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This rally might be legit – but be cautious

The bears have been taking a beating lately, leaving many to wonder if this rally might have legs.

David Gaffen of The Wall Street Journal wrote this week in his blog about the stellar nature of a six-week rally like the one we’ve just witnessed.

Citing Schaeffer’s Investment Research analysts, Gaffen found that rallies like the current one have happened just 15 times since 1972, “and on average, the market is higher by 2.44 percent eight weeks later,” which means that this rally might be showing its horns a little longer.

Others, however, say a pullback is due, given the run-up we’ve seen, which left the Dow above 8,100 on Friday for the first time since February.

Earnings for the first quarter are coming out, and no one is expecting them to be rosy.

I would think it wouldn’t hurt to step in gradually at this point, though I would keep my stops tight and not accept the current rally on blind faith. But if you were wading in as this run-up got under way, I’m sure you’re patting yourself on the back and may even be taking some profits off the table at this point.

So, if you are wading in, what should be on your shopping list?

This past weekend, Investor’s Business Daily highlighted Quality Systems (QSII) as a stock that is poised for growth.

The company specializes in record-keeping software for medical practices, and the paper said the stock stands to benefit from billions of dollars aimed at improving efficiencies in the health care industry.

Quality Systems has a price-to-earnings ratio of 31. Its sales last quarter increased by 36 percent.

Another company in the same niche is Computer Programs and Systems (CPSI). The stock closed just a hair under 35 on Friday, about 30 cents below its 52-week high.

Computer Programs and Systems has a P/E of 24 and a dividend yield of 4.12 percent.

The stock market darling, Apple (AAPL), also seems back in play. Apparently the company can continue running and wowing consumers if CEO Steve Jobs takes time off for his health. The impending death rumors have continued to swirl around Jobs, who has battled pancreatic cancer.

Those rumors, along with the sad state of the market in general, contributed to Apple’s precipitous fall from the 200s last year to the 80s, where it had remained from December to about mid-March.

Can it really be possible that Apple’s back above 120?

That’s what happens when you don’t pay attention.

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