Was Today’s Rally Just Acid Reflex?

February 7, 2008

After yesterday’s after hours earnings report from Cisco, the market seemed to be a lock to sell-off heavy today. However, when thing seem the most certain, is when we should be the most suspicious, and today was a perfect example of that. Just like when Google blew their earnings report, the market rallied, and the same can be said once again today with Cisco.

So the big question for investors will be whether the market put in a bottom, as it was almost at the lows established last month, or is this a simple bounce after three intense days of selling? While the volume was higher today in the markets, we have seen most of the rallies of the past month being fueled by short sellers seeking to cover their positions, which obviously adds buying pressures that causes stocks to quickly increase in value. After a sizeable sell-off in the early going, the market rallied quickly and stayed up for the majority of the day. While we should be careful about adding to any short position at this juncture, we should nonetheless, be unwilling to trust the legitimacy of today’s rally, and remain suspect of it, until it proves otherwise that the worst is behind us.

When will we be able, on a technical basis, begin putting some faith in the markets? We, at Shareplanner, will continue to watch to see (assuming today’s rally continues into tomorrow) whether the index is able to rally above last week’s highs. If it does, then we have a double bottom in place, and something to trade from. If it can’t then we will be right back to where we were.

Let’s review the charts…

The NASDAQ saw a lot of erratic behavior in the index today, which illustrated perfectly the struggle between bulls and bears for control of the markets. After opening up down off of Cisco’s earnings, the NASDAQ rallied, and then sold off again, but managed to close at the end of the day in the green.

CLICK HERE FOR THE NASDAQ CHART

The S&P also inspired investors today, but we will need to see much more positive action before becoming bullish in the index. The S&P is still trading in a downward channel, and until it can break out of it, we will continue to be pessimistic about the sustainability of any rally.

CLICK HERE FOR THE S&P CHART

We are currently working on adding a new feature to the website called the “Shareplanner Stock Screener”. We believe that this feature will give our readers more tools at their disposal and ideas for various types of stocks to trade and invest in regardless of the market conditions. Stay Tuned!