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More Evidence This Rally Won't Last


Fast money is driving this run, and that's reason for investors to worry.

The Dow broke above 10,000 last week, news that may have buoyed the spirits of cable news producers but meant zilch for the rest of us.

In fact, this is the 26th time the Dow pierced the 10,000 milestone. The entire spectacle that played out last week amounts to a purely mainstream media event, says Philip Roth, chief technical market analyst at Miller Tabak.

"It first happened 10 years ago," Roth tells Minyanville. "We went far above it and far below it in the meantime. So what can we conclude about 10,000? That it's in the middle of a range that market has been in for a decade."

Roth adds, "It has a nice sound to it because it's five digits. But there really isn't any technical significance to it."

More interestingly, who has fueled this furious rally?

We know the S&P 500's 63% run since March hasn't been due to individual investors or corporate insiders. Instead, say some investment pros, strategists, and technicians, the market has made a hard move to the upper right hand side of the chart thanks to traders, hedge funds, and desperate portfolio managers. And that's just one more reason why long-term investors should stay cautious here.

It's clear the investing public has been a non-factor in this rally. Investors, having been burned twice in the past "lost" decade, are now more interested in capital preservation than capital appreciation.

Individual investors dedicated $260.9 billion into bond mutual funds during the first eight months of this year. The comparable net inflows into equity mutual funds over the same period totaled just $30.3 billion, according to Yardeni Research.

There has been a lot of talk on the tube, by the same folks who talked up Dow 10,000, that investors were just itching to put money back to work in the stock market. When will that happen, exactly?

It could be awhile, says Roth.

"The public got buried in 2000-02 and, historically, when you have that kind of decline, those people don't come back," the technician tells us. "It takes a new generation of investors with no previous memory to come back in again."

Roth concludes, "The public is much more cautious now about the use of money. They will come back into the stock market when they see, over time, sustained strength in the market. That could take years."

Okay, so retail investors aren't interested in stocks. How about corporate insiders?

The fact is, they've been selling stocks faster than Usain Bolt runs the 100-meter sprint. September was the sixth consecutive month in which corporate America sold more shares than it bought, according to TrimTabs. Insiders bought $13.4 billion worth of stock, while they sold $34.4 billion.

We don't pretend that the men and women running our country's companies have any great crystal ball. But, if you're buying stock here, aren't you at least curious about what they know that you don't?
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No positions in stocks mentioned.
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