You Must Be This Adroit to Ride This Rally

This is the strongest four-week rally in the S&P 500 since 1933. That's meaningful, but doesn't tell you anything about the durability or amplitude. For now, the bulls are in charge and the technicals support a further move up, but getting into this rally is only for those who can act when it's time to get out.

Contrary to what Wall Street always says, it's not the individual investor who moves the markets. In a major bull market, the investment buying from the large institutions is dominant. The trading operations recognize the direction of the pressure and trade in the direction of the market, which adds to the fuel. In a bear market, they see the urge by institutions to sell, so the big trading operations sell short.

In a secular bear market such as now when the major indices have already lost 40% to 50% of their value, there is not much buying or selling pressure from the institutions. In a rally, they are interested in picking points to sell more of what they own rather then to get even more exposure.

Most institutions -- such as pension plans, endowment plans at colleges, mutual funds and so forth -- are down from 30% to 50%. They need cash or liquidity to pay the beneficiaries. so they will not be buying. They didn't sell at the top and are now running out of cash. Therefore, when prices get high enough, they will sell.

The big trading operations don't care about long-term holds, but they try to figure out the long-term scenario for exactly the above reasons. In February and early March, they saw that the market was temporarily "sold out." When the major indices broke to new lows, the usual selling avalanche did not occur, meaning it was easier to push the market up than to push it down.

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At the time of publication, JPMorgan was held in some of Dohmen's services.

Bert Dohmen is a professional investor with 38 years of experience in the markets. The observations and important clues he obtains in trading his own portfolios in a wide variety of investment vehicles is of great benefit to all of his clients. He is a trader, not just a writer.

He founded Dohmen Capital Research Institute in 1977 as an economic and investment research firm. Over the past two decades, the firm�s services have achieved the highest acclaim. The firm currently offers 10 services, including a long-term advisory service for the mutual fund investor that helps investors avoid the need for a money manager or financial planner. There are also fax and email services for short-term traders in stocks, options and short sales.

Dohmen�s Wellington Letter has achieved numerous awards of distinction and is read by serious investors, investment professionals and corporate CEOs worldwide.