Surviving a Garbage Rally

Stocks continue their sharp ascent.

In what feels like the blink of an eye, the broad market is up nearly 17% in 2013…

Look back to earlier this year. The boring stocks led us higher. Your mega-cap, super-safe, dividend-paying names were the stocks to own. These stodgy companies sprinted higher for weeks. Safe became the new speculative.

Now, the rally is broadening.

First, it was short squeezes. Then, the rally focused on the more cyclical names. Energy stocks have found a second wind. Small-caps are moving. Technology names began pushing the market higher. Just yesterday, some of the smaller, more speculative solar stocks moved as much as 70%. I’m talking solar power – the sector everyone loves to hate (at least up until a few weeks ago).

“The most-indebted U.S. companies are rallying more than any time in almost four years compared with the rest of the stock market amid the broadest rally since at least 1995,” reports Bloomberg.

That’s right—even the sickest dogs on The Street are reaping the benefits of this rally.

Here’s another jaw-dropper: according to Finviz.com, 1170 stocks on the major exchanges registered new highs yesterday—compared to only 112 clocking in at new lows. It’s getting downright impossible to find stocks that aren’t moving higher on any given day of the week…

S&P 500 Chart
Are these junk stock gains sustainable for the long haul? No.

Does this mean the market has to correct right now? Nope.

Right now, it’s important not to get too caught up in the spectacular, one-day gains you’re seeing from many of these beaten-down names. If you want to ride the garbage stock wave, keep your stops tight. This party won’t last forever…

Regards,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning