the current rally first began in early March. With major market indices up over 30% from the March low, it looks like the rally is real and could extend higher in the near term. Yet, at the same time, there continues to be market risk that could drive stocks back down. You should be aware of this. The U.S. housing and jobs area continues to be weak and, while there have been some positive signs in housing, we still need to see a positive trend develop.

On Monday, there was more evidence of improvement in the U.S. economy that is helping to drive some optimism that the worst may be over and stocks may be set to continue the rally. U.S. home sales were stronger in March due to the combination of reduced interest rates and cheap housing prices. Construction spending also increased and this may reflect the impact of the government's massive stimulus program. We have said the key will be the impact of President Obama's economic stimulus plan, as it filters through the economy, and now it looks like it is showing some positive signs.

On the charts, small-caps are faring well, with the Russell 2000 trading over 500 and up 1.31% this year. The S&P 500 also broke a key technical point at 900, while the DOW broke 8,400. With the break, the S&P 500 is positive on the year. Only the DOW remains negative, but, given the current optimism, there could be a move into positive territory later this week. Technology continues to provide leadership, with the NASDAQ up nearly 12% in 2009. I feel that technology will continue to be the driver of stocks due to the innovation in the sector. Companies will continue to look for the next great technology and investors will buy it. Even large-cap technology stocks are looking good. They have strong technology and sound balance sheets.

The markets are trending higher. At this point, about 48% of all U.S. stocks are above the 200-day moving average, up from 33% a week earlier and from 22% a month ago. The same goes for the shorter-term moving averages. For the market sentiment to improve, we need to see the moving average continuing to trend higher

Investor sentiment continues to show signs of improvement. The NYSE has been bullish for the past 17 straight sessions, while the NASDAQ has been in 12 of the past 17 sessions. These numbers are encouraging.

The Commodity Research Bureau (CRB) Index is trending higher on expectations that global demand for commodities will recover.

While there continues to be market risk, the investment climate is better now, yet I still get a sense we could see another sell-off at some point. I could be wrong, but, should this happen, it could set up a nice buying opportunity.

Profit Confidential

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