Bulls have a major problem today: the action so far is unlikely to convince fence-sitters to jump back into the market in a big way.
This is not an academic question. Both bulls and bears agree that many funds have accumulated cash as a result of deleveraging and the reversal of the long commodities/short dollar/short financials trade.
Those sitting on that cash may be the crucial players determining whether we move up or down from here.
Unfortunately, the internal evidence is not compelling. At the open, there was hope: the highest level of Advancing Stocks since June, along with strong volume. But that quickly dissipated, as we saw waves of selling in financials, materials, energy, and tech stocks; at 3 pm ET, there are only 3 stocks advancing for every 2 declining. Volume will be higher than it has been in a month, but that is not saying much.
In other words, "sell into any rally" is still an effective mantra.
This is why technicians are not impressed. The oldest of technical services, Lowry, reviewed the evidence thus far, looking at weakening demand for stocks in the past month, along with higher supply, and concluded there was "no tangible evidence that a major market bottom is close at hand."
Bears note that since December of last year we have had:
--several rate cuts by the Fed, including a 75-basis point Inter-meeting cut on January 8th;
--the creation, on March 16th, of the creation of special liquidity-enhancing facilities for banks and investment banks;
--the bailout of Bear Stearns; and now
--the bailout of Fannie and Freddie.