New Column up at Real Money (04/22/05)


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:

S&P500 (One Year)
click for larger chart

Dow Industrials (One Year)
click for larger chart


Nasdaq (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?, 4/22/2005 9:17 AM EDT

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What's been said:

Discussions found on the web:
  1. milton heath commented on Apr 22

    Last Fall there was lots of talk about the rally being driven by hedge funds needing to push the market higher in order to make their bonus, plus lots of pessimism, and Bush winning helped greatly to get stocks higher. I remember seeing Cramer pound the table on the K&C show that this was a time to go all in; and that this was about trading stocks and not about macroeconomic fundamentals.

    If the rally was not based on economic or employment growth and looking at the charts, it looks like the market is about to continue its 2004 downward trend that was interrupted by the Fall to Winter rally.

  2. anne commented on Apr 22

    Let me see, does a day make a market? Yesterday, all was well with the world. Today, not so much :)

  3. anne commented on Apr 22


    Posting comments on the blog is simply too slow to persist. I have no idea why, and I use the fastest of systems.

  4. anne commented on Apr 22


    I have noticed the slowness in posting comment for a long while. Our tech people tell me we are not the problem. Oh well :)

  5. Barry Ritholtz commented on Apr 22

    Its typepad — they are very good —

    The traffic lately seems to be bogging them down

  6. CalculatedRisk commented on Apr 22

    Thursday looked like a classic bear market rally; short, sharp with a “whiff of panic buying”.

    I agree with your earlier comment that you cannot trade short term on macro-economic issues. But the macro situation is darkening (see Fed Gov Kohn’s comments today). I don’t see sentiment changing in this environment.

    Kohn expressed concern about housing prices and essential called the housing market a bubble today. Very interesting.

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