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Rally time? Some think so, but be careful

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Rally time? Some think so, but be careful.

Gee, suddenly some formerly gloomy traders are talking sunshine.

It's easy to understand why. The S&P is up 5.2 percent since bottoming intraday on Thursday. Financials have climbed 7.5 percent. Oil has risen 12.1 percent. Other commodities have rallied.

But is this THE bottom for the year, or even a bottom for a few weeks? Making that kind of call seems premature. We are on the verge of our first three-day rally of the year. You'd think we could at least wait a few days before getting exuberant.

But some aren't waiting. Rich Ross, an ISI technical analyst, said Wednesday morning, "the lows for the year are not in, but they are for now. The S&P should test 1,950 at a minimum with upside to 2,000 - 2,037 from there."

The Piper Jaffray technical analysis team added, "From a price action perspective, most of the popular averages have successfully retested recent lows, and appear poised to extend the ongoing relief rally ... We reiterate our secular bull market view and our YE target on the SPX of 2,350."

Behind all this is the simple fear that the market now moves so fast that an entire year's gain could be achieved in a matter of a few days, and that waiting patiently no longer works — on the upside or the downside.

MKM Partners Derivatives Strategist Jim Strugger expressed this worry Wednesday.

"On the risk side, not until VIX has declined below 20 and the futures curve has returned much of the way to a trough contango will we be satisfied that this shock has subsided. By then equities could be sharply higher," Strugger said.

In plain English, he is saying, "If I wait for the market to calm down by watching short-term volatility, the market will be much higher and it will be too late for us to get in."

This sense of panic — on the upside and the downside — is now a common condition. It's an anxiety disorder peculiar to the trading community.

Regardless, the bullishness is confined to a few, for the moment. Much more typical is this comment from Miller Tabak's Matt Maley: "What we're saying is that the bounce thus far has been good, but we'll have to see more evidence before we can confirm that its 'quality' is compelling."

Lowry, the oldest technical analysis service in the country, went bearish back in August and has also cautioned its readers about the current rally.

"While buying has been strong over the past couple of sessions, the probabilities are this rebound will be measured in days rather than weeks," Lowry said.

If that doesn't convince you to be cautious, remember this old trader saw, oft-repeated by UBS' Art Cashin.

"Bear market rallies are short, sharp and die on low volume."

Volume was lower yesterday than Friday, and looks to be lower today than yesterday.

  • Bob Pisani

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

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