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Oversold Bounce Or Real Bottom: Market Debate

Wednesday, 9 Jul 2008 | 9:21 AM ET

Oversold bounce or bottoming process? That's what everyone's debating right now. Or maybe it's a longer-term trade. This morning Lowry's noted noted that the rally in March lasted two months, while the rally from the bottom in January lasted only a matter of days.

True, we did see a nice bounce yesterday in drugs, financials, industrials, and retailers--all the beaten up groups. Believe it or not, traders are suspicious of a rally that is led by financials, because they have been so burned before by these head fake financial rallies.

That's why sentiment remains so bearish. Some three weeks ago,I said I haven't seen the Street so bearish since just after 9/11. This morning Investors Intelligence reported that their Bull/Bear survey of financial newsletter writers fell to 27.4 percent bullish, the lowest reading since July 1994. Bears rose to 47.3 percent, the highest since 1995.

Elsewhere:

1) Alcoatrading up on a solid earnings report. The good news was right up in the first paragraph: "Higher input costs impacting the entire aluminum industry were offset by higher volume and stronger pricing." As FBR Capital noted when they upgraded the stock this morning, since June 1 aluminum prices have increased 7 percent while Alcoa's stock has decreased 18 percent. Up 4 percent pre-open.

2) Morgan Stanley cut price targets for JC Penney,Coach, Nordstrom,Abercrombie,Staples and other retailers, as well as restaurants, while reiterating that Wal-Mart remains their favorite stock. They say it's still too early to move heavily into the more discretionary sectors of retail. My favorite line from the report: "Last year's clothes and TV may have to do."

3) When you come to the fork in the road, take it: A regional bank upgrade? Yes indeed. Wachoviaupgraded at Merrill Lynch, which titles their report, "WB is now at a fork in the road." The to through a long list of negatives, noting the possibility the company will not be sold, and that they still face considerable issues, but concludes that "credit headwinds appear priced in."


Questions? Comments? tradertalk@cnbc.com

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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