My latest Real Money column, "One-Day Wonder or Key Turning Point?" is up.
Here’s an excerpt:
"Thursday’s powerful rally had the bulls pounding their chests and the bears eating crow. But a full celebration, after the technical damage of the past three weeks, might be a wee bit premature. It’s foolhardy to ignore a day where the Dow rockets up 200 points, but it’s just as dangerous to close your eyes and plunge in blindly.
As mentioned last night, I prefer more measured market gains to spasmodic leaps upward. It simply is healthier to see rational moves higher — i.e., five 40-point days over the course of a few weeks — than one 200 pointer. These emotional buying frenzies have the whiff of panic to them, and that tends to have unfortunate consequences on both sides. Additionally, a market rally does not make all of the prior concerns simply disappear. Oil prices, inflation, slowing GDP, waning earnings momentum and current account deficits do not merely go away because the animal spirits were in full throat for one day.
All that said, however, it would be plain ol’ dumb to ignore the potential significance of a big up day after three weeks of selling. Prior to the move, many of the oversold and sentiment indicators had kicked over to full alert mode.
So the question that is now of primary concern is this: Was this merely a vicious bounce in a longer downtrend, or was this the start of something new and wonderful?
I promised last nite to show some charts relative to yesterday’s rally. Here they are:
Dow Industrials (One Year)
click for larger chart
You really need to see the larger charts — just click — to get the full annotation . . .
One-Day Wonder or Key Turning Point?
RealMoney.com, 4/22/2005 9:17 AM EDT