How Much Further Can This Rally Extend?

Last week’s market volatility was followed by a sharp reversal higher. While various speculative concerns remain (record valuations, frothy sentiment etc), the stock market’s uptrend remains intact for now.


The stock market remains firmly in an uptrend. Momentum clearly favors bulls with the Russell 2000 having rallied more than 7.7% this week:

Historically, such large gains for small caps consistently led to more gains over the next 9 months. The one exception was in June 2000 as the dot-com bubble ended:

Momentum + breadth

Breadth and momentum are often linked (strong momentum = decent breadth). A consistently high percentage of S&P 500 stocks remain above their 200 day moving average:

Historically, such long streaks of solid breadth led to more gains for the S&P 500. Of particular note is the March 2011 case when stocks rallied for a few more months before a massive correction began:

Small caps outperformance

As I noted on Tuesday, small caps outperformed large caps for 5 months in a row:

Historically, this often led to more small caps outperformance over the next 6 months:


As I noted on Thursday, VIX is falling quickly after a sharp spike.

When VIX fell more than -30% over a 3 day historical period, the S&P 500 was almost always higher 6-12 months later, although this could first lead to more short term volatility in the stock market:

Sentiment & Insider selling in 2 sectors

I highlighted various risk factors in recent weeks, such as an explosion in IPOs, options speculation, a surge in margin debt, elevated Gamma Exposure & SKEW, etc.

Several of these risk factors decreased with last week’s pullback. But one of the most egregious factors remains the lack of corporate insider buying. This week I want to highlight corporate insider transactions in 2 particular sectors: healthcare and financials.

The healthcare sector’s Insider Buy/Sell ratio has plunged to the lowest level in a decade:

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