Why Stock Market Rally Can't Be Trusted

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Earnings, short covering, and a lack of momentum for the Russell 2000 suggests caution might be warranted.

The stock market has been on a tear and investors are hoping for more gains. Rosenberg Research’s David Rosenberg offers three reasons not to trust the rally.

But can stocks keep rising? Rosenberg has his doubts. In a report released Wednesday morning, he calls the market’s rally “rather junky” and offers three reasons why: earnings, short covering, and breadth. And it’s not like the rally has been driven by the companies with strong fundamentals. Instead, the biggest gainers have been the most-shorted stocks, Rosenberg says, as well as those with weak balance sheets, what he dubs “non-profitable tech.” This is a sign that “this is a reflexive

 

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