This Rally Looks Tired

There is a difference of opinion about what the month of June will bring for the U.S. stock market. Some notable opinions from RealMoney contributors include:

• Helene Meisler has detailed technical analysis and concludes that the trading volume patterns necessary to support an advancing market have been absent recently.
• Vince Farrell has some ambivalence about the prospects for June.
• Jim Cramer is still constructive on the market in the coming weeks, believing cash flows are supportive and investors should not panic in pullbacks.
• Doug Kass opines that the next 50-point move in the S&P 500 will be down (to about 895 based on the closing price June 2, the date of publication).
• Dick Arms sees a lot of overhead supply that is restricting any further advance. However, he believes it would be better to wait for an actual sign of weakness before going aggressively to the short side.

Personally, I am expecting a broad pullback of at least 10% in the major indices from current levels, probably occurring in the next four to six weeks. And that is my optimistic outlook; I believe there is a 50-50 chance that we will have a pullback of 15% to 18% or more (50% of the gains from March 9) before the summer is over.

But even that 50% retracement is not the most pessimistic scenario. My doom-and-gloom projection comes into play if the recession does not bottom before the end of the year. Investors are likely to bail out if they no longer anticipate an end to the recession this year. This gloomy view sees the lows of March 9 occurring again in the fall if the economy is weaker than many are now expecting.

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At the time of publication, Lounsbury had no positions in the stocks mentioned.

John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.

Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog, PiedmontHudson.