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Is a low-quality rally bad news for markets?

Reem Nasr

The market rally over the last month or so is the "perfect scenario," Jack Bouroudjian, Index Futures Group CEO, said on Wednesday.

"I love it; I think it's very, very healthy," he told CNBC's " Power Lunch ."

Until today's trading session, the Dow Jones industrial average (Dow Jones Global Indexes: .DJI) was up nearly 9 percent in the last 30 days. Yet some of the stocks leading the rally are the ones that have been down most of the year. Some of these names include Diamond Offshore (DO), United Rentals (URI), Mattel (MAT) and Transocean (RIG).

Some traders might call this a "low-quality rally."

Bouroudjian said this type of rally begins with short coverings, which is what the markets are witnessing now. Many professionals are short the stocks that have been beaten up all year long. This could be followed by "euphoria that caps off the rally and melt-up which might not happen until next year," he added.

Jim Iuorio, TJM Institutional Services managing director, pointed out that many of the stocks leading the rally are in the energy sector and have been hurt by low oil prices.

"If we are a hair aways from the highs here, after this huge rally over the last five weeks, if were going to chew through those highs, we need all cylinders firing. If the downtrodden join in, that might be what we need to take it to the top," he said in the same interview.

Bouroudjian said that another market change is taking place in which new tech — big data, software and infrastructure services — will become the new market leaders.

"This is really the platform by which the next generation of businesses will be built," he said. "We're getting misled a little bit by all these beat-up issues but pay attention to some of the leadership that is taking place."

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