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What This Rally Needs Now Is Fresh Converts to Buy Into It


Oh baby, what an awesome party that was. Like a two-week wedding in a remote Mediterranean village, the recent seven-session market feast just kept bringing out the food and wine. But now what? How can we ever top that? Like most events, improving on them means making them bigger, and in the case of this market, that's going to require fresh blood (e.g. money) to get in the game.

Given that investors have been pulling money out of stocks in favor of bonds all year, the new era of anything goes central banking may be just enough to win some converts.

"I think you're going to see those outflows largely slow down to a trickle and possibly reverse," says Peter Kenny, managing director at Knight Capital Group, in the attached video. "If that does happen, that will add fuel to the fire, give more buoyancy to the market, lift the tide and give the market a push into year end."

In the meantime though, with the Nasdaq beginning the new week and new era with a 22% year-to-date gain, and the S&P 500 not far behind, Kenny says we'll most likely see a pullback this week from what's been an almost uninterrupted rise. "We gotta see some give back," he says.

To that point, Kenny says the key indicator to watch is the money, or more specifically, the money flow. Any decrease in the retreat, so to speak, could mean we've turned the corner and not only gotten some burnt bears to surrender, but to join the chase.

"At the end of the day, money flow is what smart money looks at," Kenny says. "We're at one of those inflection points where you might see money starting to come back in."

If he's right and the bears do indeed start to raise the white flag and begin to buy into the infinite ease theory (despite its roots in weak economics), then stocks will be in for a fourth quarter that could mirror the rocket ride we took in the first quarter.

If not, then sell the news will be the order of the day.