Euro zone leaders came up with another proposal aimed at enforcing a type of
budget discipline, and the markets liked what they heard Monday. Europe's
Stoxx 600 rose 3.8%, and in the U.S., the Dow Jones Industrial Average rose
2.59%, the S&P 500 was up 2.92%, and the Nasdaq gained 3.52%. It was the biggest
gain in a month and took back a major part of last week's 4.8% loss on the
Dow. But volume was low, with just 958 million shares trading on the NYSE and
747 million on the Nasdaq. Advancers exceeded decliners on both exchanges by
5-to-1. Even though the stochastic of the S&P 500 is flashing a buy signal,
don't be drawn in by this product of volatility. Yesterday's performance, as
impressive as it might seem, technically is nothing more than a "dead-cat
bounce" until proven otherwise. And it would take a convincing high-volume
advance, closing above the resistance line at 1,220, to change the trend to
neutral. All trends are down with the next support at 1,120 to 1,140. The
Nasdaq's breakdown is even more dramatic than that of the S&P 500. Note the
gap that opened as the index plummeted through its 50-day moving average and the
support line at 2,600. Yesterday's low-volume response was much like the
500's merely a "dead-cat bounce." And the buy signal from the stochastic,
like the 500's, is merely a reaction following such a deep penetration through
a major support area. Despite that, the index could try to close the gap opened
last week at 2,567 to 2,540, but anywhere within that space could provide an
excellent shorting opportunity. Conclusion: Yesterday's rally was to be
expected, but unless it picks up, buyers should consider it nothing more than a
reactive rally within a sharp decline. Sell into this rally and take defensive
action since the path of least resistance is down. Or traders can
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