I wrote over the weekend that the fat part of the short-selling game was likely over with, at least for the near-term. Thus, there was no point in pressing the short side coming into the new trading week. Given that the indexes and many busted formerly leading stocks became wildly oversold by the time last Friday’s closing bell sounded, we have been treated to a normal, natural oversold reaction rally so far this week. I suppose, however, that this depends on what one chooses to call normal and natural.
The Dow Jones Industrials Average led the way by first holding above its 200-dma on Monday’s small pullback, and then launching 547.87 points higher yesterday. The move was strong, but not atypical for a furious oversold bounce, and it certainly helped the perma-bulls breathe a little easier.
Today’s action was less consistent, with the Dow initially breaking over 300 points to the downside, and then making that all up to test the unchanged line before rolling over again into the close. Volume was lighter. So far, all we know for sure is that the index is now in the fourth day of a rally off the lows which came on an undercut & rally move through the prior August low and from a deeply oversold position.
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