Sam Collins

Beware: Dead Cats Don't Bounce Very High

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One of investors' fears was put to rest yesterday: The Federal Reserve decided to leave interest rates where they are, which is close to zero. The market responded by taking stocks from earlier losses to gains. 

The financial sector led the way, up 2.3%, with Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) all gaining. And even AIG (AIG) ended 2.1% higher despite testimony detailing the financial bailout of the firm.

Though the market rallied following the Fed's rate decision, there was one dissenting vote for the first time since the financial crisis began over two years ago. In addition, the accompanying statement to the decision said that the economy was "likely to remain moderate for some time" instead of "likely to remain weak for a time." This will no doubt be a source of debate and could add to the uncertainty regarding the timing of a future rate increase.

The Nasdaq (NASD) rose 0.8% due to enthusiasm over Apple's (AAPL) excellent earnings report and the publicity surrounding their new product, the iTablet.

But the focus now will not be on technology, but on the president's State of the Union address. The question that investors have is, will he calm the markets or add to the uncertainties that have erased the early January gains.

At the close, the Dow Jones Industrial Average (DJI) rose 42 points to 10,236, the S&P 500 (SPX) gained 5 points at 1,097, and the Nasdaq jumped 18 points to 2,221. 

The NYSE traded 1.3 billion shares with advancers and decliners breakeven. The Nasdaq had volume of 795 million shares with advancers ahead by 3-to-2.

What the Markets Are Saying

Yesterday's mild bounce came following a penetration to new lows for the month and then a plus-close, and from that standpoint qualifies as a mild reversal. Volume increased but is still less than volume on the recent down days when the NYSE was trading 1.5 billion shares. Another disappointing figure was breadth at breakeven on the Big Board and 3-to-2 positive on Nasdaq.

Wednesday's Nasdaq advance was halted at the 50-day moving average, which is exactly the high of each of the last three days. But the Dow and S&P 500 have a long way to travel to arrive back at their respective 50-day movings averages. The good news, however, is that all of the leading averages did reverse.

Yesterday, I noted that the internal indicators are grossly oversold and close to levels not seen since March of last year, the market's sold-off bottom. The other indicators that we watch are the "sentiment" indicators, and they tell us what the various classes of investors are thinking.