The Market Needs a Healthy Pullback

The global concern over the swine flu and weak economic news haven't been able to damper the current rally on Wall Street. It is quite clear that the market simply doesn't want to go down just yet.

Next week we will get the results of the government's stress tests of the nation's 19 largest banks. All of them are likely to pass the test, and that will give them time to strengthen their balance sheets by raising additional capital. In my column on Tuesday, I talked about the underlying problems that continue to remain in this sector. Those problems will eventually rise to the surface and again cause havoc in the market.

We have yet to experience any type of normal pullback or correction since the major indices have risen off of the March lows. This could happen around the time the Fed reveals the stress-test results, but so far the strength continues. The problem is that the further the market goes without a rest, the greater the likelihood that when a correction develops, it could be significant.

Readers know that one of the concerns I have about the recent strength in the market is that no real leadership groups are moving to the front of the pack. Most of the recent strength has come from the oversold financial sector and from heavily shorted stocks coming off of their lows.

Because of this, my models are only partially invested in the market, with allocations tilted toward technology, oil and agricultural. These allocations, along with some other strategies that I use, have resulted in the models underperforming the indices. However, readers know that I am in no rush to take unnecessary risks.

I am striving to look at the market with a clear head and evaluate the current circumstances. That way I can look for the classic signs for the potential of a new primary uptrend or, as Wall Street calls it, "a new bull market."

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Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.