The Leader of Charts, Jeff deGraaf, says Fade the Rally

ATTENTION CHART CHOMPERS: Your leader, the #1 rated technical analyst, Jim deGraaf says shut the fuck up and fade this rally. No word on who arbitrarily declared Jim to be #1; but I’m going with it anyway.

“This entire 150-point rally has been one of the weaker rallies in my 25-year career,” deGraaf, the top-ranked technical analyst in Institutional Investor’s annual survey for the last 11 years, wrote in a note Wednesday. The market’s long-term trend has stayed bearish and with more stocks showing signs of rising too far too fast investors should “fade this breakout,” he said. “We appreciate price momentum, but it has to be contextualized.”

Tuesday’s rally exhibited lackluster volume again. While the number of rising stocks outpaced those falling by 4.7 to 1, the ratio of their trading was “astoundingly lighter”, at 3.6 to 1, according to deGraaf. Breadth weakened too, as the proportion of stocks hitting 20-day highs stood at 35 percent, “a far cry” from the 55 percent that suggests a lasting bull market, he wrote.

At the same time, there were signs that stocks may have run ahead of themselves, he said, as the percentage of stocks signaling “overbought” versus “oversold” hit 52.4 percent, a level that suggests the market is poised to fall.

DeGraaf also cited the lack of consistent strength among stocks and assets as reason for caution. While financial shares and the credit market led the initial rebound, their performance has since been short of what Renaissance Macro expected. Over the same period, energy shares have trailed the market and credit conditions remain “uncomfortable,” deGraaf wrote.

Naturally, I put as much credence in this analysis as reports that US astronauts flew to the moon, in what Jeff Macke likes to call a calculator wrapped in tin foil. Nevertheless, I know some of you are faithful clan members of the church of charts and would appreciate to hear what your leader had to say about this rally.