The Rally Proves its Mettle

Throughout the rally that started in March there was a lot of doubt about its viability. It seemed like a bear market rally, not for the least reason that it was led by very oversold stocks rather than those making 52 week highs.

Why are stocks making 52 week highs so important? Because they attest to growth, the key to a bull market. Stocks bouncing from badly oversold conditions cannot sustain a rally, they can only alleviate the oversold conditions preparing the way for even lower prices.

That’s why this new leg of the rally is so momentous. Throughout the rally the universe of all stocks (excluding closed end funds) making 52 week highs never got anywhere near 100. The single exception was the day last month of Russell rebalancing which caused a lot of volatility that, like Shakespeare’s actor strutting and fretting, ultimately came to naught.

But yesterday 120 stocks made 52 week highs. Keep your eye on this list. My money says it should expand and with it so should your appetite for stock market risk.