With The Pullbacks Come The Tests

The tendency over the past week has been for the buyers to come to life in the closing hour, but today it was the sellers who controlled the late action. Banks were becoming downright giddy at midday following a stream of upbeat comments from the Obama administration. The folks on CNBC were even becoming excited over the fact that Ben Bernanke had made comments about seeing some "green shoots" of promise in the economy. Did they really expect him to say that he saw nothing at all positive?

I have to admit that I'm not at all disappointed to see a pullback at this stage of the game, because the bulls need to be tested. We had a straight up V-shaped bounce out of an extremely gloomy environment. There are many who really want to believe that this 10% bounce is different from the many other such bounces we've had over the past year and half during this bear market. Maybe it really is different, but we really don't have any good evidence yet. Just because a number of things are off their lows of five days ago, that alone isn't convincing.

Whether or not this bounce turns into something more than just another opportunity for flippers and shorts depends on what happens on the pullbacks. If a healthier market is developing, then banks will find support, new leading groups will emerge, and charts will set up. A four-day-long straight-up bounce, regardless of its magnitude, is just a short-term trading opportunity and not the resumption of a bull market.

I'm certainly hopeful that the process of pulling back and finding support will finally give us the chance for at least a decent bear market rally. If the bulls have some real conviction the pullback today is going to be a step in the right direction. If the bulls really believe weakness is an opportunity to put cash to work, they will prove it.