With the S&P 500 having blasted up +10.9 percent in just 12 days, it is safe to say that the bulls have displayed a little “oomph” in their latest joyride to the upside. And to students of the game, it is the “oomph” behind the move that is really the key.
You see, the important question on everyone’s minds after a move such as we’ve seen over that last couple weeks is: Can it continue?
The beauty of staying in tune with the trend of the market is that price cannot deviate from itself as a directional indicator. In other words, if one is long and price is moving higher, it is a good thing – always. However, the fact that price is moving up does little to help one with the question of whether or not the move can continue.
Where’s the Beef?
For help in this regard, one can turn to momentum indicators. Put simply, if the bulls are rallying with gusto, it is generally a good indication that the move has not yet run out of steam. However, if an uptrend is merely limping along, then the move tends to be susceptible to any number of negative inputs.
The uptrends that took place this summer were good examples of rallies that looked good from a price perspective but didn’t have much in the way of “oomph” or momentum behind them. In fact, our Market Environment Models was actually neutral at the S&P’s August and September highs, asking in effect, “Where’s the beef?”
S&P 500 – Daily
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However, this time around things are a little different…
David Moenning is Mr. Moenning is President of Heritage Capital Research, a privately owned, investment research firm. Heritage focuses on active risk management and an “own the best and ignore the rest” equity selection strategy.
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Positions in stocks mentioned: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.