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Rally "Guilty Until Proven Innocent" But Not for Suckers, Barry Ritholtz Says

Posted May 14, 2009 08:19am EDT by Aaron Task in Investing
Related: ^DJI, ^GSPC, SPY, DIA, C, GM, SCHW

In 2007 and 2008, Barry Ritholtz, CEO of Fusion IQ, became one of the Street's most notable bears, at first chastised and then rightly lauded for being (mostly) right about the coming crisis.

Ritholtz also pulled the rare trick of turning bullish at the right time, predicting a "big rally" here on March 10.

The market's big rally off its March lows is "still guilty until proven innocent" - or a cyclical bull market vs. a secular one in technical terms - says Ritholtz, author of the forthcoming Bailout Nation.  (Note: The accompanying video with Ritholtz was taped prior to Wednesday's big drop.)

Still, the blogger and money manager doesn't think the "sucker's rally" terminology is accurate either, suggesting the rally deserves the benefit of the doubt because:

  • Individual investors are participating, based on activity at discount brokerages like Schwab and Scott Trade.
  • Institutional investors are covering shorts and cash is coming off the sidelines (both from retail and institutions).
  • Investor sentiment, which is a contrarian indicator, reached extreme levels of bearishness in early March, and is now only back to neutral levels.

Ritholtz believes the market is most likely to chop around in a wide range between Dow 7500 and 9500 for the foreseeable future, but says a lot of cash will come off the sidelines if the S&P can get beyond 950 in a meaningful way.

Full disclosure: I was paid for some contributions to Ritholtz's book.

 

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