What to Make of Sharp Rallies in a Bear Market

Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"... a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.

The market had a strong day as beleaguered FINANCIALS, AIRLINE, RETAIL, TRUCKERS all romped. COMMODITY types were weak but off their lows. A few airlines were up 30-40% but that is all about stocks that went from 50 to 4... rallying up 2. REGIONAL BANKS were up 17% with big BANKS up 12% but again, they have been destroyed recently. BAC was up over 20% but that was after a 50% drop. Is this the low for these destroyed areas or a low? I will answer it the same way as when we have had any strong up day in the bear market... I dont know... but time will tell. We can only go by evidence of past bear markets and it is important to note that the one characteristic that always stands out in a bear market is that the rallies are sharp and quick. If you can get in perfectly, there is good money to make... but it had better be perfect because once the rally ends, look out below! Was today short covering? No doubt partially... and I gather that the SEC's supposed "new" enforcement of short selling laws also may have had a play in it. I'll also note that the SEC is only now announcing enforcement of laws that were already on the books.

Wednesday was day 2 for the NASDAQ as it was up yesterday but day 1 for everything else. Until the market has a follow through day, the best thing to do is to look for opportune shorts as things rally/bounce up into resistance. If the market has a follow through day, all bets are off on the short side.

If we have a follow through day which puts the market back into a confirmed rally, it is imperative to have a list of names that could possibly be played. Remember, the fact a that market has a follow through day only gives the market a chance for success, because while every bull market has had a follow through day, not every follow through day has turned into a bull market. That's why you do not go full in. The best move is to probe and test; if you're successful and things start to work, you add more. But that is jumping the gun. As of now, it is just one strong day... and I remind you, this is one of the main characteristics of bear markets - the biggest days the market ever had occurred during bear markets... so stay aware.

For your watch list:

Since OIL PRICES have come down, the TRUCKERS are already breaking out. I make note that they held tight even while OIL was moving up near $150. Names like ODFL, JBHT, WERN, ABFS. Other set ups are LSTR,CNW,KSU.

RETAIL has been trashed. But a few RETAILERS have not budged during the brutal bear. So...if the market gets legs, these names may lead. ROST, BKE, COST, TJX, FDO and BJ stand out... with BKE definitely interesting me.

If OIL continues down, one may want to look at Southwest Air (LUV | Quote | Chart | News | PowerRating) which has held up like a rock as LUV continues to make money in the worst of times.

HEALTHCARE continues to show strength. I have alerted you to these names before. Names like CELG,GILD,DNA,GENZ,VRTX,IMCL,MYGN,AMED,ALXN,BAX,ABT is a good starting list.

Unfortunately, after that, there is not much. There has been serious techincal damage done...so no matter what, this may take some time. I will continue to alert you especially if the market shows follow through.

In the recent past, I alerted to you how I thought that for the first time in months, COMMODITY stocks were topping. That is now coming to fruition as OILS, COAL, STEEL and others are now putting in awful topping patterns. Ultimately, this may be good for the market...especially the OILS. As I have said, nothing bad happens if OIL PRICES come down.

The news is going to be fluid. And as I have said for months, to anyone who tells you the end of the nausea out of these financial companies is near... I have some condos in Miami to sell to you.

Disclaimer: The opinions expressed herein are those of the writer and may not reflect those of Wunderlich Securities, Inc. or any of its affiliates. The information herein has been obtained from sources believed to be reliable, but we can not assure its accuracy or completeness. Neither the information or any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.