Round Numbers and Square Bears

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MARKET WRAP UP 01/26/11

The round numbers of 12,000 on the Dow Jones Industrial Average and 1300 on the S&P 500 seemed to almost steal the show today from the State of the Union Address last night, not to mention The Fed Announcement today. One the surface, the S&P finished up 0.42% to 1296, but some of the underlying bounces in the small cap and transportation stocks, as well as the beaten down metals/materials names, were quite impressive. Moreover, it is becoming almost laughable at how inept and uncool the bears have truly been in terms of their lack of ability to sustain even minor technical damage to the senior indices.

Looking ahead, the real issue is whether the bounces we saw today in some of the underlying areas of the market–where the bears have, in fact, won a few battles over the past week or so–will continue higher for another rally that will force bears and underinvested bulls to throw in the towel and chase stocks up to fresh highs. Alternatively, these bounces could ultimately be short-lived relief rallies, setting up a bit deeper of a correction. As usual. my analysis takes me one step beyong the indices and sectors, and focuses on the quality–or lack thereof–of individual setups. In this case, although some key areas of support held today, the heavy selling volume that we saw over the past week or two in many names still has me cautious. However, the difference between a cautious stance versus a downright bearish one cannot be stressed enough. Indeed, falling victim to a heinous short squeeze is much different than electing to not risk dollars for pennies, even if the pennies may be briefly for the taking.

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