Veteran analyst says stock market rally not ‘real’ until this happens originally appeared on TheStreet.
Investors are feeling good about the stock market’s rally from April lows created after the bottom fell out when tariff plans were first announced.
Yet as investor emotions show a little more positivity, they are also more vulnerable to the idea that the rebound is nothing more than a bear-market rally, a brief bounce that could go away when the headlines change.
The Standard & Poor’s 500 Index – which entered the year just under 5,900 — set a record close at 6,144.15 on February 19 as it reacted to the release of minutes from the Federal Reserve Board’s late-January meeting.
Related: Veteran strategist unveils updated gold price forecast
The index—the most common proxy for “the stock market”—had fallen from that level by the time President Trump announced his tariff plans on April 2. This sent the index reeling toward bear-market territory, nearly down 20% from its peak.
As tariff plans changed and morphed and were delayed, the market rebounded, recapturing its loss on the year by the middle of May.
Since then, however, the stock market has failed to break through to new record levels, and a long-time technical analyst, Willie Delwiche, says stocks will stay stuck in a volatile range—and potentially re-test lows—unless we see a crucial signal that the rally will be lasting.
Willie Delwiche runs Hi Mount Research. He is a business professor at Wisconsin Lutheran College and spent more than two decades as an investment strategist at Baird. He has seen rapid rebounds before, and he says they are meaningless without follow-through.
In a market with limited bandwidth, investors are caught in the middle of their range of emotions.
Related: Jobs report shifts Fed interest rate forecasts
The latest AAII Sentiment Survey, released June 4, showed that neutral sentiment – an expectation that stock prices will remain largely unchanged over the next six months – was up this week, to nearly 26%. While bearish sentiment leads the way with more than 40% of investors, the negative and flat sentiment shows investors don’t trust the rally wholeheartedly.
“We have seen instances in the past where we’ve had big drawdowns, then huge rallies that failed just shy of new highs, that then cascade lower months later,” Delwiche said in an interview on “Money Life with Chuck Jaffe.” “So, breaking out to new highs would be the best sign of strength in the market.
“New highs are the most bullish thing that stocks can do,” he added. “And if we see that, it confirms that we are still in a bull market, not just some sort of very protracted, very exaggerated bear-market bounce.”
