How to Spot a Relief Rally

The broad market sprinted out of the gate. But as the day wore on, stocks started to sputter. Tuesday, July 2nd, 2013     How to Spot a Relief Rally   Stocks sneak higher Why you shouldn't trust this week's market action Plus: Can gold hold $1,200?   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner The second half of the year began quietly yesterday. The broad market sprinted out of the gate. But as the day wore on, stocks started to sputter. While the major indexes still managed to finish solidly in the green, Monday was hardly a victory for the bulls. For the third trading day in a row, the Dow Jones Industrial Average failed to reclaim its 50-day moving average. The S&P also failed at its 50-day. It's clear that stocks aren't ready to reclaim higher ground just yet. A rising market can easily hypnotize investors. They forget the sharp June pullback. They don't remember that the broad market is more than 75 points from its all-time highs set back in May. Stocks are recovering, they reason, so everything must be fine… However, the market is telling a much different story. Trading volume has been sparse over the past week as stocks have moved higher. This signals a lack of conviction on the part of the buyers. Sure, price is melting higher. But there's no force behind the move. Yesteday's quick turnaround right at resistance is telling. Bottom line: stay skeptical. Don't put all of your trust in this relief rally. In fact, I wouldn't assign a lot of meaning to any of the small moves stocks attempt this week. After last week's low-volume move higher, we're entering an abbreviated trading week for the U.S. markets. The market closes early tomorrow—and doesn't reopen until Friday morning. As a result, I don't expect we'll see a lot of action. Expect another low-volume week. This creates an environment ripe for fake moves and quick, painful turnarounds. If you're sitting on open gains, this morning would be a great time to take profits. Another failed attempt at higher prices here could quickly send stocks lower. Don't get left holding the bag…     Rude Numbers Targets, Predictions and Wild Guesses   $132 buys one share of Onyx Pharmaceuticals. After trading at $86 as recently as Friday, the drug maker rejected Amgen's takeover bid and put itself up for sale. Shares then surged by more than 50% at Monday's open. $968 million is how much Citigroup just paid Fannie Mae to resolve claims on 3.7 million troubled mortgage loans. At less than $300 for each individual loan, that's not a bad deal for Citi… $1,250 is where you'll find Gold futures this morning, rising nearly $80 from the lows Friday. $322 billion was the annual rate that private residential construction reached in May – the highest in over 4 years. The housing market chugs on… 1,605 is where you'll find S&P futures early this morning. Stocks are looking to open slightly higher as we approach the midpoint of this shortened trading week.     Rude Trends When to Buy... When to Sell   Last week, you asked if I thought gold would see a bounce from the $1,230 range. But before I could type out an answer, the yellow metal was plummeting well below $1,200. For the first time since the April selloff, gold was making headlines outside the financial world. Since I was traveling yesterday, I had the opportunity to thumb through a hard copy of the newspaper. Teased at the top of the business section was gold's recent tumble. Hmmm… Of course, futures quickly rallied off their lows. Monday morning. Once again, gold was back above $1,200. This goes to show that you don't need fancy indicators to find extreme levels of bullish or bearish sentiment. They're usually printed on the front page of the paper… Still, I recommend waiting a few days before you decide to send me a snarky e-mail bragging about this gold rally. It's not going to stick. Congratulations if you successfully played the bounce. Now's the time to take the money and run. Don't expect an extended rally from here. [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner]     Ignore At Your Own Peril Today's Must Read Links   Tax-Free Income, Now Made Easy Government Blunder Creates Six-Figure Reward The Think Small Secret To Getting Rich     BE SURE TO ADD dr@dailyreckoning.com to your address book.       Additional Articles & Commentary:         To end The Daily Reckoning's Rude Awakening e-mail subscription and associated external offers sent from The Daily Reckoning and The Rude Awakening, click here to unsubscribe. Please Note: If you unsubscribe from The Rude Awakening, you will also be unsubscribed from The Daily Reckoning. The Daily Reckoning's Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. 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