Stock Rebound Continues, But Will It Really Last?

Stocks continued to rebound Tuesday, and traders are debating whether it’s just a quick relief rally or the start of a new move higher.

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for
A trader at the New York Stock Exchange.

While Facebook stock fell further, the market again moved higher, helped by better-than-expected existing home sales and ahead of Wednesday's informal EU summit.

“In order to break that gravitational pull, we’re going to need to have some hard evidence that suggests what worries investors either has been triaged or cured,” said Mark Luschini, chief investment strategist at Janney Montgomery. "I am going to be looking for any kind of signs the rally is sustainable."

Luschini said it appears this could be a short-term turn in stock prices, but there are other factors that should start worrying stocks, like the so-called “fiscal cliff,” combination of budget cuts and tax hikes for next year.

Europe also still hangs over the market, and any negative headline could easily derail the market’s rally. But even stocks there recovered on Tuesday, helped by the positive US housing news.

One of the next event markets are watching is the European leaders summit Wednesday. Germany has already dismissed a French-led call for euro zone nations to issue common bonds, even though investors are looking to for new measures to counter the bloc's debt crisis.

“I think if you focus on the U.S., we’re a lot more insulated and should be decoupling from Europe,” said Harris Private Bank CIO Jack Ablin. “If you spend your time focusing on the U.S., the news is good. It’s not table pounding good, but it’s good and stable.”

Randy Frederick, Charles Schwab director of trading and derivatives, said he doesn’t believe the market selloff is over.

“My research tells me we’re not there yet. I believe we ‘re going to be in more of a ‘sell in May and go away’” trend, he said.

“We’re going down to at least the 200-day moving average on the S&P (1278),” he added. “I’ve been bullish on the year as a whole and I continue to think the summer is going to flatten out, then we come back in the fall. I think we easily could have another month of this.”

Paul LaRosa, technical analyst at Maxim Group, disagrees. “This should be an area where longer term money comes into the market,” he said. LaRosa said an important level was the 1290 on the S&P, reached on Friday. “I think the Friday could have been the bottom.”

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