Rayman--
The most disturbing thing about the quality of the rally, in my view, is all of those gaps in the chart, dating back to the first few days of the move off the low-1100s area. I agree with your view that some smart money probably accumulated inventory on the way down; those players should be awfully happy right now. The problem with the gaps, though, is that they suggest this rally is all about distribution because serious, professional buyers wouldn't have allowed stocks that they really wanted to enter to jump over so many price points. The kind of ramp we've seen, and are still seeing, just doesn't make any sense if there are credible big-money players trying to enter this market, and I think the sustainability of a rally like this ultimately depends on credible big-money players buying their way into the game.
I'd feel better about the rally's sustainability if I thought there were some big-money, quality buyers accumulating on the way up. But despite the magnitude of the move off those October lows, there's little to suggest that we've seen any real accumulation on the way up. Those gaps in the chart tell us that we're seeing the desperation of shorts and mo-mos, not the measured accumulation of seasoned players. The folks running the market up right now will no doubt be just as desperate to chase the market down when the fever breaks.
I'm not saying this rally isn't happening or that it's about to collapse and thrust us into utter ruin. But I am saying that this ham-handed buying tells us we have not yet entered a sustainable bull market.
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