Both the late June and late July rallies were precipitated by actual or rumored government intervention. Volume and breadth have declined, but the AAII bullish sentiment number increased to 34.6% in the final July report, indicating that the public is feeling more positive — a negative indicator since the public is usually wrong.
The rally at the end of last month tells us that investors still expect the Fed to embark on another round of quantitative easing. But if the Fed fails to act, watch out below, because a Dow Theory non-confirmation is in place (the Dow industrials have appreciated but the transports have failed to follow).
The recent rally offers investors the opportunity to liquidate stocks that have been poor performers and hold cash since a downside correction is likely. Here is our list of stocks to sell in August: