Oversold Bounce Or Real Bottom: Market Debate

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."

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