A Stock Rally: The Three Main Elements

Essentially, there are three main elements which will point to a strong, and legitimate, stock market rally: bank stocks leading the charge, industrials cranking away and the transportation sector moving-on-up. It has been said that no rally is a true rally without the banking sector leading the way; and, given that the U.S. economy is driven in large part by consumer consumption, it is a very good sign when the transportation sector is rising in conjunction with industrial production. At this point in time, we have all three key elements in perfect sync.

XLF Chart Pattern As Of 7/11/2013

INDU Chart Pattern As Of 7/11/2013

TRAN Chart Pattern As Of 7/11/2013


As can be seen in the above charts, all three indicators have been rising on increasing volume, and they “indicate” that this rally is the real deal. Also noteworthy is the fact that, both, the INDU and TRAN have broken through key resistance levels, and the XLF appears to be getting ready to do the same.

As I have stated before, I do not trust the stock market at this moment in time, but there’s no denying the fact that this rally has some room to run. Coupled with the fact that the Stock Trader’s Almanac (with its remarkably reliable track record) has predicted an up year for 2013, and it would certainly seem that the markets will end this year on a high note.

SPX Chart As Of 7/11/2013


Caveat emptor, of course.

Personally, what I find to be most perplexing is the fact that the world appears to be in a bit of an upheaval at this very moment in history. Egypt is on the verge of a civil war, oil prices are one the rise (thanks, in large part, to the problems in Egypt), Europe is still suffering from the flu that it caught when America was suffering from a cold, and China’s economic engine appears to be running out of gas. Lest we forget, too, that Japan is still a mess and that there are still millions of people out of work, or underemployed, in the good ‘ol US of A; but chalk all of that up to the “New Normal.”

I believe that most people are simply getting tired of having to deal with the Great Recession and have come to accept the paradigm shift that has occurred over the last eight years. Though some people have had to dramatically adjust their lifestyles, others appear to be trying to return to some state of normalcy. Unfortunately, however, the Great Recession has left a very large number of people with no means to ever work again. Companies have learned to do more with less and with fewer (people that is), and for those with weak or outdated skillsets (especially with regard to math and/or science), I’m afraid that they will never again see another paycheck.

In the town in which I live, garbage removal services have, like so many other things, moved to automation. Gone are the days when trucks, manned with three people, drove around town to manually remove people’s refuse. Now, one large air conditioned truck with a great stereo system and a driver (who I believe is still a human operator) drive around town and collect the refuse and recyclables with the aid of a hydraulically operated arm attached to the side of the truck. The one truck, with its one employee, now completes the same tasks as two trucks with six employees in half the time for less than half the costs; and the same is happening for private industries, such as our local supermarkets, BJ’s and Home Depot stores, thanks to fully automated self-service stations.

It truly is a different world in which we live. Is it “normal?” I’m not entirely certain, but it is the way things are for us right now. So, enjoy the ride and try to make the best of it.

Notes: Charting data provided courtesy of StockCharts.com.

Disclosure: I do not own any shares of INDU, TRAN or the XLF.

Disclaimer: The content on this site is provided for general educational and informational purposes only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author and do not necessarily represent the opinions of sponsors or firms affiliated with the author. Any action taken by you as a result of information, analysis, or advertisement provided on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

VN:F [1.9.22_1171]
Rating: 0.0/10 (0 votes cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
This entry was posted in Articles, Fundamentals and tagged , , , , . Bookmark the permalink. Trackbacks are closed, but you can post a comment.
  • StatCounter

    wordpress blog stats

Check Out What’s New at The Tenacious Trader by Going Here