After a nasty-looking pullback in the midafternoon, the bulls were able to regroup and kept the damage done to a minimum. While it's a positive that we gave back only a small amount of yesterday's gains, the bulls are going to need to show that they have the resolve to continue to hold this market up. If we fail to make some further headway in the near term, the profit-taking will quickly pick up.
I'm not very optimistic that we will see much more upside in the near term but if we can pullback and find some support that holds for a few days then I'll be feeling more positive.
At this point we have to digest yesterday's big gain and give the flippers and weak hands a chance to exit. If they can do that and there is some underlying support to hold us up without a huge loss that will be what we need to build a good base of support for another assault on the upside.
However the big challenge for the bulls is going to be the news flow. We just had this massive government bailout announced and we pretty much know what all that is proposed. We are unlikely to see any more surprises on that front. We also have earnings reports coming and the big question there is how much bad news is already priced in.
No one is expecting anything upbeat but that might not be a major problem if it is already priced in. I'm not sure that it is and we wont' know until we see a few reports. The report today from Pepsi (PEP) was not a good sign but we'll see what happens on Intel (INTC).
There is no reason to be overly bullish at this point. We still have plenty of work to do before we can trust this market with our precious capital.