Just A Run-Up In A Bear Market? Or The Start Of Something Better?

The action today was a particularly good example of how some of the biggest point gains come when we are downtrending or in a bear market; if in fact we are in a bear market. After what looked like a good start on Wednesday, a sudden frenzy of worry over the BP mess caused a quick reversal and a poor finish.

Having shaken out the weak bulls on Wednesday, we gapped up strong this morning and, suddenly, everyone was scrambling to find some long exposure. When we held up during the last hour for a change, the bears were forced to cover, and we finished the day at the highs.

That is the anatomy of a "usual," classic, bear-market spike. However, without the uptick rule, etc. the "old rules" no longer apply. There is probably a good likelihood of some follow-through, as the optimists start to embrace the idea that we have put in a bottom, but the big test will come if we make it back near 1100 on the S&P 500. That's the major resistance and the point where the bears will look to reload shorts.

Many bulls have grown used to V-shaped bounces, since we had so many during the recent uptrend, but they're more the exception than the rule. Overhead resistance has made a comeback and it matters a lot more than it did last summer. That could change, but during this downtrend, we've already had two failed bounces right at key resistance. It will be a good test to see what happens when we next hit a major level.

We may have more room to the upside in the near term. I'm not carrying any shorts. It is mainly oversold bounces on broken charts, according to the believers, as was the case with many of the oil stocks today. You can make good money trading those patterns, but the strategy requires a high level of discipline.

Overall, I like how this market has finally had a major shakeout. It was overdue, and it has changed the character of the action, which always leads to a new set of opportunities. Just stay nimble and open-minded and you'll be able to navigate for some gains.......