March 18, 2008

Those who have been waiting patiently for the market to give them a strong rally, got their wish today, and eerily similar to last Tuesday, we rallied 3.5% – 4% across the major indices. Though the market was up from the very start, the day’s rally can be attributed to the Federal Reserve’s 75 Basis Point cut in its key interest rate. The initial reaction to the announcement saw a quick sell-off, but the market soon re-gathered its footing and from there, went to the moon. Like most of these hard rallies that the market has seen as of late, it has been unable to continue with any significant follow through the next day. Today’s rally alone brought us off of oversold conditions once again, and as a result, we could see some profit taking tomorrow.

The best thing the market can do at this point is rally through the 50-day moving averages of the S&P and NASDAQ. However, you can be assured that the bears will be poised to reload at those levels, to stop the bulls from advancing further. Don’t be too quick to commit your portfolio to the long side quite yet. If we are truly turning the corner in this market, then there will be plenty of time to take advantage of this rally.

Let’s review the charts…

NASDAQ was the day’s most impressive performer. However, whether the market can hold these incredible gains from today remains to be seen. Profit taking will definitely be an issue at some point tomorrow, and if the bulls can overcome this, then the index should be sitting in a good position to extend this rally even further.


S&P broke out of the downward trend-line, but still remains below the 50-day moving average. Whether the index can break through this critical price level remains to be seen. Be careful in how fast you try to commit your capital to the long side.